Overview of Regulation & Regulatory Issues – M Nxele, Mar041

OVERVIEW OF REGULATION AND REGULATORY ISSUES

NAIROBI, 22nd – 26th March 2004

By : M Nxele Programme Co-ordinator Centre of Excellence for EA

Overview of Regulation & Regulatory Issues – M Nxele, Mar042

PRESENTATION OUTLINE

DEFINITION

RATIONALE

REGULATION AND COMPETITION

REGULATORY MODELS

REGULATORY TRENDS

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DEFINITION

At conceptual level it defines the relationship between the state and the market. (It is a creation and instrument of the state) As market changes, so does regulation. Nature of Regulatory Frameworks is therefore affected by:

•The types of markets within which enterprises operate•Structure of the market•Capacity to implement a given regulatory system

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INDEPENDENT REGULATION

An Integral part of Sector Reform.

As Government conceded economic activity to private sector, independent regulation became the watchdogs of Government Policy.

This is why they are products of statute.

Independence is to ensure they are not influenced by any of the stakeholders.

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RATIONALE FOR REGULATION

Opening up the Telecoms market as part of Sector reform, allowing competition and private sector participation has at times been referred to as DEREGULATION

YET, ESTABLISHING REGULATORY INSTITUTIONS constitutes Re Regulation

This is best understood by looking at the Regulator’s functions:

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REGULATORY FUNCTIONS

OPERATONAL SECTOR MANAGEMENT

SET STANDARDSFor example:

Quality of service standards for Operators Roll out Targets Positioning of Services Universal Service Obligations, etc

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LICENCE CARRIERS

Issuing licences to Fixed and mobile operators, VSAT Organisations, ISP’s (where this is necessary)

Defining terms and conditions of those licenses and monitoring operators’ operations

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REGULATE PRICESThis role is applied differently by different players and also depends on different environments. In truly competitive environments, Regulator may not even regulate prices but allow market forces to do so. Customers regulate the market by exercising their right to switch to a cheaper operator. Most markets in Africa have not reached that stage and therefore some form of Price Regulation exists – basically in the form of a Price Capping mechanism. ITU recommends the use of Cost Based Pricing.

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MONITOR QUALITY OF SERVICE

MANAGING FREQUENCIES

The allocation of Frequencies to operators, the pricing of those frequencies and the monitoring of their use is a key regulatory function.

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INTERCONNECTION TERMS AND AGREEMENTS

So far, Interconnection has proved to be the most contentious area causing disputes. Although regulators have preferred operators to agree on their own terms, invariably, Regulators have had to intervene to deal with a dispute (Case of Tanzania in 2001, Kenya 2003)

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APPROVE CARRIERS PLANS

TYPE APPROVAL OF CUSTOMER EQUIPMENT

9. USER COMPLAINTS

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PROVIDE OPTIMAL CONDITONS FOR PRIVATE SECTOR INVESTMENT IN INFRASTRUCTURE AND SERVICES

Provide Investors with clarity and policy making

Provide Equity in Policy Implementation

Consistency in Regulatory Enforcement - Similar treatment for similar breaches

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CREATE A MARKET CONDUCIVE TO COMPETITION

Level the Playing Field

The relationship in the telecoms market is inherently conflictual: between the Incumbent and new entrants; owners of the backbone network and International Gateway and other users (where backbone is not liberalised). Unless managed, this conflict can become dysfunctional.

Discourage uncompetitive practices by dominant players eg. Predatory Pricing

Nurture competition

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The incumbent operator wants,

Maximum fees for terminating the incoming calls from new comers

Minimum constraints about interconnection

The new entrants want :

Minimum fees for terminating their calls in the incumbent network.

Maximum flexibility about interconnection

(asymetric regulation)

To create a level playing field between incumbent and newcomers

The regulatory system aims at finding out a balancedsolution between these contradictory objectives

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PROMOTE SOCIO- ECONOMIC GOALS

Again another contradiction, inherent conflictual relationship may exist in that private investors want to maximise profits and Governments want to maximise sector growth. Regulators have to manage this situation.

Regulation is a means to an end. Those who established it (Government) expect it to benefit the end user and through them, society as a whole.

Part of Regulators public mandate

Examples are; setting Universal Access Goals and Targets.

Encouraging ICT Sector Growth

Selective Pricing of Spectrum for Public Broadcasting , etc

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To attract investors for network operators and services suppliers,which want

-profit

-high tariffs

-minimum constraints

To ensure public service for ICT users. To defend end customers, which want:

-good quality

- low tariffs

- universal service obligations

CONTRADICTORY OBJECTIVES

The regulatory system aims at finding out a balancedsolution between these contradictory objectives

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REGULATORY MODELS - 5 DIFFERENT MODELS

1. Autonomous Regulatory Agency

- High degree of independence

examples: Argentina, USA

2. Semi-Autonomous Agency

examples: Australia, UK, Hong Kong & Singapore

3. Separate Body within a Telecom Ministry

examples: Malaysia, Fiji

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Models …

4. Unit within the main Public Telecom Operator

- The PTO regulates other players !

* Used in countries where regulation and operation is not separated.

5. No regulatory body for telecommunications

- Telecoms are regulated under the general trade laws. example: New Zealand

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PRO’s and CON’s

Autonomous or semi-autonomous regulatory body:

Stable framework

High costs

Difficult to follow the development within the sector

Separate regulatory body within a Government Ministry:

Lower costs because of sharing of facilities and manpower

Close to the sector Ministry

Can prevent impartial acting (PTO controlled by the same ministry)

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PRO’s and CON’s …

PTO ‘self-regulation’

Simple and inexpensive

No independent check on PTO’s behavior or performance

No assurance of objectivity towards other parties

No Regulation

Simple, low costs

Some sector-specific regulations must be carried out - (frequencies etc.) - and general agencies are ill-equipped for these tasks)

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The tendency moves towards an independent type of regulator - that enhance the independence of the regulator - which requires:

Qualified and experienced staff - and freedom to appoint them and determine their salaries etc.

A secure budget without any external bureaucratic constraints. The funds could come from licence fees, and the budget should be approved by an independent authority

REQUIREMENTS

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FORMS OF REGULATION

Regulation has different forms and scope of processes, depending on the country and its markets.

PRICE CAP REGULATION

AIMS AT REDUCING COSTS

examples: Argentina, Mexico, Venezuela, Malaysia, U.K

PROFIT REGULATION

PLACES CEILING ON RETURN ON INVESTMENT

examples: Jamaica, Philippines

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SERVICE REGULATION

AGREED COST OF PROVIDING A DEFINED SERVICE

examples: Argentina, Mexico, Venezuela, Malaysia, U.K

BENCHMARK REGULATION

SIMILAR TO SERVICE REGULATION

Uses benchmark Standards

example: Chile

Forms of Regulation …

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REGULATORY TRENDSGLOBAL – GROWTH OF REGULATORY AGENCIES

Regulatory Agencies, World (cumulative)

0

20

40

60

80

100

120

140

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 mid

2003

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GROWTH BY REGION

Percentage of Regulators in each region

37%

48%

73%

79%

79%

0% 20% 40% 60% 80% 100%

Asia-Pacific

Arab States

Europe

Africa

Americas

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SECTOR SPECIFIC REGULATION

Regulation focused on Pricing

Competition was still low

Monopolies were using uncompetitive practices to keep out new investor

REGULUTORY TRENDS

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SHIFT TOWARDS ENABLING COMPETITIVE ISSUES

Laying the Ground rules to allowing Entry of Competitors

Ground rules to facilitate competition

To resolve Disputes

Issues of Interconnection

Numbering Licencing Pricing

REGULTORY TRENDS

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FOCUSING ON PURSUIT OF MORE SOCIO – POLITICAL GOALS

Orientation towards consumer Rights, Issues

Universality (UA)

REGULTORY TRENDS

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RECENT TRENDS

FROM TELECOMS REGULATION TO ICT REGULATION

CONVERGENCE OF NETWORKS, TELECOMS, BROAD- CASTING AND IT, LEADING TO CONVERGENCE OF POLICIES AND LEGISLATION AND THEREFORE REGULATION

25% COUNTRIES HAVE LEGISLATION ADDRESSING CONVERGENCE. 50% PLAN TO DO SO

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RECENT TRENDS

IN UK, OFTEL REPLACED BY OFCOM (2003

TANZANIA TCC REPLACE BY TCRC (2003)

OTHER COUNTRIES WORKING ON JOINT ICT POLICY (MALAWI, KENYA, BOTSWANA, INDIA)

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2000 & beyondConvergence of regulations & institutions

in computing, broadcasting, & telecom

2000 & beyondConvergence of regulations & institutions

in computing, broadcasting, & telecom

By 1999: some 80 countriesseparating regulatory function from policy-

making with competition safeguards

By 1999: some 80 countriesseparating regulatory function from policy-

making with competition safeguards

1980s-1990s: manyseparating operational functionby liberalization or privatization

1980s-1990s: manyseparating operational functionby liberalization or privatization

Until 1970s: most state monopolies for all functions in telecom

Until 1970s: most state monopolies for all functions in telecom

Global Trend of Global Trend of Regulatory Regulatory Frameworks Frameworks Over DecadesOver Decades

32

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