October 21, 2013

By Bill Jaynes
The Kaselehlie Press

October 16, 2013 Pohnpei, FSM -A multi-million dollar grant offer by the World Bank to help land a sub-marine fiber optic cable in the FSM State of Yap has residents all a twitter, but the offer comes with strings. FSM must establish legislation that allows for competition in the telecommunications industry.

The World Bank wants the paper work for the grant to be submitted by the end of February 2014, and that paperwork must show that the FSM have liberalized its telecommunications laws to allow for competition.

FSM Telecommunications (FSMTC) executives have gone on record many times to say that they are ready for a competitive market but only "on a level playing field". Seemingly as a result of the World Bank offer, the Executive Branch stepped up its game and submitted a 125 page bill to the FSM Congress. (CB 18-77) The text of the bill can be found at www.fsmcongress. fm under the proposed bills tab of the 18th Congress.

Since the World Bank made its offer, FSM Senators have been under a great deal of pressure from their constituents to liberalize the FSM's telecommunications policy. Senators are unwilling to quickly pass a very complicated bill that might ultimately backfire just because of outside pressure.

"We will do it but we'll do it our own way", Senator Peter Christian, chairman of the Transportation and Communications standing committee said this morning during an informal conversation. When asked whether he thought that the proposed bill accomplishes the elusive "level playing field", he shook his head and said that he didn't see it in there.

The bill does attempt to level the playing field through the establishment and the discretion of a new regulatory authority at the national government. But the bill retains language from the 30 year old law that established FSMTC that requires FSMTC to provide equitable service to all of the States of the FSM. It does not require any potential competitors to do the same. Though our reading of the bill is through layman's eyes it appears that a potential competitor could come into the FSM market and offer one type of service to only one State if it can get a license approved.

The bill also would make it harder for FSMTC to provide equitable services and pricing FSM wide by explicitly banning the cross-subsidization of markets that has made it possible for FSMTC to spread costs across the nation. The purpose seems clear. In a competitive market, cross subsidization of markets and services would be an anti competitive tactic that could be used to drive out competitors. What it would mean to the FSM is that FSMTC would have to charge different rates for different States because the cost of delivery of services differs widely from State to State. But FSMTC would be banned from charging a different rate to different States.

To its credit, the bill does specifically ban the practice of a telecommunications licensee charging an artificially low price for its service through regulatory oversight. During its 30 year history, FSMTC has spent $107 million on infrastructure. Under the proposed bill, the national government would seize those assets and put them in the hands of the Secretary of the Department of TC&I, and the Secretary of Finance and Treasury. State participation on the FSMTC Board of Directors would be eliminated. Instead the FSM President would appoint a member subject to the approval of Congress. The four remaining members of the Board would be people that the two Secretaries believe are qualified to sit on the board and will be appointed by resolution.

FSM's executive branch appears to be in a hurry in order to meet the requirements for the World Bank offer. That could make for some costly mistakes. It already has. Earlier this year FSMTC officials negotiated a cost sharing plan with Palau in which FSM would pay 1/3 of the cost of any sub-marine fiber optic line that serves the two countries. Palau would pay the remaining 2/3 of the cost. But in September Francis Itimai, Secretary for the FSM's Department of Transportation, Communications and Infrastructure led a delegation to Palau and negotiated the previous arrangement away. Under the new terms FSM and Palau would each pay 50 percent of the cost of connecting a fiber optic cable.

Because Palau has one of the highest per capita gross domestic products they are not eligible for a grant from World Bank though they are eligible for a low cost concessionary loan. FSM's new negotiation means that Palau would have to borrow nearly $10 million less than it would have under the plan previously negotiated with FSMTC because FSM has graciously agreed to give away that amount from the grant the World Bank offered if they are able to meet the requirements of the grant.

Though the telecommunications liberalization bill was only just submitted a few weeks ago it has been in development for a long time. If the intention is to take advantage of the World Bank Grant before it expires, Senators have only a few months to digest the bill and improve it if they think it needs to be improved. If the intention is to improve connectivity and to decrease the cost for FSM citizens which is what the bill says, a great deal of work will need to be done on the telecommunications liberalization bill.

The bill provides for the establishment of an "Office of the Telecommunication Regulation Authority" which would consist of a CEO and two other members, each appointed by the FSM President, though it will likely need a substantial support staff. The bill limits the number of terms that a CEO could serve and allows for the position to be filled by a non- Micronesian if necessary. A majority of the bill's 125 pages is spent defining the broad regulatory powers of "The Authority" including the right to search, seizure, and other policing powers.

"The Authority" would be funded by donations from outside funders, appropriations from the FSM Congress, and in large part by the sale of licensing fees to communications operators in the FSM. It's a layer of expense that does not currently exist and that operators will have to pass on to FSM consumers.

The most recent price increases at FSMTC came after the FSM removed FSMTC's exemption from paying taxes. According to the proposed bill "The Authority" would be exempted from paying income tax or customs fees.

Another layer of expense will be for lawyers to handle the process of the myriad of negotiations and contractual agreements, and because of the dozens of appeals processes that the proposed bill carefully lays out.

The bill essentially concludes with a description of the processes that would be necessary "should the Secretary (TC&I) certify that it is in the interests of the Federated States of Micronesia for a corporation owned by the Government to be established under this secion in order to own and operate submarine and terrestrial cable assets with the Federated States of Micronesia." Any such new corporation would be known as an "Open Access Entity".

Again, from a layman's reading "Open Access Entity" seems to be a corporation designed to do what FSMTC is already doing and yet another layer of expense. According to witnesses, during a T&C Committee hearing on the bill two weeks ago, Speaker Dohsis Halbert asked what provisions the bill makes for FSMTC's $28 million debt to USDA. Secretary Itimai testified that there are none.

Meanwhile, life for FSMTC is still making plans to implement O3B service in Yap. The scheduled launch of the satellites that will service the FSM and Palau had to be aborted at the last moment due to a technical glitch that meant that the satellites had to be shipped back to the manufacturing plant. They are re-scheduled to launch early in 2014 and FSM will very shortly thereafter be able to access the O3B service for Yap.

FSMTC says that it has been in constant communication with the beta test site for the service in the Cook Islands and says that they have been experiencing some remarkable speeds through the service.

Once O3B is in operation in Yap users will experience low latency "fiber like" speed.

The monthly maintenance cost for a fiber optic line is many times higher than the monthly maintenance cost on O3B.

After the O3B service goes into service in Yap, FSMTC will be able to allocate the bandwidth resources on the satellite that Yap currently uses to Chuuk and Kosrae.