Telecommunications market liberalisation Feliksas Dobrovolskis Deputy Director, Telecommunications...

Telecommunications market liberalisationTelecommunications market liberalisation

Feliksas DobrovolskisDeputy Director, Telecommunications Department

RRT, Lithuanian Communications Regulatory Authority

Round tableTelecommunications market: competition, investments and regulatory issues

Minsk, 25 May, 2004

Minsk, 25 May 2004Telecommunications market: competition, investments and regulatory issuesFeliksas Dobrovolskis

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The mThe main issuesain 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?


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Lithuanian market situationLithuanian 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:

FIXED MOBILE

Name Lietuvos telekomas Omnitel Bitė GSM Tele2

Group TeliaSonera TeliaSonera TDC Tele2

Subscribers 822 000 (98%) 1 053 000 507 000 592 000

Market share 96% 56% 25% 17%

Penetration 24% 63%


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Main objectivesMain 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


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Means to achieve objectivesMeans 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


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Why to regulate?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


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How to regulate?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


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EU law requirements for NRAsEU 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


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Indicators of Indicators of the the Independence of NRAIndependence 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


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Lithuanian caseLithuanian case: : liberalisationliberalisation of telecommunications 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


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Lithuanian caseLithuanian case::Establishment of National Regulator - RRTEstablishment 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


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Evolution of the communications regulatory Evolution of the communications regulatory regime in the European Unionregime 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

REG

ULA

TIO

N L

EV

EL


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1998 1999 2000 2001 2002 2003 2004 2005…..

EU 98 Regulatory FW New RFW

LTU Monopoly98

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 Comparison of the stages of market liberalization in the EU and Lithuanialiberalization in the EU and Lithuania


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Comparison of the stages of market Comparison of the stages of market liberalization in the EU and Lithuanialiberalization in the EU and Lithuania

1998 1999 2000 2001 2002 2003 2004 2005…..

EU 98 Regulatory FW New RFW

LTU Monopoly98

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


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Lithuanian caseLithuanian case: Market opening phase : 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


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Lithuanian caseLithuanian case: Market opening phase (2): 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


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• 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


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• 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


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Role of the governmentRole 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


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ConclusionsConclusions

• 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


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THANK YOU FOR YOUR ATTENTIONTHANK YOU FOR YOUR ATTENTION


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Questions?Questions?

Communications Regulatory Authority

Algirdo str. 27LT-03219 Vilnius

LithuaniaPhone: +370 (5) 210 56 61

Fax: +370 (5) 216 15 64

http://www.rrt.lt


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Communications Regulatory Authority

Algirdo str. 27LT-03219 Vilnius

LithuaniaPhone: +370 (5) 210 56 61

Fax: +370 (5) 216 15 64

http://www.rrt.lt

Telecommunications market liberalisation Feliksas Dobrovolskis Deputy Director, Telecommunications...

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