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I.1314081 page 1
FINAL REPORT
The Department of Communication and Information
March 2009
f
Government of Papua New Guinea
National Information & Communications Technology (ICT) Policy
NATIONAL ICT POLICY
PHASE 2 REFORMS
I.1314081 page 2
CONTENTS
FOREWORD BY THE MINISTER 3
PHASE 2 SPECIFIC REFORMS 4
PART A : PATH TO OPEN COMPETITION 12
Chapter 1. LICENSING ARRANGEMENTS.......................................................13
Chapter 2. INTERNATIONAL GATEWAY LIBERALISATION............................24
Chapter 3. WHOLESALE REGULATION AND ACCESS...................................29
Chapter 4. RETAIL REGULATION AND PRICING ............................................47
PART B: FUTURE OF COMMUNITY SERVICES 54
Chapter 5. UNIVERSAL SERVICE ARRANGEMENTS .....................................55
PART C: SUPPORTING ARRANGEMENTS 69
Chapter 6. INSTITUTIONAL ARRANGEMENTS ...............................................70
Chapter 7. INFORMATION SECURITY.............................................................84
Chapter 8. TECHNICAL REGULATION.............................................................89
PART D: TIMING AND IMPLEMENTATION 93
Chapter 9. TRANSITIONAL ARRANGEMENTS................................................94
APPENDICES
I. ABBREVIATIONS AND GLOSSARY .............................................101
II. WRITTEN SUBMISSIONS RECEIVED..........................................104
III. ENDNOTES...................................................................................105
I.1314081 page 3
FOREWORD BY THE MINISTER
In February 2008, the National Executive Council (NEC) approved the National ICT Policy 2008 as
Government Policy.
The National ICT Policy sets out a strategic framework for meeting the Government’s objectives for
the ICT sector. Increased competition in the supply of telecommunications services is a central
feature of this strategy. Specifically, the Government reaffirmed its commitment to:
· the staged introduction of open competition in the telecommunications sector; and
· the transformation of Telikom into a viable and efficient competitor upon the introduction
of open competition.
The staged introduction of open competition contemplated an initial ‘Phase 1’ transitional period
during which the existing telecommunications industry structure would be preserved.
The Government is now ready to set the key parameters for implementing ‘Phase 2’. Specifically, it
will progressively implement open competition in the telecommunications sector in accordance with
a timetable endorsed by the NEC.
As the Minister for Communication and Information, I have been directed by the NEC to undertake
a review of the ICT sector and to report to the NEC by March 2009. I am required to assess and
report on the current state of the market, including the operation of the regulatory regime,
competition and progress towards the transformation of Telikom.
I am also required to recommend to the NEC the timetable for the introduction of open competition
in the ICT sector and the implementation of Phase 2. Specifically, I must:
· consider the desirability of developing a Community Services Obligation (often referred to
internationally as a Universal Access Scheme). The primary objective is to provide a
strong funding basis to aid in the development of telecommunications networks and the
provision of telecommunications services to residents in rural centres in PNG;
· undertake a review of regulatory structures and processes, including the mandate of each
of the telecommunications regulators (the ICCC and PANGTEL), and report on
appropriate amendments aimed at securing more efficient regulatory arrangements; and
· review the operation of competition in the ICT sector with a view to recommending a
timetable for the introduction of open competition and the transition to Phase 2.
The Department of Communication and Information retained Freehills and Concept Economics as
expert advisers to assist in undertaking these tasks. There has been extensive consultation with
many interested parties who have participated in discussions and a public forum and provided
detailed submissions. I am grateful to all those who have contributed to this public process.
As part of the public consultation process, on 23 February 2009 I released a comprehensive
consultation draft Experts’ Report on National ICT Policy Phase 2 Reforms (Experts’ Report). The
Experts’ Report set out a series of recommendations to assist in the implementation of Phase 2.
The Experts’ Report drew upon the expertise of the Department’s advisers as well as that of the
many interested parties who participated in the consultation process. There has been strong
support for the recommendations identified in the Experts’ Report. Further consultations have
subsequently taken place and submissions received. These have been considered and are
reflected in the reforms identified in this report.
As the analysis is now complete, I present this National ICT Policy Phase 2 Reforms – Final Report
as Government Policy for the next phase of ICT sector reforms as approved by the NEC.
The Final Report contains more than 50 specific reforms that will establish the basis for the
regulatory framework that is to apply to the ICT sector under open competition.
I commend the reforms to all.
Signed by
Hon. Patrick Tammur MP
Minister for Communication and Information
I.1314081 page 4
NATIONAL ICT POLICY PHASE 2 – SPECIFIC
REFORMS
PART A THE PATH TO OPEN COMPETITION
1. LICENSING ARRANGEMENTS
1.1 Licensing responsibilities will be assigned to a single ICT regulator known as the National Information
and Communication Technology Authority or NICTA. The licensing application process will be codified
within a legislative instrument.
1.2 A simple, three-tier horizontal licensing structure will be implemented in PNG based on the
categorisation of operator licensees as network providers, service providers or content providers.
1.3 All new operator licences will be technology and service neutral thereby ensuring that licensees are not
artificially constrained with regard to their service and technology decisions. Operator licensing will be
kept conceptually distinct from the use of licences to ration scarce resources, such as
telecommunications radiofrequency spectrum.
1.4 The distinction between class and individual operator licences will be clarified. Class licences will
automatically apply if the applicant meets minimum eligibility criteria. Individual licences will be capable
of being granted at any time based on a case-by-case analysis.
1.5 Regulatory barriers to market entry will be reduced via the increased use of class licensing in conjunction
with increased regulatory forbearance.
1.6 The radiofrequency spectrum management regime will be reviewed by NICTA with an emphasis on key
policy principles and spectrum management plans. A clear mechanism for spectrum allocation and
assignment will be adopted.
1.7 All licence fees will be made consistent and transparent, underpinned by a requirement that licence fees
should seek to better reflect economic costs (including, where relevant, opportunity costs, as in the case
of future allocation of scarce spectrum). In considering the inclusion of opportunity costs in future
licensing fees, NICTA will balance the allocation of scarce resources (such as spectrum and numbering)
with the broader policy objectives of network deployment, service provision and affordability.
2. INTERNATIONAL GATEWAY LIBERALISATION
2.1 Liberalisation of the international telecommunications gateway (IGW) will occur as early as practicable
(preferably by October 2009). Network providers will be permitted to operate an IGW if they meet certain
minimum licensing criteria. Any licensing fees will be consistent with the criteria in Reform 1.7.
2.2 IGW infrastructure will initially be exempted from the access regime as part of transitional arrangements
and to preserve investment incentives. This specific exemption will expire on 1 July 2012 (on the
assumption that liberalisation commences in October 2009). After that date, IGW services will be subject
to potential regulation under the declaration criteria in the revised wholesale access regime.
2.3 Care must be taken in setting minimum criteria for a licence to operate an IGW so that NICTA does not
lose control over the IGW market. VSAT operators may be potential candidates for class licences.
3. WHOLESALE REGULATION AND ACCESS
3.1 Wholesale access and interconnection obligations will be applied to regulated ‘declared’ services and
facilities, not particular regulated entities. All relevant licensees will be subject to, and benefit from, such
regulation. The process for declaring entities and services in the ICCC Act (and therefore the use of
Regulatory Contracts) will not apply to the ICT sector.
3.2 Fixed and mobile terminating access services will be declared services under the legislation. Absent
commercial arrangements, potential competition benefits can be secured from declared facility sharing
and mobile roaming to the extent it is uneconomic to duplicate infrastructure. Whether such services are
declared will be assessed by NICTA against the criteria specified in Reform 3.3.
National ICT Policy – Phase 2 Reforms
I.1314081 page 5
3.3 Declaration of additional services will occur based on an assessment against the legislated criteria. The
precise terms to be prescribed will be formulated in the enabling legislation and will capture the following
specific principles:
NICTA must recommend declaration if it is satisfied that all of the following criteria are met:
1. the declaration of the service to which is access is sought is necessary for the promotion of
competition, in particular:
· the service to which access is sought cannot be economically or technically
substituted;
· lack of access to the service would pose a barrier to entry that is likely to make
otherwise efficient entry into the market uneconomic;
2. declaration of access to the service would not compromise the incentives for otherwise efficient
investment; and
3. it is technically feasible to provide the service to which access is sought, taking account of the
effects, or likely effects, that supplying the service would have on the operation or performance
of the infrastructure used to provide the service.
The declaration criteria will be prescribed in legislation.
3.4 NICTA should undertake declaration inquiries and make recommendations to the Minister for
Communication and Information. The Minister will be permitted to either accept or reject the
recommendations.
3.5 Pricing principles will be legislated and removed from all other regulatory instruments. The principles will
adopt internationally well-established costing methodologies. The precise principles will be formulated in
the enabling legislation and will promote infrastructure investment by ensuring full cost recovery as
discussed in section 2.4 of Chapter 3 of this Final Report.
3.6 NICTA will determine access disputes for declared services under a negotiate/arbitrate model. Within 12
months of its establishment, NICTA must publish guidelines detailing how it will apply the legislative
pricing principles to various types of access disputes.
3.7 Access providers will be permitted to submit binding Reference Interconnection Offers to NICTA for pre-
approval for an appropriate period (for example, 3-5 years).
3.8 All service declarations will be subject to regulatory review within 5 years of declaration. If the criteria for
declaration are no longer met, the declaration will be permitted to expire.
4. RETAIL REGULATION AND PRICING
4.1 The current retail price regulation of Telikom’s mobile services will be removed. In respect of Telikom’s
fixed network services, NICTA must conduct a review to determine whether ongoing retail price
regulation of these services is warranted. This review (applying the criteria in Reform 4.3 below) should
be completed as soon as practical.
4.2 Retail price regulation should not be required in the face of more effective and efficient access regulation
and greater competition under these Phase 2 reforms. Accordingly, the following general reforms
concerning retail price regulation will apply:
· the Regulatory Contract mechanism in the ICCC Act will no longer apply to regulate
retail prices in the ICT sector;
· a mechanism for regulating retail prices will be retained in the Telecommunications Act
(even if not in active use);
· retail price regulation under these provisions will come within the powers and functions
of NICTA; and
· when assessing the need for retail price regulation under these provisions NICTA will
be required to apply the test set out in Reform 4.3 below.
National ICT Policy – Phase 2 Reforms
I.1314081 page 6
These retail price regulation provisions will have potential application to all operators.
4.3 In determining whether retail price regulation of an operator’s services is warranted NICTA will be
required to be satisfied that all of the following criteria are met:
· the operator has substantial market power in the provision of the service and this is
highly likely to persist over the period of regulation;
· the substantial market power is causing and is likely to cause material harm to end-
users;
· that harm could be substantially mitigated via the imposition of retail price regulation;
and
· the benefits of imposing retail price regulation outweigh any detriments, including any
potential costs arising from market distortions or delays to the development of
competition.
PART B THE FUTURE OF COMMUNITY SERVICES
5. UNIVERSAL ACCESS SCHEME
5.1 A new Universal Access Scheme (UAS) will be developed that retains the existing mandatory roll-out
obligations but improves the effectiveness of the arrangements.
5.2 A UAS Fund will be established to meet the other Government objectives for the UAS including Internet
access and voice access outside the mandatory roll-out areas.
5.3 The UAS Fund will be financed by a combination of:
· industry levies based on a percentage of net revenues (gross revenues less
interconnection payments) of licensed operators;
· donor funding (loans, grants, gifts); and
· direct Government funding.
The industry levy will not be imposed before January 2011. Prior to this time, the Government will consider a
pilot program in order to test and demonstrate the effective operation of the UAS.
5.4 UAS governance arrangements will be prescribed in legislation to ensure the proper administration of the
UAS. These governance arrangements will include the following features:
1. UAS Board: A flexible, non-permanent UAS Board will be established comprising representatives
from each of the Department of Communication and Information, NICTA, the Department of National
Planning and industry/commerce. The UAS Board will (based on statutory criteria):
· develop specific indicators of ICT access, consistent with international experience and shall
indentify appropriate target projects in a reasonable time frame;
· consider, produce and publish a list of projects ranked in order of priority; and
· submit the list of ranked projects to the Minister for endorsement.
2. Minister of Communication and Information: The Minister of Communication and Information will
review the recommendations and the process of the UAS Board to ensure that the statutory criteria
is appropriately applied. This review will not be an in depth review of substance or re-evaluation of
criteria. The Minister’s role is limited to either accepting or rejecting the list of projects (or part
thereof) submitted by the UAS Board.
3. NICTA: NICTA (through its UAS Secretariat) will implement UAS decisions of the Minister, including
National ICT Policy – Phase 2 Reforms
I.1314081 page 7
administering tenders, awarding and monitoring contracts and issuing associated licences if the
entity is not already appropriately licensed.
4. Fund Administrator: An independent, transparent and accountable fund administrator will be
appointed to hold and distribute the UAS Fund upon direction from NICTA.
PART C SUPPORTING ARRANGEMENTS
6. INSTITUTIONAL ARRANGEMENTS
6.1 A new converged ICT regulator to be known as the National Information and Communication
Technology Authority will be the regulator for the entire ICT sector. NICTA will possess all
necessary licensing functions and powers. The Board of NICTA will be established during the
transitional period. The assets of PANGTEL will be transferred to NICTA during the transition
period. Following the transition period NICTA will take responsibility for regulation of the ICT
sector. PANGTEL will thereafter be disbanded.
6.2 NICTA as the new ICT regulator will have all ex-ante functions and powers relevant to the
regulation of the ICT sector, including:
· managing market entry (i.e. licensing);
· facilitating wholesale access and interconnection, including recommendations
for declaration of services and arbitration powers to determine terms and
conditions of access under a negotiate/arbitrate model;
· administration of any necessary retail price regulation for the ICT sector;
· allocation, assignment and ongoing management of radio spectrum and
numbering;
· enforcement, including information gathering powers ;
· dispute resolution;
· monitoring and enforcing obligations under the UAS regime;
· monitoring quality of service performance standards; and
· rule making, guidelines and Codes of Practice.
6.3 The ICCC will retain its functions and powers in respect of generic competition law. A member of
the ICCC will sit on the arbitral panel for all interconnection and access arbitrations.
6.4 NICTA and the ICCC will be encouraged to consult where appropriate on competition and
economic matters impacting on the ICT sector.
The ICCC will be required to consult with NICTA in relation to all ICCC decision-making on ICT
matters.
6.5 NICTA will be governed by a board of 3 to 5 persons. The terms and conditions of appointment
will be set out in legislation. An Appointments Committee will be established by legislation and
comprise representatives of Government (including the Prime Minister and the Minister for
Communication and Information), the Leader of the Opposition and a representative of industry
and commerce. The Head of State will appoint members of NICTA on advice from the
Appointments Committee.
6.6 Legislative obligations will require both regulators to co-operate to ensure efficient and consistent
decision-making in respect of the ICT sector.
6.7 NICTA will have sufficient financial and human resources to fulfil its mandate and maintain its
National ICT Policy – Phase 2 Reforms
I.1314081 page 8
independence. NICTA will receive funding only from permitted sources as set out in legislation.
6.8 NICTA will be required to operate in an open and transparent manner and be accountable to
Parliament and the courts in its operations. It will also be required to keep audited accounts,
comply with codified consultation procedures and be subject to prescribed appellate review.
7. INFORMATION SECURITY
7.1 Criminal laws are likely to be required to control and prohibit attacks on the security and integrity
of computer systems, including hacking, illegal interception and interference with the availability
of computer systems.
7.2 Clear procedures meeting international privacy standards will be established for government
access to communications and stored data when needed for the investigation of crimes. These
procedures should be aimed at providing an adequate level of assurance that the Government
cannot unjustifiably monitor private communications.
7.3 The new privacy standards will be developed in a national law for interception of communications
(telephone calls, email and other electronic communications), and for search and seizure orders
for computer data.
7.4 Appropriate laws and procedures will be developed to facilitate electronic payments and to
ensure that consumers and small businesses who transact business online have recourse if
transactions fail or online purchases are unsatisfactory. These laws and procedures will include
protections to prevent merchants from misusing consumer data.
7.5 PNG’s existing intellectual property laws will be reviewed to ensure that they provide adequate
protection for digitised forms of intellectual property.
7.6 Procedures will be established for taking all critical systems offline in the event of a war, disaster
or civil disturbance which might otherwise place those systems at risk.
8. TECHNICAL REGULATION
8.1 NICTA must complete the proposed numbering plan changes and take steps to relax numbering
forecasting requirements. NICTA must also implement administrative procedures aimed at
improving response times to applications.
8.2 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the
introduction of mobile number portability at a point in the future that takes into account the
competing priorities of NICTA and the level of mobile penetration that warrants such a review.
8.3 NICTA must consolidate the existing Telecommunications Interconnection Code of Practice
(issued by the ICCC) and the Multi-Carrier Interconnection Technical Code of Practice (issued by
PANGTEL) into one interconnection code as part of a review of interconnection technical
arrangements.
8.4 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the
introduction of pre-selection at a point in the future that takes into account NICTA’s competing
priorities and the level of demand for pre-selection that justifies the associated costs.
8.5 All fees for services provided by NICTA must be clearly set out and determined in accordance
with a transparent cost-recovery methodology.
8.6 NICTA must review existing spectrum radiofrequency band codes and technical specifications to
National ICT Policy – Phase 2 Reforms
I.1314081 page 9
ensure they accurately reflect current usage.
PART D TIMING AND IMPLEMENTATION
9. TRANSITIONAL ARRANGEMENTS
9.1 The move to open competition will be comprehensive and implemented on a timely basis, subject
to transitional arrangements and the time required for proper formulation and introduction of new
regulatory structures.
9.2 Licence migration will be encouraged on a voluntary basis. Existing licensees should ideally
receive sufficient benefits under the new licensing structure to offset any detriments they receive
by surrendering existing licences.
9.3 New licences will only be issued under the new licensing regime. However, in issuing new
licences, NICTA will have regard to Government Policy and any rights held by existing licensees.
9.4 NICTA must aim to complete migration of licences from the old regime to the new regime within
12 months of commencement of the new regime.
9.5 ICCC and PANGTEL will provide their full co-operation to the Department of Communication and
Information and its consultants in connection with the transition from the current regulatory
regime to the new regulatory regime as detailed in this Final Report. Specifically, (but without
limiting the obligation to provide full co-operation) as soon as practicable after being notified of
this Government Policy the ICCC and PANGTEL will provide to the Department of
Communication and Information:
· copies of all General Carrier, Public Mobile and Value Added Services
Licences;
· copies of all current and previously issued spectrum and cabling licences;
· copies of all current and previously agreed spectrum usage agreements;
· copies of all customer equipment and cabling permits;
· copies of all other permits or authorities provided by the ICCC or PANGTEL;
and
· all information reasonably requested by the Department of Communication and
Information to implement Government Policy articulated in this Final Report.
9.6 Pending the enactment of legislation to give effect to the Government Policy articulated in the
various reforms set out in this Final Report, it is Government Policy that the current industry
structure and participation be preserved. Specifically, unless the Minister agrees in writing
otherwise:
· Telikom will continue as the sole holder of a General Carrier Licence;
· existing carriers will be permitted to operate in accordance with the law and
their licences;
· no new General Carrier or Public Mobile Licences will be issued;
· any new Value Added Services Licence issued will be expressed to operate
only until the commencement of the new licensing regime as set out in Chapter
National ICT Policy – Phase 2 Reforms
I.1314081 page 10
1 of this Final Report;
· no power to revoke an existing licence will be exercised, without the holder of
the licence so requesting;
· no amendments will be made to any existing licences, permits or authorities
(including imposing any new licence conditions under a declaration of
conditions of licences under section 63 of the Telecommunications Act or
otherwise);
· no determination of a Code of Practice under section 66, section 66A or
section 66B of the Telecommunications Act may be made;
· no codes or rules will be made, varied or revoked under section 40 of the ICCC
Act relating to the conduct of a participant in the telecommunications industry,
being a regulated industry declared under section 19A of the
Telecommunications Act; and
· any determination made under section 84 of the Telecommunications Act will
be expressed to be an interim decision only and will expire no later than 31
December 2009.
The indicative timetable for the proposed reforms is as follows:
Indicative date Milestone
April-June 2009 · Formulation of implementation plan for NICTA and
legislation for establishment of NICTA (which may be a
separate legislative instrument or combined with the
wider reform legislation).
· Drafting and consultation in relation to enabling
legislation and transitional arrangements (to effect the
reform agenda set out in this Final Report).
· Enactment of enabling legislation (subject to
Parliamentary processes and timing).
· Initial steps are taken towards the creation of NICTA,
including the appointment of the NICTA Board.
July 2009 · Commencement of enabling legislation and transitional
arrangements.
· NICTA is established and assets, liabilities and
transitional (shared) responsibilities are transferred to it
pursuant to institutional transitional arrangements.
· Preparatory steps taken to establish licence regime and
licence categorisations pending October 2009
commencement.
July-September 2009 · Drafting and public consultation is undertaken in relation
to subordinate regulation and licensing arrangements.
· Preparation for commencement of the new regime
including preparation of regulatory instruments by NICTA,
training of personnel and education of the industry and
public.
October 2009 · Formal commencement of the new regime.
· NICTA assumes all powers and functions under the new
National ICT Policy – Phase 2 Reforms
I.1314081 page 11
Indicative date Milestone
regime.
· The institutional transitional arrangements will end.
· The new licensing regime commences for the issue of
new licences.
· Existing licensees are encouraged to migrate to new
licences and licensing transitional arrangements
commence.
· The new access regime commences, including deemed
declarations.
· International gateway liberalisation occurs.
October-December
2009
· Establishment of the Universal Access Scheme, pending
implementation.
· Implementation of regulatory instruments to give effect to
the new regime, including pricing principles.
· Review of retail price regulation by NICTA.
January 2010 · Removal of redundant retail price regulation.
October 2010 · The licensing migration process is completed for existing
licensees.
· Licensing transitional arrangements end.
January 2011 · Industry levy commences in relation to UAS contributions.
· Implementation of the UAS.
July 2012 · Expiry of the exemption for IGW infrastructure from the
access regime (hence the potential for access regulation
arises).
I.1314081 page 12
PART A
THE PATH TO OPEN COMPETITION
I.1314081 page 13
CHAPTER 1
LICENSING ARRANGEMENTS
1 BACKGROUND
The licensing regime is fundamental to the regulation of the ICT sector in PNG. It is an
important vehicle for the translation of Government ICT Policy into telecommunications
industry regulation.
PNG currently has a ‘vertical’ licensing regime that includes individual operator licences,
class licences and spectrum licences. This regime is codified in the Telecommunications
Act, the Radio Spectrum Act and the Radio Spectrum Regulations 1997.
The diagram below sets out the basic ‘vertical’ structure of the PNG licensing regime and
the key licences that may be granted and/or issued for particular types of services.
Figure 1 : Basic ‘vertical’ structure of the PNG licensing regime
Telecommunications Licences
(issued by the ICCC)
Spectrum/Equipment
Licences
(issued by PANGTEL)
Licensing powers in PNG are split between the ICCC and PANGTEL. In broad terms,
PANGTEL remains responsible for spectrum and equipment licensing, while the ICCC is
responsible for operator licensing.
To facilitate the path to open competition in PNG, and to align PNG’s licensing regime with
international best practice, fundamental licensing reform is required.
The reforms of the licensing regime are aimed at achieving the following fundamental
objectives:
· the licensing regime must be stable and transparent in order to reduce regulatory
risk (whether perceived or real) and promote private investment;
· operator licences should be technology and service neutral (ensuring that an
operator is not artificially constrained with regard to its service and technology
decisions);
· barriers to entry should be removed with a policy of regulatory forbearance
underpinning all licence considerations; and
· operator licensing should remain distinct from scarce resource assignment.
Chapter 1: Licensing arrangements
I.1314081 page 14
2 ORIGINAL ANALYSIS AND RECOMMENDATIONS
2.1 A NEW LICENSING REGIME
The Experts’ Report concluded that PNG must address the uncertainties, complexities and
inflexibility associated with the current licensing regime, and in the process, create a
technology and service neutral structure. In this way, the full benefits of open competition
can be effectively unlocked. The following recommendations were made with this goal in
mind.
A simple three tier, horizontal licence structure should be introduced in PNG. This structure
would categorise market participants for licensing purposes as follows:
· ICT Network Provider - an entity licensed to construct and/or operate
communications network infrastructure and/or provide network services over such
network infrastructure;
· ICT Service Provider - an entity licensed to provide electronic communications
services direct to an end-user (whether wholesale or retail, business or
government); and
· ICT Content Provider - an entity licensed to provide content services direct to an
end-user.
This structure can be illustrated in the following manner:
Figure 2 : Proposed structure for fully converged regime
Within the categories set out above, the particular licences would be classified as follows:
· ‘Individual’ – for activities that require a more rigorous selection process and
close ongoing scrutiny;
· ‘Class’ – for certain activities that require minimal application requirements or
merely notification; and
· ‘Exempt’ – for activities that have insignificant impact on competition or services
to the public.
Figure 3: New licence categorisation
Licence Type Hypothetical examples
Individual Provision of network servicesICT Network
Provider
Licence
Class Construction and/or operation of network facilities
Chapter 1: Licensing arrangements
I.1314081 page 15
Licence Type Hypothetical examples
Exempt Construction and/or operation of internal network facilities for
networks not exceeding certain dimensions (private networks)
Individual Fixed network service; Cellular mobile service
Class Internet access; Virtual mobile; IP telephony; Messaging services
ICT Service
Provider
Licence
Exempt Web-hosting or client server
Individual Standard broadcasting (including live-streaming TV and radio)
Class Internet content
ICT Content
Provider
Licence
Exempt Possible exemptions to be considered further
The Experts’ Report also recommended that the horizontal licensing regime should be
supported by a technology neutral spectrum assignment regime. This model is consistent
with the successful horizontal licence regimes adopted in many other transitional and
developed economies. It provides the technology and service neutrality required to facilitate
open competition while layering the sector in a manner which permits market entry on
different levels and facilitates network based regulation.
When licences are formulated, further consideration should be given to defining a
geographical dimension to the scope of each licence category (for example, international,
national, regional and district) to address specific market requirements and facilitate the path
to open competition. For the purposes of UAS, it may also be appropriate to have scope to
licence entry limited to particular geographical areas.
The regime should be further simplified by reassessing the value in classifying Telikom as a
‘regulated entity’ and terminating the Telikom Regulatory Contract (this is discussed in more
detail in Chapter 4 below).
Consideration should also be given to a fully converged unified licensing regime, namely
one that combines telecommunications with broadcasting. A discussion on full convergence
(including broadcasting) is beyond the terms of reference of this report. A similar unified
regime has been adopted in India and is currently proposed in Vanuatu.
The existing telecommunications licences in PNG should migrate (over time) from the
current vertically integrated licensing regime to a technology and service neutral, horizontal
licence regime. New entrants will operate under this restructured regime from the date of
market entry.
2.2 END TO BIFURCATION OF LICENSING RESPONSIBILITIES
The current bifurcation of licensing powers and responsibilities in PNG dates from 2002 and
involves one regulator (the ICCC) issuing general telecommunications network and service
licences, while another (PANGTEL) issues licences for radiofrequency spectrum (and other
technical licences and permits).
The Experts’ Report identified that the separation of licensing responsibilities has created
market confusion and discontent between the regulators. The current scenario displays a
divisive regulatory environment in which information flows between the regulators are
minimal and co-operation limited.
Chapter 1: Licensing arrangements
I.1314081 page 16
Given the current state of the market, the changed policy direction and a rapidly evolving
market, the Experts’ Report concluded that separation of licensing functions between the
regulators is no longer desirable.
Accordingly, consistent with international best practice, it was recommended that licensing
responsibilities (including issuance, monitoring and enforcement) should be placed within a
single regulator.
2.3 GRANT AND RENEWAL OF LICENCES
The Experts’ Report recommended that the licence application process should be codified
by regulations for both individual and class licences. The regulations should provide for
eligibility criteria, application consideration criteria, selection criteria, published decisions,
and rights of appeal. While some of these concepts already exist today, there is a lack of
clarity and general uncertainty in the industry as to their application.
Figure 4 : Grant of licence process
Specifically, class licences should apply as a matter of course provided the applicant
complies with certain minimum eligibility criteria. Those areas set aside for class licensing
should place few impediments in the path of market entry. Individual licences should be
assessed and granted on a case-by-case basis upon application, at any time, subject to
consistency with Government Policy.
Tender or auction processes should only apply for the assignment of scarce resources
(such as radiofrequency spectrum) and only if it is in the public interest to do so. Ideally,
foreign ownership restrictions should be limited and incentives to promote PNG participation
should be further considered.
Consistent with existing eligibility criteria, licensees should be PNG incorporated entities,
thus subject to PNG corporate and investment laws and any restrictions/criteria set out in
such laws. The model licence documentation corresponding to the categorisations should
be drafted alongside any new legislative instruments and made publicly available on the ICT
regulator’s website.
At the end of a licence term, there should be a presumption in favour of renewal to further
encourage investment and facilitate service security for customers. A licensee’s historic
compliance with its licence must be a relevant renewal consideration.
Chapter 1: Licensing arrangements
I.1314081 page 17
2.4 LICENCE FEES, TERMS AND CONDITIONS
The Experts’ Report concluded that a more rigorous process for assessment and application
of licence fees was needed. Such fees should be documented in advance and applied
consistently in line with publicised amounts. Licence fees should be categorised as:
· application-related (paid when applying and reflective of the costs in assessing the
application); and
· ongoing (annual) fees.
The ICT regulator should ensure transparency in the contribution fees required of licensees
and the use to which such fees are put. This can occur by ensuring the ICT regulator has
regular reporting obligations (ideally, to the legislature) in relation to the allocation of such
contributions.
All licence fees should be aligned to correspond to the cost involved in issuing licences and
monitoring compliance with their terms. Accordingly, there should be appropriate fiscal
responsibility in order to ensure the actual costs can be assessed.
Administrative charges for application and issuance should be limited to covering the actual
administrative costs involved for the regulator in processing the applications and issuing the
licence.
Operator annual licence fees should be limited to no more than a certain percentage of a
licensee’s revenue in the previous financial year excluding interconnection or other
wholesale revenues (and should not fluctuate unnecessarily).
Fees for scarce resources should be ‘reasonable’ and ‘non-discriminatory’ (even where
competitive pricing mechanisms are adopted) and should reflect the opportunity cost of
those resources. The fees should include any additional contribution that may be required
as part of the UAS.
Further conditions will apply to individual licences, including non-exclusivity and
interconnection obligations. No limit should be imposed on the number of licences.
2.5 ASSIGNMENT OF SPECTRUM (AND OTHER SCARCE RESOURCES)
2.5.1 Spectrum management
As radiofrequency is a key, scarce and finite resource, the Experts’ Report recommended
that careful ongoing management should occur, including more proactive, forward looking
management and planning. The existing first-come-first-served model is the manifestation of
a reactive spectrum management strategy and is unsustainable in the medium to long term.
The model does not allocate spectrum with a view to maximising the value of spectrum as a
scarce resource and promoting market growth and efficiency in the ICT sector.
Given the confusion in the current regime, a spectrum usage audit may be appropriate prior
to implementation of any new regime. Radiofrequency spectrum will be included in the
legislative reforms for Phase 2.
To underpin the successful move to open competition, with appropriately transparent and
predictable processes (fundamental pre-requisites for investor confidence), a future looking
allocation and assignment program should be developed. The management plan should
embody a forward looking policy which appreciates the changing nature of PNG’s
competitive landscape. It must contemplate allocation of additional spectrum to both current
operators and new entrants.
2.5.2 Spectrum allocation and assignment
The complexity of the current spectrum licence categorisations and the inconsistent
application of spectrum fees, creates a cumbersome and confusing model. Significant
regulator resources are used in merely managing the current regime. This is not an ideal
scenario, given the expertise and resource constraints that currently exist in PNG.
The service specific nature of current spectrum assignment is inconsistent with a future of
technology and service convergence. In some instances, the law is not followed for
Chapter 1: Licensing arrangements
I.1314081 page 18
technical or other valid reasons. Test licences are issued without underlying operator
licences and broadcasting services licences are issued without a clear legislative mandate.
A well defined, settled mechanism should be implemented to manage the assignment of
spectrum going forward. This mechanism and the consideration criteria should be published
and its application should be predictable. It should align with the overall spectrum
management plan.
Where a frequency band is not likely to be in demand, individual assignments of frequency
should be issued to any person fulfilling certain minimum eligibility criteria. Specifically, the
ICT regulator should consider whether the person is, in the regulator’s reasonable opinion,
financially and technically capable of meeting its legislative and regulatory obligations as
well as the obligations to be set forth in the individual assignment concerned.
A restrictive assignment procedure is appropriate (where there is significant demand for a
particular frequency band). Provision should be made in legislation to ensure that the ICT
regulator may use any selection process it reasonably considers appropriate, including,
without limitation, auctions or calls for tender.
In order to avoid discrimination among applicants, the procedures adopted by the ICT
regulator for the assignment of frequencies should be transparent. Frequencies should
continue to be assigned distinctly, separate from the operator licence.
Frequency assignment licences should, like operator licences, be divided into three sub-
categories:
· individual licences requiring an express regulator decision;
· class licences requiring notification to the regulator; and
· exemptions.
Figure 5 : Frequency assignment licences
Specific measures should be introduced to prevent spectrum hoarding. Consideration
should be given to ‘spectrum trading’.
Consistent with the recommendations on institutional reform, the responsibility for licensing
radio spectrum should vest with a single converged ICT regulator.
2.5.3 Spectrum Fees
Market entry pricing mechanisms should be established and published.
Consideration should be given to spectrum auction processes, competitive tender
processes and simple pre-qualification criteria. The appropriate process may differ
depending on the scarcity of the relevant band, competitive tensions and the spectrum
management policy.
A simple pricing structure should be introduced that ensures consistency in the charging of
fees. Ideally, this mechanism should not change depending on technology used or the
service sought. Consideration should be given to different pricing structures, including
Chapter 1: Licensing arrangements
I.1314081 page 19
pricing based on percentage of revenue, charges per unit of spectrum, and bandwidth or
transmitter power.
2.5.4 Content of frequency licences
The frequency licence should contain as few conditions as possible. The legislation will
require all conditions attached to frequency licences to be reasonable and limited to what is
necessary to ensure compliance with the provisions of the Telecommunications Act and its
associated regulations.
The frequency licence should be technology-neutral and should simply authorise the use of
spectrum. Licensees should have the freedom to deploy any device from any site within
their spectrum space, provided that the device is compatible with the core conditions of the
licence and the technical framework for the frequency bands in question.
Provision need not be made for the trading of frequency licences. The transfer of radio
frequencies can be an effective way of increasing efficient use of spectrum, as long as there
are sufficient safeguards in place to protect the public interest. However, because ‘sufficient
safeguards’ may not yet exist in PNG, frequency trading need not be a key policy principle
at this time.
2.6 LICENCE MIGRATION
If a new licensing regime is to be introduced in PNG, the Experts’ Report identified the
manner in which existing licensees migrate to that new regime as a critical issue. Given the
complexity and sensitivity associated with licence migration, it must be carefully managed
and industry participants must be fully engaged.
Figure 6 : Translation of vertical licensing to horizontal licensing
Public
Mobile
Licence
VAS
Licence
General
Carrier
Licence
ICT Network Provider
ICT Service Provider
ICT Content Provider
Licence migration cannot and should not happen overnight. It is a key step in the path to
open competition, but will not succeed unless the overall package of reforms (and, in
particular, institutional reform) are implemented.
Ideally, existing licensees should not be deemed to have horizontal licences and should not
be obligated to migrate to the new licence regime. Licence migration should be voluntary.
However, if the benefits of horizontal licensing are to be received by licensees, full migration
should be required (in order to ensure full licence migration).
Existing licensees should not be required to lose any of their current rights as a result of
migration.
If possible, the migration process should be undertaken and completed within 12 months of
implementation. New licensees, however, should be issued licences in accordance with the
new licence categorisations from the date of market entry.
Further incentives to migrate should be considered including:
Chapter 1: Licensing arrangements
I.1314081 page 20
· waiver of application fees for those who migrate; and
· the recommencement of the licence term.
2.7 EXPERTS’ REPORT SPECIFIC RECOMMENDATIONS
The Experts’ Report made the following recommendations on licensing arrangements:
Recommendation 1.1 Licensing responsibilities should be assigned to a single ICT
Regulator and the licensing application process should be codified
within a legislative instrument.
Recommendation 1.2 A simple, three-tier horizontal licensing structure should be
implemented in PNG based on the categorisation of operator
licensees as network providers, service providers or content
providers.
Recommendation 1.3 All new operator licences should be technology and service neutral
thereby ensuring that licensees are not artificially constrained with
regard to their service and technology decisions. Operator licensing
should be kept conceptually distinct from the use of licences to
ration scarce resources, such as telecommunications radiofrequency
spectrum.
Recommendation 1.4 The distinction between class and individual operator licences
should be clarified. Class licences should be automatically granted if
the applicant meets minimum eligibility criteria. Individual licences
should be capable of being granted at any time based on a case-by-
case analysis.
Recommendation 1.5 Regulatory barriers to market entry should be reduced via the
increased use of class licensing in conjunction with increased
regulatory forbearance.
Recommendation 1.6 The radiofrequency spectrum management regime should be
reformed with an emphasis on key policy principles and spectrum
management plans. A clear mechanism for spectrum allocation and
assignment should be adopted.
Recommendation 1.7 All licence fees should be made consistent and transparent,
underpinned by a requirement that licence fees should seek to better
reflect actual costs (including, where relevant, opportunity costs, as
in the case of scarce spectrum).
3 CONSULTATION FEEDBACK
The majority of consultation participants supported the licence regime recommendations.
Without exception, participants agreed that licensing responsibilities should be consolidated
within a single regulator (although views differed as to whether this regulator should be the
ICCC, PANGTEL or a new or reformed regulator). The ICCC reiterated the view set out in its
previous submission and stated that the ICCC was the most appropriate institution to take
responsibility for licensing. The ICCC also suggested that it would be an appropriate
institution to implement the licence reforms.
With the exception of Treasury (which expressed a concern that the holding of all three
licences could open the regime to ‘market power abuse’), all written submissions were
supportive of the proposed three tier, horizontal licensing structure. Not surprisingly, a
Chapter 1: Licensing arrangements
I.1314081 page 21
number of participants (PANGTEL and BMobile in particular) sought further details on the
specifics of the licence categorisations.
Digicel raised concerns about the impact of licence migration on existing licences and the
transition to the new licence regime remains an area of particular interest for most
participants.
The more general recommendations in the Experts’ Report in relation to the reduction of
market entry barriers and the increased use of a class licence regime were unanimously
supported (although the ICCC did not believe that structural reform was necessarily required
in order to open the market).
Further detail on the potential reform of the radio spectrum management regime was sought
by a number of participants and in the absence of such detail PANGTEL, BMobile and
Digicel reserved their rights to comment.
The most diverse array of opinion was expressed in relation to the recommendations on
licence fees and the need for these to be consistent, transparent and reflective of actual
costs (including opportunity costs). Although the principles of transparency and consistency
were uncontroversial, PANGTEL raised queries as to what constituted ‘opportunity costs’
and Digicel suggested a percentage of retail revenue for the provision of
telecommunications services less the subscriber acquisition costs may be a better method
of calculating licence fees. PANGTEL also stated that licence fees for scarce resources
should be determined by market forces, and licence fees based on revenue sharing should
be considered.
4 FINAL ANALYSIS AND CONCLUSIONS
The manner in which participants have embraced the fundamental licensing reform
proposals set out in the Experts’ Report (particularly given the significant structural changes
being proposed) reaffirms the pressing need to structurally reform the PNG market in order
to:
· facilitate the path to open competition;
· future-proof the PNG licensing regime; and
· permit regulatory forbearance to the extent possible.
The details of the regime will be formulated during the initial implementation phase with the
objective being to have the regime operating by October 2009.
The core structure, including the three tier licensing categorisations, will be prescribed in
legislation. However, the specific activities that fall within each category (and which activities
will be subject to individual licensing, class licensing or licence exemption) will require a
case-by-case assessment. This exercise will be undertaken during the initial implementation
phase and will include a review of the various markets and an assessment of which
activities require closer regulatory attention and which will benefit from less regulation and
regulatory forbearance. The specific activities will be set out in a fully transparent,
subordinate regulatory instrument (i.e. ancillary regulation under the primary enabling
legislative instrument).
Treasury’s concern that the three tier licence regime may be open to ‘market power abuse’
appears to be based on a misunderstanding of the proposals set out in the Experts’ Report.
The horizontal structure that will form the platform of the new licensing regime is more likely
to prevent market power abuse (certainly relative to the existing vertically integrated licence
structure) given the market will be able to be divided along network and service lines and,
where appropriate, regulated along such lines.
Digicel’s general concerns about licence migration are legitimate and the effective transition
between licence regimes remains a key implementation challenge (and one that necessarily
relies upon an effective ICT regulator). The Experts’ Report acknowledges the potential
complexity associated with migration and the recommendations remain valid. Licence
migration will be a voluntary process which ensures sufficient incentives exist to encourage
timely migration.
Chapter 1: Licensing arrangements
I.1314081 page 22
The Government is confident that effective transition can be achieved and to this end
requires the Department of Communication and Information and NICTA to build upon the
dialogue with existing operators that has already commenced during the reform process.
NICTA will have an important role in facilitating the migration of licences and managing the
implementation of the new licence regime. As PANGTEL, BMobile and Digicel have
suggested, there is more analysis required as to the detail of the radio spectrum
management regime. This work will need to be undertaken by NICTA once the institutional
model is settled. To clarify this fact, the original Recommendation 1.6 will be amended as
follows:
The radiofrequency spectrum management regime should be reformed reviewed by
NICTA with an emphasis on key policy principles and spectrum management plans.
A clear mechanism for spectrum allocation and assignment should be adopted.
Licence fees should, on the whole, better reflect the actual costs of regulating the ICT
sector. While the retail revenue percentage model proposed by Digicel is simple, it would
not be appropriate to adopt such a cap. Of necessity any cap derived at this stage of the
reform process would be arbitrary, particularly where the new regulatory structures are yet
to be established. There can be no basis to ensure that any such cap is properly reflective
of costs of regulating the sector. The greater transparency and accountability that will be
imposed on NICTA should aid in ensuring that fees are reasonable. Recommendation 1.7
will be amended as follows to address the queries raised about the role of ‘opportunity
costs’ for scarce resources:
All licence fees should be made consistent and transparent, underpinned
by a requirement that licence fees should seek to better reflect actual
costs (including, where relevant, opportunity costs, as in the case of
future allocation of scarce spectrum). In considering the inclusion of
opportunity costs in future licensing fees, NICTA will balance the
allocation of scarce resources (such as spectrum and numbering) with
the broader policy objectives of network deployment, service provision
and affordability.
Finally, the proposed model will provide a future-proof licence regime that will enable PNG
to meet the demands of a converging ICT sector in an agile and efficient manner. The
model is consistent with international best practice (while remaining a model that will be
particularly suited to the circumstances of PNG). The model is also consistent with PNG’s
WTO obligations1
.
Accordingly, with the exception of the changes referred to above, the reforms on licensing
arrangements will remain consistent with those set out in the Experts’ Report.
5 SPECIFIC REFORMS – LICENSING
In light of the above analysis the following are the specific licensing reforms:
Reform 1.1 Licensing responsibilities will be assigned to a single ICT regulator, known as
the National Information and Communication Technology Authority or NICTA.
The licensing application process will be codified within a legislative instrument.
Reform 1.2 A simple, three-tier horizontal licensing structure will be implemented in PNG
based on the categorisation of operator licensees as network providers, service
providers or content providers.
Reform 1.3 All new operator licences will be technology and service neutral thereby
ensuring that licensees are not artificially constrained with regard to their service
and technology decisions. Operator licensing should be kept conceptually
distinct from the use of licences to ration scarce resources, such as
telecommunications radiofrequency spectrum.
Reform 1.4 The distinction between class and individual operator licences will be clarified.
Chapter 1: Licensing arrangements
I.1314081 page 23
Class licences will automatically apply if the applicant meets minimum eligibility
criteria. Individual licences will be capable of being granted at any time based
on a case-by-case analysis.
Reform 1.5 Regulatory barriers to market entry will be reduced via the increased use of
class licensing in conjunction with increased regulatory forbearance.
Reform 1.6 The radiofrequency spectrum management regime will be reviewed by NICTA
with an emphasis on key policy principles and spectrum management plans. A
clear mechanism for spectrum allocation and assignment will be adopted.
Reform 1.7 All licence fees will be made consistent and transparent, underpinned by a
requirement that licence fees should seek to better reflect economic costs
(including, where relevant, opportunity costs, as in the case of future allocation
of scarce spectrum). In considering the inclusion of opportunity costs in future
licensing fees, NICTA will balance the allocation of scarce resources (such as
spectrum and numbering) with the broader policy objectives of network
deployment, service provision and affordability.
I.1314081 page 24
CHAPTER 2
INTERNATIONAL GATEWAY LIBERALISATION
1 BACKGROUND
The potential liberalisation of the international telecommunications gateway (IGW) in
PNG is a politically sensitive and controversial issue. Access to the IGW has been the
subject of domestic litigation as well as complaints to a foreign government.
IGW are essentially the facilities through which international telecommunications traffic is
sent and received. More specifically, an IGW is any facility that provides an interface to
send and receive electronic communications in the form of traffic between one country’s
domestic network facilities and those in another country. An indicative diagram of the
current IGW architecture in PNG is set out below:
Figure 7 : Current IGW architecture in PNG
The current IGW architecture in PNG interconnects principally with one submarine cable
network. There are three functional cable station gateways in the Telikom network at
telephone exchanges in Boroko, Lae and Ela Beach. These cable stations connect to a
number of overseas carriers via the APNG-2 optical fibre undersea cable. PNG is
currently heavily dependent for international connectivity on access to the APNG-2
submarine cable. The APNG-2 cable has sufficient capacity for PNG for the next 5 years.
International satellite circuits from the International Communications Centre at the
Gerehu earth station and the smaller Lae earth station are used as back-up for
redundancy purposes to the APNG-2 cable.
At the end of 2009 the potential landing and connection of a new Pipe Networks cable
known as PPC-1 may also provide a high capacity, reliable alternative connection. Once
the PPC-1 submarine cable is laid and connected, PNG will have more direct access to
Gerehu earth station
APNG-2 cable station
Offshore earth station
APNG-2 cable station
International
gateway
exchanges in
PNG
International gateway
exchanges located overseas
(e.g, Telstra, Optus)
Interconnection
between
Digicel and
Telikom
Ela
Beach
Boroko
Lae
Chapter 2: International gateway liberalisation
I.1314081 page 25
the Internet backbone in the United States and potential access to domestic cable
connectivity far in excess of current requirements.
2 ORIGINAL ANALYSIS AND RECOMMENDATIONS
2.1 IMMEDIATE LIBERALISATION WITH INITIAL EXEMPTION FROM ACCESS REGIME
The Experts’ Report recommended the immediate liberalisation of the IGW by permitting
all network licensees to operate IGW if they meet certain minimum licensing criteria.
The Experts’ Report also recommended that IGW infrastructure should initially be
exempted from the access regime in order to preserve investment incentive and that this
exemption should be subject to periodic review with regard to competition criteria.
These recommendations had a number of aims.
Immediate and full liberalisation was aimed at imposing an effective competitive
constraint on Telikom’s behaviour with respect to IGW services. Telikom’s pricing
decisions both at the wholesale and retail level would be constrained by the threat of
bypass, most obviously from satellite, and Telikom will have an incentive to make better
use of its IGW facilities.
The initial exemption from access regulation was aimed at protecting the legitimate
interests of owners of existing IGW infrastructure. The exemption would permit those
owners to recover the costs of their investment in IGW infrastructure, including a return
commensurate with its investment risk.
Widespread access to satellite capacity, and the likelihood that the cost of that capacity
will continue to fall, will place continuing pressure on Telikom to optimise the use of its
IGW infrastructure, even with the access regulation exemption in place. If Telikom does
so respond, it can reap material commercial rewards, if it fails to use this opportunity, it
will simply find its competitive position further eroded. As a result, this recommendation
puts the burden squarely on Telikom to make beneficial use of valuable assets. At the
same time, it ensures that if Telikom fails to seize that opportunity, consumers will be
protected through the scope for by-pass.
Liberalisation provides an opportunity both for potential users of IGW services such as
ISPs to obtain more reasonable terms and conditions of access and also for owners of
IGW infrastructure to more efficiently utilise their IGW facilities.
2.2 TRANSITIONAL ARRANGEMENTS
The Experts’ Report recommended the following approach to transitional arrangements in
connection with IGW liberalisation.
1 Digicel’s existing IGW: The recommended IGW liberalisation would permit
Digicel to continue to operate its IGW for its own domestic traffic,
notwithstanding that the original reason for the initial (so called ‘temporary’)
consent has passed. Such an arrangement would also ensure that the
wholesale interconnection charges proposed by Telikom for its cable gateway
would be constrained by Digicel’s ability to route its traffic through its own
satellite gateway.
2 Tariff rebalancing: no mandatory tariff rebalancing was considered necessary
in PNG.
3 No quantitative restrictions on the number of licences: under the
recommended full IGW liberalisation, no quantitative restrictions on the number
of licences issued was contemplated.
Chapter 2: International gateway liberalisation
I.1314081 page 26
4 IGW licensing: a key recommendation is that a licensing system is maintained
in relation to the ownership and operation of IGW. To meet WTO requirements,
the criteria for licensing should be justifiable and apply on a non-discriminatory
basis to all licensees. Notwithstanding IGW liberalisation, operators of an IGW
will therefore still be required to obtain a relevant licence. Licensees will be
permitted to operate IGW only if they meet certain minimum licensing criteria.
Any persons operating an IGW without a requisite licence should be the subject
of enforcement action by NICTA.
5 VSAT operators and implementation of class licensing: The need for
enforcement action against existing VSAT operators that do not have licences
should be considered in the context of any class licensing. VSAT operators may
be potential candidates for a form of class licensing.
6 Licence conditions: The appropriate licence conditions would depend on the
nature of the licence that was required to operate an IGW.
7 Licence fees: Licence fees should be reasonable to avoid becoming an
artificial barrier to market entry that can confer market power on IGW licence
holders. The recommendations relating to the manner of calculation and
application of licence fees generally apply equally to IGW licensing.
2.3 EXPERTS’ REPORT SPECIFIC RECOMMENDATIONS
The Experts’ Report made the following recommendations on international gateway
liberalisation:
Recommendation 2.1 Immediate liberalisation of the international gateway should occur by
permitting all network licensees to operate international gateways if
they meet certain minimum licensing criteria.
Recommendation 2.2 International gateway infrastructure should initially be exempted
from the access regime in order to preserve investment incentives.
However, that exemption should be subject to periodic review every
3 years with regard to competition criteria.
Recommendation 2.3 Care should be taken in setting minimum criteria for obtaining a
licence to operate an IGW so that the ICT Regulator does not lose
control over the IGW market. VSAT operators may be potential
candidates for class licences.
3 CONSULTATION FEEDBACK
The ICCC, PANGTEL, BMobile, Digicel, Telikom, Treasury, the NRI, Data Nets and the
ADB were supportive of the liberalisation of the gateway. The NRI and Treasury in
particular noted the benefits of liberalisation of the gateway, including the positive impacts
for end users in terms of service quality and affordability. Nonetheless, some consultation
participants had concerns about specific aspects of the proposed gateway liberalisation.
There was some concern from participants regarding IGW licence fees. The ICCC
wanted details regarding the amount of any licence fee, Digicel sought confirmation that
no fee would be payable for migration to the new system and Telikom stated that it
believes it ought to be compensated because it has been denied the full benefits of its
monopoly over the gateway. Telikom also emphasised that the liberalisation should occur
via legislative change rather than policy changes.
In relation to the exemption of IGW infrastructure from the access regime there was a
divergence of opinions amongst participants. While Telikom stated that there should not
be any price regulation of the IGW, PANGTEL emphasised that wholesale pricing should
Chapter 2: International gateway liberalisation
I.1314081 page 27
be subject to regulatory oversight in order to ensure that network providers do not
“charge exorbitant prices”. Digicel commented that the recommendation was
“inconsistent with that taken in respect of access to facilities” and suggested that the ‘safe
harbour’ proposed by the recommendation should only exist for a maximum of two years.
Similarly, the NRI suggested that any exemption from an access regime should only be
temporary, for example it should be removed in 3 years, unless a review based on
competition criteria suggested otherwise.
There were also comments regarding the minimum criteria for obtaining an IGW licence.
Treasury is supportive of the liberalisation of the IGW but notes that the licensing criteria
needs to be clearly specified and should ensure operator certainty. Education Milne Bay
and Data Nets were supportive of potential class licensing for VSAT, Data Nets
commented that this would provide “critical relief from dependency on a single gateway…
and PNG, as a whole, would benefit”.
4 FINAL ANALYSIS AND CONCLUSIONS
Given that most of the industry has endorsed the recommendations set out in the
Experts’ Report, few amendments have been made in the final reforms.
The words “immediate liberalisation” have been deleted given that the new licensing
regime is not due to commence operation until October 2009 under the planned
transitional arrangements. The reforms therefore now refer to liberalisation occurring as
soon as practicable and preferably by October 2009.
The licensing fees for the IGW are intended to be consistent with the recommendations
relating to licensing fees as set out in the licensing section of this Final Report.
Accordingly, the reforms now reference the other reforms set out in the Experts’ Report
relating to licensing fees. It is not intended that this Final Report determine the precise
licence fees that should be payable, rather such fees are best determined by NICTA in
consultation with industry participants at the time.
The proposed exemption from access regulation for IGW infrastructure is necessary for
two key reasons. First, to avoid adversely impacting on short-term IGW investment
decisions (including planned infrastructure upgrades by Telikom). Second, to reduce the
potential regulatory burden imposed on NICTA. The proposed exemption has therefore
been retained.
However, the exemption has been given an express sunset date of 1 July 2012
consistent with the feedback during public consultation. Such a sunset date addresses a
number of concerns raised during further public consultation relating to the exemption
period and is more consistent with PNG’s WTO obligations. Beyond that date, it will be
possible for IGW infrastructure to be subjected to access regulation under the declaration
criteria in the revised wholesale access regime, see the discussion at section 4.2 in
Chapter 3.
5 SPECIFIC REFORMS – INTERNATIONAL GATEWAY
In light of the above analysis the following are the specific licensing reforms:
Chapter 2: International gateway liberalisation
I.1314081 page 28
Reform 2.1 Liberalisation of the IGW will occur as early as practicable (preferably by
October 2009). Network providers should be permitted to operate an IGW if
they meet certain minimum licensing criteria. Any licensing fees will be
consistent with the criteria in Reform 1.7.
Reform 2.2 IGW infrastructure will initially be exempted from the access regime as part of
transitional arrangements and to preserve investment incentives. This specific
exemption will expire on 1 July 2012 (on the assumption that liberalisation
commences in October 2009). After that date, IGW infrastructure will be
subject to potential regulation under the declaration criteria in the revised
wholesale access regime.
Reform 2.3 Care must be taken in setting minimum criteria for a licence to operate an
IGW so that NICTA does not lose control over the IGW market. VSAT
operators may be potential candidates for class licences.
I.1314081 page 29
CHAPTER 3
WHOLESALE REGULATION AND ACCESS
1 BACKGROUND
The term ‘access’ is used to describe third party use of particular wholesale services and
facilities provided by a network operator. Access allows the interconnection of separate
networks so that subscribers of one network can communicate seamlessly with
subscribers of other networks. Access also allows service providers to use parts of
another operator’s network or facilities where duplication may be inefficient.
The access regime sets out the process and rules for determining whether access to
particular services and facilities should be regulated. Where regulation does apply, the
access regime specifies the rights and obligations associated with access, including the
obligation to provide access to particular services or facilities and the process and/or
principles to be followed when determining terms and conditions of access.
A well functioning access regime, suitable to the local environment, is critical to the
successful implementation of open competition in the PNG ICT sector.
2 ORIGINAL ANALYSIS AND RECOMMENDATIONS
The Experts’ Report comprehensively reviewed the current access regime in PNG and
recommended a number of reforms necessary to support open competition.
The recommendations on wholesale access are designed to address the key
shortcomings of the current regime and ensure that the access regime in PNG is
consistent with international best practice and with key Government objectives. In
particular, the access regime should promote competition at different levels while still
protecting the legitimate interests of network owners.
2.1 PROCESS FOR DETERMINING REGULATION
The Experts’ Report recommended the establishment of a single process for declaring
access to services and facilities. This process would be set out in the legislation and
would include a threshold test applied consistently to all operators and services under
consideration.
An initial schedule of services would be deemed as declared in the legislation and would
therefore be subject to the obligations of the wholesale access regime from the outset.
The Experts’ Report recommended that in PNG this schedule comprise the following
services: mobile network terminating access, fixed network terminating access, domestic
transmission, domestic inter-carrier roaming in areas where network duplication would be
inefficient and mobile tower access in areas where tower duplication is inefficient. This
recommendation is similar in some respects to the New Zealand regime whereby a
schedule of regulated services is legislated in the Telecommunications Act 2001.
Under the recommended approach other services could be declared under a process
prescribed in the legislation with the following key elements:
· any party could request that the ICT regulator conduct an investigation as to
whether a particular service should be declared as a regulated service. If the
ICT regulator believes the request is valid it would make a recommendation to
the Minister for an inquiry to be undertaken. The inquiry only proceeds if
approved by the Minister;
· the ICT regulator’s inquiry would be required to consider whether access to the
service was necessary for the promotion of competition. The ICT regulator
would then make a recommendation to the Minister on whether to alter the
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schedule of regulated services. This recommendation would only be made
where the ICT regulator was satisfied that the prescribed declaration criteria
were satisfied;
· the ICT regulator’s recommendation would be contained in a public report. The
Minister would either accept or reject the ICT regulator’s recommendation; and
· once a service was declared as a regulated service, the terms and conditions of
access would be determined on a negotiate/arbitrate model where the parties
would either agree or, in the event of dispute, the matter could be referred to the
ICT regulator to determine the terms and conditions, which it would have to do
in a manner consistent with legislated pricing principles. The Minister would
have no role in determining terms and conditions of access.
The following important features were also recommended in the Experts’ Report:
· removal of all other existing processes for determining the application of
regulation under the current regime. In particular, the process for declaring
entities and goods and services in the ICCC Act would not apply to the ICT
sector;
· the provisions set out in the mandatory roll-out section of the mobile carrier
licences in relation to roaming and infrastructure sharing would be removed and
replaced with a reference to the single comprehensive access regulation
process set out in the Telecommunications Act. However, under the final
reforms roaming and infrastructure sharing are not to be deemed services.
Therefore, the reference to these provisions in the licences will be retained with
some adjustments to reflect that these responsibilities will sit with NICTA. In the
event that roaming and/or infrastructure sharing are declared in mandatory roll-
out areas under the access regulation process then the access obligations
under the new regime will apply. This will be made clear in the relevant
licences;
· explicit exclusion of IGW services (international transmission and the gateway
itself) from access regulation for an initial period; and
· the establishment of a corresponding process for the removal of access
regulation where it was no longer warranted. The trigger for an inquiry into the
removal of regulation would be the sooner of a request from any party or the
Minister (i.e. the same trigger as for the application of regulation); or 5 years
from the time the service or facility was declared.
2.2 ACCESS OBLIGATIONS
The Experts’ Report recommended adjustments to the access regime to support a range
of forms of competition including network-based competition, services-based competition,
and combinations of both.
It was envisaged that this could be achieved by amending the legislation to provide non-
discriminatory rights of access to all access seekers, regardless of the licence held the
networks deployed or the final services offered. This would include providing all access
seekers with a general right of access to regulated services upon request and extending
the arbitration powers of the ICT regulator to determine price and non-price terms of
access to all access seekers.
2.3 DETERMINATION OF TERMS OF ACCESS
With respect to the process used for determining terms and conditions of access, the
Experts’ Report recommended maintaining the negotiate/arbitrate model with interim
determination powers, while introducing a number of changes, specifically:
· the ICT regulator’s arbitration powers to be extended to include both price and
non-price terms and conditions for all declared services;
· limiting the issues potentially in dispute by introducing a pre-approval process
for terms and conditions in the RIO (a document submitted by an access
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provider to the Regulator setting out proposed terms and conditions of access).
Under this process the ICT regulator would undertake an assessment of any
RIO lodged by an access provider and approve or otherwise the individual
terms and conditions of access. The Experts’ Report recommended that any
such RIO approval should have a limited duration, up to a maximum of 3 years.
2.4 PRICING PRINCIPLES
The Experts’ Report recommended providing greater regulatory certainty to network
owners by legislating pricing principles and removing them from all other legislation,
codes and licences. The legislated pricing principles would be referable to internationally
well-established costing methodologies (for example, use of the retail minus avoidable
cost (RMAC) pricing principle in relation to resale services (including inter-carrier
roaming)).
The Experts’ Report recommended that the ICT regulator be required to publish within 6
months of its establishment guidelines details of how it would implement the access
pricing principles in the event of a dispute.
The draft pricing principles that were discussed in the Experts’ Report are set out below.
1 Over-arching principle: Access prices would be set to ensure that the access
provider could recover its total costs, in recognition of the desirability of
providing incentives for ICT investment in PNG. Where the ICT regulator
determines that efficient costs differ from actual costs, it would be required to be
positively satisfied that actual costs are inefficient.
2 Intermediary principles: For access services which involve the resale of a
retail service, RMAC pricing would be applied except where this resulted in a
price below cost, in which case, cost-based pricing would be applied. In
determining a RMAC price, the ICT regulator would be required to have regard
to the following factors:
· where more than one price point exists for the relevant service, the
starting retail price should be calculated as the weighted average of
the retail price points for the relevant service;
· the avoided costs deducted from the retail price should reflect the
costs that the access provider can actually avoid by not retailing the
services itself; and
· any other factors the ICT regulator considers relevant, to the extent
that such factors are consistent with the over-arching principle of cost
recovery and the above principles of RMAC pricing.
3 Cost-based pricing: For all other access services, cost-based pricing would
be applied. In determining a cost-based price, the ICT regulator would be
required to have regard to the following factors:
· the total service costs of access, being the direct and indirectly
attributable capital, operating and maintenance costs actually incurred
by the access provider in providing the service to itself and the access
seeker(s);
· the return on capital, which reflects the opportunity cost of that
investment taking account of its risk;
· the requirement for a fair and reasonable contribution to the access
provider’s common costs;
· the requirement for a non-discriminatory allocation of costs between
the access provider and access seeker(s);
· full recovery from access charges of operational and capital costs
incurred in the provision of access and interconnection, which the
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I.1314081 page 32
access provider would not have otherwise incurred but for the
requirement to provide access and interconnection;
· any price regulation that applies to the access provider to ensure that
full cost recovery can be achieved;
· the availability and capacity of the telecommunications network
operated by the access provider and the timeframe reasonably
required to provide access to additional capacity; and
· any other factors the ICT regulator considers relevant to the extent
that such factors are consistent with the over-arching principle of full
cost recovery and the above principles of cost-based pricing.
4 Specific pricing: In making an interim determination on domestic inter-carrier
roaming, the ICT regulator would apply the RMAC principle and calculate the
RMAC price by:
· calculating the weighted average domestic peak retail price of the
access provider; and
· deducting 10% of that starting average retail price (as an
approximation of avoided costs),
to arrive at the wholesale price for domestic inter-carrier roaming, which is to be
applied on a reciprocal basis in the event of any future access determinations.
5 Interim determination: In making an interim determination on tower sharing,
the ICT regulator would apply the cost-based principle and calculate the cost-
based price by:
· estimating the costs associated with the tower at issue in line with the
intermediary cost-based pricing principles; and
· dividing the resulting tower costs by the number of operators sharing
the tower,
to arrive at the wholesale price for tower sharing.
2.5 EXPERTS’ REPORT SPECIFIC RECOMMENDATIONS
The Experts’ Report made the following recommendations on wholesale regulation and
access:
Recommendation 3.1 Wholesale access and interconnection obligations should be applied to
regulated ‘declared’ services and facilities, not particular regulated
entities. All relevant licensees should be subject to, and benefit from,
such regulation.
Recommendation 3.2 A schedule of deemed declared services should be legislated. As well as
core interconnection services, this schedule should include facilities
sharing and mobile roaming to the extent it is uneconomic to duplicate
infrastructure.
Recommendation 3.3 Declaration of additional services should occur based on whether access
to the facility or service provided over the facility is essential to the
promotion of competition. In considering this, the ICT Regulator must
take into account:
· whether the facility to which access is sought is
provided exclusively or predominantly by a single or
very limited number of suppliers;
· whether the facility can be economically or technically
substituted in order to provide the service;
· whether lack of access would pose a barrier to entry
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I.1314081 page 33
that is likely to make otherwise efficient entry into the
market uneconomic; and
· whether access would compromise the incentives for
otherwise efficient investment, including as a result of
creating undesirable regulatory risk.
Recommendation 3.4 The ICT Regulator should undertake declaration inquiries and make
recommendations to the Minister for Communication and Information.
The Minister should make declaration decisions.
Recommendation 3.5 Pricing principles should be legislated and removed from all other
regulatory instruments. The principles should adopt internationally well-
established costing methodologies. The principles should promote
infrastructure investment by ensuring full cost recovery.
Recommendation 3.6 The ICT Regulator should determine access disputes for declared
services under a negotiate/arbitrate model. Within 6 months of its
establishment, it should be required to publish guidelines detailing how it
will apply the legislative pricing principles to various types of access
disputes.
Recommendation 3.7 Access providers should be permitted to submit binding RIOs to the ICT
Regulator for pre-approval for an appropriate period (for example, 3 - 5
years).
Recommendation 3.8 All service declarations should be subject to regulatory review within 5
years. If the criteria for declaration are no longer met, the declaration
should be permitted to expire.
3 CONSULTATION FEEDBACK
3.1 NEED FOR A WHOLESALE REGULATION AND ACCESS REGIME
The concept of a wholesale regulation and access regime in PNG was supported by the
vast majority of consultation participants, including the ICCC, PANGTEL, BMobile, Digicel
and the NRI. The NRI noted the benefits of the regime:
“Establishment of an access regime should promote competition and is
therefore a welcome addition to the ICT regulatory structure. Access
arrangements will enable competition in areas where competition would
otherwise not occur and enable the costs of infrastructure expansion to be
shared and avoid unnecessary duplication.”
Treasury was broadly supportive of these recommendations but emphasised that clear
access rules and regulations must be formulated.
Telikom was the only participant that was concerned about the institution of a new access
regime. Telikom stated that the use of ‘declared’ services restricts the freedom of players
in the market from reaching commercial terms and that access is best left to commercial
negotiations between carriers. However, if the regime is implemented, Telikom stated that
regulation should be minimal. For example, it contended that the ICT regulator would only
monitor prices where commercial agreement fails and the access interconnect rates
should be determined primarily on the cost of interconnect which should be shared
equally between the parties.
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I.1314081 page 34
3.2 DEEMING OF CERTAIN SERVICES AS DECLARED SERVICES
The recommendation in relation to deeming certain services as declared services (in
particular, domestic transmission, inter-carrier roaming and tower sharing services) was
more controversial.
BMobile contended that inter-carrier roaming can only be supported where mobile
coverage and penetration are at higher levels than today.
BMobile, Telikom and Digicel submitted that to mandate inter-carrier roaming would
discourage investment in remote areas. Digicel explained that:
“Digicel, like other mobile network operators, invests in less economic or
efficient infrastructure in order to grow their network coverage and in turn their
competitive differentiation in the marketplace.
Such excessive regulation will result in reducing Digicel’s incentive to invest and
in Digicel scaling back its investments in PNG, including in rural areas.”
Digicel contended that the test for declaring services should also apply to the ‘deemed’
services identified in the Experts’ Report recommendations.
The ICCC submitted that additional services should be ‘declared’ via the deeming
provisions, namely international voice and data interconnection, ADSL, VSAT and
WiMAX and point-to-point Ethernet transmission links.
3.3 CRITERIA FOR DECLARING SERVICES
Digicel was opposed to the criteria set out in the Experts’ Report for declaring services to
come within the wholesale access regime. Digicel proposed more stringent criteria that
would have to be ‘strictly proven’ before the ICT regulator could recommend that services
be declared.
PANGTEL, the ICCC and Treasury were more supportive of the proposed regime.
Treasury noted that:
“…the current negotiate/ arbitrate model in the ICT sector has worked relatively
well. However, Treasury is supportive of further efforts to improve this model
and make it more process specific.”
PANGTEL supported the recommendations but suggested that any process for the
declaration of additional services should be simple and transparent. PANGTEL also
commented that under the negotiate/arbitrate model the ICT regulator should have the
power to intervene as appropriate and to subject the process to a fixed time-line.
3.4 OTHER ISSUES
There was some concern regarding Ministerial involvement in arbitration issues. Treasury
suggested that where Ministerial intervention is necessary, the conditions warranting
intervention should be specified. The ADB was concerned that Ministerial involvement
would weaken the independence of the ICT regulator. The ICCC also expressed
concerns about the proposed veto powers available to the Minister and recommended
that the Minister be required to provide a statement of reasons and any decision by the
Minister should be appealable in court.
Comments were also received in relation to the recommendation of pre-approval of a
RIO, with PANGTEL and the ICCC supporting the proposal. The ICCC commented that
the network provider should be required to provide a RIO within 3 months of becoming a
‘declared’ service. Digicel and Telikom were not supportive of mandatory pre-approval of
an RIO, and suggested network providers should only be required to notify the ICT
regulator of the RIO.
The ICCC and PANGTEL were supportive of the recommendation that pricing principles
should be embedded in the Telecommunications Act, while Digicel sought further
clarification prior to providing comment.
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I.1314081 page 35
Finally, the ICCC was concerned about the proposed removal of its right to declare
entities and/or goods and services under the ICCC Act and the proposal to remove the
mobile roll-out obligations. The ICCC argued that these proposed changes fail to consider
the ICCC’s other sector responsibilities which could be damaged by this proposal.
4 FINAL ANALYSIS AND CONCLUSIONS
Consultation feedback revealed overwhelming support for the recommendation to
introduce a wholesale access regime that would apply to declared services and facilities.
However, two key areas of concern emerged:
· the list of services to be deemed as declared in the legislation; and
· the threshold test for declaration.
4.1 DEEMING
The three carriers (Telikom, Digicel and BMobile) all disagreed with the recommendation
to deem inter-carrier roaming and tower sharing primarily on the basis that it would create
disincentives for investment in network infrastructure. The ICCC suggested that deeming
should be extended to a range of other services while the World Bank queried why
infrastructure sharing should be limited to tower sharing.
In response to this feedback, some significant changes to the Experts’ Report
recommendations have been incorporated into the final reforms.
However, not all of the points raised in submissions have been accepted.
The analysis that follows elaborates on the reasoning behind the deeming
recommendation. In particular it:
· explains, from an economic perspective, why domestic inter-carrier roaming and
tower sharing are important for encouraging competition;
· in recognition of their importance, it illustrates the extent to which roaming and
tower sharing have been subject to regulation in both developed and developing
countries; and
· sets out the reasons why the Experts’ Report recommended the deeming of
these services rather than subjecting them to the general declaration process.
4.1.1 Importance of inter-carrier roaming and tower sharing
The importance of inter-carrier roaming and tower sharing for the development of
competition in mobile markets has been well documented.2
In particular, it is generally accepted that geographic coverage is an important factor that
customers consider in deciding which network to connect to. For instance, the OECD has
stated:3
“Consumers seem to care strongly about the geographic extent of the mobile
network they have chosen. Mobile networks need to establish significant
coverage of the population of a country if they are to provide a competitive
service.”
In Australia, the ACCC has opined:4
“While geographic coverage may no longer be a major differentiator between
the larger mobile network operators, this does not detract from the importance
of geographic coverage, particularly from the perspective of facilitating market
entry. In the Commission’s view, given the nationwide geographic coverage of
the incumbents, the inability of a new entrant to provide equivalent coverage is
likely to be a significant impediment to its ability to attract customers. Moreover,
confidential data provided to the Commission on reasons why customers left a
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I.1314081 page 36
particular mobile carrier indicate that inadequate coverage was one of the top
four reasons for leaving.”
This view is shared by other regulators. Thus, in mandating roaming and tower sharing,
Industry Canada noted that:
5
“the value of mobile services is closely related to the coverage of the network”.
Similarly, in the UK when conducting a further national roaming consultation in 2004,
Ofcom remarked:6
“... research commissioned by Ofcom in recent years has consistently shown
that coverage is one of the most important non-price factors taken into account
by mobile network users when choosing a supplier.”
There is no evidence to suggest that PNG consumers are any different in their
preferences. Moreover, and importantly, these preferences are likely to apply to
consumers in all geographic areas, including in major urban centres. For example, in
making the decision about which network to subscribe to, customers in Port Moresby
would take into account the geographic coverage of available operators not just in Port
Moresby but in other areas of PNG. Thus, to the extent that roaming and tower sharing,
or lack thereof, give rise to competitive effects, they apply to all areas of PNG.
Geographic coverage is therefore paramount to the attractiveness and, hence,
commercial success of a mobile operator’s service offering. A mobile operator’s overall
network coverage reflects a combination of the reach of its own network deployments, as
well as its ability to secure roaming and other types of infrastructure sharing agreements
in those geographic areas where it does not have its own network.
The ability and incentive for a mobile operator to deploy its own network in any given
geographic area on a commercially viable basis depends on factors that include the
availability of spectrum, economies of scale and sunk cost requirements:
1 In cases where spectrum is limited, potential entrants and carriers must wait for
further auctioning of spectrum before they can engage in network expansion. A
new entrant can therefore be prevented from offering national services due to
spectrum limitations. To that extent, in the absence of inter-carrier roaming
arrangements between operators, competition would be limited or even
prevented.
2 Economies of scale can significantly impact on the numbers of viable networks
in any given geographic area. In particularly dense areas, traffic volumes may
justify multiple networks. In contrast, in sparser rural and regional areas, traffic
volumes may limit the number of networks which are economically viable or, in
extreme cases, may render any network deployment unviable, absent some
form of network subsidy.
3 Finally, the deployment of a mobile network may entail material up-front sunk
costs, including in respect of base stations, mobile switching centres and
transmission links. Again, the ACCC noted the relevance of this issue in the
context of inter-carrier roaming issues:7
“Sunk costs increase the risks associated with network deployment.
Consequently, carriers may be unable to obtain financing to fully
deploy a nationwide network prior to entry because the risk is too
high. Once market entry has occurred and a customer base is
established, these risks may be reduced to a level where deployment
is feasible. However, without the ability to offer national geographic
coverage, the carrier may not enter the market in the first place due to
the difficulty in attracting customers.”
These three factors in particular may combine to make it uneconomic for more than one
operator to deploy a network efficiently in certain geographic areas, especially the less
densely populated rural and regional areas. In such cases, the only option for players –
especially new entrants – to achieve full geographic coverage and effectively compete
against incumbent operators may be to enter into roaming or tower sharing agreements.
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EXPERTS’ REPORT ON NATIONAL ICT POLICY PHASE 2 REFORMS - PAPUA NEW GUINEA - MARCH 2009 - FINAL REPORT

  • 1. I.1314081 page 1 FINAL REPORT The Department of Communication and Information March 2009 f Government of Papua New Guinea National Information & Communications Technology (ICT) Policy NATIONAL ICT POLICY PHASE 2 REFORMS
  • 2. I.1314081 page 2 CONTENTS FOREWORD BY THE MINISTER 3 PHASE 2 SPECIFIC REFORMS 4 PART A : PATH TO OPEN COMPETITION 12 Chapter 1. LICENSING ARRANGEMENTS.......................................................13 Chapter 2. INTERNATIONAL GATEWAY LIBERALISATION............................24 Chapter 3. WHOLESALE REGULATION AND ACCESS...................................29 Chapter 4. RETAIL REGULATION AND PRICING ............................................47 PART B: FUTURE OF COMMUNITY SERVICES 54 Chapter 5. UNIVERSAL SERVICE ARRANGEMENTS .....................................55 PART C: SUPPORTING ARRANGEMENTS 69 Chapter 6. INSTITUTIONAL ARRANGEMENTS ...............................................70 Chapter 7. INFORMATION SECURITY.............................................................84 Chapter 8. TECHNICAL REGULATION.............................................................89 PART D: TIMING AND IMPLEMENTATION 93 Chapter 9. TRANSITIONAL ARRANGEMENTS................................................94 APPENDICES I. ABBREVIATIONS AND GLOSSARY .............................................101 II. WRITTEN SUBMISSIONS RECEIVED..........................................104 III. ENDNOTES...................................................................................105
  • 3. I.1314081 page 3 FOREWORD BY THE MINISTER In February 2008, the National Executive Council (NEC) approved the National ICT Policy 2008 as Government Policy. The National ICT Policy sets out a strategic framework for meeting the Government’s objectives for the ICT sector. Increased competition in the supply of telecommunications services is a central feature of this strategy. Specifically, the Government reaffirmed its commitment to: · the staged introduction of open competition in the telecommunications sector; and · the transformation of Telikom into a viable and efficient competitor upon the introduction of open competition. The staged introduction of open competition contemplated an initial ‘Phase 1’ transitional period during which the existing telecommunications industry structure would be preserved. The Government is now ready to set the key parameters for implementing ‘Phase 2’. Specifically, it will progressively implement open competition in the telecommunications sector in accordance with a timetable endorsed by the NEC. As the Minister for Communication and Information, I have been directed by the NEC to undertake a review of the ICT sector and to report to the NEC by March 2009. I am required to assess and report on the current state of the market, including the operation of the regulatory regime, competition and progress towards the transformation of Telikom. I am also required to recommend to the NEC the timetable for the introduction of open competition in the ICT sector and the implementation of Phase 2. Specifically, I must: · consider the desirability of developing a Community Services Obligation (often referred to internationally as a Universal Access Scheme). The primary objective is to provide a strong funding basis to aid in the development of telecommunications networks and the provision of telecommunications services to residents in rural centres in PNG; · undertake a review of regulatory structures and processes, including the mandate of each of the telecommunications regulators (the ICCC and PANGTEL), and report on appropriate amendments aimed at securing more efficient regulatory arrangements; and · review the operation of competition in the ICT sector with a view to recommending a timetable for the introduction of open competition and the transition to Phase 2. The Department of Communication and Information retained Freehills and Concept Economics as expert advisers to assist in undertaking these tasks. There has been extensive consultation with many interested parties who have participated in discussions and a public forum and provided detailed submissions. I am grateful to all those who have contributed to this public process. As part of the public consultation process, on 23 February 2009 I released a comprehensive consultation draft Experts’ Report on National ICT Policy Phase 2 Reforms (Experts’ Report). The Experts’ Report set out a series of recommendations to assist in the implementation of Phase 2. The Experts’ Report drew upon the expertise of the Department’s advisers as well as that of the many interested parties who participated in the consultation process. There has been strong support for the recommendations identified in the Experts’ Report. Further consultations have subsequently taken place and submissions received. These have been considered and are reflected in the reforms identified in this report. As the analysis is now complete, I present this National ICT Policy Phase 2 Reforms – Final Report as Government Policy for the next phase of ICT sector reforms as approved by the NEC. The Final Report contains more than 50 specific reforms that will establish the basis for the regulatory framework that is to apply to the ICT sector under open competition. I commend the reforms to all. Signed by Hon. Patrick Tammur MP Minister for Communication and Information
  • 4. I.1314081 page 4 NATIONAL ICT POLICY PHASE 2 – SPECIFIC REFORMS PART A THE PATH TO OPEN COMPETITION 1. LICENSING ARRANGEMENTS 1.1 Licensing responsibilities will be assigned to a single ICT regulator known as the National Information and Communication Technology Authority or NICTA. The licensing application process will be codified within a legislative instrument. 1.2 A simple, three-tier horizontal licensing structure will be implemented in PNG based on the categorisation of operator licensees as network providers, service providers or content providers. 1.3 All new operator licences will be technology and service neutral thereby ensuring that licensees are not artificially constrained with regard to their service and technology decisions. Operator licensing will be kept conceptually distinct from the use of licences to ration scarce resources, such as telecommunications radiofrequency spectrum. 1.4 The distinction between class and individual operator licences will be clarified. Class licences will automatically apply if the applicant meets minimum eligibility criteria. Individual licences will be capable of being granted at any time based on a case-by-case analysis. 1.5 Regulatory barriers to market entry will be reduced via the increased use of class licensing in conjunction with increased regulatory forbearance. 1.6 The radiofrequency spectrum management regime will be reviewed by NICTA with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment will be adopted. 1.7 All licence fees will be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect economic costs (including, where relevant, opportunity costs, as in the case of future allocation of scarce spectrum). In considering the inclusion of opportunity costs in future licensing fees, NICTA will balance the allocation of scarce resources (such as spectrum and numbering) with the broader policy objectives of network deployment, service provision and affordability. 2. INTERNATIONAL GATEWAY LIBERALISATION 2.1 Liberalisation of the international telecommunications gateway (IGW) will occur as early as practicable (preferably by October 2009). Network providers will be permitted to operate an IGW if they meet certain minimum licensing criteria. Any licensing fees will be consistent with the criteria in Reform 1.7. 2.2 IGW infrastructure will initially be exempted from the access regime as part of transitional arrangements and to preserve investment incentives. This specific exemption will expire on 1 July 2012 (on the assumption that liberalisation commences in October 2009). After that date, IGW services will be subject to potential regulation under the declaration criteria in the revised wholesale access regime. 2.3 Care must be taken in setting minimum criteria for a licence to operate an IGW so that NICTA does not lose control over the IGW market. VSAT operators may be potential candidates for class licences. 3. WHOLESALE REGULATION AND ACCESS 3.1 Wholesale access and interconnection obligations will be applied to regulated ‘declared’ services and facilities, not particular regulated entities. All relevant licensees will be subject to, and benefit from, such regulation. The process for declaring entities and services in the ICCC Act (and therefore the use of Regulatory Contracts) will not apply to the ICT sector. 3.2 Fixed and mobile terminating access services will be declared services under the legislation. Absent commercial arrangements, potential competition benefits can be secured from declared facility sharing and mobile roaming to the extent it is uneconomic to duplicate infrastructure. Whether such services are declared will be assessed by NICTA against the criteria specified in Reform 3.3.
  • 5. National ICT Policy – Phase 2 Reforms I.1314081 page 5 3.3 Declaration of additional services will occur based on an assessment against the legislated criteria. The precise terms to be prescribed will be formulated in the enabling legislation and will capture the following specific principles: NICTA must recommend declaration if it is satisfied that all of the following criteria are met: 1. the declaration of the service to which is access is sought is necessary for the promotion of competition, in particular: · the service to which access is sought cannot be economically or technically substituted; · lack of access to the service would pose a barrier to entry that is likely to make otherwise efficient entry into the market uneconomic; 2. declaration of access to the service would not compromise the incentives for otherwise efficient investment; and 3. it is technically feasible to provide the service to which access is sought, taking account of the effects, or likely effects, that supplying the service would have on the operation or performance of the infrastructure used to provide the service. The declaration criteria will be prescribed in legislation. 3.4 NICTA should undertake declaration inquiries and make recommendations to the Minister for Communication and Information. The Minister will be permitted to either accept or reject the recommendations. 3.5 Pricing principles will be legislated and removed from all other regulatory instruments. The principles will adopt internationally well-established costing methodologies. The precise principles will be formulated in the enabling legislation and will promote infrastructure investment by ensuring full cost recovery as discussed in section 2.4 of Chapter 3 of this Final Report. 3.6 NICTA will determine access disputes for declared services under a negotiate/arbitrate model. Within 12 months of its establishment, NICTA must publish guidelines detailing how it will apply the legislative pricing principles to various types of access disputes. 3.7 Access providers will be permitted to submit binding Reference Interconnection Offers to NICTA for pre- approval for an appropriate period (for example, 3-5 years). 3.8 All service declarations will be subject to regulatory review within 5 years of declaration. If the criteria for declaration are no longer met, the declaration will be permitted to expire. 4. RETAIL REGULATION AND PRICING 4.1 The current retail price regulation of Telikom’s mobile services will be removed. In respect of Telikom’s fixed network services, NICTA must conduct a review to determine whether ongoing retail price regulation of these services is warranted. This review (applying the criteria in Reform 4.3 below) should be completed as soon as practical. 4.2 Retail price regulation should not be required in the face of more effective and efficient access regulation and greater competition under these Phase 2 reforms. Accordingly, the following general reforms concerning retail price regulation will apply: · the Regulatory Contract mechanism in the ICCC Act will no longer apply to regulate retail prices in the ICT sector; · a mechanism for regulating retail prices will be retained in the Telecommunications Act (even if not in active use); · retail price regulation under these provisions will come within the powers and functions of NICTA; and · when assessing the need for retail price regulation under these provisions NICTA will be required to apply the test set out in Reform 4.3 below.
  • 6. National ICT Policy – Phase 2 Reforms I.1314081 page 6 These retail price regulation provisions will have potential application to all operators. 4.3 In determining whether retail price regulation of an operator’s services is warranted NICTA will be required to be satisfied that all of the following criteria are met: · the operator has substantial market power in the provision of the service and this is highly likely to persist over the period of regulation; · the substantial market power is causing and is likely to cause material harm to end- users; · that harm could be substantially mitigated via the imposition of retail price regulation; and · the benefits of imposing retail price regulation outweigh any detriments, including any potential costs arising from market distortions or delays to the development of competition. PART B THE FUTURE OF COMMUNITY SERVICES 5. UNIVERSAL ACCESS SCHEME 5.1 A new Universal Access Scheme (UAS) will be developed that retains the existing mandatory roll-out obligations but improves the effectiveness of the arrangements. 5.2 A UAS Fund will be established to meet the other Government objectives for the UAS including Internet access and voice access outside the mandatory roll-out areas. 5.3 The UAS Fund will be financed by a combination of: · industry levies based on a percentage of net revenues (gross revenues less interconnection payments) of licensed operators; · donor funding (loans, grants, gifts); and · direct Government funding. The industry levy will not be imposed before January 2011. Prior to this time, the Government will consider a pilot program in order to test and demonstrate the effective operation of the UAS. 5.4 UAS governance arrangements will be prescribed in legislation to ensure the proper administration of the UAS. These governance arrangements will include the following features: 1. UAS Board: A flexible, non-permanent UAS Board will be established comprising representatives from each of the Department of Communication and Information, NICTA, the Department of National Planning and industry/commerce. The UAS Board will (based on statutory criteria): · develop specific indicators of ICT access, consistent with international experience and shall indentify appropriate target projects in a reasonable time frame; · consider, produce and publish a list of projects ranked in order of priority; and · submit the list of ranked projects to the Minister for endorsement. 2. Minister of Communication and Information: The Minister of Communication and Information will review the recommendations and the process of the UAS Board to ensure that the statutory criteria is appropriately applied. This review will not be an in depth review of substance or re-evaluation of criteria. The Minister’s role is limited to either accepting or rejecting the list of projects (or part thereof) submitted by the UAS Board. 3. NICTA: NICTA (through its UAS Secretariat) will implement UAS decisions of the Minister, including
  • 7. National ICT Policy – Phase 2 Reforms I.1314081 page 7 administering tenders, awarding and monitoring contracts and issuing associated licences if the entity is not already appropriately licensed. 4. Fund Administrator: An independent, transparent and accountable fund administrator will be appointed to hold and distribute the UAS Fund upon direction from NICTA. PART C SUPPORTING ARRANGEMENTS 6. INSTITUTIONAL ARRANGEMENTS 6.1 A new converged ICT regulator to be known as the National Information and Communication Technology Authority will be the regulator for the entire ICT sector. NICTA will possess all necessary licensing functions and powers. The Board of NICTA will be established during the transitional period. The assets of PANGTEL will be transferred to NICTA during the transition period. Following the transition period NICTA will take responsibility for regulation of the ICT sector. PANGTEL will thereafter be disbanded. 6.2 NICTA as the new ICT regulator will have all ex-ante functions and powers relevant to the regulation of the ICT sector, including: · managing market entry (i.e. licensing); · facilitating wholesale access and interconnection, including recommendations for declaration of services and arbitration powers to determine terms and conditions of access under a negotiate/arbitrate model; · administration of any necessary retail price regulation for the ICT sector; · allocation, assignment and ongoing management of radio spectrum and numbering; · enforcement, including information gathering powers ; · dispute resolution; · monitoring and enforcing obligations under the UAS regime; · monitoring quality of service performance standards; and · rule making, guidelines and Codes of Practice. 6.3 The ICCC will retain its functions and powers in respect of generic competition law. A member of the ICCC will sit on the arbitral panel for all interconnection and access arbitrations. 6.4 NICTA and the ICCC will be encouraged to consult where appropriate on competition and economic matters impacting on the ICT sector. The ICCC will be required to consult with NICTA in relation to all ICCC decision-making on ICT matters. 6.5 NICTA will be governed by a board of 3 to 5 persons. The terms and conditions of appointment will be set out in legislation. An Appointments Committee will be established by legislation and comprise representatives of Government (including the Prime Minister and the Minister for Communication and Information), the Leader of the Opposition and a representative of industry and commerce. The Head of State will appoint members of NICTA on advice from the Appointments Committee. 6.6 Legislative obligations will require both regulators to co-operate to ensure efficient and consistent decision-making in respect of the ICT sector. 6.7 NICTA will have sufficient financial and human resources to fulfil its mandate and maintain its
  • 8. National ICT Policy – Phase 2 Reforms I.1314081 page 8 independence. NICTA will receive funding only from permitted sources as set out in legislation. 6.8 NICTA will be required to operate in an open and transparent manner and be accountable to Parliament and the courts in its operations. It will also be required to keep audited accounts, comply with codified consultation procedures and be subject to prescribed appellate review. 7. INFORMATION SECURITY 7.1 Criminal laws are likely to be required to control and prohibit attacks on the security and integrity of computer systems, including hacking, illegal interception and interference with the availability of computer systems. 7.2 Clear procedures meeting international privacy standards will be established for government access to communications and stored data when needed for the investigation of crimes. These procedures should be aimed at providing an adequate level of assurance that the Government cannot unjustifiably monitor private communications. 7.3 The new privacy standards will be developed in a national law for interception of communications (telephone calls, email and other electronic communications), and for search and seizure orders for computer data. 7.4 Appropriate laws and procedures will be developed to facilitate electronic payments and to ensure that consumers and small businesses who transact business online have recourse if transactions fail or online purchases are unsatisfactory. These laws and procedures will include protections to prevent merchants from misusing consumer data. 7.5 PNG’s existing intellectual property laws will be reviewed to ensure that they provide adequate protection for digitised forms of intellectual property. 7.6 Procedures will be established for taking all critical systems offline in the event of a war, disaster or civil disturbance which might otherwise place those systems at risk. 8. TECHNICAL REGULATION 8.1 NICTA must complete the proposed numbering plan changes and take steps to relax numbering forecasting requirements. NICTA must also implement administrative procedures aimed at improving response times to applications. 8.2 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the introduction of mobile number portability at a point in the future that takes into account the competing priorities of NICTA and the level of mobile penetration that warrants such a review. 8.3 NICTA must consolidate the existing Telecommunications Interconnection Code of Practice (issued by the ICCC) and the Multi-Carrier Interconnection Technical Code of Practice (issued by PANGTEL) into one interconnection code as part of a review of interconnection technical arrangements. 8.4 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the introduction of pre-selection at a point in the future that takes into account NICTA’s competing priorities and the level of demand for pre-selection that justifies the associated costs. 8.5 All fees for services provided by NICTA must be clearly set out and determined in accordance with a transparent cost-recovery methodology. 8.6 NICTA must review existing spectrum radiofrequency band codes and technical specifications to
  • 9. National ICT Policy – Phase 2 Reforms I.1314081 page 9 ensure they accurately reflect current usage. PART D TIMING AND IMPLEMENTATION 9. TRANSITIONAL ARRANGEMENTS 9.1 The move to open competition will be comprehensive and implemented on a timely basis, subject to transitional arrangements and the time required for proper formulation and introduction of new regulatory structures. 9.2 Licence migration will be encouraged on a voluntary basis. Existing licensees should ideally receive sufficient benefits under the new licensing structure to offset any detriments they receive by surrendering existing licences. 9.3 New licences will only be issued under the new licensing regime. However, in issuing new licences, NICTA will have regard to Government Policy and any rights held by existing licensees. 9.4 NICTA must aim to complete migration of licences from the old regime to the new regime within 12 months of commencement of the new regime. 9.5 ICCC and PANGTEL will provide their full co-operation to the Department of Communication and Information and its consultants in connection with the transition from the current regulatory regime to the new regulatory regime as detailed in this Final Report. Specifically, (but without limiting the obligation to provide full co-operation) as soon as practicable after being notified of this Government Policy the ICCC and PANGTEL will provide to the Department of Communication and Information: · copies of all General Carrier, Public Mobile and Value Added Services Licences; · copies of all current and previously issued spectrum and cabling licences; · copies of all current and previously agreed spectrum usage agreements; · copies of all customer equipment and cabling permits; · copies of all other permits or authorities provided by the ICCC or PANGTEL; and · all information reasonably requested by the Department of Communication and Information to implement Government Policy articulated in this Final Report. 9.6 Pending the enactment of legislation to give effect to the Government Policy articulated in the various reforms set out in this Final Report, it is Government Policy that the current industry structure and participation be preserved. Specifically, unless the Minister agrees in writing otherwise: · Telikom will continue as the sole holder of a General Carrier Licence; · existing carriers will be permitted to operate in accordance with the law and their licences; · no new General Carrier or Public Mobile Licences will be issued; · any new Value Added Services Licence issued will be expressed to operate only until the commencement of the new licensing regime as set out in Chapter
  • 10. National ICT Policy – Phase 2 Reforms I.1314081 page 10 1 of this Final Report; · no power to revoke an existing licence will be exercised, without the holder of the licence so requesting; · no amendments will be made to any existing licences, permits or authorities (including imposing any new licence conditions under a declaration of conditions of licences under section 63 of the Telecommunications Act or otherwise); · no determination of a Code of Practice under section 66, section 66A or section 66B of the Telecommunications Act may be made; · no codes or rules will be made, varied or revoked under section 40 of the ICCC Act relating to the conduct of a participant in the telecommunications industry, being a regulated industry declared under section 19A of the Telecommunications Act; and · any determination made under section 84 of the Telecommunications Act will be expressed to be an interim decision only and will expire no later than 31 December 2009. The indicative timetable for the proposed reforms is as follows: Indicative date Milestone April-June 2009 · Formulation of implementation plan for NICTA and legislation for establishment of NICTA (which may be a separate legislative instrument or combined with the wider reform legislation). · Drafting and consultation in relation to enabling legislation and transitional arrangements (to effect the reform agenda set out in this Final Report). · Enactment of enabling legislation (subject to Parliamentary processes and timing). · Initial steps are taken towards the creation of NICTA, including the appointment of the NICTA Board. July 2009 · Commencement of enabling legislation and transitional arrangements. · NICTA is established and assets, liabilities and transitional (shared) responsibilities are transferred to it pursuant to institutional transitional arrangements. · Preparatory steps taken to establish licence regime and licence categorisations pending October 2009 commencement. July-September 2009 · Drafting and public consultation is undertaken in relation to subordinate regulation and licensing arrangements. · Preparation for commencement of the new regime including preparation of regulatory instruments by NICTA, training of personnel and education of the industry and public. October 2009 · Formal commencement of the new regime. · NICTA assumes all powers and functions under the new
  • 11. National ICT Policy – Phase 2 Reforms I.1314081 page 11 Indicative date Milestone regime. · The institutional transitional arrangements will end. · The new licensing regime commences for the issue of new licences. · Existing licensees are encouraged to migrate to new licences and licensing transitional arrangements commence. · The new access regime commences, including deemed declarations. · International gateway liberalisation occurs. October-December 2009 · Establishment of the Universal Access Scheme, pending implementation. · Implementation of regulatory instruments to give effect to the new regime, including pricing principles. · Review of retail price regulation by NICTA. January 2010 · Removal of redundant retail price regulation. October 2010 · The licensing migration process is completed for existing licensees. · Licensing transitional arrangements end. January 2011 · Industry levy commences in relation to UAS contributions. · Implementation of the UAS. July 2012 · Expiry of the exemption for IGW infrastructure from the access regime (hence the potential for access regulation arises).
  • 12. I.1314081 page 12 PART A THE PATH TO OPEN COMPETITION
  • 13. I.1314081 page 13 CHAPTER 1 LICENSING ARRANGEMENTS 1 BACKGROUND The licensing regime is fundamental to the regulation of the ICT sector in PNG. It is an important vehicle for the translation of Government ICT Policy into telecommunications industry regulation. PNG currently has a ‘vertical’ licensing regime that includes individual operator licences, class licences and spectrum licences. This regime is codified in the Telecommunications Act, the Radio Spectrum Act and the Radio Spectrum Regulations 1997. The diagram below sets out the basic ‘vertical’ structure of the PNG licensing regime and the key licences that may be granted and/or issued for particular types of services. Figure 1 : Basic ‘vertical’ structure of the PNG licensing regime Telecommunications Licences (issued by the ICCC) Spectrum/Equipment Licences (issued by PANGTEL) Licensing powers in PNG are split between the ICCC and PANGTEL. In broad terms, PANGTEL remains responsible for spectrum and equipment licensing, while the ICCC is responsible for operator licensing. To facilitate the path to open competition in PNG, and to align PNG’s licensing regime with international best practice, fundamental licensing reform is required. The reforms of the licensing regime are aimed at achieving the following fundamental objectives: · the licensing regime must be stable and transparent in order to reduce regulatory risk (whether perceived or real) and promote private investment; · operator licences should be technology and service neutral (ensuring that an operator is not artificially constrained with regard to its service and technology decisions); · barriers to entry should be removed with a policy of regulatory forbearance underpinning all licence considerations; and · operator licensing should remain distinct from scarce resource assignment.
  • 14. Chapter 1: Licensing arrangements I.1314081 page 14 2 ORIGINAL ANALYSIS AND RECOMMENDATIONS 2.1 A NEW LICENSING REGIME The Experts’ Report concluded that PNG must address the uncertainties, complexities and inflexibility associated with the current licensing regime, and in the process, create a technology and service neutral structure. In this way, the full benefits of open competition can be effectively unlocked. The following recommendations were made with this goal in mind. A simple three tier, horizontal licence structure should be introduced in PNG. This structure would categorise market participants for licensing purposes as follows: · ICT Network Provider - an entity licensed to construct and/or operate communications network infrastructure and/or provide network services over such network infrastructure; · ICT Service Provider - an entity licensed to provide electronic communications services direct to an end-user (whether wholesale or retail, business or government); and · ICT Content Provider - an entity licensed to provide content services direct to an end-user. This structure can be illustrated in the following manner: Figure 2 : Proposed structure for fully converged regime Within the categories set out above, the particular licences would be classified as follows: · ‘Individual’ – for activities that require a more rigorous selection process and close ongoing scrutiny; · ‘Class’ – for certain activities that require minimal application requirements or merely notification; and · ‘Exempt’ – for activities that have insignificant impact on competition or services to the public. Figure 3: New licence categorisation Licence Type Hypothetical examples Individual Provision of network servicesICT Network Provider Licence Class Construction and/or operation of network facilities
  • 15. Chapter 1: Licensing arrangements I.1314081 page 15 Licence Type Hypothetical examples Exempt Construction and/or operation of internal network facilities for networks not exceeding certain dimensions (private networks) Individual Fixed network service; Cellular mobile service Class Internet access; Virtual mobile; IP telephony; Messaging services ICT Service Provider Licence Exempt Web-hosting or client server Individual Standard broadcasting (including live-streaming TV and radio) Class Internet content ICT Content Provider Licence Exempt Possible exemptions to be considered further The Experts’ Report also recommended that the horizontal licensing regime should be supported by a technology neutral spectrum assignment regime. This model is consistent with the successful horizontal licence regimes adopted in many other transitional and developed economies. It provides the technology and service neutrality required to facilitate open competition while layering the sector in a manner which permits market entry on different levels and facilitates network based regulation. When licences are formulated, further consideration should be given to defining a geographical dimension to the scope of each licence category (for example, international, national, regional and district) to address specific market requirements and facilitate the path to open competition. For the purposes of UAS, it may also be appropriate to have scope to licence entry limited to particular geographical areas. The regime should be further simplified by reassessing the value in classifying Telikom as a ‘regulated entity’ and terminating the Telikom Regulatory Contract (this is discussed in more detail in Chapter 4 below). Consideration should also be given to a fully converged unified licensing regime, namely one that combines telecommunications with broadcasting. A discussion on full convergence (including broadcasting) is beyond the terms of reference of this report. A similar unified regime has been adopted in India and is currently proposed in Vanuatu. The existing telecommunications licences in PNG should migrate (over time) from the current vertically integrated licensing regime to a technology and service neutral, horizontal licence regime. New entrants will operate under this restructured regime from the date of market entry. 2.2 END TO BIFURCATION OF LICENSING RESPONSIBILITIES The current bifurcation of licensing powers and responsibilities in PNG dates from 2002 and involves one regulator (the ICCC) issuing general telecommunications network and service licences, while another (PANGTEL) issues licences for radiofrequency spectrum (and other technical licences and permits). The Experts’ Report identified that the separation of licensing responsibilities has created market confusion and discontent between the regulators. The current scenario displays a divisive regulatory environment in which information flows between the regulators are minimal and co-operation limited.
  • 16. Chapter 1: Licensing arrangements I.1314081 page 16 Given the current state of the market, the changed policy direction and a rapidly evolving market, the Experts’ Report concluded that separation of licensing functions between the regulators is no longer desirable. Accordingly, consistent with international best practice, it was recommended that licensing responsibilities (including issuance, monitoring and enforcement) should be placed within a single regulator. 2.3 GRANT AND RENEWAL OF LICENCES The Experts’ Report recommended that the licence application process should be codified by regulations for both individual and class licences. The regulations should provide for eligibility criteria, application consideration criteria, selection criteria, published decisions, and rights of appeal. While some of these concepts already exist today, there is a lack of clarity and general uncertainty in the industry as to their application. Figure 4 : Grant of licence process Specifically, class licences should apply as a matter of course provided the applicant complies with certain minimum eligibility criteria. Those areas set aside for class licensing should place few impediments in the path of market entry. Individual licences should be assessed and granted on a case-by-case basis upon application, at any time, subject to consistency with Government Policy. Tender or auction processes should only apply for the assignment of scarce resources (such as radiofrequency spectrum) and only if it is in the public interest to do so. Ideally, foreign ownership restrictions should be limited and incentives to promote PNG participation should be further considered. Consistent with existing eligibility criteria, licensees should be PNG incorporated entities, thus subject to PNG corporate and investment laws and any restrictions/criteria set out in such laws. The model licence documentation corresponding to the categorisations should be drafted alongside any new legislative instruments and made publicly available on the ICT regulator’s website. At the end of a licence term, there should be a presumption in favour of renewal to further encourage investment and facilitate service security for customers. A licensee’s historic compliance with its licence must be a relevant renewal consideration.
  • 17. Chapter 1: Licensing arrangements I.1314081 page 17 2.4 LICENCE FEES, TERMS AND CONDITIONS The Experts’ Report concluded that a more rigorous process for assessment and application of licence fees was needed. Such fees should be documented in advance and applied consistently in line with publicised amounts. Licence fees should be categorised as: · application-related (paid when applying and reflective of the costs in assessing the application); and · ongoing (annual) fees. The ICT regulator should ensure transparency in the contribution fees required of licensees and the use to which such fees are put. This can occur by ensuring the ICT regulator has regular reporting obligations (ideally, to the legislature) in relation to the allocation of such contributions. All licence fees should be aligned to correspond to the cost involved in issuing licences and monitoring compliance with their terms. Accordingly, there should be appropriate fiscal responsibility in order to ensure the actual costs can be assessed. Administrative charges for application and issuance should be limited to covering the actual administrative costs involved for the regulator in processing the applications and issuing the licence. Operator annual licence fees should be limited to no more than a certain percentage of a licensee’s revenue in the previous financial year excluding interconnection or other wholesale revenues (and should not fluctuate unnecessarily). Fees for scarce resources should be ‘reasonable’ and ‘non-discriminatory’ (even where competitive pricing mechanisms are adopted) and should reflect the opportunity cost of those resources. The fees should include any additional contribution that may be required as part of the UAS. Further conditions will apply to individual licences, including non-exclusivity and interconnection obligations. No limit should be imposed on the number of licences. 2.5 ASSIGNMENT OF SPECTRUM (AND OTHER SCARCE RESOURCES) 2.5.1 Spectrum management As radiofrequency is a key, scarce and finite resource, the Experts’ Report recommended that careful ongoing management should occur, including more proactive, forward looking management and planning. The existing first-come-first-served model is the manifestation of a reactive spectrum management strategy and is unsustainable in the medium to long term. The model does not allocate spectrum with a view to maximising the value of spectrum as a scarce resource and promoting market growth and efficiency in the ICT sector. Given the confusion in the current regime, a spectrum usage audit may be appropriate prior to implementation of any new regime. Radiofrequency spectrum will be included in the legislative reforms for Phase 2. To underpin the successful move to open competition, with appropriately transparent and predictable processes (fundamental pre-requisites for investor confidence), a future looking allocation and assignment program should be developed. The management plan should embody a forward looking policy which appreciates the changing nature of PNG’s competitive landscape. It must contemplate allocation of additional spectrum to both current operators and new entrants. 2.5.2 Spectrum allocation and assignment The complexity of the current spectrum licence categorisations and the inconsistent application of spectrum fees, creates a cumbersome and confusing model. Significant regulator resources are used in merely managing the current regime. This is not an ideal scenario, given the expertise and resource constraints that currently exist in PNG. The service specific nature of current spectrum assignment is inconsistent with a future of technology and service convergence. In some instances, the law is not followed for
  • 18. Chapter 1: Licensing arrangements I.1314081 page 18 technical or other valid reasons. Test licences are issued without underlying operator licences and broadcasting services licences are issued without a clear legislative mandate. A well defined, settled mechanism should be implemented to manage the assignment of spectrum going forward. This mechanism and the consideration criteria should be published and its application should be predictable. It should align with the overall spectrum management plan. Where a frequency band is not likely to be in demand, individual assignments of frequency should be issued to any person fulfilling certain minimum eligibility criteria. Specifically, the ICT regulator should consider whether the person is, in the regulator’s reasonable opinion, financially and technically capable of meeting its legislative and regulatory obligations as well as the obligations to be set forth in the individual assignment concerned. A restrictive assignment procedure is appropriate (where there is significant demand for a particular frequency band). Provision should be made in legislation to ensure that the ICT regulator may use any selection process it reasonably considers appropriate, including, without limitation, auctions or calls for tender. In order to avoid discrimination among applicants, the procedures adopted by the ICT regulator for the assignment of frequencies should be transparent. Frequencies should continue to be assigned distinctly, separate from the operator licence. Frequency assignment licences should, like operator licences, be divided into three sub- categories: · individual licences requiring an express regulator decision; · class licences requiring notification to the regulator; and · exemptions. Figure 5 : Frequency assignment licences Specific measures should be introduced to prevent spectrum hoarding. Consideration should be given to ‘spectrum trading’. Consistent with the recommendations on institutional reform, the responsibility for licensing radio spectrum should vest with a single converged ICT regulator. 2.5.3 Spectrum Fees Market entry pricing mechanisms should be established and published. Consideration should be given to spectrum auction processes, competitive tender processes and simple pre-qualification criteria. The appropriate process may differ depending on the scarcity of the relevant band, competitive tensions and the spectrum management policy. A simple pricing structure should be introduced that ensures consistency in the charging of fees. Ideally, this mechanism should not change depending on technology used or the service sought. Consideration should be given to different pricing structures, including
  • 19. Chapter 1: Licensing arrangements I.1314081 page 19 pricing based on percentage of revenue, charges per unit of spectrum, and bandwidth or transmitter power. 2.5.4 Content of frequency licences The frequency licence should contain as few conditions as possible. The legislation will require all conditions attached to frequency licences to be reasonable and limited to what is necessary to ensure compliance with the provisions of the Telecommunications Act and its associated regulations. The frequency licence should be technology-neutral and should simply authorise the use of spectrum. Licensees should have the freedom to deploy any device from any site within their spectrum space, provided that the device is compatible with the core conditions of the licence and the technical framework for the frequency bands in question. Provision need not be made for the trading of frequency licences. The transfer of radio frequencies can be an effective way of increasing efficient use of spectrum, as long as there are sufficient safeguards in place to protect the public interest. However, because ‘sufficient safeguards’ may not yet exist in PNG, frequency trading need not be a key policy principle at this time. 2.6 LICENCE MIGRATION If a new licensing regime is to be introduced in PNG, the Experts’ Report identified the manner in which existing licensees migrate to that new regime as a critical issue. Given the complexity and sensitivity associated with licence migration, it must be carefully managed and industry participants must be fully engaged. Figure 6 : Translation of vertical licensing to horizontal licensing Public Mobile Licence VAS Licence General Carrier Licence ICT Network Provider ICT Service Provider ICT Content Provider Licence migration cannot and should not happen overnight. It is a key step in the path to open competition, but will not succeed unless the overall package of reforms (and, in particular, institutional reform) are implemented. Ideally, existing licensees should not be deemed to have horizontal licences and should not be obligated to migrate to the new licence regime. Licence migration should be voluntary. However, if the benefits of horizontal licensing are to be received by licensees, full migration should be required (in order to ensure full licence migration). Existing licensees should not be required to lose any of their current rights as a result of migration. If possible, the migration process should be undertaken and completed within 12 months of implementation. New licensees, however, should be issued licences in accordance with the new licence categorisations from the date of market entry. Further incentives to migrate should be considered including:
  • 20. Chapter 1: Licensing arrangements I.1314081 page 20 · waiver of application fees for those who migrate; and · the recommencement of the licence term. 2.7 EXPERTS’ REPORT SPECIFIC RECOMMENDATIONS The Experts’ Report made the following recommendations on licensing arrangements: Recommendation 1.1 Licensing responsibilities should be assigned to a single ICT Regulator and the licensing application process should be codified within a legislative instrument. Recommendation 1.2 A simple, three-tier horizontal licensing structure should be implemented in PNG based on the categorisation of operator licensees as network providers, service providers or content providers. Recommendation 1.3 All new operator licences should be technology and service neutral thereby ensuring that licensees are not artificially constrained with regard to their service and technology decisions. Operator licensing should be kept conceptually distinct from the use of licences to ration scarce resources, such as telecommunications radiofrequency spectrum. Recommendation 1.4 The distinction between class and individual operator licences should be clarified. Class licences should be automatically granted if the applicant meets minimum eligibility criteria. Individual licences should be capable of being granted at any time based on a case-by- case analysis. Recommendation 1.5 Regulatory barriers to market entry should be reduced via the increased use of class licensing in conjunction with increased regulatory forbearance. Recommendation 1.6 The radiofrequency spectrum management regime should be reformed with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment should be adopted. Recommendation 1.7 All licence fees should be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect actual costs (including, where relevant, opportunity costs, as in the case of scarce spectrum). 3 CONSULTATION FEEDBACK The majority of consultation participants supported the licence regime recommendations. Without exception, participants agreed that licensing responsibilities should be consolidated within a single regulator (although views differed as to whether this regulator should be the ICCC, PANGTEL or a new or reformed regulator). The ICCC reiterated the view set out in its previous submission and stated that the ICCC was the most appropriate institution to take responsibility for licensing. The ICCC also suggested that it would be an appropriate institution to implement the licence reforms. With the exception of Treasury (which expressed a concern that the holding of all three licences could open the regime to ‘market power abuse’), all written submissions were supportive of the proposed three tier, horizontal licensing structure. Not surprisingly, a
  • 21. Chapter 1: Licensing arrangements I.1314081 page 21 number of participants (PANGTEL and BMobile in particular) sought further details on the specifics of the licence categorisations. Digicel raised concerns about the impact of licence migration on existing licences and the transition to the new licence regime remains an area of particular interest for most participants. The more general recommendations in the Experts’ Report in relation to the reduction of market entry barriers and the increased use of a class licence regime were unanimously supported (although the ICCC did not believe that structural reform was necessarily required in order to open the market). Further detail on the potential reform of the radio spectrum management regime was sought by a number of participants and in the absence of such detail PANGTEL, BMobile and Digicel reserved their rights to comment. The most diverse array of opinion was expressed in relation to the recommendations on licence fees and the need for these to be consistent, transparent and reflective of actual costs (including opportunity costs). Although the principles of transparency and consistency were uncontroversial, PANGTEL raised queries as to what constituted ‘opportunity costs’ and Digicel suggested a percentage of retail revenue for the provision of telecommunications services less the subscriber acquisition costs may be a better method of calculating licence fees. PANGTEL also stated that licence fees for scarce resources should be determined by market forces, and licence fees based on revenue sharing should be considered. 4 FINAL ANALYSIS AND CONCLUSIONS The manner in which participants have embraced the fundamental licensing reform proposals set out in the Experts’ Report (particularly given the significant structural changes being proposed) reaffirms the pressing need to structurally reform the PNG market in order to: · facilitate the path to open competition; · future-proof the PNG licensing regime; and · permit regulatory forbearance to the extent possible. The details of the regime will be formulated during the initial implementation phase with the objective being to have the regime operating by October 2009. The core structure, including the three tier licensing categorisations, will be prescribed in legislation. However, the specific activities that fall within each category (and which activities will be subject to individual licensing, class licensing or licence exemption) will require a case-by-case assessment. This exercise will be undertaken during the initial implementation phase and will include a review of the various markets and an assessment of which activities require closer regulatory attention and which will benefit from less regulation and regulatory forbearance. The specific activities will be set out in a fully transparent, subordinate regulatory instrument (i.e. ancillary regulation under the primary enabling legislative instrument). Treasury’s concern that the three tier licence regime may be open to ‘market power abuse’ appears to be based on a misunderstanding of the proposals set out in the Experts’ Report. The horizontal structure that will form the platform of the new licensing regime is more likely to prevent market power abuse (certainly relative to the existing vertically integrated licence structure) given the market will be able to be divided along network and service lines and, where appropriate, regulated along such lines. Digicel’s general concerns about licence migration are legitimate and the effective transition between licence regimes remains a key implementation challenge (and one that necessarily relies upon an effective ICT regulator). The Experts’ Report acknowledges the potential complexity associated with migration and the recommendations remain valid. Licence migration will be a voluntary process which ensures sufficient incentives exist to encourage timely migration.
  • 22. Chapter 1: Licensing arrangements I.1314081 page 22 The Government is confident that effective transition can be achieved and to this end requires the Department of Communication and Information and NICTA to build upon the dialogue with existing operators that has already commenced during the reform process. NICTA will have an important role in facilitating the migration of licences and managing the implementation of the new licence regime. As PANGTEL, BMobile and Digicel have suggested, there is more analysis required as to the detail of the radio spectrum management regime. This work will need to be undertaken by NICTA once the institutional model is settled. To clarify this fact, the original Recommendation 1.6 will be amended as follows: The radiofrequency spectrum management regime should be reformed reviewed by NICTA with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment should be adopted. Licence fees should, on the whole, better reflect the actual costs of regulating the ICT sector. While the retail revenue percentage model proposed by Digicel is simple, it would not be appropriate to adopt such a cap. Of necessity any cap derived at this stage of the reform process would be arbitrary, particularly where the new regulatory structures are yet to be established. There can be no basis to ensure that any such cap is properly reflective of costs of regulating the sector. The greater transparency and accountability that will be imposed on NICTA should aid in ensuring that fees are reasonable. Recommendation 1.7 will be amended as follows to address the queries raised about the role of ‘opportunity costs’ for scarce resources: All licence fees should be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect actual costs (including, where relevant, opportunity costs, as in the case of future allocation of scarce spectrum). In considering the inclusion of opportunity costs in future licensing fees, NICTA will balance the allocation of scarce resources (such as spectrum and numbering) with the broader policy objectives of network deployment, service provision and affordability. Finally, the proposed model will provide a future-proof licence regime that will enable PNG to meet the demands of a converging ICT sector in an agile and efficient manner. The model is consistent with international best practice (while remaining a model that will be particularly suited to the circumstances of PNG). The model is also consistent with PNG’s WTO obligations1 . Accordingly, with the exception of the changes referred to above, the reforms on licensing arrangements will remain consistent with those set out in the Experts’ Report. 5 SPECIFIC REFORMS – LICENSING In light of the above analysis the following are the specific licensing reforms: Reform 1.1 Licensing responsibilities will be assigned to a single ICT regulator, known as the National Information and Communication Technology Authority or NICTA. The licensing application process will be codified within a legislative instrument. Reform 1.2 A simple, three-tier horizontal licensing structure will be implemented in PNG based on the categorisation of operator licensees as network providers, service providers or content providers. Reform 1.3 All new operator licences will be technology and service neutral thereby ensuring that licensees are not artificially constrained with regard to their service and technology decisions. Operator licensing should be kept conceptually distinct from the use of licences to ration scarce resources, such as telecommunications radiofrequency spectrum. Reform 1.4 The distinction between class and individual operator licences will be clarified.
  • 23. Chapter 1: Licensing arrangements I.1314081 page 23 Class licences will automatically apply if the applicant meets minimum eligibility criteria. Individual licences will be capable of being granted at any time based on a case-by-case analysis. Reform 1.5 Regulatory barriers to market entry will be reduced via the increased use of class licensing in conjunction with increased regulatory forbearance. Reform 1.6 The radiofrequency spectrum management regime will be reviewed by NICTA with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment will be adopted. Reform 1.7 All licence fees will be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect economic costs (including, where relevant, opportunity costs, as in the case of future allocation of scarce spectrum). In considering the inclusion of opportunity costs in future licensing fees, NICTA will balance the allocation of scarce resources (such as spectrum and numbering) with the broader policy objectives of network deployment, service provision and affordability.
  • 24. I.1314081 page 24 CHAPTER 2 INTERNATIONAL GATEWAY LIBERALISATION 1 BACKGROUND The potential liberalisation of the international telecommunications gateway (IGW) in PNG is a politically sensitive and controversial issue. Access to the IGW has been the subject of domestic litigation as well as complaints to a foreign government. IGW are essentially the facilities through which international telecommunications traffic is sent and received. More specifically, an IGW is any facility that provides an interface to send and receive electronic communications in the form of traffic between one country’s domestic network facilities and those in another country. An indicative diagram of the current IGW architecture in PNG is set out below: Figure 7 : Current IGW architecture in PNG The current IGW architecture in PNG interconnects principally with one submarine cable network. There are three functional cable station gateways in the Telikom network at telephone exchanges in Boroko, Lae and Ela Beach. These cable stations connect to a number of overseas carriers via the APNG-2 optical fibre undersea cable. PNG is currently heavily dependent for international connectivity on access to the APNG-2 submarine cable. The APNG-2 cable has sufficient capacity for PNG for the next 5 years. International satellite circuits from the International Communications Centre at the Gerehu earth station and the smaller Lae earth station are used as back-up for redundancy purposes to the APNG-2 cable. At the end of 2009 the potential landing and connection of a new Pipe Networks cable known as PPC-1 may also provide a high capacity, reliable alternative connection. Once the PPC-1 submarine cable is laid and connected, PNG will have more direct access to Gerehu earth station APNG-2 cable station Offshore earth station APNG-2 cable station International gateway exchanges in PNG International gateway exchanges located overseas (e.g, Telstra, Optus) Interconnection between Digicel and Telikom Ela Beach Boroko Lae
  • 25. Chapter 2: International gateway liberalisation I.1314081 page 25 the Internet backbone in the United States and potential access to domestic cable connectivity far in excess of current requirements. 2 ORIGINAL ANALYSIS AND RECOMMENDATIONS 2.1 IMMEDIATE LIBERALISATION WITH INITIAL EXEMPTION FROM ACCESS REGIME The Experts’ Report recommended the immediate liberalisation of the IGW by permitting all network licensees to operate IGW if they meet certain minimum licensing criteria. The Experts’ Report also recommended that IGW infrastructure should initially be exempted from the access regime in order to preserve investment incentive and that this exemption should be subject to periodic review with regard to competition criteria. These recommendations had a number of aims. Immediate and full liberalisation was aimed at imposing an effective competitive constraint on Telikom’s behaviour with respect to IGW services. Telikom’s pricing decisions both at the wholesale and retail level would be constrained by the threat of bypass, most obviously from satellite, and Telikom will have an incentive to make better use of its IGW facilities. The initial exemption from access regulation was aimed at protecting the legitimate interests of owners of existing IGW infrastructure. The exemption would permit those owners to recover the costs of their investment in IGW infrastructure, including a return commensurate with its investment risk. Widespread access to satellite capacity, and the likelihood that the cost of that capacity will continue to fall, will place continuing pressure on Telikom to optimise the use of its IGW infrastructure, even with the access regulation exemption in place. If Telikom does so respond, it can reap material commercial rewards, if it fails to use this opportunity, it will simply find its competitive position further eroded. As a result, this recommendation puts the burden squarely on Telikom to make beneficial use of valuable assets. At the same time, it ensures that if Telikom fails to seize that opportunity, consumers will be protected through the scope for by-pass. Liberalisation provides an opportunity both for potential users of IGW services such as ISPs to obtain more reasonable terms and conditions of access and also for owners of IGW infrastructure to more efficiently utilise their IGW facilities. 2.2 TRANSITIONAL ARRANGEMENTS The Experts’ Report recommended the following approach to transitional arrangements in connection with IGW liberalisation. 1 Digicel’s existing IGW: The recommended IGW liberalisation would permit Digicel to continue to operate its IGW for its own domestic traffic, notwithstanding that the original reason for the initial (so called ‘temporary’) consent has passed. Such an arrangement would also ensure that the wholesale interconnection charges proposed by Telikom for its cable gateway would be constrained by Digicel’s ability to route its traffic through its own satellite gateway. 2 Tariff rebalancing: no mandatory tariff rebalancing was considered necessary in PNG. 3 No quantitative restrictions on the number of licences: under the recommended full IGW liberalisation, no quantitative restrictions on the number of licences issued was contemplated.
  • 26. Chapter 2: International gateway liberalisation I.1314081 page 26 4 IGW licensing: a key recommendation is that a licensing system is maintained in relation to the ownership and operation of IGW. To meet WTO requirements, the criteria for licensing should be justifiable and apply on a non-discriminatory basis to all licensees. Notwithstanding IGW liberalisation, operators of an IGW will therefore still be required to obtain a relevant licence. Licensees will be permitted to operate IGW only if they meet certain minimum licensing criteria. Any persons operating an IGW without a requisite licence should be the subject of enforcement action by NICTA. 5 VSAT operators and implementation of class licensing: The need for enforcement action against existing VSAT operators that do not have licences should be considered in the context of any class licensing. VSAT operators may be potential candidates for a form of class licensing. 6 Licence conditions: The appropriate licence conditions would depend on the nature of the licence that was required to operate an IGW. 7 Licence fees: Licence fees should be reasonable to avoid becoming an artificial barrier to market entry that can confer market power on IGW licence holders. The recommendations relating to the manner of calculation and application of licence fees generally apply equally to IGW licensing. 2.3 EXPERTS’ REPORT SPECIFIC RECOMMENDATIONS The Experts’ Report made the following recommendations on international gateway liberalisation: Recommendation 2.1 Immediate liberalisation of the international gateway should occur by permitting all network licensees to operate international gateways if they meet certain minimum licensing criteria. Recommendation 2.2 International gateway infrastructure should initially be exempted from the access regime in order to preserve investment incentives. However, that exemption should be subject to periodic review every 3 years with regard to competition criteria. Recommendation 2.3 Care should be taken in setting minimum criteria for obtaining a licence to operate an IGW so that the ICT Regulator does not lose control over the IGW market. VSAT operators may be potential candidates for class licences. 3 CONSULTATION FEEDBACK The ICCC, PANGTEL, BMobile, Digicel, Telikom, Treasury, the NRI, Data Nets and the ADB were supportive of the liberalisation of the gateway. The NRI and Treasury in particular noted the benefits of liberalisation of the gateway, including the positive impacts for end users in terms of service quality and affordability. Nonetheless, some consultation participants had concerns about specific aspects of the proposed gateway liberalisation. There was some concern from participants regarding IGW licence fees. The ICCC wanted details regarding the amount of any licence fee, Digicel sought confirmation that no fee would be payable for migration to the new system and Telikom stated that it believes it ought to be compensated because it has been denied the full benefits of its monopoly over the gateway. Telikom also emphasised that the liberalisation should occur via legislative change rather than policy changes. In relation to the exemption of IGW infrastructure from the access regime there was a divergence of opinions amongst participants. While Telikom stated that there should not be any price regulation of the IGW, PANGTEL emphasised that wholesale pricing should
  • 27. Chapter 2: International gateway liberalisation I.1314081 page 27 be subject to regulatory oversight in order to ensure that network providers do not “charge exorbitant prices”. Digicel commented that the recommendation was “inconsistent with that taken in respect of access to facilities” and suggested that the ‘safe harbour’ proposed by the recommendation should only exist for a maximum of two years. Similarly, the NRI suggested that any exemption from an access regime should only be temporary, for example it should be removed in 3 years, unless a review based on competition criteria suggested otherwise. There were also comments regarding the minimum criteria for obtaining an IGW licence. Treasury is supportive of the liberalisation of the IGW but notes that the licensing criteria needs to be clearly specified and should ensure operator certainty. Education Milne Bay and Data Nets were supportive of potential class licensing for VSAT, Data Nets commented that this would provide “critical relief from dependency on a single gateway… and PNG, as a whole, would benefit”. 4 FINAL ANALYSIS AND CONCLUSIONS Given that most of the industry has endorsed the recommendations set out in the Experts’ Report, few amendments have been made in the final reforms. The words “immediate liberalisation” have been deleted given that the new licensing regime is not due to commence operation until October 2009 under the planned transitional arrangements. The reforms therefore now refer to liberalisation occurring as soon as practicable and preferably by October 2009. The licensing fees for the IGW are intended to be consistent with the recommendations relating to licensing fees as set out in the licensing section of this Final Report. Accordingly, the reforms now reference the other reforms set out in the Experts’ Report relating to licensing fees. It is not intended that this Final Report determine the precise licence fees that should be payable, rather such fees are best determined by NICTA in consultation with industry participants at the time. The proposed exemption from access regulation for IGW infrastructure is necessary for two key reasons. First, to avoid adversely impacting on short-term IGW investment decisions (including planned infrastructure upgrades by Telikom). Second, to reduce the potential regulatory burden imposed on NICTA. The proposed exemption has therefore been retained. However, the exemption has been given an express sunset date of 1 July 2012 consistent with the feedback during public consultation. Such a sunset date addresses a number of concerns raised during further public consultation relating to the exemption period and is more consistent with PNG’s WTO obligations. Beyond that date, it will be possible for IGW infrastructure to be subjected to access regulation under the declaration criteria in the revised wholesale access regime, see the discussion at section 4.2 in Chapter 3. 5 SPECIFIC REFORMS – INTERNATIONAL GATEWAY In light of the above analysis the following are the specific licensing reforms:
  • 28. Chapter 2: International gateway liberalisation I.1314081 page 28 Reform 2.1 Liberalisation of the IGW will occur as early as practicable (preferably by October 2009). Network providers should be permitted to operate an IGW if they meet certain minimum licensing criteria. Any licensing fees will be consistent with the criteria in Reform 1.7. Reform 2.2 IGW infrastructure will initially be exempted from the access regime as part of transitional arrangements and to preserve investment incentives. This specific exemption will expire on 1 July 2012 (on the assumption that liberalisation commences in October 2009). After that date, IGW infrastructure will be subject to potential regulation under the declaration criteria in the revised wholesale access regime. Reform 2.3 Care must be taken in setting minimum criteria for a licence to operate an IGW so that NICTA does not lose control over the IGW market. VSAT operators may be potential candidates for class licences.
  • 29. I.1314081 page 29 CHAPTER 3 WHOLESALE REGULATION AND ACCESS 1 BACKGROUND The term ‘access’ is used to describe third party use of particular wholesale services and facilities provided by a network operator. Access allows the interconnection of separate networks so that subscribers of one network can communicate seamlessly with subscribers of other networks. Access also allows service providers to use parts of another operator’s network or facilities where duplication may be inefficient. The access regime sets out the process and rules for determining whether access to particular services and facilities should be regulated. Where regulation does apply, the access regime specifies the rights and obligations associated with access, including the obligation to provide access to particular services or facilities and the process and/or principles to be followed when determining terms and conditions of access. A well functioning access regime, suitable to the local environment, is critical to the successful implementation of open competition in the PNG ICT sector. 2 ORIGINAL ANALYSIS AND RECOMMENDATIONS The Experts’ Report comprehensively reviewed the current access regime in PNG and recommended a number of reforms necessary to support open competition. The recommendations on wholesale access are designed to address the key shortcomings of the current regime and ensure that the access regime in PNG is consistent with international best practice and with key Government objectives. In particular, the access regime should promote competition at different levels while still protecting the legitimate interests of network owners. 2.1 PROCESS FOR DETERMINING REGULATION The Experts’ Report recommended the establishment of a single process for declaring access to services and facilities. This process would be set out in the legislation and would include a threshold test applied consistently to all operators and services under consideration. An initial schedule of services would be deemed as declared in the legislation and would therefore be subject to the obligations of the wholesale access regime from the outset. The Experts’ Report recommended that in PNG this schedule comprise the following services: mobile network terminating access, fixed network terminating access, domestic transmission, domestic inter-carrier roaming in areas where network duplication would be inefficient and mobile tower access in areas where tower duplication is inefficient. This recommendation is similar in some respects to the New Zealand regime whereby a schedule of regulated services is legislated in the Telecommunications Act 2001. Under the recommended approach other services could be declared under a process prescribed in the legislation with the following key elements: · any party could request that the ICT regulator conduct an investigation as to whether a particular service should be declared as a regulated service. If the ICT regulator believes the request is valid it would make a recommendation to the Minister for an inquiry to be undertaken. The inquiry only proceeds if approved by the Minister; · the ICT regulator’s inquiry would be required to consider whether access to the service was necessary for the promotion of competition. The ICT regulator would then make a recommendation to the Minister on whether to alter the
  • 30. Chapter 3: Wholesale regulation and access I.1314081 page 30 schedule of regulated services. This recommendation would only be made where the ICT regulator was satisfied that the prescribed declaration criteria were satisfied; · the ICT regulator’s recommendation would be contained in a public report. The Minister would either accept or reject the ICT regulator’s recommendation; and · once a service was declared as a regulated service, the terms and conditions of access would be determined on a negotiate/arbitrate model where the parties would either agree or, in the event of dispute, the matter could be referred to the ICT regulator to determine the terms and conditions, which it would have to do in a manner consistent with legislated pricing principles. The Minister would have no role in determining terms and conditions of access. The following important features were also recommended in the Experts’ Report: · removal of all other existing processes for determining the application of regulation under the current regime. In particular, the process for declaring entities and goods and services in the ICCC Act would not apply to the ICT sector; · the provisions set out in the mandatory roll-out section of the mobile carrier licences in relation to roaming and infrastructure sharing would be removed and replaced with a reference to the single comprehensive access regulation process set out in the Telecommunications Act. However, under the final reforms roaming and infrastructure sharing are not to be deemed services. Therefore, the reference to these provisions in the licences will be retained with some adjustments to reflect that these responsibilities will sit with NICTA. In the event that roaming and/or infrastructure sharing are declared in mandatory roll- out areas under the access regulation process then the access obligations under the new regime will apply. This will be made clear in the relevant licences; · explicit exclusion of IGW services (international transmission and the gateway itself) from access regulation for an initial period; and · the establishment of a corresponding process for the removal of access regulation where it was no longer warranted. The trigger for an inquiry into the removal of regulation would be the sooner of a request from any party or the Minister (i.e. the same trigger as for the application of regulation); or 5 years from the time the service or facility was declared. 2.2 ACCESS OBLIGATIONS The Experts’ Report recommended adjustments to the access regime to support a range of forms of competition including network-based competition, services-based competition, and combinations of both. It was envisaged that this could be achieved by amending the legislation to provide non- discriminatory rights of access to all access seekers, regardless of the licence held the networks deployed or the final services offered. This would include providing all access seekers with a general right of access to regulated services upon request and extending the arbitration powers of the ICT regulator to determine price and non-price terms of access to all access seekers. 2.3 DETERMINATION OF TERMS OF ACCESS With respect to the process used for determining terms and conditions of access, the Experts’ Report recommended maintaining the negotiate/arbitrate model with interim determination powers, while introducing a number of changes, specifically: · the ICT regulator’s arbitration powers to be extended to include both price and non-price terms and conditions for all declared services; · limiting the issues potentially in dispute by introducing a pre-approval process for terms and conditions in the RIO (a document submitted by an access
  • 31. Chapter 3: Wholesale regulation and access I.1314081 page 31 provider to the Regulator setting out proposed terms and conditions of access). Under this process the ICT regulator would undertake an assessment of any RIO lodged by an access provider and approve or otherwise the individual terms and conditions of access. The Experts’ Report recommended that any such RIO approval should have a limited duration, up to a maximum of 3 years. 2.4 PRICING PRINCIPLES The Experts’ Report recommended providing greater regulatory certainty to network owners by legislating pricing principles and removing them from all other legislation, codes and licences. The legislated pricing principles would be referable to internationally well-established costing methodologies (for example, use of the retail minus avoidable cost (RMAC) pricing principle in relation to resale services (including inter-carrier roaming)). The Experts’ Report recommended that the ICT regulator be required to publish within 6 months of its establishment guidelines details of how it would implement the access pricing principles in the event of a dispute. The draft pricing principles that were discussed in the Experts’ Report are set out below. 1 Over-arching principle: Access prices would be set to ensure that the access provider could recover its total costs, in recognition of the desirability of providing incentives for ICT investment in PNG. Where the ICT regulator determines that efficient costs differ from actual costs, it would be required to be positively satisfied that actual costs are inefficient. 2 Intermediary principles: For access services which involve the resale of a retail service, RMAC pricing would be applied except where this resulted in a price below cost, in which case, cost-based pricing would be applied. In determining a RMAC price, the ICT regulator would be required to have regard to the following factors: · where more than one price point exists for the relevant service, the starting retail price should be calculated as the weighted average of the retail price points for the relevant service; · the avoided costs deducted from the retail price should reflect the costs that the access provider can actually avoid by not retailing the services itself; and · any other factors the ICT regulator considers relevant, to the extent that such factors are consistent with the over-arching principle of cost recovery and the above principles of RMAC pricing. 3 Cost-based pricing: For all other access services, cost-based pricing would be applied. In determining a cost-based price, the ICT regulator would be required to have regard to the following factors: · the total service costs of access, being the direct and indirectly attributable capital, operating and maintenance costs actually incurred by the access provider in providing the service to itself and the access seeker(s); · the return on capital, which reflects the opportunity cost of that investment taking account of its risk; · the requirement for a fair and reasonable contribution to the access provider’s common costs; · the requirement for a non-discriminatory allocation of costs between the access provider and access seeker(s); · full recovery from access charges of operational and capital costs incurred in the provision of access and interconnection, which the
  • 32. Chapter 3: Wholesale regulation and access I.1314081 page 32 access provider would not have otherwise incurred but for the requirement to provide access and interconnection; · any price regulation that applies to the access provider to ensure that full cost recovery can be achieved; · the availability and capacity of the telecommunications network operated by the access provider and the timeframe reasonably required to provide access to additional capacity; and · any other factors the ICT regulator considers relevant to the extent that such factors are consistent with the over-arching principle of full cost recovery and the above principles of cost-based pricing. 4 Specific pricing: In making an interim determination on domestic inter-carrier roaming, the ICT regulator would apply the RMAC principle and calculate the RMAC price by: · calculating the weighted average domestic peak retail price of the access provider; and · deducting 10% of that starting average retail price (as an approximation of avoided costs), to arrive at the wholesale price for domestic inter-carrier roaming, which is to be applied on a reciprocal basis in the event of any future access determinations. 5 Interim determination: In making an interim determination on tower sharing, the ICT regulator would apply the cost-based principle and calculate the cost- based price by: · estimating the costs associated with the tower at issue in line with the intermediary cost-based pricing principles; and · dividing the resulting tower costs by the number of operators sharing the tower, to arrive at the wholesale price for tower sharing. 2.5 EXPERTS’ REPORT SPECIFIC RECOMMENDATIONS The Experts’ Report made the following recommendations on wholesale regulation and access: Recommendation 3.1 Wholesale access and interconnection obligations should be applied to regulated ‘declared’ services and facilities, not particular regulated entities. All relevant licensees should be subject to, and benefit from, such regulation. Recommendation 3.2 A schedule of deemed declared services should be legislated. As well as core interconnection services, this schedule should include facilities sharing and mobile roaming to the extent it is uneconomic to duplicate infrastructure. Recommendation 3.3 Declaration of additional services should occur based on whether access to the facility or service provided over the facility is essential to the promotion of competition. In considering this, the ICT Regulator must take into account: · whether the facility to which access is sought is provided exclusively or predominantly by a single or very limited number of suppliers; · whether the facility can be economically or technically substituted in order to provide the service; · whether lack of access would pose a barrier to entry
  • 33. Chapter 3: Wholesale regulation and access I.1314081 page 33 that is likely to make otherwise efficient entry into the market uneconomic; and · whether access would compromise the incentives for otherwise efficient investment, including as a result of creating undesirable regulatory risk. Recommendation 3.4 The ICT Regulator should undertake declaration inquiries and make recommendations to the Minister for Communication and Information. The Minister should make declaration decisions. Recommendation 3.5 Pricing principles should be legislated and removed from all other regulatory instruments. The principles should adopt internationally well- established costing methodologies. The principles should promote infrastructure investment by ensuring full cost recovery. Recommendation 3.6 The ICT Regulator should determine access disputes for declared services under a negotiate/arbitrate model. Within 6 months of its establishment, it should be required to publish guidelines detailing how it will apply the legislative pricing principles to various types of access disputes. Recommendation 3.7 Access providers should be permitted to submit binding RIOs to the ICT Regulator for pre-approval for an appropriate period (for example, 3 - 5 years). Recommendation 3.8 All service declarations should be subject to regulatory review within 5 years. If the criteria for declaration are no longer met, the declaration should be permitted to expire. 3 CONSULTATION FEEDBACK 3.1 NEED FOR A WHOLESALE REGULATION AND ACCESS REGIME The concept of a wholesale regulation and access regime in PNG was supported by the vast majority of consultation participants, including the ICCC, PANGTEL, BMobile, Digicel and the NRI. The NRI noted the benefits of the regime: “Establishment of an access regime should promote competition and is therefore a welcome addition to the ICT regulatory structure. Access arrangements will enable competition in areas where competition would otherwise not occur and enable the costs of infrastructure expansion to be shared and avoid unnecessary duplication.” Treasury was broadly supportive of these recommendations but emphasised that clear access rules and regulations must be formulated. Telikom was the only participant that was concerned about the institution of a new access regime. Telikom stated that the use of ‘declared’ services restricts the freedom of players in the market from reaching commercial terms and that access is best left to commercial negotiations between carriers. However, if the regime is implemented, Telikom stated that regulation should be minimal. For example, it contended that the ICT regulator would only monitor prices where commercial agreement fails and the access interconnect rates should be determined primarily on the cost of interconnect which should be shared equally between the parties.
  • 34. Chapter 3: Wholesale regulation and access I.1314081 page 34 3.2 DEEMING OF CERTAIN SERVICES AS DECLARED SERVICES The recommendation in relation to deeming certain services as declared services (in particular, domestic transmission, inter-carrier roaming and tower sharing services) was more controversial. BMobile contended that inter-carrier roaming can only be supported where mobile coverage and penetration are at higher levels than today. BMobile, Telikom and Digicel submitted that to mandate inter-carrier roaming would discourage investment in remote areas. Digicel explained that: “Digicel, like other mobile network operators, invests in less economic or efficient infrastructure in order to grow their network coverage and in turn their competitive differentiation in the marketplace. Such excessive regulation will result in reducing Digicel’s incentive to invest and in Digicel scaling back its investments in PNG, including in rural areas.” Digicel contended that the test for declaring services should also apply to the ‘deemed’ services identified in the Experts’ Report recommendations. The ICCC submitted that additional services should be ‘declared’ via the deeming provisions, namely international voice and data interconnection, ADSL, VSAT and WiMAX and point-to-point Ethernet transmission links. 3.3 CRITERIA FOR DECLARING SERVICES Digicel was opposed to the criteria set out in the Experts’ Report for declaring services to come within the wholesale access regime. Digicel proposed more stringent criteria that would have to be ‘strictly proven’ before the ICT regulator could recommend that services be declared. PANGTEL, the ICCC and Treasury were more supportive of the proposed regime. Treasury noted that: “…the current negotiate/ arbitrate model in the ICT sector has worked relatively well. However, Treasury is supportive of further efforts to improve this model and make it more process specific.” PANGTEL supported the recommendations but suggested that any process for the declaration of additional services should be simple and transparent. PANGTEL also commented that under the negotiate/arbitrate model the ICT regulator should have the power to intervene as appropriate and to subject the process to a fixed time-line. 3.4 OTHER ISSUES There was some concern regarding Ministerial involvement in arbitration issues. Treasury suggested that where Ministerial intervention is necessary, the conditions warranting intervention should be specified. The ADB was concerned that Ministerial involvement would weaken the independence of the ICT regulator. The ICCC also expressed concerns about the proposed veto powers available to the Minister and recommended that the Minister be required to provide a statement of reasons and any decision by the Minister should be appealable in court. Comments were also received in relation to the recommendation of pre-approval of a RIO, with PANGTEL and the ICCC supporting the proposal. The ICCC commented that the network provider should be required to provide a RIO within 3 months of becoming a ‘declared’ service. Digicel and Telikom were not supportive of mandatory pre-approval of an RIO, and suggested network providers should only be required to notify the ICT regulator of the RIO. The ICCC and PANGTEL were supportive of the recommendation that pricing principles should be embedded in the Telecommunications Act, while Digicel sought further clarification prior to providing comment.
  • 35. Chapter 3: Wholesale regulation and access I.1314081 page 35 Finally, the ICCC was concerned about the proposed removal of its right to declare entities and/or goods and services under the ICCC Act and the proposal to remove the mobile roll-out obligations. The ICCC argued that these proposed changes fail to consider the ICCC’s other sector responsibilities which could be damaged by this proposal. 4 FINAL ANALYSIS AND CONCLUSIONS Consultation feedback revealed overwhelming support for the recommendation to introduce a wholesale access regime that would apply to declared services and facilities. However, two key areas of concern emerged: · the list of services to be deemed as declared in the legislation; and · the threshold test for declaration. 4.1 DEEMING The three carriers (Telikom, Digicel and BMobile) all disagreed with the recommendation to deem inter-carrier roaming and tower sharing primarily on the basis that it would create disincentives for investment in network infrastructure. The ICCC suggested that deeming should be extended to a range of other services while the World Bank queried why infrastructure sharing should be limited to tower sharing. In response to this feedback, some significant changes to the Experts’ Report recommendations have been incorporated into the final reforms. However, not all of the points raised in submissions have been accepted. The analysis that follows elaborates on the reasoning behind the deeming recommendation. In particular it: · explains, from an economic perspective, why domestic inter-carrier roaming and tower sharing are important for encouraging competition; · in recognition of their importance, it illustrates the extent to which roaming and tower sharing have been subject to regulation in both developed and developing countries; and · sets out the reasons why the Experts’ Report recommended the deeming of these services rather than subjecting them to the general declaration process. 4.1.1 Importance of inter-carrier roaming and tower sharing The importance of inter-carrier roaming and tower sharing for the development of competition in mobile markets has been well documented.2 In particular, it is generally accepted that geographic coverage is an important factor that customers consider in deciding which network to connect to. For instance, the OECD has stated:3 “Consumers seem to care strongly about the geographic extent of the mobile network they have chosen. Mobile networks need to establish significant coverage of the population of a country if they are to provide a competitive service.” In Australia, the ACCC has opined:4 “While geographic coverage may no longer be a major differentiator between the larger mobile network operators, this does not detract from the importance of geographic coverage, particularly from the perspective of facilitating market entry. In the Commission’s view, given the nationwide geographic coverage of the incumbents, the inability of a new entrant to provide equivalent coverage is likely to be a significant impediment to its ability to attract customers. Moreover, confidential data provided to the Commission on reasons why customers left a
  • 36. Chapter 3: Wholesale regulation and access I.1314081 page 36 particular mobile carrier indicate that inadequate coverage was one of the top four reasons for leaving.” This view is shared by other regulators. Thus, in mandating roaming and tower sharing, Industry Canada noted that: 5 “the value of mobile services is closely related to the coverage of the network”. Similarly, in the UK when conducting a further national roaming consultation in 2004, Ofcom remarked:6 “... research commissioned by Ofcom in recent years has consistently shown that coverage is one of the most important non-price factors taken into account by mobile network users when choosing a supplier.” There is no evidence to suggest that PNG consumers are any different in their preferences. Moreover, and importantly, these preferences are likely to apply to consumers in all geographic areas, including in major urban centres. For example, in making the decision about which network to subscribe to, customers in Port Moresby would take into account the geographic coverage of available operators not just in Port Moresby but in other areas of PNG. Thus, to the extent that roaming and tower sharing, or lack thereof, give rise to competitive effects, they apply to all areas of PNG. Geographic coverage is therefore paramount to the attractiveness and, hence, commercial success of a mobile operator’s service offering. A mobile operator’s overall network coverage reflects a combination of the reach of its own network deployments, as well as its ability to secure roaming and other types of infrastructure sharing agreements in those geographic areas where it does not have its own network. The ability and incentive for a mobile operator to deploy its own network in any given geographic area on a commercially viable basis depends on factors that include the availability of spectrum, economies of scale and sunk cost requirements: 1 In cases where spectrum is limited, potential entrants and carriers must wait for further auctioning of spectrum before they can engage in network expansion. A new entrant can therefore be prevented from offering national services due to spectrum limitations. To that extent, in the absence of inter-carrier roaming arrangements between operators, competition would be limited or even prevented. 2 Economies of scale can significantly impact on the numbers of viable networks in any given geographic area. In particularly dense areas, traffic volumes may justify multiple networks. In contrast, in sparser rural and regional areas, traffic volumes may limit the number of networks which are economically viable or, in extreme cases, may render any network deployment unviable, absent some form of network subsidy. 3 Finally, the deployment of a mobile network may entail material up-front sunk costs, including in respect of base stations, mobile switching centres and transmission links. Again, the ACCC noted the relevance of this issue in the context of inter-carrier roaming issues:7 “Sunk costs increase the risks associated with network deployment. Consequently, carriers may be unable to obtain financing to fully deploy a nationwide network prior to entry because the risk is too high. Once market entry has occurred and a customer base is established, these risks may be reduced to a level where deployment is feasible. However, without the ability to offer national geographic coverage, the carrier may not enter the market in the first place due to the difficulty in attracting customers.” These three factors in particular may combine to make it uneconomic for more than one operator to deploy a network efficiently in certain geographic areas, especially the less densely populated rural and regional areas. In such cases, the only option for players – especially new entrants – to achieve full geographic coverage and effectively compete against incumbent operators may be to enter into roaming or tower sharing agreements.