Licensing and other Regulatory Instruments

In most countries, licences comprise only one element of the regulatory framework. Other rules that govern operators are included in telecommunications laws, sector policies, regulations, decrees, orders, decisions, guidelines, directions and other documents of general application.

Whether the operator's rights and obligations are set out in a licence or by some other means is generally determined by two factors:

1. Requirements of law
   
2. The level of development of local regulatory framework

Matters that are dealt with in licences in some countries are dealt with in other regulatory instruments in different countries. For example, in Mexico, the quality of service standards and targets for Telmex were included in the licence (concession) prepared for Telmex prior to its privatisation. In Canada, quality of service standards and targets are set out in decisions and orders of regulator, the CRTC.

Privatisation and Liberalisation first occurred in Europe in the United Kingdom in the early 1980s. At that time, the concept of telecommunications regulations was new to the UK. There was no existing regulatory framework. Therefore, the licence issued to British Telecom was prepared as a largely self-contained regulatory code. It governed most aspects of the operations of BT and granted a variety of exclusive rights, such as a limited monopoly for basic voice services and limitations on simple resale. Similarly, the licence for Mercury, the first fixed-link competitor in the UK, contained a fairly comprehensive regulatory code for that operator.

A similar model was adopted in a number of other countries in Europe and elsewhere incumbent operators were privatised and new operators were licensed.

As indicated above, some countries, particularly in North Africa, have no tradition of issuing comprehensive licences that spell out detailed regulatory regimes. In the United States and Canada, detailed regulatory rules are typically contained in regulations, decisions, orders or tariffs made or approved by the regulator. Accordingly, when Canada implemented a licensing regime for certain telecommunications operators for the first time in 1998, the regulator issued very short (2 page) licences for international service operators. The balance of the rules governing these operators is set out in other regulatory instruments.

Countries that do not have clear regulatory framework and that intend to licence new operators, or attract investment in incumbent will need to develop fairly comprehensive licences. Some countries that have initiated privatisation and liberalisation without clear and detailed licences or other regulatory instruments have experienced serious problems due to regulatory uncertainty.

In other countries, without a clear regulatory framework, certainty has been achieved at early stage through the use of comprehensive licences. Examples include Hungary, Uganda, Morocco and Jordan. The more detailed licences have contributed to the success of privatisation and new competitive entry. Table 2-5 provides an example of the fairly comprehensive content of a PSTN licence in a developing country without a clear regulatory framework.

With licensing competition in telecommunications markets, it should be possible to reduce the detail of the regulatory framework including either in licences or in other regulatory documents. The trend is recognised in the 1997 European Union Directive on Licensing, and the subsequent July 2000 licensing proposals, which favours minimal licence conditions and the eventual elimination of the licensing requirement.

However, the situation remains different in less developed telecommunications markets, and especially in those with perceived high country risk, economic and governance problems. Most of these markets do not have clear or consistent regulatory policies or framework. In such markets, it will be important to develop clear and detailed licences as part of privatisation and liberalisation initiatives. There should be two key goals in preparing such licences:

Regulatory Certainty

Where privatisation and licensing transactions are implemented before a clear regulatory framework has been developed, the rights and obligations of operators should be clearly defined in licences. Regulatory certainty on key issues (such as interconnection, price regulations and competitive safeguards) will promote success of privatisation and initiatives to promote new market entry. Uncertainty will reduce investor interest. It will also reduce proceeds to governments from privatisation sales of licensing fees.

Defining Exclusivity Right

Sector Policy may call for the licensing of multiple operators, or it may grant exclusive monopoly (or duopoly) rights for specified periods of time. The granting of exclusivity rights generally increases government revenues for privatisation and licensing transactions. However, as noted in other courses (i.e. TR 501, 504, 506) maintaining monopolies cannot limit sector growth and reduce operator efficiency to the detriment of consumers. Whatever policy is adopted on exclusivity, it should be clearly reflected in the licences of new operators in order to provide certainty to them, their investors and lenders.