Improving State Regulation of theTelecommunications Sector of the Republic of Kazakhstan *
* This is an excerpt from Section 4 of the Concept of the Development of the Telecommunications Sector of the Republic of Kazakhstan from 2001 to 2005 passed by government decree #1564 of the government of Kazakhstan of 4th December 2001.
A state policy aimed at developing telecommunications in Kazakhstan should be pursued according to the following principles:
• tuning the development of this sector to overall economic development;
• ensuring the national security, sovereignty and defence capacity of Kazakhstan;
• a clear, transparent and just legal framework, facilitating development of the telecommunications market;
• creating conditions conducive to pursuing an effective state policy, and strengthening the role of the state in strategic spheres;
• making telecommunications services universally available to the country’s citizens;
• fostering and encouraging free competition among all participants in the telecommunications market;
• fostering and encouraging investment;
• fostering and encouraging creation of new jobs;
• applying common technical and quality standards, meeting international requirements;
• increasing community awareness of the activities of operators, the state of the telecommunications market and networks.
To implement state policy in the field of telecommunications by the end of 2005, it is necessary to prepare for a gradual transformation of the existing state bodies which regulate communications, while transferring some of their regulating functions to a new state body (the Regulator).
International practice shows that such Regulators ensure the effectiveness of the regulatory mechanisms developed, and are able to guarantee the just, equal and transparent use of these in the interests of all operators.
Prior to setting up the office of Regulator, it is crucial to develop mechanisms for management and financing, and to develop a corresponding draft legal act providing a clear distinction between the duties of the various authorized bodies.
The most important spheres of state regulation are:
Licensing will become a major instrument for implementing state policy in developing the telecommunications sector as a whole and its individual segments, boosting competition and increasing the number of participants in the market. To achieve this goal in practice, and ensure a clear, transparent procedure for receiving and withdrawing licences and controlling their terms, the corresponding legal framework of the regulating body should be enhanced.
First of all, telecommunications services should be split into three categories, with a different level of regulation set for each of them.
The first category should comprise those services for which national resources are needed (radio frequencies or numbering) or those which are of special importance for the population and society as a whole (universal communications services). These are voice communications and data transmission through fixed networks, mobile communications and satellite communication services. These services may only be provided under licences issued by an authorized communications body.
The second category includes services which require the existing telecommunications networks (lease of channels and communication lines) such as providing Internet access services. In these cases, simple registration of a communications operator by the authorized body is required, on terms set by that body.
The third category comprises services provided by so-called ‘providers’ which do not have an owned or leased network or switching equipment, and offer their subscribers services supplied by other communications operators under corresponding licences. The relations between these entities are regulated by a signed agreement between them.
In addition, it is crucial to develop the standard requirements and conditions needed for providing telecommunications services in each category, and the requirements for providing facilities necessary for taking special technical measures during times of peace or war.
Once these standard requirements and conditions have been approved, the active operators should be registered and their licenses revised in compliance with the new regulations and law.
The authorized body in the field of telecommunications will need to develop and approve comprehensive regulatory documents defining aspects of the responsibility of licencees and licensor in observing the conditions of the licences, and also make amendments to the Act On Communications reflecting basic provisions of licensing regulations in the sphere of telecommunications.
Approving new rules for interfacing telecommunications networks and making mutual settlements between communications operators in Kazakhstan should be the principal task in this area.
The rules for interfacing telecommunications networks should include an obligation on telecommunications network operators that hold a dominant position in the telecommunications market to provide access to their network for other operators based on a single set of rules and mutual settlement methods.
The technical capabilities, terms and dates of connections should be defined by independent design organizations holding corresponding certificates from an authorized communications body.
The main principle of mutual settlement for use of network resources is payment by traffic volume. Therefore, the rules for telecommunications network interfacing must include obligatory traffic billing at all levels of networks. Billing software should be certified by an authorized certification body. The rates applied to mutual settlements between operators at the same level should be identical.
Separate payments for connecting one network to another will be eliminated in the medium-term, as the number of operators and network size increase. It can be assumed that, by 2003, communications operators will connect to each other free of charge, paying only for traffic.
To create conditions conducive to flourishing competition, payments to the state budget deducted from the profits from long-distance telephone communication services should be set by an authorized state body and be equal for all operators.
During the transition period, the method of setting payment levels for connection should be developed with the participation of an authorized body in the field of anti-monopoly regulation, and approved by it.
Distributing Limited State Resources
Radio frequency spectrum. It is crucial to develop and approve a concept for using the radio frequency spectrum in Kazakhstan.
The concept should cover the distribution of frequencies for: Civil purposes; Government communications; Defence and law-enforcement authorities.
The concept should address the issues of converting the radio frequency spectrum and bringing it into compliance with international practice. Creating an efficient system for controlling the use of the radio frequency spectrum should be the key question.
Since pricing by a regulatory body in distributing radio frequencies is an effective instrument for fostering operators’ activities, it is necessary to develop a method of setting prices for radio frequency use, ensuring that they are flexible and economically viable. It is necessary to plan for the use of reducing coefficients, especially when using radio technology for rural communications in spheres which are priorities in state policy.
Numbering plan. Introducing a new numbering plan is a crucial condition for fostering real competition and new operators at all levels of the telecommunications network.
The national numbering plan will ensure that Kazakhstan still belongs to the zone 7 of the worldwide numbering system.
The new plan will be aimed at forming a national network as a conglomerate of equal networks of multiple operators. It will be developed taking account of national interests and those of communications operators.
Providing Universal Access
As in the majority of countries, tariffs for services in Kazakhstan are considered to be generally affordable by the government, but do not cover production costs and hinder investment in the infrastructure of these services. World practice offers two main ways of financing the losses:
Financing at the expense of operators through:
• creating a special fund accumulating payments made by market participants and providing funds to compensate for losses incurred by operators offering socially important services;
• cross-subsidies within an operator, with the obligation to provide universal access across the whole territory of the country (for the national operator) and also certain privileges;
• cross-subsidies within the telecommunications sector, using a mechanism of direct mutual payments between operators of main and local telecommunications networks.
State subsidies (grants).
In addition, it is necessary to ensure the fulfillment of state obligations undertaken by the communications operators (reserving channels for the interests of defence authorities, emergency response, mobilization of reserves, etc.) with financing provided using proceeds from the state budget.
Currently, the state entrusts the obligation for universal provision of general services to the Kazakhtelecom company. Kazakhtelecom has the special status of national operator, related to providing a generally available service and allowing internal cross-subsidy of losses; this is expressed in the form of exclusive rights to long distance communication for the general-use telecommunications network. Under current conditions, investing one operator with national responsibility seems to be the most appropriate route, as it helps to ensure a single set of access criteria throughout the country with minimum managerial and transaction costs.
However, the fact that an absolute monopoly exists in the long distance communication services market hinders the development of competition, making it problematic to retain the exclusive rights in practice.
Therefore, in the process of liberalizing and de-monopolizing the market, it is crucial to move to a mechanism of transparent financing of universal access, through an even distribution of the social burden on all operators, compensating those operators who undertake to provide generally available services in a specified territory for any losses.
One of the priority tasks of the authorized body in the sphere of communications is to develop and approve a clear and effective mechanism of subsidies for providing generally available communications services.
In order to implement this mechanism it will be necessary:
• to register by a regulatory act a minimum list of generally available telecommunications services with set quality parameters, in the medium term;
• to approve the Provision on a National Communications Operator for the General-Use Telecommunications Network of Kazakhstan by a decree of the government of Kazakhstan, and to define its obligations concerning national security and universal access in the territory of the country and its privileges compared with other operators in the short term;
• to develop corresponding regulations and methods.
Transforming the National Operator into an Equal Participant in the Telecommunications Market
Since investment and maintenance of the network of socially important, but unprofitable services of the national operator depend directly on the profits received from remunerative long-distance communications services, it is absolutely crucial to ensure that the exclusive rights of Kazakhtelecom are maintained whilst it is authorized to provide generally available services.
Ensuring exclusive rights should be a commitment of the authorized body for the field of telecommunications which is supposed to take measures on a regular basis to prevent, disclose and make accountable any operators that violate the exclusive rights of the national operator. In this connection, it is necessary to strengthen state control over routing of international traffic, so as to prevent the provision of Callback and Refile services.
After completing the national information super-highway (NISH) and developing and introducing a mechanism for financing universal services, the exclusive right will be abolished. The National Operator will be transformed into an effective participant in the competitive telecommunications market.
State protection measures are also envisaged for the rights of Kazakhtelecom, as compensation for the long-term loss of exclusive rights.
Tariff Policy Regarding Generally Available Services
The main guiding principle of tariff policy in the national market for generally available services is to even out tariffs for similar services of similar quality, while removing the distinction between user categories. It is necessary to develop a plan for balancing and restructuring tariffs. Tariffs for local telephone services will increase, as they will include their costs of production and distribution; at the same time, tariffs for international communications services will be cut considerably, since the necessity for subsidizing unprofitable services will be eliminated.
Home Market Protection
To ensure national and economic security, measures should be taken to create a climate that is conducive to fair competition against foreign telecommunications giants. At least until the NISH is completed, and the national network and operators are ready for competing against foreign operators, it is crucial to exercise state protectionism as regards domestic operators and to impose temporary barriers to the activities of foreign operators in the Kazakh telecommunications market.
Recently, intensive work to create global personal mobile satellite communication systems (GPMSCS) using low and medium orbits is being carried out worldwide; this may be used for setting up communications in regions where creating ground telecommunications networks is not economically feasible. A legal framework for such operations in the territory of Kazakhstan should be developed (with regard to assigning and paying for use of radio frequencies, receiving permissive documents and cross-border movement of terminals). The obligatory requirement applied to the operators of satellite communications which are not part of GPMSCS or international systems of the Inmarsat type must be that a control centre and billing system is situated in the territory of Kazakhstan. The same applies to the operators of ground (fixed) networks.
Kazakhstan’s Competitive Position in Global International Information Transit
Kazakhstan enjoys a favourable geographical location, with all trunk cable lines connecting the European republics of the CIS with the Central Asian ones passing across its territory. However this potentially great advantage is not being used effectively enough. Moreover, measures are being taken by neighbouring countries to bypass Kazakhstan in the transit of international traffic flows and to provide alternative transit channels.
The main reason is that the outdated analogue equipment in these trunk cable lines is forcing countries to switch to their own satellite digital communications channels, which is leading to an annual reduction in channel leasing. The number of leased transit channels across Kazakhstan-standing at 12,505 in 1997-had halved by 2000.
In order to boost international transit traffic via digital communications channels in addition to the existing Kazakh section of the Trans-Asian-European main line, a NISH covering all the regional centres of Kazakhstan and other important administrative localities has been constructed. Fibre-optic and digital radio relay lines have been built, which allow the Central Asian countries to access Russia and the Caucasus.
The southern section of NISH-TAE-passing along the China-Almaty-Taraz-Shymkent-Uzbekistan route was commissioned in October 1998. TAE, built by 20 countries, originates in Shanghai and ends at Frankfurt-am-Main, Germany. So far, the TAE project has not justified the hopes that were pinned on it for increasing transit traffic. The reasons are the low quality of the Iranian and Turkish national segments and the consortium’s financial policy.
It is planned to build an Eastern branch of the NISH along the Astana-Pavlodar-Ust Kamenogorsk-Taldykorgan-Almaty route, and to connect the Aqtau-Atyrau fibre-optic link to the Baku-Aqtau submarine cable communications line. Commissioning these lines will provide new opportunities for organizing transit of traffic between Europe, Russia, China, Turkey and the Caucasian republics.
More flexible calculation rates for charging for traffic transit are being introduced to boost the demand for transit channels. Since it important to retain and strengthen the competitive position of our country both economically and politically, it is necessary:
• to increase the involvement of all levels of state government and regulation in resolving this problem;
• to take measures to attract transit traffic from other countries;
• to consider possible discounts for transit transactions.
Above all, investment policy in the field of telecommunications should foster fair competition, based on increasing the number of communications operators and expanding the range of services provided. In the first place, an infrastructure base for boosting the number of competitors should be created. There should be a strict distinction between infrastructure-building operators and provider operators. Creating infrastructure and networks will become a priority for state investment policy in the sphere of telecommunications.
The priority projects and medium-term directions within this concept are:
• completing the NISH, which comprises construction of fibre-optic and digital radio relay lines and full replacement of analogue equipment by digital in the main network, and subsequently in zonal telecommunications networks. The facilities of other owners of transport networks-the railway, energy complexes, etc-should be used to the full extent when developing projects and constructing communications lines;
• expanding the access of rural residents to information exchange, including telephone communications, data transmission, distance education and remote access to medical diagnostic centres;
• universal introduction of time-rate calculation of connection costs;
• renewing and expanding the networks in the capital of Kazakhstan.
Investment activity in the specified spheres should be encouraged by the state through fostering the attraction of investments by operators themselves, such as placing securities in financial markets.
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