Palestine - reform and liberalisation

Introducing Competition in the Palestinian Telecommunications Sector
see also Full Report

The recently published World Bank Telecommunications Sector Report, entitled “Introducing Competition in the Palestinian Telecommunications Sector,” highlights key issues in the Palestinian telecommunications sector, and suggests possible recommendations for policy and regulatory reform. The report was prepared in close consultation and cooperation with all stakeholders, taking into account disparate points of view. Its recommendations are in line with visions and policy directions of the Palestinian Authority, with the goal of benefiting Palestinian people by reducing prices and improving quality and reliability of services. The report endorses and supports Palestine's own policy of introduction of competition, as formulated by MTIT. The policies of favoring competition in this industry have proven effective across the world, including in post war, distressed and low income environments.

The Palestinian telecommunications sector is characterized by the presence of a private regulated monopoly, unauthorized competition, and overall weak governance and regulation. Increasing competition and efficiency in the telecommunications sector will have far reaching effects throughout on the Palestinian economy. It will reduce the cost of doing business in all sectors and help raise government tax revenues. In addition, by developing the capacity to regulate the largest monopoly in WBG and spur competition in the telecommunications market, the PA will develop its ability to provide a better regulatory environment for the entire economy.

The sector legal framework is defined by Telecommunications Law 3/1996 and by regulatory provisions under the Oslo Agreement. The agreement affects the interim relationship between Israeli and Palestinian companies, attributing rights and obligations to Palestinian and Israeli operators in the territory of the West Bank and Gaza, and defining the role of the Palestinian government in the sector. The PalTel group, which includes companies in all main sectors of the telecommunications and information technology (IT) market, is the dominant operator. Unauthorized competition exists in the mobile market, where Israeli operators, authorized under the Oslo Agreement to offer services to the settlers, cover a large part of the territory of the West Bank. PalTel’s market dominance, and the problems related to unauthorized competition, could be mitigated by the entry of a second mobile operator. The Ministry of Information Technologies and Telecommunications (MTIT) has awarded a mobile license to Wataniya. There is in principal an agreement at Ministerial level on the release of the frequencies for Wataniya. However at the time of this note’s publication they have not yet been released. The entry of competitive mobile and data operators would strengthen considerably the market and improve its key indicators. The data market segment is also characterized by a combination market dominance and unauthorized competition, but MTIT is in the process of awarding data licenses. Overall regulatory capacity is weak, governance and accounting standards have room for improvement.

The complex nature of the regulatory relationship between the PA and GOI has given rise to several areas of concern. In addition to the unauthorized competition in mobile and data, the Palestinian Authority (PA) raises the following main issues: (a) Palestinian operators are compelled to route international communications through a licensed Israeli operator; which increases costs (b) the lack of a direct long-distance connection linking the West Bank with the Gaza strip; and (c) difficulties in obtaining permits from the Israeli authorities to build infrastructure in large parts of the country. The note illustrates the different viewpoints on these contentious issues, assesses the actual nature of the constraints, and offers possible solutions.

In terms of policy recommendations, the following five actions are recommended:

(a) Introduce full competition through Israel speeding the release of the frequencies for the second licensed mobile operator and allocating frequencies for new wireless operators and MTIT tackling Paltel’s monopoly position. Internationally, full competition has been proven to be the best policy to stimulate market growth and reduce prices. This is also the case in low-income and highly distressed (civil war, post conflict) environments. To enable effective competition, the following measures are crucial:

(i) Enabling effective competition in the mobile sector, by Israel releasing frequencies for Wataniya
(ii) Implementing the policy announced by MTIT to introduce competition in the data sector by issuing new competitive licenses.
(iii) Regulating and monitoring anticompetitive behavior and the concentration of monopoly power in PalTel;
(iv) Addressing and agreeing on distribution of frequencies crucial for the attribution of wireless data licenses (e.g., Wi-Max).

(b) Promote technical cooperation between Israeli and Palestinian technical teams, to mitigate the existing issues. The existing conflict hurt the work of the Joint Technical Committee (JTC) and the implementation of the provisions under the telecommunications sections of the Oslo Agreement. The structured negotiations mechanism of the JTC (which deals with mutual coordination of frequencies use, interference problems, diverse international issues, and other sensitive subjects of mutual importance), should be supported and encouraged. Issues include allowing Palestinian telecommunications firms smoothly import equipment and emplace necessary infrastructure in all areas in the West Bank & Gaza, including Area C. Given the demographics and the geography of the area covered, it is practically difficult to create hard boundaries to prevent complete access to the Palestinian market by Israel operators not licensed by MTIT. While operators not licensed by MTIT should refrain from marketing directly their services in the Palestinian territories, nevertheless, it is recommended to pursue market-based practical arrangements to ensure a fair and level playing field among all operators in the West Bank and Gaza territory, such as revenue sharing arrangements with the licensed operators to formalize any spill-over entry and compensate for paid license fees.

(c) Strengthen MTIT’s institutional, regulatory and enforcement capacity and create a regulatory unit within MTIT, which will be transferred to an independent telecommunications regulatory authority at a future date. New regulations are under preparation and MTIT has published draft interconnection guidelines. MTIT is working on a new telecommunications law which aims to introduce a telecommunications regulatory authority. MTIT is exploring ways to create a regulatory unit within the MTIT to regulate the sector as needed until the telecommunications regulatory authority is established. Serious capacity building is needed for establishing and operating such a unit. MTIT needs additional resources to tackle the regulatory priorities that any ministry faces during the introduction of competition, including other aspects of interconnection regulation (e.g., dispute resolution; interconnection costing); enforcement; licensing; spectrum management and monitoring; number portability. There is also a need to train regulatory experts. A top priority is the introduction of a body of competition law and regulation, and the presence of regulatory tools to monitor and sanction anticompetitive behavior.

(d) Improve tax collection and governance. Effective competition between telecommunications operators can provide strong and reliable short-term and long-term fiscal gains. A more transparent system for generating and collecting tax revenues is needed. Improvements in tax collection, as well as an agreement on how to tax the revenues generated by Israeli operators serving Arab customers in the West Bank, is desirable.

(e) Increase the overall transparency and improve the governance of the sector. This includes: determining the exact legal status of the various subsidiaries of PalTel group; clarifying the priority between rights under the licenses and government guidelines and implementing industrial cost accounting.