The existing Federal
Communications law, of February 16, 1995, has been outstripped by
technological change, and the draft of new legislation, which is to be
submitted to the Duma soon, effectively amounts to a different law. This
paper looks at the most significant legal developments it heralds.
Interconnection and Anti-Trust Law
As things stand, there is virtually no binding regulation of
interconnect between existing networks and new entrants, nor is there is
a clear framework on transit rules. The only rulings have been ad hoc.
For example, the major carriers are required to connect all comers with
their networks, the clear intention being that major carriers should not
reasonably block access to the market. However, there is no guideline to
ensure that all carriers are offered the same technical standards. This
means that the bigger players can give better terms to favored companies,
such as their own subsidiaries or affiliates, without breaking the law.
The new bill would seek to address this with special provisions for
carriers "controlling a significant market share." A
significant market share would be held by any telecoms company that,
together with its subsidiaries, accounts for at least 25% of the
installed capacity either in a specific geographical numbering zone, or
across the Russian Federation.
Any interconnect contracts that involve "significant"
players would, on the basis of the new bill, have to be matters of
public record. None of the significant players would be entitled to
refuse to connect other operators, and could be fined for foot-dragging.
In addition, they would be prohibited from giving preferential treatment,
except when the law, or regulatory legal acts, provide for it.
Though individual contracts will be hammered out by the parties
involved, the "significant" carriers will be obliged to
publish the approved terms and conditions for connection and transit,
thus making that information accessible to other players.
The draft foresees that the issue of charges for transit would be
tackled in a similar way, with the "significant" carrier
obliged to provide transit services to competitors at the rates that it
charges its own affiliates.
Universal Communications Services
As things stand, local phone services in Russia, provided by regional
monopolies using old Soviet communications networks, are incredibly
cheap in comparison with international and long-distance services. This
is primarily a function of political will. The carriers are effectively
hamstrung in that they cannot increase charges for domestic
long-distance services. Given that making a profit on local services is
impossible, operators have little incentive to tie up capital in local
telephone companies.
The Bill aims to address this problem by introducing the concept of
"universal communications services" with the rates regulated
by the state. These universal service providers are to be chosen on a
tender basis and, if there are no bidders, the regional monopoly
carriers will be required to take on the role.
The aim of the bill is to ensure that individuals will still have
access to public-switched networks and a basic range of quality services
at affordable prices. To this end, the expenses incurred by the
universal service providers will be reimbursed by a special ministry
fund that is to focus on maintaining access to public-switched networks
in poorer regions. The bill foresees that all carriers will contribute
between 2% and 3% of the their monthly earnings to the fund. In addition,
proceeds to the ministry from licenses will top it up.
The ministry estimates that the annual turnover of the communications
sector in Russia totals around US$5.2 billion. On this basis, the fund
should receive more than US$110 million each year.
As things stand, around 54,000 villages in Russia are not even
connected to telephone networks.
Under the terms of the bill, the charges for services that go beyond
basic universal provision are to be fixed on the basis of validated
costs. The profits will be capped at a level that allows for network
upgrades, modernization and expansion. This principle applies to both
"substantial" carriers and universal providers.
Licensing
The bill deals with licensing and certification issues more thoroughly
and consistently than the existing legislation does. It spells out
requirements for license applications and sets down procedures for
application reviews and license awards. It also defines procedures for
the re-issuance, suspension and cancellation of licenses. In addition,
special attention is given to ensuring that technical facilities and
services meet standards, while the licensing procedure itself will be
much simplified.
As things stand, the law tackles many of the issues mentioned above
with reference to internal orders and regulations of the communications
ministry. The new bill makes a welcome advance on this in that it has
been drafted to regulate the industry via direct-operation provisions,
that is without reference to secondary legislation.
The existing law only addresses the process of actually obtaining a
license. For example, its lists the documents that must be submitted by
applicants, sets the time-frame within which they must be examined and
specifies grounds for refusals to grant licenses. However, it does not
name the procedures for obtaining the authorizations that are often
required prior to the grant of a license. This means that applicants who
are denied an authorization early in the licensing process cannot appeal.
Another anomaly is that a party seeking a license for communications
services that involve radio spectrum has to gain authorization from the
State commission for Radio Frequencies for the use of a specific
frequency before applying for a license. Should the applicant be denied
the frequency, there is nowhere to appeal.
The new bill is the first ever statue in Russia that attempts to
regulate frequency allocation and ensure greater overall transparency in
the communications sector. It aims for openness in the use of radio
spectrum, including an exhaustive list of the grounds for refusal to
grant radio frequency, and the official publication of a national table
of frequency bands.
However, despite its laudable aims, the bill does have its fair share
of omissions and lapses. Though it does, for example, include a special
section on rights of way - an issue which is gaining in importance as
more land lines are laid and ground stations built - this section has
not been harmonized with the relevant provision in the newly-enacted
Land Code.
Further, the Bill also focuses too much on conventional services,
frequently overlooking the rapid advancement of new technologies such as
the Internet and wireless communications. This short-sighted approach
will make it necessary to update the statue in the near-term - if it is
approved in its current form.
Last, but not least, the draft allows for the continued existence of
a plethora of supervisory authorities, preparing fertile ground for the
growth of bureaucratic excesses.
Why is the Bill, forward-looking though it is in many respects, not
cohesive? We believe that it is because the progressive approach to
regulating network connections, tariff regulation and licensing is
driven by Russia's moves to join the World Trade Organization (WTO). The
steps suggested serve to bring Russian communications into line with
relevant international laws - which makes them no less welcome. However,
other problems have been put on the back burner among them the question
of publicizing the contents of individual carrier licenses. This
omission will mean that government bureaucrats can continue to restrict
the sphere of activity of certain operators at the licensing stage.
What is the bottom line? Is Russia soon to gain a truly
ground-breaking piece of legislation that will pave the way for
sustained development of its communications industry, or will there be a
"Potemkin bill" - an attractive decoy for the benefit of
Western partners?
The answer should become clear this spring.
Sergey Nosov is an attorney with the Telecommunications Practice
Group at the international law firm of Baker & McKenzie.
