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SECOND EDITION
Telecoms
liberalization
An international business guide
for policymakers
Copyright © 2007
International Chamber of Commerce
All rights reserved. This collective work was initiated by ICC which holds all rights
as defined by the French Code of Intellectual Property. No part of this work may
be reproduced or copied in any form or by any means – graphic, electronic or
mechanical, including photocopying, scanning, recording, taping or information
retrieval systems – without written permission of ICC Services, Publications
Department.
Foreword ............................................................................................... 5
Preface .................................................................................................. 7
I. Introduction .................................................................................. 9
What is telecommunication liberalization? ...................................... 9
Liberalization is not de-regulation. ................................................ 10
Liberalization is not privatization .................................................. 10
The goals of liberalization ............................................................. 11
V. Conclusion .................................................................................. 45
By
Guy Sebban
Secretary General
International Chamber of Commerce
and
Talal Abu-Ghazaleh
Chair, ICC Commission on E-Business, IT and Telecoms
President, Talal Abu-Ghazaleh International, Arab states
ICC, with its members from around the world; from the developing to the
most developed countries, is uniquely placed to provide balanced and
insightful input to governments, and other interested parties, as they
consider or continue the process of liberalizing their communications infra-
structure. ICC members include both telecommunication providers, and
users from a broad range of sectors and of all sizes.
Investment can help to create the infrastructures that are essential for
overall economic growth, and putting in place the necessary conditions
and incentives is what will create these opportunities. We are pleased to
present the second edition of Telecoms Liberalization; an international
business guide for policymakers that builds on the first edition and provides
helpful guidance to governments and other interested parties as they seek
to unleash the potential of ICTs in their own countries. Its key message is
that telecoms liberalization, done properly, will boost essential
communications infrastructure and benefit the entire economy.
This second edition draws upon updated case studies and members’
expertise in telecoms liberalization throughout the world, to highlight key
lessons from past liberalization efforts. We hope that sharing best practices
in this way will help countries avoid the pitfalls involved in telecoms
liberalization and take advantage of others’ experiences.
By
Gordon Moir
BT Global Services
Chair ICC Task Force on Internet and Telecoms Infrastructure and
Services
The last decade has seen another wave of telecoms liberalization with
commitments taken by over seventy WTO member countries on value-
added and basic services. Telecoms liberalization has brought more, better
and innovative communication services, job growth, entirely new ways to
communicate (mobile and wireless), a boost to overall economic growth
and the runaway success of the Internet. The economic benefits of telecoms
liberalization are clear, but the social benefits of better communications
go much further.
There are still however many countries that have yet to enjoy these benefits.
To encourage those countries to begin or re-start a stalled liberalization
process, ICC telecoms experts have re-visited the subject of telecoms
liberalization in the light of over two decades’ experience and produced
this guide.
We gratefully acknowledge the drafting work for the first edition of this
guide released in 2004 by Winston Maxwell (Partner, Hogan & Hartson,
United States), Michael Hancock (Partner, Salans, France) and Maria Farrell
(ICC International Secretariat, Paris). The original drafting work was also
greatly helped by the expertise of Yann Burtin (World Bank).
The previous version of this ICC Telecoms Liberalization guide was largely
driven by the sterling effort of the previous chair of this task force, and our
friend, Philippe Wintrebert.
1
PTT means “Post, Telegraph and Telephone” administration.
2
Samarajiva and Goddard, 1990.
3
Cf. page 48 http://www.ebrd.com/pubs/legal/lit041h.pdf
The fundamental need is for policies to develop and foster choices in the
marketplace for mass market and business users of services. Different
markets have different needs, requiring different solutions to develop and
foster such choice, but all markets should strive for:
Existence of competition among the diverse platforms that are increas-
ingly available (e.g., wireline, wireless, fixed wireless, satellite, cable);
Effective implementation of regulations creating an enabling environ-
ment. This can be done by:
– Fostering open market conditions that create a level playing field
for all actors in the market place;
– Establishing a fair and independent regulator which stimulates free
competition;
– Acting consistently and creating stable government telecom policies
which ensure a smooth flow of investments;
– Creating an agile regulatory environment where governmental
actions, when needed, are not unduly delayed;
– Promoting compliance with global technology standards and
globally harmonized frequency bands;
– Delivering a regulatory framework that facilitates convergence and
builds conditions for an inclusive information society; and
– Governments must also be very careful about imposing taxes on
telecommunications players which can have materially detrimental
effect on investment - these include rights of way taxes, import duties,
universal service obligations.
An independent regulator; and
Transparent regulatory processes, procedures and decision-making.
The following table contains the highlights of the ITU case study, which
was showcased at the 5th annual Global Symposium for Regulators in
December 2004:
5
The Case Study of the Federal Republic of Nigeria; Licensing in the Era of
Liberalization and Convergence, International Telecommunications Union, 2004
z The two national carriers, NITEL and Globacom, are taking action within
their respective capabilities to discharge their license obligations of
providing infrastructure to other operators. This will require a concerted
effort of the Commission and operators to design and implement a
backbone transmission infrastructure that will satisfy the needs of the
country.
z The former monopoly operator, NITEL and its mobile subsidiary, MTEL
are yet to be privatized. Although privatization is a good strategy, the
experience of Nigeria shows that liberalizing without first privatizing
state-owned telecommunications enterprises can be effective in
achieving development goal if appropriate license approaches are
used.
z The experience of Nigeria underlines the accepted principle that
successful telecommunications sector development strategies must
be tailored to a country’s conditions.
Economic growth
Along with road systems, airports and electricity, a modern telecoms
system is an essential pre-requisite for economic growth. Indigenous
industries and home-grown companies of all sizes need the basic, and
increasingly complex, infrastructure of business to thrive at home, compete
internationally, and contribute to overall economic growth. ICTs plays an
ever increasingly important role in both the developed and developing
countries overall economic growth.6 As liberalization enables the provision
of more, better and innovative communication services, it is an essential
pre-condition for countries looking to make the most of ICTs.7
6
World telecommunications / ICT development report 2006 (ITU, 2006) page 35
7
Information and communication technologies
8
World Bank- R2002 623-646, 2002. Can Information and communication technologies
be pro-poor?
9
ITU 1998a
10
Overwhelmingly, employment in the ICT sector appears to be unaffected by the ‘dot
com’ crash.Cf World telecommunications / ICTdevelopment report 2006 (ITU, 2006)
page 31
11
Information and Communications for Development 2006, The World Bank.
New investment
Between 1990 and 2001, telecoms drew more investment in developing
countries than any other sector, totalling 331 billion dollars. Half of this
investment went to the Latin America and the Caribbean regions, which
led the charge towards liberalization in the 1990s. But Sub-Saharan Africa,
which had no private telecoms investment at all in 1993, managed to
account for 5% of the global total in the sector by 2001. The ability to
attract private investment in telecoms is not confined to any one part of
the globe. When investment figures are adjusted to reflect investment per
head of population, countries as far flung as Panama and Estonia are
included in the top five countries worldwide.
12
http://www.cellular-news.com/coverage/mongolia.shtml
13
The World Bank Fact Book 2002
14
Corporate Responsibility Report 2006, Telefonica, http://www.telefonica.es/rc2006/
telefonica/informe_rc/docs/corporativo/RC2006_ENG.pdf
This view is echoed by the OECD which notes: “ICT has had, and will
continue to have, significant economic implications. Businesses are
transforming their supply and demand chains, as well as their internal
organisation to fully exploit ICT. Governments are restructuring their
internal functions and the way they deliver services and generally interact
with citizens and businesses. People are modifying their consumption and
spending patterns, as well as their behaviour. In the process, nearly every
economic variable of interest is affected.”16
15
World telecommunications / ICTdevelopment report 2006 (ITU, 2006) page 9
16
OECD Guide to Measuring the Information Society. November 2005
The ITU stated: “The boom of the mobile industry has not just created new
jobs and revenues but also contributed to economic growth by widening
markets, creating better information flow, lowering transaction costs, and
substituting for costly physical transport.”17
17
http://www.itu.int/ITU-D/ict/publications/wtdr_06/index.html
18
OECD Communications Outlook 2001
It is furthermore noted that, by the ITU for example,21 that numerous indirect
growth, efficiency and productivity gains can be realized by an efficient
introduction and utilization of ICT services.
19
OECD Communications Outlook 2003, p. 208 - 211
20
ibid.
21
Chapter 4 “THE INDIRECT ECONOMIC IMPACT OF ICTs” of World telecommunications/
ICT development report 2006 (ITU, 2006)
22
‘Trends in telecommunication reform 2003; promoting universal access to ICTs’,
International Telecoms Union
23
Final report for World Bank, Phase I, Telecoms and trade liberalization and the WTO,
prepared by Analysys
24
Roadmaps for success in telecoms liberalization; issues and best practice, Report by
Analysys for the OECD, 27 March 2003
25
Susan Schorr presentation, ITU & Mongolia regulation
26
‘Bridging the digital divide; the Telefonica contribution in Spain and Latin America’,
excerpted from Telefonica 2002 Corporate Responsibility Report, www.telefonica.es/
corporateresponsibility
Benefits of the access points have been to provide telephone access for
people not close to a payphone and Internet access mainly to students
and young people who represent 80% of the users of the centres.
“New and creative enterprises can make rural and low-income markets
profitable, affordable, sustainable and served in ways that meet national
and local development objectives. But this also requires innovation and
creative business and public policies.” 27
27
Trends in telecommunication reform 2003; promoting universal access to ICTs’,
International Telecoms Union
28
See http://portal.unesco.org/ci/en/ev.php-URL_ID=23480&URL_DO=DO_TOPIC
&URL_SECTION=201.html
29
The regulation of undersea cables and landing stations, International Development
Centre, 2007
30
International Telecommunication Access to Essential Facilities at Cable Landing
Stations Regulations, File No. 416-1/2007-FN, TRAI, June 7, 2007
31
IDA Consultation Paper: Proposed Amendments to SingTel’s Reference Interconnection
Offer to offer Connection Services at Submarine Cable Landing Stations, dated 21 May 2002
These limitations were removed and operators are now able to access
capacity that is either owned, or leased on a long term basis on any
submarine cable connecting to the landing station. Furthermore, these
operators can also access capacity that is owned or leased by third parties
in order to offer them backhaul and transit services.
This approach has the additional benefit of ensuring that scarce regulatory
resources are targeted to market sectors where it is likely to drive the
goals of liberalization to its fullest and to minimize regulatory intervention
where no, or insignificant, problems are identified.
32
WTO Reference Paper on Basic Telecommunications (24 April 1996), at: www.wto.org/
english/news_e/pres97_e/refpap-e.htm.
The blue print for reform should then be presented to all interested parties
in the telecoms sector, using public consultation, government workshops
33
Internet service providers
The government can then prepare a draft law, taking full account of the
input received from the public consultation as well as international
experience and best practices.35
34
The OECD has produced extensive best practice work and information resources on
public consultation, available at http://www.oecd.org/document/590,2340,en_2649_
34275_2671611_1_1_1_37405,00.html
35
E.g. models for legislation inspired by the OECD, European Commission, and US
Federal Communications Commission recommendations
36
http://www.itu.int/ITU-D/ICTEYE/Regulators/Regulators.aspx#
For both fledgling competitors and future new entrants, the regulatory
framework must be clear, predictable, and sufficiently stable to create the
confidence necessary for investment in the telecoms sector.
37
Available online at http://www.worldtradelaw.net/misc/referencepaper.pdf
Licenses are one of the keys to success in the liberalization process. They
provide the basic certainty and legal security investors and lenders need
to invest the huge amounts of money necessary to install or to upgrade
telecoms infrastructure. For telecoms liberalization to bring a fully
competitive telecoms market, market entry should be subject to as few
barriers and restrictions as possible.
ICAIS initially became an issue because most Internet hubs were located
in the US. As a result, non-US telecoms operators had to use their own
facilities and bear the full cost to access those hubs. This is no longer a
significant problem because of the building of regional hubs.
.../...
38
I.P. stands for Internet Protocol, the common communications protocol which allows
digital information to travel through the public networks
In 2005, the most rapid traffic growth came on intraregional routes within
Asia and within Latin America. The traffic within these regions increased
95 percent and 336 percent, respectively. Although Africa continues to
be the world’s least interconnected region, it had the highest year-over-
year growth (59%) in international Internet bandwidth in 2005.39 Today,
and increasingly into the future, most Internet traffic will remain in-region,
making a proposed regulatory intervention like ICAIS unnecessary.
As well as the expense of the initial set-up costs, ICAIS would force Internet
service providers (ISPs) to limit how and with whom they exchange traffic,
impeding the growth and success of the Internet.
To ensure the continued success of the Internet and its benefits to business
and society at large, governments should note the lessons learnt from the
historical deregulatory approach to wireless and data networks:
Do not automatically impose legacy regulations on new technologies,
and make sure that regulations are not enforced just in case of potential
future bottlenecks ;
Make sure that any regulatory responses are the minimum necessary
and that the benefits will outweigh the cost of intervention ;
When Internet-based services replace traditional services, consider
de-regulating the old instead of regulating the new ; and
Keep a close watch to ensure that anti-competitive behavior does not
develop.
The success and growth of the Internet in any given country depend directly
on the available telephone network. Where telephone penetration is high,
the growth of the Internet has been nothing short of explosive. In countries
with low penetration, universal access achieved through liberalization should
be the top priority to spread the benefits of the Internet throughout the country.
39
Global Internet Geography 2006, Primetrica, Inc. 2005.
Compliance with the GATS Annex on Telecoms for access to and use of
public telecoms networks for the provision of value-added services,
including Internet services, and other sectors for which countries have
made commitments
Ensure that the legal system for appeals is functional. Clearly, whilst access
to legal appeal is of fundamental importance, it is crucial that the legal
system is not being used by any party to stall the introduction of regulatory
remedies thus preventing the liberalization of the market place. Appeals,
if lodged, must be dealt with competently and swiftly with minimal disruption
to the market place.
The importance of ICTs and the benefits they can bring to nations, consumers
and investors continues to grow. Therefore, creating a liberalized and
regulated framework that continues to further the direct and indirect benefits
of well functioning ICTs markets is as important today as it was when
liberalization commenced.