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Telecommunications market liberalisation

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. The m ain issues.

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Telecommunications market liberalisation

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  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. 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? Telecommunications 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: Telecommunications 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 Telecommunications 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 Telecommunications 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 Telecommunications 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 Telecommunications 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 powersaccording to the principles impartiality and transparency • NRAs make arrangements for consultation of the interested parties Telecommunications 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 Telecommunications 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 Telecommunications 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 Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis

  12. Evolution of the communications regulatory regime in the European Union REGULATIONLEVEL ex-ante approach ex-post approach TIME SCALE Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis

  13. Comparison of the stages of market liberalization in the EU and Lithuania 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 Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis

  14. Comparison of the stages of market liberalization in the EU and Lithuania • 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 Telecommunications 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 Telecommunications 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 Telecommunications 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 Telecommunications 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 Telecommunications 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 Telecommunications 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 Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis

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

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