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Telecommunications market liberalisation. Feliksas Dobrovolskis Deputy Director, Telecommunications Department RRT, Lithuanian Communications Regulatory Authority. Round table Telecommunications market: competition, investments and regulatory issues Minsk, 25 May, 2004. The m ain issues.

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Telecommunications market liberalisation

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Telecommunications market liberalisation l.jpg

Telecommunications market liberalisation

Feliksas Dobrovolskis

Deputy Director, Telecommunications Department

RRT,Lithuanian Communications Regulatory Authority

Round table

Telecommunications market: competition, investments and regulatory issues

Minsk, 25 May, 2004


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The main issues

  • Competition and liberalisation, main objectives

  • Understanding of the changing roles of national regulatory authorities (NRA)

  • Building and increasing NRAs capacity to promote appropriate regulation – what is the role of the governments?

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Lithuanian market situation

  • Population: ~3.5 millions

  • GDP 2003 : 15.9 milliards EUR

  • GDP growth : 8.1% per 2003 and 7.5% forecast for 2004

  • Telecommunications market size : 0.59 milliards EUR(telephony, interconnection, leased lines and access to internet only)

  • Main market players:

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Main objectives

  • More diversity for consumers

  • To have relevant quality at relevant price

  • To attract more investments

  • To be ready for convergence of the telecommunications, broadcasting and IT sectors

  • To be more competitive in process of globalisation

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Means to achieve objectives

  • Ensure the legal certainty for market players

  • Full liberalisation of the Telecommunications market

  • Introduction of the competition in the market

  • Establishment of the special regulatory measures in non-competitive sectors

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Why to regulate?

  • Telecommunications – infrastructure based economic branch

    • Mostly historic state owned monopolies

    • Infrastructure – substantive barrier for competitors

  • The main aims

    • Promotion of economic efficiency in the sector

    • Protection of public interests

    • Electromagnetic compatibility

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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How to regulate?

  • General competition law

    • Common regulations

    • Remedies after violation (ex-post approach)

    • Mostly inefficient

      • It takes quite long time to remove violation (1-5 years or more)

      • It is difficult to state violation

      • It is problematic to ensure USO provision

  • Sector specific regulation

    • Specific regulations adopted for Telecommunications

    • Advance remedies to prevent competition problems (ex-ante approach)

    • Regulatory Authority is necessary for sector specific regulations

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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EU law requirements for NRAs

  • Independence

    • legally distinct from and functionally independent of all organisations providing electronic communications networks, equipment or services

  • Right of appeal

    • any user or provider of electronic communications networks or services have to be allowed to appeal to an independent appeal body in the case of any disputes with NRA

  • Impartiality and transparency

    • NRAs exercise their powersaccording to the principles impartiality and transparency

    • NRAs make arrangements for consultation of the interested parties

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Indicators of the Independence of NRA

  • Separation of functions and powers between policy making bodies and the NRA

  • NRA should have all necessary powers and responsibilities to attain all regulatory tasks

  • NRA with its own personnel and independent appointment process

  • NRA with separate Budget, self-financing (sufficient to operate effectively)

  • No appeals to or directions from the Government on the regulatory issues

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Lithuanian case: liberalisation of telecommunications

  • The main three steps

    • 07.07.1998 - Privatisation of Incumbent

      • Special Telecom Law

        • Granted monopoly right for fixed telephony till 2003

        • Hard licensing regime

        • Contemplation of establishment of Lithuanian NRA - RRT

    • 01.01.2003 - End of fixed telephony monopoly

      • New Telecommunications Law inline to the EU telecommunications regulatory framework, 1998

        • No licensing for telecommunications activities

    • 01.05.2004 - EU accession

      • Electronic communications law came in to force

        • Inline to the New Regulatory Framework

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Lithuanian case:Establishment of National Regulator - RRT

  • Lithuanian Communication Regulatory Authority RRT has been established on 01.05.2001

    • 20 months till end of fixed telephony monopoly

      • On the basis of State Radio Frequency Authority

      • Limited regulatory power

      • No SMP doctrine

  • New Telecommunications Law has been adopted by the Parliament on 05.07.2002 and came into force on 01.01.2003

    • 6 months for preparation of secondary legal acts including SMP designations and RIO publications

    • New regulatory powers concentrated in one institution

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Evolution of the communications regulatory regime in the European Union

REGULATIONLEVEL

ex-ante approach

ex-post approach

TIME SCALE

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Comparison of the stages of market liberalization in the EU and Lithuania

01.01.2003 - End of fixed monopoly in Lithuania

24.07.2003 - Deadline for implementation of the New RFW in the Member States

01.05.2004 – Lithuania EU Accession: Electronic Communications Law came into force

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Comparison of the stages of market liberalization in the EU and Lithuania

  • Market opening phase (green fields)

    • 5.5 years in the EU (for networks and services)

    • 1.5 year in Lithuania – big challenge for Regulator

      • Very young Regulatory Authority without experience

      • Big market players owned by advanced foreign operators

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Lithuanian case: Market opening phase

  • Took 16 months before EU accession

  • 1998 Regulatory Framework was in place

    • Strong regulation framework – no flexibility for Regulator

    • With some New RFW features

      • Authorisation regime – individual licences has been withdrawn

    • Incumbent has been designated as SMP undertaking since 01.01.2003

      • Fixed voice telephony networks and services market

      • Leased lines market

      • National interconnection market

    • RIO has been published on 01.01 2003

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Lithuanian case: Market opening phase (2)

  • National regulatory authority

    • Has quite enough powers to implement regulations

    • But

      • It is still quite young

      • Market players are very advanced

      • Time frame to make decisions and to have result is very tight

      • Courts: regulatory decisions stopped till the final court decision

    • Nevertheless

      • Incumbent interconnection price reduced more than twice

      • Incumbent has been penalized for infringing accounting separation obligation

        • First instance proved regulatory decision

        • Case still in the court

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Lithuanian case: Market opening phase (3)

  • The RRT had power amongst others to set price for interconnection (IC) and access in order to ensure cost orientation

    • Fully Distributed Costs based on Historical Cost Accounting until LRIC model will be developed

    • In some cases indirect approaches might be used to set IC price (best practice, retail minus)

    • Now public consultation on LRIC concept has been finished

    • Temporal Incumbents IC price has been set in the end of 2003

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Lithuanian case: Market opening phase (4)

  • The RRT experience shows

    • 1998 regulatory framework is not flexible enough

    • Inflexibility causes non-proportionality

    • Hard for SMPs and for NRAs

    • Might be dangerous for sector in long term

  • Market opening phase in Lithuania finished six days ago by entering into force Electronic Communications Law

    • The RRT has more flexibility in setting pricing regimes for wholesale products such as interconnection

      • Price-caps and by fixing the highest price

      • Cost accounting standards and models

      • Best practice

      • Retail minus

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Role of the government

  • Background : EU regulatory framework

    • Rules of the game for whole sector

    • Direct requirement for independence of NRA

    • Defined main NRA powers

  • National Law should empower NRA

    • To ensure

      • Independence including financial and political

        • No involvement of policy makers

        • Budget subject to annual audit by independent audit firm

        • Full authority to take regulatory decisions and recruit staff

      • enough power is necessary to achieve regulatory efficiency

    • In general to promote and encourage sector economy

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Conclusions

  • Ex-ante approach – prevention of abuse of the market position

  • The main background – strong, independent and efficient National Regulatory Authority

  • Consistent transition from market opening phase to the flexible Electronic Communications Regime should be ensured

  • Technology neutral and proportional regulation conditioned by the convergence

  • Role of national regulators in the CEE countries is going to be increased

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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THANK YOU FOR YOUR ATTENTION

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Questions?

Communications Regulatory Authority

Algirdo str. 27

LT-03219 Vilnius

Lithuania

Phone: +370 (5) 210 56 61

Fax: +370 (5) 216 15 64

http://www.rrt.lt

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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Communications Regulatory Authority

Algirdo str. 27

LT-03219 Vilnius

Lithuania

Phone: +370 (5) 210 56 61

Fax: +370 (5) 216 15 64

http://www.rrt.lt

Telecommunications market: competition, investments and regulatory issues

Feliksas Dobrovolskis


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