Licensing Process

The last section considered different types of licensing regimes. In this section, we consider the different processes by which licenses are issued. The process will depend on the sector policies, laws and market structure in a particular country. Five common types of licensing process are discussed below.

Licensing Incumbent Operators

The telecommunications reform process in most countries includes privatisation of PTTs and the granting of competitive licenses in various market segments. Many countries have completed this process; others are in the midst of implementing it, and a few have not started.

A major step in the privatisation and liberalisation process in many countries is the issuance of a license to incumbent operators. This step generally does not involve competitive selection or other formal public process. New telecommunications laws or incumbent often authorise the licensing of the incumbent operator. The licensing process involves the detailed identification of existing and new rights and obligations of the operator, in some cases incumbent operators may be granted general authorisation. Others, including the PTT, generally receive individual licenses. While the EC licensing proposals advocate a move away from individual licenses in mature competitive markets, there are still good reasons for individual licenses for incumbent in less competitive markets with less well-defined regulatory frameworks.

The rights and obligations incorporated in the new licenses for the incumbent must generally be adapted to a new sector policy and regulatory regime. In particular, they must often be adapted to the realities of a market based economy, especially where the operator is to be privatised and to face competition for the first time in some markets. It is generally advised to obtain good market input before settling the terms of such licenses. This can be achieved through a public process, although it is more common to do so by retaining good professional advisors with experience in privatisation and liberalisation in other markets.

In practice, the licensing of incumbent often involves a process of negotiation between the Public Telecommunication Operator (PTO) and the regulator. Additional input generally comes from the Professional Advisors, including investment bankers and lawyers hired the by PTO, government of or regulator. It is important for the regulator (or other licensing authority) to obtain a good balance of views on the contents of license. In this regard, there are often competing agendas between the PTO, which may want to retain as much exclusivity and market power as possible, and those promoting a competitive telecommunications policy. Ministries of Finance and investment bankers for PTOs often focus on granting exclusivity and market advantages as means of increasing privatisation proceeds. Ministries of communications and regulators are often more focussed on promoting competition as a means of increasing efficiency of telecommunications markets and delivering better services to the public.

Parallel Licenses for PTO and New Entrants

In some countries, established PTOs are granted licenses for new services (e.g. cellular, data communications, ISP, value added services) while licenses for these services are also granted to new entrants. The PTOs generally receive the license outside the competitive selection process that may be used to select new entrants. This has been the case for cellular mobile licenses in both developed and less developed countries.

Issues of competitive fairness arise in the process. Often the new entrant pays a significant amount for the license under a competitive selection process but the incumbent does not. This issue has sometimes been addressed by requiring incumbent operators to pay a fee equal to the amount of the winning bid or fixed percentage of the amount. This occurred recently when Jordan licensed a second GSM operator. When Colombia licensed second cellular operators in each of three regional markets, the existing operators were required to pay 95% of the amount of the winning bid in the applicable region.

In other countries, the incumbent operator has not been required to pay license fees, even though new entrants do pay. Some argue that the incumbent was awarded a license in accordance with past practice law, and that it will be unfair to retroactively tax it. Other have pointed out that the incumbent may have taken risks and incurred expense in developing the market. From this perspective the retroactive imposition of a substantial license fee may be considered inappropriate. While there is not always a right answer in these situations, care must be taken to provide a level playing field. If preferential treatment is granted to an incumbent, there should be clear benefits to the public for doing so. These may include maintenance of network rollout obligations or other specific universal service objectives.

Licensing of New Entrants - Individual Licenses

The issuance of individual licenses to new operators requires some form of selection process. Where no existing operator holds a license, it is best to implement a competitive and transparent licensing process in accordance with the practices discussed in detail later in this course.

General Authorization

Issuance of general authorization (class licenses) involves the definition of license eligibility criteria and license conditions. Ideally, both processes should involve prior public consultation. This improves the transparency of licensing process and ensures all relevant information is taken into account. No selection process is required for general authorisations since all eligible operators or service providers will be licensed.

Implementation of general authorisation regime can be more complicated where existing individual licenses authorise the same services as those covered by the general authorisation. For example, general authorisations are frequently used to establish conditions for the provision of value added services. However, many PTO operators are also authorised to offer the value added services under their individual licenses.

To ensure fair competition, regulators should ensure that any differences between general authorisations and individual license conditions are competitively neutral. A good solution is to indicate that individual licenses do not authorise the offering of any service that can be offered under a general authorisation. In this way, regulators can ensure that all providers of the same service are subject to the same license conditions.