Rory Macmillan Effective Telecom Regulatory Adjudication October 29, 2004 TDSAT Seminar

Rory Macmillan Effective Telecom Regulatory Adjudication October 29, 2004 TDSAT Seminar Delhi, India

Table of contents • DEFINING THE TERRITORY • SOME KEY ISSUES FOR EFFECTIVENESS • ENFORCEMENT, APPEALS AND REVIEW • RECENT INNOVATIONS

Dispute resolution is now a strategic concernfor telecom policy-makers and regulators Failure to resolve disputes effectively and efficiently • Retards the introduction of new services and infrastructure • Limits investment and restrains competition • Results in higher prices and lower quality • Ultimately impedes economic and technical development

What disputes are specificto the “telecommunications” sector? Interconnection Technical co-location requirements Leased lines Access products are at the centre of many disputes Delays Infrastructure sharing Service level agreements Frequency use and interference Pricing and cost accounting Rights of way

Malaysia’s MCMC Guidelinesfor Dispute Resolution The dispute must relate to the telecom laws to involve the regulator in the first place: • Compliance with undertakings and standard access obligations • Interference • Access to post, network facilities or rights of way • Provisions of subsidiary legislation under the Act

Is it a “dispute” or is it a “complaint”, and what procedures, rights and powers apply? Ireland’s ComReg (25 July 2003): A grievance concerning failure of a party to comply with its obligations which is capable of being resolved by direct negotiation Dispute An allegation that a party is engaging in more general non-compliant behaviour which is not specific to the complainant Complaint The regulator may require different evidence, follow different procedures, exercise different powers and the parties may have different appeal rights

What disputes concern the telecom regulator as opposed to the courts and other agencies? Court system ? Telecom regulator Disputing ? Parties ? Competition authority ? Consumer protection body

How should telecom disputes interact with competition and consumer disputes? • Much telecom regulation is basically ex ante applied competition or consumer protection policy • Many countries have competition and consumer laws and agencies • Cooperation among agencies is crucial, but which body should be responsible?

Setting boundaries is complex and practice varies, e.g. compare India and Australia • TDSAT’s authority in India excludes disputes that are: • “subject to the jurisdiction of the Monopolies and Restrictive Trade Practices Commission” • “maintainable before a Consumer Disputes Redressal Forum or Commission” Section 14 of the TRAI Act 1997, amended 2000 • Australia views telecom access disputes as a form of competition problem, so the ACCC handles telecom access disputes as well as consumer complaints and antitrust

The U.S. Supreme Court recently wrestled with such institutional and jurisdictional questions • Verizon v Trinko (2004) • Verizon was accused of breaching the Shearman Act (antitrust legislation): • Failing to provide AT&T with adequate local loop connection to Verizon’s network • Resulting in poor quality of service for AT&T customers

It recognized the difficulty for courts in dealing with sharing and interconnection disputes • “Allegations of violations of [sharing and interconnection] duties are difficult for antitrust courts to evaluate…” • “highly technical…likely to be extremely numerous…” • “incessant, complex, and constantly changing interaction of competitive and incumbent [local exchange carriers] implementing the sharing and interconnection obligations”

The court drew a line between antitrust and telecom regulation disputes for practical reasons • The effective remediation of violation and enforcement of these detailed sharing obligations is a “daunting task…beyond the ability of judicial tribunal to control” • There is a “regulatory agency with effective power to compel and to regulate sharing”

Focus regulatory resources efficiently onthe key impediments to sector development • Access and interconnection disputes which make or break competition • Major licensing disputes that may hinder investment • Disputes where transition of technologies and markets require regulation to adjust to reality

An economic lens is necessary to influence parties’ incentives to reduce or resolve disputes Macro Costs of delay to sector and economy Underlying commercial and financial realities in the industry Disparities in market power between disputing parties (game theories) Economic incentives of parties to engage in or resolve disputes Allocation of specific costs of dispute Micro

Regulatory adjudication is both a regulatory function and an adjudicatory function …tend to be more investigatory, consultative and on-going Regulatory processes …tend to be more adversarial and seek to be finite Adjudicatory processes Regulatory adjudication involves both

The regulatory aspect emphasizes efficiency, competition, investment and compliance • Flexibility of the process is important • Ireland’s ComReg and UK’s OFCOM publish draft dispute rulings for comment of market participants • Australia’s ACCC is “not bound by technicalities, legal forms or rules of evidence” Section 152DB of Trade Practices Act 1974 • Availability to the regulator of specific regulatory remedies • The regulator is pushing a policy agenda

The nature of adjudicatory decision-makingmust also inform the design of the process Follows a formal written procedure Adjudicator is a third party, not a party to the dispute Adjudicator’s decision is enforced by the state Adjudicator’s decision often produces win-lose results Procedure must be transparent Adjudicator must be neutral and accountable Remedies must be sure and proportionate Correction of mistakes must be available (review and/or appeal)

Various powers and prohibitions may be required to make regulatory adjudication process effective Australian ACCC and Indian TDSAT: • Power to compel witnesses to testify • Power to take evidence on oath • Prohibition on giving false or misleading testimony or documents • Criminal penalties, including jail time

Increasing attention and various approaches to timelines – outside deadlines can reduce delays * EU Framework Directive requires 4 months of all member states except in exceptional circumstances

Allocating costs can reduce regulator’s burden and change parties’ incentives in the dispute • Jordan’s TRC will “charge the disputants for the cost of actual resources consumed in terms of number and cost per man hours per class of profession for resolving the dispute” Section 4.1 of the Interconnection Dispute Procedure • UK’s OFCOM may require parties to pay costs to each other or to OFCOM Section 190(6) of the Communications Act 2003 • On the other hand, Botswana’s Telecom Regulatory Authority views dispute resolution as a public good paid for in license fees

Achieving a balance betweentransparency and confidentiality • Investor confidence requires regulators to publish dispute rulings • Public consultation before issuing a final ruling (e.g., Ireland’s ComReg & UK’s Ofcom) • May information provided in a dispute be used for other purposes? Sections 152DBA and 152DK of Australian Trade Practices Act 1974 • Confidential treatment of matters sensitive to business strategy (e.g., problem in Germany)

The regulator requires legalpowers to enforce regulation • Suspending licenses • Imposing fines • Imposing conditions • Reducing frequencies available

The courts are also acrucial part of enforcement Malaysian MCMC’s decision: • “…may be enforced by the High Court…” • “…as if the decision was a judgment of such court… • “…except in the case of an injunction” Article 25 of July 2003 Guidelines for Dispute Resolution

Most countries are muddy on jurisdictional lines between regulatory adjudication and the courts • Jordan: regulatory adjudication is “…without prejudice of licensees’ rights to go to the courts…” Section 2.1 of Interconnection Dispute Process (similar in UK Communications Act) • Ireland: regulatory adjudication may proceed “…if legal proceedings in relation to the dispute are not in process…” Statement of ComReg

Distinguishing “review” versus “appeal” can enable more focused, efficient procedures Traversing government branches (administrative to judicial) versus upwards appeal within a branch Protecting the integrity of the adjudicatory system versus ensuring individual outcomes Focusing on bounds of adjudicator’s authority versus substance of his/her decision Emphasizing procedure followed by the adjudicator versus finding on the merits Considering factors weighed by the adjudicator versus rules of evidence Reasonableness versus correctness of decision

There are numerous approaches to internal and external review/appeal of decisions Internal & external (Jordan, Netherlands) External only (Ireland, Malaysia) Hybrids (India) Courts Courts Supreme Court Jordanian TRC or old Dutch OPTA ComReg or MCMC TDSAT bench of 3 Commission Commission TelecommunicationsRegulatory Authority of India Commissioner or Adjudicator Disputing TRAI Parties

Whatever the structure, appeal/reviewneeds to be efficient, transparent and reliable • Hundreds of pending cases and appeals are taking years in Germany and The Netherlands • Best to avoid establishing elaborate appeal processes if the appellate body is jammed with cases (e.g., Dutch OPTA is simplifying) • The greater the confidence in the initial decision-makers and process, the less need for appeal on substance

Where there are delays in decisions and appeals, treatment of interim measures becomes crucial • Appeals against CMT’s decisions in Spain take up to 7 years to complete if they go to the Supreme Court (recurso de casación) • Hard to meet high threshold for suspending CMT decisions, so they are rarely suspended and regulatory policy can advance • But Germany’s RegTP decisions are often suspended pending appeal, so regulatory development is held back

Finding resources for disputeresolution where resources are scarce • Interest in alternative dispute resolution, like mediation and arbitration (e.g., Jordan) • Taking shortcuts, e.g., using consultants and international benchmarks absent accounting information (e.g., Botswana) • Attempts to shift some of the burden to industry (e.g., Malaysian Access Forum and UK’s Ofcom) • Cutting waste of resources through unnecessary internal appeals (e.g., Dutch reform of OPTA)

Recent innovation indispute resolution in various countries • Nigeria – televised consumer parliament to popularize consumer protection • Denmark – broad industry forum to review entire sector problems as a means to dispute prevention • UK – industry ombudsman and dispute resolution schemes set up telecom companies; new local loop unbundling adjudicator scheme • Hungary – establishing a telecom dispute mechanism supplied by a bank of pre-approved arbitrators

Priorities for effective regulatory adjudication • Give regulatory adjudicators powers and resources they need • Focus attention and resources on the key disputes that are a turning point for sector competition and investment • Understand big picture institutional roles and parties’ incentives • Fit appeal/review processes to the institutions without clutter • Be open to alternative dispute resolution resources and involve them where available and helpful

For further information • “Dispute Resolution in the Telecommunications Sector: Current Practices and Future Directions”, Robert Bruce, Rory Macmillan et al: http://www.itu.int/ITU-D/treg/Events/Seminars/2003/GSR/Documents/DRS_Final_GSR_5.pdf • ITU Case Studies in interconnection dispute resolution, Robert R. Bruce & Rory Macmillan: http://www.itu.int/ITU-D/treg/Case_Studies/index.html • ITU web pages on dispute resolution: http://www.itu.int/ITU-D/treg/related-links/links-docs/dispute.html • Contact Rory Macmillan directly on +41 79 752 3622 or at rory@rorymacmillan.com

Rory Macmillan Effective Telecom Regulatory Adjudication October 29, 2004 TDSAT Seminar