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Telecommunication policy project

Telecommunication policy project. International Centre for Policy Studies Presentation to the ACC IT/Legal/Telecom Committees November 19, 2002. About the International Centre for Policy Studies ICPS/DKZIU/Ukrtelecom Telecommunications policy project

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Telecommunication policy project

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  1. Telecommunication policy project International Centre for Policy Studies Presentation to the ACC IT/Legal/Telecom Committees November 19, 2002

  2. About the International Centre for Policy Studies ICPS/DKZIU/Ukrtelecom Telecommunications policy project Key sector strategy and regulatory policy issues Draft Law “On telecommunications”: key issues Presentation plan Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  3. The International Centre for Policy Studies is an independent research organisation, founded by the Open Society Institute in 1994 Our mission is to promote public policy concepts and implement procedures for public policy formulation in Ukraine We provide the following services: public policy research training for participants in the policymaking process facilitating public dialogue What is ICPS? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  4. Goal:Shaping a government policy in telecoms that will ensure the successful privatisation of the Ukrtelekom Outcomes: A government policy in the field of telecoms regulation has been worked out and adopted in the form of legislative and normative acts A development strategy for the telecoms sector has been developed and adopted Outputs: Communications sector development strategy Telecoms regulation policy Draft Law “On Telecommunications” Telecommunications policy project Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  5. Design: Seven working groups were formed: Sector development strategy Tariff regulation Universal service obligation Interconnection regulation Building an information society Legal support group PR support group Telecommunications policy project • Documents were developed stage by stage: • Determining goals and problems • Determining policy options • Analysis of the implications of each option • Recommendations • Implementation plan; identifying obstacles and locating resources Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  6. Vision:Communications are a transport basis for the information society, which allows diversification of choices, makes democracy more profound, and enriches the opportunities for leisure and education. Goal:The strategic goal of government policy in Ukraine’s communications sector is to satisfy the demand in society for communications services of an appropriate quality. Communication sector strategy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  7. Symptoms of problems: Low accessibility of communications services Low quality of services Underlying problems: Absence of a cogent policy regulating the communications sector Available policy elements do not stimulate investment in the sector Government policy in the telecommunications sector is not separated from corporate strategies Lack of an effective mechanism to ensure universal service Regulated tariffs are not optimal Leading communications enterprises—Ukrtelekom, RRT, and Ukrposhta—are ineffective Communication sector strategy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  8. Options The government can influence the development of the telecommunications sector in the following ways: being the actual owner of communications operators and conducting its policy through their corporate policy; regulating the activities of communications operators. Four options of government communications sector policy: Preservation of the existing status-quo The state is the owner of a single operator which monopolises the whole market and directly manages its activities The government pursues its policy not via ownership, but via regulation of the activities of different operators, if the market fails to ensure fairness and the efficiency of resource utilisation the government does not interfere with the sectoral development. Communication sector strategy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  9. Recommended option The government pursues its policy not via ownership, but via regulation or Fast establishment of market regulation: The key objective of the policy is a fast-track preparation and legislative adoption of a cohesive and effective regulatory policy The privatisation of state enterprises in the sector is carried out only after the adoption of regulatory norms ensuring fair competition in the market and the universal access of the services to all Ukrainians The government does not raise new barriers to entering the market, and existing legal barriers are brought down after proper regulation in the corresponding markets is introduced The functions of managing state corporate rights at sectoral enterprises and regulation are administratively separated Communication sector strategy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  10. Implications of the option Positive: Intrinsically cohesive Complies with the framework of societal development stated in the Constitution, and the directives of the European Union Will spur investment, since it retains the possibility of entering the market by private operators and simultaneously reduces investment risks by way of creating a predictable regulatory regime The well-thought-out implementation of this option should be supported by market agents Negative: The implementation is complicated, since it demands the simultaneous creation of a number of regulations, non-existent in Ukraine before The lack of capacity to discuss and evaluate the implications of decisions threatens to damage the coherence of the regulatory regime Communication sector strategy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  11. Implementation plan The establishment and development of institutions which will implement and control the execution of regulations; Cost analysis necessary for the introduction of feasible economic regulation; The preparation of drafts of legislative and key normative acts, which will implement the selected policy option; Arrangement of consultations with interested parties regarding instruments of the selected policy option. Communication sector strategy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  12. The objectives of state regulation in the liberalised market for telecommunication services are to facilitate: fair competition; universal access; technical compatibility of operators’ equipment; consumer rights protection; efficient distribution of limited resources. Telecoms regulation policy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  13. Regulation goals in the telecommunications sector fostering fair competition in the telecommunications market; assuring fair prices for end-consumers. Regulation instruments tariff regulation for basic communications services; mechanisms of ensuring universal service; regulation of operators’ interconnection. Telecoms regulation policy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  14. Tariff regulation objectives: To drive down costs and boost productivity by investing and innovating; To hinder unfair competition in the telecommunications market. Tariff regulation principles: Setting tariffs for regulated services according to long-term costof their provision. The following requirements should be fulfilled: (1) methods of calculating long-term costs should be developed to determine tariff levels; (2) current tariffs should be adjusted to the determined levels; Predictability of tariff changes. In order to accomplish this principle, transparent methods of automatic tariff revision should be devised; Implementation of tariff regulation should conform to the directives of the European Union. Tariff regulation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  15. Problems of the current tariff regulation: The lack of methods to calculate long-term cost for providing telecom services. Existing tariffs partially cover the current cost, however, they disregard costs for network expansion and upgrading; The lack of justified tariffs for interconnection of operators, which sparks conflicts between dominant operator and it’s competitors; Cross-subsidization. Overpriced international services are being crowdedout by new technologies and intensifying competition; The lack of correlation between tariff changes and the overall economic dynamic; Unpredictability of tariff changes; Poor monitoring over tariff observance. Tariff regulation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  16. Implementation stages of tariff regulation Listing of services, tariffs for which need to be regulated; Calculation of the cost of providing telephone services; Rebalancing tariffs proportionately to the cost of services’ provision; Determining tariff regulation methods. Proposed regulated services Connection of consumers; Local fixed-line communication; Long-distance fixed-line communication; Interconnection of operators. Tariff regulation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  17. Methods of tariff regulation: Rate of return regulation; Price cap Recommended option: Price cap Implementation plan: To create a working group to calculate the cost of providing communications services in conformance with international standards. To prepare a draft of a new version of the list of communications services, tariffs for which are subject to regulation. To prepare methodological recommendations of price cap regulation in telecommunications. Tariff regulation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  18. The objective of ensuring universal service Government seeks to mend the market failure to deliver services to the poorest consumers and inhabitants of hard-to-access regions Principles of ensuring universal service A mechanism of ensuring universal service should not breach competition; Subsidies to operators should be distributed so as to ensure the highest efficiency; Mechanisms of ensuring universal service should meet EU directives. Ensuring universal service Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  19. Status in Ukraine: Ukraine’s telephone penetration level is high in comparison with the Ukrainian GDP per capita; There is a significant gap between the urban and rural telephone penetration levels; The existing benefit system is not viable, and thus does not guarantee universal service for poor citizens. Problems of the current universal service regulation Ukraine lacks a consistent policy regulating the universal service The obligations are imposed upon the Ukrtelekom. Universal service is financed through cross-subsidising. Competition in the international telephony market is increasing, and profits are shrinking Ensuring universal service Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  20. Definition of universal service: Services of local, long-distance, and international fixed-line telephony (on fixed-line connection or public communication centres); Facsimile transmission; Data transmission in the tonal frequency band via modems; Toll-free call of emergency services. Compensations to operators Losses from ensuring universal service (except for revenues from these services) will be offset to operators by the Universal Services Fund. The Fund’s money comes from payments made by communications operators at the amount of the set percentage from revenues of operators except for interconnection expenses. The percentage is approved annually, but should not be higher than 4%. The Fund’s money will be granted on the basis of the contest between operators. The first two years — to the dominant operator. Ensuring universal service Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  21. Implementation plan Establish a working group to develop a Program of ensuring universal telecommunication service in Ukraine. Establish a working group to develop methods of calculating the amount of compensations to operators for providing universal service. Ensuring universal service Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  22. Objective of regulating interconnection To ensure networks connection; To ward off anti-competitive behaviour in the market on part of operators who are able to control means of access to network connection ports. Regulation instruments Tariff regulation for interconnection services (price cap); Establishment of the regime of open access. Interconnection regulation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  23. Establishment of the regime of open access: what is needed Procedures for network interconnection (for instance, the scope of a standard agreement, procedures for approving standard technical connection terms/conditions, time limitations for all network connection stages, procedures for compulsory connection, etc.); Requirements to information publication; Dispute settlement mechanisms; Rules for joint location of equipment in cases when there is a danger of creating barriers to the market entry; Technical quality standards for interconnection services; Responsibility for breaching rules. Interconnection regulation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  24. Establishment of the regime of open access: problems Lack of standard technical terms of network connection; Lack of a standard contract for interconnection of operators’ networks approved by a regulatory agency; Lack of an efficient mechanism of dispute settlement; A feeble mechanism of the legislation enforcement (sanctions if the legislation is breached); There are actually no mechanisms to fend off anti-competitive behaviour and discrimination by the dominant operator. Plan Establish lacking institutions Interconnection regulation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4477 Web: www.icps.kiev.ua

  25. KEY ISSUES OF THE DRAFT LAW “ON TELECOMMUNICATIONS” Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. +38044 236-4377/4477 Web: www.icps.kiev.ua

  26. Ensure effective structural separation of the state regulatory function from activities associated with ownership or control; Ensure the impartiality of decisions, issued by the national regulatory authority; Ensure the availability of universal service to all users regardless of their geographical location and at an affordable price; Define clearly types and methods of state regulation (licensing, verification of compliance, tariff regulations, etc.) What should the law solve? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477Web: www.icps.kiev.ua

  27. Alternative options: Regulatory authority as non-governmental body (Draft law of MP Lutcenko) – legal entity, independent from operators and service providers and from government, accountable to the President Regulatory authority as central authority of executive power separate from SCCU (Draft law of MP Pustovoitenko) – legal entity, independent from operators and service providers, accountable to the President, parliament and government Separation of the functions Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  28. Alternative options: Regulatory authority as legal entity at the SCCU (SCUU draft law) - appointed by the President, accountable to the President, parliament, government and SCCU Clearly separate administrative decision making(policy making, activities associated with ownership) from regulatory decision making (licensing, tariff regulations, dispute resolution) (ICPS draft law) - creating a Regulatory Commission as collective body at the SCCU, 8 members are appointed by the President Separation of the functions Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  29. Alternative options: USF as off-budget fund (SCUU draft law) – formed by payments stipulated by law; managed by the SCCU; used to compensate the provision of universal services, research work and regulation functions, determined by government USF as legal entity (Draft law of MP Lutcenko) – formed by payments stipulated by law; managed by the Head, appointed by the Regulatory authority; the Regulatory authority determines the Fund expenditures, first of all, offsetting losses from universal services provision and subsidising universal services provision to the most vulnerable groups Universal Service Fund Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  30. Alternative options: USF as virtual fund-account at the special fund of the State Budget (ICPS draft law) – formed by the payments stipulated bylaw; managed by the SCCU on the basis of the Regulatory authority decisions; used to offset losses fromprovision of universal services, pay wages to the Regulatory authority members, and to compensate losses from illegal regulatory decisions or inactivity of the Regulatory authority; financial assets may not be withdrawn from the Fund and may not be expended on other than the purposes specified in law. Universal Service Fund Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  31. Alternative options: General permits and individual licenses according to the EU Directives (Draft law of MP Lutcenko) – general permits are required for provision of fixed telephone communications, mobile, rescue radio communications, tele- and radio communications; individual licenses are required for providing communication services with using the number resource and radio frequency resource; all other telecommunication services (access to Internet, data communication, e-mail) are provided withoutlicense and permits Licensing Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  32. Alternative options: Introducing a special regime for licensing in the telecommunications (SCUU draft law) – The Regulatory authority issues licenses for telecommunications services, after the SCCU approval, determines the license terms and their enforcement Common licensing rules pursuant to the law on licensing (ICPS draft law) – should not limit the number of operators Licensing Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  33. Verification of compliance • What issues should be regulated: • Telecommunications equipment should meet the requirements of normative acts • Verification of compliance of telecommunications equipment is certified with declaration of verification or certificate of verification • Verification of compliance of telecommunications equipment is carried out by certification authorities with the SCCU approval Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  34. Regulated tariffs • The cost of providing telecommunications services is calculated on the basis of the Tariff Regulation Methods, adopted by the SCCU • Tariff Regulation Methods must be discussed at the open meeting of the Regulatory authority and should be approved by the Regulatory authority • Regulated tariffs should be revised at least once a year Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. + 38044 236-4377/4477 Web: www.icps.kiev.ua

  35. Telecommunication policy project International Centre for Policy Studies Presentation to the ACC IT/Legal/Telecom Committees November 19, 2002

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