Basic Licensing Approaches

With the proliferation of new technologies and liberalization of the telecommunications and broadcasting market, the license has become more important as a tool to authorise the entry into the market of existing and potential service providers. Yet there is rising sentiment in some countries that the license should be gradually phased out if not abandoned entirely as telecommunications markets become more developed and competitive (Xavier,1996 :487).  Whether this sentiment is correct is deatable. 

Once a regulator is appointed, it has to undertake a variety of tasks (see unit 1 of this module (pages 1-13).  These tasks include amongst others, the need to

• advance public policy goals to protect the interest of users
• circumvent market failures where markets are unable to deliver goods or services as result of information asymmetry for example
• promote optimum development of the sector through increased investment and innovation and providing technical guidelines in terms of type approvals, interconnection, number portability and interoperability.

All of the above is fulfilled with the intention of structuring the market to provide a platform for the sale of services offered by operators, and eliciting appropriate conduct from such operators so that they support telecommunications development.

In the absence of a formal contract between government and service providers, regulators are unable to formally ensure compliance or cooperation of service providers. There are two ways of instituting compliance; through courts or through the issuing of licences. Of the two routes, the licence has been less expensive and more effective.

A license, also referred to as a franchise in some of the literature, can be understood as a instrument, which exists in the form of comprehensive document / contract usually administered and issued by a government authority or regulator. It is used to confer authority to applicants to provide telecommunications services, on condition they commit themselves to a series of objectives under certain conditions prescribed by the regulator or face revocation.  The licence also defines the activities of the operator for the benefit of all stakeholders.

Purpose of the Licence

Governments usually list several objectives for licensing telecommunications operators.

Generally the licence will display:

• all technical terms and specifications, defined and explained to limit ambiguity
• the conditions of the licence and mutual obligations between government and the licensee
• the scope of activity of the licensee (in the case of Australia for example the regulator was able to insist on provision of services in designated rural areas attached to profitable urban areas).
• rights and obligations (including time frames to limit sudden changes or protracted negotiations) to engender stability and certainty for the benefit of existing and potential investors or service providers,
• conduct viewed as anti-competitive (to maintain healthy competition)
• social obligations such universal service and essential requirements
• rights to use public resources to support network, such as, frequency spectrum

In effect the license can bind the licensee to conditions and simultaneously provide the regulator with enforcement powers, but commercial risk rests with the licensee/applicant.

Beyond illuminating detailed rules/conditions, the licence may be used to structure the market by controlling market / market segment access for a variety of reasons:

• technical (to support a particular standard GSM vs AMPS or ONP–EU specifications),
• political (generate government revenues for social upliftment programs or debt repayments)
• economic (limit possibilities of too many companies providing the same service )
• social (using universal service often viewed in negative terms) to maximise the economies of scale and scope of operator or as an incentive which will ensure that it co-operates.

Direct Powers

The fact that licenses are attached to a fee suggests that they may be used to raise funds, either for government where policy requires or they may used to finance regulators.  Although it is attested that regulators supported by licence fees are more likely to be independent from government, one can argue that the dependence on the licence fee may lead to regulatory capture or encourage the regulator to abuse penalty payments.

The licence can also be used to provide the regulator with:

• powers to request essential information which may not be provided voluntarily, to be used either for resolving disputes or making amendments, or inspect interconnection agreements entered into by the licensee.
• powers to request publications of equipment specifications ( common practice in the United Kingdom)
• powers to ensure that independent auditing is undertaken by legally independent companies in view of accounting separation
• powers to monitor compliance and ensure that the license is not abused