Panama opens its telecommunications sector

By Esteban Russell and Raúl Fernández-Briseño

Introduction

Since 1997, local and long distance (both domestic and international) telephone services in the Republic
of Panama are provided exclusively by Intel S.A., a subsidiary of Cable & Wireless. Beginning on January
1, 2003, telecommunications services will be provided under a competition scheme (mobile telephone services will continue be provided under an exclusivity regime until 2007).

The Panamanian Regulating Entity (Ente Regulador de Panamá) began drafting the regulations for the liberalization of the telecommunications sector in August, 2000. Companies interested in investing in the sector were asked to express their opinions about the regulations and the results were submitted to public consultation. Once concluded, the Regulating Entity issued the regulatory framework that opens
the sector. The key regulations are:

• the 31/96 Act and its Regulating Decree 73/97, which establish the rules that will apply to competition, licensing, taxation, radio electric spectrum, interconnection, and dedicated lines issues;
• Regulation 2802/2001, which establishes the specific rules applicable to each telecommunications service; namely: local telephone services, domestic long distance telephone services, international long distance telephone services, public telephone services, and dedicated lines. The key principles that provide the foundation for the current model are the following:
• open system for licenses and concessions
• freedom of choice with respect to technology (this could be read as approval for IP-Telephony)
• freedom to select the serving area
• freedom to lease other operators’ networks to provide services
• the possibility to re-sell the telecommunications services of other operators
• the non-discrimination and mandatory-type of interconnection Panama does not restrict foreign ownership in the sector.

Licensing Regime
The Regulating Entity is now issuing licenses to providers of fixed-line telephone services, for a term of service that can begin after January 1, 2003.

There are two types of telecommunications services; namely Type “A” and Type “B” services.

Type “A” services, due to technical or economic reasons, are granted either under a temporary exclusivity
(monopoly) regime or to a limited number of concessionaires that will offer the services under a competitive scheme. Type “A” services include mobile telephone services, mobile personal communication services (PCS) and, until January 1, 2003, local, domestic and international long-distance, telephone services.

Type “B” services include all telecommunications services other than Type “A” services and are granted under a competitive scheme and on-demand. These include data transmission services, trunking, paging, and Internet access, among others.

From January 2, 2003, local, domestic long-distance and international long-distance telephone services, public telephone services, and dedicated voice lines, will be considered Type “B” services.

Concessions for Type “A” services are awarded through public bidding by the government of Panama.
Concessions for Type “B” services are granted by the Regulating Entity.

In general, concession agreements extend for a 20 year term and are renewable. Concessions may be assigned to other qualified operators with the prior consent of the Regulating Entity. The Regulating Entity must authorize the assignment request unless such assignment will hinder competition among operators.

Prices for both Type “B” services and Type “A” services that are provided under a competitive regime
may be freely established by the operators. However, prices for Type “A” services provided under a monopoly or restricted regime will be established in the concession agreement. Nonetheless, the Regulating Entity may establish a price ceiling if: (i) there is only one concessionaire for any given service; (ii) one or more services are subsidized with profits from other services; or (iii) the Regulating Entity determines that there exists anticompetitive practices.

The following coverage goals1 have been established with respect to fixed telephone services:
• local telephone services: at least a “neighborhood” or “inhabited place;”2

Telecommunications

• public telephone services: at least a “neighborhood”or “inhabited place;”
• domestic long-distance telephone services: at least two local areas to be freely selected by the operator;
• international long-distance: no minimum coverage goal has been established.

The Regulating Entity has so far granted concessions to the following service providers (for service to
begin after January 1, 2003): Tele-Carrier, Galaxy Communications Corp., Advanced Communication Network S.A., BSC de Panamá S.A. and System One World Communications S.A. Interconnection Rules
Under current legislation, network interconnection between operators is mandatory and subject to commonly found interconnection principles such as equal access, efficiency, etc.

The general rules for interconnection agreements are established by Regulation 3264/2002. The regulation permits the terms of interconnection agreements to be changed by mutual agreement of the operators so long as the agreement does not hinder competition, is nondiscriminatory, and does not violate the principles of the general regulatory framework.

The Regulating Entity has not yet established the interconnection charges that will apply after January 1,
2003. Apparently, the Regulator will permit operators to negotiate the interconnection charges among themselves.

If an agreement cannot be reached, the Regulator may ultimately determine the interconnection charges.

This method of establishing interconnection charges may cause uncertainty among potential investors, which will be forced to wait until the negotiation phase (or the decision by the regulator upon failure of the negotiations) to determine the actual interconnection charges.

The Regulating Entity has recently released the approved points of interconnection (as they were proposed by the incumbent operator) and established that the interconnection may be requested at any point in the network so long as it is technically feasible to grant interconnection at such point.

Regulation 2802/01 regulates in a detailed fashion long-distance telephone services under the Pre-subscription and Call-by-Call3 long-distance carrier selection mechanisms. The regulations establish that local operators must install in their exchanges the necessary equipment and systems compatible with commonly used systems.

The costs associated with the implementation of such mechanisms will be covered through an additional
per minute charge to be added to the interconnection charge applicable to long distance calls. Once such costs have been covered, the interconnection charges should be reduced to the original value.

In an effort to attract new entrants to the local telephone market, the Regulating Entity may deny the Pre-subscription mechanism from being implemented for three years.

However, this exemption does not include the Call-by-Call long-distance carrier selection mechanism.
Accordingly, domestic and international long-distance operators are required to provide the services under these two mechanisms (Call-by-Call and Pre-subscription).

International long-distance telephone operators are required to process both in-bound and out-bound traffic, so operators will not be able to limit their activities to the termination of international traffic only.

Regulatory Fees

Operators must pay the tasa de regulacion (regulation fee) to the Regulating Entity. This fee consists of a
determined percentage of the operator gross income.

For the year 2002, such percentage is 1 percent. The percentage for the year 2003 will be determined by the Regulating Entity in December, 2002.

“Gross income” (for purposes of determining the fee), includes income from telecommunications services plus income from interconnection services less the costs associated with the interconnection agreements.

With respect to contributions that must be made to the fund for the provision of Universal Service (i.e.,
the financing for the provision of services in areas that are not profitable and will not be served privately) the regulation establishes that all operators are required to contribute to such fund. The specific amount of the Universal Service Fee has not yet been established. The Regulating Entity currently is drafting a regulation that will include the applicable percentage, which is expected to be issued by the end of the year.

1I.e., the type and quality of services, ideally, to be provided.
2While the terms “neighborhood” and “inhabited place” are admittedly less than precise, these are the terms used in the regulations (por lo menos un barrio o area poblada).
3Call-by-call service permits the user of fixed telephony services to select one international or national long-distance operator to provide the service on a call-by-call or individual basis.

Esteban Russell is a legal advisor specializing in telecommunications law. He is a professor of
Telecommunications Law at the School of Information Sciences, Universidad Austral, Argentina. Raúl Fernández-Briseño is an Associate with the Corporate Group, White & Case, S.C., in Mexico City.

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