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for Reconstruction and Development

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Presentation on theme: "for Reconstruction and Development"— Presentation transcript:

1 for Reconstruction and Development
European Bank for Reconstruction and Development Policy and Regulation in Telecommunications Paul Moffatt, Counsel, EBRD Sarajevo, 19 April 2002 1

2 Policy and Regulation in the Telecommunications Sector
EBRD participation in the Telecommunications Sector Purpose of Telecommunications Sector Policy Key sector objectives Expected evolution of the sector Initiatives for achieving sector objectives Current sector status Current sector issues Summary of recommendations for further development 3

3 EBRD Participation in Transition
Resident Offices Regional Offices Headquarters Albania  Armenia  Azerbaijan  Belarus  Bosnia and Herzegovina  Bulgaria  Croatia  Czech Republic  Estonia  FYR Macedonia  Georgia  Hungary  Kazakhstan  Kyrgyzstan  Latvia  Lithuania  Moldova  Poland  Romania  Russian Federation  Slovak Republic  Slovenia  Tajikistan  Turkmenistan  Ukraine  Uzbekistan  Yugoslavia

4 EBRD Participation in Telecommunications
Three general forms of participation in the sector: Legal transition programme EBRD’s initiative to contribute to the improvement of the investment climate in the Bank’s countries of operations by helping create an investor-friendly, transparent and predictable legal environment; Participation in privatisation Pre Privatisation Loans; Post-Privatisation Loans; Equity Holdings. Participation in other investments in the sector

5 Purpose of Telecommunications Sector Policy
Telecommunications Sector Policy should be designed to define the parameters within which the telecommunications sector should operate and develop in Bosnia and Herzegovina over the next 3-5 years. Policy is never unchangeable but it should not be altered without discussion and a conscious decision to proceed on an altered course. Sector policy is the responsibility of Government and should be resolved in the interest of Bosnia and Herzegovina.

6 Principle Objectives of Sector Policy
To improve the quality, spread and type of telecommunications services, thereby satisfying demand, promoting economic development and ensuring a continuing contribution to the national budget.

7 Economic and Social Policy Objectives
Economic objective: services should satisfy full range of consumer demand and be supplied under conditions of optimal efficiency. Social objective: services should be made available to all on reasonable terms, whether or not it is profitable to do so. Universal provision of basic telecommunications services of an acceptable quality of service at an affordable price

8 Expected Evolution of the Sector
Medium Term Long Term Start Independent Regulator Established Competitive Market State Ownership & Regulation Public Monopoly of Telecom Services Competitive Safeguards in Place Privatise Incumbent(s) Selected Services Opened to Competition Liberalisation of all telecom services

9 Initiatives for Achieving Sector Objectives
Liberalisation of the sector: Creates positive incentives to improve services and lower tariffs; Attract investment, in order to promote the development of the sector: Best achieved through privatisation of state owned operators, through sale of a controlling stake to a strategic investor, bringing foreign investment and improved management into the sector. 3

10 Initiatives - Liberalisation
An appropriate regulatory framework is necessary to guide the sector from gradually developing liberalisation to full competition. This will involve the imposition of regulatory obligations on operators aimed addressing market failures and fulfilling social policy, e.g.; The regulation of tariffs in the absence of effective competition; Obligations with respect to interconnection of networks; Certain disclosure of technical specifications and interconnect prices in order to permit fair interconnection between competitors etc.; Adoption of a universal service and access policy.

11 Initiatives - Attract Investment (1)
Privatisation by sale of stake to Strategic Foreign Investor: Vital for future development ; Incumbent operators urgently need capital to upgrade the networks. With the constraints imposed on government budget in BiH, the operators are unlikely to be able to raise the necessary funds from central budget; Only the opening of telecommunications networks to private investment will offer necessary finance; Relays beneficial messages it to the investment community about the normalisation of BiH; Will facilitate and be a catalyst for most other policy elements, i.e. competitive provision of services, network roll-out, maximisation of the value of the state operators. 2

12 Initiatives - Attract Investment (2)
Privatisation Objectives: Ensure the sector is a stimulus rather than a bottleneck to general economic development; Improve the quality and quantity of service; Put the company on a sound commercial footing, increasing efficiency, so as to enable it to function in a competitive environment; Unlock the large intrinsic financial value of the sector; Prepare the ground for full market liberalisation.

13 Initiatives - Attract Investment (3)
Essential ingredients: A stable and predictable regulatory regime: there must be regulatory clarity in order to encourage investors (strategic and otherwise) into the marketplace; An adequate legal framework and conditions for inward investment (In addition to an adequate regulatory framework, this would also include corporate governance, corporate law, dividend repatriation, etc.); A demonstrable ability to implement commercial practices for management, technical operation and financing of the company.

14 Initiatives - Attract Investment (4)
Impact of Privatisation Network Investment Estonia Czech Rep Hungary Pre-privatisation Post-privatisation Employment Estonia Czech Rep Hungary Pre-privatisation Post-privatisation Access to Basic Service: Fixed Lines per 100 inhabitants Estonia Czech Rep Hungary Pre-privatisation Post-privatisation Fixed Lines Waiting List Estonia Czech Rep Hungary Pre-privatisation Post-privatisation

15 Initiatives - Attract Investment (5)
Impact of Privatisation - Economy-wide Foreign Direct Investment Estonia Hungary Czech Rep Pre-privatisation Post-privatisation

16 Current Sector Status - Policy
Recently Updated - March 2002; Selection of Privatisation Advisors by March 2002, begin privatising by July 2002; Liberalise all but International Voice Services by June/Dec 2002; Liberalise International Voice Services at End of 2005; Adopt tariff rebalancing mechanism by March 2002 (rebalancing by 2006); Convene Universal Service Forum and define services and determine a funding mechanism by September 2002.

17 Current Sector Status - Regulatory Framework
A large part of a regulatory framework is already in place in BiH, in the form of the CRA. Among CRA’s successes have been: The issue of national country-wide licences to the GSM operators of both the Federation and to RS enabling them, inter alia, to provide national and international services throughout BiH; The development of crucially important regulatory rules that will further facilitate the emergence of a competitive market. E.g. Interconnection rule, Leased Lines Rule; Issuing of revised fixed licences to the state-owned incumbent operators. 4

18 Current Policy and Regulatory Issues
Privatisation; Framework telecommunications law; Entity telecommunications laws; Regulatory capability within the Entities; Completion of the separation of telecommunications functions from that of posts; Corporate structure of BiH operators; Tariffing; Tariff re-balancing; Universal Service. 5

19 BiH Framework Telecommunications Law
Current framework telecommunications law somewhat outdated; Requirement for updated framework law; Main purposes of framework telecom law; Define national telecom policy objectives; Define types of operations & facilities to reduce regulatory uncertainty; Establish structure, role duties and powers of regulatory authority; Establishes licensing regime and defines types of services to be licensed; Sets rules for licensing process, including issuance of licences, amendment, monitoring and compliance; Interconnection & network unbundling provisions; Spectrum management.

20 BiH Framework Telecommunications Law (2)
Procedural provisions of telecom laws or regulations Required to ensure public and investor confidence; Transparent and fair licensing processes will maximise investment; Appeals, review & government oversight role should be clear; Regulatory functions should be exercised through clear, reasoned decisions in accordance with stated policies to eliminate uncertainty; Public reporting of key facility and traffic data required for informed regulation and competitive entry.

21 Regulation in the Entities
In terms of statehood, BiH is quite unique; This uniqueness creates challenges for the regulatory regime; The division of regulatory responsibilities between state and entity levels creates the need for co-ordination among the bodies concerned. In some cases, such as tariffs, interconnection and operating standards for basic telephone services, a close co-ordination of policies between state and entities is required; While state level regulatory framework has been established and is now functioning (relatively successfully), little has been done on a formal basis at entity level to either promulgate state regulatory policy or facilitate the development of entity level policy and machinery that is both appropriate to their competencies and fully consistent with state policy.

22 Separation of Post From Telecommunications
Widely acknowledged as an essential prerequisite for privatisation; Partially achieved but needs full implementation for co- ordination of policy; Relevant authorities will need to address this issue as a matter of urgency.

23 Corporate Structure of BiH Operators
The present structure appears to be based upon technical functions such as switching/routing and transmission, which largely relate to a pre-digital era; Such a structure is hardly appropriate for today’s commercial environment and, consequently, reorganisation, commercialisation and corporatisation of the BiH operators are essential elements in the run up to privatisation and further liberalisation; Without a fully transparent organisation and defined assets private investors cannot be attracted, either foreign or domestic; Such reorganisation and corporatisation is essential for an operator to compete effectively in a competitive and liberalised world and would place any potential investor in a better position to evaluate opportunities

24 Tariffs Two main options:
Tariff regulation is required where there is a real risk of abuse of market power. What ever means of price regulation is chosen should promote long term investment to expand & upgrade network, while ensuring that tariffs are affordable for as much of the population as possible; Two main options: Option 1 - earnings regulation - allows operator to set prices to recover operating costs plus a reasonable return on investment; Option 2 - price cap regulation - prices fixed - usually with annual adjustments for inflation and expected productivity gains.

25 Tariff Rebalancing Tariff rebalancing is the process of adapting the system of political and social prices of public monopolists to a new system of cost utility oriented prices of competitive private operators; In a competitive market prices cannot deviate for long from the individual costs of providing a service to the customer, therefore tariff rebalancing reflects the cost development of modern technologies in telecommunications; Major general cost trends are: - total cost for telecommunications services of a certain quality go down; - usage of networks becomes less costly than access to the network; - costs for international and long distance calls are falling faster than local calls.

26 Tariff Rebalancing (2) The difference in price is often used to subsidise loss making areas of the market (e.g. local calls subsidised by international calls); Unbalanced prices unsustainable in competitive environment; Important to return tariffs to a cost basis; There must be a definite timetable, co-ordinated with other policies.

27 Universal Service Access to socially important services is a crucial political, social and economic issue; Present tariff structures in BiH, whereby profitable international voice services are used to cross-subsidise loss making local voice services will no longer be sustainable in a liberalised market; A new policy approach is required to support access to socially important services; This approach should be aimed at encouraging network roll-out through-out BiH, such that would enable access to basic telecommunications services at a reasonable price thereby reducing negative impacts on socially or geographically disadvantaged areas. The principal policy objectives in this respect are: To permit full participation by all citizens in today’s information society; To promote national political, economic and cultural cohesion; To facilitate economic development; To eliminate disparity, perceived or otherwise, between urban and rural communities.

28 Universal Service (2) Universal service policy should be clarified;
Services should be defined - focus on uneconomic access service; Generally accepted criteria should be applied: transparent, non-discriminatory and competitively neutral - not more burdensome than necessary for the defined universal service; There are two key components: Specify extent of obligations on incumbents - to permit investors to quantify and limit liability to provide uneconomic service to existing and new subscribers Provide efficient & transparent mechanism to finance provision of new non-economic services (e.g. Fund) Apply accepted principles to the mechanism

29 Summary of Recommendations
Implement Privatisation Policy without delay; Enact new BiH telecommunications law - incorporating the various policy and regulatory instruments in place in sector today; Harmonise Entity sector legislation with that of BiH; Continue development of regulatory framework, to include regulatory capacity for Entities; Finalise separation of post from telecommunications; Implement tariff and tariff rebalancing policy without delay - key to both liberalisation and privatisation; Define and implement universal service objective and mechanism without delay - this is also key to liberalisation and privatisation

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