About telecoms reform

No matter how diverse the policies that countries wish to adopt, there are elements and mechanisms that need to be included in any telecommunications framework which aims to attract private investment while contemplating even limited liberalisation.

The EBRD has been an important catalyst of change with respect to reform and development throughout the transition economies. In particular, the EBRD has assistied its countries of operation to gain from the global information and communication revolution. In addition to being a significant investor in the communications sector in the region, the EBRD also provides technical assistance to implement modern and transparent telecommunications regulation and mechanisms which foster the investment environment.

Background

With the increasing globalisation of the world's economies, telecommunications is now a critical component for economic growth and development in both developed and developing countries. It also plays vital role in regional development by improving living conditions in remote areas and enabling communication between peoples. The past decade has seen unprecedented change in the telecommunications sector. Early initiatives by the United States, Canada and the United Kingdom were followed by a wave of liberalising measures which were introduced by the European Union and the entrenchment of principles which are promoted by the World Trade Organisation and other international organisations. Increasing convergence of the information and communication sectors, rapid technological advance, and the Internet have transformed the national and international telecommunications landscape.

Why reform is needed

In many transition countries, the regulatory framework is under-developed and based on the assumption that telecommunications services are provided by a monopolistic state-owned operator fulfilling the political objectives of the government. As a result, even when some limited competition is permitted, there are no regulatory instruments to facilitate new services or to assist new operators to penetrate the market.

To have confidence to invest, investors need to be able to predict the decisions of the licensing and regulatory authorities. This is only possible if the legal framework contains clear guidelines on the decision-making criteria. Policy decisions of a Minister or a Council of Ministers can be unpredictable, and more importantly, easily modified. Investors prefer to place their money in countries where all the crucial telecommunications policy issues are clarified in law. Consequently, adopting modern, clear and predictable regulations, and establishing/strengthening the implementing institutions is fundamental to the success of the telecommunications sector.

The importance of establishing an independent regulatory body with no structural or functional link with any of the telecommunications operators to underpin this framework is well proven. This is a fundamental principle of the EBRD's telecommunications sector policy.

EBRD Telecommunications Policy

In accordance with its policy and established practice, the EBRD provides technical assistance to countries that have expressed a genuine interest in undertaking a major reform of their telecommunications policy. Projects will only be launched if no other law reform facilitator provides adequate assistance and the project is directly related to a Bank investment or to the general investment strategy. In providing technical assistance, the Bank is guided by the following principles:

• Gradual liberalisation of all telecommunications services.
  The Bank takes the view that both the telecommunications sector and the overall economy of the country will benefit greatly from the rapid emergence of competition in all telecommunications markets. However, the Bank recognises that in some cases the grant of a monopoly right to the incumbent operator for a well-defined transitory period in respect of basic fixed line switched voice service may be justified in view of the size of the investment required to fulfill its universal service or similar obligations, network modernisation and the inherent risks of the relevant national economy. The Bank considers that these transitory periods should be specifically defined and strictly limited.

• Establishment of an independent regulator with no structural or functional links with the existing telecommunications operator.
  The Bank considers that the effective separation of the regulatory authority from the owner of the incumbent operator is vital for the creation of a level playing field for new entrants. The Bank therefore supports efforts to create an independent regulator with the powers and means to sanction any anti-competitive behaviour of the incumbent operator and to foster the emergence of competition in the sector.

• Progressive rebalancing of tariffs.
  The Bank considers that the structure of the tariff policy of most dominant operators in the Region constitutes a serious impediment for both liberalisation and privatisation. Tariffs for local telecommunications services are often substantially below cost and need therefore to be subsidised by income generated through the provision of international and long-distance services. This has the following repercussions:
  
  a) Unbalanced tariffs create an obvious opportunity for cream-skimming in the event of competition, thus constituting a deterrent to liberalisation.
  
  b) Unbalanced tariffs offer little incentive to provide local telecommunications services, in particular to remote or sparsely populated areas. Hence, the demand for telecommunications lines exceeds that available and the universal service obligation of the incumbent operator remains unfulfilled.
  
  To compensate the likely adverse social effects of rapid tariff rebalancing, the Bank supports all efforts to develop universal service and/or universal access mechanisms that will permit less privileged customers to benefit from a direct subsidy but which do not disrupt market development by creating competitive advantages or disadvantages.

• Elaboration of a set of rules designed to facilitate the emergence of competition.
  The main objective of these rules will be to enable new entrants to obtain access into the dominant operator's network on fair, objective and transparent terms. The Bank takes the view that effective competition can only emerge if regulatory constraints preclude predatory use of market dominance by the incumbent operator and unfair practices versus its new competitors.

For more background on the EBRD's approach, see:
The building blocks for telecoms reform  (0.2Mb), Law in transition, Autumn 1998
Linking privatisation and regulatory reform  (0.1Mb), Law in transition, Autumn 1998

EBRD legal transition assistance

Implementing technical assistance made it necessary to develop the EBRD's telecommunications regulatory development programme. This programme provides both formal and informal assistance to the countries of operation. The programme helps:

• Adopt robust, modern, clear, transparent and predictable regulatory frameworks.
• Establish implementing institutions.
• Create regulatory instruments designed to facilitate innovative services and the establishment of new operators.

The Bank has facilitated competition in and liberalisation of the telecommunications markets. The programme also provides advice on issues such as:

• Drafting laws.
• Rebalancing telephony tariffs.
• Developing frameworks for universal service/access with modern interconnection and licensing regimes.
• Privatising state-owned operators and opening those services to competition, thereby gaining access to the capital necessary to restructure Soviet-era networks.

EBRD hosts regional telecommunications conference

On 30-31st October 2003 the EBRD hosted the first Regional Central Asia Telecommunications Sector Development Conference  (0.3Mb) in Almaty, Kazakhstan. This was an EBRD driven initiative which brought together national authorities for telecommunicaitons and anti-monopoly administration, policymakers, sector stakeholders in the region, the Bank and international experts. The aim of the conference was to explore the issues currently retarding sector development and restraining investment in central Asia.

Information Notice  (0.3Mb)