1. Telecommunications market liberalisation Feliksas Dobrovolskis Deputy Director, Telecommunications Department RRT, Lithuanian Communications Regulatory Authority Round table Telecommunications market: competition, investments and regulatory issues Minsk, 25 May, 2004

2. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 2 The main issues Competition and liberalisation, main objectives Understanding of the changing roles of national regulatory authorities (NRA) Building and increasing NRAs capacity to promote appropriate regulation – what is the role of the governments?

3. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 3 Lithuanian market situation Population : ~3.5 millions GDP 2003 : 15.9 milliards EUR GDP growth : 8.1% per 2003 and 7.5% forecast for 2004 Telecommunications market size : 0.59 milliards EUR (telephony, interconnection, leased lines and access to internet only) Main market players: FIXEDMOBILE NameLietuvos telekomasOmnitelBitė GSMTele2 GroupTeliaSonera TDCTele2 Subscribers822 000 (98%)1 053 000507 000592 000 Market share96%56%25%17% Penetration24%63%

4. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 4 Main objectives More diversity for consumers To have relevant quality at relevant price To attract more investments To be ready for convergence of the telecommunications, broadcasting and IT sectors To be more competitive in process of globalisation

5. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 5 Means to achieve objectives Ensure the legal certainty for market players Full liberalisation of the Telecommunications market Introduction of the competition in the market Establishment of the special regulatory measures in non- competitive sectors

6. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 6 Why to regulate? Telecommunications – infrastructure based economic branch –Mostly historic state owned monopolies –Infrastructure – substantive barrier for competitors The main aims –Promotion of economic efficiency in the sector –Protection of public interests –Electromagnetic compatibility

7. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 7 How to regulate? General competition law –Common regulations –Remedies after violation (ex-post approach) –Mostly inefficient It takes quite long time to remove violation (1-5 years or more) It is difficult to state violation It is problematic to ensure USO provision Sector specific regulation –Specific regulations adopted for Telecommunications –Advance remedies to prevent competition problems (ex-ante approach) –Regulatory Authority is necessary for sector specific regulations

8. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 8 EU law requirements for NRAs Independence –legally distinct from and functionally independent of all organisations providing electronic communications networks, equipment or services Right of appeal –any user or provider of electronic communications networks or services have to be allowed to appeal to an independent appeal body in the case of any disputes with NRA Impartiality and transparency –NRAs exercise their powers according to the principles impartiality and transparency –NRAs make arrangements for consultation of the interested parties

9. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 9 Indicators of the Independence of NRA Separation of functions and powers between policy making bodies and the NRA NRA should have all necessary powers and responsibilities to attain all regulatory tasks NRA with its own personnel and independent appointment process NRA with separate Budget, self-financing (sufficient to operate effectively) No appeals to or directions from the Government on the regulatory issues

10. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 10 Lithuanian case: liberalisation of telecommunications The main three steps –07.07.1998 - Privatisation of Incumbent Special Telecom Law –Granted monopoly right for fixed telephony till 2003 –Hard licensing regime –Contemplation of establishment of Lithuanian NRA - RRT –01.01.2003 - End of fixed telephony monopoly New Telecommunications Law inline to the EU telecommunications regulatory framework, 1998 –No licensing for telecommunications activities –01.05.2004 - EU accession Electronic communications law came in to force –Inline to the New Regulatory Framework

11. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 11 Lithuanian case: Establishment of National Regulator - RRT Lithuanian Communication Regulatory Authority RRT has been established on 01.05.2001 –20 months till end of fixed telephony monopoly On the basis of State Radio Frequency Authority Limited regulatory power No SMP doctrine New Telecommunications Law has been adopted by the Parliament on 05.07.2002 and came into force on 01.01.2003 –6 months for preparation of secondary legal acts including SMP designations and RIO publications –New regulatory powers concentrated in one institution

12. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 12 Evolution of the communications regulatory regime in the European Union Market opening Strong sector specific regulation Transition phase Flexible sector specific regulation Competition Law ex-ante approach ex-post approach TIME SCALE REGULATION LEVEL

13. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 13 19981999200020012002200320042005….. EU98 Regulatory FWNew RFW LTUMonopoly98 RFWNew RFW 01.01.2003 - End of fixed monopoly in Lithuania 24.07.2003 - Deadline for implementation of the New RFW in the Member States 01.05.2004 – Lithuania EU Accession: Electronic Communications Law came into force Comparison of the stages of market liberalization in the EU and Lithuania

14. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 14 Comparison of the stages of market liberalization in the EU and Lithuania 19981999200020012002200320042005….. EU98 Regulatory FWNew RFW LTUMonopoly98 RFWNew RFW Market opening phase (green fields) –5.5 years in the EU (for networks and services) –1.5 year in Lithuania – big challenge for Regulator Very young Regulatory Authority without experience Big market players owned by advanced foreign operators

15. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 15 Lithuanian case: Market opening phase Took 16 months before EU accession 1998 Regulatory Framework was in place –Strong regulation framework – no flexibility for Regulator –With some New RFW features Authorisation regime – individual licences has been withdrawn –Incumbent has been designated as SMP undertaking since 01.01.2003 Fixed voice telephony networks and services market Leased lines market National interconnection market –RIO has been published on 01.01 2003

16. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 16 Lithuanian case: Market opening phase (2) National regulatory authority –Has quite enough powers to implement regulations –But It is still quite young Market players are very advanced Time frame to make decisions and to have result is very tight Courts: regulatory decisions stopped till the final court decision –Nevertheless Incumbent interconnection price reduced more than twice Incumbent has been penalized for infringing accounting separation obligation –First instance proved regulatory decision –Case still in the court

17. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 17 Lithuanian case: Market opening phase (3) The RRT had power amongst others to set price for interconnection (IC) and access in order to ensure cost orientation –Fully Distributed Costs based on Historical Cost Accounting until LRIC model will be developed –In some cases indirect approaches might be used to set IC price (best practice, retail minus) –Now public consultation on LRIC concept has been finished –Temporal Incumbents IC price has been set in the end of 2003

18. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 18 Lithuanian case: Market opening phase (4) The RRT experience shows –1998 regulatory framework is not flexible enough –Inflexibility causes non-proportionality –Hard for SMPs and for NRAs –Might be dangerous for sector in long term Market opening phase in Lithuania finished six days ago by entering into force Electronic Communications Law –The RRT has more flexibility in setting pricing regimes for wholesale products such as interconnection Price-caps and by fixing the highest price Cost accounting standards and models Best practice Retail minus

19. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 19 Role of the government Background : EU regulatory framework –Rules of the game for whole sector –Direct requirement for independence of NRA –Defined main NRA powers National Law should empower NRA –To ensure Independence including financial and political –No involvement of policy makers –Budget subject to annual audit by independent audit firm –Full authority to take regulatory decisions and recruit staff enough power is necessary to achieve regulatory efficiency –In general to promote and encourage sector economy

20. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 20 Conclusions Ex-ante approach – prevention of abuse of the market position The main background – strong, independent and efficient National Regulatory Authority Consistent transition from market opening phase to the flexible Electronic Communications Regime should be ensured Technology neutral and proportional regulation conditioned by the convergence Role of national regulators in the CEE countries is going to be increased

21. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 21 THANK YOU FOR YOUR ATTENTION

22. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 22 Questions? Communications Regulatory Authority Algirdo str. 27 LT-03219 Vilnius Lithuania Phone: +370 (5) 210 56 61 Fax: +370 (5) 216 15 64 http://www.rrt.lt

23. Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 23 Communications Regulatory Authority Algirdo str. 27 LT-03219 Vilnius Lithuania Phone: +370 (5) 210 56 61 Fax: +370 (5) 216 15 64 http://www.rrt.lt