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Network Regulation and Deregulation Sincethe 1980s, governmentsinhotpursuitofgeneraleconomicdevelopmenthavemade dramatic changes in the regulation industry. Monopolistic public utilities have been privatized, of and the markets historically dominated by those utilities have been deregulated and opened to competition. This chapter discusses the motivations behind telecommunications deregulation, and explains some of the new regulatory measures which protect customers’ interests by ensuring that quality services are available at a fair price. ...

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  1. Networks and Telecommunications: Design and Operation, Second Edition. Martin P. Clark Copyright © 1991, 1997 John Wiley & Sons Ltd ISBNs: 0-471-97346-7 (Hardback); 0-470-84158-3 (Electronic) Network Regulation and Deregulation Sincethe 1980s, governmentsinhotpursuitofgeneraleconomicdevelopmenthavemade dramatic changes in the regulation industry. Monopolistic public utilities have been privatized, of and the markets historically dominated by those utilities have been deregulated and opened to competition. This chapter discusses the motivations behind telecommunications deregulation, and explains some of the new regulatory measures which protect customers’ interests by ensuring that quality services are available at a fair price. 44.1 REASONS FOR DEREGULATION The word deregulation is something of a misnomer because no country has completely rescinded all the telecommunications laws and regulations. Rather, the regulations are beingchangedto a new framework(a liberalized one) to encouragecompetition between companies for the provision of telecommunications services. In fact the new regulations are more voluminous than the old ones, and will require more policing to ensure that companies are conforming with their obligations. As with any change in the legal system, a government wants to convince itself of the benefit of the new regulation; not only its direct effect but also the secondary effect on other elements of the social or industrial strata. The government will wish to ensure maximum efficiency of overall resources, but it will also be interested in the fairness a of new system. In addition, from an economic sense, the impact on the country’s balance of trade will be important. The European Economic Community, EEC (nowadays called the EuropeanUnion, E U ) noted in 1986 that: ‘the strengthening of European telecommunications has become one of themajor conditions f o r promoting a harmonious development of economic activities a andcompetitivemarket throughout [European] the community and for achievingthecompletionofthe community-widemarket for [all]goodsandservices by 1992’. 793
  2. 794 REGULATION NETWORK AND DEREGULATION As a result, the EuropeanCommission (the ‘government’of the EEC)set about estab- lishing a European-wide network infrastructure comprising common network standards and a more open competitive market for telecommunications terminals and services. The pressure for reform had been building in countries worldwide for many years, but different governments responded at different speeds and in different ways. The United States led the way in the process of deregulation. As early as 1967, a small company called MicrowaveCommunication Znc ( M C Z ) lodged the with US government’s Federal CommunicationsCommission (FCC) an application toruna common carrier (transmissioncircuit) service betweenChicago and StLouis. The proposed quality of the service was lower than that available leased circuit service of the using the established large (and licensed) carriers, a market dominated by the American Telephone and Telegraph ( A T & T ) company and theBell Operating Companies ( B O G ) . The ‘back-up’ fortheMC1 service was to beminimal,andno subscriberterminal equipment was to be provided (allowing the customer to connect almost anything, as desired), but the benefit was a significantly lower price, being only half the cost of the established service. Encouraged by thesignificantlydifferent nature of the service, and hopeful that competition would stimulate new activity from previously untapped markets, the FCC gave approval for the service in 1969, and went on a year later virtually to force the established common carriers to provideinterconnectionfacilities. A flood of other aspirantcarriersfollowed in MCI’sfootsteps,andthe regulatoryframework for telecommunications within the United States has been changing ever since. A major milestone in United States deregulation was the establishment in 1986 of equalaccess (Chapter 28) for all trunk (or toll) telephonecarriers. As thephrase suggests, the laws of equal access are designed to promote fair and equal competition between thelongdistance inter-exchangecarriers (IECs). They demandthat local telephone companies connect in an equal manner with all licensed carriers who request interconnection. The effectis that local telephone subscribers have a ‘free choice’ of their long distance carrier. Outside the United States, the tide of change had been slower until the 198Os, at which time a number of factors brought pressure on many of the world’s governments to consider deregulation. The pressures were the convergence of computing technology and telecommunications (the Information Technology ( I T ) explosion), and their contribution to nationalwealth and economic growth the reducedcosts and much increased service capabilities made possible by technological progress the high customer expectations, in andparticular demands the of business customers growing customer dissatisfaction with the high prices charged and limited services made available by public telecommunications operators (PTOs) the willingness of private companies to invest venture capital into developing new telecommunications business Together these factors brought about rapid change.
  3. THE DILEMMA OF DEREGULATION 795 44.2 THE DILEMMA OF DEREGULATION Deregulation poses a dilemma for the governments that consider it. Any government will wish to decidethe optimumallocation of thecountry’soverallresources and produce a framework of laws and regulations to encourage both public and private companies to use those resources accordingly. A substantial proportion of a country’s gross national product ( G N P ) may depend on telecommunications, either directly from the sale of telecommunications services, or as a result of business conducted on the telephone. The decisions on the regulatory framework governing telecommunications are therefore crucial. The main dilemma that faces governments is that shown pictorially in Figure 44.1. The question is whether a public service need is best served by a small number of monopolized but strongly regulated public utility companies which have an advantage in their homogeneity of service offerings and in the prices offered over a large geographic area, buttend to be inefficient and slow to respond to change; or whether the publicneed is better served by a more deregulated market, with a larger number of more diverse companies and services, competing for business. The smaller, competing companies will tend to respond more quicklyto technological changes and fluctuationsin the demands of the market. They will also tend to be cheaper to thecustomer, butmay be so because of a compromise in quality. Furthermore, viewed from a government perspective, the companies of a competitive environment may not appear touse the country’s resources efficiently, and may not appear to have an incentive to serve the needs of some crucial but unprofitable markets (e.g. remote rural telephone service). The historical argument has been in favour of a small number of natural monopolies, as we know. Candidate services for a natural monopoly are those in which 0 there is aclearlyestablishedpublicneed fora service of auniformnatureand covering a widespread geographic area S m a l l number o f Larger number of slow, butlargeand homogeneous morereactive, butmaybe publicutilitycompanies smallanddiversecompanies Figure 44.1 Deregulation and the monopoly dilemma
  4. 796 REGULATIONNETWORK AND DEREGULATION 0 there is economy in large scale operation 0 it is cheaper for one firm to serve the market than for two or more 0 the market power of a large company in competition can enable it to control prices and make entry unattractive to rivals 0 the lack of information available to new market entrants and the limited resources of small companies leave them at a significant disadvantage The services which have tended to be protected by governments as natural monopolies, are electricity supply, gas supply, water supply, sewerage, refuse and telecommunica- tions. All have to some extent benefited from the large scale of the operation that has resulted from monopoly. In telecommunications networks the addition of each new customer to the early networks, sometimes disproportionate expense, brought benefit at to the new customerandto establishedusers, forwhomtheavailableextent of connectivity had been increased. Under a natural monopoly it is usual for a government to confer obligations and rights on the companies operating public utility services. These obligations and rights are summarized in Table 44.1. The rights and obligations of public utility companies have historically been closely policed by governments keen to dictate the services which may be offered, the prices whic may be charged, and the profits which may be made. Laudable though this may seem, it slows up the development of the public utility companies and their services and only adds to the inefficiencies, because more bureaucracy is involved in each decision made. The aim of improved efficiency has been a prime motivator for deregulation, the aim being to‘shakeup’theestablishedmonopolycarrier by introducingcompetition. However, most governments’ actions have fallen short of removing all regulations and legal entry barriers, so that some financial protection exists for the established carriers to go on providing unprofitable, but necessary services. The challengeto create a new is regulatory regime thatis simple enough to promote competition,increase efficiency and reduce prices, but without introducing the plethora of legal and bureaucratic barriers that seem necessary to protect unprofitable services. Ideally, the regulatory framework should encourage a greater variety of services, a greater responsiveness to changing customer demands, better quality, and lower costs; all made possible by more efficient use of resources and by new private investment. Table 44.1 The regulation of large public utility companies Obligations 1 To provide service to all who apply, even if unprofitable 2 To provide safe, reliable and adequate service 3 To provide fair terms and prices for service provision Rights 1 To make money and a fair return on investment 2 The right to withdraw services under given conditions 3 In a competitive environment, the freedom and scope to use initiative to create a ‘market edge’ for their services, and be fairly financed for unprofitable services
  5. OPTIONAL METHODS OF REGULATION 797 44.3 OPTIONALMETHODS OF REGULATION Therearetwomainmethods by whichagovernmentmayimposeregulation on industry. The government can control the structure of the industry, dictating either what companies may produce or what services may be operated. Monopolies are often structure-controlled. Alternatively, the de-regulated approach is to control the conduct of companies laying out the actions and behaviours which are permissible. Most regimes comprise elements of both structure and conduct regulation, and real measures are not always easily classified into one of the two types. Structure regulation controls which companies may operate in an industry, typically restricting entry by licensing operators, andby having a strict monopoliesand company merger policy. Conduct regulation controls include those governing restrictive practices and those prohibiting ‘anti-competitive’ acts (such as financial cross-subsidization between two different company products). Conduct regulation requires a ‘policing’ body ensure that companies conform to with their obligations. Under structure regulation, such a body is not necessary, due to the smaller number of active companies, and also because the public utility company is often state-owned anyway. In countries undergoing telecommunications deregulation, the shift in the emphasis of regulation tends to be away from structural control, towards conduct control. Many countriesareestablishing regulatorybodies(regulators) to overseetheconduct of companies in the industry. In addition, itis common for the government to sell off part or all of their ownership of the established monopoly company. The main reason for this is to put the established carrier on an equal business and commercial footing with other new telecommunications market entrants. It affords the company more scope to manage itself, and allows the government to handle competing companiesmore equally. 44.4 TYPES OF REGULATORY BODIES The regulatory bodyneededforpolicing conduct regulations can take one of three forms 0 agovernment department e an independent body, financed by the government or by the industry 0 a self-regulating body, composed of a council of delegates from companies active in the industry Central to the decision as to whichformofregulatorybody is appropriate, is the question of how much information is available to the regulators. A regulator cannot perform the task if unable either to collect or to comprehend information easily. Government and independent organizations have the benefit of neutrality and their desire to see ‘fair play’, but have less information and expertise available to them than would be the case for a body formed of delegates from active companies. On the other
  6. 798 REGULATION NETWORK AND DEREGULATION hand, self-regulating bodies (such as the U K s Law Society) have more information and expertise available, but only work fairly when the body has an interest in preserving a goodreputation.Customers,for example,might not respect the rulingsofa self- regulatory body, set up to control conduct in the second hand car market. Countries may choose different types of regulatory body to oversee telecommunica- tions, but in the United Kingdom and the United States the regulatory bodies are linked to the government. Oftel (the OfJice of Telecommunications) is linked to the UK Department of Trade and Industry ( D T I ) , while intheUnitedStatesthe Federal Communications Commission( F C C ) reports directly to the US congress. This is now the model shared by most European countries, Australia and Japan. A notable excep-tion is theregulatorystructurein New Zealand,wherealltelecommunications-specific regulation was removed, leaving only the standard industry regulating bodies such as monopolies commission, fair trade, etc. Sweden also largely emulates the New Zealand model. 44.5 DESIGNATION OF ‘CUSTOMER PREMISES EQUIPMENT (CPE)’ In nearly all countries, the first step in deregulation was the opening of the customer apparatus (or customer premises equipment ( C P E ) )market to free competition. To do so, the public telecommunication operator ( P T O )is mandated to provide aline from the telephone exchange only as far as a standard socket in the customer’s premises and is deprived of the exclusive right to provide the first telephone handset. The customer is free to purchase terminal apparatus (i.e. a telephone, fax machine or other equipment) from a high street store or some other supplier. He may connect it to the network, provided that it is suitably approved (e.g. marked with a ‘green dot’ or labelled with an ‘approved’ sticker). In countries with open customer apparatus markets, fierce competi- tion prevails, promoting a wide diversity of available equipment and low prices. Only a minimum of regulation is necessary in this market. In general, governments have found it adequate to set up approvals bodies, to verify that new terminal types conform to the network interface and safety standards. This is done at the design and prototype stage of terminal product development, and each manufactured then bears an ‘approved’ unit marking, although it is not individually conformance-tested. 44.6 DEREGULATION OF VALUE-ADDED SERVICES It is not feasible or desirable to open all parts of the market to competition, because certainparts of it can benefit from beinga naturalmonopoly. On the other hand, regulation must include steps to control the market power of thelargeestablished company and its ability to prevent new companies entering the market. In telecommunicationstheproblemhas been tackled by attemptingtoseparate the natural monopoly segments of the market (e.g. the transmission network) from the parts which might benefit from competition (the value-added network services ( V A N S ) and customer premises equipment ( C P E ) markets).
  7. SERVICES COMPETITION IN BASIC 799 The definition of value-added services or value-added network services ( V A N S ) varies from country to country, but it is generally worded to cover any service falling outside the definition of a ‘basic transmission service’. Thisdefinitionallowsentre- preneurial companies to establish services at a premium price based on network and transmission equipment leased from the PTO. Examples of value-added services include 0 entire managed networks (these are networks in which a VANS supplier contracts to provide services akin to those on a ‘private’ or corporate network, in essence taking over the role of the customer telecommunications manager); the added value is the ‘management’ provided 0 recorded information services (e.g. ‘speaking clock’ or share price news) 0 storeandforward message service 0 telephoneconference service 0 voicebank service (message recording service) In nearly all deregulated countries, providers of value addedservice are not usually permitted to provide the transmission equipment between premises, though sometimes they are permitted to resell the ‘basic services’ (e.g. the simple telephone service), at a straight markup. In some countries, basic services are protected as the sole province of the public telecommunications organizations (PTOs). The situation may changein due course. In the United States many of the long distance telephone carriers established themselves in the mid-1980s by reselling telephone service based on their own purchase of freephone and leased line facilities. They used the bulk traffic discount available on the latter services as a way of creating a margin for under-cutting the normal telephone tariffs. Unfortunately, the quality of such services was sometimes seriously impaired. Other observing governments have steered their ‘deregulation paths’ to avoid this, but resale is bound to be permitted when the markets are more mature. In the UK, the government gave the PTOs British Telecom and Mercury Communications five years respite from the simple resale of telephone service when they were first licensed in 1984, but on 1 July 1989 decided that this protection was no longer necessary, because both operatorshad been given plenty of time toprepareforthe greatercompetition demanded by major users. 44.7 COMPETITION IN BASIC SERVICES As a pre-requisite to the licensing of a new carrier, many new legal regimes demand massive financial strength of the new entrant, since heavy capital investment is required to establish a viable network, and the government is keen to ensure protection of both investor and customer interests. For this reason, in the United Kingdom only one new major PTO was initially licensed to compete with the previously established operator, BritishTelecom ( B T ) . The first new PTO was Mercury Communications Limited. It received a similar licence to British Telecom, enabling itto provide transmission plant and ‘basic’ telecommunications services. It is backed by the might and telecommunica- tions expertise of its parent, Cable and Wireless, but when originally set up it also had
  8. 800 REGULATION NETWORK AND DEREGULATION the financial backing of Barclays Bank and British Petroleum ( B P ) . Since the early 1990s manymorecompanies have been licensed,butineachcaseOftelneeded to confirm the expertise and financial credentials of each. In the United States and Japan scores of toll (or trunk) carriers are now operating, as well as a small number (3-10) o f international carriers. Other countries are following suit. In the countries of the European Union (EU), for example, a council mandate requires complete deregulation o f the public telecommunications market by 1 January 1998. The refusal of public operating licences by a national regulator is only permitted where thecompetence or financialstrength of thecompany is in doubt or where resources (e.g. radio bandwidth) are not available in sufficient supply to support the proposed business concept of an applicant new operator. 44.8 THE INSTRUMENTS OF PTO REGULATION Historically, PTOs tended to operate in all areas of the market; not justin basic service provision, but also in the value-added service domain and in the provision of customer apparatus. Special regulatory measures may therefore be necessary so that companies newly entering the market are not disadvantaged because they are small, or because they only compete in one domain of the PTO’s business. The regulations ensure that new companies can gain a fair foothold the market. Two forms conduct regulation in of can have this desired effect 0 price control: to prevent cross-subsidy of PTO services 0 enforced separation of the PTO’s business units into ‘basic network services’, value- added services, and ‘provision of CPE’: to prevent unfair advantage because of the greater availability to the ex-monopolist of market information An effective but flexible method of price control is based on the formula shown in Table 44.2. By applying the formula not just to the price of a single service, but alsoto the prices of a ‘basket’ of basic telecommunications services, a degree of flexibility is permitted to Table 44.2 PTO pricecontrol Price riselimited to: RP1 -X+ Y RP1 - Retail Price Index (Government index of inflation) X - expected potential for PTO cost reduction from its own improved efficiency Y - reflects the increase expected in uncontrollable PTO costs. (This factor is more pertinent to other public services, e.g. electricity generation, where the cost of oil/gas is outside the generating agency’s control.
  9. THE INSTRUMENTS OF PTO REGULATION 801 the PTO, to temper price rises between a number of similar services. Thus the formula may apply to the overall price of a number of services. One rise service may increase in price at a ratehigher than the RP1 provided some otherservice has little or no price rise in compensation. Enforced separation of the PTO’s business units into sub-organizations dealing with ‘basic network services’, ‘value added services’, and ‘provision of customer premises equipment (CPE)’ using ‘Chinese walls’, helps to reduce the overwhelming and unfair market power that the PTOs would otherwise have over new entrants in each of the sub-markets. A regulated code of conduct prevents the PTO from linked sales, from unfair cross-subsidization of services and from unfair use o information. A linked sale f would include a practice such as ‘preferential network charges provided that you buy your CPE from us’ or ‘receive a large reduction on your CPE when you buy a new ISDN linefrom us’. Cross-subsidization is where the price of one service is kept artificially low by the profits from another service. Unfair use of information includes ‘tip-offs’ from one part of the business to another. A ‘tip-off from the part of a PTO which supplies exchange lines to the part selling customer apparatus, would enable the latter to cornerthemarket in CPE, largelypreventingpotentialcompetitorsfrom bidding. Figure 44.2 illustrates the enforced separation of a PTO’s business units. Each is forced to operate in a manner independent of the others, with cross-subsidization and unfair use of information being prohibited. In practice such clean breaks aredifficult to maintain, and we can expect some arguments, not least over the funding of standards development work (this will affect service and CPE prices) and the ownership of new technology ideas. Critical aspects to be covered by any new de-regulated form of market stucture are the regulations covering 0 interconnection betweennetworksofdifferentoperators, to ensurethefullcon- nectivity of all customers 0 pricing control, to ensure in particular that ex-monopolists are not able unfairly to exploit their dominant market positions PTO Corporate HQ administrative I resources n 1 I Customer Value- telecommunications premises added (network) equipment service service provider provider Figure 44.2 Enforced separation of PTO business units
  10. 802 REGULATION NETWORK AND DEREGULATION the securing of universal service (‘a phone for everyone’) and its funding (e.g. by obligating ex-monopoly operatorsto continue to provide andfinance it, to take over the financing from the state, or to establish a universal service fund to which all active operators are required to contribute) fair means of ‘equal access’ to customers. Nowadays equal access is expected not only with respectto dialled accessof long distance traffic, but also with regardthe to use of shared ducts and cables with the ex-monopoly operator with regard to direct connection of customers to the network (we discussed this in Chapter 28) the use of radio frequencies and applicable charges for their use 44.9 EUROPEAN TELECOMMUNICATIONS DEREGULATION As part of the EEC programme to generate asingle European market for all products and services by 1992, removingall tradebarriersbetweenthememberstates,the European Commission issued a green paper in 1986 laying out plans for a European- wide network infrastructure for telecommunications services. An ambitious programme overtheperiod up to 1992 intended to bring about a community-widemarket for customer apparatus and ‘portability’ of equipment, by setting up a common set of network interface standards and introducing a single approvals mechanism for CPE. In addition, an ongoing period of long term R&D and EEC government investment will ensure harmonization of the constituent national networks. The green paper of 1986 laid out aframework of recommendations to the governments of member states. The objectives were to 0 encourage the development of new services and customer apparatus, so stimulating general economic activity in and between member states 0 encouragemarketconditionsfavouringinnovation 0 stimulate the growth of value-added and information services, as these were forecast to have a major impact on the future speed and tradeability of other industrial services, as well as on the potential geographic locations for economic growth 0 give widecustomerchoice 0 provide employment and economic growth 0 conform with social obligations both within and between states The framework laid out by the EEC recommended 0 the protection from competition of a small number of licensed public telecommu- nications operators (PTOs) to run the basic services and network infrastructure 0 regulated competition in value-added and information services 0 European-wide network interface standards and a common approvals procedure for network attachments
  11. ULATION ECOMMUNICATIONS EUROPEAN 803 0 strict guidelines concerning the conduct and policing of these guidelines 0 an open market for customer apparatus (network attachments) 0 separation of PTO activities by ‘Chinese walls’ between those parts of the business acting as a basicservice provider, value-added service provider, customer apparatus provider, and any other part acting on behalf of the regulatory authority (some PTOs have been assigned the job of performing network attachment approvals) 0 continuous review of PTO’s conduct and performance on basic service provision, to ensure that the monopoly position is not abused 0 continuous conduct review of value-added providers Following the green paper of 1986, the objective of a single market for telecommunica- tions in Europe was endorsed by the Council of Ministers on 30 June 1988, and subsequent directives (mandates to European Union states) and green papers have been issued covering the regulation of 0 terminal equipment 0 telecommunications services, according to open network provision ( O N P ) 0 network infrastructure 44.9.1 Regulation of TerminalEquipment For the regulation of terminal equipment, a number of directives were issued with the following objectives 0 the creation of an entirely open market for connection and maintenance of CPE 0 the loss of the PTO’s exclusive right to provide CPE by the end of 1990 0 the establishment of user access to public network ‘terminal/network access’ points 0 the establishment within member states of independent bodies to oversee technical specification, licensing, type approval, etc. (approvals bodies) 0 the right of customers dissolve term to long contracts concluded during the monopoly era The first terminal equipment directive was 86/361/EEC of July 1986, establishing the mutual recognition by member states of equipment type approval. 44.9.2 Regulation of Telecommunications Services, and Open Network Provision (ONP) In the telecommunications services field, a number of directives required 0 the removal of virtually all restrictions on competitive value-added service provision
  12. 804 REGULATIONNETWORK AND DEREGULATION 0 the review (in January 1992) of the need for continuing the exclusive rights of PTOs to provide the basic network infrastructure and the basic telephone service. This review concluded that further steps towards deregulation and further competition even in ‘basic services’ and network infrastructure should be commenced A code of rules known as O N P (open network provision) was established to define the conditions under which all the basic public telecommunications in each member state should be opened up to rival private service providers. The ONP framework is the responsibility of asubgroup of theEuropeangovernment, called G A P (Groupe d’Analyse et Prevision, in English the Group of Analysis and Forecasting). The goalsof ONP (open network provision) are 0 to harmonize access to the public telecommunications networks of Europe 0 to create a common framework for open use of the networks The first draft directive (AS ART 100A) covering ONP was agreed in principle by the European council of ministers on 6 February 1990 and the full directive cameinto force in mid-1990. Three main areas are proposed for harmonization 0 technical interfaces 0 usage conditions (e.g. provision time, contract period, quality, maintenance, fault reporting, resale, operating procedures of interconnection) 0 tariff principles ONP applies to all PTOs (public telecommunications operators). Ultimately ONP will regulate all types of servicesand networks, but initial prioritywas given to leased lines, data networks and ISDN. More recently, considerable effort has also been applied to broadband,mobile and intelligent network ( I N ) services. ONP demandsthatPTOs offering these services do so under published conditions which are objective, equal on both parties and non-discriminatory. Limitations in the contract may relate only to essential requirements such as safety and security. 44.9.3 DeregulationofTelecommunicationsInfrastructure By the end of the 1980s, European Union (by then the European Community) directives had already mandated the opening of the value-added service sector. This step allowed new innovative service operators to start providing information-type services. More significantly, however, this mandate also deregulated and opened to competition the public data networking sector. This created scope 1989 for the appearanceof the first by pan-European X.25-based packet switched data networks and managed data networks. Thepublic telephone monopoly and transmission the infrastructure monopoly, however, were allowed to be retained within individual member states, according to national political will.
  13. ULATION ECOMMUNICATIONS EUROPEAN 805 Some European countries,notably United the Kingdom had by 1989 already deregulated most of the telecommunication sector. Indeed in 1989 the UK regulator decided that further operatorsbeyond previous the duopoly operators should be licenced (so-called duopoly review). Although other European states were agreeing new proposals for deregulation, these were not so far reaching as those in the UK at the time. The German proposals for the Post Reform 1, agreed by the Bundestag in April 1989, for example, laid out the steps for re-structuring the Deutsche Bundespost (the post and telecommunication monopoly) and introducing service competition for data services. The public telephone monopoly and the transmission infrastructure remained in place, effectively even blocking corporations from the ability to operate their own ‘private’ internal company telephone networks. Thecontinuing will of the European Commission for deregulation broughtthe directive for Corporate Networks in 1992. This forced member state governments to relax their telephone monopolies to allow the operation of private telephone networks within corporation closed user groups (i.e.internalwithinthecorporationand to suppliers and customers). Finally,in 1995 the green paper on theliberalization oftelecommunicationsinfra- structure and cable television networks approved. This out theprinciples, timescale was set and measures to be undertakenby member state governments within the European Union for ‘complete’ deregulation their telecommunications markets. Key points the green of of paper were 0 requirement for the removal of the transmission infrastructure monopoly by l July 1996 0 requirement for the removal of the public telephone switching monopoly by 1 July 1998 0 specific rules regarding the regulation of communications content, specifically aimed at controlling potential dangerous monopoliesbeing established between, for example, television programme producers and cable TV distributors; the content rules also aim to control levels of quality and public decency Specific details of the green paper and the directives which resulted from it over the period up to early 1996 included the requirement for open, non-discriminatory and transparent licencing procedures for new operators the requirement for the numberof licences not to be restricted, except as determined by ‘essential requirements’ thedefinition of theselectioncriteriapermissibleintheaward of licences and authorizations guidelines on acceptable regulatory and financing measures for ‘safeguarding and developing a universal service the definition of the regulatory framework for interconnection and interoperability between public network operators
  14. 806 REGULATIONNETWORK AND DEREGULATION 0 the rules of open access to infrastructure, the application of the ONP guidelines and competition rules 0 the regulation of rights of way (for laying cables), radio frequencies and network numbering resources 0 the maintenance of a national directory 0 the requirements data for protection the and guidelines regarding intellectual property rights (IPRs) 0 the establishment of national regulatory authorities ( N R A ) and their responsibilities Table 44.3 gives a brief summary of the current state of telecommunications regulation within the European Union member states. 44.10 INSTRUMENTS OF UNITED KINGDOM REGULATION Within the UK the following legislation applies to telecommunications. The British Telecommunications Act, 1981, and the Telecommunications Act, 1984, provide the main legal instruments in the UK. The 1981 act set up British Telecom (the former monopoly network operator) as a private company separate from the Post Office. The 1984 act introduced the framework for competition. Under section 7 of the 1984 act, whichallowsthe Secretary o State andthe DirectorGeneralofTele- f communications ( D G T ) to licence PTOs, British Telecom was granted the scope to act as a public telecommunication operator for provision basic services. Under its of licence British Telecom (BT) is required to continue to provide service throughout the UK, to provideruralservice,directoryenquiryservice,publiccallboxes,andemergency services (999, Police, FireService and Ambulance). BT must publish standard terms for the provision of service, it must wire customer premises in such a way that it does not constrainthechoiceofCPE,and BTis not allowed toundertakeunfair cross- subsidization of services. In addition the BT licence gives the regulator a number of powers for undertaking quality checks and ensuring fair trading. A number of other carriers have also been licensed as public telecommunications operators (PTOs) under section 7 of the 1984 act. The first of these was issued to Mecury Communications Ltd (MCL), the other initial duopoly operator. Mercury has an equivalent license to that of British Telecom and it provides competition for basic services, including long distance calling and international network services. Initially, other licences were relatively restricted: 0 theTelephoneDepartment of the city of Kingston-upon-Hull run (who the telephone service in that city, now called Kingston communications) 0 a number of cable television operators 0 the cellular radio telephone companies, Vodafone and Cellnet 0 the public cordless telephone operators then appearing (CT2 operators)
  15. INSTRUMENTS OF UNITED KINGDOM REGULATION 807 Table 44.3 Current European Union telecommunications regulations and regulators Legislation governing Country telecommunications Regulatory agency Approvals body Austria Telecoms bill due 1996 Belgium Two new laws expected Belgian Institute for Belgian Institute for 1996 to end infrastructure Telecommunications Telecommunications monopoly and allow operator licensing due 1996 Denmark Telephone and Telegraph Ministry of Research Telelaboratoriet Act,1987 National Telecom Agency Total liberalization, 1996 Finland Telecommunications Act, Ministry of Transport and Telecommunications 1987 Communications; Administration Centre Telecommunications Administration Centre France New law. 1996 Direction de la CNET Reglementation Generale de Postes et Ttltcommunications DGPT) Germany Telekommunikations- Bundesministerium fur Bundesamt fur Zulassung gesetz, (TKG), 1996 Post und in der Telekommunikation Telekommunikation (BZT) (BMPT) Bundesamt fur Post und Telekommunikation (BAPT) Greece Greece granted 5 year Ministry of Transport and National extension to 2003 to Communications Telecommunications expand existing network Committee (NTC infrastructure Ireland Italy Telecommunications law, Minister0 delle Poste e Instituto Superiore Poste e due1996 Telecommunicazioni Telecommunicazioni (MW Luxembourg Deregulation delayed until 2000 Netherlands Telecommunications Ministry of Transport, Telification B.V. Structure Reform, 1989 Public Works and Water Telecommunications Law Management; Norway (not Ministry of Transport and Statens Teleforvaltning European Union) Communications; Statens (=F) Teleforvaltning (STF)
  16. 808 REGULATIONNETWORK AND DEREGULATION Table 4 . (continued) 43 Legislation governing Country telecommunications Regulatory agency Approvals body deregulation Portuguese Portugal delayed until 2000 Spain Law organizing Ministry of Public Works, Direccion General de Telecommunications Transport and the Telecommunicaciones (LOT), 1987, 1990 Environment (DGT) Direccion General de Telecommunicaciones (DGT) Sweden Orientation of and Post Post and Telecommunications Telecommunications Telecommunications Policy,1989 Authority Authority Switzerland (not Federal Department of Bundesamt fur European Union) Transport, Kommunikation Communications and (BAKOM) Energy; Bundesamt fur Kommunikation (BAKOM) Kingdom Department United British of Trade and British Approvals Board Telecommunications Act, Industry (DTI) for Telecommunications 1981 Telecommunications Office of (BABT) Act, 1984 Telecommunications (Oftel) However, since the duopolyreview in 1989 many more operators (PTOs) have been licensed. The terms of each licence constrain the PTO’s operationof services and professional conduct. All telecommunications network and systems other than those owned by PTOs are, by definitionof theTelecommunicationsAct, privatetelecommunicationssystems. As such they need to be licensed and must conform with the provisions of the relevant licence. To obviate the need for cumbersome licensing of each individual telecommu- nication system, a number of class licences were issued. The initial class licences were the Branch Systems General Licence ( B S G L ) and the Value-Added and Data Services ( V A D S ) licence. However, revision in November 1989 of the BSGL meant that the VADS licence becamesuperfluous, and was thus withdrawn. Later, the BGSL was replaced by the telecommunications services licence and the self-provision licence. The latest versions of these licences were published on 9 September 1996. The split into licences aimed separately at service operators and at users meeting their own needs (self-provision) reflects a general trend among regulators to focus on the conduct of the different distinct types of network operator.
  17. ATION UNICATIONS UNITED STATES 809 The self-provisionlicence is the general class licence allowing any user to connect telephones, private branch exchanges (PBXs), or any otherbranch system equipment to the network. It is a ‘catch-all’ licence which allows every plain old telephone user useto the phone legally. The provisions of the class licence are such that most users need not register. Instead, the granting of a licence may be assumed unless there has been a specialrevocation.The self-provisionlicence applies tothevastmajority of tele- communications systems in the UK, i.e. those run in a single building, on a campus or in a corporate network. The network code ofpractice ( N C O P )which used to regulate the technical aspects of interconnecting private and public networks under BSGL, thereby governing the quality of connections and disturbance to the public network caused (e.g. by re-dialling) under the BSGL is no longer mandatory. Instead there is much greater scope for users to decide for themselves about the quality of connections they are prepared to live with and the reliability of the CPE they wish to connect. The telecommunicationsservicelicence coversvalue-addedserviceproviders and network resellers, parties using the lines of the individually licenced carriers to provide public telecommunications services. Under both class licences only approved apparatus may be connected to a public network. Unapproved equipment may be connected by means of an approved barrier box whichprovides forprotectionofthenetworkagainstspuriousmainsvoltages generatedin error by the CPE. The technical standards for network interfaces are lodged by PTOs with the British Approvals Boardf o r Telecommunications ( B A B T ) ,who must approve equipment for network attachment. Other than the need for network attachment approval and for conformance with normal quality andsafety standards, there is little constraint on the market in customer premises equipment (CPE). Overall, the whole telecommunications market is regulated by the Ofice of Tele- communications (Oftel),which is part of the UK government’s Department of Trade and Industry ( D T I ) . 44.11 UNITEDSTATES TELECOMMUNICATIONS REGULATION Telecommunications regulation, as all other United States law, is complicated by the two-tier federal (interstate) and state governing bodies. Thus although federal laws and regulations apply, these may be supplemented in each state with further local laws. The FCC (Federal Communications Commission) is the independent United States government agency, responsible directlyto Congress, and chargedwith regulating inter- state and international communication by radio, television, wire, satellite and cable. The FCC Chairman is designated by the President. The jurisdiction of the FCC covers the 50 states plus the Islands. Its responsibilities and rulings may be categorized into seven broad areas 0 radio regulations for commercial and amateur radio 0 broadcast services andbroadcaststations 0 other radio services (e.g. aviation, marine, public safety)
  18. 810 REGULATIONNETWORK AND DEREGULATION 0 common carriers (i.e. telephone and similar service companies) 0 radio licence restrictions 0 call signs 0 international matters The prime instruments of federal regulation are 0 the communications act o 1934 and its amendments, notably the telecommunications f reform act o 1996 f 0 FCCreportsanddecisions 0 FCCannualreports 0 FCC registers (of Notices of proposed rulemaking decisions and policy statements) 0 the Code of Federal Regulations (CFR) Copies of all these documents are available from the US Government Printing Office (GPO) at Address US Government Printing Office (GPO) Superintendent of Documents Washington DC 20401 United States of America Tel: (1)-202-783-3238 In particular, title 47 of the code of federal regulations (CFR) details the FCC Rules and Regulations, as shown in Table 44.4. The Rules and Regulations lay down the operating constraints and procedures to be followed by companies providing inter-state and foreign communications services and by customers using them. Applications for construction new facilities, licence of new of Table 44.4 The FCC Rules and Regulations (Title 47 of the Code of Federal Regulations (CFR)) Vol. I Parts 0-19 Commission organization, and practice procedure. Commercial radio service and frequency allocations Vol. I1 Parts 20-39 Common carrier services Vol. I11 Parts 40-69 Common carrier services Vol. IV Parts 70-79 Mass media services Vol. v Parts 80-end Private radio and direct broadcast satellite services
  19. TELECOMMUNICATIONS UNITED STATES REGULATION 811 services, discontinuance of old services, and tariff amendments for new or existing services must be made direct to the FCC, accompanied by the relevant fee, Policies and rule-making reflect the applications made. The address of the FCC is given in Chapter 40. Prior to the reform act 1996 the federal regulations governing telecommunications of in the United States had largely come about as the result a number of major judicial of rulings, each plaintiff generally seeking a relaxation in the rules add to thatachieved to by a predecessor. Until the early 1950s the telephone companies in the United States, dominatedby the Bell Telephone System, dictated the services that were available to customers, and laid down strictconditionsabout theiruse. In general,thesewerequiterestrictive,for example even going so far prohibiting as subscribersfromattachingsubscriber- provided equipment to a telephone company circuit. However, in 1956 a US circuit court of appeals overturned an FCC ruling that had permitted the Bell Telephone system to prevent a subscriber from attaching a non-Bell device to his telephone. The device was the Hush-a-Phone, a mechanical device that clipped onto the handset. This commenced a period of relatively rapid regulatory change. In June 1968 a new ruling of the FCC prohibited the Bell System from preventing subscribers using an acoustically-coupled (i.e. sound-interconnected) device known as the Carterfone. The Carterfone was designed to interconnect private mobile radio units to the fixed telephone network without special and expensive equipment. The decision opened the way for datacommunication over the telephone network, and in 1969 the FCC allowed independently manufactured (non-Bell) modems to be used on the public network. By 1976 the FCC had introduced their equipment registration program. This enables devices produced by non-telephone company manufacturers be used on thetelephone to network, provided that they meet certain stipulated specifications. The specifications are intended to ensure that terminal equipment does not cause physical or electrical damage to the network, does not injure telephone company employees and does not impair the service of other users. The first real telephone network competition for the Bell System came in 1969 with the MC1 private wire service. However, by the early 1980s competition was building rapidly in the resale of long distance telephone service, and there was growing pressure to reduce the monopoly privileges of the AT&T/Bell company. The pressure led to the drawn out AT&T anti-trust suit, and finally to Judge Green’s mod$edfinal judgement which concludedit.The mod$ed jinal judgement was the vehicle for AT&T (Bell company) divestiture, breaking the company up into AT&T (as a long distance carrier and equipment manufacturer) andseven Regional Bell Operating Companies (RBOCs). The seven RBOCs (Ameritech, Bell Atlantic, Bell South, NYNEX, Pacific Bell, Southwestern Bell and US West) were of roughly equal asset size and were established to take over the local call transport services of the former AT&T/Bell company. The RBOCs,however, were prohibitedfromprovidinglongdistanceservicesandfrom manufacturing equipment. Meanwhile AT&T was prohibited from local call transport services and from activity as a yellow pages operator. As a toll provider, AT&T competes with a number of other licensed toll telephone service providers, principally MC1 and US Sprint. To ensure fair competition between them, the FCC laid down equal access regulations governing the access arrangements
  20. 812 REGULATION NETWORK AND DEREGULATION with the localtelephonecompanies.Thesecameinto full forcein 1986, butpara- doxically the framework was not seen by all as entirely equal, because AT&T as the established and ‘dominant’ carrier was necessarily subject to greater regulation to curb its de facto monopoly strength, but had an established customer base and considerable assets. The domains of toll trafJic and local call transport are defined according to whether callspassbetween or remainwithinasmallgeographical area known as a LATA. About 160 L A T A s (local access and transport areas) make up the United States. Toll calls (inter-LATA) are those which cross LATA boundaries and were, until the reform act of 1996, the sole province of inter-exchange carriers (ZECs). Meanwhile, local (intra- LATA) calls were (until the 1996 reform act) the domainof local telephone companies. Toll carriers come under federal jurisdiction, whereas local telephone companies are largely governed by the regulations of the relevant state public utilities commission. Individual state Rules and Regulations need to be interpreted separately as they affect inter- and intra-LATA telecommunications services. Application is suggested directly to the relevant state agency. Federal telecommunications legislation was greatly overhauled by the telecommuni- cations reform act of 1996. The main provisions of this legislation were 0 the first reform of United States communications law since 1934 0 the ending of the monopoly in local telephone services (the RBOC monopoly over local lines and intra-LATA traffic) 0 the introduction of greater customer choice in selection of cable TV companies, as both local and long distance providers can now provide these services 0 the stimulation of ‘advanced’ digital television services 0 new rulessettingout criminal and civil penalties on dissemination obscene of information, particularly on the Znternet Table 44.5 Review of leading deregulated telecommunications markets outside Europe and USA Legislation governing Country telecommunications Regulatory agency Australia General policy framework, 1988 Austel Canada RailwayAct, 1906 validuntilearly 1990s - Competitive basis for National Common Carriers (NCCS), 1987 Japan Telecommunications Business Law, 1985 MPT (Ministry of Posts and NTT Law, 1985 Telecommunications) New Zealand Law from 1 April 1989 removed, now Normal trading regulators subject only to normal industrial trading laws and regulations
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