Home Latin America IV 1998 Telecommunications Transition in the Mid-Atlantic

Telecommunications Transition in the Mid-Atlantic

by david.nunes
Gustav ArnarIssue:Latin America IV 1998
Article no.:5
Topic:Telecommunications Transition in the Mid-Atlantic
Author:Gustav Arnar
Title:Managing Director
Organisation:Post and Telecom Administration, Iceland
PDF size:24KB

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Article abstract

Connect-World is delighted to showcase Iceland, one of the first countries in the world to complete the digitalisation of its networks and provide every business and household access to the telephone network. Here, Gustav Arnar explains why the geographical location of Iceland, once considered a drawback in international commerce, is now being transformed in the electronic age. Icelanders will be looking to achieve an open market in telecoms to promote industrial and commercial activity and stimulate the economy.

Full Article

Like most other countries belonging to the European Economic Area, Iceland has taken major steps towards liberalising its telecommunications market. The small population in what is a fairly large island, 275,000 people living in 100,000 square kilometres, however sets it apart from other European countries. At the beginning of 1998 it was clear that another Global System for Mobile Communications (GSM) telephone network would be established. The question is whether there would be room for new entrants in the areas of fixed telephone service and in the provision of access networks. Strong Position of Incumbent Iceland has a modem telecommunications infrastructure and was one of the first countries in the world to complete the digitalisation of its networks. Furthermore, every business and household in the country has access to the telephone network. In the last 15 years there has been a progressive reduction in terms of user charges, thus positioning Iceland at the bottom end of the tariff scale in recent international surveys. Some people therefore felt that the opportunities for new competitors would be limited and their opinion seemed to have some foundation as January 1st, 1998 came and went without any new entrants visible on the fixed telephone scene. However, at the end of the year the situation has changed in some respects. European Legal Framework Traditionally, Icelandic telecommunications were regulated by monopolistic regulation, similar to that of other European countries. One noticeable exception was that the monopoly in subscriber equipment was already abolished in the early 1980s. A change in law in 1993 cleared the way for competition in data communications. A license is not required to provide value-added services. Steps were also taken to rid the former PTT of its regulative functions by transferring ‘frequency allocations’ and ‘type approvals’ to a new independent government institution. With Iceland having joined the European Economic Area in 1992 by way of its membership in the European Free Trade Association (EFTA), it was apparent that further legislative changes would be necessary and these were implemented at the end of 1996 by a new telecommunications law. The new law was heavily influenced by the telecommunication legislation already in place and the directives of the European Union (EU) and consequently had, as a central theme, the abolition of special rights by January lst, 1998. The National Regulatory Authority Simultaneously with the new telecommunications law, the Icelandic Parliament passed a law establishing as of April 1st 1997, the Post and Telecom Administration to carry out the functions of a national regulator. This was a belated measure keeping in mind the planned abolition of special rights and opening of the market by January 1st, 1998. The incumbent operator, Iceland Telecom Ltd., remains state-owned and with the ownership of the single share being vested in the Minister of Communications who at the same time assumes final responsibility for the Post and Telecom Administration. The independence of the latter in its daily activities has been emphasised. The national regulator is responsible for licensing operators and setting license conditions as well as ensuring that the licensees comply with legal provisions and all conditions. The regulator must ensure that universal service and other relevant public service obligations are met. The Post and Telecom Administration has taken over the tasks of the National Telecom Inspectorate in frequency planning and allocation, type approvals and other related areas. The role of the regulator is seen as very important in the foreseeable future even as self-regulation becomes more common. Numbering Issues One of the first tasks of the regulator was to assume responsibility for the national numbering plan and the allocation of telephone numbers. Icelandic telephone numbers consist of seven digits, and there is no apparent shortage of numbers. With numbers being free however, there is a danger that operators will not use number series efficiently and furthermore, there is a tendency to use numbering as a marketing ploy which can mean that operators keep blocks of numbers in store. At the end of 1997 rules for planning and allocation of numbers and number series and a national number plan were issued. According to the new rules no more two- or three-digit prefixes will be allocated and consequently new service operators have been allocated four digit prefixes. Keeping in mind the importance of the number resource when it comes to establishing competition the regulator feels that in order to obtain the greatest efficiency of this resource it will be necessary to introduce a fee for number series and short numbers. Number portability and carrier pre-selection are likely to be key issues in the coming year, at least if there is to be competition in the fixed network. Universal Service Due to the fact that every business and household in the country has access to the telephone service, one might draw the conclusion there is no need for action on the part of the regulator. The legislation, however, lacked definitions both in the areas of the content of the service and its delimitation in terms of subscriber locations. A regulation was issued in 1998 to rectify these shortcomings. Universal service has been defined to encompass basic public telephone service, operator assisted service, access to emergency services and the operation of emergency switchboards, access to directory information and access to public payphones. The possibility to send and receive fax transmissions and use modems for low speed data communication is included in the basic services. Universal service can also mean the provision of basic telephone services on special terms and/or the provision of special facilities for disabled people or people with other special social requirements. The universal service provider must accept the applications of all businesses and households for these services at affordable rates and at the location where they are legally registered unless the distance from the closest cable facility exceeds ten kilometres. The universal service provider can request to be reimbursed if he is of the opinion that parts of the service cannot be provided except at a loss. If this situation occurs, all those licensed to operate services that fall under the definition of universal service must contribute to the fund. The regulator in 1998 stipulated that universal service should be provided by the incumbent operator, but so far no requests have been made for a reimbursement. ONP and Interconnection Related issues such as open network provision and interconnection are the subject of several directives of the EU and of great importance in the new competitive environment. Access to the public telecommunications networks for all service providers is seen as a basic premise for services in a free market and it is dealt with in a number of Icelandic regulations. The provision of leased circuits, which according to Open Network Provision (ONP) is to be determined on a cost basis, has been contentious with complaints of slow delivery and prices not being related to costs. Pricing has proven to be a difficult issue due to lack of detailed accounting data for the telecommunications network. With the installation of a new accounting system by the incumbent operator, the regulator hopes that cost figures will become more accessible. In common with the tariffs for voice services the charges for local leased lines are low in comparison with other Organisation for Economic Co-operation and Development (OECD) countries, while rates for leased circuits in the trunk system are less favourable. All licensed operators are obliged to enter into interconnection negotiations. Either party to negotiations can however request the regulator to mediate and as a last resort make a ruling. The competing GSM operator, Tal Ltd, and the incumbent operator have together negotiated an interconnection agreement for almost a year with a slight involvement by the regulator. In addition to its GSM license, it has recently received a license to provide public telephone services and has already established an international gateway in order to offer their mobile customers an international service. The next step is to realise the plan to open this service to the subscribers of the public telephone network using a prefix number. A bone of contention is whether the incumbent operator should be obliged to bill his subscribers for their international calls made through the gateway of Tal Ltd. This matter has been referred to the regulator. Internet Voice Services The Internet enjoys much popularity in Iceland and internationally. Surveys have shown that Icelanders are among the most frequent users of the Internet in the world. It was, however, somewhat unexpected that during the latter part of 1998, a number of Internet Service Providers (ISPs) applied licenses for voice services. The rapid development of software for Internet voice applications during 1998 has led to this increased interest in providing in particular international services over the Internet. While international rates have decreased in the last couple of years, it is assumed that there is still a high profit margin in this area. One ISP which is incidentally a subsidiary of the incumbent, is already providing international voice service to registered users and other service providers have announced their entrance. Internet voice service is priced lower than the public telephone service, quality will however be a key question for users. International Gateways The geographical location of Iceland in the Atlantic means that access to mainstream international telecommunications facilities is limited. The CANTAT-3 fibre optic submarine cable is the only international cable facility available to Icelanders. Iceland Telecom Ltd owns two 155 Mb/s digital streams in the cable which are not fully utilised yet. Some of the capacity is leased for transatlantic traffic. An Intelsat earth station plays the role of a restoration facility for the cable and another Intelsat earth station near Reykjavik still carries a limited amount of international traffic and television transmissions. Both stations are owned by the incumbent operator which means that new entrants are wholly dependent on their main competitor for international circuits. At present there are no known plans for additional cable facilities. Other Market Aspects At the end of 1998 Tal Ltd was approaching a 15% share of the GSM market just over half a year after setting up the service. However the market as a whole is growing very fast and the incumbent is still captivating about two thirds of new subscribers. It looks like competition has proved beneficial for the mobile telephony market. Both GSM operators have received licenses and frequency allocations for DCS 1800 but neither of them has implemented service. Use of the Internet is another fast growing area. There are many ISPs and many companies are establishing web sites. This is accompanied by a rapid increase in the capacity of Internet links with other countries. The availability of international Internet voice services is likely to stimulate Internet usage even more but in order to facilitate this growth, transmission capacity will need to keep up with the recent developments. Fixed domestic voice services have remained in the domain of the incumbent operator. The Parliament’s 1996 decision, to turn the whole country into one telephone tariff zone by law, has led to a situation where there is only scope for competition in long distance traffic if a new entrant creates a new access network along with a long distance network. It is not clear whether unbundling the local loop would change this situation. Contrary to most other countries in Western Europe, cable TV networks have been almost non-existent in Iceland except for a few small communities; therefore an alternative infrastructure is not available. Privatisation Issues The Government of Iceland has a privatisation programme but the sale of Iceland Telecom Ltd does not figure prominently in the program. When the incumbent operator was transformed into a public company at the end of 1996, albeit one wholly owned by the State, statements were made that the company would not be privatised except with the consent of the Parliament. Many expect the aforementioned issue to surface after the parliamentary elections this year. Early in 1998, some people in the industry were advocating that the incumbent split into two; the public telecommunication network infrastructure would form one part to be owned commonly by all service providers who would thus be on equal footing as far as obtaining access is concerned while the other part would be the telecommunications services of the incumbent that would compete with all other service providers in the market. These ideas which would have led to a proprietary Icelandic model did not provoke a favourable comment by the authorities. This might be due to the thought of any implications with respect to possible future privatisation. Another aspect which has not been subject to much public debate is the question of foreign ownership of the incumbent if the Government decides to privatise the company. A majority foreign shareholding in Tal Ltd has apparently not worked against the company but the ownership of the incumbent might be of more concern to the public. Convergence After the publication by the European Commission of the Green Book on Convergence, the concept has occurred frequently in the news headlines. There are, however, contrary to popular belief, two convergence issues being debated rather than one. The first concerns the convergence of fixed and mobile telephone services and is receiving some attention in Iceland because of the large number of mobile telephone users which for the combined GSM and Nordic Mobile Telephone (NMT) services is now well over 30% of the population. Some see this as an indication that the mobile telephone will ultimately enter the domain of the fixed telephone, hence convergence will take place. This is an interesting question in Iceland, keeping in mind the difficulties of establishing alternative infrastructure. The second and more wide-ranging convergence issue concerns telecommunications, the media and the information technology of great concern to the public and discussed in the Green Book. In Iceland the broadcasting regulation is mainly separate to that of telecommunications while information technology remains unregulated. On the initiative of the Ministry of Communications in Iceland, a co-operative effort has been made to look into the issues raised by the Green Book. The direction that convergence takes within EU legislation is certain to have an effect on the regulative development and the telecommunications market in general in Iceland. Conclusion Iceland is traditionally dependent on export of fish as its main livelihood. Telecommunications are playing an increasing role not only in the international marketing of the fish products but also in other fields as the country seeks to diversify its exports. This is nowhere more evident than in the software industry where exports are vital for the expansion of the industry. The geographical location of Iceland was earlier considered to be a drawback in international commerce, but the electronic age is causing the shortening of distances and creating new opportunities. There is no doubt that Icelanders will be looking to achieve an open market in telecommunications in order to promote industrial and commercial activity and stimulate the economy.

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