Economic Policy Review ISSN 1313 - 0544

Bulgarian telecommunications sector

Author: Veliko Dimitrov / 29.03.2007
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I would not discuss the overall objectives of the Law on Telecommunications (LT) as stated in the General provisions since they sound, as in many other normative acts, strongly in favor of creating and maintaining competition, establishing free market principles, proclaiming efficiency, etc. In fact, as in many other areas, this is not exactly the case and in many directions imposed regulations are hampering competition.

The main regulator is the Communications Regulation Commission. Its legal capacity and authority is as follows where highlighted in bold are those authorities, which I believe are most crucial for the overall sector performance as well as each company's behaviour in particular:

  • Carries out necessary actions related to the issuance of licenses, stipulated by law;
  • Issues, amends, supplements, suspends, terminates and revokes individual licenses for carrying out telecommunication activities;
  • Issues class licenses for telecommunication activities, registers and writes off their registration;
  • Works out and presents for adoption by the Council of Ministers draft normative acts stipulated by law (it does not have necessarily a negative impact, however examining current constellation, I have to assert that certain provisions could not have a positive effect as a whole; however not at last, under the influence and the direction of legislating of EU politicians);
  • Studies the respective markets for the purpose of determining operators having significant market power (SMP operators); market segmentation performed by the regulator does not reflect modern reality at all, which I will devote special attention further below;
  • Determines SMP operators and takes decisions regarding the imposing them specific obligations stipulated by law;
  • Assigns the provision of universal telecommunication service;
  • Controls the principles of price formation stipulated by this law, i.e. of the SMP operators;
  • Controls as well the quality of the service and the requirements for providing universal telecommunication service according to the law;
  • Various legal authorities related to the management of the radio frequency spectrum.

According to current legislation, there are two qualitavely different types of telecom operators: ordinary and those having "significant market power".

By a motivated decision, the Commission determines that a public operator has a substantial impact on the market (SIM) when the operator possesses a share equal or larger than 25% of the respective telecom market with a territorial range determined by his license. The Commission may also determine that an operator has a SIM for a share less than 25% of the respective market based on:

  • The ability of the operator to have an impact on the respective market (no matter how it is to be estimated, it is a mere market outcome unless the dominant position is created and maintained by the state, which means again regulation);
  • The degree of impact of the operator on the accession devices to the end users (the respective infrastructure is finally either built up or acquired on own risk and responsibility);
  • The access of the operator to financial resources and gathered experience (it is hardly to imagine that anybody could participate in the telecommunications sector without having relevant experience and furthermore access to financial resources).

First of all, each and every one operator could be theoretically defined having SMP following the broadly used definition and vague criteria as well as the virtually unlimited Commission's authority, in taking that decision.

Second, such a division of market players into "good" and "bad" and subsequently imposing specific regulations to those having SMP (currently in Bulgaria in the fixed lines telephone services there is just one operator determined to possess SMP - "Bulgarian Telecommunication Company") is basically wrong. Those specific regulations, which I would partially review below, are in a way burdensome and put players working under different conditions in one and the same market.

And third, as indicated, the criteria on which the decision may be based are by no means tangible, nor are they justifiable from the viewpoint of a functioning market and market principles, free competition and finally initiation of more investments.

Market segmentation

Currently, the legislation provides for a market segmentation, which no longer reflects the modern reality. Subdividing telephone services into fixed lines, mobile and to a certain extent the data transmission (given that there are various Internet-based platforms for voice transmission in real time like Skype) has lost its accuracy in recent days. 

Separating market artificially allows the Commission's easily and apparently legally to determine SMP operators, i.e. to set specific regulations and control.

Universal Telecommunication Service

A universal telecommunication service is a service of a definite quality, submitted to every end user regardless of his geographic position, at an affordable price.

The UTS operator may request a compensation for proved net losses on condition that his share is fewer than 80% of the market of the fixed voice telephone service, i.e. the BTC is not eligible to be compensated according to how the Commission is currently estimating market shares.

Specific, unbundled access to a subscriber line and rented lines

The issue whether there should be any regulated access to built infrastructure or not, had been yet on the agenda worldwide for many years.

I surely could not agree with the obligation that a SMP operator should provide any sort of access to its infrastructure at prices and under conditions determined by the Commission.

I base my argumentation merely on property rights and if you let me show you an example with a warehouse and conceivably how one could be forced to rent half of it at a price not negotiated by both sides, but imposed externally, it turns out to be more or less obvious. Of course, the scales of investments in telecommunications are greater; however this does not change the mere market logic. Moreover, as a result, the return on these investments should be certainly greater and this should not be impeded.

On the second place, while dealing with the issue, I think also of what great disincentives to investment such obligations could result in for all the other operators (given that they can always use any infrastructure they want).

What major changes would set in (or not) after the adoption of the Law on electronic services (LES)[1], which shall replace the present LT?

  • The overall state policy and involved government bodies remain the same;
  • Licensing generally drops off; for operators using "limited resource" such as radio frequency spectrum and national numbering space there would be a registration procedure; this would probably be the only amendment that would influence the sector positively;
  • The division between SMP operators and others remains;
  • After studying "different" markets if there is "effective" competition, the Commission shall determine SMP operators and impose them specific regulations;

According to a statement of the Secretary General of the Commission Mr. Ljubomir Stoitchkov delivered several months ago, the telecommunications sector should be subdivided into 18 (eighteen) distinct markets, each of them separately regulated. As already stated, the artificially division of the market is completely wrong and the adoption of the new law would impose additional burdens on the market players. 

As a conclusion, I would say that discriminating market players could not ever be for the good either for them or for their customers.

 


 


[1] The full text can be downloaded at the following address: http://www.parliament.bg/?page=app&lng=bg&aid=4&action=show&lid=1634 (in Bulgarian)