Over the years, the telecommunications sector has been viewed as a natural monopoly, with the state as the primary player. It has been controlled to assure universal services. However, new regulatory policies and regimes have altered the telecom sector in recent decades, fostering competition. This has been achieved by dissolving functionally-integrated monopolistic operators traditionally controlled by the state, thereby permitting new private entrants. The emergence of ICT and a shift in the view of economic theories are the reasons for this transformation in the telecom sector, rendering natural policy of limited importance. The telecom market is widely believed to require both deregulation and liberalization in order to boost efficiency, innovation, and, ultimately, consumer welfare. Hence, this article aims to explore competition regulation in the telecom sector through a comparative analysis of key global legal regimes.
In the past decades, the advancement of Information Communications Technology has made the worldwide telecom sector grow at an incredible rate. This is evident with the development of various innovations, such as optical fiber and digital technology, which offer telecom operators more options for meeting the needs of their customers. Although the expansion of the communicable scope, an increase in communication quality, and a reduction of the size of our terminal devices are notable outcomes of the telecom sector’s evolution, it is important to highlight that the economic climate in this sector has also altered.
Prior to the telecom sector reforms undertaken in many countries during the previous two decades, telecom services were generally provided under monopoly conditions, either by state institutions or, to a lesser extent, by private enterprises. Traditional economic theory holds that the telecommunications sector should be considered a natural monopoly based on economies of scale, scope, network externalities, and a number of other economic characteristics, and hence should be regulated by a state monopoly on rigorous industry regulation. This traditional supply model centralized policymaking, regulatory, frequency control, and network operations functions into a single organization.
Until the 1980s, telecommunications sectors in most countries were supervised by monopolists, with national regulatory agencies enacting legislation governing market access prices, service quality, and universal service. This strategy worked well for many years in more developed nations, as high long-distance and international tariffs effectively financed local services and led to relatively high levels of universal service despite major cost reductions due to technological advancement. This approach, on the other hand, did not function as well in developing countries, where networks were often limited to urban regions and more accessible to consumers with a middle or high income. Cross-subsidization kept local costs low for the wealthy, but it did not generate enough revenue to fund infrastructure investment, leaving low-income customers with long wait times and poor service quality.
However, as telecommunications technology advanced, the qualities of natural monopoly began to fade. As a result, competition has been introduced to the telecommunications industry, implying that telecommunications may and should be operated in a regular market context. Nonetheless, creating competition has not always been an easy process. This procedure has been linked to numerous accusations of anti-competitive behavior. Many of these allegations can be traced back to an underlying issue of connectivity or access, i.e., which facilities should be made available, by which firms, and under what terms and circumstances.
As a result, this research aims to examine the topic of regulating competition in the telecommunications sector by conducting a comparative analysis of global legal regimes. There are four sections to this study. The first section of this paper provides an overview of the telecommunication sector. It defines telecommunications and provides a description of the telecommunication sector. The second part of this study assesses the telecommunications sector’s heightened competitiveness. The events that contributed to the growth of competition in the telecommunications sector are examined in this section. The third section looks at telecommunications competition regulation. The fourth and last section looks at the global legislative frameworks in place to regulate competition in the telecommunications airspace.
An Overview of the Telecom Sector
The telecommunications sector consists of companies that facilitate global communication, whether through the phone or the Internet, via airwaves, cables, wires, or wirelessly. These companies built the infrastructure that enables data to be transferred anywhere in the world in the form of words, voice, audio, or video. Telephone (wired and wireless) operators, satellite companies, cable companies, and Internet service providers are the main corporations in the industry. All telecommunications/telephone firms and internet service providers make up the telecommunications sectors, which play a critical role in the expansion of mobile communications and the information society. The primary goal and scope of the telecommunications sector are to connect content producers (those who create information and communication) with final consumers (those who receive it) through the interaction of two main intermediaries: communication infrastructure operators and providers of information services over these infrastructures.
For nearly any industry, the telecom sector continues to be at the epicenter of development, innovation, and disruption. Mobile devices and accompanying broadband connectivity are becoming increasingly ingrained in society today, and they are crucial in propelling key developments. The term telecommunications, on the other hand, is commonly used to refer to telephones, cell phones, and the internet. It has been defined as the procedure of transferring data over a long distance using electrical technologies. Telecommunications encompasses electronic communication services, electronic communication networks, accompanying facilities, and associated services. Even within the communications industry, the modern telecommunications sector has made at least three distinct traits that distinguish it from others. This sector is described with characteristics such as network effect, dynamism, convergence, and sensitivities.
The rise of Competition in the Telecom Sector
The network effect is one of the most prominent characteristics of the telecom sector, which can result in significant economies of scale or scope. Traditionally, it was considered to possess the features of the natural monopoly, of the high sunk and fixed costs of the fixed base stations and network facilities. As a result, in this sector, it is considered that only a single firm would be able to satisfy the industry’s demand at a lower cost than two or more firms can in order to ensure both productive and allocative efficiency and to guarantee universal services and therefore subject to heavy economic regulation as other natural monopoly industries, such like railway, water, and electricity.
However, technological developments have driven certain natural monopoly markets to transform into more competitive ones. The clear shift to microwave, satellite, and optical fiber transmission technology has provided good alternatives to traditional copper cable networks while also weakening the telecom industry’s natural monopolistic qualities. As a result, portions of the network were made available for competitive entry.
The concept of competition may be traced back to Adam Smith, the creator of the invisible hand theory, who sees competition as the driving factor for economic development. A competitive market has long been thought to be the greatest approach to maximizing resource use and distributing welfare among society’s members. Competition, on the other hand, is not an end in itself, but rather a tool for achieving economic goals such as allocative efficiency, productive efficiency, and dynamic efficiency. The telecoms industry displayed traits that are conducive to competition. The relevant market was deregulated over time. This shift in telecom economic regulation does not imply that the target of telecom regulation has shifted dramatically. However, the techniques for achieving the goals have changed. The natural authorities bear responsibility for the welfare of consumers in the setting of a monopoly through the existing legal framework. Currently, the regulatory role is confined to promoting and maintaining market operation or creating circumstances for markets that have not yet been completely formed.
Overall, the telecom sector has largely shed its natural monopoly characteristics and has evolved into a completely competitive market. The European Union’s legal practices can be used as an example. The telecom market in the EU is competitive, as evidenced by legal documents. According to the European Commission with regard to the implementation of full competition in the telecom equipment market, the telecom services market and telecom network should achieve full liberalization, allowing free access. Therefore, member states must eliminate existing special rights and privileges in certain areas, to achieve the aims of fully liberalizing the relevant market.
Regulating Competition in the Telecom Sector
The introduction of competition into the marketplace does not negate the need for regulation. Instead, if governments authorize competition, the role of regulators expands, particularly during the early phases of the transition from the prior monopoly model to one of effective competition. Regulators must establish a regulatory framework capable of resolving disputes, addressing anticompetitive abuses, protecting consumers, and achieving national goals such as universal access, industrial competitiveness, or economic productivity and growth in order to transition to an effective competitive environment. The regulation does not serve as an end in and of itself.
Rather, it is the means by which extensive access, successful competition, and consumer protection can be achieved, and then maintained. The liberalization of the market and the introduction of competition necessitates strategic policies and laws that establish an efficient regulator, remove apparent barriers to the entrance (e.g., the inability to interconnect with the incumbent operator), and deconstruct implicit hurdles to entry (such as the potential influence of the incumbent telecommunications operator over the regulator).
As a result, regulatory reform must include measures aimed at establishing independent entities to oversee the introduction of competition in the market and establish regulatory mechanisms for issues such as interconnection, licensing, and tariff rebalancing; preparing incumbent operators to face competition, including timetables setting deadlines for the termination of market exclusivities; and allocating and managing scarce resources such as numbers and spectrum in a fair and equitable manner within the liberalized market, expanding and improving access to telecommunications and ICT networks and services, as well as promoting and defending consumer interests, such as universal service and privacy.
However, in a completely competitive system, there is less need for regulation. Regulatory agencies, on the other hand, continue to play an important role, especially given the sector’s dynamic nature and the unresolved challenges that new technologies may present in the regulatory environment. Furthermore, regulators must maintain a significant role in particular areas since market forces frequently fail to create the conditions required to meet public interest objectives such as universal access and service. Effective regulation has been shown to boost economic growth, stimulate investment, cut costs, improve service quality, enhance penetration, and speed up technological innovation in the industry.
The objective of regulation is an essential part of the regulation designing process. Without it, regulation will lose its direction and function. As Robert Bork pointed out, ‘only when the issue of goals has been settled is it possible to frame a coherent body of substantive rules’. The objectives of telecommunications regulation can be divided into two parts, social and economic. In the social objective, universal service and consumer protection are the most important ones. Innovation, consumer welfare, and efficiency together form the economic goals of regulation. Telecommunications market regulation can be separated into two categories: sector-specific regulations and competition law. Once upon a time, the only regulatory tool available to the telecommunications industry was sectoral regulations. Competition law has been considered a crucial instrument in this market since the introduction of competition and liberalization.
For more than a century, the international telecommunications order has been controlled by implicit economic nationalism since the invention of the telephone in 1876. The International Telecommunication Union (ITU) established an effective but strict international coordination by legitimizing diverse state telecommunications controls. The industry was found unsuitable for competition because it was deemed a “natural monopoly.”
The primary style of telecommunications governance was hierarchically constructed national telephony networks, with just a few highly monitored gateways allowing connectivity of several national networks. However, the old telecommunications system is changing, moving away from past forms of economic nationalism. The ‘natural monopoly’ attributes of the telecommunications business are diminishing, and competition is becoming more common. The previous international system, which acknowledged (and legitimized) state telecommunications authorities, is being questioned. Significant advancements have occurred on a global (e.g., WTO) and regional (e.g., EU) level to promote the trend of market liberalization and competition.
Countries that make global and regional commitments to open their telecommunications markets to foreign investment and harmonize local legislation with that of other countries in similar geographic or economic situations may be able to speed up regulatory reform, facilitate global or regional best regulatory practices, and give telecommunications investors a sense of certainty and predictability. Furthermore, such international and regional frameworks help to ensure government accountability by assuring a certain amount of transparency and market-oriented regulation. The scope and implications of such commitments differ by country and are primarily determined by a country’s political and economic condition, as well as the amount of development and competition in its telecommunications market.
World Trade Organization
The World Trade Organisation (WTO) is a global international trade organization that creates international commerce laws and settles trade disputes among its members. It was founded in 1994 as a result of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The World Trade Organisation (WTO) is made up of 148 members who take part in negotiations and binding commitments aimed at promoting competition and liberalizing international trade in goods and services. The General Agreement on Trade in Services (GATS) is the foremost of the WTO’s telecommunications instruments. The Fourth Protocol to the General Agreement on Trade in Services (GATS), which was completed in 1997 under the auspices of the World Trade Organisation (WTO), represents one of the major steps toward the liberalization of global telecommunications marketplace and the establishment of liberalization. The aim of GATS is to facilitate the liberalization of trade in services.
Under GATS, there are two types of obligations: (i) general obligations that apply to all members and all service sectors covered by GATS, regardless of whether specific commitments have been made; and (ii) sector-specific commitments regarding market access and national treatment for sectors and activities that members agree to open to international trade. Under the general obligations, there are two main principles : (i) WTO member countries must provide each other with the most favored nation (MFN) treatment (i.e., a prohibition on discrimination requiring countries to provide “treatment no less favorable than that accorded to like services and service suppliers of any other country”); and (ii) countries must ensure that local regulations are transparent (e.g., countries should publish measures of general application, and allow a period of public comment prior to their issuance). Market access obligations, national treatment promises, and other sector-specific commitments are made.
In October 2010, 108 Members made telecommunications commitments, the majority of which came as a result of the core telecom discussions (1994-1997). Through their concentrated attempts to remove entrance and competition barriers, the agreements laid the groundwork for structural reform of the telecoms sector. Members’ commitments on which services are available to competition and the types of restrictions maintained, on the other hand, vary substantially from one schedule to the next, reflecting the types of reforms in place or anticipated by each government at the time of the talks. The Telecommunications Services: Reference Paper was also produced as a result of the basic telecommunications agreements. It was created as a model for a sector regulatory framework that was tailored to a competitive environment.
From a trade perspective, the principles were designed to ensure the effectiveness and value of market access agreements made. However, it mainly reflected best practices in pro-reform telecom regulation, as it was negotiated cooperatively by trade and telecom officials. Eighty-two of the 108 WTO Members with telecommunications commitments agreed to follow the Reference Paper principles by adding them to their schedules. In many countries, the six principles of the Reference Paper have become a “checklist of success” for telecommunications reform. These principles concern: (i) competitive safeguards; (ii) interconnection guarantees; (iii) transparent and competition-neutral universal service mechanisms; (iv) public availability of licensing criteria; (v) regulator independence; and (vi) equitable procedures for the allocation and use of scarce resources.
WTO commitments are legally binding obligations for members that can be enforced through the WTO’s binding dispute resolution process. As a result, the impact of WTO commitments on a country’s regulatory structure can be seen through voluntary compliance or enforcement via the WTO’s dispute settlement mechanism. The impact of WTO commitments on developing countries may be greater than on developed countries. Adoption of the GATS principles was a reintroduction of pro-competitive liberalization policies that were already in place in many industrialized nations, and compliance with GATS did not necessitate significant legislative reform. Many developing countries, on the other hand, needed to modify their telecommunications legislation and structure in order to liberalize their markets. GATS aims to design and implement a framework that does not erect needless trade obstacles. It expressly respects members’ ability to restrict service supply in order to achieve national policy goals, and so liberalization does not mean deregulation. One of the key goals of the GATS in terms of developing nations is to improve their participation through progressive liberalization while taking into account their respective levels of development.
Many WTO members were required to change their legislation to reflect compliance with their international obligations in order to achieve such liberalization and comply with GATS telecommunications requirements (e.g., implementing transparent regulatory structures and procedures, establishing an independent regulator; and removing market access barriers). While the GATS does not mandate members to privatize incumbent operators, many nations have pursued privatization and liberalization activities as a means of increasing market competition. Even when nations have implemented the legislative and structural reforms required to meet their WTO commitments, the size of the market and a country’s lack of technical, financial, and human resources can sometimes stymie efficient competition and proper enforcement of a regulatory system.
In the mid-1990s, the European Commission’s Convergence Green Paper began the policy formulation debate on the regulatory consequences of convergence. The 1999 Review analyzed the existing telecommunications regulatory system and proposed a number of policy ideas for a comprehensive cross-border regulatory framework including all transmission networks and services. As a result, the European Commission approved a new regulatory framework (NRF) in 2002, which included a Framework Directive and four major particular directives: (i) the authorization of electronic communications networks and services (Authorization Directive); (ii). the directive on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive); (iii) the directive on universal service and users’ rights relating to electronic communications networks and services (Universal Service Directive); (iv) the directive on the processing of personal data and the protection of personal data (Protection of Personal Data Directive).
The Commission Recommendation on Relevant Markets and the Commission Guidelines on Market Analysis are also included in the NRF, and they direct regulatory bodies to perform market analyses of specific markets that may be regulated. The NRF’s goal is to establish “continued effective competition without ongoing regulatory intervention” by eliminating regulation where it has been determined that competition is effective and redirecting regulation where it does not. The NRF’s overall goals are to promote competition in electronic communications markets, improve the internal market’s functioning, and protect basic user interests that would otherwise be protected by market forces. The NRF is designed to be technology agnostic, eschewing terms like voice telephony and the boundaries between fixed and mobile communications that the EU relied on during its 1990s telecommunications deregulation process. This is a corollary of the convergence lesson, as it has long been understood that rigid regulatory conceptions cannot progress at the same rate as technology advancements.
The Framework Directive emphasizes the necessity for EU member states to guarantee that national regulatory agencies adopt regulations that are “technologically neutral,” meaning that they “neither impose nor discriminate in favor of the use of a specific type of technology.” It should be emphasized, however, that technological neutrality does not prevent member states from pushing specific services if they deem it necessary (e.g., digital television as a means for increasing spectrum efficiency). The EU has separated the regulation of transmission from the regulation of content, which is an important component of the NRF.
As a result, the framework excludes the content of services transmitted over electronic communications networks employing electronic communications services, such as broadcasting content. Although there is no European regulatory authority, the NRF established the European Regulators Group (ERG), which is made up of the heads of the member states’ national regulatory agencies (NRAs), to ensure cooperation and coordination between NRAs and the EC. One of the ERG’s key responsibilities is to ensure that the NRF’s provisions are applied consistently across the EU. Through the issuing of non-binding recommendations and common viewpoints that serve as NRF implementation guidelines, the ERG actively participates in the implementation and harmonization of the NRF, with the goal of attaining regulatory harmonization.
For example, in 2004, the ERG developed a Common Position on the Approach to Appropriate Remedies in the New Regulatory Remedies in collaboration with the European Commission’s Services Directorate-General (DG) Information Society and DG Competition (the Common Position). The Common Position calls for a “consistent and coordinated approach to the application of remedies by NRAs,”, especially in cases where market failures obstruct competition. While the NRAs are not bound by this text, it has been actively used as a guide in the application of remedies where competition issues have been discovered.
Upon examining the World Trade Organisation’s and European Commission’s regulatory systems, it is evident that a substantial effort is being made to regulate competition in the telecommunications sector. The World Trade Organisation, on one hand, established the General Agreement on Trade in Services (GATS) which is its foremost telecommunications instrument geared toward the liberalization of the global telecommunications marketplace and the establishment of liberalization.
On the other hand, the European Commission approved a new regulatory framework which included a Framework Directive and four major particular directives which includes the authorization directive, access directive, universal Service directive, protection of personal data directive. The purpose of the NRF is to achieve “continuous effective competition without ongoing regulatory involvement” by reducing regulation where it has been found that competition is effective and redirecting regulation where it is not. The NRF’s overall goals are to foster competition in electronic communications markets, improve the functioning of the internal market, and protect basic user interests that would otherwise be protected by market forces.
The execution of directives issued as a result of the liberalization of service trade is, nevertheless, a feature of both regulatory structures. The WTO commitments are legally binding obligations that can be enforced through the WTO’s binding dispute resolution process. As a result, voluntary compliance or enforcement via the WTO’s dispute settlement process can reveal the influence of WTO commitments on a country’s regulatory structure. Similarly, the NRF formed the European Regulators Group (ERG), which is made up of the heads of national regulatory agencies (NRAs) from member states, to ensure cooperation and coordination between NRAs and the EC. One of the ERG’s primary roles is to ensure that the NRF’s provisions are implemented uniformly throughout the EU.
To conclude, competition regulation is recognized at both the international and regional levels, and as a result, it is safe to say that the telecommunications sector has shifted from a traditional monopolistic system to a modern competitive system with regulatory structures in place for the industry’s advancement.