The new regulatory authority planned under the Government's proposed reform of the telecommunications industry will cost up to $9 million a year, industry representatives have been told.

The new body will be created under two bills due to be tabled in the House of Assembly before the summer recess — the Regulatory Authority Act and the Electronic Communications Act.

Government already raises about $12 million from the telecommunications industry and its customers. The new, independent Regulatory Authority (RA), will regulate the industry after current licensing restrictions come down. The RA will have a CEO and staff, plus three commissioners.

In workshops on the new legislation two weeks ago, a Government consultant told attendees that the RA's running costs could be as high as $9 million.

The Ministry of Energy, Telecommunications and E-Commerce did not respond to a request for confirmation of the figure and how the RA will be funded by press time.

The legislation marks the culmination of a five-year process to reform the telecommunications industry and to abolish the licensing system that restricts the services that each company offers to a limited area.

Opinion on the change is divided within the industry. Some companies will welcome the chance to broaden the suite of services they can sell and argue it will lead to the introduction of greater choice and lower prices for consumers. For example, theoretically, cellular providers will be able to compete with Internet Service Providers (ISPs) and vice versa.

But others fear that the bringing down of the licensing barriers could herald a free-for-all that could result in the demise of some smaller companies and the jobs they provide. Taken to its culmination, their argument goes that only the cash-rich larger entities will be able to survive the cut-throat competition and so the Island could end up with a duopoly or monopoly in the telecoms sector.

What worries some is the uncertainty inherent in the new legislation. The RA will have wide, discretionary powers on overseeing the industry. It will be empowered to regulate competition, and to take action when it believes a company is becoming "dominant", for example. Which entities are deemed to have market power and what the new RA will do to counteract that are in doubt.

Those companies which own local network facilities — such as BTC with its telephone lines and Bermuda Cablevision with its fibre optic network — would appear to be well placed to exercise market power in the new-look industry. ISPs, who depend, to some extent, on access to networks owned by others to provide their services may be in a weaker position.

The Regulatory Authority Act also empowers the Authority to search a licensee's premises and seize documents, without a warrant, as part of an investigation, as well as impose hefty fines and refer investigations to the Director of Public Prosecutions.

Telecommunications licence holders have until this Friday to provide feedback to the Ministry of Energy, Telecommunications and E-Commerce (METEC).

Two weeks ago, METEC held telecommunications reforms workshops to explain more about the intended legislation.

Among those represented was ISP North Rock Communications Ltd., whose general manager Vicki Coelho and director Erich Hetzel, gave their thoughts on the new legislation to The Royal Gazette.

North Rock is in favour of the concept of an independent regulator. "The new Acts will largely remove political influence from the regulation of the telecoms industry," the company stated. "The Acts create a Regulatory Authority, which can be staffed by skilled technocrats who can make informed decisions outside of political influence. The ECA in particular contains strong anti-dominance and consumer protection features which will be beneficial to the Bermuda market."

But the cost of the RA and the doubt over how it will work in practice is of concern.

The potentially $9 million to operate the new body will come from new fees imposed on the industry and passed onto consumers. "We also believe the legislation could create a litigious environment and there maybe additional legal and economic costs," North Rock said. "We therefore must question whether the creation will represent money well spent in a time of economic recession and Government deficits. It is a question of priorities."

North Rock added that its concerns about the impact of the uncertainty surrounding the new RA, were summed up by a Government consultant, who said at the recent workshops: "There could be two licensees, or 21, left at the end of 18 months". "That is a great deal of uncertainty in a market that is already highly competitive," North Rock added.

The impact the legislation has will depend on "how well the Authority is staffed with skilled administrators, economists, lawyers and technologists and how well they make decisions", North Rock believes.

Ms Coelho said: "We've got to look at what we're supposed to be fixing here? According to The Economist, we're 11th in the world in telecommunications — ahead of Japan. So there isn't much wrong."

Mr. Hetzel said: "A few years ago, the number one problem was bandwidth, but now we have three providers, so there is competition. Prices have fallen, speeds have increased.

"Investment in new technology has not been a problem. Look at what has happened over the past few years. KeyTech has DSL, Cablevision has built a fibre-optic network, the cellular providers have 3D and 4D."

So if the market is functioning under the current licensing system, why the need for reform? North Rock sees two main reasons.

"The first reason is for the benefit of foreign owned carrier interests," the company stated. "Certain overseas carriers and cellular providers have long sought access to the residential Internet and long distance telephony markets, which they are effectively barred from under the current Act.

"In addition Government itself wants the new Act to improve the regulatory structures, but also to largely remove the ability of carriers to sue Government. Under the new Act, carriers will sue the RA. The RA in turn can increase the fees to cover its legal fees. In the end however, these fees are eventually passed on to the consumers."

Government was sued for $100 million by Cable & Wireless some 13 years ago, when Government attempted to stop the company from slashing its prices in response to new competition from TeleBermuda International. The RA, rather than Government, would be the target of such litigation in future.

North Rock concluded: "Whether the new Acts result in a return to a duopoly, or the maintenance of an effective status quo in the market will be determined by the decisions on the new RA. Whether the Acts meet the stated purposes and provide a benefit to consumers also remains to be determined. Bermuda already has one of the most competitive, innovative telecoms market in the world. If the legislation passes, then we will have to wait and see what occurs."

Mr. Hetzel said North Rock saw great opportunities to expand their own business, from the dropping of current restrictions, particularly competing against the cellular providers in the wireless data area.

But planning for the future was impossible until more was known about the RA and how it would work, they said.

"We are a local company and we like to plan long term," Mr. Hetzel said. "But local companies will be competing against international companies with very deep pockets, who may not care whether they stay in this market or not."