Romanias regulatory approach in the fixed telecommunications sector

1
Romanias regulatory approach in the fixed
telecommunications sector
National Regulatory Authority for Communications
Romania
Alexandrina Hîrtan Vice-President ANRC
Istanbul, May 25th, 2006
2
Structure of the Presentation

• Part I. Legal and Institutional Framework for
  Regulation of Electronic Communications in
  Romania
• Part II. Regulatory Approach and Measures for
  Promoting Competition in the Romanian Electronic
  Communications Sector
• Part III. Market Performance Response to
  Regulation
• Part IV. Conclusions, Future Plans and Lessons
  Learnt

www.anrc.ro
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• Part I.
• Legal and Institutional Framework for Regulation
  of Electronic Communications in Romania
• Background rationale for the implementation of
  the 2003 EU Regulatory Framework
• Romanian market overview snapshot before
  liberalisation
• ANRC establishment, objectives and powers
• NRA, Authorization and Ex Ante Regulation
  Framework
• Access and Interconnection Framework
• Universal Service Framework
• Relevant Markets andSMP Designation Framework

www.anrc.ro
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Background
Status Romania needed to adopt new legislation
to support the transition from monopoly to
competition at a moment (2001) when EU launched
the revision of the 1998 Regulatory Framework in
order to adapt it to a dynamic market and provide
NRAs with tools for de-regulation.Solution
Adoption of the 2003 Regulatory Framework ?
better suited to the complexity of the Romanian
market ? for the market segments where
regulatory intervention was needed for opening
up the competition the 2003 Framework allows
for the application of the same remedies as the
1998 Framework, with the same effects if the
regulatory intervention is maximized ? for
markets experiencing a certain degree of
competition/dynamic/emerging the 2003
Framework allows for a proportionate
intervention ? able to ensure predictability
and stability of the legal frameworkResults
Negotiations on Ch.19 Telecoms and IT
opened 11/2000, provisionally closed 11/2002.
Romania entirely transposed the 2003 Regulatory
Framework and requested no transitional period or
derogation.Competition developed, market volume
increased.
www.anrc.ro
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Romanian Market Overview - Snapshot Before
Liberalization-(January 1st, 2003)

• The national operator, Romtelecom, was holding
  the monopoly over fixed lines until January 1st
  2003
• 19 fixed penetration, 65 fixed network
  digitalization
• The mobile penetration (23.66) surpassed the
  fixed penetration (19.43)
• The Internet usage was exponentially increasing
  every year (approx. 50)
• The CATV was aggressively moving into ISP
  business and further diversification of services

www.anrc.ro
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ANRC Establishment, Objectives and Powers

• As an effect of the transposition of the EU 2003
  Regulatory Framework in the national legislation,
  ANRC was established in June 2002, by the
  Government Emergency Ordinance no.79/2002.
• ANRCs fundamental objectives
• Promote competition
• Encourage efficient investment in infrastructure
  and promote innovation
• Protect end-users rights and interests
• ANRCs powers
• Regulate the entry in the markets for electronic
  communications
• Regulate the use of numbering resources
• Create the conditions for the development of
  sustainable competition by use of ex ante
  regulation tools
• Ensure the implementation of the universal
  service in the field of electronic
  communications
• Safeguard end-users rights in their
  relationships with the providers of electronic
  communications networks and services
• Maintain market discipline

www.anrc.ro
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NRA, Authorization and Ex Ante Regulation
Framework
Framework Directive 2002/21/EC Authorisation
Directive 2002/20/EC Competition Directive
2002/77/EC

• Government Emergency Ordinance 79/2002
• general authorisation of ECNS
• management of radio frequencies and numbers,
  rights of use
• rights of way
• market identification analyses imposition of
  remedies
• dispute resolution between undertakings
• establishment, role, functions, objectives
  powers of ANRC
• consultation, transparency and information
  mechanisms
• enforcement powers

Implemented by, inter alia, ANRC Decisions on
general authorisation regime, use of numbering
resources, regulations on market identification
and analysis procedures, designation of SMP
undertakings and dispute settlement procedures
www.anrc.ro
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Access and Interconnection Framework
Access Directive 2002/19/EC

• Government Ordinance 34/2002
• establishes rights and obligations for
  undertakings concerning access and
  interconnection
• empowers the regulator to impose ex ante
  obligations in the field of access and
  interconnection
• sets out sanctions for non-compliance

Implemented by ANRC Decisions on imposition of ex
ante obligations on the SMP undertakings in the
wholesale markets
www.anrc.ro
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Universal Service Framework
Universal Service Directive 2002/22/EC

• Law 304/2003
• defines the scope of the universal service and
  the implementation principles
• sets out the powers of ANRC to impose ex ante
  obligations in the retail markets
• defines users rights and the corresponding
  obligations of the network and service providers
• sets out sanctions for non-compliance

Implemented by Order of the Ministry for
Communications and Information Technology for the
approval of the Policy and Strategy Paper on the
implementation of the universal service in the
field of electronic communications ANRC Decisions
on the implementation of the universal service in
the electronic communications sector ANRC
Decisions on imposition of ex ante obligations on
the SMP undertakings in the retail markets

www.anrc.ro
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First steps
Relevant Markets and SMP Designation Framework
ANRC, in co-operation with the Romanian
Competition Council, elaborates and updates
The Regulation on the identification of the
relevant markets in the electronic communications
sector (ANRC Decision no.136/2002, successively
amended to include new markets as they were
identified by ANRC) ? based on the Commission
Recommendation on relevant product and service
markets within the electronic communications
sector The Regulation for conducting market
analyses and determining the significant market
power (ANRC Decision no.137/2002) ? based on
the Commission Guidelines on market analysis and
the assessment of significant market power
www.anrc.ro
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• Part II.
• Regulatory Approach and Measures for Promoting
  Competition in the Romanian Electronic
  Communications Sector
• Regulatory approach
• SMP designations
• Remedies imposed on the wholesale markets
  synthetic presentation
• Regulation of wholesale fixed markets
• Regulation of retail fixed markets
• Snapshot of implementation of the ex ante
  regulation in Romania
• Relation with Universal Service implementation
  approach

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Regulatory Approach

• Identification and analysis of the wholesale
  markets in the electronic communications sector
  susceptible to ex ante regulation, designation of
  SMPs
• Imposition of ex ante obligations on the SMP
  operators in the wholesale markets (as necessary
  to create competition)
• Identification and analysis of the retail markets
  in the electronic communications sector
  susceptible to ex ante regulation where
  wholesale regulation is not enough to
  create/maintain competition, designation of SMPs
• Imposition of ex ante obligations on the SMP
  operators in the retail markets (as necessary to
  create/maintain competition)

www.anrc.ro
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Fixed Incumbent Romtelecom

• Formerly state-owned monopoly (54 sold to OTE)
• Lots of problems historic inefficiencies,
  underinvested network, too many obsolete
  equipments, poor service mix, tariffs highly
  unbalanced, overall loss making
• Market liberalisation has triggered a series of
  events which accelerated the transformation of
  Romtelecom

Some figures

• 20 fixed line penetration/inhab. (steady)
• Voice volumes constant/slight decrease
• Net profit margin (USGAAP)
• -1.7 2003, 23.1 2004, 47 Q3 2005
• Efficiency from 240 lines/empl. (end 2004) to
  278 lines/empl. (Sept. 2005)
• EUR 500 million to be invested in NGN networks in
  the coming years

www.anrc.ro
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The 4 Mobile Operators

• Orange România (France Telecom Group)
• Vodafone România (Vodafone Group)
• Cosmote (Cosmote Group)
• Telemobil (CDMA technology)

Some figures

• 62 penetration rate increasing rapidly
• 45 increase in 2004 and 30 in 2005 (number of
  customers)
• 64 prepaid customers
• 3G services launched early 2005 by Vodafone

www.anrc.ro
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Romtelecom was designated SMP on the following
markets

• Access to the public fixed telephony networks for
  call origination, termination and transit
• Terminating segments of leased lines
• Full or shared access to the copper local loop
• Retail markets
• Access at fixed locations
• Local calls at fixed locations
• Long distance calls as fixed locations
• International calls at fixed locations
• Calls to mobile networks at fixed locations

The 4 mobile operators were designated SMP on the
following markets

• Call termination on each individual mobile
  network
• irrespective of the origin of calls fixed or
  mobile, national
• or international
• irrespective of technology or infrastructure the
  calls use
• (2G or 3G)

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Remedies Imposedon the Wholesale Markets

• Transparency I
• ? publication of I/C tariffs

Small MNOs

• Non-discrimination
• Cost orientation LRAIC
• Gradual reduction of MTRs until LRIC in place
• Mandatory provision of services and access to
  facilities

Large MNOs
Fixed incumbent

• Transparency II
• ? RIO according to ANRC rules
• Accounting separation

www.anrc.ro
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Regulation of Wholesale Fixed Markets

• Call origination, termination and transit (fixed
  interconnection)
• Full or shared unbundled access to the local loop
• Terminating segments of leased lines
• Monitored markets
• Bit-stream access to the local loop
• Trunk segments of leased lines

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Fixed Interconnection (1)

• Market definition
• Relevant product market Access to fixed public
  telephone networks for origination and
  termination at fixed locations, and switched
  transit of calls for the publicly available
  telephone services and for dial-up, ISDN and fax
  services (Markets 8, 9 and 10 EC Recommendation,
  aggregated)
• Relevant geographic market National
• SMP
• Single dominance Incumbent operator
  (Romtelecom)
• Remedies
• Transparency (publication on RIO December
  2002, revised in 2004, new revision scheduled for
  2006)
• Non-discrimination
• Accounting separation
• Mandatory provision of services access to
  facilities
• Cost orientation (LRIC) ANRC Decision
  no.1459/2005 decrease of I/C tariffs in 2 steps,
  on 1.1.2006 and 1.1.2007 target levels lower
  than 2005 levels on average with
• 16.0 for I/C at local level
• 51.5 for I/C at regional level
• 55.8 for I/C at national level

www.anrc.ro
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Fixed Interconnection (2)

• The approach to cost orientation
• For the purposes of cost-orientation of IC
  services through LRIC, ANRC has chosen a so
  called hybrid approach, combining
• Romtelecoms actual financial data from the
  management accounting records, and
• Efficient network dimensioning
• Regulated tariffs therefore based on the results
  of a Hybrid Model (HM), resulted from the
  reconciliation of
• Top-Down (TD) model developed by Romtelecom, and
• Bottom-up (BU) model developed by ANRC
• Objectives of the process
• The 2 models are built and can be reconciled
  ANRC developed detailed guidelines (models
  conceptual design), Romelecom requested to
  provide detailed accompanying documentation, ANRC
  undertook an audit of Romtelecoms TD model
• Reasonable deadlines
• Transparency public and bilateral consultations,
  public versions of BU, Hybrid Model associated
  model documentations and user guides
• Various consultation stages throughout the whole
  process
• Public consultation on the guidelines
• Extended bilateral consultations during
  reconciliation process and afterwards, during the
  adjustment of the HM
• Public consultation before adoption of ANRC final
  Decision

www.anrc.ro
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Fixed Interconnection (3)
www.anrc.ro
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Fixed Interconnection (4)

• Issues addressed over successive RIO revisions
• Intelligent network services IC service for
  call origination at fixed locations for IN
  services (e.g. prepaid services), both for
  directly and indirectly interconnected operators
• Indirect IC for calls originated via CS
• Reciprocity of IC tariffs obligation to acquire
  IC services for call termination at fixed
  locations offered by OLOs at tariffs at least
  equal to those charged by Romtelecom
• The 2006 revision of RIO will address
• Tariffs transparency all the tariffs for
  services for IC-related services must be
  published
• Tariffs adjustments for some IC-related services
• Penalties for delaying the remedy of faulty IC
  links

www.anrc.ro
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Local Loop Unbundling (1)

• Market definition
• Relevant product market Wholesale full or
  shared unbundled access to the twisted metallic
  pair local loop, for the purpose of providing
  broadband electronic communications services and
  publicly available telephone services at fixed
  locations (Market 11 EC Recommendation)
• Relevant geographic market National
• SMP
• Single dominance Incumbent operator
  (Romtelecom)
• Remedies
• Transparency (publication of RUO Sept.2004,
  revised April 2006)
• Non-discrimination
• Accounting separation
• Mandatory provision of services access to
  facilities
• Cost orientation (Retail Minus)
• ANRC 2006 action plan Analysis of methods for
  regulation of tariffs for access to the local
  loop cost model to be developed in 2007

www.anrc.ro
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Local Loop Unbundling (2)

• Issues addressed in the last revision of RUO
• Non-discrimination publication by Romtelecom of
  its Internal Reference Unbundling Conditions
  (Internal RUO) and of indicators related to
  provisioning and repair of unbundled lines, both
  internally and for OLOs
• Transparency obligation to monthly update the
  information related to Romtelecoms access
  network
• Mandatory provision of services access to
  facilities allocation of maximum 4
  sqm/individual order of OLO/MDF in order to
  ensure an efficient use of the collocation space
• ANRC 2006 Action Plan
• An industry working group was set up in order to
  find the optimum solutions to deal with the
  challenges raised by deployment of ONUs in
  Romtelecoms access network

www.anrc.ro
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Terminating Segments of Leased Lines

• Market definition
• Relevant product market Wholesale terminating
  segments of leased lines (Market 13 EC
  Recommendation)
• Relevant geographic market National
• SMP
• Single dominance Incumbent operator
  (Romtelecom)
• Remedies
• Transparency (publication of RIO including
  provisions referring to interconnection of
  terminating segments of leased lines)
• Non-discrimination
• Accounting separation
• Mandatory provision of services access to
  facilities
• Cost orientation (Retail Minus)
• Issues addressed over time
• Transparency RIO was amended in order to
  include technical solutions adapted to the
  technology used for the provision of the
  terminating segments of leased lines.

www.anrc.ro
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Markets under Monitoring

• Bit-stream access
• Market definition
• Relevant product market Bit-stream access to
  the twisted metallic pair, optical fiber, coaxial
  cable and radio local loop, for the purpose of
  providing broadband ECS (Market 12 EC
  Recommendation)
• Relevant geographic market National
• Conclusion of market analysis a new, developing
  market ? impossible to apply the criteria to
  carry out a market analysis ? no SMP ? ANRC
  decided to refrain from imposing regulations on
  the bit-stream market in this stage
• Trunk Segments of Leased Lines
• Market definition
• Relevant product market Wholesale trunk
  segments of leased lines (Market 14 EC
  Recommendation)
• Relevant geographic market National
• Conclusion of market analysis competitive
  market, no SMP

www.anrc.ro
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Regulation of Retail Fixed Markets

• Access at a fixed location
• Calls at a fixed location
• Local calls at a fixed location
• National calls at a fixed location
• International calls at a fixed location
• Calls to public mobile telephone networks at a
  fixed location
• The rebalancing process

www.anrc.ro
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Access to a public telephone network at a fixed
location for residential/non-residential customers

• Market definition
• Relevant product markets Access to a public
  telephony network at a fixed location for
  residential/non-residential customers (Markets 1
  and 2 EC Recommendation)
• Relevant geographic markets National
• SMP
• Single dominance Incumbent operator
  (Romtelecom)
• Remedies
• Carrier selection
• Carrier pre-selection
• Accounting separation
• Price control
• Interdiction to unreasonably bundle services

www.anrc.ro
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Local/national/international/to mobile networks
calls at fixed location for residential/non-resid
ential customers

• Market definition
• Relevant product markets Origination at fixed
  locations of local/national/international/to
  mobile networks (including call origination via
  GSM gateways) calls for publicly available
  telephone services, including fax services, as
  well as dial-up and ISDN Internet access services
  (in case of local calls), for residential/non-resi
  dential customers (Markets 3, 4, 5 and 6 from EC
  Recommendation)
• Relevant geographic market National
• SMP
• Single dominance Incumbent operator
  (Romtelecom)
• Remedies
• Accounting separation
• Price control
• Interdiction to unreasonably bundle services

www.anrc.ro
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Carrier Selection and Carrier Pre-Selection

• Decision no.147/2002 Romtelecom was imposed the
  obligation to offer CS services
• - Two-step CS available 1.2.2003
• - One-step CS available 8.6.2004
• Decision no.1250/2005 Romtelecom was imposed
  the obligation to offer CPS services by June 2006
• ANRC is monitoring implementation of CPS during
  2006

181
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Tariff Rebalancing

• Steps undertaken so far
• September 2003 ANRC allows Romtelecom to
  increase the subscription fee while decreasing
  the tariffs for international calls
• April 2004 ANRC approves the increase of the
  subscription fee and of tariffs for local calls
  while decreasing the tariffs for the national and
  international calls as well as for calls to
  mobile
• February 2005 ANRC approves the increase of the
  subscription fee while decreasing the tariffs for
  national and international calls as well as for
  calls to mobile
• Still to come
• April 2006 a new rebalancing proposal is
  currently under scrutiny
• End of 2006 a price cap is to be imposed on
  Romtelecom

www.anrc.ro
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Snapshot of Implementation of the Ex Ante
Regulation in Romania
www.anrc.ro
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Relation with Universal Service Implementation
Approach (1) Regulators Objectives

• In most cases, the widespread access to
  communications infrastructure, at a fixed
  location, can be delivered by the natural
  development of the market. When this is not
  happening, and Universal Service policies are
  required, the regulator must set a balance
  between conflicting interests.
• Regulators fundamental mission to increase
  present and future consumer welfare. The main
  tools to promote effective competition,
  stimulate innovation and foster efficient
  investment in infrastructure.
• Short term protection of certain categories of
  users is also important, but the Universal
  Service policies should not oblige regulators to
  adopt measures that would undermine the
  objectives of ensuring effective competition and
  protecting the long term interest of the
  end-users!

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Relation with Universal Service Implementation
Approach (2) Particularities of Romania

• 21.7 million inhabitants
• 238.391 square kilometres
• 1/3 of territory covered by mountains and
  sparsely populated
• GDP per capita 32 of the average GDP per
  capita in EU25 (2004)
• Low fixed penetration rate (20.3 at national
  level and around 10.7 in the rural areas)
• Over 1,200 villages with more than 400
  inhabitants with limited or no access to the
  public fixed telephone network
• Incumbents waiting list 274,000 (most of them
  in remote areas)

?
The net cost of installing individual fixed
lines in order to meet user demand would
represent an unbearable burden for the state
budget or for the industry
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Relation with Universal Service Implementation
Approach (3) Romanias US Implementation Design

• Short term objective community access to PTN by
  installing telecentres and public pay telephones
  in underserved areas
• Is financially feasible
• Does not distort competition is techn. neutral
• Allows the economic environment to improve and
  market to develop naturally
• Populations revenues increase
• Bottlenecks are removed competition develops
• Rural areas get more attractive to operators and
  investments
• Has a catalytic effect on the accomplishment of
  the long term objective
• Stimulates demand in the rural areas by
  encouraging the usage of ECS
• Stimulates offer by building self-sustained POPs
  in rural areas (infrastructure bridgeheads)
• Long term objective individual access to the
  public telephone network at fixed locations (one
  fixed line to every home)

?
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• Part III.
• Market Performance Response to Regulation
• Highlights of market development
• Fixed telephony alternative offer
• Broadband

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Highlights of market development - snapshot of
2005-

• 74 operational alternative providers of retail
  fixed telephony services
• 433,000 fixed telephony subscribers of
  alternative providers (via alternative
  infrastructure)
• 10 market share of alternative fixed access
  providers (4.1 at June 2005)
• 50 I/C agreements with Romtelecom
• 14 LLU agreements with Romtelecom
• 58 operators with allocated access codes for CS
• 36 operators could be reached through CS
• 3.47 broadband penetration over 751,000
  broadband Internet connections (including mobile
  access) doubled over the period 2004-2005

www.anrc.ro
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Fixed Telephony Alternative Offer
74 alternative providers at 31.12.2005, with
461,553 subscribers trough own networks and other
operators networks
All fixed telephony own subscribers 4,390,805
Source ANRC, according to the to the
statistical data reported half-yearly by the
providers of electronic communications network
and services
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Alternative providers market share (30.06.2005)
Alternative providers market share grew by 2.5
times in 6 months
Alternative providers market share (31.12.2005)
Source ANRC, according to the to the
statistical data reported half-yearly by the
providers of electronic communications network
and services
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Broadband Internet Connections
December 31, 2005 over 751,000 broadband
connections
Source ANRC, according to the to the statistical
data reported half-yearly by the providers of
electronic communications network and services
75 of these are active, which includes CDMA
subscribers who accessed the Internet at least
once in the reported period (2nd semester of
2005)
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Breakdown of Broadband Technologies
Most used technologies CDMA 50 of all
broadband connections Coaxial cable 33 of all
broadband connections
Most dynamic technologies xDSL - 235 increase
in 2005 Coaxial cable - 196 increase in 2005
www.anrc.ro
Source ANRC, according to the to the statistical
data reported half-yearly by the providers of
electronic communications network and services
41
Broadband Penetration Rates in the SEE Countries
www.anrc.ro
Source Cullen International and ANRC
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Broadband Penetration Rates in the New EU
Countries
Average broadband penetration EU10 3.4 Average
broadband penetration EU25 11.45
www.anrc.ro
Source Cullen International and ANRC
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• Part IV.
• Conclusions, Future Plans and Lessons Learnt

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Conclusions and Future Plans

• Most of the competitive safeguards already fully
  implemented and adapted to the Romanian market
  conditions
• Competition to be further stimulated by
  implementation of
• Further rebalancing planning 2006
• CPS to become available by June 2006
  (obligation imposed in 2005)
• Number Portability to become available by June
  2007 (obligation imposed in April 2006)
• Regulation of mobile termination rates public
  consultation on the cost-oriented MTRs (LRIC)
  ended April 2006, ANRC Decision to be adopted
  this summer
• ANRC to consult and adopt during 2006 an
  Operational Plan for the Review of the Relevant
  Markets, subject to Article 7 procedures of the
  Framework Directive (applicable from 2007)
• ANRC opened consultation and will adopt in 2006 a
  Strategy Paper for the Regulation of the
  Electronic Communications Sector

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Lessons Learnt

• Regulator must not only be independent, but
  develop a culture of independence. Firm attitude,
  timely and correct measures, based on economic
  considerations and protected from political
  interferences are mandatory.
• Regulation must take into account the specific
  national circumstances, not rely on
  imported/one-size-fits-all models.
• The 2003 EU Regulatory Framework is appropriate
  for developing markets, like the Romanian market
  however, flexible interpretation and gradual
  approach to Universal Service implementation
  requirements is key to ensure that competition is
  not affected.
• Transparency is essential for winning the
  confidence of the stakeholders. Consultation on
  all intended measures is a must.
• The regulator needs to have appropriate financial
  and human resources and must learn how to
  motivate its staff.
• Regulator must build in-house expertise and must
  acquire knowledge on major regulatory issues in
  other jurisdictions before it starts working on
  its own decisions.

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Thank you for your attention.
Alexandrina.Hirtan_at_anrc.ro
www.anrc.ro