Newsletter
The new era of the telecom industry: discussing the opportunities and challenges after the Telecommunication Management Act passed
The current Telecommunications Act ("Old Law") was promulgated in 1958. Due to Taiwan’s accession to the WTO in the 1990s, the original regulatory framework was thoroughly reviewed and changed. A series of new mechanisms which were conducive to fair market competition were introduced, such as separate accounting systems for telecom operators, network interconnections, and special obligations for dominant market players. However, the reform of the regulatory framework became relatively slow after 2002, and many out-of-date restrictions still existed (for example, various communication software may, without approval, provide the same voice or video services like telecom operators could provide before). In order to encourage market entry, to promote innovative services and to ensure fair competition, the Legislative Yuan passed the Telecommunications Management Act ("New Law") on May 31, 2019. The New Law does not require telecom operators to apply for registration and adopts a "behavioral management" model instead. Nevertheless, it is worth noting that the Old Law will remain in effect for three years after the New Law take effect. Therefore, this article analyzes the differences between the New Law and the Old Law so that telecom operators may make their own decision on whether to register under the New Law or not.
1. The definition of telecommunications services and voluntary registration
Under the Old Law, telecommunications services mean the communications services provided via telecommunications facilities. However, there was no further definition of what communication services are. In practice, the competent authority, the National Communication Commission (NCC), divided services into communications services and information services based on whether business operators were involved in a "public telecommunications network". The New Law clearly provides that telecommunications services mean the public communications services provided via a public telecommunications network. That is to say, the definition of communications services under the New Law is clear. Unless business operators provide services via a public telecommunications network, they will not be deemed a telecommunications service. Hence, the issue as to whether a communications software would be regarded as a telecommunications service has been solved.
Under the Old Law, both Type I and Type II telecommunications businesses are required to be registered as operators. Compared to the Old Law, the New Law adopts a voluntary registration system instead. Under the New Law, except for the services of radio spectrums and telecommunications numbers which are still required to be registered, other telecom service providers may spontaneously choose to register as operators, even if the services provided are classified as telecommunications services. For those telecom operators that have not registered, they may still provide telecom services to consumers but may not be entitled to certain rights or resources under the New Law, e.g., negotiating with other telecom operators for interconnection or filing an application with the NCC for adjudication (Article 5 of the New Law).
In practice, the service providers that have obtained Type I telecommunications licenses are mostly involved in services such as radio frequencies, telecommunication numbers or setting up public telecommunication networks which are exactly those services required to be registered under both the New Law and the Old Law. Therefore, the impact of voluntary registration on these service providers would not be enormous. In the meantime, for current Type II service providers, certain service providers which are not involved in the service of public communications network or telecommunication numbers (e.g. company’s internal network service or voice service) may consider not registering as an operator.
However, there are still some uncertain issues with the New Law. The New Law states, "considering the characteristics of interconnection in the network, all free public network provided by the government will be regarded as public communications network because it substantively provides communications services." Based on such description, does it mean that internet service providers or other general businesses (such as restaurants) whose provision of free wireless internet access is not its main business will be deemed a public communication network and must therefore register as an operator, even though "they did not set or build the network from the established telecommunications network in its own name"? These uncertain issues need to be further discussed.
2. Investment, transmission, merger and consolidation of telecom operators
Article 26 of the New Law provides that if any telecom operator encounters any of the following situations, while transferring all or any essential part of its business or assets, merging/consolidating with another telecom operator, or directly or indirectly investing in another telecom operator and the total number of the shares or total share equity of that operator exceeds the percentage set by the competent authority, it should apply for approval: (1) it has been allocated radio frequencies by the competent authority; or (2) it has more than one-fourth market share in a certain telecom service market. Moreover, if the result of the transfer or the merger/consolidation may lead to any telecom operator having more than one-fourth of the market share in a certain telecom service market, the telecom operator must apply for approval as well.
Compared to the New Law, the Old Law required a Type I telecom operator to apply for approval before transferring all or substantial part of its business or assets, or engaging in interlocking investment or merging with any other Type I telecom operator. The same rule applied when a Type II telecom operator merges/consolidates with other telecom operators or non-telecom operators (in this case, only when the surviving company is the non-telecom operator). Hence, for both Type I and Type II telecom operators, the criteria under the New Law for merging and consolidation may be considered stricter at times, depending on the type of investment.
3. Standards for recognition of dominant market player and significant market power
Under the Old Law, only a Type I telecom operator may be designated as a dominant market player by the NCC and thus have special obligations e.g. prohibited from rejecting any request for interconnection of networks by other operator and from improperly determining, maintaining, or changing its tariffs or methods of offering telecommunications services. The standards for recognition of a dominant market player include the following criteria: (1) control of critical and essential telecommunications infrastructure; (2) dominance over market prices; (3) a market share of over 25 percent of any given service, as measured by the number of users or the turnover.
Under the New Law, the NCC may adopt special control measures to require a telecom service provider that has a significant market power in a certain relevant market in relation to telecom services to take certain actions. The criteria for the recognition of having a significant market power include (1) a significant ability to influence market prices or service conditions; (2) the number of users or the turnover of the certain telecommunications service provided is higher than the amount specified by the competent authority; (3) owning or controlling essential facilities; (4) the number of connections, owned or controlled by the operator, to customer premise equipment exceeds the number specified by the competent authority.
As stated above, under the New Law, not only Type I telecom operators but also Type II telecom operators can be regarded as having a significant market power in a certain telecom service market. In addition, the criteria for recognition are more diversified than the rules prescribed under the Old Law, which means that the NCC will have more flexibility. Moreover, compared to the specific stipulation of the type of restricted behavior for dominant market players under the Old Law, the special control measures adopted under the New Law are more flexible. The New Law provides that, "the competent authority may request the operators with a significant market power in certain market" to do or not to do something. That is to say, the special control measures may be tailor-made for each telecom operator having a significant market power in different telecom markets.
4. Conclusion
Article 83 of the New Law provides that the Old Law will still apply to those telecom operators that have not applied for Type I or Type II registration within three years after the New Law takes effect. That is to say, currently, Type I and Type II telecom operators may, depending on their business needs, choose to register as a telecom operator under the New Law after it takes effect. Therefore, we recommend that every telecom operator further analyzes the New Law and decide whether they should comply with the New Law or not.