*Pages 1--36 from Microsoft Word - 39280* Federal Communications Commission International Bureau 445 12th Street, SW Washington, DC 20554 International Bureau Working Paper Series 1 Traits of an Independent Communications Regulator: a Search for Indicators June 2004 Irene Wu 1 1 The FCC International Bureau's Working Paper Series presents staff analysis and research in various states. These papers are intended to stimulate discussion and critical comment within the FCC, as well as outside the agency, on issues in international communications policy. Titles may include preliminary work and reports on work in progress, as well as completed research. The analyses and conclusions in the Working Paper Series are those of the authors and do not necessarily reflect the views of other members of the International Bureau, other Commission staff, or the Commission itself. Given the preliminary character of some titles, it is advisable to check with author before quoting or referencing these Working Papers in other publications. This document is available on the FCC's World Wide Web site at http:// www. fcc. gov/ ib/. 2 2 Traits of an Independent Communications Regulator: a Search for Indicators By Irene Wu* Assistant Chief, Regional and Industry Analysis Strategic Analysis and Negotiations Division International Bureau Irene. Wu@ fcc. gov Federal Communications Commission International Bureau Washington, DC 20554 June 2004 IB Working Paper No. 1 * The analyses and conclusions in this working paper are those of the author and do not necessarily reflect the views of other members of the International Bureau, other Commission staff, or the Commission itself. 3 3 Contents 1. Introduction 4 2. Useful points from previous work 6 3. What is the regulator’s relationship with other state organizations? 9 4. What is the regulator’s relationship with industry? 15 5. Regulator’s relationship with consumers 17 6. Decision- making procedures 19 7. Ethics rules 23 8. Conclusions 26 Appendix: the surveys 31 Notes of appreciation 35 Tables 1. Leadership of the regulatory organization 10 2. Telecommunications wireline licensing 12 3. Independence from other state organizations 14 4. Regulator’s relationship with industry 16 5. Dispute resolution, consumer concerns, and universal service functions 18 6. Decision making processes 19 7. Ethics rules 24 8. Summary of indicators from 18 country survey 28 4 4 1. Introduction As the world moves from the industrial into the information age, doing a good job of governing the communications infrastructure becomes more important. Historically, the power to make decisions about the telecom network resided with the telecommunications and/ or the broadcasting monopoly, but now it is widely accepted that consumers benefit when there are competitive markets for these services. The question then arises, how should the authority to govern communications networks be arranged to suit this new, competitive environment? For many reasons outlined below, an independent regulatory authority appears to be an effective way to govern. To establish a framework for defining regulatory independence, the universe of political interests that a regulator faces can be divided into three groups: other state institutions, the industry, and consumers. This paper uses two sets of data, a survey of 18 countries’ communications regulators on their organizational structure, and a more in- depth survey of four countries’ ethics rules and decision- making procedures to examine the techniques used to mediate between regulators and each of these three groups. While these surveys are not comprehensive, they draw from a broad range of countries. In the end, some conclusions can be drawn as to what indicators may be used to characterize a regulator’s independence. In the past, there have been government departments or ministries with responsibility for communications. Recently, the trend is to establish separate regulatory agencies for communications. In 1990 there were only 13 telecom regulatory agencies in the world. 1 Since then, the number has roughly doubled every four to five years. Today 1 World Telecommunication Development Report 2002. Geneva: International Telecommunication Union, 2002, 49. 5 5 there are no less than 119 such authorities. 2 Another element of this trend is that many states are establishing independent regulators as part of their commitments under the World Trade Organization’s Basic Telecommunications Agreement. This reflects the widely held notion that independent regulators are best. The effort to establish or maintain independent regulators suggests a need to develop criteria to identify when a regulator is independent. What, then, makes a regulator independent? Particularly, from whom or what is the regulator supposed to be independent? One way to approach this question is to distinguish between policy and regulation. The policy maker is expected to broker agreement on broad objectives, and every brokered agreement could be unique from the next depending on political circumstances. The regulator, because it is independent from direct political pressure, is instead expected to reach similar conclusions in similar cases. The challenge, however, becomes how to design a regulatory institution insulated from the vagaries of politics that is still consistent with democratic notions of accountability and majority rule. The first section of this paper discusses methods regulatory regimes use to manage their relationships with three different sources of political pressure: other state institutions, industry, and consumers. Not only does the regulator have an interest in its own independence, but also each of these three groups also has a long term interest in the regulator’s independence as well. For the other state institutions, having developed policies that resolve the tensions between consumer and industry interests, an independent regulatory regime with clear focus and technical skills to implement is 2 Domestic Enforcement of Telecom Laws, Best Practice Guidelines” ITU- D Question 18/ 1, Rapporteur’s Draft No. 2, July 2003, 3. 6 6 critical to successful implementation of those policies. Three indicators of regulatory independence are the stability of its leadership, scope of its authority, and the independence of its funding. For investors, a regulatory regime independent from political vagaries is key to providing a predictable investment climate. Investment is important in order for communications services to develop. Indicators for independence relevant here are whether the incumbent operator( s) are government- owned, and how commonly staff move from the regulator to the industry and vice versa. For consumers, a regulatory regime independent from the industry is important as an advocate, their voice in the state. In the communications field, firms are more concentrated than consumers; it is easier for firms to organize and represent their interests to the state than for consumers. Indicators relevant here are whether there are specialized offices for consumer concerns and for universal access concerns. The second section of the paper draws on another study examining the ethics rules and decision- making procedures of several countries, systemic techniques that can be used by regulatory regimes to mediate relationships with all three interest groups. Decision- making procedures govern how the regulator interacts with interest groups at the moment a particular case is under consideration. Ethics rules govern how the regulator’s individual employees overall relationship with interest groups. 2. Useful points from previous work Several scholars have explored the question of how a government can make the commitment to liberalization of the telecommunications market, a commitment which can be politically difficult to sustain. They map the location of greatest power in a 7 7 particular type of state system and, based on this analysis, make suggestions on how a government can make the most credible commitment to difficult policy objectives. Peter Cowhey emphasizes that legislation can represent a strong commitment in countries where the power of legislature is great relative to the president’s. When power is divided between executive and legislature, it is harder to reach agreement on policy objectives, laws are less frequently modified, and therefore, laws can reasonably be expected to be unchanged for a period of time. 3 In some presidential systems, however, the executive is more influential than the legislature. In such cases, note J. Luis Guasch and Pablo Spiller in their study of some Latin American countries, presidential decrees are the most powerful policy commitments. 4 In parliamentary systems, by contrast, the views of the prime minister and parliament may be easier to achieve, and laws can change frequently. Legislation in these countries does not lend itself to policy credibility; other mechanisms may be more effective. 5 Contracts between the regulator and regulated firms can be an effective tool of policy commitment in those systems with strong judiciaries. For example, an operator’s license to offer communications service may take the form of a contract between the firm and the state, detailing both sides’ obligations. Guasch and Spiller note that these reflect government commitment because the contract cannot be changed without both parties’ 3 Peter Cowhey and Mathew McCubbins, eds. Structure and Policy in Japan and the United States. Cambridge: Cambridge University Press, 1995, 2- 8. 4 J. Luis Guasch and Pablo Spiller. Managing the Regulatory Process: Design, Concepts, Issues, and the Latin America and Caribbean Story. Washington, D. C.: World Bank. August 1999 . 5 Peter Cowhey and Mikhail Klimenko. “The WTO Agreement and Telecommunication Policy Reforms.” Washington, D. C.: World Bank Working Paper No. 2601. April 25, 2001. 8 8 agreement. Not only in these contract- based regimes, but in a variety of regimes, the judiciary may serve as an important check on legislative or regulatory caprice. 6 Federal or national action, as opposed to local government action, in some countries, is key to achieving policy commitment. Greater centralization could be expected to provide greater policy credibility over time. In countries where local authorities have more power, this relative decentralization may lead to less consistency over time, although it can foster regulatory innovations which can also be beneficial. 7 Several scholars have identified possible mechanisms to ensure the independence of a regulatory regime. In his examination of Europe, Gianfranco Majone shows how European politicians established separate institutions with fixed rules that would be able to issue consistent regulations over time. These separate institutions protect regulations from shifts in political winds that are perceived as unpredictable by investor firms. 8 Won- ki Min in an OECD paper has a list of measures including separating the regulatory body from the Ministry, separate funding for the regulator, and a procedure through which the regulator’s decisions can be overturned. 9 Peter Cowhey and Mikhail Klimenko identify a number of other factors including the regulatory regime’s accountability to the public, its ability to hire and fire staff, and public reporting of all communications between the regulator and ministries. 10 Jon Stern and Stuart Holder identify qualities that regulators should hold as measures of their independence. They include (1) clarity of 6 Brian Levy and Pablo Spiller. Regulations, Institutions and Commitment. Cambridge: Cambridge University, 1996. pp. 1- 35. 7 Cowhey and Klimenko, 15 8 Gianfranco Majone. Regulating Europe. New York: Routledge, 1996, 5. 9 Won- ki Min. “Telecommunications Regulations: Institutional Structures and Relationships.” Organisation for Economic Co- operation and Development. Working Party on Telecommunication and Information Services Policies. DSTI/ ICCP/ TISP( 99) 15/ FINAL. May 26, 2000, 14- 15. 9 9 roles and objectives, especially between ministries and regulators and between policy-making and commercial management of companies; (2) autonomy from political intervention; (3) effective participation by interested parties in decisions; (4) accountability, including opportunities for decisions to be challenged if unfair or incompetent; (5) transparency in the regime to reduce the likelihood of unfairness and incompetence; (6) predictability of the regulatory regime. 11 These are cogent traits, but are values which can be difficult to measure. 3. What is the regulator’s relationship with other state organizations? Many countries separate the policy- making organization from the regulatory organization. Many do not. In a survey of 18 countries (see Appendix for more details) certain systems of democratic government – parliamentary or presidential, for example, did not predict whether the policy- maker would be separate from the regulator. Therefore, rather than focusing on the broad, systemic characteristics, the survey examines in detail the organization of the institutions that develop the rules that implement policy. Three aspects of the survey are relevant to examining the regulatory relationship with other state institutions: the terms and conditions of the leadership, the scope of the regulatory authority to issue licenses; and the source of the regulator’s budget. Leadership. One indicator of the relationship between the regulatory and other state institutions is how the leader of the regulatory organization is selected and 10 Cowhey and Klimenko, 15. 11 Jon Stern and Stuart Holder. “Regulatory governance: criteria for assessing the performance of regulatory systems: an application to infrastructure industries in the developing countries of Asia.” Utilities Policy. 8( 1999): 33- 50. 10 10 dismissed. The regulatory organization has greater independence if the leader’s position is protected, by custom or by law, for a specified period of time, or for life, no matter what decisions are taken. However, in some instances the leader can be dismissed if others in the state are dissatisfied with the decisions of the organization. Table 1: Leadership of the Regulatory Organization A. Leader easily removed for policy reasons X = no O = yes B. Leader has fixed term of office X = yes O = no C. Term of office Australia X X ACA: up to 5 years, ABA: up to 2 4- yr terms Brazil X X Time set at nomination Canada X X 5 years Hong Kong X O No time limit Hungary O X 6 years renewable India O X 3 years or to age 65, whichever is earlier Italy X X 7 years Japan O O Jordan O X 4 years renewable Korea O Telecom = O Broadcast = X KBC: 3 years renewable Malaysia O X 3 years renewable New Zealand O X Fixed at time of appointment Nigeria X X 4 years, renewable once Singapore O O No time limit, traditionally a senior civil servant Spain X X 6 years renewable Sri Lanka O O Sweden X X 3 years renewable United States X X 5 years renewable Here the key indicator for the leader’s independence from the vagaries of politics is column A. Can the leader be removed for making decisions contrary to the will of the 11 11 policy- makers? If not, then the leader has considerable scope to implement rules according to the policy, and the ability to resist pressure to bend the rules in favor of those who may be politically better connected. Half of the countries surveyed have regulatory agencies with an independent leader. In these countries, having a pre-determined term of office often serves as clear time frame which insulates the leader from pressures on day to day decisions. The one exception may be Hong Kong, where a custom may be developing that the leader serves until he or she retires from civil service. If this custom is preserved, it serves as even greater source of independence than the common pre- set term of office. While in many instances this kind of leadership has been very effective, in principle it does present the risk of unpredictability if the single leader is idiosyncratic. A possible solution would be a leadership consisting of several individuals. 12 Scope of authority. A second indicator is the clarity of the regulator’s authority. One area, for example, where regulators typically have great influence is in issuing licenses for market entry. For wireline licenses, where scarce resources are not usually at stake, many independent regulators have exclusive authority to issue licenses. In other markets, the ministry which reports directly to the political leadership has an exclusive or partial control in the issuing of licenses. 12 Cowhey and Klimenko, 17. 12 12 Table 2. Telecommunications Wireline Licensing A. License issued by a separate regulator only B. License issued by Ministry only C. Both Ministry and regulator have role in licensing D. No license or only notification required for wireline operations Australia X Brazil X Canada X Hong Kong X Hungary X X India X Italy X Japan X Jordan X Korea X Malaysia X New Zealand* X Nigeria X Singapore X Spain X Sri Lanka X Sweden X X United States X X * In New Zealand, no license required, therefore regulator is not dependent on Ministry’s decision in this regard. In 11 of the 18 countries examined, the regulator has the exclusive right to issue wireline licenses. Only in six countries did the Ministry retain the whole or partial right to govern entry into the wireline market. The one exception in this set is New Zealand, since no licenses are required for firms to provide wireline service, neither regulator nor ministry is involved. Licensing of wireline telecommunications service is only one of many areas 13 13 of possible authority for regulatory organizations. If other areas were examined, a different range of responses on the relationship between the regulator and ministry’s relationship might be uncovered. Funding. A third indicator of the regulator’s independence is the source of its budget. Greater independence is possible if the regulatory organization has nearly complete control over how fees and funds are raised for its own operations. In other instances, the organization’s budget is allocated and approved by institutions that may seek to use the budget process to influence regulatory decisions. Some organizations are funded both by their own fees and by a politically allocated budget. The following table indicates in column C the regulator’s budget sources. Seven of the surveyed raise their entire budget from regulatory fees. In four countries, substantial funds are raised through fees, but also some portion of the budget must be allocated through the national state’s budget process, which subjects them to political review. In addition, in Korea, the broadcast regulator’s entire budget is raised from fees, but the telecom ministry has its funds allocated through the national budget. 14 14 Table 3: Independence from Other State Organizations (Summary of Tables 1 and 2) A. Independent Leader X = yes O = no B. License issued by regulator only X= yes O = no C. Independent Funding X =raise own funding, O =rely on state budget allocation Australia X X O Brazil X X X Canada X X X Hong Kong X X X Hungary O X X India O O O Italy X O X / O Japan O O X / O Jordan O X O Korea O O Telecom = O Broadcast = X Malaysia O X X New Zealand O O* O Nigeria X X X Singapore O O X / O Spain X O X Sri Lanka O X X Sweden X X O United States X X O * In New Zealand, no license required, therefore regulator is not dependent on Ministry’s decision in this regard. At least based on these three indicators, four countries’ regulators have very robust independence from other state institutions: Brazil; Canada; Hong Kong, China; and Nigeria. Brazil, Canada, and Hong Kong do indeed have regulators with strong reputations for independence. Nigeria’s regulator is newly established, future decisions will determine whether it gains a similar reputation. 15 15 4. What is the regulator’s relationship with industry? In the 2003 survey of eighteen countries, two sets of data were relevant to the regulator’s relationship with industry: whether the incumbent telecom operator was private and whether there was a revolving door for workers between the regulator and industry firms. Privatization. One indicator of the regulator’s relationship with industry is whether any state- owned incumbent operators have been privatized. Greater independence is possible if the state responsibility is first to the consumer without any interest in the profitability of a state- owned operator. In other instances, the state is full or part owner of an incumbent operator and has additional responsibilities as an investor. Revolving door. A second indicator is whether there is a revolving door for the staff to move between the regulator and the industry. Greater independence is possible if staff serve their entire careers in the regulatory organization. They are less likely to be influenced by other interests. In other instances, staff move frequently between the regulatory organization and industry or other parts of the state. A counter- argument is that regulators benefit from the market and technical knowledge of staff drawn from the industry. 16 16 Table 4: Regulator’s relationship with industry A. Private incumbent operator X = yes O = no B. Little or no movement of staff between regulator and industry X = yes O = no Australia O O Brazil X O Canada X O Hong Kong X O Hungary X O India O X Italy O X Japan O X Jordan O O Korea X X Malaysia O X New Zealand X O Nigeria O O Singapore O O Spain X O Sri Lanka O X Sweden O X United States X O Based on these indicators, Korea has both a fully privatized incumbent operator and a regulator staff that customarily does not move in and out of industry positions. To characterize the Korean regulatory institution as independent from industry may be surprising as Korea has often been considered a prime example among East Asian economies of industrial policy – using state policy to promote its own country’s firms at the expense of others. 13 Whether a state treats foreign firms differently from domestic 13 For a discussion of the role of the state in Korean economic development in general, please see, “The Political Economy of Industrial Policy in Korea,” Cambridge Journal of Economics, 1993 (17): 131- 157. 17 17 firms, however, is outside the scope of this paper. These results suggest that in Korea the framework of the relationship between regulatory organization and industry maximizes the regulator’s independence from industry. Another notable set of facts is that for some of the surveyed countries, privatization is recent. This is true of Korea, which privatized Korea Telecom only in 2002. In other markets, such as Hong Kong, Spain, and the United States, the incumbent operators have been private for a long time. On the other hand, many countries listed as not having private incumbent operators have partially privatized. This is true, for example, for Australia, India, and Sweden. Whether these countries are in transition to full privatization or their states have chosen to retain some fraction of ownership is too complex to be reflected in the table, but may have an effect on the regime’s independence from industry. 5. Regulator’s relationship with consumers A regulator independent from industry interests and insulated against political vagaries also is likely to prove a useful advocate for consumer interests. How consumer interests are represented varies widely among different states. The survey results reflect this diversity. In telecommunications, there are two major areas of consumer interest, one is handling of consumer complaints and concerns, and the other is universal service or universal access to services. These two areas are not equally important in all countries. Particularly, in countries with highly developed communications networks, universal service/ access issues may be less urgent. 18 18 Table 5: Dispute Resolution, Consumer Concerns, and Universal Service Functions Specialized office for consumer concerns Specialized office for universal service Australia Telecommunications Industry Ombudsman (telecom) ACA Funding and Subsidies Team Brazil Anatel's Consumer Affairs Office (telecom) Anatel's Superintendence of Universal Access Canada Hong Kong Hungary Consumer Protection Inspectorate India Consumer Courts Universal Service Administrator Italy Japan Jordan TRC’s External and Consumer Affairs Department Korea Korean Communications Commission (telecom) Malaysia New Zealand Nigeria NCC's Consumer Affairs Bureau Singapore Spain Sri Lanka TRC's Consumer Relations Unit and Internal Committee for Resolution of Consumer Complaints Sweden PTS's Information Department (telecom) and SBC (broadcast) United States FCC's Consumer Bureau Universal Service Administrative Council and FCC's Telecom Access Policy Division As indicated, in some markets there are offices within the regulator designated to handle consumer issues or universal service/ access issues. In Brazil and the United States, there are overseers for universal service policy that are organized inside the regulatory institution. In other instances, institutions other than the regulator are responsible. For 19 19 example, in Australia, Hungary, and India, bodies other than the regulator handle consumer complaints. 6. Decision- making procedures 14 All three groups – other state organizations, industry, and consumers – interact with the regulator. Two kinds of opportunities for interaction exist: first, at the institutional level, in formal decision making processes, and at the informal level, in personal interaction. This section discusses decision- making procedures and the next discusses ethics rules, all of which govern interactions between the regulator and the three groups. Both sections are based on a four- country study undertaken in the second quarter of 2002 that examined the Canadian Radio- television and Telecommunications Commission (CRTC), Hong Kong's Office of the Telecommunications Authority (OFTA), the United Kingdom's Office of Telecommunications (Oftel), and the United States’ Federal Communications Commission (FCC). All four regulators’ rulemaking processes are based on a three- stage consultation framework. 15 In the first stage, after an issue is identified, the authority releases a formal consultation paper soliciting comments from the public. It is followed by a comment and reply comment period where outside players and the public at large submit their views on the issue. Finally, a decision is reached based on available information and public policy objectives. The consultation paper, comments and reply comments, and the final decision are available to the public on the regulators’ website or through official 14 This section on decision- making and the following section on ethics rule draw heavily on work jointly written by Cathleen Hsu and the author, “Decision- making procedures and Ethics Rule,” August 2002. Available at www. fcc. gov/ globaloutreach. 20 21 have included additional formal procedures in the formulation of the initial consultation paper and in the consultation stage. Initial consultation. The purpose of a consultation paper is to clearly define all relevant issues that need to be addressed, to provide background information on these issues, and to set out the regulator’s preliminary views on the issues. For example, if there are related issues that are not included in the petition for rulemaking, they can be combined into a single consultation process, instead of having multiple proceedings. A good consultation paper alerts the public that a change may be imminent, sets the scope of the proceeding, and ensures a timely and cost effective rulemaking for both the public and the private sector. Even prior to the development of the consultation paper, there can be informal and preliminary consultations. OFTEL, in its formulation of the Ombudsman Consultation Paper, hosted and chaired a working group consisting of telecommunications providers and consumer groups to consider the feasibility of setting up the scheme. 16 Similarly, in the Interconnection and Related Competition Issues proceeding, upon receiving the consultation request from incumbent PCCW- HKT, OFTA wrote to all ten local fixed network operators to inform them of the intent to initiate the review and to invite them to raise additional issues related to interconnection so that they could be resolved efficiently in a single proceeding. After reviewing these responses, OFTA issued a formal consultation paper outlining specific issues and OFTA’s preliminary views on these issues. 17 16 Oftel (United Kingdom). Protecting Consumers by Promoting Competition: Oftel’s Conclusions. June 20, 2002. Accessed from www. oftel. gov. uk in 2002. 17 OFTA (Hong Kong). Implementation of the Full Liberalization of the Local Fixed Telecommunications Network Services Market from 1 January 2003. Consultation Paper and 22 22 Collecting input from the public. The goal in this stage is to gather all relevant information so that the regulator can make the most informed decision. After a consultation paper is released, interested parties can file comments by a specific deadline. Other than OFTA, the other three regulators all have a formal reply comment stage. The information gathering process, however, is not limited to comments and reply comments. During this period, for consultations involving complex issues, the regulator may also hold workshops and hearings (OFTEL and CRTC), request interrogatories (CRTC), and accept presentations of views (FCC) to obtain the broadest range of viewpoints, collect all relevant facts, and ensure the accuracy of the information. These documents supplement the comments and the reply comments and are incorporated as part of the public record for the final decision. Final decision. After the conclusion of the consultation period, the authority makes a final decision based on information collected during the comment and reply comment period and public policy factors. The regulator’s statement presents and justifies its conclusions on the issues identified in the consultation paper. It summarizes and responds to the comments, reply comments and other issues raised in the consultation process. If the parties do not agree with the decision, they can either appeal through the courts or appeal through the regulator by means of a petition for reconsideration. Canada is the only country with an appeals process through the federal cabinet. However, the cabinet usually pays deference to the CRTC. Implementation of the Full Liberalization of the Local Fixed Telecommunications Network Services Market from 1 January 2003Statement of the Telecommunications Authority, January 11, 2002. Accessed from www. ofta. gov. hk in 2002. 23 23 7. Ethics rules The degree to which there is a robust ethics regime is indicator of the relationship between the regulator and the public. An agency’s transparency and impartiality in decision making could be jeopardized if its employees are influenced by gifts from outside sources, financial and personal conflict of interest, post- employment prospects. In four economies studied, Canada, Hong Kong, United Kingdom, and the United States, all have guidelines concerning employee’s proper handling of these situations to ensure that the regulator’s decision making process is truly independent. Of the four countries in this survey, Canada is the only one that has a single centralized guideline for civil servants. Hong Kong, United States and the United Kingdom each has a guideline that functions as a general ethical framework. They also encourage departments and agencies to develop supplemental guidelines based on this framework to take into account their specific functions and circumstances. These departments and agencies are also responsible for carrying out and enforcing the rules. Depending on the situation, generally, there are four approaches to ensure the highest ethical standard: (1) avoidance of activity, (2) disclosure of activities, and (3) divestment or resignation from positions that pose conflicts, or (4) recusal from an area of the regulator’s work. 24 24 Table 7: Ethics rules A. Gifts B. Conflict of interest C. Post- employment Canada Decline, with exceptions Disclosure and disinvestment Restricted Hong Kong Decline, with exceptions Disclosure and voluntary disinvestment Admonition United Kingdom Decline, with exceptions Disclosure Restricted, approval process may be required United States Decline, with exceptions Disclosure and disinvestment Restricted Gifts. The acceptance of gifts that give rise to impropriety or appearance of impropriety is prohibited in all four countries. In addition to state ethics guidelines, many countries also have criminal codes on bribery. The purpose is to prevent outside sources from influencing the independent judgment of a state official to the benefit of the gift giver. There are, however, exceptions. In the CRTC, employees may accept gifts of incidental value, and customary hospitality that do not give rise to appearance of conflict of interest or compromise the integrity of the state. In Hong Kong’s OFTA, employees may accept gifts from a close relative or on occasions such as their wedding anniversary, where it is the customary tradition to give gifts. At the FCC, gifts are allowed where the value of the gift is US$ 20 or less in each instance, and cumulatively less than US$ 50 in a year, or in some cases where gifts are given because of a preexisting, close, personal relationship. In many instances, there is oversight of what gifts may be received. In Canada, in circumstance where it is impossible to decline the gift, the employee must report it to the 25 25 supervisor immediately. 18 In OFTA, other than in excepted circumstances, employees must obtain special permission to accept gifts. 19 In Oftel, under certain circumstances, the employee is required to report offers of gifts, hospitality, awards, decorations and other benefits before accepting them. 20 Conflict of Interest. Conflict of interest is defined broadly to include pecuniary, personal affiliations, and family. They commonly include the employee’s participation in proceedings that involve close associates or family members, and the employee’s stockholdings in companies that have dealings with the agency or companies that the employee has gained confidential information through official capacities. The disclosure of financial and personal interests in categories that could give rise to conflict and the divestment of these interests if there is or appears to be a conflict are mandatory in all four economies with the exception of Hong Kong. Although OFTA requires mandatory disclosure of direct telecommunications investments, the divestment of these investments, however, is voluntary. These provisions aim to prevent personal or financial interests from influencing the independent judgment of a state official. Post- Employment. As with provisions concerning gifts and conflict of interest, post- employment guidelines aim to maintain the independence of a state official’s decision making process. They prevent any suspicion that the officer might be influenced by the hope or expectation of future employment with outside firms and the risk that a particular firm might gain an improper advantage over its competitors by employing someone who had access to information on the competitor through official capacities. 18 Canada. Conflict of Interest and Post Employment, Appendix A, Part II. 19 Hong Kong. Civil Service Branch Circular No. 17/ 92. 20 United Kingdom. Civil Service Management Code, 4.1.3. 26 26 Employees are encouraged to take precautions to avoid and mitigate situations where a potential conflict or appearance of impropriety might arise. For example, if an employee is unsure about the appropriateness of a gift, he should either decline or if that is not possible, accept the gift and report it immediately to his supervisor. Employees, especially senior officials, are typically required to provide written reports disclosing financial and personal interests, and in cases of possible outside appointment, a written application to obtain permission within one or two years after leaving office. If a conflict is identified, however, the employee is required to divest the interest or recuse herself from the particular matter. 8. Conclusions This paper began with a discussion of the tension between commitment and flexibility that all states face in creating and implementing communications policy and rules. Policy was used to describe the major objectives a state reached by brokering the interests of various political groups. Once major agreement is reached on policy, rules are needed for the state to implement the policy. The institutions which are responsible for developing these rules were the subject of this paper. Given that the effectiveness of the regulatory institution depends largely on its independence – its ability to render similar decisions for similar cases, unlike in political discussions – what indicators can be used to characterize a regulatory regime as independent? In the main, these indicators reflect the regulatory institution’s relationships with three other groups: other state institutions, industry, and consumers. 27 28 Table 8: Summary of indicators from 18 country survey A. Independent Leader B. License issued by regulator only C. Independent Funding D. Private Incumbent Telco E. Little mov’t of staff between regulator and industry F. Consumer office G. Universal service office Australia X X X X Brazil X X X X X X Canada X X X X Hong Kong X X X X Hungary X X X X India X X X Italy X X Japan X Jordan X X Korea X X X Malaysia X X X New Zealand * 21 X Nigeria X X X X Singapore Spain X X X Sri Lanka X X X X Sweden X X X X United States X X X X X In addition to these indicators, there are system processes that regulators can use to mediate all of its relationships with other state institutions, industry, and consumers. This paper covered two: decision- making processes and ethics rules. In several, well-established, independent regulators, there are common elements in decision- making and ethics rules which help manage their relationships with interest groups in a transparent 29 29 manner. In decision- making, they had in common a three- step process which involved public notice of rule changes; opportunity for all parties to provide written, public comments; followed by a public decision that includes the reasoning of the regulator. In ethics rules, they had in common rules about gifts, conflicts of interest, and post-employment that require the regulatory employees to avoid certain activities, disclose other activities, divest or resign from positions that presented conflicts, or quarantine themselves from certain areas of regulatory work. In no instance did any single regulator adopt the most independent option for all of the traits that were examined in this paper. However, nine of the countries have regulator( s) which used most of the tools outlined in this paper: Australia, Brazil, Canada, Hong Kong, Hungary, Nigeria, Sri Lanka, Sweden, and the United States. Among the eighteen countries in the first survey, most had regulators with the sole authority to issue wireline licenses and offices that represented consumer interests. At least half had independent leadership and independent funding. In democratic systems especially, demand for independent regulatory decisions must always be balanced against accountability of all institutions to the public. Which traits of independence are suitable for any one regulator to adopt will vary, depending on the state’s institutional endowments and political culture. However, some combination of these traits is likely essential in establishing a regulatory institution perceived by all interested parties as independent. Finally, while any number of mechanisms can be constructed to aid in establishing a regulatory regime’s independence, in the end it is the perception of the public that matters the most. Such approaches have been taken to 21 No licenses are required in New Zealand. 30 30 assess corruption, for example. 22 While this paper presents techniques that governments can use to strengthen their regulatory regimes, other studies which measure the opinion of the public – other state institutions, industry, and consumers – would be useful to measure the effectiveness of these techniques. 22 Daniel Kaufmann and Aart Kray. “Growth Without Governance.” Washington, D. C.: World Bank Working Paper No. 2928. November 19, 2002. 31 31 Appendix: The Surveys Two sets of surveys were used: an eighteen- country market survey on the organization of the regulatory institutions in June 2003 and a four- country study of decision- making procedures and ethics rules in August 2002. The four- country study by the author and Cathleen Hsu is available on the FCC website. Data were collected directly from regulators. Further information was collected in correspondence, materials, and interviews with officials from the Canadian Radio- Television Commission, Hong Kong’s Office of the Telecommunications Authority, the United Kingdom’s Office of Telecommunications, and our own organization the United States Federal Communications Commission. In the eighteen- market survey of regulators there was a special effort to collect information from developing countries with smaller populations, as information on larger markets is often available already. Of the eighteen countries in the survey, six had populations of less than 10 million, nine had populations of less than 20 million. Of the eighteen, seven had per capita income of less than US$ 10,000 per year. Nigeria, India, and Sri Lanka, have fewer than 20 telephones (wireline and wireless) per 100 people. Jordan, Brazil, and Malaysia, have fewer than 60 telephones per 100 people. All other countries have at least one phone per person; the highest, Sweden has 1.6 phones per person. Five countries had 20 television sets per 100 people or less. The two highest countries, the United States and Sweden, had more than 80 television sets per 100 people. Where markets have separate regulators for telecommunications and broadcast, efforts were made to include both, although not in all cases were responses received. 32 32 These eighteen markets were chosen because the FCC currently has good working relationships with the regulators and because they have recently seen significant improvement in their communications network development. Future research on differently derived sets of countries will show whether this selection criteria introduces distortions that affect the paper’s conclusions. A copy of the questionnaire for the 18 country survey and a list of which institutions responded follows. 33 33 Organizing an Effective Regulatory Regime for the Communications Industry The FCC International Bureau’s analysis office is undertaking a study of institutions responsible for telecommunications and broadcasting regulation. The results of the study will be compiled, analyzed and offered as a reference to regulators and others who seek technical assistance from the FCC. We believe your regime is a good example of an effective regulatory regime, and would appreciate learning some details about your organization and how it works. Questions: organizational issues 1. How many officials are in your organization? 2. Can you provide an organizational chart, indicating how many staff are in each unit? 3. What percentage of the staff come each profession - i. e., engineers, economists, attorneys, accountants, etc? 4. In the course of an individual career, is it common for someone to serve as an official and then move to work in industry, or vice versa? 5. In the course of an individual career, is it common for someone to move from one government organization to another? 6. Are there procedures for recruitment of personnel, or examinations to admit officials into the government? 7. How is your organization funded? 8. How is the head of your organization selected? How long may the head serve in the office, and are there other conditions to the office? What would cause the head of the organization to leave? 9. With which other organizations in the government do you work closely, and what is your organization’s relationship to them? Questions: telecommunications What offices are involved: 1. When issuing a new wireline license? 2. When issuing a new wireless license? 3. If there is a dispute between operators over interconnection? 4. If a wireless operator has a complaint about interference? 5. If the consumers prices for local or long distance are going to change? 6. If a consumer has a complaint about an operator? 7. In organizing and implementing a universal access plan, if any? 8. In enforcing rules, issuing fines, and other judgments? Questions - broadcasting 1. Which offices are involved: 2. When issuing a new cable television, satellite TV, or terrestrial TV or radio license? 3. When disputes arise between broadcasters and program providers? 4. When a viewer has complaints about a program? 5. When deciding which programs a broadcaster is required to carry? Questions - Internet 1. Which offices are involved: 2. When issuing a license, if a license is required? 3. When a consumer has a complaint about an Internet service provider? 4. If there are disputes between Internet service providers? 34 34 Communications Regulatory Organizations (Survey responses from italicized organizations) Country Telecommunications Broadcast Internet Australia Australian Communications Authority (ACA), Australian Consumer and Competition Commission Australian Broadcast Authority (ABA) ACA, Australian Consumer and Competition Commission Brazil Agência Nacional de Telecomunicações (ANATEL) Anatel Canada Canadian Radio Telecommunications Commission (CRTC) CRTC CRTC Hong Kong Office of the Telecommunications Authority (OFTA) Broadcast Authority, Television and Entertainment Licensing Authority OFTA Hungary Hírközlési Felügyelet (HIF) National Radio and Television Committee (ORTT) Ministry of Informatics and Communications (MIC) India Telecommunications Regulatory Authority of India (TRAI), Department of Telecommunications Ministry of Information and Broadcasting Department of Telecommunications, Ministry of Communications and Information Technology Italy Autorità per le Garanzie nelle Comunicazioni (AGCOM) AGCOM AGCOM Japan Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT) MPHPT MPHPT Jordan Telecommunications Regulatory Commission (TRC) Information and Media Commission TRC Korea Ministry of Information and Communications (MIC) Korea Broadcast Commission (KBC) MIC Malaysia Malaysia Communications and Multimedia Commission (MCMC) MCMC MCMC New Zealand Commerce Commission (CC) Broadcasting Standards Authority Nigeria Nigerian Communications Commission (NCC) NCC Singapore Infocomm Development Agency (IDA) Media Development Authority (MDA) IDA Spain Comisión del Mercado de las Telecomunicaciones (CMT) Ministry of Science and Technology, CMT Sri Lanka Telecom Regulatory Commission (TRC), Ministry of Mass Communications Ministry of Mass Communications TRC Sweden Post and Telestyrelsen (PTS) Swedish Broadcast Commission (SBC) PTS United States Federal Communications Commission (FCC) FCC FCC 35 35 Notes of appreciation For the eighteen- country survey, the staff of the Regional and Industry Analysis Branch who were integral to its success. Patrick Boateng and Bob Somers offered early ideas and inspiration. Patrick, Richard Nunno, Emily Talaga, Alan Thomas, and especially Anita Dey reached out to their colleagues all over the world and engaged them in the surveys. Sean Savage made sense of the data that came in. Thanks also to Don Abelson, Patricia Cooper, Kathryn O’Brien, John Giusti, Doug Webbink and Tracey Weisler and the rest of the staff for their comments, discussion and support. For the four- country study of decision- making and ethics rules, a variety of foreign officials were generous with their time and information. From Canada, Helene Cholette- Lacasse, Industry Canada; Valerie Dionne, CRTC; Douglas Heath, Canadian Embassy, Washington, DC; William Howard, CRTC; Allan Rosenzveig, CRTC. From Hong Kong, M. H. Au, OFTA. From the United Kingdom, Vincent Affleck, Oftel; Geoff Delamere, Oftel; and Simon Towler, British Embassy, Washington, DC. Also, throughout, Xia Mei of the FCC library was gracious and prompt in her assistance. However, if despite the guidance and suggestions of all these people there are still errors and misjudgments in the paper, I am responsible for them. 36