FAQs: Information & Communications Technology Authority
- Why introduce competition?
- The Government decided to liberalise the ICT sector because it considered that long term, sustainable competition was the most effective way to reduce the prices we pay for telecommunications and similar services, and to increase the diversity and quality of services available to consumers. This decision was consistent with the approach taken in almost every developed and developing country in the world, and followed the recommendations of the World Trade Organisation.
- How do you introduce competition?
- To implement its decision to liberalise, the Government had first to negotiate with Cable & Wireless to agree to the early termination of the company's exclusive licence which was not due to end until 2011. That agreement that was signed in mid 2003 and inevitably reflected a compromise between the ideal positions of each party. As a result, the agreement places some restrictions on the regulatory environment to be used until 2011.
The Government also had to establish rules and regulations that would allow competition to emerge and become sustainable. Before they can get a single customer, new entrants have to invest very large sums in equipment, staff, advertising, etc. They therefore need to assure themselves that they have a reasonable chance of getting a fair return on their investment. They must be convinced that the incumbent will not be allowed to take unfair advantage of its dominant position in the market, and that the sector will be regulated in accordance with international standards. The passing of the ICTA Law and the establishment of the ICT Authority gave them that assurance.
- Why is a regulator needed?
- In any newly liberalised market, the incumbent telecommunications provider has an enormous advantage over new entrants: it initially has all the customers and owns the entire infrastructure. The company, left unchecked, has the incentive and, in most instances, the ability to drive new entrants out of the marketplace. Under such circumstances, the development and sustainability of competition is seriously impeded, if not impossible. It is for this reason among many others that, throughout the developed world, regulators are tasked with regulating the actions of incumbents to ensure that they do not take unfair advantage in an emerging competitive marketplace.
- What does regulation involve?
- In the Cayman Islands, regulation is split into a number of key areas:
There are overlaps between each of these key areas.
- Prevention of anti-competitive practices
- Ensuring compliance with licensing conditions, the law, and regulations
- Consumer protection
- Price regulation of the incumbent
- What consumer protection provisions are in place?
- In all its considerations, the Authority places paramount on the potential impact of its decisions upon the consumer.
Each ICTA licence (other than Cable & Wireless') contains an Annex dealing with subscriber protection and privacy. This requires licensees to clearly describe their services and rates in their marketing materials, to establish subscriber complaint dispute resolution procedures, to protect customer information, and to ensure that their contracts, terms of service and bills are clear and understandable. Annex 5 to Cable & Wireless' licence combined with the Authority's mandate in the ICTA Law, enables the Authority to oversee Cable & Wireless' services in considerably more detail, thereby addressing the key areas of subscriber protection and privacy. In the near future, the Authority plans to publicly consult on and issue regulations that address consumer protection and privacy issues in the Cayman Islands.
- What are anti-competitive practices?
- Agreements or practices that prevent, restrict or harmfully distort competition in the ICT sector are likely to be counter to the anti-competitive provisions in the ICTA Law. Some, but not all, necessarily involve the abuse of a dominant position in the market. Examples include predatory pricing, misuse of information, "locking in" customers, and tied sales and bundling. These examples may not by themselves constitute anti-competitive activity, however, they can, in combination, be anti-competitive and pose a serious danger to a newly liberated marketplace. If a finding of an anti competitive practice is made by the Authority, it has the power to require the licensee to cease the offending practice and to levy a financial penalty, among other means.
It is important to note that by law any licensee who has significant market power is held to a higher standard of conduct than new entrants who are typically starting up and do not have significant market power in the market in which they compete.
- What is compliance?
- The body and most of the schedules of the licence issued to each licensee is identical. Differences exist only to reflect the different networks and services that each is entitled to provide, the frequencies they will use, and their individual commitments with respect to roll-out timescales and Caymanian participation. In the case of the Cable & Wireless licence, one schedule covers a wide range of regulatory issues. In all other licences, this is replaced by a schedule covering consumer protection issues.
Compliance is simply the process of ensuring that all licensees meet the commitments and comply with the conditions contained in their licences. All licensees must comply with the provisions of all applicable Cayman Islands' Laws and regulations. Should a licensee breach these conditions, the Authority has the power to issue a Cease and Desist Order, to impose an administrative fine, or in extreme cases to suspend or revoke a licence. In some situations, prosecution through the courts is also possible.
- What is price regulation?
- There are two forms of price regulation specified in the Main Agreement between Government and Cable & Wireless. These are repeated in Annex 5 to Cable & Wireless' licence. The first regulates any price increases that Cable & Wireless wishes to make, particularly for services where there is currently little or no competition and little market pressure to keep prices down. For example, Cable & Wireless may not increase line rental or domestic calling rates for two years from July 2003, and it may not increase International Direct Dial (IDD) rates without making a case for and obtaining the approval of the Authority. These interim rules will eventually be replaced by a "price cap" regulatory regime.
The second form of price regulation establishes a minimum, or "floor", price below which Cable & Wireless may not reduce its rates. In most cases that "floor" is set at the cost of providing the service in question, although in some agreed instances the retail or wholesale price is also used to prevent a "price squeeze." The purpose of this form of price regulation is to prevent the licensee from implementing anti-competitive pricing. This can occur if the incumbent lowers its retail rates below or very close to the rate it charges to competitors for wholesale services that they need in order to compete. The onus for demonstrating that its rates are above the appropriate floor prices falls upon the incumbent.