July 1999

Romania Master Report

1. The interaction between business and regulatory constraints

It must be emphasized that in the Romanian Telecommunications Law (no. 74/1996) there is no definition for the "alternative network".

In Art. 7 are done the definitions of the terms the law is dealing with. There are two terms close to "alternative networks":

• The first one is "independent telecommunication network" (Art. 7, d) defined as the telecommunication network owned by a single person or institution and whose unique destination is to satisfy needs or services needed by the owner or a closed user group.
• The second one is "internal telecommunication network" (Art. 7, e) defined as an independent telecommunication network, single owned, which is not using the radio spectrum, the public domain or other property.

The "independent telecommunication network" is installed and operated by an "independent operator" (according to Art. 7, m) which can be an authorized natural or legal person.

A "closed user group" (Art.7, o) is a group of natural or legal persons with mutual economic expectations and the same type of activity, justifying the necessity of an exclusive telecommunication network.

The "independent operator" is required an authorization (not a license, needed only by the "public operator") issued by the regulatory authority (Art.26, 1) for a period of max. 5 years, with the possibility to be renewed or withdraw.

The Decree of the Minister of Communications no.14/1998 regarding the authorization of independent communications networks (published in the Official Journal of Romania no. 86/23.02.1998) was issued in order to cover the provisions of the Telecommunication Law 74/1996.

In ANNEX can be found an unofficial translation of the Decree no. 14/1998.

In spite of the limitations of the existing legislation, in this report we will use the term "alternative network", in the sense accepted in the EU.

The most important alternative networks can be split into two major groups:

• electric and gas networks and the communication network of the State Railways (first group);
• cable TV networks (second group).

In Romania, the role of alternative networks has traditionally been rather limited. In spite of late liberalization and competition in the telecommunication market the demand for services provided through alternative networks belonging to the first group has been low. Especially now, when there are mobile phone service providers capable to cover the needs in this area, we do not expect to see an increased interest in alternative networks with respect to telephone services.

Even the identification of alternative networks belonging to the first group that could be used by telecommunication operators is rather difficult to perform. Most of these networks have been built for internal use of the owners only. Through their own networks the companies seek for better efficiency. In some cases they attempt to provide new services to their own customers. Most of the owners of alternative networks belonging to the first group have been rather passive in marketing their network capacity perhaps because of the fact that all of them are state owned companies, placed in a monopolist position.

Especially at local level, the interest in cable TV networks supplementary services is expected to increase due to growing competition between operators and service providers. In addition, the owners of these alternative networks are increasingly willing to get more revenues from their networks.

In Romania, the energy, gas and oil sectors are on a process of restructuring and reorganization.

This makes more difficult to characterize these alternative networks and to obtain data about them.

However, we can see that there is a concern towards these aspects and an interest to promote the appropriate legislative measures covering this field. The major strategies to be pursued in 1999 and 2000 aim at ensuring the industry's stability by stopping the decline and contributing to relaunching economic growth. The state-owned companies were reorganized as companies and national companies.

The main measures to be taken are:

• Continuing the restructuring and reorganization of the resulted companies and national companies;
• Reducing and eliminating the state subsidies;
• Encouraging the productive activities by reducing and eliminating the cross subsidies.

2. Inventory of the major "public" utilities with a potential for use in IS applications

2.1 The electric power sector

Regia Autonoma RENEL is reorganized in new companies:

• Electrical National Company CONEL SA, the successor of the basic activities of RENEL and in the same time the unique shareholder of three companies:
• SC Hidroelectrica SA (production of hydroelectric power);
• SC Termoelectrica SA (production of thermoelectric power);
• SC Electrica SA (distribution of electric power);
• National Company Nuclearelectrica SA (nuclear power);
• National Company for Nuclear Activities.

The principles of restructuring the electricity sector to be undertaken by the Government are:

• Summary of the strategy elaborated by the Ministry of Industry and Commerce of Romania maintaining the state monopoly only for the transportation of energy in the national grid and for the local distribution of electric and thermal energy;
• Promoting the energy law which will create the necessary legal and institutional framework in the field;
• Creating a new independent authority for establishing and monitoring the implementation of the rules of organization and functioning of the energy market.

2.2 The natural gas sector

The state owned company Regia Autonoma ROMGAZ was transformed in the National Company of Natural Gas ROMGAZ SA with three branches:

• exploitation,
• production and
• storage of the natural gas,

as well as two commercial companies for distribution. The creation of the holding-type structure is considered to respond to the necessities of the free market.

For the necessary measures to be undertaken in a short period of time, the short-term program provides for the following main priorities:

Phase I - 1999

• improving the legal and institutional framework by means of the new laws for natural gas and setting up the new national regulatory authority in the natural gas sector;
• concession of various assets of public interest in the natural gas sector;
• improving the tariffs system and eliminating the cross subsidies;
• continuing to implement the restructuring projects funded by World Bank and EBRD credits:
• modernization of the gas transportation system by implementing the SCADA system and telecommunications;
• improvement the gas pipeline network by replacing 500 km of used pipelines;
• modernization of the underground gas storage capacities;

Phase II - 2000

• completing the implementation of the technological restructuring projects launched with World Bank and EBRD financial contribution;
• privatizing the commercial companies resulted from the restructuring process.

2.3 The oil extraction and processing sector

The first phase of the restructuring process in this sector consisted in setting up the National Company of Crude Oil PETROM SA, from the state-owned company PETROM RA (the extraction sector) and the Romanian Company of Crude Oil (the processing sector).

Starting in 1999, PETROM SA has launched a vast restructuring program with the following major objectives:

• launching an "aggressive" policy of exploration at high depth;
• continuing the modernization in the crude oil sector paying attention to reductions in costs and to the improvement of processing levels;
• continuing the privatization process by attracting more foreign investors;
• improving the infrastructure by constructing new storage capacities for crude oil and oil products in accordance with the EU regulations on stocks.

2.4 Cable TV

Discretely launched in the early '90s, at the limit between technological and commercial experiment, cable television (CATV) constitutes in many experts' opinion, one of the private industries of maximum success in post-December Romania.

Having the advantage of a relatively simple legislative background, which has appeared at the right time, without much bureaucracy, this industry has known an exceptional evolution which surprised the specialists in the field all over Europe.

Quantitatively, the figures characterizing this activity are the only ones that statistically place Romania on positions of note within the general European context. Thus, according to a study drawn up by IMAS company at the beginning of 1999, out of 6.9 million homes having a TV set emphasized in the study, 50.3% are connected to a cable television network, so about 3.45 million subscribers, while the number of households under a cable network is estimated at over 5.5 million. These figures place us on a very honorable sixth place in Europe, after Germany, Belgium, Holland, Switzerland, Sweden, Poland, but before countries with an old tradition in the field as France, Great Britain, Denmark or the Czech Republic.

It must be emphasized the merit of the Romanian private industry which using 80% local capital, has succeeded in investing over 100 million USD in this industry and in promoting Romania on a noteworthy position in this branch of communication.

Besides the previously mentioned arguments, another explanation of the industry success is a commercial demand which went beyond our hopes, as well as the prices practiced both at the installation charge level and the monthly subscription. With a national average of about 2.8-3USD for a 24-26 programs set, among which we find well-known pan-European programs of great success, the Romanian CATV offer is at a minimum European level. For instance: France - 30USD, Germany - 18 USD, Poland - 11 USD, Hungary - 7 USD.

The situation is technically at a satisfactory level. More than 20% of the networks have a bandwidth of minimum 450MHz, and 5% of these ones are already over 720MHz. Unfortunately, only approximately 10% of the networks are bi-directional, allowing data transmissions.

At a percentage of 97% air built, the networks are easily vulnerable, both at unauthorized human intervention and bad weather, having unfavorable consequences on functioning reliably and implicitly at high quality. This is an endangering factor for the strategic value of communication infrastructures that CATV offers to the community.

The lack of dialogue of many local administrations, the lack of constructive co-operation in promoting normative regulations concerning the construction of solid, reliable and well protected lines of urban and interurban long-distance communications have postponed the valorization of the potential already existing in the CATV industry. The Romanian community could have been much more advantaged if this domain had been well supported in point of legislation and financially favored with advantageous credits. A solid, flexible communication infrastructure is a catalyst for economic and cultural developments.

Unfortunately, the private, investing, technical and human effort allowing over 1000 towns in Romania to be perfectly covered by coaxial cable networks, does not have the best success premises at the beginning of the 3^rd millenium.

The above mentioned elements represent only a stage, a pioneer's work. For these networks to become real alternative communication networks, it is necessary a set of conditions and premises which are fulfilled to a small extent for the time being.

Though an important number of operators, which cumulated represents about 55-60% of the present market, seem to have understood the requirements of the communication and multimedia operator in the 3^rd millenium and are ready to run the risks and to assume the actions necessary to obtain this position, face a series of factors rather unfavorable, which undoubtedly make difficult this thing.

Thus, the operator concentration, a process characterizing, at a world level, the entire communication industry, is delayed by the lack of capital (the 7 years of industry were not enough to this effect, not only for the pioneers in the field), as well as a great breaking up of the market (today there are on the market over 500 companies involved and over 1,250 networks out of which 4 have over 50,000 subscribers.

It should be noted that the legislation in the field initially simple and covering is today obsolete and ambiguous.

The modification of the Audiovisual Law, which is still a project, has been discussed for almost 2 years and the Telecommunication Law applies to the cable as far as the Audiovisual Law does not regulate it.

This double legislative dependence leaves fundamental things uncovered in both laws.

Moreover, the approval procedure of CATV networks was complicated by Minister Decree no. 315/97, the most notable result being the delay of the approval process.

However, the double regulation (audiovisual and communication) is complete when talking about setting up taxes. In this respect, the cable has the highest values for audiovisual taxes of annual license, as well as an important position regarding the spectrum monitoring tax (established by Decree no. 315/97).

Thus, from Romanian Association of Cable Communications Professionals (APRCC) estimations, the cable industry pays in to the State Budget approximately 130 thousand million ROL income taxes, 5 thousand million ROL license taxes, plus 8 thousand million ROL spectrum monitoring tax, to say nothing about other sources (royalties tax, national insurance etc.).

A lot of cable TV companies do not obey the Competition Law regarding concentrations, being liable to penalties. Moreover, the regulations concerning data broadcasting are only in a provisional stage, and fixed voice telephony is Romtelecom monopoly. Other services with added value are prohibited because of the high prices they imply, or at least, they cannot have a short-and-medium-term solid commercial basis.

The great investments for modernizing the present networks (estimated at approximately 200 million USD) to make them compatible with the 3^rd millenium technology are still restrainedly made not only from the lack of resources, but because of the absence of protection by franchises, given to the licensees. Thus, the operators willing to invest are not certain that another operator could not operate with much lower costs a rudimentary network superposed on his activity area, which under precarious economic conditions of the country can affect an important share of the market.

Nevertheless, the private effort of integrating CATV networks in the information highways continues.

The CATV networks are regulated by Decree 315/1997 for the communication component of their activity. This Decree provides only the process of authorization of the audio-visual communication systems distributed by cable TV systems, without any restrictions regarding the data services or IP services.

This makes possible that a major CATV provider in Bucharest - KAPPA - is also a pioneer for IP services.

Technical and fee details are available at the web address http://domino.kappa.ro/kappa/kappa.nsf/ServiciiE

Several modernizing projects and gradual increase of network technical parameters are under development and the figures initially presented will be undoubtedly improved up to the end of 1999.

But it is absolutely necessary that the regulating authorities (National Audiovisual Commission - CAN, ANCI) should really start a serious professional dialogue with the private cable industry and not only a formal one, as, at the best, we have recorded so far.

A clear and simple regulation of these networks from the part of the regulating authorities (National Audiovisual Commission - CAN, ANCI) is required by the CATV operators.

3. Conclusions

There are no regulations dealing with public offer of data services on "independent telecommunication network" (as defined in the Telecommunication Law 74/1996).

However, there are regulations dealing with value added services (videotext, fax, electronic mail, teletext, telecontrol, etc.) offered by public telecommunication networks (Decree no. 90/20.05.1992) and by public radiocommunication networks and services (Decree no. 222/15.10.1998)

The 1996 Telecommunications Law correctly transposed the relevant EC Directives in force at the time and provides a good framework for the introduction of telecommunications liberalisation. Since enactment of the Law, possibly because of shortage of resources and the priority given to the privatisation of RomTelecom, the production of secondary legislation has tended to slow down.

As a result, there are a number of provisions of the "1998 package" - the Mobile, Cable TV, Full Competition, Licensing and ONP Interconnection Directives, the use of alternative infrastructure for liberalised services - which now need to be transposed into Romanian law.

ANNEX

General Direction for Regulations, Licenses & Authorizations Regulations in Communication

Decree of the Minister of Communications no.14 regarding the authorization of independent communications networks

(Published in the Official Journal of Romania no. 86/23.02.1998)

The Minister of Communications, having regard to the Telecommunications Law no. 74/1996, and the Government Ordinance 1/1998 for the acceptance of the Fourth Protocol to the General Agreement on Trade in Services, based on Government Decision no. 129/1997 regarding the organization of the Ministry of Communications and the Presidential Decree no. 591/1996 regarding the nomination of the Romanian Government, we give the following DECREE

CHAPTER I General provisions

Art. 1. - (1) The decree regulates the authorization to install and operate independent telecommunications networks, regardless the application.
(2) Independent networks specified in art. 26 a (3) of Telecom Law, which can be operated without authorization, are not subject to this order.
(3) Independent networks which use exclusively the radio spectrum (e.g. VSAT, trunking, paging, repeater, etc.) which are regulated by specific orders shall be authorized according to these orders, with the exceptions of interconnection regime, which will be as per this order.
(4) Construction and operation will be permitted on the basis of an "Authorization for independent network", (Authorization), issued with respect of conditions stated in this order.

Art. 2. - For the purpose of this order, the following definitions shall apply:
a) independent telecommunications network: telecommunications network intended only for services for the owner or for closed user groups;
b) closed user group: group of users, legal persons, who share the same line of business and economic interests, justifying the need for a private network and who cannot be considered as belonging to the public;
c) local: users are located in Bucharest or in one county;
d) zonal: users are located in maximum 5 counties.

Art. 3. - An Authorization can be issued to:
a) a Romanian legal person if the independent network is intended for closed user groups;
b) a Romanian person (natural or legal), or the representation of a foreign legal person, registered in Romania, if the independent network is intended for own usage.
Art. 4. - (1) The telecommunications independent network (for own usage or for a closed user group) can be interconnected only with authorized public telecommunications networks. Interconnection shall respect essential requirements with regard to access interfaces to those public telecommunications networks.
(2) Bypass through the independent network of the traffic generated by other telecommunications networks is forbidden.
(3) Private usage of leased lines is allowed for communications inside the same closed user groups.

Art. 5. - (1) Assignment of radio frequencies shall follow applicable regulations.
(2) An Authorization will be issued only if the radiofrequencies are available.

Art. 6. - (1) Numbering plan of the user of the independent networks shall follow applicable regulations.
(2) Authorization holders shall take necessary measures if the National Plan is changed by Minister of Communications Order.

CHAPTER II Authorization procedure

Art. 7. - The Authorization is issued by the Ministry of Communications - General Directorate for Regulations, after payment of the legal license tax, in maximum 30 days from the application, which shall be complete according with the appendix.

Art. 8. - For the purpose of each network destined to each user group shall be considered individually.

Art. 9. - The Authorization is personal, is issued for up to 5 years and can be renewed according to the law.

Art. 10. - (1) The General Inspectorate for Communications shall assess the conformity of the project of the independent network with applicable technical standards and specifications, and shall issue a Technical Preliminary Authorization;
(2) Operation of independent network is permitted only after obtaining the Technical Authorization, issued by the General Inspectorate for Communications according to regulations in force.

Art. 11. The General Inspectorate for Communications may charge tariffs according to applicable regulations for the issue of Technical Preliminary Authorization, Technical Authorization, inspection, spectrum usage and other related activities.

CHAPTER III Other provisions

Art. 12. - The Ministry of Communications - General Inspectorate for Regulations can ask Authorization holder any information related to fulfillment of provisions of the Authorization.

Art. 13. - The Authorization shall not be considered a substitute for other administrative documents (authorizations, environment and urbanism avis, right of way, etc.) required by applicable legislation.

Art.14. - (1) The Ministry of Communications - General Directorate for Regulations can suspend the Authorization wholly or partially, temporary or sine die, if the holder infringes its provisions or applicable regulations.
(2) This measure can be taken only after the Authorization holder is announced and his arguments, communicated within 30 days, are verified.
(3) The General Inspectorate for Communications can withdraw the Technical Authorization if the holder infringes its provisions and applicable regulations.

Art. 15. - Within 30 days from entry into force of this order, the General Inspectorate for Communications shall submit for approval to the Ministry of Communications the requirements for the Technical Preliminary Authorization issuing procedure.

Art. 16. - Periodically, the General Directorate for Regulations shall examine and shall submit to the Ministry of Communications frequency bands to be allocated for usage in independent network. These frequency bands shall be announced to be public.

Art. 17. - Holders of existing Authorizations shall apply, no later than March 31, 1998, for their renewal, according to this order.

Art. 18. - This decree shall enter into force when publishing date in the Official Journal of Romania, Part I, and shall be implemented by the Ministry of Communications - General Directorate for Regulations and the General Inspectorate for Communications.

Minister of Communications