WORLD TRADE
ORGANIZATIONS/C/W/110/Add.1
15 June 1999
(99-2400)
Council for Trade in Services
Special Session on Telecommunications ServicesOriginal:  English
COMMUNICATION FROM THE UNITED STATES
Principles of Competitive Entry:  I ndependent Telecommunications Regulation
and Interconnection Principles
Addendum
I. FOSTERING AN INDEPENDENT TELECOMMUNICATIONS REGULATOR
1. Developing and maintaining an independent regulatory authority is a crucial factor in the
successful liberalization of any market's telecommunications sector.  Once the political decision has
been made to introduce competition, a successful, robust telecommunications market can only
develop if there is an impartial referee to create and apply the rules and processes by which all market
participants will provide service to the public.  The legal predictability and transparency that are
necessary for such a telecommunications market to develop can only be provided by an independentregulator.
A. M
EANING OF AN "INDEPENDENT " REGULATORY BODY
2. An independent regulatory body is one in which the regulator is separate from the influence,
direct or indirect, of any provider of telecommuni cations within a country.  In order to establish a
successful competitive telecommunications framework,  such a regulator needs to be an impartial
overseer to enable it to make difficult policy decisi ons with the public interest as its standard.  Thus,
the regulatory body and its staff must be prohibited from possessing financial or other interests in theregulated market participants.  A truly effective regulator also must be protected from direct political
influence from industry or other government entities.  In addition, an independent regulatory body
should possess unambiguous jurisdiction over matters it regulates and be adequately funded with the
ability to hire qualified personnel.  In order to ensure that its decision making is unbiased and to
ensure confidence in its decisions, transparency in the decision making process is extremelyimportant.  Finally, the decisions of a regulatory body should be subject to judicial review in order to
ensure that they are consistent with these principles.
B. A
CHIEVING INDEPENDENCE OF THE REGULATORY BODY THROUGH TRANSPARENT PROCESSES
3. The main goal of the regulatory process is to develop a predictable and fair legal and
regulatory framework.  Once a legislative framework is in place, the regulator's work begins tointerpret and apply the legislation to specific market conditions.  Working out what the legislation
means can be challenging for the regulator.  To  implement the telecommunications law fairly, the
decision-making must be transparent.  There are several important elements of a transparent decision
making process.  First, the regulator should act in the interest of promoting a competitive
telecommunications market.  Second, the regulator should make decisions based on information thatis publicly available.  Finally, the regulator should clearly articulate the legal and factual bases for its
decisions and make its reasoning as well as its conclusions public.S/C/W/110/Add.1
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C. PROMOTING A COMPETITIVE TELECOMMUNICATIONS MARKET
4. An independent regulator should have as its central goal the promotion of an innovative and
efficient telecommunications services at low rates for consumers.  To this end, the U.S. experience
has been that promoting competition has been the most effective way of reaching this goal.  The
regulator can promote competition by ensuring that the decisions it makes provide clear benefits forconsumers, and that regardless of the benefits or burdens its rules place on regulated entities,
consumers are the ultimate beneficiaries of the regulator's policies.
5. The regulatory body should not favour a particular market participant over another.  The
regulator should, however, recognize the distorting  effects of a former monopoly provider's residual
market power and adopt rules to ensure that su ch market power does not enable the incumbent to
impede the development of competition in the market.  Such rules should be tailored to address the
incumbent's market power and the same rules should not be applied to new entrants that lack market
power.  Above all, the regulator should find soluti ons that allow wide participation in the marketplace
and thereby create maximum benefits for consumers.
D. P
UBLIC AVAILABILITY OF INFORMATION
6. Whether it is adjudicating the specific rights or claims of a particular party or establishing
rules of general applicability, it is essential that a regulator's decision be based on the broadestpossible view of the issue at hand.  A regulatory body has little first-hand experience with market
conditions and the manner in which its policies may affect a particular entity or market segment.  In
order to ensure that its decisions do not favor a particular market segment or participant over another,
it is essential that a regulator rely on information that is made available to all interested parties.
Without substantial input from market participants , the regulator is ill-equipped to ascertain the
validity of specific factual arguments raised by any particular party.  Requiring that information
submitted to the regulator be made publicly available ensures that all parties are given the opportunity
to provide the regulator with their views of the va lidity of the legal and factual arguments raised by
other parties.  Without the views of various parties regarding the issues and facts raised by other
parties, the regulator risks deciding the issues based on a one-sided view of the facts.  The parties arein a much better position than the regulatory body to obtain information relevant to the issues being
considered and can provide the regulator with interpretations of such information that otherwise
would be unavailable.
7. Furthermore, exceptions should not be made to this principle for parties claiming that
information essential to the decision making process is competitively sensitive, and that opposing
parties should therefore be denied access to it.  While it may be necessary for the regulatory body to
keep some information confidential, such as cost  information, measures may be undertaken to ensure
that such information remains confidential, while at the same time affording interested parties the
ability to view and assess the validity of such in formation.  For example, in the United States, the
FCC and other U.S. agencies make use of a legal de vice known as a protective order for this purpose.
1
A party may confidentially file sensitive business information upon which it relies to support a
particular position that it advocates.  Representatives of opposing parties are allowed to view, but notreceive, copies of the sensitive information.  In order to do so, a party must enter into a binding
agreement not to share the confidential information with  any other part of its organization, or to use it
for any purpose other than providing its views to the regulator regarding the specific issue at hand.
Violations of such protective orders are met with severe penalties. (e.g., injunction, censure, fine, or
disbarment).
                                                     
1The FCC's approach to the use of confidential information in its decision making procedures is
described in a recent FCC Order (available at: h ttp://www.fcc.gov/Bureaus/OGC/Orders/1998/fcc98184.wp).S/C/W/110/Add.1
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E. REASONED DECISION MAKING
8. An independent regulator should make its decisions publicly available, with a clear
explanation of its rationale for reaching each decision.  It is essential that the decisions of an
independent regulator be clearly grounded in law and fact and that the regulator completely explain its
reasons for adopting a particular position and for rejecting the positions of other parties.  Specificdecisions of this sort ensure that the regulator ha s considered the views of all parties and that the
regulator is held accountable for ensuring a fair deci sion making process.  Such specificity also allows
parties to challenge the regulator's decision in a court of law if it acts in a manner that is arbitrary or
otherwise inconsistent with its legal authority.  Accountability and sound legal basis will serve the
goal of promoting confidence in the regulator's decisions.
II. INTERCONNECTION
9. The key to successful introduction of competit ion in telecommunications services is the
ability of networks to interconnect and thus al low communications to occur across networks.  If
promoting competition is an important goal, then interconnection regimes need to be carefully
designed to ease the way for firms to en ter the telecommunications service industry.
10. Users benefit from competition when prices fall and services improve.  For competition to be
successful at maximizing consumer benefits and innovation in the telecommunications market,carriers must have the opportunity to access all customers, even those customers connected to
networks of their competitors.  If the incumbent, with the vast majority of customers, did not
interconnect with new entrants, the new entrants would have little chance of attracting customers of
their own.  Thus, interconnection regimes are designed  in the interest of promoting liberalization of
the telecommunications sector and competition among providers.  The purpose of an interconnectionregime is to benefit users by encouraging competition that will lower the price and improve the scope
and quality of services.
A. O
BLIGATIONS TO INTERCONNECT AND ROLE OF THE REGULATORY REGIME
11. Commercial negotiation is the preferred means for competitors to reach agreements on
interconnection.  Often, however, commercial negotiations fail in the absence of pro-competitiveregulations that articulate the specific terms and conditions of a major supplier's obligation to its
competitors to allow them to interconnect to its network.   Interconnection rules, established by an
independent regulatory body, can enhance the likelihood of successful negotiations if they provide the
parties with incentives to enter into negotiations in good faith and to reach a constructive
interconnection agreement in a timely manner.  If negotiations fail, there should be recourse to a swift
and effective dispute resolution mechanism.
12. The regulatory regime also should take into account that all major suppliers have strong
incentives to limit competitors' interconnection to th eir networks in order to maintain their dominant
position in the market.  Therefore, it is important that rules be established or prohibitions exist that
prevent a major supplier from taking unreasonable advantage of its market power or its control over
essential facilities to impede competition.S/C/W/110/Add.1
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13. It is important that the regulatory body address issues that will facilitate successful
interconnection negotiations, such as:
(a) A list of the minimum number of technically feasible points of interconnection in the major
supplier's network that are considered critical  to facilitating entry of competing service
providers.
(b) A requirement that major suppliers offer interconnection at any point beyond those identified,
subject to charges that reflect the cost of construction of necessary additional facilities.
(c) A requirement that major suppliers provide unbundled elements for resale in a way that a
competing carrier can have access only to elements it requires for its business and not have to
pay for elements it does not require.
(d) A requirement that a major supplier allow competitors to collocate facilities necessary for
interconnection.
(e) A requirement that competitors can gain access to key rights of way from the major supplier.
(f) A requirement that major suppliers protect competitors’ commercial information obtained in
the provision of bottleneck or essential services or interconnection.
B. DISPUTE RESOLUTION MECHANISMS
14. The asymmetric bargaining power between the major supplier and a new entrant due to the
major supplier's dominance in the market requires the establishment of a clear framework for
interconnection negotiations.  There should be strong incentives for both the major supplier and new
entrant to negotiate in good faith and not always to rely on the regulatory authority or the courts to
resolve disputes.  Rules on negotiation procedures , arbitration procedures, and obligations of both
parties, including strong penalties for failing to negotiate in good faith, often assist in creatingincentives to reach an agreement without regulatory intervention.
15. However, if parties cannot resolve all issues through commercial negotiations in a timely and
fair manner, the regulatory regime must include a fair and efficient mechanism for parties to resolve
areas of disagreement.  Parties should have access to legal mechanisms such as the courts or
arbitration by the regulator when it is clear that a negotiated agreement is not possible for certainissues within a reasonable period of time.
C. T
RANSPARENCY
16. Transparency in interconnection procedures can be critical in ensuring a successful
interconnection regime.  A regulatory body should require that technical standards and protocols are
publicly available and that interconnection agreements are made publicly available.
17. Publishing key elements of interconnection agreements concluded with the major supplier,
even at the possible expense of traditional commercial privacy values, will advance the objectives of apro-competitive interconnection regime.  If a major supplier has a dominant position or control of an
element essential to a firm seeking interconne ction, the major supplier may have an incentive to
leverage its market power in negotiating with other competitors.
18. Making interconnection agreements publicly available also helps avoid disputes regarding
discriminatory practices.  The kinds of information that would assist competitors in negotiatingagreements are the key terms and conditions of previous agreements.  Also important to makeS/C/W/110/Add.1
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available is the technical information, such as network architecture and signalling protocols, necessary
for a carrier to efficiently interconnect.
D. COMPETITIVE SAFEGUARDS
19. By definition, the major supplier of telecommunications services has considerable market
power, which is reflected in market share, access to resources, substantial expertise, relationships withsuppliers, and control of critical information and knowledge.
20. An interconnection regime should have safeguards that firmly address the risk that a major
supplier may delay or otherwise inappropriately influence negotiations.  At a minimum, the regulatory
regime should address the following issues:
• Prohibitions on anti-competitive cross-subsidization.
• Controls on the ability of an operator with substantial market power to misuse that market
power for anti-competitive purposes.
• Prohibitions on misuse of competitors’ proprietary information obtained by the major supplier
as a result of its control of essential facilities.
• Sanctions, including financial penalties, license cancellation and suspension, for delay and
anti-competitive behaviour.
III. CONCLUSION
21. An established independent regulatory body and a pro-competitive interconnection regime are
two of the most important elements of a successful competitive telecommunications policy.  The
presence of clear interconnection rules will provide new entrants with the ability to compete on a level
playing field with the former monopoly.  It is critic ally important that such rules be carefully crafted
to ensure that new entrants have a real ability to compete.  The effectiveness of such rules, however,
can only be guaranteed by a telecommunications regulatory body that is guided by pro-competitive,consumer-oriented principles, that is shielded from political influence, and that engages in open and
transparent decision making.  Adoption of these principles are essential to encouraging new entrants
to invest the substantial resources necessary to build and maintain a 21st century telecommunications
network.
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