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Telecom Regulators
MichelKerf, Manuel      Converging Trends?
Schiffler, and Clemencia
Torres                  Officials in developing countries with  legal and political systems of
continental European origin  often  argue that the model of
Michel Kerf has worked
on a vanety of          independent regulatory  agencies for utilities is appropriate only for
infrastructure regualationz
infastuctrereglaton     Anglo-Saxon countries. Yet countries in continental Europe have also
3Z    issues in the World Bank.
He is coauthoring a book  adopted  this model. Comparing the telecommunications regulatory
on competition law vs.  agencies in the United  Kingdom, the United States, France, Germany,
=sector-specific regulation
pjg                and Spain, this Note finds divergence in some respects but striking
in telecommunications.
Manuel Schiffler is an  convergence in overall approach. This approach  might not be right for
Economist in the World
Bank's Middle East and  all developing countries, but it cannot be rejected  on the grounds
2      NrorthAfrica Region,     that it works in Anglo-Saxon countries only.
where he has worked on
o      the reguationkad .       The United States liberalized long-distance    historical operator, which sometimes stayed
F  the regulation and 
privatization of        telecommunications markets in the 1960s. The    under public ownership? How could the regu-
telecommunications.     United Kingdom followed suit in the 1980s. The    latory process be protected from  short-term
Clemencia Torres is a   other countries of the European Union (EU)    political pressures? And how could the regula-
Regulatory Economist    undertook liberalization (of both local and    tor be best protected from undue influence by
and has worked on       long-distance service) in the late 1990s.       new private operators?
°      privatization and          The shift to competition in all these coun-     The governments of the five countries exam-
regulatory issues in    tries was prompted in part by changes in tech-   ined in this Note-two from the Anglo-Saxon and
telecommunications and  nology  but more  fundamentally  by  the    three from Continental European legal and polit-
Z
,<g,    electricity in the Middle  realization that users, and the economy in gen-   ical traditions-answered these questions by tak-
g      East and Aorth Africa    eral, would benefit greatly from a broader range    ing major regulatory  functions away from
Region.                 of services, of higher quality and at lower prices,    ministries and entrusting them to autonomous
-J
in a competitive environment.                  agencies.
As competition increased, new regulatory
priorities emerged, and issues of regulatory    Converging responsibilities
Z                               autonomy, in particular, gained prominence.    The five countries' regulatory agencies have
For example, how could it be ensured that a    similar responsibilities. All have mission state-
public regulator was not biased in favor of the    ments that emphasize promoting competition.
FILE COPY



TELECOM  REGULATORS CONVERGING TRENDS?
Does the agency have                                                                        United               United
responsibility for:           France               Germany             Spain                Kingdom              States
Granting licenses?            No.                  Yes.                Yes, in most         No.                  Yes, but for
cases.                                   broadcasting only.
Approving tariffs?            No. Ministry         Yes.                 No. Ministry        Yes (but most        Yes (but some tarffs
approves tariffs.                        approves tariffs.    tariffs are now     are unregulated).
unregulated).
2                                                         Setting conditions of          Yes (must           Yes (must            Intervenes if       Intervenes if        Has issued detailed
interconnection?              approve standard   approve standard   parties fail            parties fail         interconnection rules
offer of dominant   offer of dominant  to agree.             to agree.            (state-level regulators
operator).          operator).                                                    approve each
agreement).
Administering universal       Follows detailed     Can designate        Designates          Determines scope   Follows broad rules
service obligations (USOs)?   rules set by         operators.          operators and        of USOs,             set by law to
decree to calculate  Follows rules       follows rules set    designates          determine the costs
and allocate the    set by law to        by law or decree   operators, and        of USOs and their
costs of USOs.      calculate and        to calculate and    calculates and       allocation. Scope of
Scope of USOs       allocate the         allocate the costs   allocates the       USOs set by federal-
and choice of       costs of USOs.       of USOs. Scope of  costs of USOs.        state board, set up
operators defined   Scope of USOs        USOs defined                             by the federal
by law.             can be defined by  by law.                                    regulator.
the government.
Monitoring and enforcing      Yes (induding        Yes (induding       Yes (including       Yes (exduding        Yes.
compliance with               revocation of        revocation of       revocation of        revocation of
regulations?                  licenses).          licenses).           licenses).           licenses).
Undertaking conciliation      Yes (arbitration     Yes (arbitration    Yes (arbitration     Yes (binding and    No (but state-level
and arbitration?              in specific cases    in cases identified  in cases identified   nonbinding         regulators can
identified by law).  by law).            by law or if both  interventions         mediate and
parties agree to    possible in a wide  arbitrate inter-
arbitration).       variety of cases).   connection disputes).
Note: The main regulatory agency in France is Autorit6 de Regulation des Telecommunications, or ART (www.art-telecom.fr); in Germany, Regulierungsbehorde for
Telekommunikation und Post, or Reg TP (wwregtp.de); in Spain, Comisi6o del Mercado de (as Telecomunicaciones, or CMT (ww'w.cmrtes); in the United Kingdom, Office of
Telecommunications, or Oftel (rwww.oftel.goy.uk); and in the United States, Federal Communications Commission, or FCC (wwf.c.gov).
Snarce: Wndd Bank compilation bated an informatiOn Drovided bv the fivemgltyaenin
And all have duties relating to the same set of    the licenses when the award process is competi-
regulatory functions, such as granting licenses,    tive). Similarly, in setting tariffs, the French and
implementing tariff rules, determining the con-    Spanish regulators have only an advisorV role,
ditions of interconnection, administering uni-    while the German, U.K., and U.S. regulators
versal senice  obligations, monitoring  and    have decisionmaking power. Because of the
enforcing operators' compliance with regula-    political sensitivity of telecoinmunications tariffs
tions, and resolving disputes (table 1).                                    and the close and often complex relationships
WAhile similar, the responsibilities of the five    between the execrative and the main incumnbent
regulators are not identical. For example, the    operator-particularly when the state retains
French and U.K. regulators have only ad-visory   some ownership, as in France and (Germany-
power in granting licenses to operators; the min-    operators are likely to perceive greater risk when
ister responsible for telecommtunications for-   the government retains decisionmaking power
mally grants the  licenses. In  contrast, the    in such important functions as granting licenses
German, Spanish, and U.S. regulators have final    and setting tariffs.
decisionmaking po-wer in granting licenses, at                                   Other differences in roles relate to universal
least in some cases (in Spain the minister issues    serice obligations. The U.K. and U.S. regulators,



Table Accountability, autonomy, and competency of regulatory processes
United                 United
2                                          France                Germany               Spain                  Kingdom               States
What is the                     A five-member         Five mulfimember   A nine-member             A single person        A five-member
decisionmaking body?            commission.           decision chambers.  commission.              (director general      commission.
of telecommunications).
Who appoints the                The president of    The federal govern- The government,    The secretary of               The president
regulators?                     the republic (three  ment (for the           acting on a           state for trade        nominates
members) and the  most important            proposal of the       and industry.          commissioners and                                                         3
presidents of the    chamber), acting       Ministry of                                  the Senate confirms
two chambers of    on a proposal of    Development and                                   them.
Parliament (one       an advisory council after consulting
member each).         of parliamentarians  Parliament.
and state
nominees.a
How long do                     Six years             Five years.            Six years.            five years.            Five years
appointments last?              (staggered terms).                                                                        (staggered terms).
Are regulators legally          Yes, in law,          No.                    Yes, in               No.                    No.
required to have                technology, and                              telecommunications
certain qualifications?         economics.                                   and regulation.
Who can remove                  No one.               The federal            The prime minister, The secretary of         The president, only
regulators?                                           government.            on limited            state for trade        for cause.
Grounds for           grounds and           and industry, on
removal are not       after consulting      grounds of
limited.              the Ministry of       "misbehavior."
Development.
Are there conflict-of-interest  Yes.                  No.                    Yes.                  Yes.                   Yes.
rules to prevent capture
by operators?
What is the agency's            Government            Self-financing in      Self-financing,       Self-financing,        Self-financing,
source of financing?            subsidies (a law      part, through          through charges       through licensing      through fees levied
requiring self-      licensing and          levied on             and other fees         on operators.
financing through    other fees levied      operators.            levied on
service charges and on operators.                                 operators.
taxes has not been
applied yet).
Are draft documents             Yes.                  Yes.                   Yes.                  Yes.                   Yes.
published for comment?
Are regulatory decisions and  Yes.                    Yes.                   Yes.                  Yes.                   Yes.
their justifications published?
Can regulatory decisions        Yes, before the       Yes, before the        Yes, before the       Yes, before the        Yes, before the
be appealed?                    highest admin-        administrative         administrative        administrative         federal courts, but
istrative court.      courts.               courts.               courts, but only       only on procedural
on limited grounds   grounds.
(exceeding or
abusing powers).
What are the agency's           Annual reports        Biennial reports       Annual reports        Annual reports         Annual reports
reporting obligations?          to the legislature   to the legislature.   to the legislature,  to the legislature.   to the legislature.
and the                                     through the
government.                                 government
a. By law, the decision chamber that covers licensing for limited frequencies and universal service obligations is headed by the president of the regulatory agency, assisted
by the two vice presidents. The other decision chambers. established according to regulations set by the Ministry of Economy and Technology, are made up of high-level
staff of the regulatory agency appointed with the ministry's consent.
Source: World Bank compilation based on information provided by the five regulatory agencies.



TELECOM REGULATORS CONVERGING TRENDS?
unlike their French, German, and Spanish coun-    demonstrated, over the years, that it worked rea-
terparts, determine the scope of these obliga-    sonably well. Nevertheless, commentators are
tions. And while the German, Spanish, U.K, and    arguing, for example, that Oftel should be
U.S. regulators are responsible for calculating    headed by a commission rather than an individ-
the costs of universal service obligations, allocat-    ual to better protect its autonomy. Experience  viewpoint
ing those costs among operators, and designat-    with the German regulator is much shorter, and
ing the universal service providers, the French    concerns arising from the relative scarcity of for-
regulator performs the first two functions but not    mal safeguards are therefore more acute.
the last, because the law  designates France          All five countries have adopted similar dis-         en    forumito
Telecom as the universal service provider. Manv    closure and appeal mechanisms to counterbal-    encourage dissemination of
public policy innovations for
policy experts agree that political authorities can    ance  the  regulators'  autonomy.  All  the      private sector-led and
generally tackle the important social policy issue    regulators are required to publish regulatory     market-based solutions for
of defining the scope of universal service obliga-    decisions and the justifications for them and to    development. The views
tions with more legitimacy than can unelected    allow concerned parties to present their views    published are those of the
regulators, as is the case in the United Kingdom   before reaching a decision. All regulators must    authors and should not be
and the United States. But enabling the regula-    also report to parliament, and in some cases to    attributed to the World
tor to designate the universal service providers,   the government, on their activities. Procedures    Bank or any other affiliated
especially on a competitive basis, is a better    for appealing regulatorv decisions before the    organizations. Nor do any of
option than designating the incumbent ex ante as    courts are in place.                                the conclusions represent
the sole such provider, as was done in France.        Regulators tend, in practice, to go far beyond    official policy of the World
Finally, all five national regulatory agencies    what the law requires to ensure transparency,    Bank or of its Executive
focus on communications, or even more narrowly    on the presumption that this makes undue gov-    Directors or the countries
on telecommunications, though the U.S. public    ernment intervention more visible and there-    they represent.
utilitycommissionsat the state level typicallyoper-    fore less likely, and to further reduce the risk of
ate across infrastructure sectors. But a growing    regulatory mistakes.                                To order additional copies
number of commentators argue that while sector-                                                         contact Suzanne Smith,
specific  expertise  needs  to  be  maintained,    Conclusion                                           managing editor,
expaniding the scope of the agencies to cover    Prompted by the complexities of telecommuni-    Room 19-017,
other infrastructure sectors would speed the    cations issues, the size of the commercial inter-    TheWorld Bank,
adoption of best practices, increase autonomy,    ests at stake, and the political sensitivity of    1818 H Street, NW,
and economize on scarce human resources.           telecommunications   prices   and   policies,    Washington, DC 20433.
France, Germany, and Spain have followed the
Converging procedures                              lead of the United Kingdom  and the United             on 202 458 728e 1
Of course, entrusting decisionmaking powers to    States in setting up specialized, independent    Fax:
regulatory agencies offers advantages only to    regulatory entities. The regulatory models of             202 522 3181
I                               00 1 202 522 31 8 1~~~00
the extent that the agencies are adequately pro-    the five countries differ in some ways, but more    Email:
tected against political and industry pressures    striking is their convergence. Changes advo-    ssmith7@worldbank.org
and are well equipped to shoulder their respon-    cated in the United Kingdom and the United
sibilities. All five countries have taken measures    States would bring those countries' models even
to protect the regulatory process from political    closer to the other three.                          Printed on recycled paper
and industry capture and to ensure high tech-
nical capacity (table 2). In doing so, France,
Germany, Spain, and the United Kingdom have
all gone further than required by EU law, which     Michel Kerf (mkerf@worldbank. org), Manuel Schiffier (Mschil-
mandates separation between regulatory and    fler@wordbank.or4),  and  Clemencia  'ltrres  (ctrares@
operational functions, but not between regula-    wvorldbank.arg).
tory and political functions.                                    Suzanne  SmitUi
Germany and the United Kingdom  have                          PSI CS
introduced fewer safeguard measures than the                     1  9 -909
other three countries. The U.K model has
This Note is available online:
www.worldbank.org/html/fpd/notesI