COMMENTS ELECTRONIC COMMUNICATION BILL VDRAFT 30/10/12 NATIONAL TELECOMMUNICATIONS REGULATORY COMMISSION ST. LUCIA

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1 COMMENTS ELECTRONIC COMMUNICATION BILL VDRAFT 30/10/12 NATIONAL TELECOMMUNICATIONS REGULATORY COMMISSION ST. LUCIA By to: 14 March 2014

2 I. Introduction 1. Cable and Wireless St. Lucia Limited trading as LIME ( LIME ) is pleased to provide the following comments in respect of the Electronic Communications Bill (the Bill ) published 30 January LIME expressly states that failure to address any issue raised in the Bill does not necessarily signify its agreement in whole or in part on that issue. LIME reserves the right to comment on any issue raised in the Bill at a later date. 3. LIME s response consists together of the proposed amendments made in the Bill itself and attached as Appendix II and this response. 4. LIME agrees that current legislation should be amended to reflect changes that have occurred in the sector so as to ensure that legislation in the region keeps pace with local and global developments. LIME is also of the view that amendments are required to bring the current legislation in line with international best practices. The text of the Bill, however, reflects a rearward-looking approach to communications regulation aimed at the liberalization stage of the market, and inadequately reflects the progress that has been made towards a more competitive telecommunications industry in the region, international developments and a vision for the future. 5. LIME s comments on the Bill below will address the following topics or matters: o Reliance on Market Forces o Forbearance and Regulation of Competition o Licensing o Unlicensed Service Providers and Bypass Page 1

3 o Interconnection o Codes of Practice o Fines, Compensation and Costs 6. On a preliminary note, the definition of universal service to include (d) other service by which people access efficient, affordable and modern electronic communications is too broad and vague, and could be replaced by such services from time to time determined by the Minister and published in the Gazette. 7. For convenience, a summary of LIME s recommendations is appended to this document as Appendix I. II. LIME s Comments Reliance on Market Forces 8. LIME submits that the Bill should reflect the trend towards greater reliance on market forces in the regulation of the electronic communications sector, as well as bedrock principles of proportionality and technological and competitive neutrality. 9. Although the Bill would now apply to all electronic communications as opposed to just telecommunications, which is the case of the current legislation the objectives clause continues to reflect traditional concerns in the regulation of the telecommunications industry specifically. This does not reflect the structural evolution in the global communications industry, from monopolistic, discrete telecommunications and broadcasting markets, to converged markets featuring total competition among mobile and fixed providers employing integrated, IP networks capable of carrying voice, data and audiovisual programming. Page 2

4 10. Yesterday s legislation and policy, aimed at liberalising former monopolistic segments through heavy-handed and intrusive economic regulation of incumbents in particular, has largely accomplished its goal. What is now needed is a new policy and law that embraces current trends in telecommunications regulation, and is based on bedrock international best practice and principles. In particular, modernized communications legislation should embrace greater reliance on market forces in lieu of intrusive economic regulation. 11. Imposing economic regulation when it is not necessary imposes costs on society, including for example the costs of administering, monitoring, and periodically assessing regulations, pricing mechanisms and agreements. These costs are ultimately passed on to consumers, suppressing demand for retail telecommunications services, and reducing economic welfare. 12. The trends toward greater reliance on market forces and forbearance in regulation of telecommunications prices are consistent with tenets of good regulation generally, which include the notion of proportionality i.e. that regulation should be minimally intrusive. As the OECD has stated: Approaches to regulation that are trade-friendly and avoid unnecessary burdens on economic actors can be achieved in various ways, for instance by assessing whether a proposed measure is the least restrictive option reasonably available for efficiently achieving a regulatory objective; by basing regulation on performance rather than design criteria; by taking account of the equivalence of other countries regulatory systems in meeting a given regulatory objective; by doing away with duplicative or outdated requirements; and by embracing regulatory alternatives where appropriate The principle that market forces should be relied on in lieu of regulation where possible is applicable to the economy generally, but it has particular relevance in the 1 OECD, APEC-OECD Integrated Checklist on Regulatory Reform: A Policy Instrument for Regulatory Quality, Competition Quality and Market Openness, 2005 at p. 28. Page 3

5 context of the regulation of telecommunications. In the United Kingdom, Ofcom s approach to regulation is based on seven regulatory principles, which, among other things, emphasize reliance on markets where possible and operating with a bias against intervention. 2 The following principles are relevant: Ofcom will regulate with a clearly articulated and publicly reviewed annual plan, with stated policy objectives. Ofcom will intervene where there is a specific statutory duty to work towards a public policy goal which markets alone cannot achieve. Ofcom will operate with a bias against intervention, but with a willingness to intervene firmly, promptly and effectively where required. Ofcom will strive to ensure its interventions will be evidencebased, proportionate, consistent, accountable and transparent in both deliberation and outcome. Ofcom will always seek the least intrusive regulatory mechanisms to achieve its policy objectives. 14. In Canada, the Governor in Council has the power to make directions of a general policy nature to the Canadian Radio-television and Telecommunications Commission (the CRTC ). Due to its concern with the interventionist nature of the CRTC s regulation of the services of incumbent telecommunications service providers, in 2006 the Conservative Government of Prime Minister Stephen Harper issued a sweeping policy direction to the CRTC (the Policy Direction ), requiring that market forces should be relied upon to the maximum extent feasible and that when relying on regulation, measures should be used that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the 2 Ofcom, Principles for economic regulation - Response to the Department for Business, Innovation and Skills call for evidence, 18 February 2011, available at Page 4

6 minimum extent necessary to meet the policy objectives. 3 In addition to the foregoing principles for determining whether regulation is appropriate, the Policy Direction provides criteria that should be applied when the CRTC does rely on regulation. Namely, the CRTC should use measures that meet the following criteria, among others: If they are of an economic nature, neither deter economically efficient competitive entry into the market nor promote economically inefficient entry; and If they are not of an economic nature, to the greatest extent possible, are implemented in a symmetrical and competitively neutral manner. 15. The Policy Direction also articulates regulatory practices to enable the CRTC to act in a more efficient, informed and timely manner, including to use only tariff approval mechanisms that are as minimally intrusive and as minimally onerous as possible. In fact, the CRTC has embraced the Policy Direction, and has taken successful steps to shift Canada s telecommunications regulatory framework towards greater reliance on market forces. 16. LIME commends the regulatory principles followed by Ofcom and directed by the Government of Canada as being exemplars of international best practice in the regulation of telecommunications markets. All efforts must be made to ensure that where regulation is employed, it is effective, efficient and proportionate. This requirement for proportionality is especially important to ensure that ex ante measures are not employed which are unnecessarily restrictive and may have the effect of stifling innovation, investment and the offering of competitive alternatives to consumers. 3 Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, SOR , 14 December Page 5

7 17. A good example of disproportionate regulatory measures with such adverse impacts is requiring tariff approval of bundles and market promotions. These measures have been applied in the past to LIME s services in a manner that is not only disproportionate but also favors new entrants employing different technological platforms, such as wireless or cable networks. In the face of rapid technological change in the communications industry, regulations should be applied in a technologically and competitively neutral manner that ensures the marketplace and not regulators chooses winners and losers, and thereby determines which services will ultimately be available to consumers. LIME recommends that language be added to the Bill, clarifying that: market forces be relied on to the maximum extent feasible; regulation should be both effective and efficient; and where regulation is relied on, it must be implemented in a manner that is proportionate, and both competitively and technologically neutral. Forbearance and the Regulation of Competition 18. Pursuant to Section 11 of the Bill, the National Telecommunications Regulatory Commissions (the NTRC or the Commission ) are given very broad functions, including that to regulate the prices for services. In turn, Section 12 of the Bill grants the Commission the power to do all things necessary or convenient to be done for or in connection with the performance of its functions subject to the Act. What is missing from the Bill is the necessary corollary, which is the obligation for the NTRCs to forbear from regulating prices for services where there is no market failure and therefore the rationale for regulation is absent. This represents a major lacuna in the Bill that puts it at odds with modern telecommunications legislation. Page 6

8 19. The lack of a forbearance power in the Bill is exacerbated by the competition provisions that have been inserted in the Bill, commencing at Section 53. This section appears to incorporate an entire competition law code specific to the electronic communications industry. This fundamentally goes against the trend in current regulatory reform that advocates replacement of sector-specific regulation with the application of general competition law, applicable to all industries. Even in the absence of omnibus competition or antitrust laws in the Eastern Caribbean states, however, there appears to be little rationale for the specific provisions set out in the Bill which appear to be quite ad hoc and unorthodox, and would give the NTRCs draconian powers without the balance of forbearance. (a) Forbearance 20. Regulation of telecommunications markets was first introduced in order to counter the market power of monopolists, in other words, market failure arising from a sole supplier in what was viewed as a natural monopoly. Regulation was therefore aimed at emulating competitive outcomes in the absence of market forces. However, it is axiomatic that regulation is a poor substitute for the benefits of a workably or effectively competitive market. The ict regulation toolkit states the position succinctly: Regulation is not a panacea. While it may address market power concerns, regulation comes with costs. Where it is possible, effective competition will generally deliver better outcomes than regulation This is particularly true in a rapidly changing technological environment, where regulation may blunt innovation and investment, and may send false signals to the market by encouraging inefficient entry and discouraging the most efficient 4 World Bank, ITU, and InfoDev, Telecommunications Regulation Handbook, 2011, at section , available at Page 7

9 allocation of resources. It is universally recognized that regulation is not costless to society. 22. The conclusion reached by regulators and policy-makers worldwide is therefore that regulation must not be pursued for regulation s sake, and in fact should only be used where it is absolutely necessary in order to prevent market failure. 23. In Canada, the CRTC concluded as early as 1994, at the outset of the introduction of competition in that country, that [R]egulation should focus primarily on services supplied on a monopoly (or near monopoly) basis or in markets that are not yet workably competitive. Where markets are sufficiently competitive, market forces are generally preferable for governing the behaviour of telecommunications service providers With the growth of competition across all communications markets, the concept of regulatory forbearance has been embraced in order to express the related ideas of focusing regulation to where it is needed and withdrawing regulation in those parts of the market where it is no longer necessary. The concept of regulatory forbearance is also directly related to the interrelationship between sector-specific regulation typically composed of ex ante measures and general competition law, which is generally applied on an ex post basis. As telecommunications markets become workably competitive, there is no longer any justification for treating them differently from the broader economy, which should be governed by competition law principles. 25. The ict regulation toolkit explains that regulatory forbearance has two elements: A regulator may refrain from applying certain regulatory conditions or from intervening in certain markets. For example, the Canadian Radio-television and Telecommunications 5 Telecom Decision CRTC 94-19, Review of Regulatory Framework, 16 September Page 8

10 Commission has explicitly stated that it will forbear from regulating certain services. A regulator may reduce the scope of regulation or withdraw entirely from regulating specified markets The principle of forbearance is typically implemented in two stages. The first question is the proper scope of regulation, that is, which services, in which markets, and offered by which providers, should be regulated by a sector specific regulator? 27. A second, but equally important question relates to the content of sector specific regulation: for example, there is a major difference between applying ex ante rules such as the requirement for prior approval of tariffs to the pricing of specific services and applying certain standards on an ex post basis, in response to complaints. International best practice recognizes that the former is a far more intrusive and costly form of regulation that carries with it the potential to distort markets and deny customers the full benefits of competition. The latter approach, though, permits the regulator to intervene in a far more focused, and less damaging, manner. This is sometimes referred to as light touch regulation. 28. Although sometimes expressed in different language both the terms significant market power and dominance are used the concept of a firm having sufficient power in the market place in order to behave independently of any competition or its customers is the sine qua non for justifying price regulation of retail telecommunications services. 29. The CRTC applies the concept of a workably competitive market when determining whether or not to forbear from regulating the services of a telecommunications common carrier. 7 Pursuant to the European Union s 6 World Bank, ITU, and InfoDev, Telecommunications Regulation Handbook, 2011, at section , available at 7 Under to the Canadian Telecommunications Act, a telecommunications common carrier s rates are presumptively subject to tariffing. However, the Canadian Parliament also enacted a specific forbearance Page 9

11 framework, Ofcom applies a significant market power standard to determine in which markets it will regulate. There are common features of each regime that represent international best practices and should be adopted by ECTEL. 30. First, the determination of whether a firm is dominant or has significant market power begins with the definition of the relevant market. The relevant market has two separate dimensions: the relevant product market and the relevant geographic market. The selection of the relevant product market is particularly crucial in telecommunications markets, where rapid technological change must be considered. The CRTC has described the importance of defining the relevant market as follows: The Commission notes that the first step in assessing competitiveness is generally the definition of the relevant market. Indeed, once defined, the relevant market forms the basis for the entire [forbearance exercise], as well as any subsequent analysis examining alleged anti-competitive behaviour. The relevant market is essentially the smallest group of products and geographic area in which a firm with market power can profitably impose a sustainable price increase. Thus, in determining whether to refrain, and the extent to which it should refrain, the Commission considers it necessary to first identify a well-defined product market that takes into account the substitutes and other market features of the service in question Second, regulators worldwide recognize that a firm s market share, while important, is not determinative of market power in and of itself. A number of factors in addition to market share should be considered in assessing market power. These include: power to ensure that when markets became workably competitive, the regulator would have both the power and the obligation to forbear from regulating rates in instances where to do so would be inconsistent with Canada s telecommunications policy objectives or where regulation was no longer necessary in order to protect the interests of users. 8 Telecom Decision CRTC 94-19, Review of Regulatory Framework, 16 September Page 10

12 demand conditions, i.e. the ability of a customer to switch to another supplier or reduce its consumption in response to a price increase; and supply conditions, e.g. the likelihood of entry, including whether firms from related product or geographic markets have considered expanding into the relevant market. 32. Third, in assessing the degree to which a market may be workably competitive, regulators and competition law authorities look at evidence of rivalrous behaviour. Such evidence may include falling prices, vigorous and aggressive marketing activities, or an expanding scope of activities by competitors in terms of products, services and geographic boundaries. 33. Fourth, but importantly in the telecommunications market, the nature of innovation and technological change in the relevant market may also be a useful indicator. Industries characterized by rapid innovation in products, processes and technology, of which the telecommunications industry is the exemplar, tend to experience greater price movements and new entry, thereby making it difficult to exercise market power. 34. All of these factors must be taken into account in any proper assessment of whether to regulate the prices charged by a telecommunications service provider. Consideration of demand conditions, for example, has led many regulators to conclude that mobile services or IP-based voice services supplied over digital, twoway cable networks have become substitutes for wire-line local services, thereby preventing the incumbent wire-line provider from exercising market power. 35. In the Eastern Caribbean states, the telecommunications markets are characterized by a number of features all of which militate against presumptions of the incumbent s dominance: Page 11

13 The presence of large, multinational competitors in Digicel and Columbus, each of which deploy high-speed, high-capacity international networks; Extensive rivalrous behaviour in the marketplace, including cutthroat competition and very visible and aggressive marketing of alternatives to LIME s services; and Rapid innovation and technological change, including the rise of unlicensed providers and new technologies that permit customers to bypass the PSTN. 36. Each of these features justifies a rigorous re-examination of telecommunications markets and with them, the underlying but outdated presumption that LIME, as the incumbent, continues to exercise significant market power. The reality is quite different, and justifies widespread forbearance from regulating LIME s rates, packages and promotions. At the very least, greater reliance on market forces and the adoption of light touch regulatory approaches from Europe and North America are both warranted and urgently required. LIME recommends the inclusion in the Bill of a forbearance power, obligating the NTRCs to forbear from exercising their powers to regulate prices for services where competition is sufficient to protect the interests of users. This focus on the interests of users rather than competitors will ensure that economic regulation remains focused on addressing market failures, rather than becoming a tool for competitors to game the regulatory system or artificially prop up inefficient entry. (b) Competition Principles and Mechanisms 37. A major aspect of the shift towards forbearance and greater reliance on market forces in telecommunications regulation internationally has been the shift away from ex ante measures, which are very interventionist and can distort market signals, towards ex post regulatory measures, which are applied on a complaints basis and are accordingly more focused at real problems as they arise in the marketplace. As discussed above, this shift has often been implemented through Page 12

14 regulatory forbearance and the replacement of sector-specific regulation with the application of general competition law principles. 38. The intersection between telecommunications and competition, or anti-trust, law is one that has increased as markets have become deregulated around the world over the past decades. The U.S Telecommunications Act, for example, contains a clause stating: Nothing in this Act or the amendments made by this Act... shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws, 9 indicating that telecommunications companies are subject to competition laws as well as sector-specific regulation. The European Union s revised telecommunications framework is also based less on regulation and more on the use of competition laws. The revised framework proposes to remove the requirements for ex ante regulation in major parts of the telecoms sector. In these markets, ex post regulation will become the norm, i.e. operators will have to seek redress for any problems through application to the competition authority and/or through the courts The Bill represents a marked departure from this international trend and best practice. Indeed, the Bill contains what appears to be an attempt at introducing a complete code of provisions specifically aimed at regulating competition only in the electronic communications market. LIME does not believe that such a code is either necessary or advisable. It will have the absurd effect of extending regulation even as competition grows, rather than facilitating the withdrawal of regulation to accommodate this development in the marketplace. 40. Section 53(3) appears to proscribe anti-competitive mergers. This is a most unusual provision to be included in sector-specific legislation. There is no reason to 9 47 U.S.C See The proposals were debated and adopted by the European Parliament in September Page 13

15 prescribe anti-competitive mergers in the electronic communications industry, any more than there is to prescribe anti-competitive mergers in the food, transportation or insurance industries. This type of provision is therefore better suited to a competition law of general application that will apply equally to all sectors of the economy. 41. Section 53(4) prohibits price fixing agreements with competitors. This anti-cartel provision is common to competition law generally, as it is widely accepted that such agreements between competitors constitute anti-competitive conduct that is bad for society. Again, however, it is highly unusual for such hard core cartel behaviour to be addressed through sector-specific legislation. There is no reason to believe that this behavior is any more deserving of censure or any more likely to occur in the electronic communications sector than in any other generally unregulated sector. Accordingly, this type of provision, too, is better suited to a competition law of general application that will apply equally to all sectors of the economy. 42. In Section 53(7), the Bill conflates the notion of a service provider being dominant with the notion of it abusing that dominance. This provision would allow the Commission to determine a service provider to be dominant based on specific anticompetitive acts. This is unprecedented and without any foundation in economics or antitrust theory. Rather, the appropriate inquiry as to whether a service provider has abused its dominance is a two-stage process. First, it must be determined whether a service provider is dominant, and second, it must be determined whether a service provider has engaged in anti-competitive acts, so as to abuse that dominance. The instant provision should not be allowed to stand as drafted. 43. Under Section 53(9)(f), the Commission is given the draconian power to order the restructuring of the service provider. This type of remedy is not atypical in merger control provisions of competition laws of general application. Under the Bill, Page 14

16 however, this remedy could be applied in relation to any breach of Section 53, including anti-competitive mergers, but also agreements between competitors (Section 53(4)) and discriminatory service offerings (Section 53(2)), to name a few. A divestiture remedy is clearly inappropriate in these contexts and is poorly conceived. Licensing LIME recommends the elimination of Section 53 of the Bill in its entirety. In its place, ECTEL could consider a prohibition against undue discrimination in the provision of services such as is found in the telecommunications legislation of many jurisdictions, including Canada and the United States. 44. It is important that the licensing and frequency authorization process be, to the greatest extent possible, technologically and competitively neutral. Around the world, the growth of converged networks that can deliver voice, data and audiovisual programming over one platform have seen the entry of telecommunications companies and cable carriers into each other s traditional markets. Likewise, the line between services delivered over wireline networks and services delivered over fixed and mobile wirelesses is increasingly becoming blurred. 45. The Eastern Caribbean states are no strangers to these phenomena, with Columbus Communications using its digital, two-way cable network to provide competition to LIME s fixed line telephony services and Digicel providing Internet access over its wireless networks. In this environment of total competition it is critical that every holder of a network licence be subject to an equivalent set of licence conditions and requirements to pay fees, but also be free to provide whatever services over their networks that technology may allow and their customers may demand. Specifically, LIME envisages a licensing regime under which a network licensee will not require a further licence to provide specific services over that same network. Page 15

17 46. The concerns are very different in respect of service providers who do not operate their own networks, but rather, ride on the networks of others. In the section below, LIME outlines its concerns respecting unlicensed providers and bypass. Licensed service providers such as resellers who exceed the terms of their licences also present a risk to investment and the development of the electronic communications industry throughout the region. In order to maintain the integrity of the licensing process, it is therefore critical that service licences specifically articulate the specific services that can be provided pursuant to the licence. 47. Section 36 of the Bill, which is extraordinarily vague and susceptible to abuse, grants the Commission the power, in accordance with the recommendation of ECTEL, to direct a licensee or frequency authorization holder to take such measures and or cease such activities as may be necessary. LIME does not believe that such a broad power is consistent with a fair and transparent process. LIME therefore recommends that this provision be qualified with language that makes it clear the exercise of the Commission s power must be necessarily incidental to its powers pursuant to the Act. 48. Part 3 of the Bill on Licensing has omitted to make any specific provisions for licence renewal. It is important for planning and investment purposes that service providers know what to expect of the actual renewal process. LIME recommends that the Bill specify that the holder of a network licence: shall be subject to an equivalent set of licence conditions and obligation to pay fees as any other holder of a network licence; and does not require a licence to provide any electronic communication services over that network. Page 16

18 LIME recommends that the Bill require that a licence to provide an electronic communications service only (i.e. not a network) specify the specific services that can be offered pursuant to such licence. LIME further recommends that Section 36 of the Bill be qualified to clarify that the Commission has the power to direct a licensee or frequency authorization holder to take such measures and or cease such activities as may be necessarily incidental to the exercise of its powers pursuant to the Act. LIME recommends that the word class be removed from clause 39 because it may be confused with class licences LIME recommends that a section on licence renewal be added to the Bill which would specify that a consultation should be held three (3) years before licences expire to determine issues pertinent to renewal and to set out the renewal process. Unlicensed Providers and Bypass 49. As in the current Telecommunications Act, Section 38 of the Bill prohibits a person from operating a network or providing a service unless with a valid licence issued under the Act. The Bill, however, contains no new provisions addressing the significant problems associated with unlicensed providers and bypass in the region. 50. The last decade s evolution from legacy, analog, circuit-switched networks to converged digital networks, based on IP technology, has brought with it a proliferation of Over-The-Top ( OTT ) providers that seriously undermine investments, but also the tax base and broader public benefits associated with the necessary upgrading of the region s telecommunications infrastructure. The two greatest such challenges facing LIME and the Eastern Caribbean states are the growth of unlicensed service providers primarily voice over IP ( VoIP ) services and bypass. 51. Despite ECTEL s 2009 recommendation to the NTRCs to consult on Policy Recommendations on the regulation of Voice over Internet Protocol (VoIP) IP Page 17

19 Telephony Regulation Consultation Paper, no regulations or other policy actions have been recommended or taken by either ECTEL or the NTRCs to address this problem. 52. In the meantime, the use of VoIP services and devices continues to gain ground in the region as these unlicensed providers continue to ride on the networks of, and compete unfairly with, licensed network providers These unlicensed VoIP providers do not register their businesses with the Government, pay taxes or licence fees. They also do not provide access to emergency services, or contribute to Universal Service Funds. At the same time, they siphon off revenues from licensed network providers and adversely affect the Eastern Caribbean states foreign exchange and tax base as well as threaten the development of a state-of-the-art communications infrastructure in the region. 53. Although the nature of the precise policy responses to VoIP have varied internationally, a consistent pattern is emerging of international best practices in regulating VoIP, which can be summarized as meeting two overriding objectives: Ensuring a level playing field through VoIP services participation in licensing regimes, contributions to universal service funds and observance of other regulatory requirements such as those pertaining to numbering and interconnection; and Ensuring public safety and consumer protection through emergency service obligations, requirements to inform customers of limitations of VoIP service, and lawful interception capabilities. 54. Given the importance of international calling a prime use of VoIP to the Eastern Caribbean region s telecommunications industry, the impact of a continuing failure to come to grips with unlicensed VoIP providers service will threaten the industry s structure as well as the ability of governments to meet their objectives in this critical sector. Accordingly, regulatory action is badly needed. Page 18

20 55. At a minimum, steps must be taken to immediately introduce the licensing of these providers to ensure that they are no longer able to free-ride on the investments of licensed network providers and that consumers are adequately protected. It is particularly important that steps be taken at this juncture, while the region is still narrowing the gap with developed nations in terms of broadband connectivity. Once penetration of broadband connectivity has become more widespread, increased use of VoIP services whether licensed or not can be anticipated. 56. With respect to bypass, the situation is more dire still, but the potential solutions less apparent. LIME has seen a dramatic decline of market volumes and has lost millions of dollars in settlement rates associated with SIM-bypass and other arbitrage strategies based on wholesale VoIP services. Unscrupulous providers are using these schemes to bring traffic into the region without terminating this traffic pursuant to valid interconnection arrangements. The solution to this phenomenon is increased enforcement. Interconnection LIME recommends amendments to the Bill explicitly stating that the Bill applies to electronic communications service including Access- Independent VoIP Services riding on top of the networks of other providers. LIME also recommends a provision making explicit a licensee s ability to take necessary steps to manage and protect its network from illegal or excessive use in order to address unlicensed providers and bypass in a manner that does not unreasonably discriminate on the basis of the content transmitted. 57. Separate and apart from Part 4, which continues the Act s provisions regarding interconnection, Section 53(11) of the Bill contains provisions respecting interconnection. As drafted, these obligations apply only to dominant service providers; in contrast, the Act s existing interconnection provisions, set out at Section 57 of the Bill, apply to all service providers operating public networks. Page 19

21 Interconnection of networks is essential to competition among all providers, and there should be no distinction placed on whether the provider from with which interconnection is sought is dominant or not. 58. It is not clear whether Section 53(11) of the Bill is intended to govern access to a competitor s facilities (infrastructure sharing is covered elsewhere in the Bill). If so, the criterion for such access should not be the service provider s dominance, but rather whether or not options are available to replicate the facility or provide the required service. 59. In addition, Section 59(1) of the Bill addresses the cost of interconnection this provision contains square brackets around language determining whether costs should be borne by both parties to the interconnection, or only the party requesting interconnection. In LIME s opinion the party requesting interconnection should be responsible for bearing the costs of such interconnection. This is consistent with the principle of cost causality. It also avoids the unfairness of situations which have occurred in the region where a new entrant makes an interconnection request and puts the interconnection provider to significant trouble and expense, but ultimately never rolls out a service on a commercial basis. Codes of Practice LIME recommends that Section 53(11) be removed from the Bill. Under Section 59(1), LIME recommends that the cost of establishing any interconnection to the network of another service provider shall be borne by the service provider requesting the interconnection. 60. Section 35 of the Bill would empower the Commission to issue codes of practice relating to services and networks. LIME does not have concerns with this proposed power per se. In LIME s view, this can be a useful tool for the Commission to adapt Page 20

22 its oversight of the electronic communications sector quickly and flexibly to changing circumstances in the market. 61. LIME is, however, deeply concerned with the proposed section 35(3), which would deem a breach of a code of practice to be a breach of licence or frequency authorization, and presumably expose a licensee to sanctions under section 48. This would be a very unusual provision, and open to considerable potential abuse, by virtue of the same flexibility afforded by the power to publish codes of practice. While codes of practice are very useful to give guidance to licensees and to facilitate the better regulation of the sector, section 35 is a procedural provision. It does not give the Commission or ECTEL substantive powers. However, the power to sanction or punish persons should be grounded in substantive provisions in statutes, or in subsidiary legislation (i.e. regulations) authorized by primary legislation debated and passed by a legislature. LIME recommends that section 35(3) be removed from the Bill. Fines, Compensation and Costs 62. The Bill contains a number of provisions that would give the Commission the power to order fines or other compensation similar to those available to courts. Unfortunately, the Commission would not have any of the expertise of a court, and licensees would not have all the same procedural or substantive protections that a court would normally give to parties appearing before it. 63. For example, section 37(8)(a) would give the Commission the power to make provisional or interim orders or awards. Section 37(8)(c) would give the power to make cost awards, and section 48(1)(b) would permit the Commission to order compensation awards. While the power to make provisional or interim orders could be useful for procedural purposes, the power to make provisional or interim awards, or to order a party to pay costs or expenses of any other party, is unnecessary and Page 21

23 potentially highly prejudicial to parties appearing before the Commission. These are powers that are best reserved to courts, and not to administrative tribunals like the Commission. 64. Section 48(1)(c) would grant the Commission the power to impose fines on licensees or frequency authorisation holders. This is a power that is very rarely granted to tribunals other than courts, and should not be given to the NTRC in this case. A bare power to impose fines, without any of the procedural or substantive protections courts normally give to affected parties, would be highly unusual and potentially very prejudicial to licensees and frequency authorization holders. Further, it is unnecessary, as section 48(2) already establishes a fine, to be imposed following conviction by a court for failure to remedy a breach of a licence or frequency authorisation. LIME recommends that the words or awards be removed from section 37(8)(a) and that sections 37(8)(c) and 48(1)(b) be removed from the Bill. LIME recommends that section 48(1)(c) be removed from the Bill. Page 22

24 III. Conclusion 65. LIME looks forward to contributing further as the Bill is deliberated. The introduction of new legislation represents a singular opportunity to modernize the region s communications laws, address clear and present threats to the industry in the form of unlicensed providers and bypass, foster greater reliance on market forces and introduce general competition law principles. By embracing these goals and bringing the legislative and regulatory framework in line with international best practices, the public interest will be enhanced and the all of the region s citizens will enjoy better economic and social outcomes. IV. Closing Remarks 66. Kindly send any communication in relation to this response to: Geraldine Pitt Geraldine.pitt@lime.com (M) END DOCUMENT Page 23

25 APPENDIX I LIST OF RECOMMENDATIONS 1. Reliance on Market Forces LIME recommends that language be added to the Bill, clarifying that: I. market forces be relied on to the maximum extent feasible; II. III. regulation should be both effective and efficient; and where regulation is relied on, it must be implemented in a manner that is proportionate, and both competitively and technologically neutral. 2. Forbearance and the Regulation of Competition I. LIME recommends the inclusion in the Bill of a forbearance power, obligating the NTRCs to forbear from exercising their powers to regulate prices for services where competition is sufficient to protect the interests of users. This focus on the interests of users rather than competitors will ensure that economic regulation remains focused on addressing market failures, rather than becoming a tool for competitors to game the regulatory system or artificially prop up inefficient entry. II. LIME recommends the elimination of Section 53 of the Bill in its entirety. In its place, ECTEL could consider a prohibition against undue discrimination in the provision of services such as is found in the telecommunications legislation of many jurisdictions, including Canada and the United States. 3. Licensing LIME recommends that the Bill specify that the holder of a network licence: I. shall be subject to an equivalent set of licence conditions and obligation to pay fees as any other holder of a network licence; and II. III. does not require a licence to provide any electronic communication services over that network. LIME recommends that the Bill require that a licence to provide an electronic communications service only (i.e. not a network) specify the specific services that can be offered pursuant to such licence. Page 24

26 IV. LIME further recommends that Section 36 of the Bill be qualified to clarify that the Commission has the power to direct a licensee or frequency authorization holder to take such measures and or cease such activities as may be necessarily incidental to the exercise of its powers pursuant to the Act. V. LIME recommends that the word class be removed from clause 39 because it may be confused with class licences. VI. LIME recommends that a section on licence renewal be added to the Bill which would specify that a consultation should be held three (3) years before licences expire to determine issues pertinent to renewal and to set out the renewal process. 4. Unlicensed Providers and Bypass I. LIME recommends amendments to the Bill explicitly stating that the Bill applies to electronic communications service including Access- Independent VoIP Services riding on top of the networks of other providers. II. LIME also recommends a provision making explicit a licensee s ability to take necessary steps to manage and protect its network from illegal or excessive use in order to address unlicensed providers and bypass in a manner that does not unreasonably discriminate on the basis of the content transmitted. 5. Interconnection I. LIME recommends that Section 53(11) be removed from the Bill. II. Under Section 59(1), LIME recommends that the cost of establishing any interconnection to the network of another service provider shall be borne by the service provider requesting the interconnection. 6. Codes of Practice LIME recommends that section 35(3) be removed from the Bill. 7. Fines, Compensation and Costs I. LIME recommends that the words or awards be removed from section 37(8)(a) and that sections 37(8)(c) and 48(1)(b) be removed from the Bill. II. LIME recommends that section 48(1)(c) be removed from the Bill. Page 25