The information and communications technology ("ICT") market in the Cayman Islands includes all forms of telecommunications such as mobile, local and international telephone service, and Internet access; radio and television broadcasting; and radio communications. Telecommunications is an area that touches almost everyone's life every day. Rare is it that someone is not using a phone or surfing the Internet, or sending an e-mail at various times during the day. This market sector has been progressively opened to competition since July 2003.
Cable & Wireless (Cayman Islands) Limited ("Cable & Wireless") was, until recently, the sole provider of telecommunications service in the Cayman Islands. In July 2003, Cable & Wireless operated under the terms of an exclusive licence granted by the Government of the Cayman Islands ("the Government") in December 1991.
Competition and regulation was introduced in 2003 and is very new to the Cayman Islands. We are moving rapidly from a legally imposed monopoly to a competitive environment. Moreover, unlike most other countries, there was no pre-existing legislation covering anti-competitive conduct or consumer protection and so the Information and Communications Technology Authority Law has, for the first time, introduced such concepts onto the country's statute book. It therefore is not surprising that there is some confusion and misunderstanding about the role and responsibilities of the ICT Authority ("the ICT Authority" or "Authority") and its relationships with licensees.
On the other hand, developed countries have a long history of promoting competition in telecommunications and other ICT market sectors around the world. There is therefore a large body of experience and legal precedent that can be drawn on for use in the Cayman Islands.
The following questions and answers have been written in an attempt to explain some of these issues in non-technical and non-legalistic terms. It is not a formal statement of the Authority's interpretation of any law, licence or agreement, but rather is an attempt to provide a useful understanding the background and general structure of the telecommunications market in the Cayman Islands. What follows is stated without prejudice to any determination the Authority may make. Where, for illustrative purposes, reference is made to what a licensee can or might do in certain circumstances, no implication should be taken that such action has or will be taken by Cable & Wireless or any other licensee in the Cayman Islands.
The Government decided to liberalise the ICT sector because it considered that long term, sustainable competition was the most effective way to reduce the prices we pay for telecommunications and similar services, and to increase the diversity and quality of services available to consumers. This decision was consistent with the approach taken in almost every developed and developing country in the world, and followed the recommendations of the World Trade Organisation.
To implement its decision to liberalise, the Government had first to negotiate with Cable & Wireless to agree to the early termination of the company's exclusive licence which was not due to end until 2011. That agreement that was signed in mid 2003 and inevitably reflected a compromise between the ideal positions of each party. As a result, the agreement places some restrictions on the regulatory environment to be used until 2011.
The Government also had to establish rules and regulations that would allow competition to emerge and become sustainable. Before they can get a single customer, new entrants have to invest very large sums in equipment, staff, advertising, etc. They therefore need to assure themselves that they have a reasonable chance of getting a fair return on their investment. They must be convinced that the incumbent will not be allowed to take unfair advantage of its dominant position in the market, and that the sector will be regulated in accordance with international standards. The passing of the ICTA Law and the establishment of the ICT Authority gave them that assurance.
In any newly liberalised market, the incumbent telecommunications provider has an enormous advantage over new entrants: it initially has all the customers and owns the entire infrastructure. The company, left unchecked, has the incentive and, in most instances, the ability to drive new entrants out of the marketplace. Under such circumstances, the development and sustainability of competition is seriously impeded, if not impossible. It is for this reason among many others that, throughout the developed world, regulators are tasked with regulating the actions of incumbents to ensure that they do not take unfair advantage in an emerging competitive marketplace.
In the Cayman Islands, regulation is split into a number of key areas:
There are overlaps between each of these key areas.
In all its considerations, the Authority places paramount on the potential impact of its decisions upon the consumer.
Each ICTA licence (other than Cable & Wireless') contains an Annex dealing with subscriber protection and privacy. This requires licensees to clearly describe their services and rates in their marketing materials, to establish subscriber complaint dispute resolution procedures, to protect customer information, and to ensure that their contracts, terms of service and bills are clear and understandable. Annex 5 to Cable & Wireless' licence combined with the Authority's mandate in the ICTA Law, enables the Authority to oversee Cable & Wireless' services in considerably more detail, thereby addressing the key areas of subscriber protection and privacy. In the near future, the Authority plans to publicly consult on and issue regulations that address consumer protection and privacy issues in the Cayman Islands.
Agreements or practices that prevent, restrict or harmfully distort competition in the ICT sector are likely to be counter to the anti-competitive provisions in the ICTA Law. Some, but not all, necessarily involve the abuse of a dominant position in the market. Examples include predatory pricing, misuse of information, "locking in" customers, and tied sales and bundling. These examples may not by themselves constitute anti-competitive activity, however, they can, in combination, be anti-competitive and pose a serious danger to a newly liberated marketplace. If a finding of an anti competitive practice is made by the Authority, it has the power to require the licensee to cease the offending practice and to levy a financial penalty, among other means.
It is important to note that by law any licensee who has significant market power is held to a higher standard of conduct than new entrants who are typically starting up and do not have significant market power in the market in which they compete.
The body and most of the schedules of the licence issued to each licensee is identical. Differences exist only to reflect the different networks and services that each is entitled to provide, the frequencies they will use, and their individual commitments with respect to roll-out timescales and Caymanian participation. In the case of the Cable & Wireless licence, one schedule covers a wide range of regulatory issues. In all other licences, this is replaced by a schedule covering consumer protection issues.
Compliance is simply the process of ensuring that all licensees meet the commitments and comply with the conditions contained in their licences. All licensees must comply with the provisions of all applicable Cayman Islands' Laws and regulations. Should a licensee breach these conditions, the Authority has the power to issue a Cease and Desist Order, to impose an administrative fine, or in extreme cases to suspend or revoke a licence. In some situations, prosecution through the courts is also possible.
There are two forms of price regulation specified in the Main Agreement between Government and Cable & Wireless. These are repeated in Annex 5 to Cable & Wireless' licence. The first regulates any price increases that Cable & Wireless wishes to make, particularly for services where there is currently little or no competition and little market pressure to keep prices down. For example, Cable & Wireless may not increase line rental or domestic calling rates for two years from July 2003, and it may not increase International Direct Dial (IDD) rates without making a case for and obtaining the approval of the Authority. These interim rules will eventually be replaced by a "price cap" regulatory regime.
The second form of price regulation establishes a minimum, or "floor", price below which Cable & Wireless may not reduce its rates. In most cases that "floor" is set at the cost of providing the service in question, although in some agreed instances the retail or wholesale price is also used to prevent a "price squeeze." The purpose of this form of price regulation is to prevent the licensee from implementing anti-competitive pricing. This can occur if the incumbent lowers its retail rates below or very close to the rate it charges to competitors for wholesale services that they need in order to compete. The onus for demonstrating that its rates are above the appropriate floor prices falls upon the incumbent.