Overview (March 2001)

Market Liberalization

Following a long period of change, the Portuguese telecommunications market is now fully liberalized. On January 1 2000 the exclusive rights granted to Portugal Telecom (the incumbent operator) regarding the provision of fixed-voice telephony were abolished and several new operators have now been licensed to provide this service.

Telecommunications legislation was gradually adapted to conform to EU recommendations and directives in order to eliminate existing regulatory obstacles and to achieve full competition. However, until 1996 change was slow.

In other member states Directive 90/388/EEC initiated a fast process of liberalization of telecommunications services, equipment and networks. However, in Portugal only some services (eg, value-added and complementary telecommunications services) had been liberalized by 1991.

In 1994 and 1995 important legislative steps were taken, specifically the enactment of Decree-Law 198/94 dated July 21 1994. This allowed for the creation of an open network by the operators of telecommunications public services, within the field of leased lines. The decree-law required the incumbent operator, Portugal Telecom, to provide users (ie, consumers and other operators) with the necessary circuits for access to telecommunications services, under fair and equal conditions. Portugal Telecom was also partially privatized in 1995 by way of a public sale.

The telecommunications regulations began to be liberalized at the end of 1995. Thereafter, Decree-Law 119/96(1) and Decree-Law 120/96(2) extended the scope of general telecommunications-equipment principles to the earth-station equipment of satellite communications, and liberalized the provision of satellite telecommunications services. In addition, Ministerial Order 477/96 of September 10 1996 liberalized the provision of fixed private-voice services, allowing licensed operators to provide this service.

In 1997 the liberalization of the Portuguese telecommunications market experienced an important boost. Following a long negotiation period between the government and the European Commission, a time frame for liberalization was established, by a commission decision dated February 12 1997(3). The time frame was as follows:

• lifting of restrictions on the provision of already-liberalized telecommunications services on networks established by service providers by July 1 1997;
  
  
• lifting of restrictions on the direct interconnection of mobile telecommunications networks with foreign networks by January 1 1999; and
  
  
• abolition of the exclusive rights granted to Portugal Telecom in connection with the provision of voice telephony and establishment, and provision of public telecommunications networks, by January 1 2000.

Legal Framework

Legal authorities made considerable efforts to implement the necessary legislative and administrative instruments for full liberalization by January 1 2000. The following national measures were adopted to implement the major provisions and key principles of EC directives:

The Portuguese regulatory authority, the Communications Institute of Portugal (ICP), has also adopted significant measures to ensure full competition in the market, including:

• publication of the Reference Interconnection Offer for 2001;
  
  
• assignment of codes for carrier selection;
  
  
• granting of licences for fixed wireless access. As the new entrants have neither local infrastructures nor access to the local loop, this last measure was seen as relevant as it enhanced competition; and
• implementation of local loop unbundling.

Major Players

Portugal Telecom is now a private company in which the Portuguese state still holds approximately 1.11% of its shares, which means the state retains voting rights for management decisions. However, in September 2000 the Portuguese government adopted the legislation required to launch the last stage (fifth phase) of the full privatization of Portugal Telecom, involving the sale of its remaining participation in the company's share capital (with the exception of 500 shares which shall remain in state ownership).

To facilitate its operation in the liberalized market, Portugal Telecom Group has undergone a restructuring process, pursuant to which its subsidiaries have been reorganized and new companies have been incorporated (eg, PT Comunicações, PT Multimédia and PT Prime). The restructuring of Portugal Telecom Group was made effective by means of Decree-Law 219/2000 of September 9 2000. Under this act the newly incorporated PT Comunicações has become the concessionaire of the public fixed telephony service.

Until recently, the companies belonging to Portugal Telecom Group were the most important players in the telecommunications market. Portugal Telecom still holds the largest share in the fixed voice telephony market. However it is facing strong competition from the new entrants, and particularly from the new fixed voice telephony operators, which accounted for 10.4% of long-distance traffic and 15% of international traffic in the first half of 2000.

The principal new entrants providing fixed-voice services and public telecommunications networks are as follows:

• Oni (a company indirectly held by a consortium of three state-controlled utilities);
  
  
• Novis (held by Sonae, one of the biggest Portuguese economic groups);
  
  
• Jazztel (a Spanish telecommunications company); and
  
  
• Maxitel.

The Portuguese telecommunications services market represents some €4.8 billion. The contribution of the telecommunications sector to gross national product has been estimated at 4.5%.

Opportunities for New Entrants

The new legal framework has created many opportunities for new entrants. Subject to licensing and registration, new entrants are allowed to provide all telecommunications services and to explore network infrastructures. The only restriction concerns the provision of services involving the use of the electric spectrum, where the granting of a licence may only occur by means of a public tender.

Portugal Telecom is bound by various obligations to ease the way for new entrants. These include offering 'call-by-call' selection for long distance and international calls, providing interconnection and assuring a basic offer of leased lines.

Steps to unbundle access to the local loop have not yet been taken. Nonetheless, in 1999 and in order to foster competition in access to the final user, the ICP granted 11 fixed wireless access (FWA) - that is, three narrowband (voice) and eight broadband - licences to new entrants following a public tender, creating an alternative solution for local access. The Portuguese incumbent has not obtained any FWA licence in the context of the public tender. Further, there are no longer any restrictions on competition in the cable television market.

On July 10 2000 the Portuguese authorities launched a public consultation on competition in the access network with the aim of researching ways of promoting competition.

The ICP has not yet adopted technical specifications for local loop unbundling (LLU). On the one hand, the incumbent considers that LLU should be postponed until 2002 because, by providing full network access, it might discourage investment in infrastructure. On the other hand, new entrants have stated that the liberalization and opening up of the local loop to competition will occur by June 2001.

The dominant operator has carried out a number of asymmetric digital subscriber line (ADSL) trials since 1997 and recently announced a service offering. The internet initiative launched by Resolution 110/2000 of the Council of Ministers, dated August 22 2000, identifies the accelerated introduction of ADSL services as one of the priorities for the development of the information society. The ICP has indicated that Portugal Telecom's offering will be scrutinized carefully to ensure that full arrangements, such as collocation, are available to allow competitors to enter the market.

The entry of new operators (some of them are currently providing voice telephony services through direct access) in the fixed communications market from January 1 2000 has led to a fall in prices and to the availability of a diverse range of services. The average monthly residential bill for national calls has fallen by 16% since August 1999, and the average monthly business bill for the same calls by 27%. Meanwhile, the average price of an international call (residential and business) has fallen by 7%.

Following a public tender in which seven bids were submitted, the Portuguese government has granted four Universal Mobile Telecommunications System (UMTS) licences to the following companies:

• TMN (wholly owned by the Portuguese incumbent);
  
  
• Optimus (in which Sonae is the major shareholder, and ONI and Maxitel the minor shareholders);
  
  
• Oniway (a consortium incorporated by EDP, BCP, Telenor, Iberdrola, Brisa, Efacec, Impresa, Media Capital, Jerónimo Martins and Grapes); and
  
  
• Telecel (in which Vodafone is the major shareholder).

These licences were awarded for a period of 15 years and each licensee was required to pay a fee of approximately €100 million, which took into consideration the economic value of the spectrum granted.

Each licensee was awarded two 15 megahertz (MHz) twin bands in the 1920-1980 MHz and 2110-2170 MHz ranges, and a single 5 MHz band in the 1900-1920 MHz range.

The licence conditions include minimum coverage obligations intended to ensure that 20% of the national population is covered in the first year of the licence or at the date the operator begins its activity, whichever is the later. This figure must rise to 40% in the third year and 60% in the fifth year, although a more rapid roll-out is expected in practice.

The use of frequencies for third-generation mobile services is in accordance with the European Radiocommunications Committee decisions on frequency harmonization. The provision of these services will not be available before January 2002.

The convergence of telecommunications with multimedia services and information technology is being developed. Examples of this convergence are already in place (eg, pay-per-view and video-on-demand services, home banking, e-mail, and data and internet access via mobile telephones).

Licensing Regime

Pursuant to the Licensing Decree-Law, parties that wish to operate telecommunications services need only register with the ICP. However, the following activities are subject to licensing:

• the provision of voice telephony services;
  
  
• the establishment and operation of public telecommunications networks;
  
  
• the granting of frequencies for the establishment or rendering of telecommunications services; and
  
  
• the provision of telecommunications services by operators subject to universal service obligations, open network obligations and interconnection obligations.

Licences are granted by the ICP except where the use of frequencies is involved, in which case a public tender must be launched. The corresponding licence is then granted by the minister supervising the telecommunications sector.

Parties that wish to obtain a licence must file an application with the ICP and meet the following requirements:

• They must be incorporated as a company;
  
  
• They must have adequate technical and financial capacity(4); and
  
  
• They must comply with applicable accounting rules.

Licences must be granted within 30 days of filing the application (except in the case of a public tender) and are valid for 15 years, although they may be renewed thereafter. The geographical scope of the licence may be limited if the operator is not willing to provide the relevant services for the whole of the Portuguese territory.

A licence application may only be denied for technical reasons relating to the availability of frequencies, or on the grounds that the applicant lacks the technical or financial capability to meet its obligations. Similarly, if the applicant has been penalized with a suspension or revocation of an existing licence for non-compliance with applicable rules, a licence may be denied. In a case of licence denial, the applicant can appeal to the administrative courts.

Accounting separation principles must be respected and a cost-accounting system must be put in place whenever the licence holder:

• has a significant market power;
  
  
• carries out any activity outside the telecommunications sector on an exclusive basis; or
  
  
• is an affiliate of the incumbent operator.

Since liberalization the Portuguese authorities have granted 19 voice telephony licences. Twenty-eight operators hold a licence to operate a public network. Three licences have been granted for the provision of mobile telephony through both Global System for Mobile Communication and DCS-1800 bands. In December 2000 four UMTS licenses were awarded, three of which were granted to the existing mobile operators.

Interconnection

The Interconnection Decree-Law provides rules that apply to the process governing interconnection agreements and sets out the operators' obligations in this context, including the guidelines for the reference interconnection offer (RIO).

The interconnection regime is underscored by the guarantee of an available interconnection supply, first through the basic telecommunications network and second through the companies with significant market power. The companies must offer fixed telephone networks, fixed telephone services, leased lines, and mobile telephone networks and/or mobile telephones.

In addition, the legal framework compels operators to respect the principles of non-discrimination and transparency. The ICP has the discretion to define certain conditions that must be included in agreements. The ICP is also entrusted with the power to modify interconnection agreements, in order to guarantee free competition among operators and the inter-operability of the services rendered to customers.

In September 1999 the ICP adopted a decision on the maximum interconnection prices to be charged by Portugal Telecom and the basic technical elements to be included therein (eg, geographical availability of the points of interconnection, quality of services, optional services and interconnection links).

The European Commission stated that the interconnection prices offered by Portugal Telecom for 2000 conformed to its current practice.

Interconnection prices for 2000 were established in 1999 on the basis of the 1998 accounting system, and interconnection prices for 2001 were established in 2000 on the basis of 1999 data, taking into account changes in productivity and traffic levels, and of a comparative study between member states.

A consultation on the minimum elements to be included in the RIO 2001 was launched so that interested parties could state what elements the RIO should include and which elements needed to be corrected. The ICP's conclusions were forwarded to operators until October 2000 and published on its web site.

The ICP is vested with the power to solve any legal disputes arising out of any interconnection negotiation process or interconnection agreements. Any decision of the ICP in this matter may be appealed to the courts.

Competition Issues

The competition rules applying to the telecommunications sector are those governing all other fields of activity (Decree-Law 370/93, amended by Decree-Law 140/98 of May 16 1998 and Decree-Law 371/93 of October 29 1993). However, there are also specific competition provisions in the telecommunications legislation.

According to the ICP, relations with the competition authority (the Directorate General for Trade and Competition) are based on the principles of cooperation and mutual assistance, which are intended to be developed further, particularly in relation to universal service tariffs, mergers between licensed entities and significant market power determinations.

Each year the ICP determines which companies have significant market power for the purposes of interconnection, network establishment, and supply and provision of voice telephony services. The Directorate General for Trade and Competition's opinion is necessary to these decisions pursuant to the relevant legislation.

The ICP is also required to issue its opinion prior to all mergers in the telecommunications sector. Over the last few years, the market has experienced several mergers (eg, PT Prime's acquisition of Sociedade Interbancária de Serviços and Megamédia, and PT Multimédia's acquisition of Saber e Lazer and Infordesporto).

Universal Service

The Universal Service Decree-Law enforces:

"specific duties inherent to the provision of addressed public-use telecommunications services, aiming at meeting the communication needs of the population and economic and social activities in the whole of the national territory, in an equitable and continuous manner and through appropriate remuneration conditions, taking into account the demands of a harmonious and balanced economic and social development."

According to the law, the obligation to provide universal services includes the provision of the following services:

• connection to a fixed public network, at a fixed place, and provision of access to the fixed telephony service for all customers requesting the same;
  
  
• installation and operation of public telephones in an adequate quantity (to be determined in accordance with the ICP's criteria); and
  
  
• availability of telephone directories and an information service, including both fixed and mobile telephone numbers.

Pursuant to the law, Portugal Telecom is appointed as universal service provider until termination of the concession agreement (executed in March 1995 between the state and Portugal Telecom) in 2025.

In accordance with the terms set out in the law, universal services may be financed through a fund in which the network operators and the providers of public-use services of voice transportation (both mobile and fixed) shall participate. The operation of this fund has not yet been regulated, although the ICP has stated that legislation supplementing the provisions of the Universal Service Decree-Law will be enacted in the future, with reference to financing mechanisms.

Operators should be compensated for the provision of universal service costs, the amount of such compensation being equal to the net cost of the obligations of the relevant operator (ie, the difference between the cost of the universal service obligations and that of operating without these obligations). The relevant operators must provide the ICP with evidence of these costs, which will be audited and approved accordingly.

The principles for financing the universal service set out in the Universal Service Decree-Law are in accordance with a competitive market. They lay down a number of rules for the calculation of the net cost of the universal service:

• The calculation must be based on objective and transparent procedures and criteria;
  
  
• It must take account of certain specific features of peripheral regions; and
  
  
• It must take account of revenues and other tangible and intangible benefits deriving from the provision of the universal service.

New entrants add that a result of the lack of effective control of Portugal Telecom's cost accounting is that this entity uses its obligation to provide the universal service to justify high tariffs for leased lines and interconnection. The ICP has pointed out that the regulatory audit process is in hand, and that Portugal Telecom's cost accounting system includes separate accounts for interconnection, leased lines and voice telephony, and undue cross-subsidization between these services is not allowed.

The Portuguese incumbent has special price schemes for certain categories of consumer (eg, the elderly, unemployed and disabled, and those living in remote areas).

Numbering

The Basic Telecommunications Law 1997 provides for the implementation of a National Numbering Plan ensuring the interconnection of networks and services, and clients' number portability. According to Article 28, the ICP is entitled to:

• manage the numbering plan under the principles of equity, effectiveness and transparency;
  
  
• define the prefixes and identification codes (either direct or indirect access codes) and series of numbers regarding telecommunications services, as well as terms of their use; and
  
  
• ensure that the granting procedures are objective, transparent and non-discriminatory.

In order to apply for a primary identification code, the applicant must be a duly registered or licensed operator pursuant to the applicable laws (ie, the Licensing Decree-Law and Decree-Law 177/99 of May 21 1999).

On June 2 1999 the ICP fixed the main components of the new national numbering plan, which was introduced in a single operation ('big bang') on October 31 1999.

New entrants complain about the unavailability of carrier selection for local and regional calls, and consider that indirect access should also be extended to calls to internet service providers (ISPs). They say that this has a negative impact on their businesses, as customers do not understand why they provide only a partial service. Carrier selection for fixed-to-mobile calls became due on October 1 2000 and for all calls on January 1 2001. Carrier selection for ISPs is being studied.

As regards number portability and carrier pre-selection, Articles 31 and 32 of the Interconnection Decree-Law implement Directive 98/61/EC, which set January 1 2002 as the date on which Portugal must apply full number portability and carrier pre-selection. However, the Portuguese authorities have stated that they will bring forward the introduction of these services. A public consultation on number portability was launched in February 2000. In accordance with Order 12809/2000, number portability will be available from July 1 2001 for fixed networks and from January 2002 for mobile networks. The number portability database will be managed by a consortium of the ICP, Portugal Telecom and the main representative association of operators.

New entrants consider the introduction of carrier pre-selection to be a fundamental part of liberalization, but Portugal Telecom says that it is not yet technically prepared and that there is a lack of agreement as to how the costs of pre-selection are to be shared out. According to new entrants, the ICP should be much more active in defining the rules for carrier pre-selection. The ICP has issued a specification for carrier pre-selection in cooperation with the operators. The operational aspects are to be dealt with in the context of a code of conduct to be developed by the operators. Autodiallers have provided a temporary solution, enabling the July 1 deadline to be complied with, but Portugal Telecom complains of the low costs for autodiallers (the costs are split 50/50 between Portugal Telecom and the alternative operators).

The ICP points out that carrier pre-selection has been available for international and inter-urban calls since July 2000, and became available for all calls from January 1 2001, thus enabling all users of fixed telephone services to route all types of call - local, regional or long distance - without having to dial an identifying prefix. Carrier pre-selection for calls from the fixed network in Lisbon and Porto to mobile networks was brought forward to October 1 2000 and for fixed-to-mobile calls in the rest of the country to October 15 2000. The ICP has fixed the fee for carrier pre-selection on the basis of international comparisons at Esc1,600. Portugal Telecom has announced a fee of Esc1,586.

Regulatory Authorities and their Powers

The Communications Institute of Portugal - ICP (Instituto das Comunicações de Portugal)
Heads
Luis Nazaré (president)
João Confraria (director)
Álvaro Marques Miranda (director)

Contact details
Avenida José Malhoa 12, 1099-017 Lisboa, Portugal
Telephone: +351 21 721 1000
Fax: +351 21 721 1001
E-mail: [email protected]
Web site: www.icp.pt

Powers
One of the main functions of the ICP is to cooperate with the government in defining legislative and regulatory measures relating to the sector.

According to Decree-Law 283/89 of August 23 1989, the ICP has wide powers of supervision and control, and is responsible for:

• supervising the compliance of network operators and service providers with applicable laws, regulations and the terms of their licences;
  
  
• ensuring the compliance of operators with quality standards and price regulations;
  
  
• issuing licences to network operators and service providers;
  
  
• certifying that terminal equipment conforms to applicable requirements;
  
  
• allocating frequencies and numbering resources;
  
  
• imposing administrative and financial sanctions (eg, total or partial suspension, revocation of the licence or fines) on network operators and service providers; and
  
  
• supervising Portugal Telecom's activity under the concession agreement, regarding the fulfilment of the obligations contained therein.

The Directorate-General for Trade and Competition - DGCC (Direcção-Geral do Comércio e da Concorrência)
Heads:
Celeste Fonseca (president)
Azeem Bangy (director)
Mário Frias (director)

Contact details
Avenida Visconde Valmor 72, 1069-041, Lisboa, Portugal
Telephone: +351 21 791 91 00
Fax: +351 21 796 51 58
E-mail: [email protected]
Web site: www.dgcc.pt

Powers
Under Regulatory Decree 29/98 of November 26 1998, the DGCC has been entrusted with the following powers:

• to contribute to the definition and execution of the competition policy and to follow and evaluate its execution;
  
  
• to promote efficient market operation;
  
  
• to contribute to the definition and execution of sector policies regarding trade and distribution;
  
  
• to follow trade and distribution activities;
  
  
• to follow the development of prices of goods and services, and to negotiate and execute, on behalf of the government, all relevant price conventions;
  
  
• to contribute to and prepare legislative and regulatory proposals; and
  
  
• to help the government in negotiations and decisions concerning competition, trade and distribution policies with international bodies.

Under Decree-Law 371/93 of October 29 1993, the main functions of the DGCC regarding supervision are (i) to identify anti-competition practices and organize corresponding legal proceedings, and (ii) to impose fines, in the case of non-compliance with competition law.

For further information on this topic please contact Margarida Couto at Vieira de Almeida & Associados by telephone (+351 21 311 3400) or by fax (+351 21 354 89 39) or by e-mail ([email protected]).

Endnotes

(1) This implemented Council Directive 93/97/EEC dated October 29.

(2) This implemented Commission Directive 94/46/EC dated October 13.

(3) Commission Decision 97/310/EC.

(4) 'Adequate financial capacity' is considered to be a coverage by equity in an amount of no less than 25% of the investment involved.