Telecommunications market liberalisation Feliksas Dobrovolskis Deputy Director Telecommunications

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 Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis Minsk, 25 May 2004

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 Minsk, 25 May 2004 2

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: FIXED MOBILE Name Lietuvos telekomas Omnitel Bitė GSM Tele 2 Group Telia. Sonera TDC Tele 2 Subscribers 822 000 (98%) 1 053 000 507 000 592 000 Market share 96% 56% 25% 17% Penetration 24% Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis 63% Minsk, 25 May 2004 3

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 Minsk, 25 May 2004 4

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 noncompetitive sectors Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis Minsk, 25 May 2004 5

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 Minsk, 25 May 2004 6

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 Minsk, 25 May 2004 7

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 powers according to the principles impartiality and transparency – NRAs make arrangements for consultation of the interested parties Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis Minsk, 25 May 2004 8

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 Minsk, 25 May 2004 9

Lithuanian case: liberalisation of telecommunications • The main three steps – 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. 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 Minsk, 25 May 2004 10

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. 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 Minsk, 25 May 2004 11

REGULATION LEVEL Evolution of the communications regulatory regime in the European Union Market opening Transition phase Strong sector specific regulation ex-ante approach Flexible sector specific regulation Competition Law ex-post approach TIME SCALE Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis Minsk, 25 May 2004 12

Comparison of the stages of market liberalization in the EU and Lithuania 1998 EU LTU 1999 2000 2001 2002 2003 98 Regulatory FW Monopoly 2004 2005…. . New RFW 98 RFW New RFW 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 Minsk, 25 May 2004 13

Comparison of the stages of market liberalization in the EU and Lithuania 1998 EU 1999 2000 2001 2002 2003 2004 98 Regulatory FW LTU Monopoly 2005…. . New RFW 98 RFW New RFW • 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 Minsk, 25 May 2004 14

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. 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 Minsk, 25 May 2004 15

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 Minsk, 25 May 2004 16

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 Minsk, 25 May 2004 17

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 Minsk, 25 May 2004 18

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 Minsk, 25 May 2004 19

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 Minsk, 25 May 2004 20

THANK YOU FOR YOUR ATTENTION Telecommunications market: competition, investments and regulatory issues Feliksas Dobrovolskis Minsk, 25 May 2004 21

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 Minsk, 25 May 2004 22

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 Minsk, 25 May 2004 23