1. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 1 OVERVIEW OF REGULATION AND REGULATORY ISSUES NAIROBI, 22nd – 26th March 2004 By : M Nxele Programme Co-ordinator Centre of Excellence for EA

2. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 2 PRESENTATION OUTLINE DEFINITION RATIONALE REGULATION AND COMPETITION REGULATORY MODELS REGULATORY TRENDS

3. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 3 DEFINITION At conceptual level it defines the relationship between the state and the market. (It is a creation and instrument of the state) As market changes, so does regulation. Nature of Regulatory Frameworks is therefore affected by: The types of markets within which enterprises operate Structure of the market Capacity to implement a given regulatory system

4. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 4 INDEPENDENT REGULATION An Integral part of Sector Reform. As Government conceded economic activity to private sector, independent regulation became the watchdogs of Government Policy. This is why they are products of statute. Independence is to ensure they are not influenced by any of the stakeholders.

5. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 5 RATIONALE FOR REGULATION Opening up the Telecoms market as part of Sector reform, allowing competition and private sector participation has at times been referred to as DEREGULATION YET, ESTABLISHING REGULATORY INSTITUTIONS constitutes Re Regulation This is best understood by looking at the Regulators functions:

6. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 6 REGULATORY FUNCTIONS OPERATONAL SECTOR MANAGEMENT SET STANDARDS For example: Quality of service standards for Operators Roll out Targets Positioning of Services Universal Service Obligations, etc

7. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 7 LICENCE CARRIERS Issuing licences to Fixed and mobile operators, VSAT Organisations, ISPs (where this is necessary) Defining terms and conditions of those licenses and monitoring operators operations

8. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 8 REGULATE PRICES This role is applied differently by different players and also depends on different environments. In truly competitive environments, Regulator may not even regulate prices but allow market forces to do so. Customers regulate the market by exercising their right to switch to a cheaper operator. Most markets in Africa have not reached that stage and therefore some form of Price Regulation exists – basically in the form of a Price Capping mechanism. ITU recommends the use of Cost Based Pricing.

9. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 9 MONITOR QUALITY OF SERVICE MANAGING FREQUENCIES The allocation of Frequencies to operators, the pricing of those frequencies and the monitoring of their use is a key regulatory function.

10. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 10 INTERCONNECTION TERMS AND AGREEMENTS So far, Interconnection has proved to be the most contentious area causing disputes. Although regulators have preferred operators to agree on their own terms, invariably, Regulators have had to intervene to deal with a dispute (Case of Tanzania in 2001, Kenya 2003)

11. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 11 APPROVE CARRIERS PLANS TYPE APPROVAL OF CUSTOMER EQUIPMENT 9. USER COMPLAINTS

12. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 12 PROVIDE OPTIMAL CONDITONS FOR PRIVATE SECTOR INVESTMENT IN INFRASTRUCTURE AND SERVICES Provide Investors with clarity and policy making Provide Equity in Policy Implementation Consistency in Regulatory Enforcement - Similar treatment for similar breaches

13. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 13 CREATE A MARKET CONDUCIVE TO COMPETITION Level the Playing Field The relationship in the telecoms market is inherently conflictual: between the Incumbent and new entrants; owners of the backbone network and International Gateway and other users (where backbone is not liberalised). Unless managed, this conflict can become dysfunctional. Discourage uncompetitive practices by dominant players eg. Predatory Pricing Nurture competition

14. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 14 The incumbent operator wants, Maximum fees for terminating the incoming calls from new comers Minimum constraints about interconnection The new entrants want : Minimum fees for terminating their calls in the incumbent network. Maximum flexibility about interconnection (asymetric regulation ) To create a level playing field between incumbent and newcomers The regulatory system aims at finding out a balanced solution between these contradictory objectives

15. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 15 PROMOTE SOCIO- ECONOMIC GOALS Again another contradiction, inherent conflictual relationship may exist in that private investors want to maximise profits and Governments want to maximise sector growth. Regulators have to manage this situation. Regulation is a means to an end. Those who established it (Government) expect it to benefit the end user and through them, society as a whole. Part of Regulators public mandate Examples are; setting Universal Access Goals and Targets. Encouraging ICT Sector Growth Selective Pricing of Spectrum for Public Broadcasting, etc

16. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 16 To attract investors for network operators and services suppliers, which want -profit -high tariffs -minimum constraints To ensure public service for ICT users. To defend end customers, which want: -good quality - low tariffs - universal service obligations CONTRADICTORY OBJECTIVES The regulatory system aims at finding out a balanced solution between these contradictory objectives

17. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 17 REGULATORY MODELS - 5 DIFFERENT MODELS 1. Autonomous Regulatory Agency - High degree of independence examples: Argentina, USA 2. Semi-Autonomous Agency examples: Australia, UK, Hong Kong & Singapore 3. Separate Body within a Telecom Ministry examples: Malaysia, Fiji

18. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 18 Models … 4. Unit within the main Public Telecom Operator - The PTO regulates other players ! * Used in countries where regulation and operation is not separated. 5. No regulatory body for telecommunications - Telecoms are regulated under the general trade laws.example: New Zealand

19. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 19 PROs and CONs Autonomous or semi-autonomous regulatory body: Stable framework High costs Difficult to follow the development within the sector Separate regulatory body within a Government Ministry: Lower costs because of sharing of facilities and manpower Close to the sector Ministry Can prevent impartial acting (PTO controlled by the same ministry)

20. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 20 PROs and CONs … PTO self-regulation Simple and inexpensive No independent check on PTOs behavior or performance No assurance of objectivity towards other parties No Regulation Simple, low costs Some sector-specific regulations must be carried out - (frequencies etc.) - and general agencies are ill-equipped for these tasks)

21. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 21 The tendency moves towards an independent type of regulator - that enhance the independence of the regulator - which requires: Qualified and experienced staff - and freedom to appoint them and determine their salaries etc. A secure budget without any external bureaucratic constraints. The funds could come from licence fees, and the budget should be approved by an independent authority REQUIREMENTS

22. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 22 FORMS OF REGULATION Regulation has different forms and scope of processes, depending on the country and its markets. PRICE CAP REGULATION AIMS AT REDUCING COSTS examples: Argentina, Mexico, Venezuela, Malaysia, U.K PROFIT REGULATION PLACES CEILING ON RETURN ON INVESTMENT examples: Jamaica, Philippines

23. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 23 SERVICE REGULATION AGREED COST OF PROVIDING A DEFINED SERVICE examples: Argentina, Mexico, Venezuela, Malaysia, U.K BENCHMARK REGULATION SIMILAR TO SERVICE REGULATION Uses benchmark Standards example: Chile Forms of Regulation …

24. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 24 REGULATORY TRENDS GLOBAL – GROWTH OF REGULATORY AGENCIES

25. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 25 GROWTH BY REGION

26. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 26 SECTOR SPECIFIC REGULATION Regulation focused on Pricing Competition was still low Monopolies were using uncompetitive practices to keep out new investor REGULUTORY TRENDS

27. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 27 SHIFT TOWARDS ENABLING COMPETITIVE ISSUES Laying the Ground rules to allowing Entry of Competitors Ground rules to facilitate competition To resolve Disputes Issues of Interconnection Numbering Licencing Pricing REGULTORY TRENDS

28. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 28 FOCUSING ON PURSUIT OF MORE SOCIO – POLITICAL GOALS Orientation towards consumer Rights, Issues Universality (UA) REGULTORY TRENDS

29. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 29 RECENT TRENDS FROM TELECOMS REGULATION TO ICT REGULATION CONVERGENCE OF NETWORKS, TELECOMS, BROAD- CASTING AND IT, LEADING TO CONVERGENCE OF POLICIES AND LEGISLATION AND THEREFORE REGULATION 25% COUNTRIES HAVE LEGISLATION ADDRESSING CONVERGENCE. 50% PLAN TO DO SO

30. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 30 RECENT TRENDS IN UK, OFTEL REPLACED BY OFCOM (2003 TANZANIA TCC REPLACE BY TCRC (2003) OTHER COUNTRIES WORKING ON JOINT ICT POLICY (MALAWI, KENYA, BOTSWANA, INDIA)

31. Overview of Regulation & Regulatory Issues – M Nxele, Mar04 31 2000 & beyond Convergence of regulations & institutions in computing, broadcasting, & telecom 2000 & beyond Convergence of regulations & institutions in computing, broadcasting, & telecom By 1999: some 80 countries separating regulatory function from policy- making with competition safeguards By 1999: some 80 countries separating regulatory function from policy- making with competition safeguards 1980s-1990s: many separating operational function by liberalization or privatization 1980s-1990s: many separating operational function by liberalization or privatization Until 1970s: most state monopolies for all functions in telecom Until 1970s: most state monopolies for all functions in telecom Global Trend of Regulatory Frameworks Over Decades

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