6Th Ph.D Seminar of the International Telecommunications Society

6TH PH.D SEMINAR OF THE INTERNATIONAL TELECOMMUNICATIONS SOCIETY

IMINDS OFFICES

VRIJE UNIVERSITEIT BRUSSEL,

PLEINLAAN 9, 2ND FLOOR

TITLE: REGIONALIZING REFORM OF TELECOMMUNICATION SECTOR REGULATION IN THE EAST AFRICAN COMMUNITY (EAC): LESSONS FROM THE EXPERIENCE OF THE EUROPEAN UNION (EU)

SUBMITTED BY:

JOSEPH KARIUKI NYAGA (PHD CANDIDATE)

FACULTY OF LAW - KU LEUVEN

(Email: )

INTERDISCIPLINARY CENTRE FOR LAW & ICT (ICRI) -

IMINDS

SINT-MICHIELSSTRAAT 6, 3000 LEUVEN (BELGIUM)

PROMOTORS:

PROF. DR. PEGGY VALCKE AND PROF. DR. JOS DUMORTIER

TABLE OF CONTENT:

INTRODUCTION……………………………………………………………3

1.1. Principal research question:……………….…………………………5

1.2. Hypothesis:……………………………..………………………………5

1.3. Policy relevance:……………………………………...………………..5

LEGAL AND INSTITUTIONAL FRAMEWORK OF THE EAC………6
ICT developments in the EAC……………………………………….9

ASSESSMENT OF THE EAC TELECOMMUNICATION POLICIES, REGULATORY AND INSTITUTIONAL FRAMEWORKS…………..10

3.1. Divergences in telecommunications policy frameworks……….11

3.2. Divergences in institutional arrangement………………………..13

3.3. Divergences in regulatory frameworks…………………………...14

3.4. Convergence of the ICT sector in the EAC……………………….15

3.5. Implication of the inconsistencies to regulation…………………17

THE EXPERIENCE OF THE EUROPEAN UNION (EU)………………18

4.1. Motivation of the EU as a case study………………………………18

4.2. The EU’s electronic communications regulatory framework (ECRF)………………………………………………………………….20

4.3. Lessons from the experience of the EU……………………………23

RECOMMENDATIONS…………………………………………………..27

5.1. Regionalizing EAC regulatory framework……………………….27

5.2. Harmonization of Regulatory Frameworks in EAC……………..28

CONCLUSION……………………………………………………………..32

ABSTRACT

In the East African community (EAC), there has been an increasing recognition that significant welfare gains could be realized through deep forms of regional integration which entail harmonization of legal, regulatory and institutional frameworks for the telecommunication sector. Implementation of the EAC common market and rapid technological progress especially in mobile wireless technology, have made greater coordination and harmonization of telecommunications policy more attractive. Moreover, the EAC consists of less wealthy nations and therefore an interest in regionalization is essential as a means to pool regulatory resources. This paper assesses the potential gains from regionalized telecommunications policy in the EAC. The paper seeks to assist stakeholders in the EAC and Member States in designing an effective regional regulatory process. To this end, the paper: (i) discusses how EAC regional cooperation can overcome national limits in technical expertise, enhance the capacity of Member States to commit to stable regulatory policy in the EAC and ultimately facilitate infrastructure investment in the region; (ii) identifies trade-distorting regulations that inhibit opportunities for regional telecommunication development and so are good candidates for regional negotiations that reduce indirect market entry barriers; (iii) discusses the EU’s ongoing reforms towards a single market for electronic communication for a connected continent as a case study that the EAC can draw lessons from and there after describes substantive elements of a harmonized regional regulatory policy that can deliver performance benefits.

Keywords: Telecom reforms, legislation, regulation, regional, East African Community.

INTRODUCTION

The EAC has a common market in place since 2010, therefore, relevant market areas of the telecommunications industry transcend national borders, and little regulation in this sector has purely domestic effects. EAC Member States currently deal with telecommunications policy as a domestic concern, each with its own distinct and dissimilar policy and regulatory regimes. Establishment of EAC common market and rapid technological progress, especially in mobile wireless technology, have made greater coordination and harmonization of telecommunications policy more attractive.

Moreover, the EAC consist of less wealthy Member States and are therefore interested in regionalization as a means to pool regulatory resources.

The case for regionalization of telecommunication reforms in the EAC is hence based on three reasons:

First, as telecommunication liberalization has reduced the role of tariffs and quotas in affecting the ability of a service provider to compete in regional markets, inefficiencies in infrastructure industries are more likely to determine the regional competitiveness of domestic industries. Specifically, inefficient domestic infrastructure can cause otherwise efficient national firms to lose both domestic and regional market share to firms from countries with better infrastructure.

Second, domestic infrastructure policies can create substantial indirect market entry barriers. For example, a highly inefficient telecommunication sector can effectively protect inefficient domestic service providers from competition from superior regional service providers by increasing the advantage of close proximity between service providers and consumers.

Third, both economic integration and technological progress have caused the natural market areas of infrastructure industries to expand, frequently transcending national borders. Telecommunications sector operate more efficiently if its networks are organized according to the patterns of transactions, and liberalization. This has made these patterns increasingly international. Moreover, adjacent networks frequently minimize costs by sharing capacities to take advantage of differences in the time-patterns of usage of infrastructure services during the day and year. Thus, regulation in these sectors rarely has purely domestic effects, and when it does, the reason often is that Member States within the EAC region are taking advantage of opportunities for integrating their networks.

Although infrastructure reform programs in the EAC differ among the Member States, most are based on creating market institutions and some degree of competition. The purpose of these reforms is to generate more powerful financial incentives for service providers to improve the performance of the sector. The needed regional reforms should have three common elements:

(1) Corporatizing and usually privatizing incumbent operators; (2) permitting and even encouraging competition in the markets that are still protected monopolies; and (3) creating a regional regulatory body that is independent from the incumbent operators.

Regionalization of at least some elements of reform is attractive because it contributes to the efficiency goals of policy reform while sidestepping some of the political obstacles to effective reform. Infrastructure reform, when implemented in each Member State independently, can become bogged down in a quest for national advantage that undermines development and continued regional integration for the EAC.

The EU’s ongoing reform of electronic communication regulation for a single market for a connected continent provides a solid background lessons for the ongoing research on the future regulatory models for the EAC. This paper therefore assesses the potential gains from regionalized telecommunications policy in the EAC. The paper seeks to assist stakeholders in the EAC and Member States in designing an effective regional regulatory process. To this end, the paper: (i) discusses how EAC regional cooperation can overcome national limits in technical expertise, enhance the capacity of Member States to commit to stable regulatory policy in the EAC and ultimately facilitate infrastructure investment in the region; (ii) identifies trade-distorting regulations that inhibit opportunities for regional telecommunication development and so are good candidates for regional negotiations that reduce indirect market entry barriers; (iii) discusses the EU’s ongoing regulatory reforms towards a single market for electronic communication for a connected continent as a case study that the EAC can draw lessons from and there after describes substantive elements of a harmonized regional regulatory policy that can deliver performance benefits.

1.1. Principal research question:

What is the most suitable regional response to regulation of telecommunication sector in the East African Community (EAC) and what lessons can the EAC draw from the experience of the European Union’s (EU) ongoing reform towards a single market for Information Society?

1.2. Hypothesis:

With the EAC’s common market in place since 2010, a corresponding common or regionalized legislative and regulatory framework at the EAC level for telecommunication sector would be a suitable vehicle to achieve regulatory harmonization and minimize the distortions that arise from divergences in the Member States distinct and dissimilar regulatory policies.

1.3. Policy relevance:

The critical assessment of regional telecommunication regulation aims to provide background for current discussions about the future of regulatory policy model in the EAC. In particular, it provides a discussion of the EU experience in its ongoing regulatory reform towards a single market for a connected continent. This experience provides ideas and insights that could inform policy makers in their discussions about the EAC approach.

1.4. Methodology/approach:

This paper is prepared through desktop research. This included searches through academic and third-party databases, regulators and government websites, and ITU and OECD websites. The paper provides an assessment of the current legislative and regulatory framework in each of the EAC Member States in order to demonstrate the visible divergences there in. These include Member State national laws, regulations, bills and policy documents relating to telecommunication sector. A discussion of the experience of the EU’s ongoing reform towards a single EU market for Information Society is presented as an example of a similar integrated region that the EAC can draw lessons from.

LEGAL AND INSTITUTIONAL FRAMEWORK OF THE EAC

The East African Community (EAC)[1] is the regional intergovernmental organisation of the Republics of Kenya, Uganda, the United Republic of Tanzania, Republic of Burundi and Republic of Rwanda (Member States) with its headquarters in Arusha, Tanzania.

The principal source of EAC law is the Treaty for the Establishment of the East African Community (the “Treaty”).[2] The Treaty was signed on 30th November 1999 and entered into force on 7th July 2000 following its ratification by the Original three Partner States – Kenya, Uganda and Tanzania. The Republic of Rwanda and the Republic of Burundi acceded to the EAC Treaty on 18th June 2007 and became full Members of the Community with effect from 1st July 2007.

According to the Treaty, the main objective of the EAC is to widen and deepen the integration process. Article 5(2)[3] of the Treaty establishes the objectives to be the formation and subsequent evolution of a Customs Union, a Common Market, a Monetary Union and finally a Political Federation, under the overarching aim of equitable development and economic growth amongst the Member countries.

The entry point of the integration process is the Customs Union. It has been progressively implemented since 2004; in January 2010 the EAC became a full-fledged Customs Union. One critical aspect of the implementation has been the establishment of an interconnected ICT solution for a regional customs system.[4]

The EAC Common Market Protocol[5] entered into force in July 2010, providing for the following freedoms and rights to be progressively implemented: free movement of goods, persons, labour, services and capital; as well as a right of establishment and residency. The Community has since then commenced negotiations for the establishment of the East African Monetary Union. The negotiations for the East African Monetary Union, which commenced in 2011, and fast tracking the process towards East African Federation all underscore the serious determination of the East African leadership and citizens to construct a powerful and sustainable East African economic and political bloc. The ultimate objective, to establish an East African Political Federation, is targeted for 2016.[6]

The structure of the EAC promotes decision-making through consensus. Each State has the authority to veto details of regulations formed under the Treaty. Once consensus is reached and regulations passed, they are binding on all Partner States. Each State may still, however, achieve regulatory goals through its own individual domestic policies.

The Treaty obliges the Partner States to plan and direct their policies and resources with a view to creating conditions favourable to regional economic development[7] and through their appropriate national institutions to take necessary steps to harmonize all their national laws appertaining to the Community.[8]

Harmonization is one of the key concepts espoused by EAC. With particular respect to the integration of laws, Article 126[9] of the Treaty and Article 47[10] of the Common Market Protocol both call for the harmonization of national legal frameworks.[11]

It should be emphasized that two different law systems are applied among the participating countries: Kenya, The United Republic of Tanzania, and Uganda follow a common law system, while Burundi and Rwanda both subscribe to a predominantly civil law system.[12] This has led to somewhat divergent legislative practices and procedures between the groups of countries, and may have contributed to slowing down the process of harmonization efforts in the region.

The EAC has institutional frameworks at the Community level that includes the following:

1. Summit which consists of the Assembly of Heads of State and Government whose function is to provide overall strategy and political direction.

2. The Council consisting of the Ministers responsible for regional co-operation of each Partner State whose function is to Coordinate and formulate policies.

3. The East African Court of Justice tasked to ensure adherence to law in the interpretation and application of and compliance with the EAC Treaty. The Court has jurisdiction over the interpretation and application of the Treaty and may have other original, appellate, human rights or other jurisdiction upon conclusion of a protocol to realize such extended jurisdiction.

4. The East African Legislative Assembly tasked with the Community legislative powers, any legislative decision by the assembly which is gazetted by Summit will supersede and take precedence over any other related national law.

5. The Secretariat headed by an appointed Secretary General.[13]

The EAC’s aspiration and goal is to use regional integration to promote peace, stimulate economic growth, achieve solidarity for its peoples, and strengthen its international profile/stature. The EAC is using regional integration as a vehicle for promoting peace, in order to enhance the prospects for positive economic results. In short, the EAC is focussed on making the East Africa’s economies more mutually interdependent among its constituent Member States. To this end, the EAC’s aims and objectives include the following:

- establishing a Customs Union, a Common Market,

- subsequently a Monetary Union and ultimately a Political Federation in order to strengthen and regulate the industrial, commercial, infrastructural, cultural, social, and political and other relations of the Partner States.

- Accelerated, harmonious and balanced development and sustained expansion of economic activities, the benefit of which is equitably shared.[14]

Against this background, creation of an enabling legal and regulatory environment has been identified as a critical factor for the effective implementation of e-government and e-commerce strategies at national and regional levels. To achieve operational efficiency of such strategies, strong back up support is needed in terms of legislation and regulation.

In view of the foregoing, policies and regulatory frameworks of most sectors have been aligned to this objective. Those that have harmonised policies and regulatory frameworks include fisheries, transport, higher education and finance. They have regulatory frameworks and institutions at the EAC level unlike the telecommunication sector.[15]

2.1. ICT developments in the EAC

There are two key areas that have been particularly important for the economic and regulatory environments; they include the improved fibre-optic links between the region and the rest of the world and the expansion of mobile telephony and related services, notably mobile money.[16] In July 2009, the first under-sea fibre optic cable network, SEACOM,[17] reached Kenya, the United Republic of Tanzania and Uganda. It was soon thereafter connected with Rwanda.[18] This marked the beginning of an era of radically faster and cheaper Internet use in the EAC.

In 2010, the second submarine fibre optic cable system, EASSy became operational along the East and South African coasts to service voice, data, video and Internet needs of the region.[19] It links South Africa with Sudan, with landing points in Mozambique, Madagascar, the Comoros, the United Republic of Tanzania, Kenya, Somalia, and the Republic of Djibouti. This made it more economical to connect the eastern and southern coast of Africa with high-speed global telecommunications network. Average mobile penetration in the EAC had reached 40 subscriptions per 100 inhabitants in 2010, with the highest level noted in Kenya (61) and the lowest in Burundi (14)[20]

ASSESSMENT OF THE EAC TELECOMMUNICATION POLICIES, REGULATORY AND INSTITUTIONAL FRAMEWORKS

One of the corner stones of the EAC’s integration process has been to create a single market, where the trade is free across the EAC and based on the theory of comparative advantages. Harmonization of national telecommunications regulatory frameworks in the EAC Member States to reflect the common EAC framework should be linked to this free trade thought. The harmonization of regulatory frameworks can be seen as a main mechanism to eliminate unfair differences in regulatory regimes, because its purpose is to reduce the differences in law and politics of the Member States jurisdictions. The following sub-sections discuss the current status quo with regard to telecommunication policies, legislative and regulatory settings in order to demonstrate the divergences existing thereof.

3.1. Divergences in telecommunications policy frameworks

The EAC Member States have in the past discussed plans for regional ICT policy harmonisation. However, the process of telecommunications policy harmonisation has been retarded due to a sentiment among Member states that a harmonised telecommunications policy framework would have favoured Kenya, the leading country in the region. Since telecommunications markets in the EAC were amongst the earliest in Africa to open to competition, and since the EAC markets have been historically integrated, the EAC Member States are still in the process of determining if and how a single regulation policy can be applied uniformly.[21]

Despite attempts by the EAC Member States to harmonise ICT policy and regulatory frameworks, there is still a high degree of heterogeneity among the Member States national ICT Policy and regulatory frameworks in terms of advancement in the harmonisation process. Some of the challenges facing the process of ICT policy and regulatory harmonisation include the following: