Licensing renewal - improving regulation

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this article Engineer Gerado Mantilla and Lawyer Patricia Falconí Castillo offer a deep dive into the topic of licensing renewal.

We live in a time where the rapid and growing technological changes are transforming societies, economies and public-private relations; which, in addition, not only generate an important impact in any company and more than anything on telecommunications, it implies to advance deeply in business models changes; and, it must influence unrestrictedly on Administrations, especially on National Regulatory Authorities (NRA), which must observe the changes that could accompany this economy transformation with a totally innovative and agile vision.

Telecommunications have been recognized as a transversal element on society and economy digital transformation. Recently, the Inter-American Association of Telecommunications Companies (“ASIET” in Spanish), public a document called “Telecommunications: a strategic ally for Latin America development”, where it made important contributions to telecommunications regulation policy, in special, regarding authorizations issue on spectrum use.

In this document, ASIET proposed the spectrum licensing duration up to 20 years. However, from our point of view, this recommendation should be accompanied by recommendations such as establishing clear rules for licensing renewal; being an important factor for telecommunications companies that make investments.

In certain countries, there are cases in which administrative titles or administrative authorizations granted by regulators allow operators to provide telecommunications services cases, which may not have a finite period of validity. For specific mobile services, spectrum licensing are required, which have a finite time for its duration, having a substantial difference between provider to provide service and an input as indispensable as its radio spectrum.

Although in most cases the Telecommunications Laws establish possibility to renewing these licensing, it is no less true that these processes can generate uncertainty to service providers and therefore in the rest of the sector.

Now, it is worth analyzing these aspects since its genesis, taking much more relevance when considering telecommunications markets openings, especially in Latin America, where in many cases some spectrum licensing for use and telecommunications exploitation have already been renewed.

From these licensing renewals, it has been possible to observe a lack of clear rules and tangible or measurable elements that allow an objective identification of causes that will be evaluated by NRA to make decision to renew or not. It is evident that, due to exclusive decision from NRA, as grantors of licensing, there must always be a legal reserve for final decision, based either on current regulations or depending on public policy needs.

To make this evaluation, it is necessary to consider how other economic activities, traditionally comparative with telecommunications markets, such as banking and other productive sectors, establish its authorizations for general public services provision.

Legal Analysis

We must start with clarifying what are licensing in telecommunications, so we can say they are: the voluntary agreement between the State and companies licensed, which generates rights and obligations between those parties, by virtue of which the State delegates temporarily, a public service execution, to ensure its operation, carrying out exploitation at risk and licensing expense, under supervision and State control itself. That is, licensing are subject to a specific term, in Brazil for example, it are 20 years, Chile 30 years; and, Mexico 20 years.

Knowing what licensing are and assuming that, one fundamental pillars for telecommunications development are investments that companies make it, not only at infrastructure level, but also when it participate on radio spectrum assignments; licensing granted must take care of legal security application principle, which “is nothing other than the possibility that the State must give us through the right to foresee the effects and consequences of our actions or the conclusion of contracts to perform them in the terms prescribed in the norm, so that they have the effects that we want or to take the updated measures to avoid the effects that we do not want, and that could take place according to the law”

In this sense, although there is no consensus on how to measure legal security and its impact on the economy, it is no less true that the “Global Competitiveness Report” issued by the World Economic Forum considers legal security as a fundamental pillar to have an attractive legal framework for investments, measured on institutional soundness parameter, being the first of twelve parameters that make up this index.

This pillar consists of 22 parameters, among which are included, among others, government regulation complexity, regulatory policy transparency, government services to improve companies performance, all of which are closely linked to legal security system.

One could then consider, as key factors for investments, legal security and regulatory predictability that NRA can provide to companies in the sector. With this, it is not a question of limiting or normative restricting of the State power, on contrary, this faculty must be developed and implemented from licensing moment, through clauses establishment that contain clear elements that are will consider at renewal time.

It could be admissible if and only if, public policies under which these elements were established have changed substantially; or in its absence, constitutional framework of country undergoes modifications that are opposed to said elements, in exercise of its regulatory the State power, could generate certain modifications, without this meaning, violations of economic equilibrium contract, subtract or limit acquired rights; make it more expensive or impossible to comply with obligations, but above all taking care opportunity for its; that is, that modifications are not made within last years concession from our point of view.

Now, reviewing Chilean, Mexican and Brazilian laws, it can see something in common and there is no clear and express provision of what elements will be considered within the renewal processes, only establish process to be followed, requirements and request times. This lack of clarity translates into a strong legal uncertainty that can limit or strongly restrict investments in the sector, generating delays when deploying new infrastructure or adopting new technologies.

Propositive elements

Taking into consideration this legal analysis, we can afford to present a possible proposal that allows us to place this issue on discussion table, only as an initial vision, but not as a single truth or formula or even a position in favor of one of the actors on telecommunications market. Obviously, each NRA has the possibility of making the decisions that it consider appropriate in favor of development and services deployment; however, from an academic position we can propose these elements.

Deepening, we consider that there are elements that can be considered, in order to reduce as much as possible the NRA discretion; without implying limitations of its faculties, on contrary that generate legal security; by defining clear and measurable objectives, which could be following: investments, coverage, services quality, tax payments and administrative fees.

At investments case, operators usually carry it out during licensing entire duration, which usually focus on the first years of network deployment, considering the first 5 years of the licensing – new licensing. However, although these investments decrease after fifth year, operators continue to invest on equipment maintenance and systems necessary to ensure network operation.

In renewals licensing case, although there has already been a first investment, it is no less true that companies must constantly invest in technological innovation and network, based precisely on high technological turnover by accelerated services improve and same generations.

Next element is networks coverage, many NRA impose obligations on mobile operators to cover certain areas or population centers that may not be of interest to operators, given their low or no profitability. The fulfillment of these coverages can easily be measured by NRA, and can be included from beginning, with certain indicators that allow the operators to foresee all necessary actions to guarantee its compliance and effective deployment.

Quality services licensed is another element that has been clearly defined by NRA on different occasions and especially for mobile services, including access to Internet through mobile, fixed or nomadic clients since its licensing. Those that although it can be redefined by NRA, must be attached to legal security principle and regulatory predictability, that is to say, that although NRA can redefine its during licensing time, it must be set considering: (i) respect for those deployments carried out under initially set quality indicators (rules non-retroactivity); (ii) that its redefinition is not on granted licensing last period, with sole purpose of having enough time for implementation and processes stabilization if applied; (iii) are set under international technical standards similar to market to be applied; and, (iv) not alter contract economic equilibrium.

About taxes payment and administrative fees, it is easy to identify correct payment in amount and time. In addition, existence or not repairs regarding these quarterly and annual payments, can be considered as elements that allow evaluating how operators have complied with this parameter.

Conclusions

In short, parameters identified are nothing new and many of its are already defined within specific regulation of each country. However, in many cases they have not been recognized as elements that may be causal to support approval or disapproval of spectrum licensing renewal.

Additionally, we consider that this discussion is at an ideal time to be evaluated by  NRA, considering upcoming processes of granting new licensing associated with spectrum that will be assigned for 5G deployment.

Finally, licensing renewals certainty about renewal methodology, spectrum evaluation, requirements and above all, in case of public competitions, process results, which translates into generating legal security.

Gerado Mantilla is a professional with 19 years of experience in telecommunications market, performance in regulators, mobile operators and international consulting teams. Participation in International Organizations: International Telecommunications Union (ITU) and Inter-American Telecommunications Commission (CITEL). Right now, Gerardo is Regulatory Project Manager at Artifex Consulting S.A.

Patricia Falconí Castillo is a Lawyer with more than 10 years of experience in Telecom regulation and competition. She has advised in Peru, about spectrum assignments, according to the best international practices; and proposals of normative improvements for its allocation. Currently, Patricia collaborate with Artifex Consulting S.A. and partner from Prospectus Law Firm at Ecuador.