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MODULE 1

OVERVIEW OF TELECOMMUNICATIONS REGULATION

1.1 Regulatory Objectives

1.1.1 Why Regulate Telecommunications?

The last decade of the 20th Century sawunprecedented changes in the global telecommuni-cations industry. Numerous state-ownedtelecommunications operators were privatized, anda wave of pro-competitive and deregulatory tele-communications policies swept the world. Newmarket-based approaches to the supply oftelecommunications services were introduced inscores of countries.

This liberalization of telecommunications marketswas motivated by various factors, including:

➢ Increasing evidence that more liberalized tele-communications markets were growing andinnovating faster and serving customers better

➢ The need to attract private sector capital toexpand and upgrade telecommunicationsnetworks, and to introduce new services

➢ Growth of the Internet, which caused data trafficto overtake voice traffic in many countries, andled to the introduction of many new serviceproviders

➢ Growth of mobile and other wireless services,which provided alternatives to fixed networks

and introduced new service providers to tele-communications markets

➢ Development of international trade in telecom-munications services, which are increasinglyprovided by transnational and global serviceproviders

As market-based approaches were adopted duringthe 1990s, the number of national telecommunica-tions regulatory authorities increased from 12 to over90 around the world. To some this appears ironic.Shouldn’t the market-based supply of telecommuni-cations be accompanied by less regulatoryintervention, rather than more?

The consensus answer around the world is yes – inthe long run, but no in the short run. The successfultransformation of monopolistic telecommunicationsmarkets into competitive ones requires regulatoryintervention. Without it, viable competition is notlikely to emerge. In fact, the times when privatizationand the introduction of significant competition occurcan be the busiest periods in the life cycle of aregulatory organization.

Regulatory intervention is required for a variety ofreasons. Typically, regulators must authorize orlicense new operators. They must often removebarriers to market entry by new operators. Theymust oversee interconnection of new entrants withincumbent operators. Regulatory intervention may

Telecommunications Regulation Handbook

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also be required to ensure competitive markets donot fail to serve high cost areas or low incomesubscribers.

The objectives of telecommunications regulationvary from country to country. Governments in mostcountries continue to see telecommunications as anessential public service. Even after telecommunica-tions networks are no longer run by them,governments normally retain a regulatory role toensure that telecommunications services aresupplied in a manner consistent with nationalperceptions of the public interest.

With the widespread adoption of market-basedapproaches to the supply of telecommunicationsservices, there is a growing consensus that regula-tors should not be involved in detailed“management” of the sector. Instead, the regulators’role is seen to involve maintenance of a regulatoryenvironment conducive to the efficient supply of

telecommunications services to the public. Theservice suppliers will generally be private sectoroperators.

The trend today is toward deregulation. Sometraditional forms of telecommunications regulationare now viewed as having been more damagingthan beneficial to the development of national tele-communications infrastructure and services. Today,when regulatory measures are proposed orreviewed, governments and regulators mustgenerally ensure that (1) there is a demonstratedneed to regulate, and (2) the most efficient measureis selected to meet the specific regulatory objective.

While regulatory measures vary from country tocountry, the main objectives of telecommunicationsregulation are often similar. Box 1-1 lists someregulatory objectives that are widely acceptedaround the world today.

Box 1-1: Widely Accepted Regulatory Objectives

➢ Promote universal access to basic telecommunications services

➢ Foster competitive markets to promote:

➢ efficient supply of telecommunications services

➢ good quality of service

➢ advanced services, and

➢ efficient prices

➢ Where competitive markets do not exist or fail, prevent abuses of market power such as excessivepricing and anti-competitive behaviour by dominant firms

➢ Create a favourable climate to promote investment to expand telecommunications networks

➢ Promote public confidence in telecommunications markets through transparent regulatory and licensingprocesses

➢ Protect consumer rights, including privacy rights

➢ Promote increased telecommunications connectivity for all users through efficient interconnectionarrangements

➢ Optimize use of scarce resources, such as the radio spectrum, numbers and rights of way

Module 1 – Overview of Telecommunications Regulation

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Overview

1.1.2 Expansion of TelecommunicationsRegulation

Government regulation of private sector telecommu-nications operators began in the US and Canada inthe late 19th Century. However, in most of the world,telecommunications networks were operated bygovernment administrations for most of the 20thCentury. In most countries, governments ran tele-communications operations in the same way asgovernment postal, rail or highway transportationservices. This situation changed dramatically overthe past ten years, as dozens of countries privatizedtheir telecommunications operations.

The number of telecommunications regulators hasincreased rapidly over the past few years. Severalfactors precipitated this growth in regulation. Themajor factor is the implementation of telecommuni-cations reforms that led to the separation of thepolicy, regulatory and operational functions oftelecommunications.

Regulatory agencies were established at the sametime that many government telecommunications

administrations were privatized. The overallobjective of these new regulators was to ensure thatpublic policy objectives for the sector continued to bemet. While government monopolies are notperceived to require regulation, private monopoliesgenerally are. Introduction of competitors in manynewly privatized markets also increased the need fornew regulators, to act as referees between the newentrants and incumbent operators.

ITU data indicate that in 1990, 12 countries hadtelecommunications regulatory agencies thatfunctioned separately from telecommunicationsoperators. The term “separate regulators” generallyrefers to agencies that operate separately fromgovernment ministries or PTTs that are alsoresponsible for the provision of telecommunicationsservices. By August 1999, that number hadincreased to 84. Nine new regulators were estab-lished between mid-1998 and mid-1999. In late2000, the number was around 96 and increasing.The growth in the establishment of separateregulators is illustrated graphically in Figure 1-1.

Figure 1-1: Growth in Number of Regulators

Separate regulators, by region, 1999Total: 84

Africa 24%

Americas 26%

Europe 31%

Asia-Pacific 13%

Arab States

6%

Establishment of separate regulators

12

30

53

96

1990

22

1992 1994 1996 1999 2000

84

Source: ITU (1999a) and (2000)


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While the growth of regulatory authorities is remark-able, it should be kept in perspective. In manycases, new regulators replace existing PTT orMinistry functions. Therefore, in some countries, theestablishment of separate regulators may not resultin an increase in the number of government officialswith regulatory functions. Also, while there is likely tobe an increase in regulatory activity around the timeof privatization and the introduction of competition,the level of regulatory intervention can be expectedto drop significantly once competitive markets areestablished.

1.1.3 Implementing TelecommunicationsSector Reform

While government policy officials usually introducetelecommunications sector reforms, regulators mustimplement many of these reforms. Good regulationis required to ensure the success of sectoralreforms. Table 1-1 summarizes major reforms thathave been introduced, and are continuing to beintroduced around the world. The table also listsmajor objectives for the introduction of thesereforms.

Table 1-1: Major Global Telecommunications Sector Reforms and Associated Objectives

Reforms Major Objectives

Privatization of PTTs ➢ Attract financing to expand telecommunications infrastructure

➢ Increase sector efficiency, introduce new services

➢ Generate government revenues from privatization proceeds

Licensing of CompetitiveOperators

➢ Expand range of services; serve unserved markets

➢ Increase sector efficiency through competition

➢ Decrease prices, improve range and supply of services

➢ Stimulate innovation and introduce advanced services

➢ Generate government licensing revenues

Introduction ofTransparent RegulatoryProcesses

➢ Increase success of licensing processes & government credibility

➢ Increase government revenues from licensing new services

➢ Increase market confidence, attract more investment

MandatoryInterconnection andUnbundling of PSTN

➢ Remove barriers to competition

➢ Promote competition in advanced services (e.g. broadband Internet)

Price Cap Regulation ➢ Better incentives for efficient service supply by dominant firms

➢ Simpler method that ROR regulation to prevent excessive pricing

➢ Reduce regulatory lag; ensure timely price adjustments

Targeted Universal AccessFunds

➢ Increase efficiency and effectiveness of universality policies

➢ Replace less transparent and potentially anti-competitive cross-subsidies

Removal of Barriers toInternational Trade inTelecommunications

➢ Increase investment in telecommunications sector

➢ Improve competition in telecommunications markets

➢ Improve global communications


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Overview

While a number of these reforms were perceived asradical when they were first proposed 10 or 20 yearsago, many have become the generally acceptedstandards today. As these reforms were introducedin an increasing number of countries, some havebecome incorporated into trade agreements andinternational trade policies. Most significantly, theWTO Agreement on Basic Telecommunications(ABT) and its Regulation Reference Paper incorpo-rate a number of these reforms. The ABT isdiscussed in several Modules of this Handbook andthe Reference Paper is reproduced in Appendix A.

1.2 Regulatory Organizations

1.2.1 The Role of National GovernmentAuthorities

Until recently, in many countries, a single Ministry orother government administrative unit performed theroles of telecommunications policy maker as well asowner and operator of the national telecommunica-tions network. No need was perceived for aregulator in this environment. The same governmentofficials were often involved in policy decisions,policy implementation and operation of thetelephone service.

Privatization and market liberalization has led to are-organization of the government institutionsinvolved in the telecommunications sector. The mostcommon institutional model used in developedmarket economies around the world today, isillustrated in Table 1-2.

The structure set out in Table 1-2 is compatible withthe market-based supply of telecommunicationsservices, rather than government-based supply. It

also facilitates compliance with the WTO RegulationReference Paper, in that it provides for a regulatorthat is separate from the telecommunicationsoperator, and that can resolve interconnectiondisputes. This structure has the following features:

➢ Government officials can set policies in thenational interest, without conflicting concernsbased on their role as owners, managers oremployees of telecommunications operators. Inparticular, governments are more inclined tointroduce significant competition in telecommu-nications markets if they do not also run themain operator.

➢ Separate regulatory authorities can implementgovernment policy in an objective and impartialmanner. Separation from state-owned telecom-munications operators increases the ability ofregulators to act impartially toward all marketparticipants, for example in matters involvingcompetition policy or interconnection.

➢ Market confidence in the impartiality of regula-tory decisions generally increases with thedegree of independence of regulators from bothoperators and governments. Such marketconfidence promotes increased foreign anddomestic investment in both incumbentoperators and new entrants in the sector.

➢ Privately owned operators can make rationaleconomic decisions about the supply of tele-communications services, without conflictingconcerns arising from government ownership.

Table 1-2: Standard Institutional Structure in Developed Market Economies

Function Responsible Organization

Policy Development Government Ministry or Executive Branch

Regulation Separate Regulatory Authority

Network Operations/Service Provision PTOs (privately or commercially operated)


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➢ For example, some PTTs traditionally main-tained excessively large work forces for politicalor other non-economic reasons. This resulted ininefficiency and added costs for consumers. Inmost cases, privatization of telecommunicationsoperations has increased the supply of tele-communications services and reduced costs.“Commercialization” of state-owned operatorscan also increase immunity from governmentinterference, relative to traditional PTTs.However, the degree of immunity depends onthe degree of independence granted to the“commercialized” state operators.

While there continue to be different views about thebest institutional structure for the telecommunica-tions sector in different countries, the modeldescribed above has clearly become the standardone. Other models are often seen as transitional,with recognition that the “standard” model willultimately be adopted.

In some countries, other government ministries oragencies may play key roles in the telecommunica-tions sector. For instance, a competition authoritymay be an important component of the institutionalstructure (the respective roles of a general competi-tion authority and a sector-specific telecommunica-tions regulator are discussed in detail in Module 5).Other organizations that may play a significant rolein determining the overall economic environment ofthe telecommunications sector include ministries offinance and ministries of planning, as well asprivatization and tax authorities. All of theseinstitutions can play particularly important roles atthe time of privatization. However, once privatizationis completed, they often take on a more secondaryrole to the three entities described in the “standardmode”.

1.2.2 The National Regulatory Authority

An increasing number of governments havedeveloped an institutional structure of the type illus-trated in Table 1-2, which includes a separatenational regulatory authority. A variety ofapproaches have been developed to establish andoperate such regulatory authorities. In the followingsections we consider five major issues thatfrequently arise:

➢ Independence of the Regulator

➢ Funding of the Regulatory Process

➢ Single Regulators and Collegial Commissions

➢ Multi-Sector Regulators

➢ Organization of Regulatory Staff

1.2.2.1 Independence of the Regulator

As illustrated in Table 1-2, the standard institutionalstructure for the telecommunications sector aroundthe world today includes a separate regulator. Whatis most important in this regard is separation of theregulator from the telecommunications operator(s) inthe market. Such separation inspires marketconfidence and promotes compliance with interna-tional trade obligations.

Of equal importance in the eyes of manyexperienced telecommunications experts isindependence of the regulator from governments. Inpractice the degree of such independence variesconsiderably from country to country. It depends onthe legal, political and institutional structure of eachcountry. Regulators in few, if any, countries enjoycomplete independence from governments. At aminimum, most regulators are appointed and paidby governments, and have budgets established orcontrolled by them.

There are good reasons for increasing the degree ofindependence of regulators from governments. Suchindependence increases perceived neutrality andinsulation from political or operational pressures.This perception of independence is particularlyimportant where a government retains ownership ofthe PTO.

Telecommunications operators and investors willgenerally have greater confidence that anindependent organization will regulate a marketobjectively and transparently. This can lead toincreased investment in the sector and to relatedbenefits for the economy. Such confidence will,however, depend on the credibility of the regulator. Itmust have a demonstrated capability to regulate in aprofessional and impartial manner.


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Overview

In some countries, separation of regulators from thegeneral government administration also provides anopportunity to pay higher salaries to regulatoryofficials. This can be important in developing andtransitional economies where extremely low gov-ernment pay scales can make it difficult to attractand retain highly qualified and non-corruptible staff.The best staff of regulators in such countries caneasily be lost to the private sector if the regulators’pay scale is not competitive.

Finally, it must be clear that “independence” of theregulator does not mean independence from thelaws and policies of a country. The mandate of anindependent regulator should be clearly spelled outin national laws. Regulators should be accountableto legislatures or other government bodies. Suchaccountability should include mechanisms, such asannual reports or legislative hearings, in which theregulator must demonstrate in a transparent mannerthat it has properly exercised its mandate.

1.2.2.2 Funding the Regulatory Process

It is essential to provide adequate funding for theregulatory process. Funding is required to hire goodcalibre professional staff and consultants that canimplement regulatory objectives. Without adequatefunding, regulation will not usually be effective.Regulatory objectives related to the opening ofcompetitive markets and the establishment of a levelplaying field are not likely to be achieved.

Separate regulators can be funded in a number ofways. Traditionally, regulatory functions were fundedout of general government budget appropriations,particularly when the functions were carried outwithin Ministries of Communications or PTTAdministrations. Budget appropriations are alsoused for many separate regulators. However,licence fees and spectrum fees paid by operatorsprovide an increasingly common means to fund theregulatory function.

A typical approach to levying licence fees is todistribute the costs of running the regulatoryfunctions among all licensed telecommunicationsoperators in proportion to their gross telecommuni-cations revenues. Thus, in the early years, theincumbent operator (e.g. the former PTT) may pay90% of the regulator’s costs because it earns 90% of

telecommunications revenues in the sector. Overtime, however, the licence fees payable by theincumbent will decrease, as other operators gainmarket share.

There are advantages to funding a regulator throughlicence and spectrum fees rather than governmentappropriation. Licence fees provide a way of recov-ering the costs of government services on a “userpay” basis. Telecommunications sector licence feescan generate a sufficiently large source of revenuesto ensure the regulatory function is carried out in aprofessional manner, something that cannot alwaysbe assured by cash-strapped governments indeveloping economies. Other segments of societyand the economy are not burdened with the regula-tory costs. There is some accountability and greatertransparency to determine when regulatory budgetsare being spent well, and when they are not. Theissue of licence fees is discussed further in Module2.

1.2.2.3 Single Regulators and CollegialCommissions

Telecommunications regulators first emerged in theUS and Canada at the end of the 19th Century.These regulators were structured as quasi-judicialboards or commissions. While these regulators wereled by a chairperson, they were essentially collegialorganizations. Decisions were typically made byconsensus or, in case of controversy, by a majorityvote. As the complexity of regulation increased,these regulators eliminated some of their judicialtrappings, and hired an increasing number oftechnical, professional and support staff.

When new telecommunications regulators wereestablished around the world in the 1990s, manywere headed by a single director general, or otherofficial. This structure was similar to other govern-ment organizational models used in some of thecountries where the new regulators were estab-lished. An early example was Oftel, the UKregulator, which was established in 1984, whenBritish Telecommunications was privatized. As withthe commission model, regulators headed by asingle official are usually assisted by varioustechnical, professional and support staff, as well asoutside consultants.


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In the latter part of the 1990s, the commissionapproach became more popular again. The 1999ITU Trends Report indicates that six of the nine newregulators established between July 1998 andAugust 1999 were collegial bodies, composed ofbetween five and eleven members. New regulatorsestablished in Albania, Bulgaria, Egypt, Greece,Kenya, Malawi and Malaysia are all collegial bodies.

There are advantages and disadvantages to boththe hierarchical and collegial approaches. Neithercan be said to be superior in all cases. However,several observations can be made:

➢ Single regulators can act more quickly anddecisively than collegial bodies.

➢ Collegial bodies provide checks, balances andcollegial support for the decision-makers.Decisions can therefore be more thoroughlydebated and considered.

➢ Large collegial bodies can lead to less cohesionand consistency than small ones or singleregulators.

➢ Some countries with large collegial bodies havereduced them in size to increase decision-making efficiency (e.g. the US).

➢ Some collegial bodies, especially large ones,have part-time members. Such membersusually find it more difficult to keep abreast ofdevelopments in rapidly changing telecommuni-cations markets.

➢ Collegial bodies are somewhat less susceptibleto “capture” by regulated companies. However,financially insecure regulators of both types maybe motivated by future career prospects in theindustry. Government tenure or other forms ofsecurity can mitigate this concern.

In practice, both single regulators and collegialcommissions often rely heavily on professional staffand consultants for fact gathering, analysis, andrecommendations. In some cases, regulatory staffare empowered to make some types of regulatorydecisions. This is the case, for example, for staff

Bureau Chiefs of the FCC in the US. Thus, while thefinal decision on important regulatory matters anddirections will rest with the single regulator orcommission, depending on the model, much of thestaff work and more routine decision-making can bevery similar under both models.

1.2.2.4 Multi-Sector Regulators

Telecommunications regulators usually have sector-specific regulatory functions. In most cases, they areresponsible for regulating only telecommunicationsmarkets. In some cases, they also have regulatoryfunctions in adjacent markets. Examples includebroadcasting (e.g. Canada and the US) andinformation services generally (e.g. Singapore andMalaysia). South Africa has established a mergedtelecommunications and broadcasting regulator(ICASA) on 1 July 2000.

A different approach that is well worth consideringinvolves the establishment of a multi-sector regula-tor. Such an agency typically regulatestelecommunications as well as other industry sectorswith similar economic and legal characteristics.Examples of such sectors include electrical powergeneration and distribution, oil and gas pipelines,postal services, transportation and water utilities.

Multi-sector regulators, often referred to as publicservice commissions, existed for many years inCanadian provinces and states of the US. Theyhave also been established in some developingeconomies, such as Bolivia, El Salvador, Jamaicaand Panama. The multi-sector approach was alsoseriously considered, but recently rejected in the UK.Box 1-2 sets out some of the advantages anddisadvantages of the multi-sector regulatoryapproach.

Other considerations are relevant in decidingwhether a multi-sector regulatory approach works inany particular country. In most countries, reformoccurs at different times in different industry sectors,such as telecommunications, energy, and water. Itmay be impractical to establish multi-sectorregulatory agencies , for example, where the tele-communications industry has been privatized, butenergy and water services continue to be suppliedby government administrations.


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Overview

Box 1-2: Advantages and Disadvantages of Multi-Sector Regulators

Key Advantages Key Disadvantages

➢ Reduce risk of “industry capture” becausethe creation of a regulator with responsibilityfor more than one sector can help avoid therule-making process being captured byindustry-specific interest groups

➢ Reduce risk of “political capture” because aregulator with responsibility for more thanone sector will necessarily be moreindependent of the relevant line Ministries.The broader range of entities regulated bysuch a regulator will be more likely to resistpolitical interference in a decision on, say,price regulation in one sector since thatcould set a precedent for other sectors

➢ Create more precedents, and therefore lessuncertainty, for investors because a decisionby an MSR in relation to one sector on aregulatory issue common to other sectors(e.g. the application of price cap regulationor cost accounting rules) will set a precedentthat is valuable to potential investors in thoseother sectors

➢ Economies of scale in the use of one set ofhigh-calibre professionals (e.g. economists,lawyers, financial analysts). Such economiesare particularly important during the earlystages of liberalization and privatization in aTDC when there is likely to be a scarcity ofregulatory experience

➢ Increase risk of “industry capture” by adominant industry player not only of the singlesector regulator but of the entire MSR body

➢ Increase risk of “political capture” by adominant ministry of not only the single sectorregulator but of the entire MSR body

➢ Increase risk that a precedent set in relationto one sector could be applied inappropriatelyin another sector (although this can also bemitigated by creating strong sector-specificdepartments underneath a central cross-sectoral decision-making body)

➢ Dilution of sector-specific technical expertiserequired where, for example, the skills of atariff expert for one sector are not transferableto similar tariffing issues in another sector, or,for example, of a frequency engineer

Other Advantages Other Disadvantages

➢ Economies of scale in administrative andsupport services (e.g. computers, officespace, support staff), particularly importantwhere the costs of regulation can have a realimpact on the affordability of basic services

➢ Flexibility in dealing with “peak load” periods,such as periodic price reviews, whereintensive regulatory expertise is neededwhich may be spread across sectors if amulti-sectoral approach is adopted

➢ Economies of scale in the development andimplementation of the regulatory agencywhereby, for example, uniform rules onlicence award or dispute settlementprocedures can extend to more than onesector and, therefore, avoid the need to “re-invent the wheel” for each sector

➢ Failure by the regulator cascades to othersectors

➢ Difficulty in achieving acceptance by relevantline Ministries of the concept of having anMSR

➢ Subsequent difficulty in achieving consensusfrom the relevant line Ministries on the type ofMSR to be established

➢ Greater complexity in establishing the legalframework for the MSR, including the level ofindependence and allocation of functions asbetween the Minister and the regulator

➢ Potential delays in the reform process due tothe disadvantages mentioned above


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Box 1-2: Advantages and Disadvantages of Multi-Sector Regulators (cont’d)

➢ Transfer of regulatory know-how betweenregulators responsible for different sectors;again, this is particularly important when acountry has limited experience in regulation

➢ Effective means of dealing with convergingsectors (e.g. telecommunications and broad-casting where it is increasingly difficult todecide what is a telecommunications andwhat is a broadcasting service, for examplevideo-on-demand, or telecommunicationsand posts, for example email and fax re-mailing)

➢ Effective means of dealing with the bundledprovision of services (e.g. provision of bothtelecommunications and electricity by thesame company) and with co-ordinationrequirements between sectors (e.g. wherecompanies from a number of differentsectors all need to dig up the same roads toconstruct their networks)

➢ Avoidance of market distortions due to theapplication of different rules to competingsectors (e.g. electricity and gas, or road andrail)

➢ Merging existing agencies may beproblematic

Source: Schwartz, T. and Satola, D. (2000)

Finally, many variations are possible on the theme ofmulti-sector regulation. The choice is not simplybetween one single multi-sector regulator and aseries of single-sector ones. As indicated above,Canada’s CRTC regulates two similar andconverging sectors, telecommunications and broad-casting, but no others. The CRTC’s predecessor,the Canadian Transportation Commission, regulateda variety of industries, including telecommunications(but not broadcasting), air and rail transportation.However, at that time, gas pipelines, electrical powerand other infrastructure industries fell under theauthority of different regulators. Other combinationsare possible.

1.2.2.5 Organization of Regulatory Staff

There are many ways to organize the decision-makers, management, staff and other advisors of aregulatory agency. No one approach is ideal. Muchwill depend on the institutional structure and the

workplace culture of a country. The structure of theregulator will also play a role. For example, the staffof collegial commissions may be, but is not always,structured differently from that of an organizationreporting to a single director general. Multi-sectorregulators will have different structures from single-sector regulators, since professional staff such aseconomists, lawyers and accountants will deal withtelecommunications issues one day, and electricalpower regulation the next.

The main factors determining organizational differ-ences are the functions and objectives of differentregulatory agencies. Some telecommunicationsregulators are responsible for spectrum manage-ment, licensing of new operators and regulation ofbroadcasting and other content services. Others arenot. Some must actively regulate prices. Others aremerely responsible for verifying compliance with aprice cap regime prescribed in a long term licence,or adjusting the X-factor in a price cap regime every


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Overview

few years. Different functions and objectives requiredifferent types and levels of professional assistance.

For these reasons, it would not be useful toprescribe an ideal model for a regulatory organiza-tion. However, some general observations can bemade:

➢ Regulatory decision-making requires multidisci-plinary skills. Specific types of regulatorydecisions require qualified economists,engineers, lawyers, accountants and financialanalysts. However, many other decisions benefitfrom having a range of different professionalskills and perspectives brought to bear. Wherehigh-calibre professional skills are notimmediately available within the public service,outside experts should be brought in. Expertswith hands-on experience with establishedregulators can be particularly valuable. Outsideexperts can be replaced as good permanentstaff are hired and trained.

➢ The telecommunications environment is chang-ing rapidly. Accordingly, regulatory organizationsshould not establish rigid hierarchies; theyshould be flexible and adaptable. Many effectiveregulatory organizations employ a “task force” or“working group” approach to staffing teams toadvise on important regulatory decisions. Thesetask forces are often selected from differentbranches of the regulatory organization. Theyare frequently brought together solely for aspecific project.

➢ Consideration should be made to contractingout specific regulatory functions, rather thanbuilding large permanent staff organizations.This approach is recommended by the authorsof the regulatory strategies checklist fordeveloping economies (Table 1-4). They providethe following examples. Audit firms can monitorcompliance with operating licence conditions. InArgentina, a private contractor monitors compli-ance with radio spectrum rules. External expertscan also resolve operator disputes, leaving finaldecisions to the regulators. Many other exam-ples exist.

1.2.3 International Agencies

The following sections describe the organization andfunctions of various international organizations thatplay an important role in telecommunicationsregulation.

1.2.3.1 International TelecommunicationsUnion (ITU)

Overview of the ITU

The ITU was founded in Paris in 1865 as theInternational Telegraph Union. It changed its nameto the International Telecommunication Union in1934, and became a specialized agency of theUnited Nations in 1947.

The ITU is a global organization which includespublic and private sector participation on telecom-munications matters. The ITU’s mission covers thefollowing areas or “domains”:

➢ technical domain: to promote the developmentand efficient operation of telecommunicationsfacilities, in order to improve the efficiency oftelecommunications services, their usefulness,and their general availability to the public;

➢ development domain: to promote and offertechnical assistance to developing countries inthe field of telecommunications; to promote themobilization of the human and financialresources needed to develop telecommunica-tions; and to promote the extension of thebenefits of new telecommunications technolo-gies to people everywhere;

➢ policy domain: to promote, at the internationallevel, the adoption of a broader approach to theissues of telecommunications in the globalinformation economy and society.

As of 1 July 2000, the ITU comprised 189 MemberStates and over 600 Sector Members. The latterinclude scientific and industrial companies, publicand private operators, broadcasters andregional/international organizations.


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Structure of the ITU

Under its constitution, the ITU’s organizationalstructure comprises the following elements:

➢ The Plenipotentiary Conference, which is thesupreme authority of the Union. It meets everyfour years to:

(a) adopt the strategic plan and fundamentalpolicies of the organization;

(b) amend the Constitution and Convention asrequired; and

(c) adopt a financial plan for the next four-yearperiod.

➢ The Council, which is composed of 46 ITUMember States (representing 25% of theUnion's membership). The Council acts onbehalf of the Plenipotentiary Conference andmeets annually to consider broad telecommuni-cations policy issues in order to ensure that theUnion's policies and strategies respond to theconstantly changing telecommunicationsenvironment. The Council is also responsible forensuring the efficient co-ordination of the workof the Union and the approval of its budgets.

➢ World Conferences on International Telecom-munications, which are convened periodically toreview and revise the International Telecommu-nication Regulations. The Regulations are aninternational treaty governing the provision andoperation of public telecommunicationsservices, as well as the underlying transportmechanisms used to provide them. The Regu-lations provide a broad, basic framework fortelecommunications administrations andoperators in the provision of international tele-communications services.

➢ The Radiocommunication Sector (ITU-R) ischarged with establishing technical characteris-tics and operational procedures for wirelessservices. The Sector also plays a key role in themanagement of the radio frequency spectrum.In its role as global spectrum co-ordinator, theRadiocommunication Sector develops the RadioRegulations, a binding set of international rules

that govern the use of the radio spectrum bysome 40 different radiocommunications servicesaround the world. The Sector also acts, throughits Bureau, as a central registrar of internationalfrequency use. It records and maintains theMaster International Frequency Register whichcurrently includes around 1,265,000 terrestrialfrequency assignments, 325,000 assignmentsservicing 1,400 satellite networks, and another4,265 assignments related to satellite earthstations.

In addition, the ITU-R is responsible for co-ordinating efforts to ensure that communica-tions, broadcasting and meteorological satellitescan co-exist without causing harmfulinterference to one another’s services. In thisrole, the ITU facilitates agreements betweenoperators and governments, and providespractical tools and services to help frequencyspectrum managers carry out their day-to-daywork.

The legislative and policy functions of theRadiocommunication Sector are performed byworld radiocommunications conferences, whichadopt and revise the Radio Regulations, byregional radiocommunications conferences, andby radiocommunications assemblies supportedby study groups.

➢ The Telecommunication StandardizationSector (ITU-T) co-ordinates the internationaltelecommunications standards-setting activitieswhich result in the ITU-T Recommendations.The Standardization Sector carries on the stan-dardization efforts of the ITU which span morethan 130 years. Today, these efforts includedevelopment of standards for Internet Protocol(IP) networks, and IP-based systems.

The majority of the membership of the ITU-Tcomes from the private sector. Given the rapidpace of technical and market developments, theTelecommunication Standardization Sector’smain challenge is in speeding up time-to-marketprogress of its Recommendations. The legisla-tive and policy functions of the StandardizationSector are carried out through World Telecom-munication Standardization Assemblies,supported by study groups.


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Overview

➢ The Telecommunication Development Sector(ITU-D) discharges the ITU’s responsibilities asa United Nations specialized agency and as anexecuting agency for implementing projectsunder the United Nations development systemor other funding arrangements.

The ITU calculates that a lack of reliable access tobasic telecommunications services affects aroundtwo-thirds of its 189 member countries. It is the taskof the ITU-D to help redress this imbalance bypromoting investment and the implementation oftelecommunications infrastructure in developingnations throughout the world.

The ITU-D maintains a regional presence via 11offices located in Africa, the Arab States, Asia, theCaribbean and Latin America. The Telecommunica-tion Development Sector's two Study Groupsdiscuss key telecommunications developmentissues and policies. They also establish bestbusiness practices for the deployment, managementand maintenance of networks and services. Specialattention is paid to the needs and concerns of theUN-designated Least Developed Countries.

Sector activities range from policy and regulatoryadvice, advice on the financing of telecommunica-tions and on low-cost technology options, assistancein human resource management, as well as well asthe development of initiatives targeting ruraldevelopment and universal access. The ITU-Demphasizes partnerships with the private sector.

ITU-D also produces a range of informationresources which provide analysis of trends in theglobal telecommunications sector backed by officialstatistics from the world's leading source of tele-communications information. Examples include theWorld Telecommunication Development Report(WTDR), which provides a comprehensive overviewof transition in the telecommunications industry andthe annual Trends in Telecommunication Reform(Trends). Trends is based largely upon the annualTelecommunication Regulatory Survey conductedby the Telecommunication Development Bureau.The Bureau monitors world telecommunicationsreform and maintains a regulatory database forgovernments reforming their telecommunicationssectors.

The policy functions of the Development Sector arefulfilled by World and Regional TelecommunicationDevelopment Conferences supported by studygroups.

➢ The General Secretariat: Manages theadministrative and financial aspects of the ITU’sactivities, including the provision of conferenceservices, the management of the ITinfrastructure and applications, long rangestrategic planning, and corporate functions(communications, legal advice, finance,personnel and common services).

The General Secretariat is also responsible fororganization of the world and regionalTELECOM Exhibitions and Forums.

1.2.3.2 Other International Organizations

Organizations Interested in TelecommunicationsRegulation

A large number of international organizations play arole in telecommunications regulation and regulatoryreform. For some, telecommunications regulation isa major part of their mandate. Others deal with it asan ancillary matter. An example of the latter is theWTO, which has dealt with telecommunicationsregulation as a means of promoting its coreobjective of facilitating international trade.

The focus of the organizations listed below variesconsiderably. Some have regional or globalmandates to improve regulation, or to carry outspecific regulatory functions. Some promoteregulatory reform. Others provide technicalassistance and fund consulting resources, studies,workshops and other activities to increase regulatoryknow-how. Still others act as focal points for theexchange of information between regulators andother stakeholders in the telecommunications regu-latory process.

International organizations with a major role in tele-communications regulation are listed in Table 1-3.


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Table 1-3: Selected International Organizations Interested in Telecommunications Regulation

Organization Activities

African Development Bank(AFDB )

http://www.afdb.org

Like its Asian and Inter-American counterparts, the Asian DevelopmentBank provides financial and technical assistance for the establishment,expansion, improvement and integration of public telecommunicationssystems in Africa. Its programs are aimed at infrastructure development,increasing access to telecommunications services and improving thecontribution of the telecommunications sector to its members’ economicgrowth. It also aims to improve the competitiveness of Africa’stelecommunications industry, and provide the conditions for its participationin the information economy. Among the main activities of the bank is theprovision of support for privatization and strengthening of institutionalframeworks.

African TelecommunicationsUnion (ATU)

ATU co-ordinates the development of an African telecommunicationsnetworks. It promotes telecommunications development in Africa by servingas a regional discussion forum. (Formerly known as Pan-AfricanTelecommunications Union.)

CaribbeanTelecommunication Union(CTU)

http://www.ctu.org

CTU promotes telecommunications development and regulatory reform byserving as a regional discussion forum. It also promotes co-ordination of theinternational policies of its 13 English-speaking Caribbean member states.

Common Market for Easternand Southern Africa(COMESA)

http://www.comesa.org

COMESA serves the English-speaking sub-regions of Eastern and SouthernAfrica. In collaboration with the ITU, COMESA’s Transport andCommunications Division provides technical assistance in several areas,including network connectivity and tariffs.

European Bank forReconstruction andDevelopment (EBRD)

http://www.ebrd.org

The EBRD is an international financial institution established alongsomewhat similar lines as The World Bank Group, and particularly one of itsmembers, the International Finance Corporation (see description of TheWorld Bank below this table). The EBRD supports telecommunicationsprivatization in Central and Eastern Europe and in the former Soviet Union(FSU) through the provision of equity or long-term debt financing to newlyprivatized companies and by providing pre-privatization finance. The EBRDprovides support for new network operators in local, domestic andinternational long distance, and mobile telephone services. It also supportsregulatory reform through its Technical Co-operation Programme, which hasprovided assistance to national authorities in establishing and improving thetelecommunications legal and regulatory framework.

European Conference ofPost andTelecommunicationsAdministrations (CEPT)

http://www.cept.org

CEPT’s Telecommunications Committee (ECTRA) promotes co-operationbetween member administrations and bodies responsible fortelecommunications policy and regulation. Its activities includeharmonization of licensing conditions, spectrum management andnumbering.


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Overview

Table 1-3: Selected International Organizations Interested in Telecommunications Regulation (cont’d)

European Commission –DGIS

http://www.europa.eu.int

The EU shapes telecommunications law and policy in Europe throughlegally binding instruments. Its directives on different aspects oftelecommunications liberalization aim at developing a common market fortelecommunications service and equipment throughout Europe. TheDirectorate-General for the Information Society (DGIS) implements theEuropean Commission’s policies in the area and elaborates the economic,political and social analyses on which such policies are based. The DGISsupports telecommunications sector reform through programs andinitiatives, which include monitoring activities and assistance in theestablishment of regulatory frameworks consistent with the Commission’spolicies. The European Union provides additional support for economicreform in Central and Eastern Europe through development programs suchas PHARE and TACIS.

EuropeanTelecommunications Office(ETO)

http://www.eto.dk

ETO supports the establishment of new regulatory regimes for liberalizedtelecommunication markets and promotes the harmonization of existingregulations. It promotes the establishment of common procedures forlicensing and numbering. ETO also provides a forum for discussion andanalysis of national situations and undertakes studies on issues of topicalconcern. Recent ETO studies cover the areas of licensing, pricing,numbering and mobile number portability.

Gulf Co-operation Council(GCC)

The Telecommunications Department of the GCC has assisted Persian Gulfmember states to co-ordinate telecommunications services tariffs, adopt theGSM mobile telephony standard and harmonize the curriculum taught atacademic institutions and training centres in GCC member states. It alsoworks with the ITU to promote harmonization and standardizationprocesses.

Inter-American DevelopmentBank (IADB)

http://www.iadb.org

The IADB provides financial assistance for the establishment, expansion,improvement and integration of public telecommunications systems. It alsoprovides technical assistance at all stages of the projects it finances andsupports its member countries in the rationalization of telecommunicationsactivities, with special emphasis on institutional reform and strengthening ofregulatory capabilities. Its areas of involvement include local networks andrural telephony.

Inter-AmericanTelecommunicationsCommission (CITEL)

http://www.citel.oas.org

As the principal advisory body to the Organization of American States (OAS)on matters related to telecommunications, CITEL’s main objectives are tofacilitate and promote the development of telecommunications in theAmericas, in order to contribute to the overall development of the region.

International FinanceCorporation (IFC)

http://www.ifc.org

A member of The World Bank Group (see separate description below thistable). Together with the World Bank, IFC works through the new GlobalInformation and Communications Technology Group (GICT) to promote thedevelopment of the telecommunication sector in emerging economies,particularly through private participation. The IFC has financed a largenumber of telecommunications projects throughout the developing world inareas such as basic wireline services, cellular telephony, equity funds fortelecommunications service providers and equipment manufacturers, aswell as satellite, wireless local loop and cable television operations.


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International Institute ofCommunications (IIC)

http://www.iicom.org

The IIC is a multidisciplinary organization that brings together policy makers,regulators, academics and industry players. It provides a forum for theexchange of ideas on topics related to telecommunications and theircommercial, cultural, political and social implications. It maintains an activepublication program, hosts an annual conference and organizesinternational fora on a regular basis.

InternationalTelecommunication Union(ITU)

http://www.itu.int

See separate description of ITU above this table.

Latin American Forum ofTelecommunicationsRegulators (REGULATEL)

http://www.regulatel.org

REGULATEL encourages co-operation and co-ordination of efforts among16 Latin American telecommunications regulatory agencies and promotesthe development of telecommunications in the region. It provides a forum fordiscussion and for the exchange of information and experience intelecommunications policy and regulation.

Mercosur (SouthernCommon Market)

http://www.mercosur.org.uy

Mercosur supports telecommunications liberalization among its members(Argentina, Brazil, Paraguay and Uruguay). Through its PublicTelecommunications Services Commission, Mercosur promotes regionaltelecommunications development, harmonization of spectrum managementand equipment certification and homologation as well as the exchange ofinformation on telecommunications topics.

Organization for EconomicCo-operation andDevelopment (OECD)

http://www.oecd.org

The OECD publishes data and studies on telecommunications markets. Itpromotes telecommunications reform as a means to achieve sustainablegrowth and employment that contributes to economic and social welfare, aswell as to the expansion of world trade.

Pacific TelecommunicationsCouncil (PTC)

http://www.ptc.org

PTC membership includes individuals, businesses and non-profit entities. Itprovides a forum for discussion and exchange of information ontelecommunications in the Pacific area. It promotes regulatory reform andgeneral awareness of the telecommunications sector in the area. PTCorganizes conferences and seminars and interacts with national, regionaland international organizations responsible for telecommunications policyand regulation.

Regional African SatelliteCommunicationsOrganization (RASCOM)

http://www.rascom.org

Among RASCOM’s main objectives is the improvement of inter-urbancommunications in its member states through the establishment of directsatellite links between African countries. It also promotes the provision oftelecommunications service to rural and remote areas.

Regional Commonwealth inthe Field of Communications(RCC)

RCC co-ordinates network development, technical standards and spectrummanagement activities in CIS countries. It also co-operates with itsmembers in the development of principles governing tariff policy as well asnetwork interconnection and interoperability. In addition, the RCC is involvedin joint research and development programs, and the training ofcommunications specialists.


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Overview


TelecommunicationRegulators Association ofSouthern Africa (TRASA)

http://www.trasa.org

TRASA’s main goal is to increase communications and co-ordinationbetween regulatory authorities in the Southern Africa region. TRASA seeksto encourage investment in the telecommunications sector by supporting thecreation of a common enabling environment. The member states of theSouthern African Development Community (SADC) are committed toundertaking initiatives to improve the economic and social well-being of theirpopulations through telecommunications sector reform.

West AfricanTelecommunicationsRegulators Association(WATRA)

WATRA was formed in September 2000 by West Africantelecommunications regulators, as a regional organization similar to TRASA(see above).

The World Bank Group

http:www.worldbank.org

See separate description below this table. Members of The World BankGroup provide loans, equity and guarantees to developing countries. Theyalso provide information, advice and assistance on telecommunicationssector reform and national information infrastructure strategies.

World Trade Organization(WTO)

http://www.wto.org

The WTO is the international body responsible for the administration of theGeneral Agreement on Trade in Services (GATS), which includes an Annexon Telecommunications and a Protocol regarding basic telecommunicationsservices. This Protocol, officially known as the Fourth Protocol to the GATSAgreement, is referred to throughout this Handbook as the WTO Agreementon Basic Telecommunications (see Appendix A and Appendix C: Glossary).The WTO provides a global forum for trade negotiations and disputeresolution. The WTO also monitors national trade policies and providestechnical assistance and training for developing countries concerning theimplementation of their WTO commitments, including required regulatoryreforms.

Multilateral and Bilateral DevelopmentOrganizations

A number of multilateral and bilateral developmentorganizations have an interest in telecommunica-tions regulation. These organizations focus oncountries with developing and transitionaleconomies. The goal of such developmentorganizations is generally to assist in establishing aregulatory framework that will promote telecommu-nications sector development – and with it, generaleconomic development.

These organizations generally provide technical as-sistance to governments and regulators to promotethe development of a sound regulatory structure.Such technical assistance may include advice fromexpert staff resources, payment for independenttelecommunications advisors (economists, lawyers

and other consultants), training programs, seminars,workshops and staff exchanges.

Some major multilateral development organizationsactive in promoting telecommunications sectorrestructuring and regulatory reform are listed inTable 1-3. These organizations include:

➢ The World Bank Group, including:

➢ International Bank for Reconstruction andDevelopment (IBRD);

➢ International Development Association (IDA);

➢ International Finance Corporation (IFC); and


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➢ Multilateral Investment Guarantee Associa-tion (MIGA).

➢ European Bank for Reconstruction andDevelopment (EBRD);

➢ Asian Development Bank;

➢ African Development Bank;

➢ Inter-American Development Bank; and

➢ Andean Development Corporation.

Many bilateral development organizations also playa role in promoting regulatory development. Theseinclude national development organizations such asUS AID, Denmark’s DANIDA, and Canada’s CIDA.They also include regional programs aimed atpromoting telecommunications development, suchas the European Commission’s PHARE program.

A comprehensive review of the role of multilateraland bilateral development organizations in tele-communications sector regulation is outside thescope of this Handbook. We will describe one keyinstitution, The World Bank, in greater detail. TheWorld Bank has been active in the telecommunica-tions field for many years, and a description of itschanging role illustrates a trend common to someother major development organizations.

The World Bank

The World Bank Group has played an important rolein telecommunications sector reform, includingregulatory reform, in developing and transitionaleconomies.

In the past, the Bank provided a significant source ofdirect financing for the expansion of telecommunica-tions infrastructure by PTTs. Since the mid-1990s,Bank lending to state-owned enterprises has beencontingent on a firm commitment from its clientgovernments to sector reform. Such commitmentshave included a clear exit strategy for government'sinvolvement in the ownership and management oftelecommunications operators. Alternatively,commitments have included specific progress inreform aimed at commercializing, privatizing, facili-

tating entry into the sector and making the sectormore efficient.

The Bank has been a catalyst in promotingprivatization and market-based solutions to thedevelopment of the telecommunications sector. TheBank’s goal has been to create a sustainableenvironment to attract private investment required toaccelerate and sustain telecommunications sectordevelopment. Accordingly, Bank policy advocatesusing scarce official funds mainly to support sectorreforms, including regulatory reform, that are likely tomobilize private capital and management to developthe sector.

In terms of a regulatory framework, the Bankadvocates separating the government’s policy andregulatory functions from telecommunicationsoperations. It supports (a) strengthening thegovernment’s capacity to formulate and overseepolicy, and (b) creating a regulatory regime andinstitutions that emphasize competition whilekeeping regulatory intervention to a minimum.

Consistent with its poverty-reduction goals, the Bankencourages governments to develop strategies toextend telecommunications services throughout thepopulation, including the least privileged groups.

Today, the Bank is leading the way in supportingsolutions to alleviate the effects of the digital divide.The Bank’s aim is to encourage investments as wellas policy and regulatory reforms to create aliberalized environment which will foster thedevelopment of communications infrastructure. Suchan environment should also promote access to anduse of the emerging knowledge-based globaleconomy in the fight against poverty.

The Bank is also active in the development anddissemination of information resources to promoteregulatory reform and to strengthen regulatorycapabilities. For example, infoDev, a multi-donorgrant facility administered by the Bank, providesfunding for innovative projects that use informationand communications technologies to facilitateeconomic and social development at the local,national, regional and global levels.

infoDev, through its networking with governments,multilateral and bilateral donors, the private sector


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Overview

and not-for-profit organizations, provides links totechnical, informational and communicationsexpertise available throughout the world. Theprogram has provided funding to support the ITURegulatory Colloquia and other initiatives to expandregulatory knowledge and experience, including thepreparation of this Telecommunications RegulationHandbook.

1.3 The Regulatory Process

Regulators employ a variety of regulatoryprocedures. Depending on the legal framework, theymay issue different types of “regulatory instruments”,such as regulations, decisions, orders, decrees,rules, policies, notices, resolutions. In general, theeffect of these instruments is to make “decisions”that implement regulatory policies, resolve disputes,or deal with other matters within the regulators’mandate. In this section, we focus on the generalprocess used in making regulatory decisions. Thediscussion in this section disregards the country-specific legal form that such decisions may take.

Regulatory decision-making can be difficult.Interested parties may vigorously promote and lobbyin support of different outcomes for many regulatorydecisions. In most cases, some parties will be happywith a regulatory decision, and others will not.Decisive regulators necessarily create winners andlosers in some situations. Indecisive regulators maytry to avoid offending anyone by delaying decisions,or creating unworkable compromises. Suchindecision and compromises can damagedevelopment of the sector and ultimately help noone.

The principles of good regulatory decision-makingare well known. They include:

➢ Transparency;

➢ Objectivity;

➢ Professionalism;

➢ Efficiency; and

➢ Independence

The laws and jurisprudence of most countriesprovide guidance and constraints on the regulatorydecision-making process. Procedural rules vary fromcountry to country and legal system to legal system.However, there are common trends.

Two “fundamental rules” of procedural fairness incommon law countries are worth noting. While theyare not legally binding on regulators in many othercountries, they are widely respected. Adherence tothem will often alleviate political and public relationsproblems as well as legal challenges. These rulesare:

(1) Provide all interested parties with anopportunity to comment or otherwise make theircase, before making a decision that affectsthem. This rule is sometimes expressed bymeans of the Latin maxim audi alteram partemor “hear the other side”. Breach of thisprocedural rule will lead the courts to quashregulatory decisions in some common lawjurisdictions. In other jurisdictions, this rule ispart of the unwritten code of basic proceduralfairness applied by regulators. The rule has apragmatic basis, as well as a legal one. Unlessperspectives of all interested parties are takeninto account, regulators risk making decisionsthat ignore important factors. Taking thosefactors into account can lead to different andbetter decisions. Application of this rulepromotes transparent decision-making.

(2) “Don’t be a judge in your own cause”. Thisrule is based on another Latin legal maxim:nemo judex in sua causa debet esse. The rulehas been interpreted to mean that regulatorsshould avoid bias as well as the perception ofbias. They should not make decisions onmatters in which they have a personal interest.Nor should they make decisions on matterswhere a reasonable person, knowledgeable ofall the facts, would perceive a real likelihood ofbias. In the words of the jurisprudence: “justicemust not only be done, it must be seen to bedone”. Perceptions of regulatory bias can stemfrom any number of factors, from a relative’sfinancial interest in a matter, to a former positionas part of the management of a PTO that is thebeneficiary of a regulatory decision. Application


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of this rule promotes objectivity and credibility ofthe regulatory process.

While these common law rules are not mandatoryand do not cover all the bases of good decisionmaking, they will promote credible and impartialgood decision-making. Various other rules andprinciples for good regulatory decision-making havebeen promulgated by different regulators. A goodexample of such principles was developed by theAustralian regulator. These principles aresummarized in Box 1-3.

A variety of procedures are available to assistregulators to make better regulatory decisions. Thechoice of procedures will vary with the objectives ofthe decision-making process. Depending on thecircumstances, the following approaches shouldhelp regulators achieve the hallmarks of gooddecision-making, namely: transparency, objectivity,professionalism, efficiency and independence:

➢ Use public processes, wherever time permits.Issue public notices inviting comments onproposed rules or approaches to regulating theindustry and other major decisions. Publish adsin newspapers or other media to let the publicknow about such opportunities.

➢ Design public processes that will improve thequality of public input. Provide backgroundinformation and options for the decision to bemade, in notices or consultation documents.This approach helps to focus industry commentsand to provide more useful input on the issuesto be determined by the regulator. Thisapproach has been used successfully in a widerange of countries, such as Jordan, SouthAfrica, the US, the UK and Colombia.

➢ Publish all significant regulatory developmentson a regulatory web site. The web site can alsobe used to invite the industry and othermembers of the public to comment on pendingregulatory decisions. Publish decisions, rules,procedures, notices, and consultation papers onweb sites. Provide links to other useful sites forparties wishing to participate in the regulatoryprocess. Require major operators to provideuseful public information, such as rates, serviceoptions and complaint procedures, on their websites.

➢ Provide written information requests to majoroperators on complex matters. Have themprovide the regulator with technical, financial

Box 1-3: Principles of Proper Decision Making

1. Decisions must be within legal authority of regulator

2. The regulator must consider all relevant matters and disregard irrelevant ones

3. Decisions must be made in good faith and for proper purposes

4. Factual underpinnings of decisions must be based on evidence

5. Decisions must be reasonable

6. Those affected by a decision must be accorded procedural fairness (including the right torespond to prejudicial arguments and evidence that may be taken into account)

7. Government policy must be properly applied

8. Independent regulators must not act on the direction of other persons

Note: These principles were adapted from those developed by the Australian CommunicationsAuthority


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Overview

and economic information necessary to makeinformed decisions. Ask them to providedetailed arguments and evidence on actionsthat the regulator is considering.

➢ Encourage electronic filing of applications,comments and all other material filed byinterested parties. If necessary to protectsensitive confidential information, provide forsecure electronic filing. In other cases,encourage public filings that are accessible andtransparent to the industry and other interestedparties.

➢ Use alternative dispute resolution techniques toresolve complex issues. These includemediation and arbitration. Consider hiringindependent experts as mediators andarbitrators. They can report to the regulator forguidance or a final decision, where necessary.

➢ Follow the basic steps to informed decision-making. Decide what type of information wouldbe relevant in making a decision. Determine thebest means to gather appropriate information(e.g. staff research, consultants studies,information requests to operators, etc.). Providean opportunity for comment on the evidence byinterested parties and the public; and make adecision based on the public record, whereverpossible.

➢ Streamline decision-making where possible.Establish and publish schedules for decision-making processes – and stick to them.

1.4 Principles for EffectiveRegulation

Although telecommunications markets around theworld are in transition, the basic direction of changeis similar in most countries. It is therefore notsurprising that the principles of effective regulationaround the world are converging. However, applica-tion of these principles will vary considerably,depending on the structure and state of evolution ofa particular telecommunications market, theresources of the country, its legal framework andregulatory capabilities.

In the following sections, we review basic principlesfor effective regulation that can be applied indifferent circumstances.

1.4.1 Minimize Regulatory Intervention AfterCompetition is Established

Regulation should be kept to a minimum, particularlyin competitive markets. The evidence from aroundthe world indicates that freely competitive marketsare better able to meet the demands of consumersthan government controlled ones. The advantagesof privatization and liberalization can be lost, orseverely limited by burdensome regulatorymeasures.

The extent of regulation should be geared to thestate of development in a market, and particularlythe level of competition. As competition increases,regulation should decrease.

However, there must often be decisive regulatoryintervention in the early stages of market liberaliza-tion, in order to ensure effective competition has achance to emerge. Clear decisions to removebarriers to competition early in the process willstimulate competition and permit greaterderegulation down the line. While markets are beingopened to competition, regulation should normallybe focussed on the incumbent operators, whosenetworks must be open to interconnection andunbundled to permit new entrants to be viable.

There is a tendency among new regulators to try tobe “even-handed” and to treat incumbent operatorsand new entrants the same. This approach canactually increase regulatory intervention over thelonger term. It can impose unnecessary burdens onnew entrants, and prevent implementation of“asymmetrical” regulatory initiatives that will openthe PSTN to competition.

This lesson has taken some time to learn. Initially,for example, many regulators have declined tointervene decisively in interconnection disputes,suggesting that competitive entrants and incumbentoperators should “freely negotiate” the terms of inter-connection with the PSTN. It took years for someregulators to realize that most incumbent PSTNoperators had few incentives to negotiate favourableinterconnection agreements with their would-be


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competitors. Rather than minimizing regulation, thishands-off approach can lead to repeated regulatoryintervention on interconnection issues over aprotracted period of time.

Over the years, more and more regulators haverealized that decisive regulatory intervention isrequired to implement interconnection arrangementsthat will substantially increase competition. Suchintervention includes proactive regulation, that isadvance guidelines, as well as dispute resolution.Regulatory thinking is evolving on this subject.

Regulation of interconnection represents one of asmall number of exceptions to the general rule. Inmost cases, regulation can and should beminimized. Interventionist measures should alwaysbe assessed against their objectives. Are theobjectives valid? If so, are the measures the leastintrusive means of achieving the objectives?

A recent European case provides an example wherethese questions were asked, and a less interven-tionist regulatory approach was adopted. For manyyears governments in various countries haveadministered testing and certification programs forterminal equipment attached to telecommunicationsnetworks. This approach was reviewed by the EU inan effort to reduce unnecessary regulation. As aresult, the EU recently decided to abandon itsprevious approach to regulation of terminalequipment in favour of industry self-reporting. The1999 EU Directive on Radio and TelecommunicationTerminal Equipment, requires only manufacturers’declarations of conformity with essential require-ments. This type of regime should permit newtechnologies to be introduced more quickly, withfewer regulatory delays or other barriers.

This European example may not be applicable insome developing countries, where, for examplethere is no effective frequency spectrum monitoring.However, in all countries, new regulatory measuresshould be assessed carefully to ensure they providethe most efficient means of achieving validobjectives.

1.4.2 Harmonize with Regional and GlobalRegulatory Standards

The basic technologies and economics of the tele-communications industry are the same around theworld. Today, a small group of manufacturers isresponsible for producing the majority of switching,transmission, terminal, software and related networkfacilities used almost everywhere. Even where thereare variations in technology or local applications, thesame basic network architectures are employed.The trend to harmonization of telecommunicationstechnology is increasing.

The basic economics of telecommunications servicemarkets is also the same in most countries.Businesses and consumers all demand telecommu-nications services, with increasingly advancedfeatures, at the lowest possible price. Other thingsbeing equal, suppliers that meet that demand bestwill succeed. Those that fail to compete successfullywill be bypassed by consumers and their competi-tors. While the ability of businesses and consumersto pay for services varies greatly, this variation doesnot account for the large differences in approachesto regulation around the world. Equally rich countrieshave often taken very different regulatoryapproaches, as have equally poor ones.

Regulatory differences are often ascribed todifferences in the legal, institutional, political orcultural framework of different countries. Thesedifferences are important, but generally do not justifysubstantial differences in technical or economicaspects of regulation.

Telecommunications markets are increasinglybecoming regional and global markets. Whilesuccessful telecommunications service providers willalways be close to their customers, they must thinkglobally in terms of their business and competitivestrategies. Regulators should do the same.

Regulators that impose uniquely local regulatoryburdens, or more costly requirements than othercountries, can handicap players in their nationalmarkets. Similarly, regulators that protect nationaloperators from regulatory disciplines that apply inother countries are doing them no favours. Suchregulators will retard competition, service innovationand possibly economic growth by failing to


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Overview

implement the same pro-competitive regimes asneighbouring countries.

Over time, global regulatory standards or “bestpractices” are emerging. Some of those are evidentfrom the list of major global telecommunicationssector reforms in Table 1-1. Others are discussedthroughout this Handbook. Examples of suchstandards are price cap regulation and targeted uni-versal service funds (as opposed to inter-servicecross-subsidy by incumbent PSTN operators). Otherregulatory practices are newer, such as the variousapproaches to requiring unbundling of the local loop.

Some regulatory standards or practices are beingadopted in trade agreements and other internationalaccords. Prime examples are the regulatorydisciplines included in the WTO RegulationReference Paper (see Appendix A).

In this context, it is interesting to note that in late July2000, the US announced that it would request WTOconsultations with Mexico regarding that country’salleged failure to implement its commitments underthe Agreement on Basic Telecommunications. Thisis the first time a country has taken a dispute onbarriers to competition in a telecommunicationsmarket to the WTO. The three issues put forward bythe US for the consultations are: 1) lack of effectivedisciplines over the former monopoly, Telmex, whichis able to use its dominant position in the market tothwart competition; 2) failure to ensure timely, cost-oriented interconnection that would permitcompeting carriers to connect to Telmex customersin order to provide local, long-distance, andinternational service; 3) failure to permit alternativesto an outmoded system of charging U.S. carriersabove-cost rates for completing international callsinto Mexico.

Regulators that are concerned about maintaining thecompetitiveness of their domestic telecommunica-tions markets should monitor international regulatorytrends and become early adopters of trends that willincrease efficiency and competition in their markets.Telecommunications regulation can be complexwithout re-inventing the wheel in each market. Inmost cases, economic and technical regulatorytechniques that have proven themselves in somemarkets will work in other similar markets. Increasedcommunication between regulators and regulatory

organizations to harmonize regulatory approachescan certainly improve regulation.

1.4.3 Introduce Competition

It is widely recognized that the benefits of competi-tion in the supply of telecommunications servicesand facilities far outweigh any disadvantages.Today, telecommunications markets have beenopened to varying degrees of competition in mostcountries around the world.

Over the last decade, the most dramatic progress inliberalizing telecommunications markets occurred inEurope and other OECD countries. Most telecom-munications services in Europe were provided on amonopoly basis at the beginning of the decade. Bythe end of the decade, over 96 per cent of theOECD market, measured by totaltelecommunications revenues, was open tocompetition.

Significant liberalization has also occurred in tele-communications markets in other economiesthroughout the Americas, Eastern Europe and theFSU, Africa and the Asia-Pacific region. Based onITU data for 1999, the most open telecommunica-tions markets globally were in cellular services (67per cent) and Internet services (72 per cent). Basictelecommunications services markets remainedfairly closed. About 73 per cent of global basictelecommunications markets continued to havemonopolies at the beginning of 1999. However,there is no doubt about the trend. Basic telecommu-nications markets are being opened to competitionin all regions. It is in this area that regulators will facethe greatest challenges.

Regulatory involvement is generally required toensure the establishment of viable competition. Thisis not the case in all industries. However, thestructure of the telecommunications industry and thenature of telecommunications networks are suchthat regulation is required. Regulatory intervention isrequired to meet a number of objectives related tothe introduction of competition. Key objectivesdiscussed in detail later in the Handbook are:

➢ To license new competitors and existing opera-tors on terms and conditions that will provide a


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clear and certain basis for both to attractinvestment (see Module 2).

➢ To ensure interconnection of networks andservices, and to resolve interconnectiondisputes (see Module 3).

➢ To prevent incumbent operators from abusingtheir dominant position to drive new competitorsout of telecommunications markets (see Module5).

➢ To prevent dominant operators from chargingexcessive prices for services over which theyhave market power, and using the proceeds tocross-subsidize their services in competitivemarkets (see Module 4).

➢ To ensure universality objectives are achieved ina competitive environment (see Module 6).

Without regulatory intervention to achieve suchobjectives, there is a good prospect that competitionwill fail to produce the benefits that have beenachieved in the world’s more competitive markets.

1.4.4 Regulate by Principle

Regulators are prone to regulate “after the fact”.Sometimes, they wish to avoid regulatoryintervention. In other cases, they are unsure of theright approach to take on a disputed regulatoryissue. In some cases they do not have theresources and professional advice necessary to ruleconfidently on complex issues.

Delays in deciding major regulatory issues canretard development in the sector. Interconnectionissues provide prime examples. If regulators do notprovide clear advance guidance on interconnectionprinciples, parties may negotiate for months oryears, and service introduction will be delayed.

Regulators will understandably want to be careful toavoid decisions on complex issues without carefulconsideration. However, in many cases they canestablish principles to be applied by the industry,without spending an undue amount of time on thedetails of implementation. Those details can often beleft to the industry. Announcement of the principlesin advance can often expedite industry discussions.

Good international practices are emerging on theprinciples for dealing with many types of regulatoryissues. An example is the pricing of unbundled inter-connection facilities. The calculation of telecommu-nications costs can be very complex and timeconsuming for a regulator. However, making adecision in principle that interconnection facilitiesshould be priced at a level equal to estimated LRIC(Long Run Incremental Costs) plus a mark-up forforward looking common costs, is not that difficult.General principles and practices for such costingand pricing decisions have been adopted in manycountries. Best practices are often clearlyestablished and it is not that risky to adopt them.

Regulatory decisions, even ones to adopt generalprinciples, should always be made in a transparentmanner. Providing opportunities for public commenton whether a regulatory principle should be adoptedwill generally improve the quality of the decision aswell as the credibility of the regulatory process.

1.4.5 Establish Operational Efficiencies

Sharing experiences with other regulators can oftenlead to operating efficiencies. Regulatory operationscan clearly be more efficient today than ever before.The Internet, electronic filing of regulatory applica-tions and electronic publication of regulatorydecisions have vastly improved the efficiency andtransparency of regulation. The costs of establishinga regulatory web site and arranging for electronic

Box 1-4: Highlights of 1999 Plan toOverhaul the FCC

➢ Receive 70% of filings electronicallywithin two years, and by 100% withinfive years

➢ Reduce backlogs of pending itemsfor action by 60% in two years; andby 100% in five years

➢ Reduce staff by authorizing“buyouts” of surplus FCC employees

➢ Authorize use of “nonagency expertsand consultants”


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Overview

filing of reports, applications and other regulatorycommunications has declined to a level where everyregulator can use such approaches to increaseregulatory efficiency.

Regulators have adopted many different approachesto improve operational efficiency. An example of oneregulator’s approach is set out in Box 1-4, whichincludes highlights of the FCC’s plan to expedite itsinternal processes in the US.

1.4.6 Strategies for Effective Regulation inDeveloping Economies

While the principles of effective regulation are similarin most countries, some may be applied differently indeveloping economies. There are significantdifferences in resource and other constraints indeveloping economies from those of OECDeconomies. This obviously has implications forregulation. Regulators in developing and transitionaleconomies have a greater need for practical andstraightforward approaches.

Table 1-4: Regulatory Strategy Checklist: Primary (••••) and Secondary (√√√√) Benefits

Measure Reduce Need forAgency Decisions

Enhance RegulatoryCredibility

Use ResourcesEffectively

Accelerate competition • √ √

Prepackage regulatory rules • √ √

Establish rules forinterconnection

• √ √

Keep operators’ obligationsreasonable

• √

Focus licensing on the mainoperators

• √

Rebalance prices early • √

Reduce regulation ascompetition develops

•

Adopt transparent process •

Harness public support •

Lock in principles throughinternational commitments

•

Outsource regulatoryfunctions

•

Adopt alternative disputeresolution

√ √ •

Put the operators to work √ •

Consider multisectoralagencies

•

Create regional capacity •

Source: Smith, P. and Wellenius, B (1999)


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The principles listed above can generally be adaptedto the needs of developing and transitionaleconomies. However, telecommunications expertswith experience in telecommunications regulation insuch economies have developed additional

strategies, which have proven to be effective there.A good paper on such strategies was published bythe senior telecommunications experts of The WorldBank in 1999. The regulatory strategies checklistfrom this paper is reproduced in Table 1-4.

Documents

Telecommunications Regulation Handbook - ITU