3.7

Special Authorization Situations

While ICT authorization practices have some common features, there are frequently particular circumstances that require the use of special authorization practices This section reviews some of these special authorization practices, as well as highlights a number of service-specific authorizations.

3.7.1 Public-Private Partnerships, Concessions and Similar Arrangements

In many countries today, authorization of ICT services involves a unilateral grant of licence or general authorization from a regulator (or other licensing authority) to a private sector operator. The authorization authorizes the operator to provide specified ICT services, subject to certain conditions. These conditions may be set out in the authorization document itself or, as is increasingly common, in other regulations or regulatory instruments. The issuance and enforcement of an authorization is therefore generally a matter of public administrative law.

However, there have been many variations on the theme of authorizing ICT operations. In some countries, private sector investors have entered into business arrangements with governments or state-owned service providers that are more in the nature of joint ventures with government entities than simple grants of rights to operate ICT facilities or provide services. These may be referred to as concessions, franchises, Build-Operate-Transfer (BOT) schemes, Build-Transfer-Operate (BTO) schemes, Build-Own-Operate (BOO) schemes, and a number of other variants, limited only by the imagination of project finance lawyers and bankers.

Collectively, many of these arrangements have been referred to as Public-Private Partnerships (PPPs). PPPs are increasingly common vehicles for the financing and operations of large infrastructure projects, such as highways, airports and ports. In the past, PPP arrangements were useful in attracting private investment to markets where privatization or private-sector participation in the ICT sector was legally or constitutionally restricted. However, they have become less common in the ICT sector, as a result of a growing recognition that there is little public benefit to state ownership or operation of ICT service providers. PPP schemes are generally seen to be inconsistent with the promotion of liberalized ICT markets and competitively-neutral regulation and policies.

Practice Notes

3.7.1.1 Concessions and Licence Agreements

This section provides further information on a subject introduced earlier in this module, namely forms of authorization, including concessions and licence agreements.

In most countries, the term “concession” is used to refer to a commercial agreement between a government and the private builder, owner or service provider of an element of public infrastructure (such as a toll road or power plant) or a business located on public property. Such agreements were once fairly common in the ICT sector in some regions, particularly where there were legal or constitutional restrictions against private sector ownership or operation of ICT facilities. However, such agreements are becoming increasingly less common in the ICT sector. They are generally seen to be inconsistent with the promotion of liberalized ICT markets and competitively-neutral regulation and policies. The reasons for the decline in such agreements are similar to those for the decline in use of Public-Private Partnerships generally (see section 7.1.2, “Public-Private Partnerships).

Nevertheless, some governments continue to play an active role in the provision of ICT services and the operation of ICT networks. An important emerging trend involves the engagement of governments, particularly local and municipal governments, in the deployment of next generation access and core networks through public-private partnerships. This trend is discussed more fully in section 7.1.2, Public-Private Partnerships and in the Practice Note entitled “Public (Municipal) Initiatives”. Links to section 7.1.2. and this Practice Note are set out below.

Concession agreements had several advantages in attracting private sector investment, particularly in markets with high levels of political or regulatory risk. Such agreements sometimes granted governments an ownership stake and revenue-sharing interest, therefore providing governments with an incentive to support the growth of the ICT or telecommunications business in question. Also, the legal remedies available for breach of contract normally applied to concessions, such as money damages and arbitration. Negotiations often fine-tuned concession terms to establish the protections and incentives necessary to attract investors and to guarantee performance by the concession holder in each particular situation.

A related approach adopted in some countries is to grant ‘licence agreements’. In many cases, licence agreements were relatively similar to the detailed individual licences granted in other countries. However, they typically included some obligations – often regulatory rather than commercial – on the part of the government, regulator or other government signatory. For example, a licence agreement might establish the basis of setting tariffs during the licence period, by way of a specific price cap formula. By including such mutual obligations in an agreement, the licensee received additional legal protections against changes in its basic operating environment. A major disadvantage of licence agreements was that many had quite long terms, therefore effectively restricting sector-wide regulatory reforms from being implemented without the consent of the parties to existing licence agreements.

Some licence agreements have both regulatory and commercial concession features. It is often important to distinguish between the two. A good approach is to deal with the concession features in a concession contract between the host government (not the regulator) and the investor. In project finance terms, such an agreement would be called a government support agreement.

It should be noted that the terms concession and licence agreement have different meanings in different countries. In some Latin American countries, concessions contain most of the features and types of conditions contained in individual licences in other countries. They might be called licence agreements elsewhere. Some other countries, particularly in Asia, have granted ‘concessions’ that are in the nature of joint venture agreements rather than granting full authorizations to operate ICT networks independent of the government. These are discussed further under the heading ‘Public-Private Partnerships’.

RELATED INFORMATION

Public-Private Partnerships

3.7.1.2 Public-Private Partnerships

This section provides further information on a subject introduced earlier in this module, namely public-private partnerships.

Public-Private Partnership (PPP) arrangements are increasingly common vehicles for the financing and operation of large infrastructure projects, such as highways, airports and ports. PPP arrangements were once the only vehicle legally available to introduce private sector participation in telecommunications markets in countries that permitted only state-run telecommunications operations.

It has become generally recognized in most countries in recent years that there is little public benefit to state ownership or operation of ICT service providers. With the liberalization and privatization of the global ICT industry, joint venture arrangements between governments or PTTs and private sector investors have become less common in the ICT sector in recent years. PPPs also raise concerns about whether public policy and regulation will be competitively neutral if the government holds a stake in one or more of the commercial players in the ICT sector. Nevertheless, some PPP arrangements remain in place, and a few new ones have recently been initiated.

One important emerging trend is the involvement of local and municipal governments in the direct deployment of next generation core and access networks through PPPs arrangements. Municipally-sponsored FTTH projects have arisen across Europe and in the United States. Many of these projects (though not all) are designed to grant open access to competitive broadband service providers.

Critical assessment of these municipally-sponsored FTTH projects has been mixed. On the one hand, these arrangements do not raise many concerns that the competitive neutrality of the ICT regulatory framework may be compromised by the fact that a government has a stake in a commercial player active in the ICT sector. Since municipalities rarely have regulatory jurisdiction over ICT law and policy, their involvement in FTTH projects does not threaten the competitive neutrality of the regulation of the ICT sector.

On the other hand, however, there are concerns that public intervention in the provision of ICT networks and services distorts commercial incentives for efficient investment. Furthermore, historically, PPPs in the ICT sector have not enjoyed robust success in fostering a healthy ICT market and in improving access to services for customers.

At present, it is too soon to draw any definitive conclusions about the advisability of municipal involvement in the deployment of next generation network infrastructure. We can observe, however, that governments, particularly at the municipal and regional level, should be careful to ensure that they have the legal authority and right to enter into such arrangements. It was necessary to enact legislation in France, the Netherlands, and the United States, for example, to enable municipalities to enter into PPP arrangements in the ICT sector. Moreover, at present, 14 states in the United States have enacted some form of legislation that restricts municipalities from offering ICT services.

For more information on municipally-sponsored FTTH projects, see the Practice Note entitled “Public (Municipal) Initiatives”.

Traditionally, PPPs were often structured as Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO), Build-Own-Operate (BOO), or similar arrangements. In general, BOT, BTO and BOO arrangements are all project finance structures aimed at attracting investment and management expertise required to develop ICT infrastructure in countries with state-controlled ICT sectors. A variation on such structures involves contracts where an investor does not build or own any facilities, but shares in revenues from a state-owned service provider in return for providing financing, management or both. Financing contracts of this type have been entered into in China and Indonesia. An example of a management contract with revenue sharing is the Vietnamese “Business Cooperation Contract”.

Some examples of countries where joint venture-type arrangements such as BTOs, BOTs, and BOOs, have been implemented include:

  • BTO: Thailand, Philippines
  • BOT: Lebanon, India, Indonesia (Joint Operating Schemes or KSOs), East Timor
  • BOO: Malaysia, Solomon Islands

Most of these structures experienced initial success in promoting network expansion. In part this was because they were not characterized as authorizations to private service providers but rather as contracts under which private contractors would build and operate telecommunications services “owned” by the government or by a state-owned service provider. This arrangement allowed for private sector participation in telecommunications service providers without breaching laws or policies that prevented private sector ownership of service providers.

However, experience in Lebanon, Indonesia and elsewhere suggests that these models are not viable in the long term. Investors in BOT projects lack the long-term security and equity interests of a full network licensee. They are therefore motivated to maximize short-term profitability at the expense of long term network or service development. A BOT must either terminate, with the resulting withdrawal of the private investor, or it must be converted into a true authorization. If the investor withdraws, the service provider may or may not be able to continue to expand and manage the service on its own. If the concession is converted to an authorization, serious questions may arise regarding the fairness and transparency of the authorization process. In all cases, the conversion of BOT-types schemes into conventional ICT authorizations can be problematic.

Singapore has introduced a variation of a BOO-type PPP as part of its strategy to roll out national next generation network infrastructure (fixed and wireless) capable of providing high-speed “super-connectivity” throughout the country. The government has indicated that it will provide funding to operators that are selected through a competitive process to build, own, and operate Singapore’s wired and wireless next generation networks. At present, it does not appear that the government proposes to acquire an ownership interest in the operators selected to build and operate the next generation networks. However, the successful operators will be expected to build and operate networks that conform to mutually-agreed upon specifications. Operators will also be required to comply with government requirements related to open-access and structural and operational separation of the network operating companies and the retail service providers. See Box 3.7 for more information about this PPP in Singapore.

Singapore has introduced a variation of a BOO-type PPP as part of its strategy to roll out national next generation network infrastructure (fixed and wireless) capable of providing high-speed “super-connectivity” throughout the country. Singapore’s strategic plan (the Next Generation National Infocomm Infrastructure or “Next Gen NII”) involves the creation of a wired, open access, and carrier-neutral Next Generation National Broadband Network (Next Gen NBN) and an open-access Wireless Broadband Network (WBN). The Next Gen NBN and the WBN are to be built, owned, and operated by the private sector. The government has made clear that the operation of the Next Gen NBN and WBN will involve structural separation of the operator of the passive network infrastructure, the operator of the active network infrastructure, and the retail services provider.

The government of Singapore has indicated that it will provide various amounts of funding to the operators of the passive and active infrastructure of the Next Gen NBN and WBN. The funding is intended to kick-start the project and to ensure that the ultra high-speed broadband service provided over these networks will be viable, affordable and sustainable in the long-term. The government issued a Call-For-Collaboration in 2006 to select the operators for the WBN. It also issued a Request-For-Concept in 2006 to begin the process of selecting operators for the Next Gen NBN.

The funding arrangements are to be negotiated privately between the government and the operators selected to construct and to operate the Next Gen NBN and WBN. At this stage, it does not appear that the government proposes to acquire an ownership interest in the operators involved with building and operating the Next Gen NII. However, operators will be expected to build and operate the infrastructure in accordance with agreed upon specifications and in compliance with government requirements relating to open-access and structural separation.

In October 2006, Singapore selected three operators for the WBN project. These operators launched initial commercial services in January 2007. The roll-out of the WBN is expected to be complete by the end of 2008.

The selection process for the operators of the Next Gen NBN is on-going. As of June 2008, the government was completing the qualification phase of the selection process. The process will move to the selection stage by the end of summer, 2008.

Box 3.7 Funding the Construction and Roll-out of Next Generation Network Infrastructure for Singapore’s Digital Super-Highway

At present, it is too soon to evaluate the success of the PPP initiated by the government of Singapore to fund the construction of the national next generation network. Given the importance of next generation networks and the expense involved with constructing and rolling out these networks, close observation of this PPP and similar arrangements in other countries is warranted.

Practice Notes

3.7.2 Re-authorization of Incumbent Service Providers

The ICT reform process in most countries includes privatization of PTTs and the granting of competitive authorizations in various market segments. Many countries have completed this process; others are in the midst of implementing it, and a few have not started.

A major step in the privatization and liberalization process in many countries is the issuance of an authorization to incumbent service providers. This can be a complicated process. Special consideration must be given to the process of authorizing an incumbent and to the definition of the incumbent’s rights and obligations under this authorization.

3.7.2.1 Re-authorization of Incumbents: Some Considerations

This section provides further information on a subject introduced earlier in this module, namely the re-authorization of incumbents.

In many countries, successful transition to a liberalized ICT market requires that special attention be paid to the authorization of incumbent service providers. Prior to privatization and liberalization, many incumbent service providers are PTTs, which may have operated for half a century or more without a formal authorization.

New ICT laws or amendments often authorize the licensing of the incumbent service provider. The authorization process generally involves the detailed identification of existing and new rights and obligations of the service provider. While there is a trend away from use of individual authorizations in mature competitive markets, there may remain good reasons for individual authorizations for incumbents in less competitive markets with less well-defined regulatory frameworks. For example, an individual authorization can add the regulatory certainty required to implement a successful privatization of a PTT.

In some cases, incumbent service providers may receive a mix of individual authorizations and general authorizations. This approach can be useful in cases where it is considered necessary (for example where a privatization is pending) to issue an individual authorization to establish the basic rights and obligations of a PTT to operate the fixed public switched telecommunications network. In such a case, the rights of the incumbent PTT to provide other services, such as VSAT, data transmission or value added services, may be subject to general authorizations. These general authorizations would apply equally to all other service providers of the same class of service.

The rights and obligations set out in a new authorization for an incumbent operator must generally be adapted to a new and evolving sector policy and regulatory regime. In particular, the rights and obligations must often be adapted to the realities of a market-based economy, especially where the service provider is to be privatized and is to face competition for the first time in some markets.

A concern about fairness may arise if the incumbent service provider is automatically entitled to be authorized to provide services for which other service providers must obtain an authorization through a competitive authorization process. Such a situation may create a perception that the competitive playing field is not level.

In practice, the authorization of incumbents often involves a process of negotiation between the incumbent and the regulator. Additional input generally comes from professional advisors, including investment bankers and lawyers hired by the incumbent, the government, the regulator, or all of them. It is important for the regulator (or other licensing authority) to obtain a good balance of views on the contents of the authorization. In this regard, there are often competing agendas between the incumbent’s management, which may want to retain as much exclusivity and market power as possible, and those promoting a competitive ICT policy. Ministries of Finance and investment bankers in the process will often focus on granting exclusivity and market advantages as means of increasing privatization proceeds. Ministries of ICT and regulators are often more focused on promoting competition as a means of increasing efficiency of ICT markets and delivering better services to the public.

In some countries, incumbents are granted authorizations for new services (e.g. cellular, data communications, ISP, value added services) around the same time as authorizations are granted to new service providers for those services. The incumbents sometimes receive the authorization outside the competitive selection process that may be used to choose new entrants. This has been the case for cellular mobile authorizations in both developed and less developed countries.

Such a process raises issues of competitive fairness. Often the new entrant pays a significant amount for the authorization under a competitive selection process, but the incumbent does not. This issue has sometimes been addressed by requiring incumbent service providers to pay a fee equal to the amount of the winning bid or a fixed percentage of that amount. This occurred when Jordan authorized a second GSM service provider in 2000, for example. Similarly, when Colombia authorized second cellular service providers in each of three regional markets, the existing service providers were required to pay 95% of the amount of the winning bid in the applicable region.

In other countries the incumbent service provider has not been required to pay authorization fees, even though new entrants do pay. Some argue that the incumbent was awarded an authorization in accordance with past practice and law, and that it would be unfair to retroactively tax it. Others have pointed out that the incumbent may have taken risks and incurred expense in developing the market. From this perspective the retroactive imposition of a substantial authorization fee may be considered inappropriate.

While there is not always a right answer in these situations, care must be taken to promote a competitively neutral environment. If preferential treatment is given to an incumbent, there should be clear benefits to the public for doing so. These may include maintenance of extraordinary network rollout obligations or other specific universal service objectives.

Practice Notes

Reference Documents

3.7.3 Service-Specific Authorizations

The scope of services authorized by an individual licence or a general authorization varies considerably from country to country. Unlike spectrum and technology standards, there have not generally been any standardized authorization classifications. A mobile services authorization in one country may authorize a wide range of mobile voice, data and even video services, including mobile television services and IMT 2000 services. In other countries, mobile service authorizations only authorize the provision of GSM standard voice services and some related GPRS or SMS services.

In the early days of telecommunications licensing, incumbent operators were often granted authorizations with a very broad scope, authorizing provision of many if not all types of telecommunications services. With the introduction of competition, new entrants were often authorized to provide services based on specific technologies, such as those based on the mobile AMPS, GSM, CDMA or TDMA standards. Other new entrants were authorized to provide specific services, such as paging or trunking services, pay telephone services, data and internet access services, and the usually vaguely defined ‘value added services’.

Over the last decade there has been a trend towards convergence and harmonization in the regulatory treatment of different technologies and services. As a result, there have been initiatives to standardize the authorization approaches and authorization conditions for different types of technologies and services. These initiatives have included the introduction of unified and multi-service authorization regimes. India, Hong Kong China, Jordan, Tanzania, South Africa, Nigeria, Uganda, Botswana, Singapore, Brazil, and Trinidad and Tobago, for example, have all introduced unified or multi-service authorization regimes.

These initiatives have also included attempts to bring technologies and services that had previously been considered ‘broadcasting’ or ‘media’ transmission services under the same authorization rules as telecommunications or ‘carrier’ services. Examples of such initiatives include the European Union’s move to standardize the approach to authorization of all ‘electronic communications services’ in its Authorization Directive, and Malaysia’s 1999 Communications and Multimedia Act.

Despite these initiatives, many countries continue to grant authorizations or general authorizations based on different service classifications, and to a lesser extent today, based on technology classifications. The ITU World Telecommunications Regulatory Database indicates that at least 24 authorization classifications are commonly used today.

This section contains links to documents that describe some of the more common types of service and technology-specific authorizations. The Reference Documents listed below include examples of specific authorizations issued for a variety of different types of services or technologies. Please note that, as with all authorizations and other Reference Documents linked to this module, the conditions of these authorizations are often highly dependent on local market, technical, legal and regulatory conditions. They may therefore be unsuitable for use as precedents in other countries.

Practice Notes

3.7.3.1 Common Authorization Classifications

Fixed local services (sometimes includes VoIP services)

Digital Subscriber Line (DSL)

Fixed domestic long-distance services

Cable Data

Fixed international long-distance

Leased lines

Mobile local services

Very Smal Aperture Terminal (VSAT)

Mobile domestic long-distance

Fixed Satellite Services (FSS)

Mobile international long-distance 

Mobile Satellite Services (MSS)

Public Voice Telephony

Global Mobile Personal Communicaton Services (GMPS)

Mobile Cellular Network

Third Generation Mobile (IMT2000)

Cable TV Network

Paging

Cable TV Service

Public Mobile Radio Trunked Services (PMRTS)

Wireless Local Loop

Internet Service Provision (sometimes includes VoIP)

Value Added Services (e.g. email, database access, electronic data exchange, etc.)

Data

TableCommon Authorization Classifications

Source: ITU Trends Report, 2007. Adapted from ITU World Telecommunication Regulatory Database.

3.7.3.2 Sample Licences and Related Documents

This section contains links to examples of authorizations issued for specific types of services or technologies in different countries. In reviewing these examples, please note that the authorization conditions and procedures are dependent on local market, technical, legal and regulatory conditions. These documents may therefore be unsuitable for use as precedents in other countries.

Second National Operators:

Kenya- Prequalification Notice for a SNO Licences- 2003Nigeria- SNO National Carrier Licence

International Services Authorizations:

Canada- Licensing International ServicesUnited States- International Services Licensing RegimeBahrain- International Services Licence Switzerland- Invitation to Tender for GSM Licences - 2003 Jordan- Prequalification Notice for 3rd Mobile Licence – 2003Ireland- Mobile Licence Terms- 1999South Africa- Mobile Cellular Licence- 2002 Singapore -- Information Memorandum: Auction of Public Cellular Mobile Telecommunications Services Spectrum Rights

3G Wireless Services:

Norway- 3G Licensing Document - 2000 Estonia- 3G Licensing Information Document - 2004 France- 3G Licensing Consultation Document - 1999 3G Licensing Case StudiesLicence Fees for 2G and Combined 2G/ 3G Licences3G Licence Results: Europe 3G Licence Results: Asia Pacific and CanadaComparison of 3G Nigeria -- Information Memorandum: 800 MHz Spectrum Auction Nigeria -- Information Memorandum for the 2 GHz Spectrum Auction Macedonia -- Tender for granting authorizations for radio frequencies utilization for the provision of 3G services according to the IMT-2000/UMTS standard Algeria -- Notice of Invitation to the expression of interest related to third generation (3G) mobile communications licenses assignment

Rural Service Licences- Least Cost Subsidy Auctions:

Nepal- Rural Services Licensing- 2003Venezuela- Rural Mobile LicensingSouth Africa- ‘Under Serviced Area Licence’Handbook Universal Service ModuleNepal- OBA Approaches New Zealand- Allocation Plan for Satellite OpportunitiesCanada- Licence for Use of Satellite Orbital SlotHong Kong- Space Station Carrier LicensingHong Kong- Outer Space LicencesPakistan- Application Form for the Establishment of a Satellite Earth StationCanada- Licensing of Fixed Earth StationsCanada- Mobile Satellite Services LicensingSatellite Industry Association- Regulatory Principles to Foster Market Access for Satellite Services

VSAT Services:

Singapore- VSAT LicensingJamaica- VSAT Licence ApplicationIndia- VSAT Licensing for Data ServicesJordan- VSAT Licence Application FormPakistan- VSAT LicensingInternational VSAT Policy Declaration Iceland -- Application for a VSAT Licence Saudi Arabia -- Special Conditions of VSAT Licences Saudi Arabia -- General Terms and Conditions of VSAT Licence Switzerland -- VSAT Application Form

Submarine Cables:

Canada- International Submarine Cable LicensingUnited States- International Submarine Cable Licensing

Voice over Internet Protocol ("VoIP") Licences (see Box 3.7): 

Note that some countries licence VoIP services as a fixed local service, while other countries licence VoIP services as part of Internet services. We have therefore included examples of both approaches.

Box 3.7 Note on VoIP Licenses

Germany -- Key elements of the regulatory treatment of Voice over IP (VoIP) Finland -- FICORA opinion on the use of telephone numbers in VOIP Services Finland -- FICORA Opinion on the Regulation of Skype Services in Finland

Singapore -- Guidelines on Licensing and Regulatory Framework for IP Telephony in Singapore

Singapore -- Guidelines on Licensing and Regulatory Framework for IP Telephony in Singapore

Singapore -- Specific Terms and Conditions for IP Telephony Services

Finland -- Application of Communications Legislation to VOIP Services in Finland
Regulatory framework for voice communication services using Internet Protocol (CRTC, May 2005)
Hong Kong China -- E
Hong Kong China -- Consultation Paper on the Regulation of Internet Protocol (IP) Telephony Executive Summary of the Consultation Paper: Regulation of Internet Protocol (IP) Telephony Finland -- Application of Communications Legislation to VOIP Services in Finland
Frequently asked questions on the regulation of Voice over Internet Protocol services
Barbados: Voice over Internet Protocol Policy (Draft Second Circulation for Comments)
Statement of

The treatment of Voice over Internet Protocol (VoIP) under the EU Regulatory Framework Telecommunications Authority on Regulation of Internet Protocol (IP) Telephony, 29 June 2005

Next: 3.7.3 Service-Specific Authorizations