experts’ report on national ict policy phase 2 reforms - papua new guinea - march 2009 - final...

I.1314081 page 1

FINAL REPORT

The Department of Communication and Information

March 2009

fGovernment of Papua New Guinea

National Information & Communications Technology (ICT) Policy

NATIONAL ICT POLICYPHASE 2 REFORMS

I.1314081 page 2

CONTENTS

FOREWORD BY THE MINISTER 3

PHASE 2 SPECIFIC REFORMS 4

PART A : PATH TO OPEN COMPETITION 12

Chapter 1. LICENSING ARRANGEMENTS.......................................................13

Chapter 2. INTERNATIONAL GATEWAY LIBERALISATION............................24

Chapter 3. WHOLESALE REGULATION AND ACCESS...................................29

Chapter 4. RETAIL REGULATION AND PRICING ............................................47

PART B: FUTURE OF COMMUNITY SERVICES 54

Chapter 5. UNIVERSAL SERVICE ARRANGEMENTS .....................................55

PART C: SUPPORTING ARRANGEMENTS 69

Chapter 6. INSTITUTIONAL ARRANGEMENTS ...............................................70

Chapter 7. INFORMATION SECURITY.............................................................84

Chapter 8. TECHNICAL REGULATION.............................................................89

PART D: TIMING AND IMPLEMENTATION 93

Chapter 9. TRANSITIONAL ARRANGEMENTS................................................94

APPENDICES

I. ABBREVIATIONS AND GLOSSARY .............................................101

II. WRITTEN SUBMISSIONS RECEIVED..........................................104

III. ENDNOTES...................................................................................105

I.1314081 page 3

FOREWORD BY THE MINISTER

In February 2008, the National Executive Council (NEC) approved the National ICT Policy 2008 as Government Policy.

The National ICT Policy sets out a strategic framework for meeting the Government’s objectives for the ICT sector. Increased competition in the supply of telecommunications services is a central feature of this strategy. Specifically, the Government reaffirmed its commitment to:

• the staged introduction of open competition in the telecommunications sector; and

• the transformation of Telikom into a viable and efficient competitor upon the introduction of open competition.

The staged introduction of open competition contemplated an initial ‘Phase 1’ transitional period during which the existing telecommunications industry structure would be preserved.

The Government is now ready to set the key parameters for implementing ‘Phase 2’. Specifically, it will progressively implement open competition in the telecommunications sector in accordance with a timetable endorsed by the NEC.

As the Minister for Communication and Information, I have been directed by the NEC to undertake a review of the ICT sector and to report to the NEC by March 2009. I am required to assess and report on the current state of the market, including the operation of the regulatory regime, competition and progress towards the transformation of Telikom.

I am also required to recommend to the NEC the timetable for the introduction of open competition in the ICT sector and the implementation of Phase 2. Specifically, I must:

• consider the desirability of developing a Community Services Obligation (often referred to internationally as a Universal Access Scheme). The primary objective is to provide a strong funding basis to aid in the development of telecommunications networks and the provision of telecommunications services to residents in rural centres in PNG;

• undertake a review of regulatory structures and processes, including the mandate of each of the telecommunications regulators (the ICCC and PANGTEL), and report on appropriate amendments aimed at securing more efficient regulatory arrangements; and

• review the operation of competition in the ICT sector with a view to recommending a timetable for the introduction of open competition and the transition to Phase 2.

The Department of Communication and Information retained Freehills and Concept Economics as expert advisers to assist in undertaking these tasks. There has been extensive consultation with many interested parties who have participated in discussions and a public forum and provided detailed submissions. I am grateful to all those who have contributed to this public process.

As part of the public consultation process, on 23 February 2009 I released a comprehensive consultation draft Experts’ Report on National ICT Policy Phase 2 Reforms (Experts’ Report). The Experts’ Report set out a series of recommendations to assist in the implementation of Phase 2.

The Experts’ Report drew upon the expertise of the Department’s advisers as well as that of the many interested parties who participated in the consultation process. There has been strong support for the recommendations identified in the Experts’ Report. Further consultations have subsequently taken place and submissions received. These have been considered and are reflected in the reforms identified in this report.

As the analysis is now complete, I present this National ICT Policy Phase 2 Reforms – Final Reportas Government Policy for the next phase of ICT sector reforms as approved by the NEC.

The Final Report contains more than 50 specific reforms that will establish the basis for the regulatory framework that is to apply to the ICT sector under open competition.

I commend the reforms to all.

Signed by

Hon. Patrick Tammur MPMinister for Communication and Information

I.1314081 page 4

NATIONAL ICT POLICY PHASE 2 – SPECIFIC REFORMS

PART A THE PATH TO OPEN COMPETITION

1. LICENSING ARRANGEMENTS

1.1 Licensing responsibilities will be assigned to a single ICT regulator known as the National Informationand Communication Technology Authority or NICTA. The licensing application process will be codified within a legislative instrument.

1.2 A simple, three-tier horizontal licensing structure will be implemented in PNG based on the categorisation of operator licensees as network providers, service providers or content providers.

1.3 All new operator licences will be technology and service neutral thereby ensuring that licensees are not artificially constrained with regard to their service and technology decisions. Operator licensing will be kept conceptually distinct from the use of licences to ration scarce resources, such as telecommunications radiofrequency spectrum.

1.4 The distinction between class and individual operator licences will be clarified. Class licences will automatically apply if the applicant meets minimum eligibility criteria. Individual licences will be capable of being granted at any time based on a case-by-case analysis.

1.5 Regulatory barriers to market entry will be reduced via the increased use of class licensing in conjunction with increased regulatory forbearance.

1.6 The radiofrequency spectrum management regime will be reviewed by NICTA with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment will be adopted.

1.7 All licence fees will be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect economic costs (including, where relevant, opportunity costs, as in the case of future allocation of scarce spectrum). In considering the inclusion of opportunity costs in future licensing fees, NICTA will balance the allocation of scarce resources (such as spectrum and numbering) with the broader policy objectives of network deployment, service provision and affordability.

2. INTERNATIONAL GATEWAY LIBERALISATION

2.1 Liberalisation of the international telecommunications gateway (IGW) will occur as early as practicable (preferably by October 2009). Network providers will be permitted to operate an IGW if they meet certain minimum licensing criteria. Any licensing fees will be consistent with the criteria in Reform 1.7.

2.2 IGW infrastructure will initially be exempted from the access regime as part of transitional arrangements and to preserve investment incentives. This specific exemption will expire on 1 July 2012 (on the assumption that liberalisation commences in October 2009). After that date, IGW services will be subject to potential regulation under the declaration criteria in the revised wholesale access regime.

2.3 Care must be taken in setting minimum criteria for a licence to operate an IGW so that NICTA does not lose control over the IGW market. VSAT operators may be potential candidates for class licences.

3. WHOLESALE REGULATION AND ACCESS

3.1 Wholesale access and interconnection obligations will be applied to regulated ‘declared’ services and facilities, not particular regulated entities. All relevant licensees will be subject to, and benefit from, such regulation. The process for declaring entities and services in the ICCC Act (and therefore the use of Regulatory Contracts) will not apply to the ICT sector.

3.2 Fixed and mobile terminating access services will be declared services under the legislation. Absent commercial arrangements, potential competition benefits can be secured from declared facility sharing and mobile roaming to the extent it is uneconomic to duplicate infrastructure. Whether such services are declared will be assessed by NICTA against the criteria specified in Reform 3.3.

National ICT Policy – Phase 2 Reforms

I.1314081 page 5

3.3 Declaration of additional services will occur based on an assessment against the legislated criteria. The precise terms to be prescribed will be formulated in the enabling legislation and will capture the following specific principles:

NICTA must recommend declaration if it is satisfied that all of the following criteria are met:

1. the declaration of the service to which is access is sought is necessary for the promotion of competition, in particular:

• the service to which access is sought cannot be economically or technically substituted;

• lack of access to the service would pose a barrier to entry that is likely to make otherwise efficient entry into the market uneconomic;

2. declaration of access to the service would not compromise the incentives for otherwise efficient investment; and

3. it is technically feasible to provide the service to which access is sought, taking account of the effects, or likely effects, that supplying the service would have on the operation or performance of the infrastructure used to provide the service.

The declaration criteria will be prescribed in legislation.

3.4 NICTA should undertake declaration inquiries and make recommendations to the Minister for Communication and Information. The Minister will be permitted to either accept or reject the recommendations.

3.5 Pricing principles will be legislated and removed from all other regulatory instruments. The principles will adopt internationally well-established costing methodologies. The precise principles will be formulated in the enabling legislation and will promote infrastructure investment by ensuring full cost recovery as discussed in section 2.4 of Chapter 3 of this Final Report.

3.6 NICTA will determine access disputes for declared services under a negotiate/arbitrate model. Within 12 months of its establishment, NICTA must publish guidelines detailing how it will apply the legislative pricing principles to various types of access disputes.

3.7 Access providers will be permitted to submit binding Reference Interconnection Offers to NICTA for pre-approval for an appropriate period (for example, 3-5 years).

3.8 All service declarations will be subject to regulatory review within 5 years of declaration. If the criteria for declaration are no longer met, the declaration will be permitted to expire.

4. RETAIL REGULATION AND PRICING

4.1 The current retail price regulation of Telikom’s mobile services will be removed. In respect of Telikom’s fixed network services, NICTA must conduct a review to determine whether ongoing retail price regulation of these services is warranted. This review (applying the criteria in Reform 4.3 below) should be completed as soon as practical.

4.2 Retail price regulation should not be required in the face of more effective and efficient access regulation and greater competition under these Phase 2 reforms. Accordingly, the following general reforms concerning retail price regulation will apply:

• the Regulatory Contract mechanism in the ICCC Act will no longer apply to regulateretail prices in the ICT sector;

• a mechanism for regulating retail prices will be retained in the Telecommunications Act (even if not in active use);

• retail price regulation under these provisions will come within the powers and functions of NICTA; and

• when assessing the need for retail price regulation under these provisions NICTA will be required to apply the test set out in Reform 4.3 below.


I.1314081 page 6

These retail price regulation provisions will have potential application to all operators.

4.3 In determining whether retail price regulation of an operator’s services is warranted NICTA will be required to be satisfied that all of the following criteria are met:

• the operator has substantial market power in the provision of the service and this is highly likely to persist over the period of regulation;

• the substantial market power is causing and is likely to cause material harm to end-users;

• that harm could be substantially mitigated via the imposition of retail price regulation; and

• the benefits of imposing retail price regulation outweigh any detriments, including any potential costs arising from market distortions or delays to the development of competition.

PART B THE FUTURE OF COMMUNITY SERVICES

5. UNIVERSAL ACCESS SCHEME

5.1 A new Universal Access Scheme (UAS) will be developed that retains the existing mandatory roll-out obligations but improves the effectiveness of the arrangements.

5.2 A UAS Fund will be established to meet the other Government objectives for the UAS including Internet access and voice access outside the mandatory roll-out areas.

5.3 The UAS Fund will be financed by a combination of:

• industry levies based on a percentage of net revenues (gross revenues lessinterconnection payments) of licensed operators;

• donor funding (loans, grants, gifts); and

• direct Government funding.

The industry levy will not be imposed before January 2011. Prior to this time, the Government will consider a pilot program in order to test and demonstrate the effective operation of the UAS.

5.4 UAS governance arrangements will be prescribed in legislation to ensure the proper administration of the UAS. These governance arrangements will include the following features:

1. UAS Board: A flexible, non-permanent UAS Board will be established comprising representatives from each of the Department of Communication and Information, NICTA, the Department of National Planning and industry/commerce. The UAS Board will (based on statutory criteria):

• develop specific indicators of ICT access, consistent with international experience and shall indentify appropriate target projects in a reasonable time frame;

• consider, produce and publish a list of projects ranked in order of priority; and

• submit the list of ranked projects to the Minister for endorsement.

2. Minister of Communication and Information: The Minister of Communication and Information will review the recommendations and the process of the UAS Board to ensure that the statutory criteria is appropriately applied. This review will not be an in depth review of substance or re-evaluation of criteria. The Minister’s role is limited to either accepting or rejecting the list of projects (or part thereof) submitted by the UAS Board.

3. NICTA: NICTA (through its UAS Secretariat) will implement UAS decisions of the Minister, including


I.1314081 page 7

administering tenders, awarding and monitoring contracts and issuing associated licences if the entity is not already appropriately licensed.

4. Fund Administrator: An independent, transparent and accountable fund administrator will be appointed to hold and distribute the UAS Fund upon direction from NICTA.

PART C SUPPORTING ARRANGEMENTS

6. INSTITUTIONAL ARRANGEMENTS

6.1 A new converged ICT regulator to be known as the National Information and Communication Technology Authority will be the regulator for the entire ICT sector. NICTA will possess all necessary licensing functions and powers. The Board of NICTA will be established during the transitional period. The assets of PANGTEL will be transferred to NICTA during the transition period. Following the transition period NICTA will take responsibility for regulation of the ICT sector. PANGTEL will thereafter be disbanded.

6.2 NICTA as the new ICT regulator will have all ex-ante functions and powers relevant to the regulation of the ICT sector, including:

• managing market entry (i.e. licensing);

• facilitating wholesale access and interconnection, including recommendations for declaration of services and arbitration powers to determine terms and conditions of access under a negotiate/arbitrate model;

• administration of any necessary retail price regulation for the ICT sector;

• allocation, assignment and ongoing management of radio spectrum and numbering;

• enforcement, including information gathering powers ;

• dispute resolution;

• monitoring and enforcing obligations under the UAS regime;

• monitoring quality of service performance standards; and

• rule making, guidelines and Codes of Practice.

6.3 The ICCC will retain its functions and powers in respect of generic competition law. A member of the ICCC will sit on the arbitral panel for all interconnection and access arbitrations.

6.4 NICTA and the ICCC will be encouraged to consult where appropriate on competition and economic matters impacting on the ICT sector.

The ICCC will be required to consult with NICTA in relation to all ICCC decision-making on ICT matters.

6.5 NICTA will be governed by a board of 3 to 5 persons. The terms and conditions of appointment will be set out in legislation. An Appointments Committee will be established by legislation and comprise representatives of Government (including the Prime Minister and the Minister for Communication and Information), the Leader of the Opposition and a representative of industry and commerce. The Head of State will appoint members of NICTA on advice from the Appointments Committee.

6.6 Legislative obligations will require both regulators to co-operate to ensure efficient and consistent decision-making in respect of the ICT sector.

6.7 NICTA will have sufficient financial and human resources to fulfil its mandate and maintain its


I.1314081 page 8

independence. NICTA will receive funding only from permitted sources as set out in legislation.

6.8 NICTA will be required to operate in an open and transparent manner and be accountable to Parliament and the courts in its operations. It will also be required to keep audited accounts, comply with codified consultation procedures and be subject to prescribed appellate review.

7. INFORMATION SECURITY

7.1 Criminal laws are likely to be required to control and prohibit attacks on the security and integrity of computer systems, including hacking, illegal interception and interference with the availability of computer systems.

7.2 Clear procedures meeting international privacy standards will be established for government access to communications and stored data when needed for the investigation of crimes. These procedures should be aimed at providing an adequate level of assurance that the Government cannot unjustifiably monitor private communications.

7.3 The new privacy standards will be developed in a national law for interception of communications (telephone calls, email and other electronic communications), and for search and seizure orders for computer data.

7.4 Appropriate laws and procedures will be developed to facilitate electronic payments and to ensure that consumers and small businesses who transact business online have recourse if transactions fail or online purchases are unsatisfactory. These laws and procedures will include protections to prevent merchants from misusing consumer data.

7.5 PNG’s existing intellectual property laws will be reviewed to ensure that they provide adequate protection for digitised forms of intellectual property.

7.6 Procedures will be established for taking all critical systems offline in the event of a war, disaster or civil disturbance which might otherwise place those systems at risk.

8. TECHNICAL REGULATION

8.1 NICTA must complete the proposed numbering plan changes and take steps to relax numbering forecasting requirements. NICTA must also implement administrative procedures aimed at improving response times to applications.

8.2 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the introduction of mobile number portability at a point in the future that takes into account the competing priorities of NICTA and the level of mobile penetration that warrants such a review.

8.3 NICTA must consolidate the existing Telecommunications Interconnection Code of Practice (issued by the ICCC) and the Multi-Carrier Interconnection Technical Code of Practice (issued by PANGTEL) into one interconnection code as part of a review of interconnection technical arrangements.

8.4 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the introduction of pre-selection at a point in the future that takes into account NICTA’s competing priorities and the level of demand for pre-selection that justifies the associated costs.

8.5 All fees for services provided by NICTA must be clearly set out and determined in accordance with a transparent cost-recovery methodology.

8.6 NICTA must review existing spectrum radiofrequency band codes and technical specifications to


I.1314081 page 9

ensure they accurately reflect current usage.

PART D TIMING AND IMPLEMENTATION

9. TRANSITIONAL ARRANGEMENTS

9.1 The move to open competition will be comprehensive and implemented on a timely basis, subject to transitional arrangements and the time required for proper formulation and introduction of new regulatory structures.

9.2 Licence migration will be encouraged on a voluntary basis. Existing licensees should ideally receive sufficient benefits under the new licensing structure to offset any detriments they receive by surrendering existing licences.

9.3 New licences will only be issued under the new licensing regime. However, in issuing new licences, NICTA will have regard to Government Policy and any rights held by existing licensees.

9.4 NICTA must aim to complete migration of licences from the old regime to the new regime within 12 months of commencement of the new regime.

9.5 ICCC and PANGTEL will provide their full co-operation to the Department of Communication and Information and its consultants in connection with the transition from the current regulatory regime to the new regulatory regime as detailed in this Final Report. Specifically, (but without limiting the obligation to provide full co-operation) as soon as practicable after being notified of this Government Policy the ICCC and PANGTEL will provide to the Department of Communication and Information:

• copies of all General Carrier, Public Mobile and Value Added Services Licences;

• copies of all current and previously issued spectrum and cabling licences;

• copies of all current and previously agreed spectrum usage agreements;

• copies of all customer equipment and cabling permits;

• copies of all other permits or authorities provided by the ICCC or PANGTEL; and

• all information reasonably requested by the Department of Communication and Information to implement Government Policy articulated in this Final Report.

9.6 Pending the enactment of legislation to give effect to the Government Policy articulated in the various reforms set out in this Final Report, it is Government Policy that the current industry structure and participation be preserved. Specifically, unless the Minister agrees in writing otherwise:

• Telikom will continue as the sole holder of a General Carrier Licence;

• existing carriers will be permitted to operate in accordance with the law and their licences;

• no new General Carrier or Public Mobile Licences will be issued;

• any new Value Added Services Licence issued will be expressed to operate only until the commencement of the new licensing regime as set out in Chapter


I.1314081 page 10

1 of this Final Report;

• no power to revoke an existing licence will be exercised, without the holder of the licence so requesting;

• no amendments will be made to any existing licences, permits or authorities (including imposing any new licence conditions under a declaration of conditions of licences under section 63 of the Telecommunications Act or otherwise);

• no determination of a Code of Practice under section 66, section 66A or section 66B of the Telecommunications Act may be made;

• no codes or rules will be made, varied or revoked under section 40 of the ICCC Act relating to the conduct of a participant in the telecommunications industry, being a regulated industry declared under section 19A of the Telecommunications Act; and

• any determination made under section 84 of the Telecommunications Act will be expressed to be an interim decision only and will expire no later than 31 December 2009.

The indicative timetable for the proposed reforms is as follows:

Indicative date Milestone

April-June 2009 • Formulation of implementation plan for NICTA and legislation for establishment of NICTA (which may be a separate legislative instrument or combined with the wider reform legislation).

• Drafting and consultation in relation to enabling legislation and transitional arrangements (to effect the reform agenda set out in this Final Report).

• Enactment of enabling legislation (subject to Parliamentary processes and timing).

• Initial steps are taken towards the creation of NICTA, including the appointment of the NICTA Board.

July 2009 • Commencement of enabling legislation and transitional arrangements.

• NICTA is established and assets, liabilities and transitional (shared) responsibilities are transferred to it pursuant to institutional transitional arrangements.

• Preparatory steps taken to establish licence regime and licence categorisations pending October 2009 commencement.

July-September 2009 • Drafting and public consultation is undertaken in relation to subordinate regulation and licensing arrangements.

• Preparation for commencement of the new regime including preparation of regulatory instruments by NICTA, training of personnel and education of the industry and public.

October 2009 • Formal commencement of the new regime.

• NICTA assumes all powers and functions under the new


I.1314081 page 11


regime.

• The institutional transitional arrangements will end.

• The new licensing regime commences for the issue of new licences.

• Existing licensees are encouraged to migrate to new licences and licensing transitional arrangements commence.

• The new access regime commences, including deemed declarations.

• International gateway liberalisation occurs.

October-December 2009

• Establishment of the Universal Access Scheme, pending implementation.

• Implementation of regulatory instruments to give effect to the new regime, including pricing principles.

• Review of retail price regulation by NICTA.

January 2010 • Removal of redundant retail price regulation.

October 2010 • The licensing migration process is completed for existing licensees.

• Licensing transitional arrangements end.

January 2011 • Industry levy commences in relation to UAS contributions.

• Implementation of the UAS.

July 2012 • Expiry of the exemption for IGW infrastructure from the access regime (hence the potential for access regulation arises).

I.1314081 page 12

PART ATHE PATH TO OPEN COMPETITION

I.1314081 page 13

CHAPTER 1LICENSING ARRANGEMENTS

1 BACKGROUND

The licensing regime is fundamental to the regulation of the ICT sector in PNG. It is an important vehicle for the translation of Government ICT Policy into telecommunications industry regulation.

PNG currently has a ‘vertical’ licensing regime that includes individual operator licences, class licences and spectrum licences. This regime is codified in the Telecommunications Act, the Radio Spectrum Act and the Radio Spectrum Regulations 1997.

The diagram below sets out the basic ‘vertical’ structure of the PNG licensing regime and the key licences that may be granted and/or issued for particular types of services.

Figure 1 : Basic ‘vertical’ structure of the PNG licensing regime

Telecommunications Licences (issued by the ICCC)

Spectrum/EquipmentLicences

(issued by PANGTEL)

Licensing powers in PNG are split between the ICCC and PANGTEL. In broad terms, PANGTEL remains responsible for spectrum and equipment licensing, while the ICCC is responsible for operator licensing.

To facilitate the path to open competition in PNG, and to align PNG’s licensing regime with international best practice, fundamental licensing reform is required.

The reforms of the licensing regime are aimed at achieving the following fundamental objectives:

• the licensing regime must be stable and transparent in order to reduce regulatory risk (whether perceived or real) and promote private investment;

• operator licences should be technology and service neutral (ensuring that an operator is not artificially constrained with regard to its service and technology decisions);

• barriers to entry should be removed with a policy of regulatory forbearance underpinning all licence considerations; and

• operator licensing should remain distinct from scarce resource assignment.

Chapter 1: Licensing arrangements

I.1314081 page 14

2 ORIGINAL ANALYSIS AND RECOMMENDATIONS

2.1 A NEW LICENSING REGIME

The Experts’ Report concluded that PNG must address the uncertainties, complexities and inflexibility associated with the current licensing regime, and in the process, create a technology and service neutral structure. In this way, the full benefits of open competition can be effectively unlocked. The following recommendations were made with this goal in mind.

A simple three tier, horizontal licence structure should be introduced in PNG. This structure would categorise market participants for licensing purposes as follows:

• ICT Network Provider - an entity licensed to construct and/or operate communications network infrastructure and/or provide network services over such network infrastructure;

• ICT Service Provider - an entity licensed to provide electronic communications services direct to an end-user (whether wholesale or retail, business or government); and

• ICT Content Provider - an entity licensed to provide content services direct to an end-user.

This structure can be illustrated in the following manner:

Figure 2 : Proposed structure for fully converged regime

Within the categories set out above, the particular licences would be classified as follows:

• ‘Individual’ – for activities that require a more rigorous selection process and close ongoing scrutiny;

• ‘Class’ – for certain activities that require minimal application requirements or merely notification; and

• ‘Exempt’ – for activities that have insignificant impact on competition or services to the public.

Figure 3: New licence categorisation

Licence Type Hypothetical examples

Individual Provision of network servicesICT Network Provider Licence

Class Construction and/or operation of network facilities


I.1314081 page 15

Licence Type Hypothetical examples

Exempt Construction and/or operation of internal network facilities for networks not exceeding certain dimensions (private networks)

Individual Fixed network service; Cellular mobile service

Class Internet access; Virtual mobile; IP telephony; Messaging services

ICT Service Provider Licence

Exempt Web-hosting or client server

Individual Standard broadcasting (including live-streaming TV and radio)

Class Internet content

ICT Content Provider Licence

Exempt Possible exemptions to be considered further

The Experts’ Report also recommended that the horizontal licensing regime should be supported by a technology neutral spectrum assignment regime. This model is consistent with the successful horizontal licence regimes adopted in many other transitional and developed economies. It provides the technology and service neutrality required to facilitate open competition while layering the sector in a manner which permits market entry on different levels and facilitates network based regulation.

When licences are formulated, further consideration should be given to defining a geographical dimension to the scope of each licence category (for example, international, national, regional and district) to address specific market requirements and facilitate the path to open competition. For the purposes of UAS, it may also be appropriate to have scope to licence entry limited to particular geographical areas.

The regime should be further simplified by reassessing the value in classifying Telikom as a ‘regulated entity’ and terminating the Telikom Regulatory Contract (this is discussed in more detail in Chapter 4 below).

Consideration should also be given to a fully converged unified licensing regime, namelyone that combines telecommunications with broadcasting. A discussion on full convergence (including broadcasting) is beyond the terms of reference of this report. A similar unifiedregime has been adopted in India and is currently proposed in Vanuatu.

The existing telecommunications licences in PNG should migrate (over time) from the current vertically integrated licensing regime to a technology and service neutral, horizontal licence regime. New entrants will operate under this restructured regime from the date of market entry.

2.2 END TO BIFURCATION OF LICENSING RESPONSIBILITIES

The current bifurcation of licensing powers and responsibilities in PNG dates from 2002 and involves one regulator (the ICCC) issuing general telecommunications network and service licences, while another (PANGTEL) issues licences for radiofrequency spectrum (and other technical licences and permits).

The Experts’ Report identified that the separation of licensing responsibilities has created market confusion and discontent between the regulators. The current scenario displays a divisive regulatory environment in which information flows between the regulators areminimal and co-operation limited.


I.1314081 page 16

Given the current state of the market, the changed policy direction and a rapidly evolving market, the Experts’ Report concluded that separation of licensing functions between the regulators is no longer desirable.

Accordingly, consistent with international best practice, it was recommended that licensing responsibilities (including issuance, monitoring and enforcement) should be placed within a single regulator.

2.3 GRANT AND RENEWAL OF LICENCES

The Experts’ Report recommended that the licence application process should be codified by regulations for both individual and class licences. The regulations should provide for eligibility criteria, application consideration criteria, selection criteria, published decisions,and rights of appeal. While some of these concepts already exist today, there is a lack of clarity and general uncertainty in the industry as to their application.

Figure 4 : Grant of licence process

Specifically, class licences should apply as a matter of course provided the applicant complies with certain minimum eligibility criteria. Those areas set aside for class licensing should place few impediments in the path of market entry. Individual licences should be assessed and granted on a case-by-case basis upon application, at any time, subject to consistency with Government Policy.

Tender or auction processes should only apply for the assignment of scarce resources (such as radiofrequency spectrum) and only if it is in the public interest to do so. Ideally, foreign ownership restrictions should be limited and incentives to promote PNG participation should be further considered.

Consistent with existing eligibility criteria, licensees should be PNG incorporated entities, thus subject to PNG corporate and investment laws and any restrictions/criteria set out in such laws. The model licence documentation corresponding to the categorisations should be drafted alongside any new legislative instruments and made publicly available on the ICT regulator’s website.

At the end of a licence term, there should be a presumption in favour of renewal to further encourage investment and facilitate service security for customers. A licensee’s historic compliance with its licence must be a relevant renewal consideration.


I.1314081 page 17

2.4 LICENCE FEES, TERMS AND CONDITIONS

The Experts’ Report concluded that a more rigorous process for assessment and application of licence fees was needed. Such fees should be documented in advance and applied consistently in line with publicised amounts. Licence fees should be categorised as:

• application-related (paid when applying and reflective of the costs in assessing the application); and

• ongoing (annual) fees.

The ICT regulator should ensure transparency in the contribution fees required of licensees and the use to which such fees are put. This can occur by ensuring the ICT regulator has regular reporting obligations (ideally, to the legislature) in relation to the allocation of such contributions.

All licence fees should be aligned to correspond to the cost involved in issuing licences and monitoring compliance with their terms. Accordingly, there should be appropriate fiscal responsibility in order to ensure the actual costs can be assessed.

Administrative charges for application and issuance should be limited to covering the actual administrative costs involved for the regulator in processing the applications and issuing the licence.

Operator annual licence fees should be limited to no more than a certain percentage of a licensee’s revenue in the previous financial year excluding interconnection or other wholesale revenues (and should not fluctuate unnecessarily).

Fees for scarce resources should be ‘reasonable’ and ‘non-discriminatory’ (even where competitive pricing mechanisms are adopted) and should reflect the opportunity cost of those resources. The fees should include any additional contribution that may be required as part of the UAS.

Further conditions will apply to individual licences, including non-exclusivity and interconnection obligations. No limit should be imposed on the number of licences.

2.5 ASSIGNMENT OF SPECTRUM (AND OTHER SCARCE RESOURCES)

2.5.1 Spectrum management

As radiofrequency is a key, scarce and finite resource, the Experts’ Report recommended that careful ongoing management should occur, including more proactive, forward looking management and planning. The existing first-come-first-served model is the manifestation of a reactive spectrum management strategy and is unsustainable in the medium to long term. The model does not allocate spectrum with a view to maximising the value of spectrum as a scarce resource and promoting market growth and efficiency in the ICT sector.

Given the confusion in the current regime, a spectrum usage audit may be appropriate prior to implementation of any new regime. Radiofrequency spectrum will be included in the legislative reforms for Phase 2.

To underpin the successful move to open competition, with appropriately transparent and predictable processes (fundamental pre-requisites for investor confidence), a future looking allocation and assignment program should be developed. The management plan shouldembody a forward looking policy which appreciates the changing nature of PNG’s competitive landscape. It must contemplate allocation of additional spectrum to both current operators and new entrants.

2.5.2 Spectrum allocation and assignment

The complexity of the current spectrum licence categorisations and the inconsistent application of spectrum fees, creates a cumbersome and confusing model. Significant regulator resources are used in merely managing the current regime. This is not an ideal scenario, given the expertise and resource constraints that currently exist in PNG.

The service specific nature of current spectrum assignment is inconsistent with a future of technology and service convergence. In some instances, the law is not followed for


I.1314081 page 18

technical or other valid reasons. Test licences are issued without underlying operator licences and broadcasting services licences are issued without a clear legislative mandate.

A well defined, settled mechanism should be implemented to manage the assignment of spectrum going forward. This mechanism and the consideration criteria should be published and its application should be predictable. It should align with the overall spectrum management plan.

Where a frequency band is not likely to be in demand, individual assignments of frequency should be issued to any person fulfilling certain minimum eligibility criteria. Specifically, the ICT regulator should consider whether the person is, in the regulator’s reasonable opinion, financially and technically capable of meeting its legislative and regulatory obligations as well as the obligations to be set forth in the individual assignment concerned.

A restrictive assignment procedure is appropriate (where there is significant demand for a particular frequency band). Provision should be made in legislation to ensure that the ICT regulator may use any selection process it reasonably considers appropriate, including, without limitation, auctions or calls for tender.

In order to avoid discrimination among applicants, the procedures adopted by the ICT regulator for the assignment of frequencies should be transparent. Frequencies should continue to be assigned distinctly, separate from the operator licence.

Frequency assignment licences should, like operator licences, be divided into three sub-categories:

• individual licences requiring an express regulator decision;

• class licences requiring notification to the regulator; and

• exemptions.

Figure 5 : Frequency assignment licences

Specific measures should be introduced to prevent spectrum hoarding. Consideration should be given to ‘spectrum trading’.

Consistent with the recommendations on institutional reform, the responsibility for licensing radio spectrum should vest with a single converged ICT regulator.

2.5.3 Spectrum Fees

Market entry pricing mechanisms should be established and published.

Consideration should be given to spectrum auction processes, competitive tender processes and simple pre-qualification criteria. The appropriate process may differ depending on the scarcity of the relevant band, competitive tensions and the spectrum management policy.

A simple pricing structure should be introduced that ensures consistency in the charging of fees. Ideally, this mechanism should not change depending on technology used or the service sought. Consideration should be given to different pricing structures, including


I.1314081 page 19

pricing based on percentage of revenue, charges per unit of spectrum, and bandwidth or transmitter power.

2.5.4 Content of frequency licences

The frequency licence should contain as few conditions as possible. The legislation will require all conditions attached to frequency licences to be reasonable and limited to what is necessary to ensure compliance with the provisions of the Telecommunications Act and its associated regulations.

The frequency licence should be technology-neutral and should simply authorise the use of spectrum. Licensees should have the freedom to deploy any device from any site within their spectrum space, provided that the device is compatible with the core conditions of the licence and the technical framework for the frequency bands in question.

Provision need not be made for the trading of frequency licences. The transfer of radio frequencies can be an effective way of increasing efficient use of spectrum, as long as there are sufficient safeguards in place to protect the public interest. However, because ‘sufficient safeguards’ may not yet exist in PNG, frequency trading need not be a key policy principle at this time.

2.6 LICENCE MIGRATION

If a new licensing regime is to be introduced in PNG, the Experts’ Report identified themanner in which existing licensees migrate to that new regime as a critical issue. Given the complexity and sensitivity associated with licence migration, it must be carefully managed and industry participants must be fully engaged.

Figure 6 : Translation of vertical licensing to horizontal licensing

Public Mobile Licence

VAS Licence

General Carrier Licence

ICT Network Provider

ICT Service Provider

ICT Content Provider

Licence migration cannot and should not happen overnight. It is a key step in the path to open competition, but will not succeed unless the overall package of reforms (and, in particular, institutional reform) are implemented.

Ideally, existing licensees should not be deemed to have horizontal licences and should not be obligated to migrate to the new licence regime. Licence migration should be voluntary.However, if the benefits of horizontal licensing are to be received by licensees, full migration should be required (in order to ensure full licence migration).

Existing licensees should not be required to lose any of their current rights as a result of migration.

If possible, the migration process should be undertaken and completed within 12 months of implementation. New licensees, however, should be issued licences in accordance with the new licence categorisations from the date of market entry.

Further incentives to migrate should be considered including:


I.1314081 page 20

• waiver of application fees for those who migrate; and

• the recommencement of the licence term.

2.7 EXPERTS’ REPORT SPECIFIC RECOMMENDATIONS

The Experts’ Report made the following recommendations on licensing arrangements:

Recommendation 1.1 Licensing responsibilities should be assigned to a single ICT Regulator and the licensing application process should be codified within a legislative instrument.

Recommendation 1.2 A simple, three-tier horizontal licensing structure should be implemented in PNG based on the categorisation of operator licensees as network providers, service providers or content providers.

Recommendation 1.3 All new operator licences should be technology and service neutral thereby ensuring that licensees are not artificially constrained with regard to their service and technology decisions. Operator licensing should be kept conceptually distinct from the use of licences to ration scarce resources, such as telecommunications radiofrequency spectrum.

Recommendation 1.4 The distinction between class and individual operator licences should be clarified. Class licences should be automatically granted if the applicant meets minimum eligibility criteria. Individual licences should be capable of being granted at any time based on a case-by-case analysis.

Recommendation 1.5 Regulatory barriers to market entry should be reduced via the increased use of class licensing in conjunction with increased regulatory forbearance.

Recommendation 1.6 The radiofrequency spectrum management regime should be reformed with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment should be adopted.

Recommendation 1.7 All licence fees should be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect actual costs (including, where relevant, opportunity costs, as in the case of scarce spectrum).

3 CONSULTATION FEEDBACK

The majority of consultation participants supported the licence regime recommendations.

Without exception, participants agreed that licensing responsibilities should be consolidated within a single regulator (although views differed as to whether this regulator should be the ICCC, PANGTEL or a new or reformed regulator). The ICCC reiterated the view set out in its previous submission and stated that the ICCC was the most appropriate institution to take responsibility for licensing. The ICCC also suggested that it would be an appropriate institution to implement the licence reforms.

With the exception of Treasury (which expressed a concern that the holding of all three licences could open the regime to ‘market power abuse’), all written submissions were supportive of the proposed three tier, horizontal licensing structure. Not surprisingly, a


I.1314081 page 21

number of participants (PANGTEL and BMobile in particular) sought further details on the specifics of the licence categorisations.

Digicel raised concerns about the impact of licence migration on existing licences and the transition to the new licence regime remains an area of particular interest for most participants.

The more general recommendations in the Experts’ Report in relation to the reduction of market entry barriers and the increased use of a class licence regime were unanimously supported (although the ICCC did not believe that structural reform was necessarily required in order to open the market).

Further detail on the potential reform of the radio spectrum management regime was sought by a number of participants and in the absence of such detail PANGTEL, BMobile and Digicel reserved their rights to comment.

The most diverse array of opinion was expressed in relation to the recommendations on licence fees and the need for these to be consistent, transparent and reflective of actual costs (including opportunity costs). Although the principles of transparency and consistency were uncontroversial, PANGTEL raised queries as to what constituted ‘opportunity costs’and Digicel suggested a percentage of retail revenue for the provision of telecommunications services less the subscriber acquisition costs may be a better method of calculating licence fees. PANGTEL also stated that licence fees for scarce resources should be determined by market forces, and licence fees based on revenue sharing should be considered.

4 FINAL ANALYSIS AND CONCLUSIONS

The manner in which participants have embraced the fundamental licensing reform proposals set out in the Experts’ Report (particularly given the significant structural changes being proposed) reaffirms the pressing need to structurally reform the PNG market in order to:

• facilitate the path to open competition;

• future-proof the PNG licensing regime; and

• permit regulatory forbearance to the extent possible.

The details of the regime will be formulated during the initial implementation phase with the objective being to have the regime operating by October 2009.

The core structure, including the three tier licensing categorisations, will be prescribed in legislation. However, the specific activities that fall within each category (and which activities will be subject to individual licensing, class licensing or licence exemption) will require a case-by-case assessment. This exercise will be undertaken during the initial implementation phase and will include a review of the various markets and an assessment of which activities require closer regulatory attention and which will benefit from less regulation and regulatory forbearance. The specific activities will be set out in a fully transparent, subordinate regulatory instrument (i.e. ancillary regulation under the primary enabling legislative instrument).

Treasury’s concern that the three tier licence regime may be open to ‘market power abuse’ appears to be based on a misunderstanding of the proposals set out in the Experts’ Report. The horizontal structure that will form the platform of the new licensing regime is more likely to prevent market power abuse (certainly relative to the existing vertically integrated licence structure) given the market will be able to be divided along network and service lines and, where appropriate, regulated along such lines.

Digicel’s general concerns about licence migration are legitimate and the effective transition between licence regimes remains a key implementation challenge (and one that necessarily relies upon an effective ICT regulator). The Experts’ Report acknowledges the potential complexity associated with migration and the recommendations remain valid. Licence migration will be a voluntary process which ensures sufficient incentives exist to encourage timely migration.


I.1314081 page 22

The Government is confident that effective transition can be achieved and to this end requires the Department of Communication and Information and NICTA to build upon the dialogue with existing operators that has already commenced during the reform process.

NICTA will have an important role in facilitating the migration of licences and managing the implementation of the new licence regime. As PANGTEL, BMobile and Digicel have suggested, there is more analysis required as to the detail of the radio spectrum management regime. This work will need to be undertaken by NICTA once the institutional model is settled. To clarify this fact, the original Recommendation 1.6 will be amended as follows:

The radiofrequency spectrum management regime should be reformed reviewed byNICTA with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment should be adopted.

Licence fees should, on the whole, better reflect the actual costs of regulating the ICT sector. While the retail revenue percentage model proposed by Digicel is simple, it would not be appropriate to adopt such a cap. Of necessity any cap derived at this stage of the reform process would be arbitrary, particularly where the new regulatory structures are yet to be established. There can be no basis to ensure that any such cap is properly reflective of costs of regulating the sector. The greater transparency and accountability that will be imposed on NICTA should aid in ensuring that fees are reasonable. Recommendation 1.7 will be amended as follows to address the queries raised about the role of ‘opportunity costs’ for scarce resources:

All licence fees should be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect actual costs (including, where relevant, opportunity costs, as in the case of future allocation of scarce spectrum). In considering the inclusion of opportunity costs in future licensing fees, NICTA will balance the allocation of scarce resources (such as spectrum and numbering) with the broader policy objectives of network deployment, service provision and affordability.

Finally, the proposed model will provide a future-proof licence regime that will enable PNG to meet the demands of a converging ICT sector in an agile and efficient manner. The model is consistent with international best practice (while remaining a model that will be particularly suited to the circumstances of PNG). The model is also consistent with PNG’s WTO obligations1.

Accordingly, with the exception of the changes referred to above, the reforms on licensing arrangements will remain consistent with those set out in the Experts’ Report.

5 SPECIFIC REFORMS – LICENSING

In light of the above analysis the following are the specific licensing reforms:

Reform 1.1 Licensing responsibilities will be assigned to a single ICT regulator, known as the National Information and Communication Technology Authority or NICTA.The licensing application process will be codified within a legislative instrument.

Reform 1.2 A simple, three-tier horizontal licensing structure will be implemented in PNG based on the categorisation of operator licensees as network providers, service providers or content providers.

Reform 1.3 All new operator licences will be technology and service neutral thereby ensuring that licensees are not artificially constrained with regard to their service and technology decisions. Operator licensing should be kept conceptually distinct from the use of licences to ration scarce resources, such as telecommunications radiofrequency spectrum.

Reform 1.4 The distinction between class and individual operator licences will be clarified.


I.1314081 page 23

Class licences will automatically apply if the applicant meets minimum eligibility criteria. Individual licences will be capable of being granted at any time based on a case-by-case analysis.

Reform 1.5 Regulatory barriers to market entry will be reduced via the increased use of class licensing in conjunction with increased regulatory forbearance.

Reform 1.6 The radiofrequency spectrum management regime will be reviewed by NICTA with an emphasis on key policy principles and spectrum management plans. A clear mechanism for spectrum allocation and assignment will be adopted.

Reform 1.7 All licence fees will be made consistent and transparent, underpinned by a requirement that licence fees should seek to better reflect economic costs (including, where relevant, opportunity costs, as in the case of future allocation of scarce spectrum). In considering the inclusion of opportunity costs in future licensing fees, NICTA will balance the allocation of scarce resources (such as spectrum and numbering) with the broader policy objectives of network deployment, service provision and affordability.

I.1314081 page 24

CHAPTER 2INTERNATIONAL GATEWAY LIBERALISATION

1 BACKGROUND

The potential liberalisation of the international telecommunications gateway (IGW) in PNG is a politically sensitive and controversial issue. Access to the IGW has been the subject of domestic litigation as well as complaints to a foreign government.

IGW are essentially the facilities through which international telecommunications traffic is sent and received. More specifically, an IGW is any facility that provides an interface to send and receive electronic communications in the form of traffic between one country’s domestic network facilities and those in another country. An indicative diagram of the current IGW architecture in PNG is set out below:

Figure 7 : Current IGW architecture in PNG

The current IGW architecture in PNG interconnects principally with one submarine cable network. There are three functional cable station gateways in the Telikom network at telephone exchanges in Boroko, Lae and Ela Beach. These cable stations connect to a number of overseas carriers via the APNG-2 optical fibre undersea cable. PNG is currently heavily dependent for international connectivity on access to the APNG-2 submarine cable. The APNG-2 cable has sufficient capacity for PNG for the next 5 years.

International satellite circuits from the International Communications Centre at the Gerehu earth station and the smaller Lae earth station are used as back-up for redundancy purposes to the APNG-2 cable.

At the end of 2009 the potential landing and connection of a new Pipe Networks cable known as PPC-1 may also provide a high capacity, reliable alternative connection. Once the PPC-1 submarine cable is laid and connected, PNG will have more direct access to

Gerehu earth station

APNG-2 cable station

Offshore earth station

APNG-2 cable station

International gateway

exchanges in PNG

International gateway exchanges located overseas

(e.g, Telstra, Optus)

Interconnection between

Digicel and Telikom

ElaBeach

Boroko

Lae

Chapter 2: International gateway liberalisation

I.1314081 page 25

the Internet backbone in the United States and potential access to domestic cable connectivity far in excess of current requirements.


2.1 IMMEDIATE LIBERALISATION WITH INITIAL EXEMPTION FROM ACCESS REGIME

The Experts’ Report recommended the immediate liberalisation of the IGW by permitting all network licensees to operate IGW if they meet certain minimum licensing criteria.

The Experts’ Report also recommended that IGW infrastructure should initially be exempted from the access regime in order to preserve investment incentive and that this exemption should be subject to periodic review with regard to competition criteria.

These recommendations had a number of aims.

Immediate and full liberalisation was aimed at imposing an effective competitive constraint on Telikom’s behaviour with respect to IGW services. Telikom’s pricing decisions both at the wholesale and retail level would be constrained by the threat of bypass, most obviously from satellite, and Telikom will have an incentive to make better use of its IGW facilities.

The initial exemption from access regulation was aimed at protecting the legitimate interests of owners of existing IGW infrastructure. The exemption would permit thoseowners to recover the costs of their investment in IGW infrastructure, including a return commensurate with its investment risk.

Widespread access to satellite capacity, and the likelihood that the cost of that capacity will continue to fall, will place continuing pressure on Telikom to optimise the use of its IGW infrastructure, even with the access regulation exemption in place. If Telikom does so respond, it can reap material commercial rewards, if it fails to use this opportunity, it will simply find its competitive position further eroded. As a result, this recommendation puts the burden squarely on Telikom to make beneficial use of valuable assets. At the same time, it ensures that if Telikom fails to seize that opportunity, consumers will be protected through the scope for by-pass.

Liberalisation provides an opportunity both for potential users of IGW services such as ISPs to obtain more reasonable terms and conditions of access and also for owners of IGW infrastructure to more efficiently utilise their IGW facilities.

2.2 TRANSITIONAL ARRANGEMENTS

The Experts’ Report recommended the following approach to transitional arrangements in connection with IGW liberalisation.

1 Digicel’s existing IGW: The recommended IGW liberalisation would permit Digicel to continue to operate its IGW for its own domestic traffic, notwithstanding that the original reason for the initial (so called ‘temporary’) consent has passed. Such an arrangement would also ensure that the wholesale interconnection charges proposed by Telikom for its cable gateway would be constrained by Digicel’s ability to route its traffic through its own satellite gateway.

2 Tariff rebalancing: no mandatory tariff rebalancing was considered necessary in PNG.

3 No quantitative restrictions on the number of licences: under therecommended full IGW liberalisation, no quantitative restrictions on the number of licences issued was contemplated.


I.1314081 page 26

4 IGW licensing: a key recommendation is that a licensing system is maintained in relation to the ownership and operation of IGW. To meet WTO requirements, the criteria for licensing should be justifiable and apply on a non-discriminatory basis to all licensees. Notwithstanding IGW liberalisation, operators of an IGW will therefore still be required to obtain a relevant licence. Licensees will be permitted to operate IGW only if they meet certain minimum licensing criteria. Any persons operating an IGW without a requisite licence should be the subject of enforcement action by NICTA.

5 VSAT operators and implementation of class licensing: The need for enforcement action against existing VSAT operators that do not have licences should be considered in the context of any class licensing. VSAT operators may be potential candidates for a form of class licensing.

6 Licence conditions: The appropriate licence conditions would depend on the nature of the licence that was required to operate an IGW.

7 Licence fees: Licence fees should be reasonable to avoid becoming an artificial barrier to market entry that can confer market power on IGW licence holders. The recommendations relating to the manner of calculation and application of licence fees generally apply equally to IGW licensing.


The Experts’ Report made the following recommendations on international gateway liberalisation:

Recommendation 2.1 Immediate liberalisation of the international gateway should occur by permitting all network licensees to operate international gateways if they meet certain minimum licensing criteria.

Recommendation 2.2 International gateway infrastructure should initially be exempted from the access regime in order to preserve investment incentives. However, that exemption should be subject to periodic review every 3 years with regard to competition criteria.

Recommendation 2.3 Care should be taken in setting minimum criteria for obtaining alicence to operate an IGW so that the ICT Regulator does not lose control over the IGW market. VSAT operators may be potential candidates for class licences.


The ICCC, PANGTEL, BMobile, Digicel, Telikom, Treasury, the NRI, Data Nets and the ADB were supportive of the liberalisation of the gateway. The NRI and Treasury in particular noted the benefits of liberalisation of the gateway, including the positive impacts for end users in terms of service quality and affordability. Nonetheless, some consultation participants had concerns about specific aspects of the proposed gateway liberalisation.

There was some concern from participants regarding IGW licence fees. The ICCC wanted details regarding the amount of any licence fee, Digicel sought confirmation that no fee would be payable for migration to the new system and Telikom stated that it believes it ought to be compensated because it has been denied the full benefits of its monopoly over the gateway. Telikom also emphasised that the liberalisation should occurvia legislative change rather than policy changes.

In relation to the exemption of IGW infrastructure from the access regime there was a divergence of opinions amongst participants. While Telikom stated that there should not be any price regulation of the IGW, PANGTEL emphasised that wholesale pricing should


I.1314081 page 27

be subject to regulatory oversight in order to ensure that network providers do not “charge exorbitant prices”. Digicel commented that the recommendation was “inconsistent with that taken in respect of access to facilities” and suggested that the ‘safe harbour’ proposed by the recommendation should only exist for a maximum of two years. Similarly, the NRI suggested that any exemption from an access regime should only be temporary, for example it should be removed in 3 years, unless a review based on competition criteria suggested otherwise.

There were also comments regarding the minimum criteria for obtaining an IGW licence. Treasury is supportive of the liberalisation of the IGW but notes that the licensing criteria needs to be clearly specified and should ensure operator certainty. Education Milne Bay and Data Nets were supportive of potential class licensing for VSAT, Data Nets commented that this would provide “critical relief from dependency on a single gateway… and PNG, as a whole, would benefit”.


Given that most of the industry has endorsed the recommendations set out in the Experts’ Report, few amendments have been made in the final reforms.

The words “immediate liberalisation” have been deleted given that the new licensing regime is not due to commence operation until October 2009 under the planned transitional arrangements. The reforms therefore now refer to liberalisation occurring as soon as practicable and preferably by October 2009.

The licensing fees for the IGW are intended to be consistent with the recommendations relating to licensing fees as set out in the licensing section of this Final Report. Accordingly, the reforms now reference the other reforms set out in the Experts’ Reportrelating to licensing fees. It is not intended that this Final Report determine the precise licence fees that should be payable, rather such fees are best determined by NICTA in consultation with industry participants at the time.

The proposed exemption from access regulation for IGW infrastructure is necessary for two key reasons. First, to avoid adversely impacting on short-term IGW investment decisions (including planned infrastructure upgrades by Telikom). Second, to reduce the potential regulatory burden imposed on NICTA. The proposed exemption has therefore been retained.

However, the exemption has been given an express sunset date of 1 July 2012consistent with the feedback during public consultation. Such a sunset date addresses a number of concerns raised during further public consultation relating to the exemption period and is more consistent with PNG’s WTO obligations. Beyond that date, it will be possible for IGW infrastructure to be subjected to access regulation under the declaration criteria in the revised wholesale access regime, see the discussion at section 4.2 in Chapter 3.

5 SPECIFIC REFORMS – INTERNATIONAL GATEWAY



I.1314081 page 28

Reform 2.1 Liberalisation of the IGW will occur as early as practicable (preferably byOctober 2009). Network providers should be permitted to operate an IGW if they meet certain minimum licensing criteria. Any licensing fees will be consistent with the criteria in Reform 1.7.

Reform 2.2 IGW infrastructure will initially be exempted from the access regime as part of transitional arrangements and to preserve investment incentives. This specific exemption will expire on 1 July 2012 (on the assumption that liberalisation commences in October 2009). After that date, IGW infrastructure will be subject to potential regulation under the declaration criteria in the revised wholesale access regime.

Reform 2.3 Care must be taken in setting minimum criteria for a licence to operate an IGW so that NICTA does not lose control over the IGW market. VSAT operators may be potential candidates for class licences.

I.1314081 page 29

CHAPTER 3WHOLESALE REGULATION AND ACCESS

1 BACKGROUND

The term ‘access’ is used to describe third party use of particular wholesale services and facilities provided by a network operator. Access allows the interconnection of separate networks so that subscribers of one network can communicate seamlessly with subscribers of other networks. Access also allows service providers to use parts of another operator’s network or facilities where duplication may be inefficient.

The access regime sets out the process and rules for determining whether access to particular services and facilities should be regulated. Where regulation does apply, the access regime specifies the rights and obligations associated with access, including the obligation to provide access to particular services or facilities and the process and/or principles to be followed when determining terms and conditions of access.

A well functioning access regime, suitable to the local environment, is critical to the successful implementation of open competition in the PNG ICT sector.


The Experts’ Report comprehensively reviewed the current access regime in PNG and recommended a number of reforms necessary to support open competition.

The recommendations on wholesale access are designed to address the key shortcomings of the current regime and ensure that the access regime in PNG is consistent with international best practice and with key Government objectives. In particular, the access regime should promote competition at different levels while still protecting the legitimate interests of network owners.

2.1 PROCESS FOR DETERMINING REGULATION

The Experts’ Report recommended the establishment of a single process for declaring access to services and facilities. This process would be set out in the legislation and would include a threshold test applied consistently to all operators and services under consideration.

An initial schedule of services would be deemed as declared in the legislation and would therefore be subject to the obligations of the wholesale access regime from the outset. The Experts’ Report recommended that in PNG this schedule comprise the following services: mobile network terminating access, fixed network terminating access, domestic transmission, domestic inter-carrier roaming in areas where network duplication would be inefficient and mobile tower access in areas where tower duplication is inefficient. This recommendation is similar in some respects to the New Zealand regime whereby a schedule of regulated services is legislated in the Telecommunications Act 2001.

Under the recommended approach other services could be declared under a process prescribed in the legislation with the following key elements:

• any party could request that the ICT regulator conduct an investigation as to whether a particular service should be declared as a regulated service. If the ICT regulator believes the request is valid it would make a recommendation to the Minister for an inquiry to be undertaken. The inquiry only proceeds if approved by the Minister;

• the ICT regulator’s inquiry would be required to consider whether access to the service was necessary for the promotion of competition. The ICT regulatorwould then make a recommendation to the Minister on whether to alter the

Chapter 3: Wholesale regulation and access

I.1314081 page 30

schedule of regulated services. This recommendation would only be made where the ICT regulator was satisfied that the prescribed declaration criteria were satisfied;

• the ICT regulator’s recommendation would be contained in a public report. The Minister would either accept or reject the ICT regulator’s recommendation; and

• once a service was declared as a regulated service, the terms and conditions of access would be determined on a negotiate/arbitrate model where the parties would either agree or, in the event of dispute, the matter could be referred to the ICT regulator to determine the terms and conditions, which it would have to do in a manner consistent with legislated pricing principles. The Minister would have no role in determining terms and conditions of access.

The following important features were also recommended in the Experts’ Report:

• removal of all other existing processes for determining the application of regulation under the current regime. In particular, the process for declaring entities and goods and services in the ICCC Act would not apply to the ICT sector;

• the provisions set out in the mandatory roll-out section of the mobile carrier licences in relation to roaming and infrastructure sharing would be removed and replaced with a reference to the single comprehensive access regulation process set out in the Telecommunications Act. However, under the final reforms roaming and infrastructure sharing are not to be deemed services. Therefore, the reference to these provisions in the licences will be retained with some adjustments to reflect that these responsibilities will sit with NICTA. In the event that roaming and/or infrastructure sharing are declared in mandatory roll-out areas under the access regulation process then the access obligations under the new regime will apply. This will be made clear in the relevant licences;

• explicit exclusion of IGW services (international transmission and the gateway itself) from access regulation for an initial period; and

• the establishment of a corresponding process for the removal of access regulation where it was no longer warranted. The trigger for an inquiry into theremoval of regulation would be the sooner of a request from any party or the Minister (i.e. the same trigger as for the application of regulation); or 5 years from the time the service or facility was declared.

2.2 ACCESS OBLIGATIONS

The Experts’ Report recommended adjustments to the access regime to support a range of forms of competition including network-based competition, services-based competition, and combinations of both.

It was envisaged that this could be achieved by amending the legislation to provide non-discriminatory rights of access to all access seekers, regardless of the licence held the networks deployed or the final services offered. This would include providing all access seekers with a general right of access to regulated services upon request and extending the arbitration powers of the ICT regulator to determine price and non-price terms of access to all access seekers.

2.3 DETERMINATION OF TERMS OF ACCESS

With respect to the process used for determining terms and conditions of access, the Experts’ Report recommended maintaining the negotiate/arbitrate model with interim determination powers, while introducing a number of changes, specifically:

• the ICT regulator’s arbitration powers to be extended to include both price and non-price terms and conditions for all declared services;

• limiting the issues potentially in dispute by introducing a pre-approval process for terms and conditions in the RIO (a document submitted by an access


I.1314081 page 31

provider to the Regulator setting out proposed terms and conditions of access). Under this process the ICT regulator would undertake an assessment of any RIO lodged by an access provider and approve or otherwise the individual terms and conditions of access. The Experts’ Report recommended that any such RIO approval should have a limited duration, up to a maximum of 3 years.

2.4 PRICING PRINCIPLES

The Experts’ Report recommended providing greater regulatory certainty to network owners by legislating pricing principles and removing them from all other legislation, codes and licences. The legislated pricing principles would be referable to internationally well-established costing methodologies (for example, use of the retail minus avoidable cost (RMAC) pricing principle in relation to resale services (including inter-carrier roaming)).

The Experts’ Report recommended that the ICT regulator be required to publish within 6 months of its establishment guidelines details of how it would implement the access pricing principles in the event of a dispute.

The draft pricing principles that were discussed in the Experts’ Report are set out below.

1 Over-arching principle: Access prices would be set to ensure that the access provider could recover its total costs, in recognition of the desirability of providing incentives for ICT investment in PNG. Where the ICT regulatordetermines that efficient costs differ from actual costs, it would be required to be positively satisfied that actual costs are inefficient.

2 Intermediary principles: For access services which involve the resale of a retail service, RMAC pricing would be applied except where this resulted in a price below cost, in which case, cost-based pricing would be applied. In determining a RMAC price, the ICT regulator would be required to have regard to the following factors:

• where more than one price point exists for the relevant service, the starting retail price should be calculated as the weighted average of the retail price points for the relevant service;

• the avoided costs deducted from the retail price should reflect the costs that the access provider can actually avoid by not retailing the services itself; and

• any other factors the ICT regulator considers relevant, to the extent that such factors are consistent with the over-arching principle of cost recovery and the above principles of RMAC pricing.

3 Cost-based pricing: For all other access services, cost-based pricing would be applied. In determining a cost-based price, the ICT regulator would be required to have regard to the following factors:

• the total service costs of access, being the direct and indirectly attributable capital, operating and maintenance costs actually incurred by the access provider in providing the service to itself and the access seeker(s);

• the return on capital, which reflects the opportunity cost of thatinvestment taking account of its risk;

• the requirement for a fair and reasonable contribution to the access provider’s common costs;

• the requirement for a non-discriminatory allocation of costs between the access provider and access seeker(s);

• full recovery from access charges of operational and capital costs incurred in the provision of access and interconnection, which the


I.1314081 page 32

access provider would not have otherwise incurred but for the requirement to provide access and interconnection;

• any price regulation that applies to the access provider to ensure that full cost recovery can be achieved;

• the availability and capacity of the telecommunications network operated by the access provider and the timeframe reasonably required to provide access to additional capacity; and

• any other factors the ICT regulator considers relevant to the extent that such factors are consistent with the over-arching principle of full cost recovery and the above principles of cost-based pricing.

4 Specific pricing: In making an interim determination on domestic inter-carrier roaming, the ICT regulator would apply the RMAC principle and calculate the RMAC price by:

• calculating the weighted average domestic peak retail price of the access provider; and

• deducting 10% of that starting average retail price (as an approximation of avoided costs),

to arrive at the wholesale price for domestic inter-carrier roaming, which is to be applied on a reciprocal basis in the event of any future access determinations.

5 Interim determination: In making an interim determination on tower sharing, the ICT regulator would apply the cost-based principle and calculate the cost-based price by:

• estimating the costs associated with the tower at issue in line with the intermediary cost-based pricing principles; and

• dividing the resulting tower costs by the number of operators sharing the tower,

to arrive at the wholesale price for tower sharing.


The Experts’ Report made the following recommendations on wholesale regulation and access:

Recommendation 3.1 Wholesale access and interconnection obligations should be applied to regulated ‘declared’ services and facilities, not particular regulated entities. All relevant licensees should be subject to, and benefit from, such regulation.

Recommendation 3.2 A schedule of deemed declared services should be legislated. As well as core interconnection services, this schedule should include facilities sharing and mobile roaming to the extent it is uneconomic to duplicate infrastructure.

Recommendation 3.3 Declaration of additional services should occur based on whether access to the facility or service provided over the facility is essential to the promotion of competition. In considering this, the ICT Regulator must take into account:

• whether the facility to which access is sought is provided exclusively or predominantly by a single or very limited number of suppliers;

• whether the facility can be economically or technically substituted in order to provide the service;

• whether lack of access would pose a barrier to entry


I.1314081 page 33

that is likely to make otherwise efficient entry into the market uneconomic; and

• whether access would compromise the incentives for otherwise efficient investment, including as a result of creating undesirable regulatory risk.

Recommendation 3.4 The ICT Regulator should undertake declaration inquiries and make recommendations to the Minister for Communication and Information. The Minister should make declaration decisions.

Recommendation 3.5 Pricing principles should be legislated and removed from all other regulatory instruments. The principles should adopt internationally well-established costing methodologies. The principles should promote infrastructure investment by ensuring full cost recovery.

Recommendation 3.6 The ICT Regulator should determine access disputes for declared services under a negotiate/arbitrate model. Within 6 months of its establishment, it should be required to publish guidelines detailing how it will apply the legislative pricing principles to various types of access disputes.

Recommendation 3.7 Access providers should be permitted to submit binding RIOs to the ICT Regulator for pre-approval for an appropriate period (for example, 3 - 5 years).

Recommendation 3.8 All service declarations should be subject to regulatory review within 5 years. If the criteria for declaration are no longer met, the declaration should be permitted to expire.


3.1 NEED FOR A WHOLESALE REGULATION AND ACCESS REGIME

The concept of a wholesale regulation and access regime in PNG was supported by the vast majority of consultation participants, including the ICCC, PANGTEL, BMobile, Digicel and the NRI. The NRI noted the benefits of the regime:

“Establishment of an access regime should promote competition and is therefore a welcome addition to the ICT regulatory structure. Access arrangements will enable competition in areas where competition would otherwise not occur and enable the costs of infrastructure expansion to be shared and avoid unnecessary duplication.”

Treasury was broadly supportive of these recommendations but emphasised that clear access rules and regulations must be formulated.

Telikom was the only participant that was concerned about the institution of a new access regime. Telikom stated that the use of ‘declared’ services restricts the freedom of players in the market from reaching commercial terms and that access is best left to commercial negotiations between carriers. However, if the regime is implemented, Telikom stated that regulation should be minimal. For example, it contended that the ICT regulator would only monitor prices where commercial agreement fails and the access interconnect rates should be determined primarily on the cost of interconnect which should be shared equally between the parties.


I.1314081 page 34

3.2 DEEMING OF CERTAIN SERVICES AS DECLARED SERVICES

The recommendation in relation to deeming certain services as declared services (in particular, domestic transmission, inter-carrier roaming and tower sharing services) was more controversial.

BMobile contended that inter-carrier roaming can only be supported where mobile coverage and penetration are at higher levels than today.

BMobile, Telikom and Digicel submitted that to mandate inter-carrier roaming would discourage investment in remote areas. Digicel explained that:

“Digicel, like other mobile network operators, invests in less economic or efficient infrastructure in order to grow their network coverage and in turn their competitive differentiation in the marketplace.

Such excessive regulation will result in reducing Digicel’s incentive to invest and in Digicel scaling back its investments in PNG, including in rural areas.”

Digicel contended that the test for declaring services should also apply to the ‘deemed’ services identified in the Experts’ Report recommendations.

The ICCC submitted that additional services should be ‘declared’ via the deeming provisions, namely international voice and data interconnection, ADSL, VSAT and WiMAX and point-to-point Ethernet transmission links.

3.3 CRITERIA FOR DECLARING SERVICES

Digicel was opposed to the criteria set out in the Experts’ Report for declaring services to come within the wholesale access regime. Digicel proposed more stringent criteria that would have to be ‘strictly proven’ before the ICT regulator could recommend that services be declared.

PANGTEL, the ICCC and Treasury were more supportive of the proposed regime. Treasury noted that:

“…the current negotiate/ arbitrate model in the ICT sector has worked relatively well. However, Treasury is supportive of further efforts to improve this model and make it more process specific.”

PANGTEL supported the recommendations but suggested that any process for the declaration of additional services should be simple and transparent. PANGTEL also commented that under the negotiate/arbitrate model the ICT regulator should have the power to intervene as appropriate and to subject the process to a fixed time-line.

3.4 OTHER ISSUES

There was some concern regarding Ministerial involvement in arbitration issues. Treasury suggested that where Ministerial intervention is necessary, the conditions warranting intervention should be specified. The ADB was concerned that Ministerial involvement would weaken the independence of the ICT regulator. The ICCC also expressedconcerns about the proposed veto powers available to the Minister and recommended that the Minister be required to provide a statement of reasons and any decision by the Minister should be appealable in court.

Comments were also received in relation to the recommendation of pre-approval of a RIO, with PANGTEL and the ICCC supporting the proposal. The ICCC commented that the network provider should be required to provide a RIO within 3 months of becoming a ‘declared’ service. Digicel and Telikom were not supportive of mandatory pre-approval of an RIO, and suggested network providers should only be required to notify the ICT regulator of the RIO.

The ICCC and PANGTEL were supportive of the recommendation that pricing principles should be embedded in the Telecommunications Act, while Digicel sought further clarification prior to providing comment.


I.1314081 page 35

Finally, the ICCC was concerned about the proposed removal of its right to declare entities and/or goods and services under the ICCC Act and the proposal to remove the mobile roll-out obligations. The ICCC argued that these proposed changes fail to consider the ICCC’s other sector responsibilities which could be damaged by this proposal.


Consultation feedback revealed overwhelming support for the recommendation to introduce a wholesale access regime that would apply to declared services and facilities. However, two key areas of concern emerged:

• the list of services to be deemed as declared in the legislation; and

• the threshold test for declaration.

4.1 DEEMING

The three carriers (Telikom, Digicel and BMobile) all disagreed with the recommendation to deem inter-carrier roaming and tower sharing primarily on the basis that it would create disincentives for investment in network infrastructure. The ICCC suggested that deeming should be extended to a range of other services while the World Bank queried why infrastructure sharing should be limited to tower sharing.

In response to this feedback, some significant changes to the Experts’ Reportrecommendations have been incorporated into the final reforms.

However, not all of the points raised in submissions have been accepted.

The analysis that follows elaborates on the reasoning behind the deeming recommendation. In particular it:

• explains, from an economic perspective, why domestic inter-carrier roaming and tower sharing are important for encouraging competition;

• in recognition of their importance, it illustrates the extent to which roaming and tower sharing have been subject to regulation in both developed and developingcountries; and

• sets out the reasons why the Experts’ Report recommended the deeming of these services rather than subjecting them to the general declaration process.

4.1.1 Importance of inter-carrier roaming and tower sharing

The importance of inter-carrier roaming and tower sharing for the development of competition in mobile markets has been well documented.2

In particular, it is generally accepted that geographic coverage is an important factor that customers consider in deciding which network to connect to. For instance, the OECD has stated:3

“Consumers seem to care strongly about the geographic extent of the mobile network they have chosen. Mobile networks need to establish significant coverage of the population of a country if they are to provide a competitive service.”

In Australia, the ACCC has opined:4

“While geographic coverage may no longer be a major differentiator between the larger mobile network operators, this does not detract from the importance of geographic coverage, particularly from the perspective of facilitating market entry. In the Commission’s view, given the nationwide geographic coverage of the incumbents, the inability of a new entrant to provide equivalent coverage is likely to be a significant impediment to its ability to attract customers. Moreover, confidential data provided to the Commission on reasons why customers left a


I.1314081 page 36

particular mobile carrier indicate that inadequate coverage was one of the top four reasons for leaving.”

This view is shared by other regulators. Thus, in mandating roaming and tower sharing, Industry Canada noted that:5

“the value of mobile services is closely related to the coverage of the network”.

Similarly, in the UK when conducting a further national roaming consultation in 2004, Ofcom remarked:6

“... research commissioned by Ofcom in recent years has consistently shown that coverage is one of the most important non-price factors taken into account by mobile network users when choosing a supplier.”

There is no evidence to suggest that PNG consumers are any different in their preferences. Moreover, and importantly, these preferences are likely to apply to consumers in all geographic areas, including in major urban centres. For example, in making the decision about which network to subscribe to, customers in Port Moresby would take into account the geographic coverage of available operators not just in Port Moresby but in other areas of PNG. Thus, to the extent that roaming and tower sharing, or lack thereof, give rise to competitive effects, they apply to all areas of PNG.

Geographic coverage is therefore paramount to the attractiveness and, hence, commercial success of a mobile operator’s service offering. A mobile operator’s overall network coverage reflects a combination of the reach of its own network deployments, as well as its ability to secure roaming and other types of infrastructure sharing agreements in those geographic areas where it does not have its own network.

The ability and incentive for a mobile operator to deploy its own network in any given geographic area on a commercially viable basis depends on factors that include the availability of spectrum, economies of scale and sunk cost requirements:

1 In cases where spectrum is limited, potential entrants and carriers must wait for further auctioning of spectrum before they can engage in network expansion. A new entrant can therefore be prevented from offering national services due to spectrum limitations. To that extent, in the absence of inter-carrier roaming arrangements between operators, competition would be limited or even prevented.

2 Economies of scale can significantly impact on the numbers of viable networks in any given geographic area. In particularly dense areas, traffic volumes may justify multiple networks. In contrast, in sparser rural and regional areas, traffic volumes may limit the number of networks which are economically viable or, in extreme cases, may render any network deployment unviable, absent some form of network subsidy.

3 Finally, the deployment of a mobile network may entail material up-front sunk costs, including in respect of base stations, mobile switching centres and transmission links. Again, the ACCC noted the relevance of this issue in the context of inter-carrier roaming issues:7

“Sunk costs increase the risks associated with network deployment. Consequently, carriers may be unable to obtain financing to fully deploy a nationwide network prior to entry because the risk is too high. Once market entry has occurred and a customer base is established, these risks may be reduced to a level where deployment is feasible. However, without the ability to offer national geographic coverage, the carrier may not enter the market in the first place due to the difficulty in attracting customers.”

These three factors in particular may combine to make it uneconomic for more than one operator to deploy a network efficiently in certain geographic areas, especially the less densely populated rural and regional areas. In such cases, the only option for players –especially new entrants – to achieve full geographic coverage and effectively compete against incumbent operators may be to enter into roaming or tower sharing agreements.


I.1314081 page 37

Regulators and governments may legitimately view roaming or tower sharing agreements as a means of mitigating these impediments to network deployment, thereby enhancing competition in the supply of retail services, and also potentially in the supply of roaming services. At the same time, such regulation is intended to encourage investment.

That said, mandated access to roaming has the potential to undermine the mobile carriers’ incentives to deploy national networks in the first place. This is especially important in PNG, which is still at the initial stages of network deployment. As a result, a balance needs to be struck between the goal of promoting competition and that of retaining incentives for investment.

4.1.2 Regulation of domestic inter-carrier roaming and tower sharing

Reflecting the importance of geographic coverage for mobile operators, and the difficulties new entrants may face in achieving full national coverage, incumbent operators in a number of countries have been required by regulation to enter into roaming and tower sharing agreements. In certain cases, such regulations have been imposed via licensing conditions in advance of the auctioning spectrum and/or issuing new licences.

• Canada: Most recently, Industry Canada has set out rules in relation to mandatory tower sharing and roaming in Canada, in anticipation of the auctioning of spectrum licences for advanced wireless services.8 Industry Canada reiterated that the intent of the policy “is to encourage the deployment of advanced networks”.9 As to tower sharing, Industry Canada concluded that “it is in accordance with the orderly development and efficient operation of radiocommunication in Canada to mandate antenna tower and site sharing and to prohibit exclusive site arrangements for all licensees including broadcasting”.

• Europe: Roaming regulations have also been imposed in many countries throughout Europe including 2G-2G roaming in Ireland (on operators with significant market power) and Denmark, and 3G-2G roaming included Austria, Belgium, Denmark, France, Greece, Ireland, Italy, Spain, Sweden and the United Kingdom.10

• US: in August 2007, the FCC clarified that so-called ‘automatic roaming’ is a common carrier obligation for Commercial Mobile Radio Services (CMRS) carriers.11 The FCC required CMRS carriers to provide roaming services to other carriers upon reasonable request and on a just, reasonable, and non-discriminatory basis, as required under Sections 201 and 202 of the Communications Act.12 Also in the US, requirements for co-location are imposed by section 251 of the Telecommunications Act. ILECs are required under section 251(c)(6) of the Telecommunications Act to provide for “physical collocation of equipment necessary for interconnection or access to unbundled network elements at the premises of the local exchange carrier, except that the carrier may provide for virtual collocation if the local exchange carrier demonstrates to the State commission that physical collocation is not practical for technical reasons or because of space limitations.”

• New Zealand: co-location on mobile transmission sites and national roaming on mobile networks are both specified services. This means that the services must be provided and the non-price terms are subject to regulatory oversight, however the price terms are outside the scope of regulation. The Commerce Commission is currently examining whether there are grounds for commencing an investigation into whether roaming should become a designated service (in which case price terms could also be regulated) on request of the Minister.13

• Developing countries: Similar arrangements are also mandated in developing countries. For instance, in India, in 2007, the Government decided to make it mandatory for telecom operators to share their passive infrastructure, including telecommunications towers, to lower the cost of offering services. Mandatoryinfrastructure sharing was to be confined initially to Delhi and Mumbai on a trial basis and, if successful, would be made mandatory across the country. In Nepal, the NTA Interconnection Guideline requires infrastructure sharing at cost-based prices and on non-discriminatory terms and conditions to be mutually agreed by the licensees involved, provided there is the capacity to do so.14


I.1314081 page 38

To the extent that such requirements have not been imposed, this has typically been because agreements have been entered into via commercial negotiation. Moreover, even in those cases, regulators have noted an intention to monitor market behaviour and/or the scope for regulation to be imposed should changes in market conditions dictate.

Thus, in Australia, the entering into of agreements based on commercial negotiation was a factor that influenced the ACCC in deciding not to declare domestic inter-carrier roaming services.15

Similarly, Ofcom’s proposal, outlined in a 2004 consultation document, not to impose an access-related condition which would require the four 2G mobile operators (O2, Vodafone, Orange and T-Mobile UK) to provide national roaming to Hutchison 3G UK (‘3’) in specified circumstances, was influenced by the existence of commercial arrangements for roaming.16

4.1.3 Economic rationale for deeming services

The Experts’ Report recommendation was for roaming and tower sharing services to be deemed rather than declared. As opposed to the declaration process, which applies a threshold test to determine whether a service should be subject to regulation, deeming automatically subjects a service to regulatory obligations.

Importantly, the Experts’ Report recommendation was to limit deeming of roaming and tower sharing services to areas where it would be uneconomic for another operator to duplicate infrastructure. With respect to other areas, where duplication should be commercially viable, mandated sharing would be undesirable as it would blunt the incentives for competition on the basis of geographical coverage. Conversely, sharingdoes have a role to play in the more thinly populated areas as duplication of coverage in those areas would not be economically efficient. In the Experts’ Report, it was recommended that deeming rather than declaration be used in those areas as an appropriate mechanism for promoting competition.

Deeming was favoured on the basis that it was very limited in geographic scope and would enable the benefits of regulation to be brought to fruition immediately. In contrast, it was considered that subjecting these services to the declaration process could potentially delay the benefits of regulation, possibly during an important window of opportunity in the early stages of industry development in which the absence of regulation could entrench any market failures.

The recommendation to deem roaming services also recognised that the regulation of roaming (whether via deeming or declaration) is not a replacement for infrastructure-based competition and hence does not eliminate the competitive advantage of the operator that has deployed infrastructure in an area. An operator using roaming will have little control over service delivery and will need to build roaming charges into its prices.

4.1.4 Conclusion on deeming

Geographic coverage is an important competitive dimension of the market in the supply of mobile services. Domestic roaming and tower sharing reduce the barriers that existing and new operators face in extending the coverage of their networks. These barriers can include spectrum availability, economies of scale and sunk costs. By reducing these barriers, domestic roaming and tower sharing can improve competitive conditions. This is widely accepted by Governments and regulators around the world, and in many developed and developing countries, domestic roaming and infrastructure sharing are subject to regulation in recognition of the importance of these services in facilitating competition.

However, it is to be acknowledged that commercially negotiated outcomes are superior to regulated outcomes and that the market in PNG is at a relatively early stage of liberalisation. Competition to extend geographical coverage can be highly beneficial at this stage of market development, so long as it does not lead to the emergence of market dominance. Digicel claims that there is potential scope for commercially negotiated arrangements in some areas that were identified in the Experts’ Report as potential services that could be deemed. It is appropriate that commercially negotiated outcomes be permitted to play out before the imposition of regulation. This applies equally to the deeming of domestic transmission services.


I.1314081 page 39

However, it is important to ensure that if commercial negotiations fail, regulated arrangements can be introduced on a timely basis to ensure the benefits of competition are delivered to PNG consumers. In particular, it would be harmful to the people of PNG if roaming and tower sharing arrangements were delayed for an extended period of time as a result of protracted litigation with respect to declaration.

With respect to the ICCC’s suggestion to extend deeming to international voice and data services for the period in which one international gateway is mandated, it would not be appropriate to deem IGW services for this reason in what will be a very short transitional period. Therefore, deeming of international services would be inappropriate.

In terms of the ICCC’s other submissions to extend deeming to ADSL, VSAT and WiMAX customer access and point-to-point Ethernet transmission links, the potential declaration of these (or other services) should be considered by the ICT regulator with the appropriate analysis based upon the prescribed declaration criteria rather than by any deeming under these Phase 2 policy reforms.

Accordingly, taking into account the consultation feedback, the following conclusions emerge:

• fixed and mobile termination services should be included in the list of deemed services;

• domestic inter-carrier roaming, mobile tower sharing and domestic transmission should be excluded from the list of deemed services at this stage;

• NICTA must review whether satisfactory commercial solutions to inter-carrier roaming and mobile tower sharing have been put in place within a period of 2 years following the commencement of the new regime;

• domestic inter-carrier roaming and/or tower sharing should be regulated via the declaration process if commercial solutions do not eventuate and the declaration criteria are met; and

• the drafting of the legislation embodying the new wholesale access regime will expressly seek to limit the potential for operators to game the process and the potential for protracted legal action regarding declaration of services.

4.2 DECLARATION CRITERIA

The test for declaration set out in Recommendation 3.3 of the Experts’ Report was opposed by Digicel. Telikom also disagreed with the recommendation but did not provide its reasoning.

Digicel argued that the following stricter tests for declaration be adopted (emphasis added).

“Declaration of additional services should occur based on whether access to the facility or service provided over the facility is essential to the promotion of competition and the circumstances exceptional. In considering this, it must be strictly proven that, at the very least:

• The facility to which access is sought is indispensable, including that the facility cannot be economically or technically substituted in order to provide the service;

• The lack of access prevents the emergence of a new service for which there is consumer demand;

• The lack of access is unjustified, for example, on technical grounds;

• Lack of access poses a barrier to entry such as to exclude anycompetition on a secondary market; and

• Access to the facility will not compromise the incentives for otherwise efficient investment, including as a result of creating undesirable regulatory risk and the long term interests of consumers, while the implementation costs must not outweigh the benefits of access to the facility.”


I.1314081 page 40

In a number of respects (such as those highlighted in the words emphasised above) the test proposed by Digicel sets a very high threshold for declaration.

The approach adopted in the Experts’ Report also adopts, as appropriate in PNG, a relatively high threshold for access. To that extent it is similar in principal to the approach propounded by Digicel. However, Digicel’s test sets an overly high threshold and exposes additional uncertainty and should not be accepted as appropriate for determining when services should be declared.

4.3 THE ESSENTIAL FACILITIES DOCTRINE

Digicel suggests that its proposed changes to the test for declaration reflect the “essential facilities test”,17 which it represents as being the internationally accepted standard in this area.

In both the EU and the US, the essential facilities doctrine (EFD) arises by way of general competition law, rather than as part of infrastructure regulation. In the US, the EFD has been developed through a series of (sometimes conflicting) cases initiated under Section 2 of the Sherman Act, which prohibits monopolisation or attempted monopolisation. In the EU, the EFD arises by virtue of Article 82 of the EC Treaty, which prohibits a dominant undertaking from abusing its dominant position in a market. In both jurisdictions, the doctrine has arisen in the context of refusal to deal cases – i.e. where a monopolist refuses to supply a product/service to a customer. In those circumstances, the EFD may be used as a basis for liability, although the appropriate remedy (which may be an injunction granting access, or penalties in monetary form) would need to be established.

The first, and most important point, is that the criteria set out in the EFD are not (and never have been) used as a test to determine the scope of regulated wholesale access in the telecommunications sector.18 Rather, the EFD is a theory of liability which is occasionally raised in antitrust cases and whose scope and validity remains the subject of much controversy and discussion. The eminent legal scholar Phillip Areeda famously remarked that:19

“You will not find a single case that provides a consistent rationale for the doctrine or that explores the social costs and benefits or the administrative costs of requiring the creator of an asset to share it with a rival. It is less a doctrine than an epithet, indicating some exception to the right to keep one’s creations to oneself, but not telling us what those exceptions are.”

In this sense, the EFD is best characterised as a label that describes the factual circumstances of a particular category of antitrust case, rather than a legal concept. Further, the EFD is not used in either the EU or the US as the threshold test for determining the scope of regulation for telecommunications facilities or services. Rather, as detailed in Chapter 3 of the Experts’ Report, in both the EU and the US, sector-specific regimes govern access to telecommunications facilities. In the EU for example, national regulatory authorities conduct regular market reviews, and when they find that a company has substantial market power, are largely free to apply access regulation. Similarly, in the US the relevant legislation provides for both resale and unbundled network access. In determining which network elements should be unbundled, the FCC is directed by the legislation to consider, ‘at a minimum’, whether access to proprietary network elements is ‘necessary’ and whether failure to provide a non-proprietary element on an unbundled basis would ‘impair’ a requesting carrier’s ability to provide service.20 After a series of decisions from the FCC and Courts, a specific framework was developed for determining the network elements to be unbundled.21 A network element is required to be unbundled if it is determined that lack of access to an ILEC network element ‘poses a barrier or barriers to entry … that are likely to make entry into a market uneconomic.’

Given that the EFD in the EU and US case law is uncertain and not specifically designed to address ICT access, Digicel’s suggestion that it is suitable for determining regulation of ICT facilities and services in PNG cannot be accepted. While there are useful lessons to be learnt from the EFD, its adoption is inappropriate in the PNG telecommunications context and, in particular, for the declaration of access services.

The following specific aspects of Digicel’s preferred test further reinforce why the test should not be adopted.


I.1314081 page 41

1 ‘Exceptional circumstances’: This requirement should not be incorporated into the declaration test. This phrase has no specific economic meaning and would likely provide less not more economic certainty to investors. The circumstances where access is appropriate are those where the appropriate economic tests are met.

2 ‘It must be strictly proven that, at the very least’: This element should be rejected as imposing far too high a burden on the ICT regulator in dealing with declaration decisions. The relevant (internationally recognised) criteria for regulation embody economic concepts to be decided on as matters of economic judgment. These are not matters that can be readily considered under an obligation that they be ‘strictly proven’. Lastly, the phrase ‘at the very least’ implies that there is an additional (unstated) test, so that even ‘strictly proven’ would be a necessary but not sufficient condition for regulation.

3 ‘Indispensible’: Again this sets the threshold for declaration too high and should not be incorporated into the test. However, to avoid any unintended association with the EFD the declaration test will be amended to replace the word ‘essential’ with the word ‘necessary’.

4 ‘Emergence of a new service’: This proposal should not be accepted. It suggests that access regulation should be limited only to cases where it would facilitate the emergence of new services. Therefore, no regulation would apply to services which are essential for the promotion of traditional services such as mobile and fixed voice services and basic Internet services. In PNG this would undermine the rationale for introducing a wholesale access regime, where the focus, at least in the medium term, is on promoting competition in the provision of basic voice and data services. Moreover, a test which calls for consumer demand for a non-existent product to be identified and measured is not capable of practical application, and would create undesirable scope for dispute. Finally, the use of the term ‘new’ invites pointless disputes as to what constitutes novelty. No such test was found to be in use in any other jurisdiction reviewed, compounding the difficulties NICTA would face in implementing it.22

5 ‘The lack of access is unjustified’: This proposal should be partly incorporated into the test for declaration. The use of the term (‘justification’) seems to draw from the US case MCI Communications, which indicates that US antitrust law will not force a dominant firm to share an asset “if such sharing would be impractical or would inhibit the defendant’s ability to serve its customers adequately”.23 This so-called business justification defence is controversial, particularly as a monopolist will always have a commercial reason to deny access. For that reason, it is inappropriate to include it in a law aimed at market liberalisation. However, to the extent that Digicel draws attention to the technical feasibility of providing access, there is merit in the point. Accordingly, technical feasibility will be expressly included in the declaration criteria.

6 ‘Long-term interests of end-users’ (LTIE): This phrase should not be incorporated into the declaration test. The phrase is found in the Australian and New Zealand tests for declaration of telecommunications services. The threeelements of the test in Australia are the promotion of competition, achieving any-to-any connectivity and the promotion of efficient use of, and investment in infrastructure. The proposed declaration criteria set a significantly higher threshold than is included in the LTIE elements in Australia. This is because the proposed test:

• requires that declaration be necessary for the promotion of competition, whereas the Australian test simply requires that competition be promoted;

• requires a degree of market concentration;

• demands that the ICT regulator consider whether there are technical and economic substitutes to declaration; and


I.1314081 page 42

• requires that the lack of access has the effect of excluding competition, whereas in Australia it is sufficient if competition (or indeed, merely the conditions for competition) may be ‘improved’ or ‘enhanced’ by declaration.

The proposed test also contains the protections inherent in the Australian legislation. It ensures that the ICT regulator considers investment incentives and compel the ICT regulator to consider the technical feasibility of access, and the possibility that regulated access will degrade service quality.

In those circumstances the use of the LTIE phrase would add little value and would merely introduce ambiguity and uncertainty into the test, including by indirectly importing Australian precedents.

Overall, the Digicel proposal contains a number of flaws and should not be accepted.

That said, the declaration criteria should have substantial weight, i.e. NICTA needs to do more than merely take them into account. As a result, the test recommended in the Experts’ Report will be amended to ensure that NICTA must recommend declaration if it is satisfied that all of the criteria are met. The revised test, set out below, effectively requires NICTA to recommend declaration when, and only when, it is satisfied declaration would promote the statutory objectives. While this remains a subjective test (i.e. it refers to the NICTA’s evaluative judgement), it places the burden on NICTA to be convinced that the factors identified in the statute will be advanced by declaration.

4.3.1 Conclusion on declaration criteria

While the substance of Digicel’s submission on the declaration criteria should not beaccepted, Digicel’s submission draws attention to the critical importance of investment in PNG. As discussed above, the criteria used to determine the scope of regulation should have substantial weight. Accordingly, the wording of the declaration test will require NICTA to be satisfied that the declaration would be consistent with the criteria.

With that qualification overall, the specific criteria recommended in the Experts’ Reportset a relatively high threshold for declaration, which is appropriate given the desire to attract further investment into the sector. However, a number of changes have been made to the test:

• First, the need for the declaration to be ‘necessary for the promotion of competition’ has been moved from being the overarching criterion for declaration to the first criterion in the threshold test. This acknowledges that the ‘investment’ and ‘technical feasibility’ criteria are not sub-criteria of ‘necessary for the promotion of competition’ but separate criteria that must be satisfied in their own right.

• The criterion that required the service to be ‘provided exclusively or predominantly by a single or very limited number of suppliers’ has been removed. It was considered that this criterion was redundant given the two following criteria.

• The two criteria requiring that the service ‘cannot be economically or technically substituted’ and that lack of access to the service would pose a ‘barrier to entry that is likely to make otherwise efficient entry into the market uneconomic’ have been made sub-criteria under ‘necessary for the promotion of competition’. These two criteria are aimed at ensuring that declaration is necessary for the promotion of competition. In this regard, the first sub-criterion adopts wording from the WTO’s definition of essential facilities used in the General Agreement on Trade in Services Reference Paper on Basic Telecommunications. The second sub-criterion ensures that regulation is limited to circumstances where otherwise efficient entry would be uneconomic. This criterion has precedent in the US and was formulated following a number of FCC and Court decisions.

• The second criteria which gives specific consideration to protecting investment incentives remains largely unchanged although the words ‘including as a result of creating undesirable regulatory risk’ have been removed as they are considered unnecessary.


I.1314081 page 43

• As discussed above, an additional criterion to address Digicel’s concern regarding technical feasibility has been incorporated as the third criterion in the declaration test.

• The language of the criteria has also been modified to ensure consistent reference to the ‘service’ to which access is sought. This does not preclude the declaration of passive infrastructure such as mobile towers but does require access to be defined in terms of a service (e.g. a tower sharing service).

It is also noted that the ICCC proposed the replacement of the word ‘market’ with ‘relevant market’ in the declaration test. There is no need for that change to be incorporated into the declaration test. The current wording does not preclude consideration of a market other than that which the service at issue is provided. Using the term ‘relevant market’ could cause unnecessary disruption, not least in the form of prolonged debates as to what that market was.

Therefore, the test for declaration of ICT services in PNG should be as follows (changes from the recommendations in the Experts’ Report are highlighted):

Declaration of additional services should occur based on whether access to the facility or service provided by the facility is essential to the promotion of competition. an assessment against the legislated criteria, specifically,

NICTA must recommend declaration if it is satisfied that all of the following criteria are met: In considering this, the ICT Regulator must take into account:

1 the declaration of the service to which access is sought is necessary for the promotion of competition, in particular:

• the service to which access is sought whether the facilitycannot be economically or technically substituted in order to provide the service;

• whether lack of access to the service would pose a barrier to entry that is likely to make otherwise efficient entry into the market uneconomic;

2 whether declaration of access to the service would not compromise the incentives for otherwise efficient investment, including as a result of creating undesirable regulatory risk; and

3 it is technically feasible to provide the service to which access is sought, taking account of the effects, or likely effects, that supplying the service would have on the operation or performance of the infrastructure used to provide the service.

4.4 OTHER ISSUES

4.4.1 Role of the Minister in the Declaration Process

Concerns were raised by the World Bank and ADB regarding the discretion provided to the Minister to make service declaration decisions. The ICCC and Digicel raised issues of clarification regarding the extent of the Minister’s powers and Treasury stressed that Ministerial intervention in arbitrations should be avoided.

The Minister’s only involvement in the declaration process will be to either accept or reject the recommendation of NICTA to declare a service.

It remains appropriate that the Minister be responsible for the final declaration decision for the reasons set out in the Experts’ Report, namely that regulation fundamentally modifies the property rights of a facilities owner. Such changes in property are of such importance that they are properly taken by a Minister accountable to Parliament.

In response to Treasury’s point, it is emphasised that once a service is regulated, the determination of terms and conditions of access via the arbitration process would be a matter for NICTA. The Minister will have no role in determining the terms and conditions


I.1314081 page 44

of access (other than a right, as currently exists, to intervene in any appeals process from an arbitration decision).

4.4.2 Pricing principles

PANGTEL agreed with the pricing principles but noted that full cost recovery should imply efficient costs. Digicel sought further clarification on the pricing principle and did not support the RMAC principle. Telikom disagreed with the recommendation but provided no reasoning.

In terms of efficient versus actual costs, the use of actual costs provides greater investment certainty to existing operators and potential entrants. As emphasised throughout the Experts’ Report, providing incentives for ICT investment in PNG is critical to achieving the Government’s ICT policy objectives. This does not rule out the use of efficient costs in determining access prices, however, the onus of proof rests with NICTA to demonstrate that actual costs are inefficient.

Digicel argued that pricing needs to be reflective of costs taking into account network externalities and two-sided markets. It is not appropriate for the legislated pricing principles to include details regarding all of the potential costs that may be taken into account in determining wholesale access prices. If Digicel believes there are legitimate costs with respect to a declared service then it will be able to put its position to NICTA in the context of any arbitration process. In terms of the use of RMAC, the pricing principles stipulate that it is not to be used where it results in a price below cost. Therefore, if Digicel can demonstrate that the RMAC approach would result in a price below cost then the cost-based pricing principle would apply.

4.4.3 Pricing guidelines

Digicel did not support the publication of pricing guidelines in such an early stage of development but suggested that pricing methodologies should be developed on a case-by-case basis that respect the legislative pricing principles.

The purpose of the pricing guidelines is to provide the industry with greater certainty regarding the approach that NICTA will take in implementing the pricing principles. The purpose of the guidelines is not to develop detailed methodologies or models for calculating pricing, which it is agreed should be done on a case-by-case basis. Based on earlier rounds of consultation, it was clear the industry participants believed that greater clarification and certainty over the implementation of pricing principles was required.

The Experts’ Report recommended that the ICT regulator should publish the guidelines within 6 months of its establishment. Given the other responsibilities of the newly established NICTA this may be overly ambitious. Therefore, NICTA will be required to publish such guidelines within 12 months of its establishment.

4.4.4 Reference Interconnection Offer

Neither Digicel nor Telikom supported Recommendation 3.7 of the Experts’ Report which involved the option to submit a binding Reference Interconnection Offer (RIO) for pre-approval to the ICT regulator. Digicel did not support the necessity for pre-approval of the RIO and Telikom suggested the RIO should be submitted to the ICT regulator for price monitoring purposes only.

Recommendation 3.7 is not intended to make it compulsory for access providers to lodge a RIO with NICTA. This would be done on a voluntary basis for the purpose of limiting areas of dispute with access seekers. An access provider could put forward a set of terms and conditions relating to access to a declared service which NICTA could approve or reject. If approved, these terms and conditions would apply in the event of an accessdispute. This would avoid the need to seek arbitration on every issue by NICTA and would provide both access providers and access seekers greater certainty for the term of the RIO.

For this reason, the RIO would only be effective if approved by NICTA and is not intended to be a price monitoring mechanism.


I.1314081 page 45

4.4.5 Review of declarations

There was general support for reviewing the need for ongoing declaration of services, although Digicel argued that the period for review should be reduced from 5 to 3 years.

Five years from the time of declaration is an appropriate duration for a mandatory review. Declaration reviews can be undertaken earlier than 5 years from the date of declaration by way of a request from any party or the Minister (i.e. the same trigger as for the application of regulation).

5 SPECIFIC REFORMS – WHOLESALE REGULATION AND ACCESS


Reform 3.1 Wholesale access and interconnection obligations will be applied to regulated ‘declared’ services and facilities, not particular regulated entities. All relevant licensees will be subject to, and benefit from, such regulation. The process for declaring entities and services in the ICCC Act (and therefore the use of Regulatory Contracts) will not apply to the ICT sector.

Reform 3.2 Fixed and mobile terminating access services will be declared services under the legislation. Absent commercial arrangements, potential competition benefits can be secured from declared facility sharing and mobile roaming to the extent it is uneconomic to duplicate infrastructure. Whether such services are declared will be assessed by NICTA against the criteria specified in Reform 3.3.

Reform 3.3 Declaration of additional services will occur based on an assessment against the legislated criteria. The precise terms to be prescribed will be formulated in the enabling legislation and will capture the following specific principles:

NICTA must recommend declaration if it is satisfied that all of the following criteria are met:

1. the declaration of the service to which is access is sought is necessary for the promotion of competition, in particular:

• the service to which access is sought cannot be economically or technically substituted;

• lack of access to the service would pose a barrier to entry that is likely to make otherwise efficient entry into the market uneconomic;

2. declaration of access to the service would not compromise the incentives for otherwise efficient investment; and

3. it is technically feasible to provide the service to which access is sought, taking account of the effects, or likely effects, that supplying the service would have on the operation or performance of the infrastructure used to provide the service.

The declaration criteria will be prescribed in legislation.

Reform 3.4 NICTA should undertake declaration inquiries and make recommendations to the Minister for Communication and Information. The Minister will be permitted to either accept or reject the recommendations.


I.1314081 page 46

Reform 3.5 Pricing principles will be legislated and removed from all other regulatory instruments. The principles will adopt internationally well-established costing methodologies. The precise principles will be formulated in the enabling legislation and will promote infrastructure investment by ensuring full cost recovery as discussed in section 2.4 of Chapter 3 of this Final Report.

Reform 3.6 NICTA will determine access disputes for declared services under a negotiate/arbitrate model. Within 12 months of its establishment, NICTA must publish guidelines detailing how it will apply the legislative pricing principles to various types of access disputes.

Reform 3.7 Access providers will be permitted to submit binding RIOs to NICTA for pre-approval for an appropriate period (for example, 3-5 years).

Reform 3.8 All service declarations will be subject to regulatory review within 5 years of declaration. If the criteria for declaration are no longer met, the declaration will be permitted to expire.

I.1314081 page 47

CHAPTER 4RETAIL REGULATION AND PRICING

1 BACKGROUND

In addition to regulation applied at the wholesale level to regulate the relationship between different telecommunications operators, regulation is also applied to regulate the relationship between telecommunications operators and end consumers.

Such regulation typically seeks to address information asymmetries and imbalances of bargaining power, but may also include the direct regulation of retail prices in circumstances where monopoly pricing could otherwise occur.

Consumer regulations in PNG are predominantly imposed via the Telikom Regulatory Contract. The Telikom Regulatory Contract is binding on Telikom and the ICCC pursuant to the provisions of the ICCC Act and the Telecommunications Act. The Telikom Regulatory Contract provides for the protection of consumers, in the form of both price and non-price regulations. In particular, it imposes price cap regulation on certain fixed and mobile services and less prescriptive regulation of the prices of other Excluded Services. It also contains a set of service standards that, if breached after a certain period following commencement, require Telikom to compensate customers.


2.1 REMOVAL OF RETAIL PRICE REGULATION

The Experts’ Report noted that while a price cap approach to retail price regulation is consistent with international best practice and the experience in a number of developing countries, it is applied more widely in PNG than elsewhere. The application of price caps is usually limited to services where wholesale price regulation or competition is inadequate to constrain prices. In a number of countries there is usually no (or minimal) retail price regulation applied to mobile services. Accordingly, the Experts’ Reportrecommended the removal of retail price regulation from Telikom’s mobile services.

In relation to fixed network services, it was recommended in the Experts’ Report that a market definition and market power analysis be undertaken for fixed network services to determine whether ongoing retail price regulation is warranted.

2.2 REVIEW OF ONGOING RETAIL PRICE REGULATION

If retail price regulation is to continue the Experts’ Report recommended regular reviews of the retail price control arrangements, particularly in terms of reducing the extent of regulation applied to Telikom’s services as competition develops. This includes assessing the extent to which mobile competition constrains Telikom’s pricing behaviour on both the mobile and fixed networks.


The Experts’ Report made the following recommendations on retail regulation and pricing:

Chapter 4: Retail regulation and pricing

I.1314081 page 48

Recommendation 4.1 All retail price regulation of Telikom’s mobile services should be removed.

Recommendation 4.2 All retail price regulation of Telikom’s fixed services should be removed unless the ICT Regulator can justify the need for such regulation under a market power analysis.

Recommendation 4.3 To the extent any retail price regulation is retained, regular reviews should occur with a view to reducing that regulation as competition develops.


PANGTEL, BMobile, Telikom, Digicel, the World Bank and Treasury were generally supportive of the recommendations to remove retail price regulation of Telikom’s mobile and fixed line services and for the regular review of any ongoing retail price regulation.

The World Bank commented that price regulation should be applied to all operators where a competition analysis identifies an operator as ‘dominant’.

Digicel qualified its support for the recommendations stating its support of the removal of regulation of mobile services was, “subject to Digicel operating its own IGW and Telikom still being subject to competition rules in order to avoid abusive leveraging of its fixed monopoly.” In relation to the removal of price regulation of fixed line services Digicel suggested that the recommendations go further, arguing that the ICCC should have no power to implement retail pricing or regulatory contracts unless pursuant to implementation of general competition rules.

Treasury was supportive of the removal of price caps in principle, but noted the risks associated with market power abuse if price caps were removed. It was suggested by Treasury that a regulatory reset in 2011 may be an appropriate mechanism for consideration of the market power issue.

The NRI and the ICCC were not supportive of the removal of fixed and mobile price regulation. The ICCC commented that:

“…immediate deregulation of prices for Telikom's fixed network is an ill conceived idea when it is still and would continue for some time to be the monopoly fixed network provider.”

The ICCC contended that mobile prices should eventually be deregulated but that this cannot occur until there is clear operational separation between Telikom’s fixed and mobile operations.

The NRI stated that recommendations failed to consider the ongoing oversight of non-price regulation and noted the importance of regulation in relation to service quality.


With the exception of the ICCC, the consultation feedback provided strong support for the removal of retail price regulation from mobile services. There was also general in principle support for the removal of retail price regulation from fixed services where an operator does not have market power. However, a number of participants believe that Telikom continues to have market power in the provision of fixed network services and hence there is an ongoing need for retail price regulation of Telikom’s fixed network services.

Before responding to the specific issues raised in consultation feedback regarding retail price regulation it should be recognised that regulation has the potential to be very costly.


I.1314081 page 49

Among other things, it substitutes the regulator’s judgment for market interactions. No matter how capable and well intentioned regulators are, they will never be able to produce outcomes as efficient as a well-functioning market.24 Therefore, regulators should not interfere in retail pricing decisions unless regulation is justified. The specific concern with respect to retail pricing is that operators with substantial market power may exercise that power to raise price above competitive levels. This in turn will reduce consumption and lead to a loss in social welfare. Therefore, regulation of retail pricing will only be justified if an operator has substantial market power and exercises that power to cause material harm to consumers.

It is for these reasons that the recommendations in the Experts’ Report focused on limiting retail price regulation to the provision of services where operators have substantial market power.

However, the presence of a substantial degree of market power, with consequent harm to consumers and efficiency, is a necessary but not sufficient condition for justifying retail price regulation. Where an effective access regime is in place, the attempt to set unduly high retail prices is likely to prove transient, as those prices induce the entry and expansion of competitors. It would be counterproductive were retail price regulation to hinder or prevent this process from working, as the result would be to perpetuate both market power and regulation, with all the attendant costs. As a result, it is crucial that retail price regulation only be introduced where doing so will not prevent competition from developing, even if with a lag. A focus on the protection of consumers in the short run should not, in other words, distract from the primacy of securing effective competition where that can be achieved.

4.1 PRICE REGULATION OF MOBILE NETWORK SERVICES

As discussed in the Experts’ Report, Telikom is currently subject to a price cap on retail mobile tariffs via the Regulatory Contract between Telikom and the ICCC. Digicel is under no corresponding obligation. The ICCC indicates that it believes that regulation is justified in the immediate future. In an earlier submission, it indicated that “only the network roll-out of a third licences carrier would allow sufficient competition to support an argument for reduced or eliminated price control arrangements”.25 In our view, there is no evidence that supports the ICCC’s position. On the contrary, the competitive process in mobiles currently appears vigorous and effective.

The price controls on Telikom’s mobile services (now BMobile) are only justified to the extent that Telikom has substantial market power in the provision of those services. While a formal analysis of this market has not been conducted, there is no basis for concluding that Telikom has substantial market power. Available market share information suggests that Telikom’s share of the mobiles market has been rapidly eroded by Digicel and as of December 2008 was less than 35%.26 On this basis, ongoing regulation of BMobile’s retail tariffs is completely unjustified.

Further, the ICCC’s argument that three firms are required in the mobile market to ensure competitive outcomes is flawed. The literature provides no more assurance that three competitors would produce a competitive outcome, than it provides evidence that two competitors would not. The state of competition in a market is not assessed by a simple reference to the number of market participants but instead is determined by analysis of actual market conditions.27 In PNG, there is no evidence of collusion (whether tacit or explicit), nor any evidence of non-coordinated effects, both of which would, if present, indicate that the current duopoly is not competitive. Absent this evidence, and with no market power justification for retail price regulation, regulation of Telikom’s mobile retail prices is unjustified because it is more likely to distort competition than promote it.

However, it is acknowledged that, as suggested by the World Bank, in a newly liberalised environment other operators may emerge as dominant in their markets and consideration should be given to retaining some sort of retail price regulation regime that could apply to any operator holding a dominant position or substantial market power. This provision is reflected in the final reforms.


I.1314081 page 50

4.2 PRICE REGULATION OF FIXED NETWORK SERVICES

The ICCC has expressed reservations about the deregulation of fixed-line retail price regulation. It indicates that Telikom has market power, and that this market power is not constrained by mobile competition. Similar concerns were raised by Treasury and the NRI.

As noted in the Experts’ Report, prices for fixed line services must be (to some extent, and probably to a considerable extent) constrained by mobile competition. Moreover, international experience suggests that the distinction between fixed and mobile service markets is blurring and the degree of the constraint on fixed services from mobiles will increase further over time.

Even regulators in developed countries, which have historically determined fixed and mobile services to be in separate markets, have recognised the need to reconsider their positions. For example, Ofcom has noted trends that suggest it is increasingly prepared to acknowledge the scope for substitution between fixed and mobile services.1 Ofcom observes that the mobile sector is now larger by revenue than the fixed and broadband sectors combined.2 Ofcom further acknowledges that:3

“… the mobile sector is an increasingly integral part of a broader communications market. The distinction between fixed and mobile networks, previously clear, is starting to blur. In an international marketplace, events here are affected by events elsewhere – both within Europe and, increasingly, in developing economies with whom we are interdependent.”

Ofcom notes that fixed-mobile substitution is a potential driver for “significant market change” and will have important implications for regulation.4 In particular, Ofcom concludes that trends in the mobile sector warrant a market review to determine whether existing fixed service regulations remain relevant:5

“We have … described how the use of mobile voice services has grown, and the use of fixed voice services has shrunk, over a number of years.

These data are not a conclusive basis for determining that mobile and fixed services are directly competing in a single defined market (as that term is understood in competition policy). However, we think that it supports the view that now is the right time to review the fixed narrowband market – that is, the market for fixed voice services. We have commenced two related reviews, covering the retail and wholesale markets. Those reviews will consider whether the regulation that has been applied to BT (and Kingston) previously continues to be relevant, given the competition conditions in those markets.

Those reviews will consider whether BT still has significant market power in relevant markets defined in that review, by applying established principles of competition policy. A critical question will be the extent to which BT faces competition from, for example, the services of other fixed line operators (such as Virgin Media, the cable company) and from other sources – including mobile services.

Although not, strictly speaking, a question of regulation relating to the mobile sector, it may represent one of the most significant long-term de-regulatory impacts of the changes occurring in mobile and wireless markets. Given the significant benefits that competition can bring over regulation, the prize for consumers – in terms of innovation and competition – of any de-regulation could be large.”

1 Ofcom, Mobile citizens, mobile consumers, Consultation, published 28 August 2008.2 Ofcom (2008), p. 2. See also Ofcom (2008), p. 7: “mobile calls look set to outnumber fixed calls in the UK within the next 12 to 18 months; and the mobile sector now earns more revenue than the fixed, corporate data and broadband sectors combined. At the same time, it is the fastest-growing of these sectors.3 Ofcom (2008), p. 2. 4 Ofcom (2008), p. 4 and p.8.5 Ofcom (2008), p. 121 – 122.


I.1314081 page 51

Other organisations have also noted the trend in substantiation between fixed and mobile services. For instance, the OECD has recently stated that:6

“The high penetration of mobile phones in OECD countries has led to significant substitution with respect to the share for traffic between fixed and mobile networks.”

The ITU has previously observed that the acceleration of fixed-to-mobile substitution has affected incentives to invest in fixed networks, resulting in reductions in relevant licence fees in order to attract new market entrants in this area:7

“The interest in fixed-line licences has declined over the last five years or so. First, most of these licences have included mandates for operators to build their own networks, incurring considerable time and costs. Secondly, fixed-to-mobile substitution has accelerated, making it harder to justify major new investments in fixed-line networks when customer bases for those services are dissolving. Finally, potential investors are concerned by the poor showings of some competitive fixed-line operators.

In light of this market shift, the emerging tendency outside of Africa has been to place modest licence fees for fixed network services in order to attract and encourage new market entrants. In fact, a growing number of regulators have eliminated large one-time fees and required payment of only a small application fee.”

Given the increasing trend for substitution between fixed and mobile services, it cannot be assumed that Telikom has substantial market power in the provision of fixed line service. Further, it must be acknowledged that under the new regime Telikom’s monopoly over fixed network services will cease. New entry into the provision of fixed network services (or the threat of such entry) will therefore impose a further competitive discipline on Telikom. However, the market analysis required to make a definitive recommendation regarding the removal of retail price regulation from fixed line services is a matter that should be considered by NICTA. For this reason, the final reforms reiterate the recommendations set out in the Experts’ Report that a market definition and market power analysis be undertaken in order for the extent of competition to be properly quantified and the need for regulation determined. It is inappropriate to postpone this analysis to 2011 when the regulatory contract expires. The wording of the final reforms has been altered to more accurately reflect this.

4.3 RETENTION OF RETAIL PRICE REGULATION

As noted above, the final reforms have been modified to maintain provisions in the legislation for the application of retail price regulation to any operators with substantial market power. These provisions should not apply solely to Telikom but rather should be assessed using a competition analysis across all operators.

Given that industry-wide provisions for retail price regulation are to be implemented, it would be inappropriate to retain Telikom-specific retail price regulation in a Regulatory Contract between Telikom and the ICCC. Rather, the provisions for retail price regulation should be moved to the Telecommunications Act and should be the responsibility of NICTA. NICTA is responsible for all other aspects of ICT-specific regulation and hence should also be responsible for retail price regulation of the ICT sector if it is required. This is particularly important given the need to ensure consistency between retail and wholesale access price regulation.

Consistent with the recommendations made in the Experts’ Report, regular reviews of retail price controls arrangements should be undertaken, however, this would be for the purposes of assessing both:

6 OECD's Directorate for Science, Technology and Industry, Fixed-Mobile Convergence: Market Developments and Policy Issues, 23 March 2007, p. 8.7 See ICT Regulation Toolkit, Practice Note: Trends in One-time Initial Authorization Fees, excerpted from Chapter 4, “Licence Fee Practices: Historical Perspectives and New Trends,” ITU Trends in Telecommunications Reform – 2004/05: Licensing in an Era of Convergence, by Lynne Dorward and Clayton Rogers (Geneva: ITU, 2004), accessed from http://www.ictregulationtoolkit.org/en/PracticeNote.aspx?id=1226.

www.ictregulationtoolkit.org/en/PracticeNote.aspx?id=1226

http://www.ictregulationtoolkit.org/en/PracticeNote.aspx?id=1226


I.1314081 page 52

• the need for continuing with existing retail price regulation; and

• the need for introducing new retail price regulation to the services offered by any other operators.

4.4 OTHER ISSUES

The NRI raised a concern about the future of non-price regulation. In terms of quality of service regulation, it is noted that quality of service requirements are part of the licence conditions of each of the carriers. This approach appears reasonable and consistent with the practice in other developing countries. However, as noted in the Experts’ Report, the requirements do differ between carriers and there is potential to align quality of services requirements across carriers in the issuing of new licenses.

The NRI also suggested that it may be appropriate to consider retail price regulation in regard to the services provided and funded through the UAS. Consistent with this suggestion, it is envisaged that retail pricing requirements for areas funded via the UAS would be made explicit in the tender documents for pre-defined areas and services. The pricing limitations in such areas will be critical to determining the level of subsidy required under the scheme.

The World Bank suggested that retail price regulation may also be required to address potential anti-competitive conduct such as price squeezes. However, this would impose an artificial price floor on retail pricing which is likely to limit innovative pricing structures that are a feature of competitive markets. Moreover, it would increase the burden on the regulator, impose compliance costs on regulated entities and increase the risk of regulatory error. Therefore, the use ex-ante retail price regulation for the purposes of controlling potential anti-competitive pricing is unlikely to be in the interests of PNG consumers. Rather, it is more appropriate for anti-competitive conduct concerns, including anti-competitive pricing, to be addressed through the general ex-post conduct provisions in the PNG competition legislation.

4.5 THRESHOLD FOR APPLICATION OF RETAIL PRICE REGULATION

The test for the application of retail price regulation should be amended to ensure that retail price regulation is justified. The first change proposed is aimed at ensuring that a finding of substantial market power by NICTA would not be otherwise addressed by the competitive process over the period that the retail price regulation is to apply.

The second change requires NICTA to be satisfied that the substantial market power of an operator is causing harm, and (in the absence of regulation) will continue to cause harm, to consumers. This is important given the comprehensive reform of the wholesale access regime. An operator may have substantial market power but as a result of the wholesale access regime is prevented from exercising this power. In such a case, the substantial market power of the operator would be addressed at the wholesale level and no retail price regulation would be required.

The third change requires that the imposition of price regulation would actually be effective by substantially mitigating consumer harm. The final change requires that the benefits of imposing the retail price regulation outweigh the detriments, including costs associated with potential market distortions or delays in the development of competition.

Also included in the final reforms are the issues discussed in earlier sections, namely that retail price regulation should no longer be imposed by the Regulatory Contract mechanism but maintained (even when not in use) in the Telecommunications Act. Retail price regulation should be implemented by NICTA and regular reviews of retail price regulation should occur. Such reviews should apply to all operators, not just Telikom.

5 SPECIFIC REFORMS – RETAIL REGULATION AND PRICING



I.1314081 page 53

Reform 4.1 The current retail price regulation of Telikom’s mobile services will be removed. In respect of Telikom’s fixed network services, NICTA must conduct a review to determine whether ongoing retail price regulation of these services is warranted. This review (applying the criteria in Reform 4.3 below) should be completed as soon as practical.

Reform 4.2 Retail price regulation should not be required in the face of more effective and efficient access regulation and greater competition under these Phase 2 reforms. Accordingly, the following general reforms concerning retail price regulation will apply:

• the Regulatory Contract mechanism in the ICCC Act will no longer apply to regulate retail prices in the ICT sector;

• a mechanism for regulating retail prices will be retained in the Telecommunications Act (even if not in active use);

• retail price regulation under these provisions will come within the powers and functions of NICTA; and

• when assessing the need for retail price regulation under these provisions NICTA will be required to apply the test set out in Reform 4.3 below.

These retail price regulation provisions will have potential application to all operators.

Reform 4.3 In determining whether retail price regulation of an operator’s services is warranted NICTA will be required to be satisfied that all of the following criteria are met:

• the operator has substantial market power in the provision of the service and this is highly likely to persist over the period of regulation;

• the substantial market power is causing and is likely to cause material harm to end-users;

• that harm could be substantially mitigated via the imposition of retail price regulation; and

• the benefits of imposing retail price regulation outweigh any detriments, including any potential costs arising from market distortions or delays to the development of competition.

I.1314081 page 54

PART CFUTURE OF COMMUNITY SERVICES

I.1314081 page 55

CHAPTER 5UNIVERSAL ACCESS ARRANGEMENTS

1 BACKGROUND

One of the key objectives identified in the Government’s National ICT Policy of April 2008 is to ensure that ICT infrastructure is available to as many as possible at affordable prices. This goal was set in recognition of the opportunities that the increased use of information and communications technology can provide to the people of PNG in facing challenges associated with the economy, geographical isolation, education and health.

A primary strategy for meeting the Government’s objectives is the introduction of open competition. However, the Government also recognises that competition alone will not be sufficient to achieve its ICT objectives and that the development of a Universal Access Scheme is an important component of these Phase 2 reforms.

There is currently no formal or legal universal access regime in PNG designed to bring expanded telecommunications services to those more remote areas of PNG which do not have access to telecommunications. However, certain roll-out obligations have been imposed on the three licensed mobile carriers. The ICCC has described these obligations as a ‘de facto Community Service Obligation’.

The roll-out obligations require the roll-out of mobile networks to a total of 229 (minimum) locations throughout PNG, comprising 8 main centres, 14 mid-sized centres, 87 district administrative centres and 120 smaller population centres. Broadly speaking, theobligations require each public mobile licensee to provide network coverage in certain localities by no later than certain specified dates over a 5 year period.


2.1 WORLD BANK “RURAL CONNECTIVITY FUND” PROPOSAL

The World Bank has made provision in the context of the PNG Country Assistance Strategy to support implementation of a Rural Connectivity Fund (RCF).

The Experts’ Report sets out the key features of the World Bank proposal based on consultation with the World Bank team and summary documents provided.

2.1.1 Targets

The World Bank RCF proposal involves the establishment of a fund for the provision of access to services in areas where an ‘access gap’ exists. The ‘access gap’ is made up of those areas that are unlikely to be served by market forces in the medium term, as illustrated in Figure 8 below. Within this access gap, the World Bank identifies the sustainability frontier and the universal service frontier.

The ‘sustainability frontier’ comprises areas where the provision of access to services would remain unprofitable even with a well-functioning competitive market under a stable regulatory environment. This is illustrated in the diagram below.

Chapter 5: Universal access arrangements

I.1314081 page 56

Figure 8 : Sustainability frontier (and the access gap)

Sustainability Frontier

Market Efficiency Frontier

Current access

Universal Service Frontier (100%)

High Income Households

MarketGap

AccessGap

Low Income Households

Requires Universal Service Fund, but once demand catches up, service is expected to

cover its operational costs.

Penetration level achievable in a well-functioning competitive market

under a stable regulatory environment

Areas within the ‘sustainability frontier’ are those where a once-off capital subsidy is required to fund the provision of access to services after which the supply of servicesshould be self-funding and financially sustainable. In contrast, areas within the universal service frontier (typically extremely remote and inaccessible locations, with very small populations) would likely require ongoing funding for operational costs.

The World Bank proposed as initial target areas for inclusion in the RCF those areas that are within the sustainability frontier. For those areas the World Bank, in consultation with the telecoms industry and regulatory institutions, initially identified certain minimum service targets.

In its first phase of operation, the RCF would therefore make available one-time capital subsidies for achieving these minimum targets in areas where they have not been met by market forces and where they are unlikely to be met in the medium-term by market forces.

2.1.2 Funding arrangements

In terms of funding arrangements, the World Bank is proposing a ‘smart subsidy’ scheme, to be financed through the RCF. The smart subsidy scheme is a reverse auction where contracts for a once-off capital subsidy to provide specified services in target areas would be awarded following a competitive tender process. The bidders requesting the lowest capital subsidy would be awarded the contract.

The World Bank is proposing an ‘output based’ disbursement mechanism for these contracts. This would see a percentage of the subsidy paid on signing of the contract, a further percentage paid following particular deployment milestones being met and the remainder paid following a set period of continuous operation. These performance milestones would be independently verified.

In accordance with international best practices, the RCF would be resourced primarily by contributions from the telecommunications industry (through a levy on net revenues —gross revenues minus interconnection — or other appropriate and transparent mechanism).

2.1.3 Institutional arrangementsAs discussed in the Experts’ Report, the World Bank evaluated a number of models for the institutional framework to administer the RCF. These were evaluated against sound institutional criteria such as transparency, accountability, credibility, efficiency and


I.1314081 page 57

compatibility with other functions. The options included:

• Government as RCF administrator;

• RCF as a separate institution/agency;

• RCF within the ICCC;

• RCF within PANGTEL; and

• RCF within a new ICT regulator.

2.1.4 Assessment of the RCF

The Experts’ Report concluded, in general, that the proposed RCF was consistent with international best practice, particularly in terms of the use of a smart subsidy, technology neutral tender specification and strong institutional principles.

The Experts’ Report made a number of observations on the World Bank model, including the following:

• restricting the RCF fund to subsidise access to pre-defined services in pre-defined areas may be overly restrictive;

• further consideration is required in relation to the complexity involved in the implementation of the smart subsidy mechanism, including the possibility of a very limited response to the tendering process;

• extending funding sources beyond the ICT operators may be appropriate given the benefits that ICT delivers to the rest of the economy;

• consideration needs to be given to what happens at the end of the contract term, particularly if the service provider wishes to discontinue the provision of service in that area; and

• the current mobile licences were issued at a time where there was no RCF in place so careful consideration needs to be given to changes to the licences to accommodate an RCF, particularly if it involves industry funding.

2.2 RECOMMENDATIONS

Based on a review of the current regime, international experience and analysis of the World Bank proposal, the Experts’ Report recommended that a UAS scheme in PNG should involve continuation of the current mandatory roll-out obligations to achieve access to voice services in the 229 areas identified in the licence conditions of the mobile operators.

However, a number of reforms would be required to address the weaknesses of these arrangements including: a clear monitoring and compliance program; a technology neutral specification to allow the most efficient solution to be used to provide access to services; and a process for facilitating infrastructure sharing and domestic roaming.

The Experts’ Report also recommended the establishment of a UAS fund to provide access to voice and Internet services outside the areas covered by the mandatory roll-out obligations. The UAS fund would include a competitive bidding process for pre-defined areas and services as proposed by the World Bank and should allow requests for proposals for specific development projects. Funding should be provided from a range of sources including an industry levy, direct Government funding, loans and gifts. Administration should occur via a Board reporting to the Ministry. A program of technical audits should be undertaken by the ICT regulator to monitor contract compliance.

The Experts’ Report concluded that this UAS structure is consistent with achieving the Government’s UAS targets, will deliver the maximum benefit to PNG consumers and is consistent with best practice implementation criteria.


I.1314081 page 58


The Experts’ Report made the following recommendations on universal access arrangements:

Recommendation 5.1 A new universal access scheme should be developed that retains the existing mandatory roll-out obligations but improves the effectiveness of the arrangements.

Recommendation 5.2 A Rural Communications Fund should be established to meet the other Government objectives for the universal access scheme including Internet access and voice access outside the mandatory roll-out areas.

Recommendation 5.3 The Rural Communications Fund should be financed by a combination of industry levies, international donor funding and the Government.

Recommendation 5.4 The UAS should be administered by a Board. The Board should assess proposals against statutory criteria and report to the Minister under a fully transparent process. The final decision on the allocation of funds should be made by the Minister. Once projects have been selected for funding, their administration should be carried out by the ICT Regulator.


3.1 INTRODUCTION OF A UNIVERSAL ACCESS SCHEME

With the exception of Treasury, consultation participants supported the proposal to introduce a new universal access regime. The NRI, by way of example, notes that:

“the universal access scheme was a welcome concept for many rural communications that have been denied telecommunications services for a long time.”

There were, however, a number of issues raised in various submissions, including:

• timing for implementation of the UAS regime;

• source of funds; and

• governance arrangements.

Each of these is addressed in further detail below.

3.2 TIMING OF IMPLEMENTATION

The timing of the regime was a concern of Digicel whose submission stated that:

“it is too early to obligate new entrants and other operators to contribute to a Universal Access Scheme: the focus should be on encouraging operators to continue to roll-out their networks”.

Digicel claimed in its submission that this proposition was supported by the World Bank. However, in consultations directly with the World Bank it was apparent the World Bank were interested in ensuring the regime was implemented once the appropriate governance arrangements were put in place, and did not advocate a delay on the basis that operators should be left to first roll-out their respective networks.


I.1314081 page 59

Treasury also raised concerns that the reform package should be in place before a UAS regime is introduced. Treasury also expressed concerns that:

• commercially viable areas could end up being financed; and

• a sector specific scheme will be pursued ahead of a broader CSO policy (and if priority is desired, this should be through budgetary allocation).

The ICCC stated that any fund should complement the Government’s broader objectives under the Long Term Development Strategy for all utilities.

3.3 SOURCE AND TIMING OF FUNDING

In relation to funding of the UAS, a number of parties expressed concern.

The ICCC argued that the UAS should be funded by a combination of Government, industry and donor funding.

Treasury opposed the use of industry levies (as a source of funds) and contended this should be funded from budget allocations. Treasury contended that the levy is, in effect, a tax whose costs will be passed on to consumers.

Digicel argued that any imposition of levies should be deferred until the mandatory roll-out obligations under the licence expire and that funds should be derived from sources outside of the industry, such as government and aid agencies.

3.4 GOVERNANCE ARRANGEMENTS

There were a number of varied submissions in relation to the governance arrangements.

Telikom contended that the UAS Fund should be administered by the ICT regulator and not a separate board. Telikom submitted that this would reduce red tape, draw on appropriate technical resources and minimise regulatory costs. BMobile commented that allocation of funds should be via a majority decision of a board that included industry participants.

Treasury opposed a Ministerial role in authorising allocations from the fund, which it argued should be determined independently of Government.

The ICCC, Digicel, Treasury, the NRI and the ADB also had concerns regarding Ministerial involvement in decisions regarding allocation of UAS funding. The ICCC stated that:

“…the proposal that the Board make recommendations to the Minister and for the Minister to make the final decision on the allocation of funds is not consistent with the principles of accountability, transparency and credibility that the Report promotes.”

Treasury emphasised that allocations should be made independently of Government, and the NRI stated that:

“…while… the Board administering the scheme must be accountable to Government; it is questionable whether this oversight role should be vested in the Minister alone”.

Digicel proposed that the Minister’s role be limited to approving the UAS strategy and authorising the geographic areas that qualify for the provision of UAS funding.

The ADB queried the involvement of the Minister noting that the structure would increase the risk of political interference.


I.1314081 page 60


4.1 RESPONSES TO SUBMISSIONS

Since the release of the Experts’ Report further refinements in the detail of the proposed UAS have been formulated. Many of these refinements address concerns raised in the consultation feedback.

The key views expressed by Treasury and the responses are as follows:

1 The recommendations exceed the mandate in NEC 21/2008: The UAS regime is an integral part of the package of reforms proposed for the ICT sector, as envisaged by NEC 21/2008. When considering whether a regime is desirable the Minister is obliged to submit a recommendation for reform, if (as is the case) it is concluded that such a regime is desirable. The UAS fulfils this obligation. It is also consistent with PNG’s WTO obligations and is supported by the World Bank.

2 Commercially viable areas could end up being financed: The design of the UAS, both in terms of structure (whereby projects undergo a rigorous selection and approval process), and timing (where existing operators will be close to completing mandatory roll-out obligations and be at least 4 years into commercial operation), are intended to ensure that the UAS will apply only to areas which are not commercially viable. The UAS is designed as an incentiveand not a substitute for private financing. Moreover, the selection of areas will be reviewed continually, in consultation with the private sector.

3 Reforms need to have occurred before the UAS regime is introduced: It is essential that the necessary regulatory structure supporting the UAS regime be established prior to implementation. Thus no concern arises from Treasury’s submission on this point.

4 A sector specific scheme will be pursued ahead of a broader CSO policy:Treasury has provided no details of any broader CSO policy. Moreover, a CSO policy would typically apply to state-owned enterprises (monopolies) required to meet community service obligations. A UAS scheme is substantially different from a CSO scheme in that the ‘burden’ of service provision is shared by all operators in the sector. There are a number of reasons why a UAS regime should be considered as part of the comprehensive package of reforms for the ICT sector, even if that means the sector is considered ahead of similar CSO proposals for other industries:

• provision of network access in unviable areas can be addressed via a sector specific scheme. End-users in urban areas benefit from being able to communicate with people and businesses in rural areas of the country. A sector specific scheme provides a mechanism for urban customers to directly contribute to the funding of these benefits;

• the issue of a CSO or UAS in the ICT sector is not limited to SOEs, as in many other industries. The ICT sector is already open to limited competition and open competition is now proposed. Therefore, unlike many other industries the approach used in the ICT sector must ensure that competitive neutrality is maintained. It is inappropriate to unfairly burden any single operator with the provision of unviable access (which experience in many developing countries has shown to be largely unworkable in the telecoms sector), without a mechanism that maintains a level playing field among all industry participants. This can be most readily accomplished via an industry specific scheme;

• the ICT sector is an enabler for economic development and thus appropriate for specific reform. Designing a cross-industry CSO policy


I.1314081 page 61

is likely to be a lengthy process and may unnecessarily delay the extension of telecommunications coverage in rural areas where there is demonstrably strong demand across the country; and

• in an overwhelming majority of countries reviewed in developing the recommendations, an ICT specific UAS regime was in place. The sector specific scheme proposed is clearly consistent with international best practice and there is no substantive reason why PNG should deviate from this widely accepted and tested model.

5 Treasury opposes the use of industry levies (as a source of funds) and contends this should be funded from budget allocations. Treasury contends that the levy is, in effect, a tax on urban users: Any final funding model for the UAS will be formulated with input from Treasury. Treasury’s concerns in relation to the effective management of non-tax revenues are noted.

A self financed model of the type proposed in the Experts’ Report is widely accepted and is in operation around the world, including throughout the Pacific region, in both developing and developed economies. The principle is supported by the telecommunications industry world wide. Indeed, the funding model is specifically intended to lessen the burden on the budget which must accommodate many other demands.

The issue of cross-subsidisation by urban users is somewhat misleading. Urban users are already, by generating higher average revenues, arguably “cross-subsidising” the cost of network expansion to more remote areas of PNG (i.e. the costs of setting up and maintaining a mobile phone base station in Port Moresby compared to, say, a district in Enga, are very different). The proposed UAS will lower that burden by reducing the costs to operators of establishing service in rural and remote areas by means of subsidy.

Finally, the proposal is consistent with the World Bank’s position (and the approach in many other countries) that the UAS should be funded primarily via a levy imposed on the net revenues of telecom operators (gross revenues less interconnection payments). The World Bank has in a number of publications recommended the Universal Access approach through industry levies as an appropriate source of funding, provided that the funding mechanism is transparent, well-managed, and funds are disbursed in a timely manner against well-defined activities.

6 Treasury opposes Ministerial role in authorising allocations from the fund, which it believes should be determined independently of Government: The proposed governance structures have been refined in a manner consistent withTreasury’s suggestion. The Minister will only have a right to accept or reject the board’s recommendations on allocation of projects (i.e. a right of veto). NICTAwould be responsible for implementing the tender process and awarding subsidies to individual operators. The UAS Fund Administrator would be charged with receiving, holding and distributing funds.

Another key issue raised by Digicel is the timing of any industry levy. Digicel contendedthat any such levy should not commence before the expiry of the mandatory roll-out period (July 2012).

Under the refined proposal outlined in this report the levy would begin to be imposed no earlier than January 2011. The period from now until then would be used to initially establish the legislative framework supporting the UAS regime and (during 2010) see a pilot program implemented (such as that suggested by the World Bank).


I.1314081 page 62

4.2 UNIVERSAL ACCESS SCHEME (MARKET STRUCTURES)

4.2.1 Target Markets

The Universal Access Scheme proposed for PNG is illustrated in the figure below. It involves the identification of three UAS target markets and the application of three distinct approaches in order to meet policy objectives for these markets.

Figure 9: UAS for PNG

* World Bank funding is currently not being proposed for Target 3 projects

4.2.2 Features of Target Market 1 – existing mandatory roll-out

The UAS applicable to Target Market 1 will involve:

• continuation of the current mandatory roll-out obligations to achieve access to voice services in the 229 areas identified in the licence conditions of the mobile operators;

• a number of reforms to improve the operation of these obligations (in particular, improvements to motivate effective co-operative arrangements between the mobile operators); and

• funding by existing carriers (no external funding assistance will be required).

Voice Services in 229 AreasVoice Services Outside 229

Areas & Internet Services in All Areas

Proponent Initiated Development Projects

Maintain Mandatory Roll-out Obligations

Pre-defined area and services based on World Bank targets

Request for proposals for Development Projects

with the following reforms

Clear monitoring and compliance program with "play

or pay" consequences

Award technology neutraltenders based on

Award tenders based on an assessment of criteria aimed at

maximising value for PNGcompetitive bidding

Technology neutral specification

Process for facilitating infrastructure sharing and

roaming

Funded by existing mobile carriers with no external

funding mechanism required

Implement strict monitoring and compliance program with a "pay" requirement for breaching contract obligations

Funded through a combination of industry levy, direct Government funding, development funding and donations/gifts*

PNG Universal Access Scheme

Target Market 1 Target Market 2 Target Market 3


I.1314081 page 63

4.2.3 Features of Target Market 2 – pre-defined service areas and targets


• access to telecommunications services (voice and data) outside the 229 mandatory areas, where provision is commercially unviable and Internet services in all areas where provision is commercially unviable;

• establishment of an UAS Fund to finance access to voice and Internet services outside the areas covered by the mandatory roll-out obligations which would involve a competitive bidding process for pre-defined areas and services as proposed by the World Bank; and

• funding from the UAS Fund which, in turn, will be financed from industry contributions (and other potential funding sources, e.g. government or donor funding28).

4.2.4 Features of Target Market 3 – proponent initiated projects


• proponent initiated development projects (i.e. non-specific ICT projects throughout PNG, e.g. Internet access in certain education facilities) based on a request for proposals for specific development projects; and

• funding from the UAS Fund which, in turn, will be financed from industry contributions (and other potential funding sources, e.g. government or donor funding).

4.3 GOVERNANCE ARRANGEMENTS

The success of the UAS will require effective, transparent and independent governance arrangements. The proposed governance arrangements require the involvement of:

• a UAS Board;

• the Minister of Communication and Information;

• the NICTA; and

• an independent fund administrator.

Figure 10 illustrates the proposal model and further details of the respective roles and responsibilities are set out further below.


I.1314081 page 64

Figure 10 : Proposed governance arrangements for PNG

4.3.1 Universal Access Scheme Board

The UAS Board is a flexible, non-permanent institution made of a representative from each of NICTA, the Department of National Planning, the Department of Communicationand Information and industry/commerce.

The UAS Board will be chaired by the representative from NICTA and shall meet as necessary (perhaps 3-4 times per year) to consider ‘Target Market 2’ projects and ‘Target Market 3’ proposals.

The UAS Board will consider, produce and publish a list of projects ranked in order of priority based upon statutory criteria, the primary objective being:

“Promotion of the economic and social development of PNG by improving access to and use of telecommunications and information technology.”

In addition to the specific assessment criteria set out the Experts’ Report, the threshold criteria submitted by the World Bank will be included. In particular:

• Capability of applicant to implement the Project: Ensuring financial and technical capacity of the technical team members and sufficient operational experience to implement the proposed project.

• Quality of implementation plan: Ensuring a quality network infrastructure design, deployment plan, maintenance plan and business plan (as applicable).

• Subsidy requested: Ensuring the applicant clearly identifies and justifies the subsidy amount required to make the project sustainable.

The list of ranked projects will be submitted by the UAS Board to the Minister for final approval.

Any costs associated with the UAS Board (including any 3rd parties retained to assist in project development) will be met by the UAS Fund.

The UAS Board will be accountable to the NEC in terms of project implementation and the manner in which it uses UAS funds to fulfil its mandate.


I.1314081 page 65

4.3.2 Minister of Communication and Information

The Minister is responsible for development of UAS policy (which shall be reviewed on a periodic basis (say 3-5 years).

In respect of UAS projects, the Minister would review the recommendations and the process of the UAS Board to ensure that the statutory criteria were appropriately applied. As distinct from the suggestion in the Experts’ Report, this review would not be an in-depth review of substance or re-evaluation of criteria.

The Minister’s only role is limited to either accepting or rejecting the list of projects (or part thereof) submitted by the UAS Board.

If the Minister rejects projects they will be sent back to the UAS Board for re-evaluation on the statutory criteria.

Accepted projects will be submitted to NICTA for implementation. The UAS Fund Administrator will also be notified of the decision.

4.3.3 NICTA

NICTA will establish a separate secretariat to specifically manage the Universal Access Scheme (to be specifically and separately funded from the UAS Fund) (UAS Secretariat).

NICTA, through its UAS Secretariat) will have the following UASfunctions/responsibilities:

• implementation of UAS decisions of the Minister (including administeringtenders, awarding contracts and issuing associated licences if the entity is not already appropriately licensed);

• assisting the UAS Fund Administrator in the collection of funds (by enforcing licence and regulatory contribution obligations);

• directing the UAS Fund Administrator to release funds as appropriate;

• providing technical supervision and audit/compliance of operational roll-out of the infrastructure in order to provide an independent verification to the Fund Administrator of the UAS supplier’s successful completion; and

• enforcing UAS contracts and monitoring compliance.

NICTA will be accountable to parliament.

4.3.4 UAS Fund Administrator

There are a number of potential options available when considering the appropriate financing model (i.e. how will the funds be held and then distributed). Options include:

• industry levy collected by NICTA and transferred to consolidated revenue;

• industry levy collected and directly administered by NICTA;

• industry levy collected by NICTA and transferred to an Independent Fund Administrator (the recommendation set out below);

• industry levy collected by Treasury and managed as a separate budget line item (perhaps with distribution based on a competitive tender consistent with the UAS model set out in this report);

• industry levy collected by Treasury and transferred to NICTA for management; and

• industry levy collected by Treasury and transferred to the Independent Fund Manager.

Under the recommended reform model the Minister will undertake a competitive process to select an independent, professional and competent financial management firm (UASFund Administrator) with assistance from Treasury.

Treasury will continue to be consulted upon about the best fund administrator model.


I.1314081 page 66

The preference is for the UAS Fund Administrator to be an independent, private auditing/accounting firm of international repute appointed by the Minister with assistance from Treasury. However, provided the UAS Fund Administrator is genuinely independent, accountable and effective, a different model may be acceptable.

Monies received will be held in a separate account by the UAS Fund Administrator until distributed in accordance with directions from NICTA to support allocated projects.

Once confirmed, the UAS Fund Administrator would disburse funds to the successful UAS operator based on successful completion of the network roll-out elements.

The UAS Fund Administrator will be accountable to the State of Papua New Guinea (in accordance with the terms of its retainer) and will be required to report quarterly to parliament on the status of incoming contributions and outgoing funding.

The costs of the UAS Fund Administrator will be met by the UAS Fund.

4.4 FUNDING

4.4.1 Sources of funding

The UAS Fund will be financed by a combination of industry levies, donor funding and Government budget allocation. The majority of funds are likely to derive from industry levies. Other funding sources have been considered but are not considered appropriate. In this regard the following views of the World Bank are relevant:

1 using licence and spectrum fees would not be desirable since such fees are used to fund the operations of the regulators;

2 while the Government could step in if necessary with budgetary support to ensure certainty of funds needed for sustaining the UAS, this is not recommended as a primary funding mechanism and should only be used in an emergency situation; and

3 other mechanisms, such as introduction of taxes on different market segments (e.g. international calls), require sophisticated monitoring and administrativeprocesses. Furthermore:

• the revenue models of operators are changing (in particular from voice to data services), and the flow of funds may not be sufficient;

• international calls are now a minor fraction of the market, and most are now routed via VoIP so they are harder to account for separately; and

• imposing taxes on international calls creates distortions in the market, since it taxes most those players that are less likely to participate in universal access bidding processes. Such an arrangement may also increase the grey market for international traffic.

4.4.2 Specific contributing participants

Direct contributions will be required from all licensees (irrespective of licence class, dominance and without regard to technologies employed) in terms of a defined and fixed percentage of designated revenue.

Consistent with the Experts’ Report, the levy would be based on net revenues of operators (gross revenues minus interconnection payments).

It is not appropriate at this stage to set the rate at which the levy will be imposed. Consistent with the views of the World Bank, this levy should be:

• carefully calibrated and updated on a regular basis;

• reasonable and should not pose too much of a burden on the operators; and

• provide enough resources to enable implementation of the UAS objectives at a reasonable rate.


I.1314081 page 67

The levy calculation in the first instance would therefore be based on determination of subsidy level required to achieve Target 2 across PNG. The shortfall between the capital costs to provide those services, and the net operating revenue equals the subsidy that would be required as an incentive to an operator to provide services in those areas.

4.4.3 Timing of contributions

Industry levies will not be imposed until:

• the UAS governance arrangements and operating procedures are in place;

• NICTA has been established and settled; and

• a pilot scheme has been initiated and implemented.

Given the full program of work that needs to occur in PNG to give effect to the National ICT Policy Phase 2 reforms (including drafting of legislation, establishing the new regulator, appointing the UAS Board and developing the operational procedures for the UAS), industry levies will be imposed no earlier than January 2011.

This timing provides a balance between providing operators with the opportunity to further advance their commercial network roll-outs (including the mandatory licence roll-outobligations) and the Government’s objective of providing access to ICT services in regional and remote areas of PNG.

Industry funds should not be distributed until the successful operation of the pilot projects. This will ensure that any difficulties with the processes can be resolved before industry funds are committed to projects.

When industry contributions to the UAS commence it is proposed that the full levy is imposed from the outset. This approach is favoured over an incremental approach where contributions are initially minimal and increased over time. This is simpler and avoids potential uncertainty among industry participants each time the levy is increased.

4.4.4 Proposed World Bank Pilot Scheme

As part of the World Bank’s PNG Country Assistance Strategy to support implementation of a Rural Connectivity Fund (RCF), the World Bank has offered to support a Rural Communications Project. This includes technical assistance for the development of a UAS scheme and a pilot program to demonstrate a UAS funding mechanism (RCF Pilot).

The details of this RCF Pilot have been discussed with all relevant stakeholders, but are yet to be finalised (the Rural Communications Project is pending Government approval). The objective is to provide telecommunications services in unserved areas (consistent with the objectives of the UAS) and also to demonstrate a selection and financing mechanism for ‘Target Market 2’ projects which would subsequently be adopted for the UAS. If implemented, it is anticipated that the RCF Pilot would finance three ‘TargetMarket 2’, or pre-identified, rural communications sub-projects. The selection of these sub-projects would be discussed and agreed with Government upfront. The sub-projects would be competitively tendered, with the contract awarded to the eligible bidder offering to provide the stated services for the lowest capital subsidy. The winning bidder would sign a contract with the Government and the tender process would be managed by NICTA. The funds would be provided by the World Bank and be disbursed directly to the contractor, upon written instruction from the Government after confirmation that the contractor has met its performance targets. Disbursement would be linked strictly to performance milestones. In that regard, the funding and governance arrangements would be designed as building blocks for a UAS designed to extend well beyond the scope and timing parameters of the RCF Pilot.

The diagram below is a preliminary and indicative summary of the governance and funding arrangements for the RCF Pilot. Critically, the RCF Pilot will call upon the expertise of NICTA (and, in particular, the UAS Secretariat). The RCF Pilot will provide NICTA with the ability to test its capabilities before the implementation of the full-scale UAS.


I.1314081 page 68

Figure 11 RCF Pilot possible governance*

*Note: The details of this proposal remain uncertain at this time. Further clarification from the World Bank is likely pending endorsement by the NEC of this policy document. References in the above diagram to “ICT Regulator” are references to “NICTA”.

5 SPECIFIC REFORMS – UNIVERSAL ACCESS ARRANGEMENTS


Reform 5.1 A new universal access scheme will be developed that retains the existing mandatory roll-out obligations but improves the effectiveness of the arrangements.

Reform 5.2 A UAS Fund will be established to meet the other Government objectives for the UAS including Internet access and voice access outside the mandatory roll-out areas.

Reform 5.3 The UAS Fund will be financed by a combination of:

• industry levies based on a percentage of net revenues of licensed operators (gross revenues less interconnection payments);

• donor funding (loans, grants, gifts); and

• direct Government funding.

The industry levy will not be imposed before January 2011. Prior to this time, the Government will consider a pilot program in order to test and demonstrate the effective operation of the UAS.

Reform 5.4 UAS governance arrangements will be prescribed in legislation to ensure the proper administration of the UAS. These governance arrangements will include the following features:

1. UAS Board: A flexible, non-permanent UAS Board will be established comprising representatives from each of the Department of Communication and Information, NICTA, the Department of National Planning and industry/commerce. The UAS Board will (based on statutory criteria):

• develop specific indicators of ICT access, consistent with international experience and shall indentify appropriate target projects in a reasonable time frame;

• consider, produce and publish a list of projects ranked in order of


I.1314081 page 69

priority; and

• submit the list of ranked projects to the Minister for endorsement.

2. Minister of Communication and Information: The Minister of Communication and Information will review the recommendations and the process of the UAS Board to ensure that the statutory criteria is appropriately applied. This review will not be an in-depth review of substance or re-evaluation of criteria. The Minister’s role is limited to either accepting or rejecting the list of projects (or part thereof) submitted by the UAS Board.

3. NICTA: NICTA (through its UAS Secretariat) will implement UAS decisions of the Minister, including administering tenders, awardingand monitoring contracts, and issuing associated licences if the entity is not already appropriately licensed.

4. Fund Administrator: An independent, transparent and accountable fund administrator will be appointed to hold and distribute UAS funds upon direction from NICTA.

I.1314081 page 70

PART DSUPPORTING ARRANGEMENTS

I.1314081 page 71

CHAPTER 6INSTITUTIONAL ARRANGEMENTS

1 BACKGROUND

Two telecommunications regulators currently have oversight of the ICT sector in PNG:

• the ICCC, which has general economic powers (to regulate consumer protection and competition), ICT specific regulatory powers (primarily through its licensing functions) and oversight as principal regulator of the Telecommunications Act; and

• PANGTEL, which regulates the allocation and assignment of radio spectrum and is the ‘technical regulator’ under the Radio Spectrum Act and the Telecommunications Act.

The current regulatory regime in PNG is therefore a combination of single and multi sector regulation, with PANGTEL as the technical regulator and the ICCC regulating telecommunications more generally (along with a number of other industries) and administering economic regulation.


2.1 REVIEW OF REGULATORY EFFECTIVENESS

The Experts’ Report considered in depth the various attributes of the ICCC and PANGTEL. This analysis was undertaken against a backdrop of settled principles for regulatory effectiveness including the need for:

• well-defined functions and responsibilities;

• appropriate enforcement and dispute resolution powers;

• flexibility and agility to respond to industry changes, tempered by a stable regulatory framework;

• consistent, independent and timely decision-making;

• accountability (through reporting and the appeals process) and fiscal responsibility; and

• transparency.

The Experts’ Report concluded that, comparatively, PANGTEL’s institutional strength and regulatory effectiveness lagged behind that of the ICCC. Although the institutional differences between the regulators were slight, these differences appeared to have a profound impact on institutional independence and effectiveness. Structural attributes of the ICCC which distinguish it from PANGTEL include:

• the manner of member appointments;

• the staggered terms of the commissioners;

• the manner in which terms of appointment are determined; and

• accountability to parliament.

The Experts’ Report also identified significant weaknesses in the current regime brought about by the lack of clarity (and overlap) as to respective regulator roles and responsibilities along with a systematic failure to enforce compliance with legal obligations.

Chapter 6: Institutional arrangements

I.1314081 page 72

The overlap in relation to licensing functions, the issue of Codes of Practice and enforcement powers were three areas of confusion consistently raised in consultation.This overlap has led to confusion (within the industry and between the regulators) and differences of opinion as to the extent of each regulator’s respective powers. Arguably, this has also led to both regulators acting beyond their respective legislative powers (or,at least, interpreting their respective powers very widely).

Figure 12: Allocation of ICT functions between ICCC and PANGTEL

2.2 REGULATOR MODELS

The Experts’ Report considered a number of regulator model options including:

• ICCC to be the sole regulator of ICT (perhaps with a New Zealand style commission model).

• Dual regulator model where ICCC regulates under the Telecommunications Act, PANGTEL regulates under the Radio Spectrum Act.

• ICCC to regulate interconnection and pricing only, all other ICT functions go to PANGTEL (either in current form or reformed).

• PANGTEL (in its current form or reformed) to be the sole regulator of ICT.

• Creation of a ‘new’ ICT regulator with all ICT functions transferred to this new institution.

The report also analysed the various management options including the single commissioner and multi-member board structures.

2.3 NEED FOR REGULATORY REFORM

The Experts’ Report concluded that it is now appropriate to reconsider the separation of functions between the regulators and consider combining the responsibilities within a single regulator, consistent with international best practice.

The creation of a strong, institutionally sound regulator which is independent, transparent and accountable is a cornerstone of the Phase 2 reforms.

Supervision of the regulator should include parliamentary accountability, audit processes and fiscal control.


I.1314081 page 73

2.4 ESTABLISHMENT OF A NEW CONVERGED ICT REGULATOR

The Experts’ Report recommended the establishment of a new converged ICT regulator. It was also recommended that PANGTEL be reformed, reconstituted and renamed to become this new, single sector-specific ICT regulator. Under this recommendation, the ICT regulator would:

• have ex-ante regulatory oversight of the entire ICT sector; and

• function as an independent, transparent and accountable body (and is accordingly perceived as such by current and potential industry participants).

The role of the ICCC in the ICT sector would be focussed upon ex-post (corrective) competition measures.

2.5 FUNCTIONS AND POWERS

The Experts’ Report recommended that the ICT regulator should have ex-ante regulatory oversight of the full ICT sector. Within the scope of this broad power, the ICT regulator’s functions would be clearly defined and would include:


• facilitating wholesale access and interconnection, including making recommendations for declaration of services and arbitration powers to determine terms and conditions of access under a negotiate/arbitrate model;



• dispute resolution and enforcement;



• rule making, issuing guidelines and Codes of Practice.

2.6 GOVERNANCE

The Experts’ Report recommended governance arrangements that upheld international best practice, including:

• the new ICT regulator should be governed by a small board (or ‘Commission’) of 3 to 5 persons all of whom would be ‘ICT Commissioners’;

• the terms and conditions of appointment should be set out in legislation, should be for a minimum period of at least 3 years and the ICT Commissioners must not have conflicts of interest;

• to aid capacity building, at least one of the Commission members would be a non-resident of PNG with substantial telecommunications industry and/or regulatory experience;

• the ICT Commission should be responsible for the appointment of a Controller and Deputy Controller, on such terms and conditions as the Commission may reasonably determine. The Controller would be the chief executive officer responsible for the management of its day-to-day affairs.

2.7 RESOURCES (FUNDING AND STAFFING)

The Experts’ Report recommended that the ICT regulator have sufficient financial and human resources to fulfil its mandate and maintain its independence.


I.1314081 page 74

The ICT regulator should only receive funding from permitted sources, which may include licensing fees, spectrum fees, regulatory fees (for services rendered by the ICT regulator), fines and such other funds as may be provided by Parliament (although ideally the ICT regulator should be self funding).

The ICT regulator would be in the best position to hire its own staff, processes mustensure staff have no conflicts of interest, staff should be paid from the ICT regulator’s funding and should not be subject to Ministerial influence.

2.8 GOOD GOVERNANCE AND FISCAL RESPONSIBILITY

The Experts’ Report recommended:

• that the ICT regulator be open and transparent in its operations, to foster public confidence in any exercise of power and in its independence (and therefore legitimacy);

• the ICT regulator should be made genuinely accountable for its actions;

• appeals to the Courts from decisions of the ICT regulator should be ‘last resort’options. Accordingly, consideration should be given to extending the scope of the Appeals Panel for the purpose of hearing appeals in the first instance.Except in extreme circumstances, the Appeals Panel should be a step pursued prior to litigation; and

• Government should not be part of any appeal body decision but should continue to have (through the Minister) the right to intervene for the purpose of introducing evidence or otherwise making submissions on questions relevant to the public interest.


The Experts’ Report made the following recommendations on institutional arrangements:

Recommendation 6.1 A new converged ICT Regulator should be the primary regulator for the entire ICT sector. PANGTEL should be reformed and reconstituted into this new ICT Regulator. The new ICT Regulator should regulate the entire ICT sector and possess all licensing functions and powers.

Recommendation 6.2 The new ICT Regulator should administer the access and interconnection regime while the ICCC retains jurisdiction over price regulation and generic competition law.

Recommendation 6.3 A member of the ICCC should sit on the arbitral panel for all interconnection and access arbitrations.

Recommendation 6.4 The new ICT Regulator should be required to consult with the ICCC on all other competition and economic matters. Legislative obligations should require both regulators to co-operate to ensure efficient and consistent decision-making.

Recommendation 6.5 The new ICT Regulator should be governed by a small board of 3 to 5 persons all of whom would be ‘ICT Commissioners’. The terms and conditions of appointment would be set out in legislation. The ICT Commissioners should elect the Commissioner and the Deputy Commissioner.

Recommendation 6.6 The ICCC should be under an obligation to consult with the ICT Regulator in relation to all ICCC decision-making on ICT matters.

Recommendation 6.7 The new ICT Regulator should have sufficient financial and human resources to fulfil its mandate and maintain its independence. The ICT


I.1314081 page 75

Regulator should only receive funding from permitted sources as set out in legislation.

Recommendation 6.8 The new ICT Regulator should be open, transparent and accountable to Parliament and the courts in its operations. It should keep audited accounts, comply with codified consultation procedures and be subject to appellate review.


3.1 SINGLE ICT REGULATOR

The proposal to bring all powers and functions within a single ICT regulator was unanimously supported by the consultation participants. There was no continuing support for the current approach of splitting powers and functions between two regulators.

In its written submission, the ICCC appears to have abandoned its earlier proposal for a revised form of the current two regulator model.

It should be noted, an alternative proposal put forward by Treasury (failing the establishment of Treasury’s preferred model, discussed below) advocated the status quowhereby PANGTEL’s governance arrangements would be strengthened.

3.2 CREATION OF A NEW ICT REGULATOR

3.2.1 Using PANGTEL as the basis for the new regulator

The proposal to establish the ICT regulator by reforming PANGTEL is the area of greatest controversy in the feedback received.

Many participants expressed scepticism as to whether the reform of PANGTEL into the new ICT regulator can be achieved. Others have strongly opposed the proposed approach.

Treasury, the NRI, the ADB, Data Nets and the ICCC were critical of the proposed amendments to the institutional arrangements and asserted that PANGTEL is an inappropriate body from which to form the new ICT regulator. Treasury, the NRI and the ICCC all queried the reasoning as to why PANGTEL was preferred over the ICCC and noted that the ICCC has the attributes required to be an effective regulator.

The NRI suggested that the basis for the recommendation was unclear and the proposal overlooks the synergies between the ICCC’s existing functions and the activities of those required of the new regulator.

Data Nets suggested that a new regulator with the requisite attributes cannot be created by reconstitution of an existing authority. It is Data Nets’ view that PANGTEL needs to be fully disbanded and a new regulator created independently of any predecessor organisation.

In contrast Telikom, Digicel, BMobile, PANGTEL and World Bank saw the merits in reforming PANGTEL and were largely supportive of the proposal (provided the issues of independence, transparency and accountability were adequately addressed).

3.2.2 Making ICT regulator a division of ICCC

The ICCC contends that it should be the ICT regulator. In large part it approaches the debate by contrasting perceived strengths of the ICCC with perceived weaknesses of PANGTEL.

An alternative model favoured by Treasury and the ADB (and it would appear, now favoured by the ICCC) is that the ICT regulator be developed as a division of the ICCC


I.1314081 page 76

which would incorporate into that division PANGTEL staff with necessary technical expertise.

The ADB suggested that a new ICT regulator could be formed from a mix of appointees from the ICCC and PANGTEL that have the requisite technical skills. Under this model, the new ICT regulator would be constituted under the same legislation as the ICCC, with the same governance arrangements, and be supported by a single secretariat drawing staff from the ICCC and PANGTEL. The ADB suggested that this model would be more cost efficient and is particularly suited to regulatory institutions in developing countries.

3.3 TIMING OF INSTITUTIONAL REFORM

Digicel noted the importance to the industry that the reform and reconstitution of PANGTEL should occur prior to the new ICT regulator assuming new responsibilities.

Timing (and transition) are also important points raised by the World Bank. The World Bank stated that in order to ensure independence, transparency and accountability, the management and governance arrangements together with a transition plan for the proposal need to be clearly specified.

3.4 ROLE OF THE ICCC GOING FORWARD

On the assumption that the ICT regulator would be separate from the ICCC, many participants preferred to have the ICCC’s role confined to economic regulation (i.e. a sector-neutral competition regulator).

Telikom believes that the ICCC’s powers and functions should be confined to general competition laws, and all access issues (including price) should be overseen by the new ICT regulator.

The concerns with the ICCC were shared by a number of other participants. PANGTEL, B-Mobile and Digicel all supported Telikom’s view.

There were also a number of queries raised as to how the two regulators would interact (particularly if inter-regulator consultation obligations were imposed). While certain participants sought further clarity on this, Digicel went so far as to suggest that the ICT regulator take “utmost account” of any recommendations of the ICCC.

A number of submissions considered it unnecessary for a member of the ICCC to sit on the arbitral panel in interconnection and access disputes.


The success of the Phase 2 reforms for the ICT sector hinges on the establishing anindependent ICT regulator with all of the necessary qualities as discussed in detail in the Experts’ Report.

A number of the submissions opposing the recommendations concerning the new ICT regulator approach the issue with concern that the ICCC is being punished – hence the ICCC’s plea in its submission:

“What has the ICCC done wrong, to lose its regulatory responsibilities, and what prospects does PANGTEL offer for doing it right?”

The reality is that the proposed institutional arrangements are not to be taken as imposing punishment on the ICCC or rewarding PANGTEL. The issue is not about which of the existing regulators is to be favoured or rewarded or whether an existing regulator ought to be punished. Neither is the assessment of what is needed going forward to be made merely by reference to historical strengths and weaknesses of existing regulators. While the past may provide useful lessons and current structures must be considered in any transition, the critical focus is on the appropriate institutional model going forward.


I.1314081 page 77

Historical issues are in large part the product of an existing regime many aspects of which are not optimum. With the comprehensive reform of regulation of the ICT sector to be effected by the Phase 2 reforms those historical influences have little relevance moving forward.

Thus the reforms are predicated on the following fundamentals:

• the universally accepted need for a new ICT regulator, to be known as NICTA,with all ex-ante regulatory powers and functions;

• the need to ensure that structural independence, accountability and transparency are included in the legislation dealing with the structure of NICTA;and

• the need to establish NICTA with operational competence, certainty and credibility.

These issues must and will be addressed in the implementation of the Phase 2 reforms.

4.1 RATIONALE FOR THE RECOMMENDATIONS IN THE EXPERTS’ REPORT

The Experts’ Report embraces the proposition that the ICT regulator model should be based on the principles of independence, accountability, clarity, certainty and capacity. These traits were analysed at length in the Experts’ Report and were considered minimum requirements in any exercise to reform PANGTEL as the basis for the new ICT regulator.

A number of the submissions, however, appeared to misunderstand the nature and full extent of the recommendations in the Experts’ Report. There also appeared to be uncertainty about the basis of the institutional recommendations.

In fact, the logic of the analysis is simple and supported by international best practice. To further explain, there are a number of fundamental questions that must be asked in the PNG context in order to assess whether any reform is required and if so, the extent of the reform required. These questions are addressed below.

4.1.1 Is reform required?

It is clear (and the analysis in the Experts’ Report and overwhelming majority of submissions support the view) that the current institutional regime is flawed and should be abandoned.

The lack of clarity and overlap in relation to respective regulator roles and responsibilities,along with a systematic failure to enforce compliance with obligations at law are fundamental weaknesses. These weaknesses have lead to confusion both within the industry and between the regulators. Furthermore, the particular institutional weaknesses within PANGTEL are well understood and well documented.

Accordingly, without question, reform which addresses these concerns is required in PNG.

4.1.2 Should all ICT functions reside with a single regulator?

As the Experts’ Report attests, the bifurcation of ICT powers and functions between the regulators has lead to significant confusion and discontent between the regulators. Having two regulators with overlapping powers and functions is unsustainable. This viewwas endorsed in submissions received.

4.1.3 Should the single regulator be an ICT sector specific regulator or a multi-sector regulator with an ICT function or secretariat?

In contrast to the relatively obvious conclusions above, this question is significantly more complex. The Experts’ Report went into significant detail about the various institutional models and the international trends in this area.

The Experts’ Report considered each of the regulatory design options set out in thediagram below (and potential combinations and permutations that may be applicable in the PNG context).


I.1314081 page 78

Figure 13: Four institutional design options

The inherent advantages of pooling resources where commonality exists (as would be the case for a multi-sector regulator) has some advantages. The model has found favour in transitional economies due to the potential cost efficiencies. The Experts’ Report does not overlook these synergies (as the Treasury, NRI and ICCC submissions suggest).

The Experts’ Report concludes that the synergies referred to above are, in fact, outweighed by the benefits of the single sector model. Not only does the single sector model recognise that sector specific expertise is important, but the efficiencies in this model are likely to increase exponentially as convergence gathers pace in PNG. The Experts’ Report notes that:

• despite potential advantages in the multi-sector regulator approach, as the ICT sector develops rapidly and moves away from a traditional utility model, the benefits of the multi-sector regulator diminish;

• it remains critical for the ICT regulator to fully understand the technical issues which underpin the industry; and

• due to the significant ICT reform agenda being proposed in PNG and because of the highly technical nature and rapidly evolving ICT sector, a single sectormodel (adaptable to become a fully converged regulator should Government Policy in relation to broadcasting regulation require) would be the most appropriate model.

Furthermore, this view has been reached fully cognisant of the potential cost efficiencies in pooling the resources in to a single ‘super’ multi-sector regulator with jurisdiction over a number of industries.

Accordingly, Treasury and ICCC concerns (that the PANGTEL model was entirely inconsistent with any theoretical or practical model of independent regulation) appear to miss the key objectives of the reform recommendations or the extent of the reform that was proposed. The Experts’ Report does not advocate the PANGTEL institutional model.

4.1.4 Given the conclusion that a single sector regulator (with converged capabilities) isrequired, the question is whether to use a substantially reformed existing sector specific regulator (PANGTEL) to create that regulator or to start from a ‘clean slate’?

Based on the cost efficiencies inherent in internal reform (rather than creating a new regulator and disbanding PANGTEL) and conditional upon substantial reform of the


I.1314081 page 79

PANGTEL governance arrangements, the Experts’ Report concluded that the reform of PANGTEL would be the most cost effective option.

In effect the recommendations contained in the Experts’ Report:

• advocate the establishment of a new ICT regulator based upon sound international trends and principles;

• seek to build upon the existing capacity of PANGTEL; and

• specifically sought to leverage off the positive aspects of the model adopted in the formation in 2002 of the ICCC.

4.2 A NEW ICT REGULATOR

Consistent with the conclusions in the Experts’ Report, a viable ICT regulator which has all of the traits of independence, accountability and transparency is critical to the success of the proposed ICT sector reforms.

As discussed above, the suggestion by some stakeholders that the proposal to reformPANGTEL into the ICT regulator is bound to fail is not accepted.

That said, the message delivered in response to the recommendations in the Experts’ Report have been carefully considered. In essence that message highlights the challenges of any attempt to build a new ICT regulator with the necessary traits from an existing organisation that is built upon different structural and operational criteria. To do so is a significant challenge in any country. Achieving this in PNG will be no less of a challenge, particularly given the extent of the overall reform agenda.

In order to succeed the Government must embrace the following concepts:

• Structural reform: a substantially different governance structure, including an independently appointed board will need to be enshrined in the legislation;

• Operational reform: there must be substantially different operational methods employed that are calculated to address public perceptions regarding past failures and ensure that the new ICT regulator is able to manage the new range of responsibilities intended to be allocated to it;

• Capacity building: the need for capacity building within the new ICT regulatormust be accepted and adequately addressed; and

• Funding: it will be important that adequate funding is allocated to support the reform process concerning the ICT regulator.

The Government is committed to this approach. The outcome will be the establishment of a new regulator for the ICT sector that will display these key characteristics. While this regulator will be built from assets and resources currently within PANGTEL, it will not bePANGTEL or a rebadged PANGTEL – it will be a new regulator.

4.3 ESTABLISHING THE NEW CONVERGED ICT REGULATOR

4.3.1 National Information and Communication Technology Authority

A completely new converged ICT regulator will be established for all communications regulation. This regulator to be known as the National Information and Communication Technology Authority, the National ICT Authority or more simply, NICTA, will be the regulator for the entire ICT sector.

As a converged regulator, but subject to future developments in Government Policy concerning broadcasting, NICTA can ultimately serve as the regulator for all ICT, including broadcasting.


I.1314081 page 80

4.3.2 Implementation plan and legislation

Reflecting the objectives underpinning NICTA, and the nature of the challenges facing its establishment, a detailed implementation plan for the establishment of NICTA will be formulated as a matter of priority.

The Secretary for the Department of Communication and Information, working with PANGTEL, and consulting as necessary with the ICCC and Treasury, will be responsible for formulating the implementation plan and supporting legislation for NICTA, to be completed within 6 weeks of the approval by the NEC of the Phase 2 policy reforms.

The implementation plan and the legislation to establish NICTA as the new ICT regulatorwill incorporate the key elements set out below.

4.3.3 Structure and Governance

NICTA will be a body corporate with perpetual succession and a common seal, capable of suing and of being sued in its corporate name and with the power and functions set out in legislation.

NICTA will be governed by a small board of 3 to 5 persons all of whom would be NICTA Board members. The NICTA Board will:

• have a Chairperson appointed by the NICTA Appointments Committee and be able to elect a Deputy Chairperson from amongst its members (to enable Board level administrative/decision-making efficiency);

• be responsible for the appointment of a Controller and Deputy Controller, on such terms and conditions as the NICTA Board may reasonably determine (to enable day-to-day management efficiency); and

• for the initial 3 years of its operation, comprise at least one non-resident of PNG with substantial ICT industry and/or regulatory experience (in order to bring valuable international ICT experience to bear, particularly during the implementation associated with the Phase 2 reform agenda). After this initial period the Appointments Committee may appoint a non-resident NICTA Board member if the committee considers this to be desirable, having regard to the expertise available within PNG.

4.3.4 NICTA Appointments Committee

A NICTA Appointments Committee will be established by legislation and comprise representatives of Government (including the Prime Minister and the Minister for Communication and Information), the Leader of the Opposition and a representative of industry. The Head of State will appoint NICTA Board members on advice from the NICTA Appointments Committee. Appointments to NICTA will:

• be based upon pre-determined appointment criteria (which will include the appointee’s professional qualifications and require skills in ICT, law, commerce and industry);

• be on a staggered basis to ensure no 2 board member appointments expire simultaneously; and

• on the terms and conditions determined by Parliament.

The terms and conditions of NICTA Board members will be set out in legislation. The legislation will also provide that NICTA Board members must:

• hold office for a minimum period of at least 3 years;

• be eligible for reappointment for one further 3 year term; and

• only be removed for cause, on the grounds set out in legislation.

The legislation will provide that NICTA Board members must not:

• be or become a shareholder; have or acquire any direct or indirect financial interest; or otherwise participate as an applicant, employee, consultant or advisor, be an ICT licensee (or be an immediate family member of any person


I.1314081 page 81

who is in a position referred to above) whilst, or within 12 months of ceasing to be, a board member of NICTA;

• be a member, or candidate for election as a member, of the National Parliament, a member of a Provincial Government or a member of a local Government or a Local Government Special Purposes Authority; or

• be an office-holder, or candidate for election as an office-holder, in a registered political party.

The NICTA Board will meet regularly (at least once every 3 months) and keep minutes ofall meetings.

As soon as practicable, the NICTA Board will be established by the NICTA Appointments Committee. Once established the NICTA Board will be responsible for building the management and structure of NICTA so that it can begin its functions by the intended commencement date in October 2009.

4.3.5 NICTA Controller/CEO

The Controller appointed by the NICTA Board will be, in effect, the chief executive officer of NICTA and will be responsible for the management of its day-to-day affairs. The Controller will have primary responsibility for establishing appropriate management and reporting lines.

Figure 14: Proposed institutional structure for NICTA

4.3.6 NICTA functions and powers

NICTA will have ex-ante regulatory oversight of the entire ICT sector consistent with the new regulatory functions and powers as contained in the Phase 2 reforms and as illustrated in the diagram below:


I.1314081 page 82

Figure 15: NICTA and ICCC ICT functions and powers

The role of the ICCC in the ICT sector will be focussed upon ex-post (corrective) competition measures.

The diagram below sets out the proposed functions of the ICCC and PANGTEL that would be devolved to the new converged ICT regulator, NICTA.

Figure 16: Transfer of functions to NICTA

NICTA and the ICCC should consult with one another on matters impacting the ICT sector. The ICCC will be required to consult with NICTA in relation to all ICCC decision-making on ICT matters so as to ensure regulatory consistency.

NICTA will be formed utilising, inter alia, the assets (including appropriate human resources) of PANGTEL. It will be a matter for the Board and management of NICTA to recruit necessary resources, including, where appropriate, from the ICCC.

The existing PANGTEL Board will be disbanded simultaneously with the formation of the NICTA Board. All decision-making will reside with the NICTA Board from the moment it is officially formed (with obligations on previous PANGTEL board members and the ICCC to co-operate, and facilitate information sharing during a transition period).

4.3.7 Resources (funding and staffing)

NICTA must have sufficient financial and human resources to fulfil its mandate and maintain its independence. To underpin the establishment of NICTA and the new regulatory regime the NEC has approved a specific budget allocation.

Going forward NICTA should only receive funding from permitted sources, which may include licensing fees, spectrum fees, regulatory fees (for services rendered by NICTA),fines and such other funds as may be provided by Parliament (although ideally NICTA should be self funding).


I.1314081 page 83

NICTA is in the best position to hire its own staff. Processes must ensure staff have no conflicts of interest, staff should be paid from NICTA’s funding and should not be subject to Ministerial influence.

4.3.8 Good governance and fiscal responsibility

NICTA must be open and transparent in its operations, to foster public confidence in any exercise of power and in its independence (and therefore legitimacy). NICTA will therefore be required to:

1 keep proper books of accounts (and other records relating to its accounts) which are audited annually by independent, non-governmental auditors;

2 monitor the rates paid by consumers for services and quality of service benchmarks and the precise application of the universal access and service contributions made by licensees;

3 keep registers of:

• all disputes referred to NICTA;

• all licences issued/suspended or withdrawn by NICTA; and

• all interconnection offers, interconnection agreements, access agreements and co-location agreements lodged with NICTA;

4 submit to Parliament all audited accounts referred to above and an annual report detailing its activities throughout the previous financial year (based on NICTA’s monitoring activities). This must be submitted no later than 6 months after the completion of the financial year;

5 put in place consultation procedures which allow interested parties to be informed and consulted prior to the issuance of any decisions or new rules;

6 publish (including on the Internet) the results of any consultations, responses,proposals, decisions, public inquiries and any major studies or other activities undertaken by NICTA relevant to the ICT sector within a reasonable timeframe (and subject to confidentiality restrictions); and

7 adopt a code of ethics (including rules relating to receiving gifts).

NICTA will be required to be genuinely accountable for its actions:

• by making all regulatory decisions, orders or sanctions subject to appeal; and

• through the imposition of comprehensive reporting obligations (see above).

Appeals to the Courts should be ‘last resort’ options. Accordingly, the scope of matters that can be referred to will be reviewed and extended where practicable. Except in extreme circumstances, rights to apply to the Appeals Panel will be required to be exhausted before litigation can be commenced.

Government will not be part of the Appeals Panel decision but will continue to have (through the Minister for Communication and Information) the right to intervene for the purpose of introducing evidence or otherwise make submissions on questions relevant to the public interest.

5 SPECIFIC REFORMS – INSTITUTIONAL ARRANGEMENTS


Reform 6.1 A new converged ICT regulator to be known as the National Informationand Communication Technology Authority will be the regulator for the


I.1314081 page 84

entire ICT sector. NICTA will possess all necessary licensing functions and powers. The Board of NICTA will be established during the transitional period. The assets of PANGTEL will be transferred to NICTA during the transition period. Following the transition period NICTA will take responsibility for regulation of the ICT sector. PANGTEL will thereafter be disbanded.

Reform 6.2 NICTA, as the new ICT regulator, will have all ex-ante functions and powers relevant to the regulation of the ICT sector, including:


• facilitating wholesale access and interconnection, including recommendations for declaration of services and arbitration powers to determine terms and conditions of access under a negotiate/arbitrate model;



• dispute resolution and enforcement, including information gathering powers;



• rule making, guidelines and Codes of Practice.

Reform 6.3 The ICCC will retain its functions and powers in respect of generic competition law. A member of the ICCC will sit on the arbitral panel for all interconnection and access arbitrations.

Reform 6.4 NICTA and the ICCC will be encouraged to consult where appropriate on competition and economic matters impacting on the ICT sector.

The ICCC will be required to consult with NICTA in relation to all ICCC decision-making on ICT matters.

Reform 6.5 NICTA will be governed by a board of 3 to 5 persons. The terms and conditions of appointment will be set out in legislation. An Appointments Committee will be established by legislation and comprise representatives of Government (including the Prime Minister and the Minister for Communication and Information), the Leader of the Opposition and a representative of industry and commerce. The Head of State will appoint members of NICTA on advice from the Appointments Committee.

Reform 6.6 Legislative obligations will require NICTA and the ICCC to co-operate to ensure efficient and consistent decision-making in respect of the ICT sector.

Reform 6.7 NICTA will have sufficient financial and human resources to fulfil its mandate and maintain its independence. NICTA will receive funding only from permitted sources as set out in legislation.

Reform 6.8 NICTA will be required to operate in an open and transparent manner and be accountable to Parliament and the courts in its operations. It will also be required to keep audited accounts, comply with codified consultation procedures and be subject to prescribed appellate review.

I.1314081 page 85

CHAPTER 7INFORMATION SECURITY

1 BACKGROUND

The ICT Policy 2007 and the refinements to that policy later in 2007 and in 2008 noted certain information security matters which remain appropriate for consideration in the context of the implementation of the National ICT Policy Phase 2 reforms. The mandate for the current review of the ICT sector did not include these matters and specific consideration of these issues has not yet occurred. Submissions were however sought on the issues in the Experts’ Report.

Once mechanisms for connectivity are in place and the use of the Internet becomes more widespread, the Internet will provide an economical and simple way for linking citizens with industry and government across PNG and the world. Increased use of the Internet in PNG society will present a number of challenges, not merely of a technical nature but also ethical, cultural, legal, economic and organisational.

Telecommunications, intellectual property management models, online content, e-commerce, and a range of other regulatory frameworks need to be in place so that the education and training industry can operate efficiently and effectively and become internationally competitive. The regulatory and technical frameworks will need to reflect international developments and should support and not impede the needs of PNG’s education and training industry.

Security is an important component of the policy framework for the Internet. Developing and transitional countries must examine their laws to ensure that they cover cyber-crime and provide law enforcement agencies the investigative tools they need, consistent with privacy protection. But the criminal law is only a small part of the cyber-security framework. Governments and private sector systems need to co-operate in improving the security of those systems by applying sound security practices, improving sharing of information, and raising awareness.

Developing countries around the world rightly see the Internet as a potentially powerful tool to advance economic and human development. At the same time, however, criminals also see the potential of the Internet – as a means to perpetrate fraud and as a communications medium of global reach and low cost. Hackers persist in attempts to penetrate networks and destroy data, while terrorists could purposely disrupt the critical infrastructures that are dependent on networked computers. Meanwhile, consumers hesitate from disclosing personal and credit card data on the Internet, with security and privacy their number one concern, and businesses face losses of proprietary data, intellectual property, and online access to customers and suppliers due to security breaches and intentional service interruptions.

In order for the Internet to contribute to economic growth, human development and democratisation, it must be trustworthy and secure. Lack of trust and security jeopardises development goals that could be supported by a widely accessible and widely trusted Internet.

Effective public policy for the Internet is based on a mix of laws, industry self regulation and technical standards that give users control. Together, these elements create the policy environment supporting investment, innovation and growth. In terms of trust and security, this environment includes the criminal law, laws of privacy and consumer protection, and the commitment of industry to build and operate more secure systems.

Consideration of cyber-crime often leads to questions about the standards under which the government is authorised to obtain access to the electronic communications and computer data that may constitute evidence of cyber-crime and other types of crime. Many countries have procedural laws granting the government investigative powers to access information stored in computers. These include judicial orders for the production stored data and warrants for the immediate search and seizure of computers and

Chapter 7: Information security

I.1314081 page 86

computerised data. Many countries also allow real-time interception of communications and the traffic data or transactional data that shows the origin and destination of communications.

Privacy is widely recognised as a human right. Numerous international policy statements and frameworks for the information age declare that individuals are entitled to fair treatment in the way that personal information is collected and used. This includes personally identifiable information in the hands of government agencies.

Governments are increasingly using the Internet as a means to deliver services and information. This development allows users to register for government services, obtain and file government forms, apply for employment, comment on public policy issues, and engage in a growing number of other functions – all online.

The trend towards e-government and the electronic delivery of services has further expanded government collection of personally identifiable data. In providing services to the public and carrying out various functions, governments collect and use a wide rangeof personal information about their citizens (e.g. health, education, employment and property ownership records, tax returns, law enforcement records, driver’s licence data, and others).

A government’s practices in collecting, retaining, and managing personal data about its citizens pose a wide range of privacy concerns. With this increasing use of technology in government-to-citizen interactions, it is important to ensure that government agencies that collect personal information from citizens adopt and maintain adequate privacy practices.

Trust is a crucial ingredient of any successful online program, whether in the field of e-commerce or in the field of e-government. Privacy and security are in turn key elements of online trust. Individuals will not use services that do not handle personal data responsibly. Privacy is often cited as a major concern of Internet users. It is also the main reason why many non-users still avoid the Internet. Citizens will not entrust sensitive personal, financial and medical data to the government in order to utilise e-government systems (or they will refuse to give accurate information) unless they are assured that the information will be responsibly used and protected against abuse. Therefore, countries seeking to facilitate the efficient online provision of governmental services must protect the privacy of the information they collect.

To build trust, privacy must be addressed in the planning and design of e-government systems since it is much harder to interject privacy protections after a system is built.

To address these concerns Government Policy is to ensure that, under the legal framework of PNG:

• cybercrime is not permitted;

• privacy is protected to a degree meeting International Privacy Standards;

• consumers and traders who conduct business electronically are adequately protected;

• the Intellectual Property of others is adequately protected; and

• critical ICT systems are protected in the event of war, disaster or civil disturbance.

2 EXPERTS’ REPORT RECOMMENDATIONS

The Experts’ Report identified the following matters, on which specific recommendations were made and on responses were invited during the public consultation process:

• cybercrime;

• law enforcement and electronic communications;

• privacy protection;


I.1314081 page 87

• consumer protection;

• intellectual property protection;

• critical infrastructure protection;

• use of electronic transactions;

• clarification of the legal status of electronic communications in respect of such obligations as giving written notice, providing a signature, producing a document, recording information and retaining a document; and

• new or enhanced protections from harmful and illegal content.

The Experts’ Report made the following specific recommendations on information security:

Recommendation 7.1 Criminal laws should be enacted against attacks on the security and integrity of computer systems to criminalise hacking, illegal interception and interference with the availability of computer systems.

Recommendation 7.2 Clear procedures meeting international privacy standards should be established for government access to communications and stored data when needed for the investigation of crimes. Such procedures should provide an adequate level of assurance that the government cannot unjustifiably monitor private communications.

Recommendation 7.3 The new privacy standards should be embodied in a national law for interception of communications (telephone calls, email and other electronic communications), and for search and seizure orders for computer data.

Recommendation 7.4 Laws and procedures should be implemented to facilitate electronic payments and to ensure that consumers and small businesses who transact business online have recourse if transactions fail or online purchases are unsatisfactory. Protections should be established to prevent merchants from misusing consumer data.

Recommendation 7.5 PNG’s existing intellectual property laws should be reviewed to ensure that they provide adequate protection for digitised forms of intellectual property.

Recommendation 7.6 Procedure should be established to take all critical systems offline in the event of a war, disaster or civil disturbance which might otherwise place those systems at risk.


The ICCC, PANGTEL, Telikom, BMobile, Digicel and the World Bank all agreed that PNGshould enact laws to criminalise hacking, illegal interception and interference with the availability of such systems. The ICCC noted that such laws, procedures and institutions conform to international best practice as much as possible, as did the World Bank, suggesting that consideration be given to adopting the framework set out in the Council of Europe Cybercrime convention.

The ICCC also noted that PNG may currently lack sufficient financial and technical capacity and human resources to monitor and enforce laws of this nature fully. The ICCC indicated that the ICT regulator should be empowered to prosecute offences independently without first seeking the consent of the Public Prosecutor.

Digicel noted that consideration might also be given to providing immunity from suit with respect to any assistance and information which operators were required to provide to law enforcement agencies; for operators involved in Internet banking where a failure is


I.1314081 page 88

due to fraud or other criminal activity; and where an operator’s critical systems are taken offline in extreme circumstances (such as war or civil strife).

BMobile noted that the anti-hacking recommendation was wide in scope and would require extensive consultation with interested parties (including those outside of the industry), and further policy reviews, before legislation was introduced. BMobile therefore considered that this aspect should be considered separately to the current review.

PANGTEL, Digicel, Telikom, the World Bank and the NRI agreed that clear procedures meeting international privacy standards should be established for government access to communications and stored data when needed for the investigation of crimes, and that such procedures should provide an adequate level of assurance that the government cannot unjustifiably monitor private communications. The World Bank suggested that law enforcement and privacy should be treated separately. The NRI suggested that the regulatory framework also address issues such as fraud and electronic contract formulation and redress.

All stakeholders making submissions were supportive of the suggestion that new privacy standards be embodied in a national law for interception of communications and for search and seizure orders for computer data. Digicel noted that full recovery of operators’ costs should also be specifically included in such a regime.

PANGTEL, Digicel, and Telikom agreed that laws and procedures should be implemented to facilitate electronic payments so as to ensure that consumers and small businesses who transact business online have recourse if transactions fail or online purchases are unsatisfactory, and to establish protections to prevent merchants from misusing consumer data.

PANGTEL, Digicel, and Telikom also agreed that PNG’s intellectual property laws should be reviewed to ensure that they provide adequate protection for digitised forms of intellectual property. The World Bank suggested that the starting point for such an analysis could be clarification of PNG's status with respect to the applicable international instruments, to ensure that any steps would be coordinated with an international strategy.

PANGTEL and Telikom supported the establishment of a procedure that would enable all critical systems to be taken offline in the event of a war, disaster or civil disturbance which might otherwise place those systems at risk. The World Bank suggested some source material that may be of assistance in developing such a procedure and suggested that PNG also consider establishing a Computer Emergency Response Team, if one does not already exist. The World Bank also noted that the procedure should include both a business continuity plan and redundancy of systems and infrastructure to ensure business continuity in case of such a catastrophic event.

4 SPECIFIC REFORMS – INFORMATION SECURITY

The information security area remains an area of reform that requires more detailed assessment and consultation before specific measures to address these important issues can be formulated and implemented. The full extent of that assessment was beyond the scope of the current analysis.

However, it is useful and important in the context of the current reforms to have isolated the key areas that will require further attention as the markets develop. The following reforms which flow from the recommendations in the Experts’ Report are intended as aflag for future analysis of those areas.

The Department of Communication and Information, working together with NICTA and other agencies as appropriate will initiate the further work required in respect of these matters.

7.1 Criminal laws are likely to be required to control and prohibit attacks on the security and integrity of computer systems, including hacking, illegal interception and interference with the availability of computer systems.


I.1314081 page 89

7.2 Clear procedures meeting international privacy standards should be established for government access to communications and stored data when needed for the investigation of crimes. These procedures should be aimed at providing an adequate level of assurance that the Government cannot unjustifiably monitor private communications.

7.3 New privacy standards should be developed and embodied in a national law for interception of communications (telephone calls, email and other electronic communications), and for search and seizure orders for computer data.

7.4 Appropriate laws and procedures should be developed to facilitate electronic payments and to ensure that consumers and small businesses who transact business online have recourse if transactions fail or online purchases are unsatisfactory. These laws and procedures will include protections to prevent merchants from misusing consumer data.

7.5 PNG’s existing intellectual property laws should be reviewed to ensure that they provide adequate protection for digitised forms of intellectual property.

7.6 Procedures should be established to take all critical systems offline in the event of a war, disaster or civil disturbance which might otherwise place those systems at risk.

I.1314081 page 90

CHAPTER 8TECHNICAL REGULATION

1 BACKGROUND

The underlying rationale for technical regulation comprises a multitude of objectives. Technical standards and codes, for example, address health and safety issues, safeguard consumer interests, assist industry development and competitiveness, and facilitate gains from network externalities.

However, the changing nature of telecommunications technology and its high complexity make it difficult for any government agency to devise appropriate standards. Further, the potential costs to the industry from regulatory error are high. Since the interests of industry participants are not always aligned with those of the wider public, the provision for regulatory intervention is an important safeguard.


2.1 NUMBERING PLAN

The Experts’ Report noted that a draft numbering plan has been prepared by PANGTEL. The draft plan has been well structured and should adequately meet the needs of additional number ranges through the introduction of increased competition. It is recommended in the Experts’ Report that the numbering plan be finalised and the following changes to the plan be made:

• PANGTEL should reduce the current response time for number block applications from 45 calendar days to (at most) 21 calendar days;

• PANGTEL should relax requirements for a 5 year forecast to be provided on application for a number block given that it only allocates sufficient numbers to meet the first 12 months demand requirement and no new numbers will be allocated until the current allocation exceeds 50% usage; and

• a streamlined approach to directory information should be instituted to reduce the potential complexity of having multiple directory services across operators.

2.2 MOBILE NUMBER PORTABILITY

The Experts’ Report recommends that the new ICT regulator undertake an industry consultation and cost benefit analysis on the pros and cons of introducing mobile number portability. This will allow the market to become aware of the benefits and the operators to factor in (or rule out) any potential implementation costs.

2.3 REVIEW OF INTERCONNECTION ARRANGEMENTS

The Experts’ Report recommends that the ICCC and PANGTEL Interconnection Codes be consolidated into a single document as part of a review of the interconnection technical arrangements. A review would lead to decreased review times by PANGTEL in the event of a technical dispute and allow PANGTEL to revise, align and improve sections of the technical interconnect code with industry.

The Experts’ Report also noted areas that should be considered during the review of the interconnection technical arrangements:

• mandating the completion of a RIO from Telikom; and

Chapter 8: Technical regulation

I.1314081 page 91

• proactively reviewing the existing interconnect technical arrangement between Telikom and Digicel and make any necessary amendments to the technical interconnection code (or the interconnect arrangement).

2.4 PRE-SELECTION

To implement pre-selection or call override the incumbent may need to modify its switching network so that its exchanges recognise the carrier routing prefixes. The costs are greater for carrier pre-selection as information systems need to be established on a customer by customer basis.

Given the implementation costs, the Experts’ Report recommended a cost benefit analysis be conducted which takes into account:

• expected level of operator entry across the various preselected services;

• expected demand for preselected services;

• expected price points for call scenarios;

• different implementation scenarios (override vs carrier pre-selection); and

• different basket scenarios of preselected services.

2.5 FEES FOR SERVICES

The Experts’ Report recommends that all fees for services be clearly set out and determined in accordance with a transparent cost methodology used to set the fees.

This recommendation aims to address several examples where the fees and/or criteria to set fees for PANGTEL services are not clear within the codes. By way of example, annual administrative cost for the assignment of numbering blocks is not defined by PANGTEL in the numbering code fee table. The criteria used to determine numbering fees is subject to change in the future to “recognise the real economic value”. ISM band fees are not contained within the ISM policy document.

2.6 SPECTRUM MANAGEMENT OBLIGATIONS

The Experts’ Report recommends a review of the spectrum management regime to ensure that the spectrum regulator can stay one step ahead of market developments and operators requirements to ensure the efficient use of available spectrum bands.

In general, the management and allocation of the frequency (spectrum bands) in PNG appears to be adequate and in line with ITU spectrum policy.

However, the application of VSAT spectrum licences and operating permissions does not appear consistent with ITU spectrum policy. The implementation of ISM band policy does not appear to be well co-ordinated between ICCC and PANGTEL.

Areas of interest in this review include:

• existing spectrum band codes and technical specifications to ensure they reflect current usage (including VSAT and Wireless Networks) and to query actual usage where spectrum has already been assigned;

• establishment of clear spectrum policy objectives and consultation with industry on future spectrum demand scenarios;

• implementation of use it (within designated timeframe) or lose it policy;

• ensuring consistency and transparency in the allocation of spectrum licences to applicants;

• bringing on line (if not already) the planned Automated Spectrum Management System to efficiently manage, track and allocate spectrum.


I.1314081 page 92


The Experts’ Report made the following recommendations on technical regulation:

Recommendation 8.1 The proposed numbering plan changes should be completed, numbering forecasting requirements relaxed and response times to applications improved.

Recommendation 8.2 The new ICT Regulator should undertake industry consultation and a cost-benefit analysis in relation to the introduction of mobile number portability.

Recommendation 8.3 The ICCC and PANGTEL Interconnection Codes should be consolidated within one interconnection code as part of a review of interconnection technical arrangements.

Recommendation 8.4 The new ICT Regulator should undertake industry consultation and a cost-benefit analysis in relation to the introduction of pre-selection.

Recommendation 8.5 All fees for services provided by the ICT Regulator should be clearly set out and determined in accordance with a transparent cost-recovery methodology.

Recommendation 8.6 The existing spectrum radiofrequency band codes and technical specifications should be reviewed to ensure they accurately reflect current usage.


Very few concerns were raised in relation to the technical regulation recommendations.

The finalisation of the numbering plan, review of interconnection technical arrangements and analysis of pre-selection recommendations were largely accepted by stakeholders.

BMobile and Digicel raised concerns with the possibility of introducing mobile number portability, believing that it is unlikely to be necessary in PNG at this time. BMobile stated that “the costs of implementing mobile number portability will substantially exceed any benefits to customers for the foreseeable future.” This issue is discussed further in the final analysis and conclusion section below.

The ICCC largely agreed with these recommendations but noted that PANGTEL has not been able to effectively administer and police some aspects of the industry. The ICCC also noted that the current fees or rates charged for regulating the industry should be drastically reduced and should be part funded by Government. The ICCC believes that large regulatory fees have contributed to the increased cost of telecommunications goods and services in PNG.

In relation to spectrum management, PANGTEL disagreed that the technical regulations should be reviewed as they are in line with ITU Regulations and international best practice. Digicel commented that its frequency allocations must not be reduced or impacted as a result of the review.


As noted above, the consultation feedback was generally supportive of the analysis and recommendations contained in the Experts’ Report. The two concerns raised were with respect to the recommendations to undertake a cost-benefit analysis in relation to the


I.1314081 page 93

introduction of mobile number portability (Recommendation 8.2) and the introduction of pre-selection (Recommendation 8.4).

BMobile does not consider mobile number portability to be currently necessary in PNG and suggests that the costs of implementation will substantially exceed any benefits to customers in the foreseeable future. Similarly Digicel claims that number portability is unlikely to be justified and that a study at this time would impose an unnecessary cost and distraction for both the ICT regulator and the industry. Digicel suggests a moratorium on any such study for a period of at least five years.

On pre-selection, Digicel had no specific objection to the recommendation to undertake a cost-benefit study provided that the requirements are not extended to mobile services. However, Digicel did query the merit of undertaking such a review at this stage of the sector’s development.

The Recommendations in the Experts’ Report were not intended to suggest that a cost-benefit analysis of either mobile number portability or pre-selection be undertaken immediately. Chapter 8 of the Experts’ Report specifically recognised the high costs associated with number portability and the need for ensuring that demand is sufficient to warrant the imposition of such costs. It is clearly recognised that there will be many competing priorities facing NICTA and operators following the establishment of the new regime. It is also acknowledged that the relatively low levels of fixed and mobile penetration in PNG mean the benefits associated with the introduction of mobile number portability and pre-selection would be relatively small at this time.

The recommendations were intended to flag the possibility of implementing mobile number portability and pre-selection in PNG at some point in the future when the level of demand is sufficient to support such services. The final reforms on mobile number portability and pre-selection have been revised to clarify the issue of timing.

Other amendments to the recommendations clarify that it is the role of NICTA to implement the specific reforms in relation to technical regulation.

5 SPECIFIC REFORMS – TECHNICAL REGULATION

Reform 8.1 NICTA must complete the proposed numbering plan changes and take steps to relax numbering forecasting requirements. NICTA must also implement administrative procedures aimed at improving response times to applications.

Reform 8.2 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the introduction of mobile number portability at a point in the future that takes into account the competing priorities of NICTA and the level of mobile penetration that warrants such a review.

Reform 8.3 NICTA must consolidate the existing Telecommunications Interconnection Code of Practice (issued by the ICCC) and the Multi-Carrier Interconnection Technical Code of Practice (issued by PANGTEL) into one interconnection code as part of a review of interconnection technical arrangements.

Reform 8.4 NICTA should undertake industry consultation and a cost-benefit analysis in relation to the introduction of pre-selection at a point in the future that takes into account NICTA’s competing priorities and the level of demand for pre-selection that justifies the associated costs.

Reform 8.5 All fees for services provided by NICTA must be clearly set out and determined in accordance with a transparent cost-recovery methodology.

Reform 8.6 NICTA must review existing spectrum radiofrequency band codes and technical specifications to ensure they accurately reflect current usage.

I.1314081 page 94

PART ETIMING AND IMPLEMENTATION

I.1314081 page 95

CHAPTER 9TRANSITIONAL ARRANGEMENTS

The move to open competition embodied in this Final Report is comprehensive. The Government’s intention is that it will nevertheless be implemented on a timely basis, subject to transitional arrangements and the time required for proper formulation and introduction of new regulatory structures.


All stakeholders were supportive of a timely move to open competition. The ADB commented:

“… we have seen the very tangible economic boost generated by the issuance of new mobile telephone licences in 2007, and encourage the continued opening up of the sector to competition.”

Similarly, the NRI noted the benefits of the staged introduction of open competition:

“Consumers, industry and the general public have a lot to gain from competition in terms of improvements in economic and social participation. Increasing competition among ISPs and improving access to Internet services will have substantial benefits for rural communities”.

Treasury supports the move to open competition but sought further transparency about the timing in which this is to be achieved.

The proposed voluntary migration to the new licensing regime and moratorium on issuance of new licences were also generally well received, subject to concerns regarding the impact on current licensees. The ICCC stated that the new arrangements should not impose additional costs on the existing operators. Treasury suggested that the Government review the effects of the transition on incumbent operators, including:

“…how their current licensing arrangements will be affected and whether or not the State will be liable for damages if the incumbent operator’s current licensing arrangements are changed or revoked in the transition.”

In relation to the timing for migration of licensing, the ICCC commented that separation guidelines should be enacted to provide certainty to those considering entry. Telikom broadly supports the new licensing principles proposed in the report but believes that the 12 month time frame for implementation is unachievable, suggesting migration should be effective after 3 years. PANGTEL suggested that the ICT regulator be empowered to deal with non-complying licensees after the initial 12 month period has expired.

2 TRANSITIONAL ARRANGEMENTS

2.1 KEY ELEMENTS IN TRANSITION

The following key elements will need to be addressed in the transition to the new regulatory regime:

1 Institutional arrangements: the need to establish NICTA and to effectively manage the transition from existing institutional arrangements, including the transfer of functions and powers, managing human resources and securing other necessary resources (whether transferred from PANGTEL or procured as required).

Chapter 9: Transitional arrangements

I.1314081 page 96

2 Departmental capacity and resourcing: the capacity of the Department of Communication and Information to undertake its responsibilities in this regulated sector.

3 Current operators: the need to secure, on a voluntary basis where possible, the transfer of existing licensees to the new licensing regime.

4 Legislative reforms: detailed legislation will be required to set out the newlegal framework for the ICT sector. This legislation will include:

• new institutional arrangements, including the legislation to establish NICTA;

• a new licensing regime;

• a new wholesale access regime;

• revisions to retail price regulation;

• technical regulations;

• the Universal Access Scheme;

• enforcement and information gathering powers; and

• transitional provisions.

5 Licences: ICT networks and services will need to be reviewed and categorised in a manner consistent with the new licence regime. New licence terms will need to be formulated to give effect to the new licensing regime, including those for existing licensees transitioning to the new regime as well as for new licensees.

6 Wholesale access regime: the formulation of the new wholesale access regime and supporting arrangements, including formulation of declaration criteria, development of legislated pricing principles and establishing processes within NICTA for administering the new wholesale access regime.

7 Universal Access Scheme: establishing the relevant structures and procedures for administering the Universal Access Scheme. This will be approached in 3 stages:

• establishment of structures and procedures (to occur in 2009);

• implementation of a pilot program (to occur in late 2009/2010)

• commencement of industry levy funding (from January 2011).

2.2 TRANSITIONAL ARRANGEMENTS FOR INSTITUTIONAL REFORMS

As noted in the Experts’ Report and as discussed in Chapter 6 of this Final Report, the transition from a bifurcated regulatory structure to a single telecommunications regulator is fundamental for the success of PNG’s new telecommunications regime. Accordingly, the timely establishment of NICTA is an inherent component of the Phase 2 reforms.

As also noted in Chapter 6, the Secretary for the Department of Communication and Information, working with PANGTEL, and consulting as necessary with the ICCC and Treasury, will be responsible for formulating the implementation plan and supporting legislation for NICTA. This implementation is to be formulated within 6 weeks of the approval by the NEC of the Phase 2 policy reforms.

The NICTA implementation plan and founding legislation will incorporate the key institutional elements set out in this Final Report, namely:

• Structure and governance – embodying the necessary institutional independence, accountability and transparency;

• NICTA Appointments Committee – incorporating Government, Opposition and Industry;


I.1314081 page 97

• NICTA Board – comprising persons of sufficient professional qualifications and expertise in relevant areas of ICT, law, commerce and industry;

• NICTA senior management – the Controller (CEO) will be appointed by the NICTA Board;

• NICTA human resources and capacity building – it will be the responsibility of the NICTA Board and its appointed Controller with senior management to build expertise within NICTA. Initially NICTA will primarily draw upon PANGTEL for its human resources and will also need to build on its expertise externally to match NICTA’s new functions and powers. A key driver in recruiting for NICTA will be expertise and the need to quickly build capacity. Regard will also be had to minimise personal disruption and dislocation inherent in the fact that PANGTEL will ultimately be disbanded;

• NICTA assets and other resources – PANGTEL property and assets will be transferred to NICTA in a manner to be detailed in the implementation plan. Their adequacy in light of the additional scope of functions will also be considered in the implementation plan; and

• Funding allocation – the Government will specifically allocate necessary funding for the establishment of NICTA that reflects the importance of the regulator to the success of these important reforms as well as the need to manage the transition with minimum disruption.

2.3 TRANSITIONAL ARRANGEMENTS FOR LICENSING

International experience has shown that it is possible to implement new licensing categorisations in a manner which addresses potential migration issues. The translation of vertical licensing to horizontal licensing is best illustrated in the diagram below.

Figure 17: Translation of vertical licensing to horizontal licensing

Public Mobile Licence

VAS Licence

General Carrier Licence

ICT Network Provider

ICT Service Provider

ICT Content Provider

Given the complexity and sensitivity associated with licence migration, all transitional issues must be carefully managed and industry participants must be fully engaged. The Experts’ Report recommends:

• that the ICT regulator should aim to complete migration of licences from the old regime to the new regime within 12 months of commencement of the new regime;

• voluntary migration from existing licences;

• maintenance of existing rights and obligations, this may involve offering incentives to migrate from existing licences; and

• new licensees should only be issued under the new licensing regime as from a specified implementation date.


I.1314081 page 98

2.4 TRANSITIONAL CO-OPERATION BETWEEN DEPARTMENT AND REGULATORS

It is critical to the implementation of this Government Policy that the ICCC and PANGTEL co-operate with the Department of Communication and Information during the implementation and transitional stages.

Consistent with this Government Policy it is expected that ICCC and PANGTEL will provide their full co-operation to the Department of Communication and Information and its consultants in connection with the transition from the current regulatory regime to the new regulatory regime as detailed in this Final Report.

Specifically, it will be important that there be adequate access to information relevant to the existing regulatory regime in order for appropriate transitional arrangements to be developed.

For example, the ICCC and PANGTEL will be expected (as soon as practicable) to provide to the Department of Communication and Information:

• copies of all General Carrier, Public Mobile Carrier and Value Added Services Licences;




• copies of all other permits or authorities provided by the ICCC or PANGTEL;

• information in relation to the collection and allocation of licence fees (paid and/or owing); and

• all other information reasonably requested by the Department of Communication and Information to implement Government Policy articulated in this Final Report.

2.5 REGULATORY DECISIONS DURING TRANSITIONAL PERIOD

Pending the enactment of legislation to give effect to the Government Policy set out in this Final Report, it is Government Policy that the current industry structure and participation be preserved. Specifically, unless the Minister agrees in writing otherwise:




• any new Value Added Services Licence issued will be expressed to operate only until the commencement of the new licensing regime as set out in Chapter 1 of this Final Report;


• no amendments will be made to any existing licences, permits or authorities (including imposing any new licence conditions under a declaration of conditions of licences under section 63 of the Telecommunications Act or otherwise);




I.1314081 page 99


These transitional limitations on regulatory decision-making during the transition period are important so as to ensure that regulatory decisions made under the existing regime do not impact upon the efficacy of the new regime.

Of course, it is equally important that these transitional arrangements do not create a void in regulatory oversight of the industry. It is not intended, for example, that the ICCC and PANGTEL are not able to enforce and oversee the industry in accordance with their regulatory functions and powers. Thus Government Policy for this transitional period expressly permits the Minister to agree in writing that any one of the above limitations not operate. This will require consultation between the regulators and the Minister and theDepartment of Communication and Information.

2.6 INDICATIVE TIME LINE FOR TRANSITIONAL ARRANGEMENTS

The following table provides an indicative time line for the transition to the new regulatory regime. While this is an ambitious timeframe given the detailed tasks that need to be pursued, it is one that the Government is keen to see achieved as far as is practicable.

It is proposed that the new regulatory framework for the ICT sector commence in October 2009.


April-June 2009 • Formulation of implementation plan for NICTA and legislation for establishment of NICTA (which may be a separate legislative instrument or combined with the wider reform legislation).

• Drafting and public consultation in relation to enabling legislation and transitional arrangements (to effect the reform agenda set out in this Final Report).

• Enactment of enabling legislation (subject to Parliamentary processes and timing).

• Initial steps are taken towards the creation of NICTA, including the appointment of the NICTA Board.

July 2009 • Commencement of enabling legislation and transitional arrangements.

• NICTA is established and assets, liabilities and transitional (shared) responsibilities are transferred to it pursuant to institutional transitional arrangements.

• Preparatory steps taken to establish licence regime and licence categorisations pending October 2009 commencement.

July-September 2009 • Drafting and public consultation is undertaken in relation to subordinate regulation and licensing arrangements.

• Preparation for commencement of the new regime including preparation of regulatory instruments by NICTA, training of personnel and education of the industry and public.

October 2009 • Formal commencement of the new regime.


I.1314081 page 100


• NICTA assumes all powers and functions under the new regime.

• The institutional transitional arrangements will end.

• The new licensing regime commences for the issue of new licences.

• Existing licensees are encouraged to migrate to new licences and licensing transitional arrangements commence.

• The new access regime commences, including deemed declarations.

• International gateway liberalisation occurs.

October-December 2009

• Establishment of the Universal Access Scheme, pending implementation.

• Implementation of regulatory instruments to give effect to the new regime, including pricing principles.

• Review of retail price regulation by NICTA.

January 2010 • Removal of redundant retail price regulation.

October 2010 • The licensing migration process is completed for existing licensees.

• Licensing transitional arrangements end.

January 2011 • Industry levy imposed in relation to UAS contributions.

• Implementation of the UAS.

July 2012 • Expiry of the exemption for IGW infrastructure from the access regime (hence the potential for access regulation arises).

3 SPECIFIC REFORMS – TIMING AND IMPLEMENTATION

Reform 9.1 The move to open competition will be comprehensive and implemented on a timely basis, subject to transitional arrangements and the time required for proper formulation and introduction of new regulatory structures.

Reform 9.2 Licence migration will be encouraged on a voluntary basis. Existing licensees should ideally receive sufficient benefits under the new licensing structure to offset any detriments they receive by surrendering existing licences.

Reform 9.3 New licences will only be issued under the new licensing regime. However, in issuing new licences, NICTA will have regard to Government Policy and any rights held by existing licensees.


I.1314081 page 101

Reform 9.4 NICTA must aim to complete migration of licences from the old regime to the new regime within 12 months of commencement of the new regime.

Reform 9.5 ICCC and PANGTEL will provide their full co-operation to the Department of Communication and Information and its consultants in connection with the transition from the current regulatory regime to the new regulatory regime as detailed in this Final Report. Specifically, (but without limiting the obligation to provide full co-operation) as soon as practicable after being notified of this Government Policy the ICCC and PANGTEL will provide to the Department of Communication and Information:

• copies of all General Carrier, Public Mobile and Value Added Services Licences;




• copies of all other permits or authorities provided by the ICCC or PANGTEL;

• complete information in relation to the collection and allocation of licence fees (paid and/or owing); and

• any further information reasonably requested by the Department of Communication and Information required to implement Government Policy articulated in this Final Report.

Reform 9.6 Pending the enactment of legislation to give effect to the Government Policy articulated in the various reforms set out in this Final Report, it is Government Policy that the current industry structure and participation be preserved. Specifically, unless the Minister agrees in writing otherwise:




• any new Value Added Services Licence issued will be expressed to operate only until the commencement of the new licensing regime as set out in Chapter 1 of this Final Report;


• no amendments will be made to any existing licences, permits orauthorities (including imposing any new licence conditions under a declaration of conditions of licences under section 63 of the Telecommunications Act or otherwise);




I.1314081 page 102

ANNEXURES

ABBREVIATIONS AND GLOSSARY

3G Third generation mobile telephone networks

ACCC Australian Competition and Consumer Commission

ACMA Australian Communications and Media Authority

APNG-2 The ’APNG-2’ submarine telecommunications cable between Sydney and Port Moresby

Cable station Submarine telecommunications cable landing station

CMRS Commercial Mobile Radio Services

CSO Community Service Obligation, being the provision of certain telecommunications services on a universal access basis

Digicel Digicel (PNG) Limited and/or its related companies

Digicel’s Public Mobile licence

Licence issued to Digicel by ICCC dated 27 March 2007

earth station International telecommunications satellite earth station

FCC Federal Communications Commission of the United States of America

GATS General Agreement on Trade in Services, forming Annex 1B of the Agreement establishing the World Trade Organisation

General Carrier Licence a general carrier telecommunications licence issued under Part VI of the Telecommunications Act.

Government The Government of the Independent State of Papua New Guinea

GreenCom Green Communications Limited and/or its related companies

GreenCom’s Public Mobile licence

Licence issued to GreenCom by ICCC dated 27 March 2007

ICCC Independent Consumer and Competition Commission

ICCC Act Independent Consumer and Competition Commission Act 2002 of PNG, as consolidated

ICCC Interconnection Code Telecommunications Interconnection Code of Practice, published by the ICCC, 17 November 2006

ICT Information and Communication Technologies

IGW International telecommunications gateway

ILEC Incumbent Local Exchange Company in the United States

IP Internet Protocol, being a protocol used for communicating data across a packet-switched network

ISM band Industrial, Scientific and Medical frequency band

ISP Internet Service Provider

ITU International Telecommunications Union, a specialised agency of the United Nations

LRIC Long-Run Incremental Cost

Minister Minister for Communication and Information

National ICT Policy National Information & Communications Technology (ICT) Policy, published by the Department, April 2008

NEC National Executive Council of PNG

NICTA National Information and Communication Technology Authority, the new

Abbreviations and glossary

I.1314081 page 103

ABBREVIATIONS AND GLOSSARY

ICT regulator.

Numbering Code PANGTEL’s PNG National Communications Numbering Plan, Revision 3, March 2007

OECD Office for Economic Co-operation and Development

OFCOM Office of Communications, being the telecommunications regulator in the United Kingdom

Open Competition Liberalisation of the PNG telecommunications sector pursuant to National ICT Policy

PANGTEL Papua New Guinea Radiocommunication and Telecommunication Technical Authority

PANGTEL Interconnection Code

Multi-carrier Interconnection Technical Code of Practice, published by PANGTEL, 31 January 2007

PPC-1 The proposed ’PPC-1’ submarine telecommunications cable between Sydney and Guam

PNG Independent State of Papua New Guinea

Public Mobile Licence A public mobile telecommunications licence issued under part VI of the Telecommunications Act

QOS Quality of Service

Radio Spectrum Regulations Radio Spectrum Regulation 1997 of PNG, and any other regulations made pursuant to the Radio Spectrum Act

Reserved Rights certain rights reserved for holders of a General Carrier Licence pursuant to Part V of the Telecommunications Act

RMAC Retail minus avoided costs, being a methodology for calculating of an access price

RTSS Rural Telephony Subscriber Service

Spectrum Usage Agreement Agreement between PANGTEL and Telikom dated 15 October 2007

Telecommunications Act Telecommunications Act 1996 of PNG, as consolidated

Telikom Telikom PNG Limited and/or its related companies

Telikom Regulatory Contract Telecommunications Regulatory Contract between Telikom and ICCC dated 16 July 2002

UAS The Universal Access Scheme referred to in Chapter 5

Value Added Service Licence A value added service licence issued under Part VI of the Telecommunications Act.

VoIP Voice over Internet Protocol

VSAT Very Small Aperture Terminal Satellite Dishes

World Bank The International Bank for Reconstruction and Development and/or the International Development Association, as members of the World Bank Group

WTO World Trade Organisation

I.1314081 page 104

II. WRITTEN SUBMISSIONS RECEIVED

A. SUBMISSIONS INFORMING THE EXPERTS’ REPORT

Individual / organisation Date of written submission

Elias Mandawali - Electrical Engineering Dept. - Telecommunication Engineering Section

15 October 2008

PNG National Working Group on Removing Impediments to Business -Subcommittee on Import & Export Monitoring

15 October 2008

Institute of National Affairs 15 October 2008

Jimmy Son 17 October 2008

Papua New Guinea Chamber of Commerce and Industry 14 October 2008

Telikom PNG Limited 22 October 2008 8 December 2008

National Fisheries Authority 28 October 2008

ICCC 28 October 200812 November 2008

Data Nets Ltd 3 November 2008

PANGTEL 25 November 2008

B. SUBMISSIONS IN RESPONSE TO THE EXPERTS’ REPORT

Individual / organisation Date of written submission

Dr Kikala 18 February 2009

Treasury 19 February 2009

Telikom PNG Limited 20 February 2009

Independent Competition and Consumer Commission 20 February 2009

BMobile 25 February 20097 March 2009

PANGTEL 26 February 2009

Education Milne Bay 27 February 2009

Digicel Pacific Limited 1 March 2009

Data Nets Ltd 2 March 2009

The National Research Institute 5 March 2009

Asia Development Bank 10 March 2009

World Bank 16 March 2009

I.1314081 page 105

III. ENDNOTES

1 WTO Reference Paper - Annex to the Fourth Protocol to the GATS Agreement, the “Agreement on Basic Telecommunications”, WTO January 1998 which provides in paragraph 4 the “all the licensing criteria and the period of time normally required to reach a decision concerning an application for a licence and the terms and conditions of individual licences” must be made publicly available.

2 The following draws largely on discussion contained in ACCC, December 2004, Mobile Services Review: Mobile Domestic Inter-carrier Roaming Service – Final Report on whether or not the Commission should declare a mobile domestic inter-carrier roaming service. However, the issues noted by the ACCC are the same types of issues evaluated by other regulators in considering the regulation of roaming and/or tower sharing.

3 OECD, Directorate for Financial, Fiscal and Enterprise Affairs Competition Committee, Competition and Regulation Issues in Telecommunications, 1 February 2002, DAFFE/COMP(2002)6, p. 10.

4 ACCC (2004), p. 35.5 Industry Canada, November 2007, Policy Framework for the Auction for Spectrum Licences for Advanced

Wireless Services and other Spectrum in the 2 GHz Range, p. 8.6 Ofcom, National roaming: A further consultation, July 2004, p. 15.7 ACCC (2004), p. 37.8 Industry Canada, November 2007, Policy Framework for the Auction for Spectrum Licences for Advanced

Wireless Services and other Spectrum in the 2 GHz Range.9 Industry Canada, November 2008, Conditions of Licence for Mandatory Roaming and Antenna Tower and Site

Sharing and to Prohibit Exclusive Site Arrangements, p. 2.10 ACCC (2004), Appendix B.11 The following is taken from an FCC News Release, 7 August, 2007.12 The FCC also decided to maintain its existing manual roaming requirement, which requires CMRS providers to

permit customers of other carriers to roam manually on their networks, for example by supplying a credit card number, provided that the roamers’ handsets are technically capable of accessing the roamed-on network.

13 Commerce Commission, National Roaming Update, 23 December 2008.14 NTA Interconnection Guideline, sub-section 18(1).15 ACCC (2004), p. 39 – 41.16 Ofcom, National roaming: A further consultation, July 2004.17 As there is no universally accepted test, we have used the phrase “essential facilities doctrine” throughout the

report. This is consistent with the literature on this issue.18 There is of course a famous telecommunications case under the EFD – the MCI/AT&T case – but that case

preceded the decision by the FCC to create a 3rd party access regime that would apply to the relevant AT&T facilities.

19 Epithet, Areeda, p. 842.20 Telecommunications Act of 1996, Section 101 – (d)221 Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers; Implementation of the

Local Competition Provisions of the Telecommunications Act of 1996; Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC Docket Nos. 01-338, 96-98, 98-147, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking (rel. August 21, 2003) (Triennial Review Order or TRO), corrected by Errata, 18 FCC Rcd 19020 (2003) (Triennial Review Order Errata), vacated and remanded in part, affirmed in part, United States Telecom Ass’n v. FCC, 359 F.3d 554 (D.C. Cir. 2004) (USTA II) cert. denied, 125 S.Ct. 313, 316, 345 (2004) at para. 84.

22 There is, of course, the novelty or inventive step test under patent law, but it provides little useful guidance in the context of evaluating the desirability of third party access.

23 Hecht v. Pro-Football, Inc., 570 F.2d 982, 992-93 (D.C. Cir. 1977).24 ITU and InfoDev, ICT Regulation Toolkit, Chapter 5, http://www.ictregulationtoolkit.org/en/Section.2150.html.25 Submission of the ICCC, 28 October 2008, p. 45.26 Informa Telecom and Media, World Cellular Information Service, accessed 9 March 2009.27 The presence of several competitors, acting independently, is a sufficient condition for competition to be

effective, but not a necessary one, as some markets can be strongly competitive with as few as two suppliers. 28 References to donor funding are intended to apply to potential donor funding generally and are not necessarily

references to the World Bank Country Assistance Program currently being considered.

www.ictregulationtoolkit.org/en/Section.2150.html.

http://www.ictregulationtoolkit.org/en/Section.2150.html.

experts’ report on national ict policy phase 2 reforms - papua new guinea - march 2009 - final...

Law

ict sector

telecommunications sector

increased competition

transitional arrangements

implementation of phase

government policy

licensing arrangements

institutional arrangements