Licensing Objectives

Government and regulators normally have several different objectives for licensing telecommunications operators. Common licensing objectives are set below:

Regulating Provision of an Essential Public Service

Basic telecommunications is viewed as an essential public service in most countries. While there has been an irreversible trend towards privatisation and reliance on market forces, most governments continue to impose some controls to ensure basic telecommunications services are provided in the public interest. Licences are an important tool for exercising such control in most countries.

Expansion of Networks and Services and other Universal Service Objectives

This is a major reason for licensing new telecommunications operators in most countries. Network roll-out and service coverage obligations are often included in licences. This is particularly the case where a state-owned incumbent operator (a PTT) is privatised, or some degree of exclusivity is granted (e.g. a duopoly cellular licence, with a right to use scarce spectrum). Licences are an important tool for expanding infrastructure investment and promoting universal services and universal access objectives in developing countries. (Universal services objectives are discussed in detail in TR 506).

Privatisation of Commercialisation

A licence is necessary where a state-owned incumbent (a PTT) is privatised. The licence specifies the rights and obligations of the operator. It is a key document in the privatisation process. It specifies what the investor is buying and what the government expects from the operator and the investor.

Regulating Market Structure

A key aspect of regulation is the determination of the market structure of the telecommunication sector, and in particular, the number of operators licensed to provide telecommunication services. In many countries, a prime reason for licensing new telecommunications operators is to increase competition. Licensing of new operators has made competition the dominant mode of supply in some telecommunications markets (e.g. cellular, ISP), but not yet in others, including basic services. Fig. 2-1 illustrates the different levels of competition in various telecommunications markets around the world. A major objective of the licensing process in many markets is to ensure the viability and benefits of new competitive entry. On the other hand while licensing initiatives can increase competition, licensing requirements can also provide a means to limit market access. This is the objective of licensing authorities in some countries, where licences have been granted or retained monopoly, duopoly or other exclusive rights. Such rights are often retained for political or financial reasons. For example, governments in many countries have increased privatization proceeds to government coffers by granting monopoly rights to the newly privatised operator for a fixed term. While maintenance of monopolies generally reduces efficiency in telecommunications markets, many governments have accepted this as a "transitional" problem, in order to generate cash for purposes like debt reduction. In these cases, liberalisation generally proceeds in stages.

Establishing a Competitive Framework

Licences frequently include conditions to establish a "level playing field" for competition, and to limit the prospects that incumbent operators will abuse their dominant position in telecommunications markets. Such conditions are generally referred to in licences as "anti-competitive safeguards" or "fair trading conditions". (Example of such conditions are discussed in greater detail in TR 503, 504, and 506.)

Allocation of Scarce Resources

Finite resources required in the operation of a telecommunications service (such as radio spectrum, numbers and rights of way) should be allocated between operators fairly, efficiently and in the public interest. This allocation often requires a balancing of competing interests and priorities. Spectrum, for instance, may be auctioned to the highest bidder or allocated at low cost to reduce prices or to encourage the roll-out of new services. Access to rights of way can be a source of revenue to government authorities or public utilities, but economic or other restrictions on access can delay the rollout of services and lead to higher consumer prices.

Generating Government Revenue

Licensing of telecommunications operators and radio spectrum can provide significant revenues to governments. An auction for new licences can generate one-time revenues. In addition, annual licence fees often provide a continuing source of revenue to fund the operations of the regulator, or for other purposes. In addition, licensing of new operators can increase the overall size of telecommunications markets and thus generate high tax revenues for governments.

Consumer Protection

Conditions relating to consumer protection are often included in telecommunications licences. Such conditions may relate to matters such as price regulation, limitation of liability for service defaults, and mandatory services to consumers (e.g. directory services, operator assistance and emergency services).

Regulatory Certainty

By clearly defining the rights and obligations of the operator and the regulator, a licence can significantly increase confidence in the regulatory regime. Regulatory certainty is a critical element of the licensing processes where the aim is to attract new operators and investment. This is particularly true in the case when foreign investment is sought in riskier developing or transitional economies.