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Electronic communications regulatory reform

The EBRD has been an important catalyst of change with respect to reform and development throughout the transition economies. In particular, the EBRD has assisted its countries of operation to design and undertake regulatory reform necessary to gain from the global information and communication revolution. 


In addition to being a significant investor in the electronic communications sector in the region, the EBRD also provides technical assistance to implement modern and transparent electronic communications regulation and mechanisms which foster the investment environment.

Background

With the increasing globalisation of the world's economies, electronic communications is now a critical component for economic growth and development in both developed, transition 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 two decades has seen unprecedented change in the electronic communications 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 (and corresponding roll-out of high-speed Broadband infrastructure) have transformed the national and international electronic communications landscape.

Why reform is needed

In many transition countries, the regulatory framework is under-developed and traditionally based on the assumption that electronic communications services are provided by a monopolistic state-owned operator fulfilling the political objectives of the government. Even where the state-owned provider has been privatised and the formal monopoly has been de jure removed often vestiges of exclusivity remain.  As a result, even when some limited competition is permitted, there are little or no modern regulatory instruments to facilitate new services or to assist new operators to enter or expand in the market.

Policy, legal and regulatory development and reform of the electronic communications sector (the ‘Sector’) is a complex issue involving strategic plans to implementation of many interconnected and occasionally conflicting strands often in the face of a dynamic and ever shifting market environment. Where a government seeks to harness the benefits which electronic communications and the broader information society can provide, implementation requires the acceleration of investment in the essential high-capacity infrastructure that will enable a more universal access to modern electronic communications services (e.g. high-speed broadband networks) for citizens, including in the more remote areas.

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 electronic communications obligations and rights are clearly identified in law, where adequate technical and regulatory frameworks are sufficiently detailed in secondary legislation and regulatory decisions, and well-resourced and robust institutions are in place and can regulate without conflict of interest. Adopting these measures is fundamental to the success of the electronic communications sector.

EBRD policy for electronic communications

In accordance with its policy and established practice, the EBRD provides technical cooperation assistance to those of its countries of operation that have expressed a genuine interest in adopting and implementing a modern policy, legal and regulatory framework for electronic communications, reflective of recognised international best practice. 

Projects will only be launched if no other reform facilitator is providing adequate assistance and the EBRD support provided is directly related to a Bank investment or otherwise facilitates the Bank’s investment strategy. In providing technical cooperation, 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 electronic communications 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 fulfil 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 sector specific regulator with no structural or functional links with electronic communications operators.

    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 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 some dominant operators in the Region constitutes a serious impediment for both liberalisation and privatisation. Tariffs for local 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 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 regulatory reform; Law in transition, Autumn 1998

Linking privatisation and regulatory reform; Law in transition, Autumn 1998

EBRD legal transition cooperation

Implementing technical cooperation made it necessary to develop the EBRD's electronic communications regulatory development programme. This programme provides both formal and informal assistance to policymaking and regulatory implementation authorities in the Bank’s countries of operation. The programme helps:

  • Develop sector policy and strategy instruments
  • Draft and adopt sector laws
  • Adopt robust, modern, clear, transparent and predictable regulatory frameworks
  • Establish implementing institutions
  • Create regulatory instruments, procedures and methodologies designed to facilitate innovative services and the establishment of new operators
  • Train policymaking and regulatory officials and build capacity within sector institutions