Answer from the international auditing company BDO LLC and Kalba International, Inc. to the Communications Commission

09 / November / 2020

Answer from the international auditing company BDO LLC andKalba International, Inc. to the Communications Commission, in a public statement dated October 16, 2020 concerning mandatory access regulation for virtual mobile operators (MVNOs) in Georgia

Statement of MagtiCom

The Communications Commission has completely ignored the conclusion submitted by MagtiCom, which was prepared by the six companies that are in the list of the Top 10 best audit companies in the world (from those six companies two are members of the "Big Four"). The report addresses the issue of regulating the mandatory access of Virtual Mobile Operators (MVNOs) in Georgia, in particular, the audit, analysis and conclusion of the experts of these companies that the mandatory access of the Mobile Virtual Network Operator (MVNO) will have unequivocally negative consequences for Georgia.

MagtiCom expected that the Commission would properly study the above documents and take actions that would not jeopardize state security and would not be detrimental to the further development of both the country and the mobile telecommunications sector.

As the Commission has moved to discuss this issue in public, furthermore doing it by producing unethical and unqualified statements, we are forced to provide additional information to the public. This time (after Deloitte’s answer) we present the response of the auditing company BDO LLC and Kalba International, Inc. to the statement of the Communications Commission of October 16, 2020, which once again clearly and unequivocally confirms the inaccuracy of the position of the Communications Commission.

BDO LLC and Kalba International, Inc. answer to GNCC statement

Having analyzed the GNCC Response, we have to conclude that it only confirms that the mandatory imposition on mobile network operators (MNOs) of MVNOs has not been reasonably justified for Georgia. Specifically, we contend that the GNCC Response fails to show that such regulation would be following "best practices" on a number of grounds:

In the comments on the GNCC Response that follows we address these concerns and several others with respect to the GNCC Response, beginning with its labelling of mandatory MVNOs as "Best Practices".

  • The GNCC Response conflates the general prevalence of MVNOs and their potential market benefits (i.e., the benefits of MVNO entry without regulatory obligations under commercial agreements with MNOs) with the existence of a mandatory MVNO regulatory framework. While unregulated commercially negotiated MVNOs are relatively common1, MVNO regulation of the kind GNCC is proposing is much rarer and cannot be considered “best practice”.
  • The Response confuses regulatory obligations imposed on operators under the competition provisions of telecommunications law—notably, obligations based on significant market power (SMP)—with the imposition of MVNO obligations on other grounds, such as spectrum licensing or merger approvals; and
  • The Response more generally misinterprets the European Union regulatory practices related to MVNOs, in part by relying on directly wrong information.

Comments on GNCC Response to Policy Report and Expert Opinion on MVNO Regulation

In addition, the Response grossly misrepresents information presented in the documents referred to in the rebuttal as well as misattributes some documents. For a summary of key instances of misrepresentation and misinterpretation of information in the Response, see "Fact Checks" in Attachment A.

ATTACHMENT A: FACT CHECK ON GNCC BEST PRACTICES REFERENCES

GNCC Says

In Fact

GNCC is aiming to mandate MVNOs as per the European best practice (this refers to the GNCC decision to mandate MVNOs in Georgia under telecommunications law obligations (SMP-type regulation)

Only two countries out of 31 in the benchmark used by the GNCC do so. None of those is a member country of the European Union

Regulated MVNO regime is best practice

Even if one considers imposition of any MVNO-related obligations in a broad sense, 20 out of 31 markets reviewed by the Cullen International report referred to by the GNCC do not have any such obligations whatsoever. At least 24 countries do not impose any price regulation. 26 out of 31 of such countries do not require reference offer.

Most common practice is MVNOs operating under unregulated commercial agreements with MNOs.

Mobile market is susceptible to regulation under the “three criteria” test applied by European countries under the European Union regulatory regime

Although, in 2003 the European Commission included a wholesale mobile access and call origination market into a list of markets that regulators should review under a “three criteria” test to consider whether regulation is needed, during the first review of the recommendation on the relevant markets it was removed from such list. The decision to remove was based on the experience in actual market reviews by the regulators – that is, regulators deciding not to regulate that market in practice.

Prices in Georgia are high and this justifies mandatory introduction of the MVNO

Methodology, used by the GNCC and their consultants (Strategy Analytics and Teligen) to compare mobile prices, grossly (up to 3.8 times) inflates mobile prices in Georgia compared to other countries included in the benchmark.

Mobile communications market in Georgia is concentrated hence the regulation is needed

Finnish regulator’s attempt to regulate the market for wholesale mobile access and call origination was blocked by the European Commission even though the leading mobile operator had 60 percent of the market – much higher than the market share of the leading operator in Georgia.

Recommendations and reports of the International Telecommunication Union (ITU) support the GNCC position

The alleged “ITU definitions and recommendations” actually refer to a 20-year-old paper published by a person without any affiliation with the ITU, which, furthermore, the GNCC rebuttal even fails to fairly summarize. No ITU-affiliated person or ITU report referred in any document cited by the GNCC rebuttal provides any suggestions on whether to regulate (or not) MVNOs.

Mandatory MVNO introduction poses no additional risks to national security

ITU document referred by the GNCC itself notes that MNVOs bring serious security concerns

Please see BDO&Kalba International, Inc full answer here.