Lt

On the Law on Telecommunications

Case No. 12/98

 

 

THE CONSTITUTIONAL COURT OF

THE REPUBLIC OF LITHUANIA

 

R U L I N G

 

On the compliance of Paragraphs 1, 2 and 3 of Article 8 and Paragraphs 7, 8 and 9 of Article 16 of the Republic of Lithuania’s Law on Telecommunications with the Constitution of the Republic of Lithuania

 

Vilnius, 6 October 1999

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Egidijus Jarašiūnas, Egidijus Kūris, Zigmas Levickis, Augustinas Normantas, Vladas Pavilonis, Jonas Prapiestis, Vytautas Sinkevičius, Stasys Stačiokas, and Teodora Staugaitienė

The court reporter—Daiva Pitrėnaitė

Seimas member Vytenis Povilas Andriukaitis and Seimas member Juozas Bernatonis, acting as the representatives of a group of Seimas members, the petitioner

Onutė Buišienė, a senior consultant to the Law Department of the Office of the Seimas, and the academician Eduardas Vilkas, Director of the Economics Institute, acting as the representatives of the Seimas of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, on 7–8 September 1999, in its public hearing, considered case No. 12/98 subsequent to the petition submitted to the Constitutional Court by a group of Seimas members, the petitioner, requesting an investigation into whether Paragraphs 1, 2 and 3 of Article 8 the Republic of Lithuania’s Law on Telecommunications were in conformity to Articles 5 and 46 of the Constitution of the Republic of Lithuania, whether Paragraphs 7, 8 and 9 of Article 16 of the Republic of Lithuania’s Law on Telecommunications were in conformity to Paragraph 4 of Article 46 of the Constitution of the Republic of Lithuania and whether Paragraph 9 of Article 16 of the Republic of Lithuania’s Law on Telecommunications was in conformity to Article 23 of the Constitution of the Republic of Lithuania.

The Constitutional Court

has established:

I

On 9 June 1998, the Seimas passed the Republic of Lithuania’s Law on Telecommunications (Official Gazette Valstybės žinios, 1998, No. 56-1548; hereinafter also referred to as the Law). Paragraphs 1, 2 and 3 of Article 8 of the Law provide:

1. The Lithuanian market of operation of fixed public telephone communication networks and the provision of telecommunications services via fixed public telephone communication networks must be free as of 31 December 2002. Until this date, the main fixed public telephone communication operator has the right to remain the sole operator of fixed public telephone communication and the sole provider of fixed public telephone communication services.

2. Until the date specified in Paragraph 1 of this Article, no additional licences or authorisations may be granted that might alter the conditions for the activities of the main operator of fixed public telephone communication.

3. Persons shall be prohibited from providing, organising, advertising or taking part in any other way in establishing call-back services.”

Paragraphs 7, 8 and 9 of Article 16 of the Law on Telecommunications provide:

7. The terms and conditions of using the conduits, ducts, collectors, towers, poles and other equipment belonging to another operator shall be established by contract. The telecommunications operator, who owns the telecommunications equipment referred to in this paragraph, may not refuse to conclude such a contract with another telecommunications operator, request its amendment, and termination if the obligations stipulated in the contract are fulfilled.

8. A telecommunications operator shall pay, under the agreement of the parties, an appropriate fee to another operator for using his conduits, ducts, collectors, towers, poles and other equipment.

9. In a manner prescribed by the Government of the Republic of Lithuania, the company Lietuvos telekomas shall purchase the telecommunications networks installed at the consumers’ expense.”

A group of Seimas members have applied to the Constitutional Court with a petition requesting an investigation into whether Paragraphs 1, 2 and 3 of Article 8 of the Law on Telecommunications were in compliance with Articles 5 and 46 of the Constitution, whether Paragraphs 7, 8 and 9 of Article 16 of the same law were in compliance with Paragraph 4 of Article 46 of the Constitution, and whether Paragraph 9 of Article 16 of the same law were in compliance with Article 23 of the Constitution.

II

The request of the petitioner is based on the following arguments.

Paragraphs 1, 2 and 3 of Article 8 of the Law on Telecommunications provide for the monopoly of fixed public telephone communication services, prohibit the provision of call-back services, besides the consumers of telephone services are deprived of the right until 31 December 2002 to choose the provider of the services, and, alongside, they lose their right to cheaper services received under the pressure of competition. After call-back communications became prohibited, the services for international communications will become more expensive for many consumers of this country.

Under the aforementioned paragraphs of Article 8 of the Law, the provider of fixed public telephone communication services will acquire all exclusive rights in the telecommunications sector as of 31 December 2002. Upon the privatisation of the company Lietuvos telekomas, the monopoly of private subjects will be established.

In the opinion of the petitioner, Paragraphs 1, 2 and 3 of Article 8 contradict Article 46 of the Constitution, as until 31 December 2002 persons’ economic freedom and initiative are groundlessly restricted in the telecommunications market, a private monopoly is established in this market, the principle of fair competition is violated. Due to all this the interests of consumers may definitely suffer.

The petitioner draws one’s attention to the fact that under Article 5 of the Constitution, institutions of power shall serve the people, while the Seimas exercises the powers of the state and is one of state institutions. The petitioner doubts whether the Seimas, adopting Paragraphs 1, 2 and 3 of Article 8 of the Law, did not violate the stipulation of Article 5 of the Constitution.

According to the petitioner, by Paragraphs 7, 8 and 9 of Article 16 of the Law, wherein the common use of telecommunications lines and equipment is regulated, the company Lietuvos telekomas acquires the monopolistic right to the whole infrastructure of construction, networks, conduits, cable ducts, collectors, towers and poles. The other operators who will be able to receive the licence and permission after 2002 will find themselves at a disadvantage as it is extremely costly to lay telecommunications network and construct a new infrastructure, while during the negotiations with the monopolist as regards the use of conduits, ducts and other objects, one of the parties to the negotiations is at a disadvantage. Therefore, the petitioner is of the opinion that Paragraphs 7, 8 and 9 of Article 16 of the Law contradict Article 46 of the Constitution.

The petitioner maintains that at present the system of conduits, cable ducts, collectors, towers, poles and other equipment meet the requirements of the public. Part of the said items of infrastructure have been built by the right of common shared property, by way of management, or at consumers’ expense, and is legitimate property of natural and legal persons and of the whole society. Under Paragraph 9 of Article 16 of the Law, the company Lietuvos telekomas, which undergoes privatisation, shall purchase the telecommunications networks. This means that this is taken from society and given at the disposal of a private monopolist. The Law does not provide for the procedure for taking such property from society and its transfer at the disposal of the monopolist, nor does it contain any stipulation as regards fair compensation. The Government is commissioned to do so. The petitioner draws the conclusion that Paragraph 9 of Article 16 of the Law contradicts Article 23 of the Constitution under which property may only be seized for the needs of society according to the procedure established by law and must be adequately compensated for.

III

1. In the course of the preparation of the case for the Constitutional Court hearing, the representative of the party concerned O. Buišienė presented the following counter-arguments.

The provisions of Paragraphs 1 and 2 of Article 8 of the Law on Telecommunications were adopted by taking account of the fact that actually the company Lietuvos telekomas was and is a natural monopoly and that virtually it alone provided the public telephone communication services. The provision made by the legislature stipulating that temporarily, till 31 December 2002, there shall not be established any more providers of such services was grounded on the attempt to ensure that the prices for the services provided would not increase or would increase insignificantly. The norms of Paragraphs 1 and 2 of Article 8 of the Law on Telecommunications do not violate the interests of consumers. On the contrary, they protect them. The protection of consumers’ rights and the activity of the state in the welfare of the nation has priority and may not be linked with promotion of competition.

Paragraph 3 of Article 8 of the Law on Telecommunications prohibits call-back services because these are unlawful services. The providers of these services act on illegal grounds and they do not pay taxes. The State of Lithuania must prohibit illegal activities.

In the opinion of the representative of the party concerned, the argument of the petitioner that under Paragraphs 1, 2 and 3 of Article 8 of the Law, the consumers are deprived of the right to choose the provider of the services is groundless as in Lithuania there are several enterprises which provide telephone and telecommunications services to natural and legal persons. The consumers of these services are not deprived of the right to choose.

The relations regulated by Paragraphs 7 and 8 of Article 16 of the Law on Telecommunications are based on agreements between the parties. Paragraph 10 of the same article provides that arising disputes may be settled in court.

Paragraph 9 of Article 16 of the Law on Telecommunications does not require that the networks installed at the consumers’ expense be sold to the company Lietuvos telekomas under compulsion. The company is entitled to purchase these networks. But it is the owners themselves who decide whether to sell them or not.

2. In the course of the preparation of the case for the Constitutional Court hearing, explanations of the representative of the party concerned E. Vilkas were also received. It was noted therein that under the prior resolution of the Seimas the adoption of the Law on Telecommunications was a necessary condition for the privatisation of the company Lietuvos telekomas.

According to the representative of the party concerned, the privatisation of the company Lietuvos telekomas was positively assessed by the foreign media, which propagates the liberal market. The said privatisation was described as an exemplary contract useful to every party concerned—the purchaser, vendor, and consumer—and which should be included in the textbooks. After the company Lietuvos telekomas had been granted exclusive rights in the sector of fixed telephone communication as of 31 December 2002, there was not any negative reaction among European liberal economists, even though in the European Union much attention is paid to the liberalisation of communications sector.

In the opinion of the representative of the party concerned, the petitioner does not take account of the fact that the company Lietuvos telekomas is a natural monopoly. It is more useful to society not to dismantle such monopolies but to supervise the prices of the services provided by them so that such prices would not be unreasonably high and would approach marginal prices.

According to the representative of the party concerned, the provision of Article 46 of the Constitution “the law shall prohibit monopolisation of production and the market, and shall protect freedom of fair competition” may not be applied without any reservations, otherwise it would contradict the provisions of the same article of the Constitution which are: “the State shall regulate economic activity so that it serves the general welfare of the nation”, and “the State shall defend the interests of the consumers”.

The representative of the party concerned noted that the company Lietuvos telekomas which is the monopolist of fixed telephone communication is no longer the monopolist in telephony in general as it faces competition with operators of mobile communications and providers of The Internet services. On the liberalisation of these telecommunications spheres in Lithuania, the market power of the fixed telephone communication monopolist decreased substantially, i.e. it has less opportunities to increase prices unreasonably. The Law on Telecommunications reflects the reality that the company Lietuvos telekomas has always been and is at present a natural monopoly in the sector of fixed telephone communication, and, as long as it remains such a monopoly, one has to regulate the prices for telephone services. In the future the communications sector might be totally liberalised by way of modern demonopolisation of fixed telephone networks. In order to completely liberalise the communications market in Lithuania, it is necessary to change the pricing of communications services by substantially increasing the tariffs for local calls and reducing the prices for international calls. In case this is not done, the company Lietuvos telekomas would lose its excess profits from which it supports local networks, as the competitors would act in the sphere of international communication (which is profitable) but not in that of local communication (which is unprofitable). The company Lietuvos telekomas would find itself in a desperate financial situation, while much harm would be done to the development of telecommunications. Taking account of the interests of consumers and those of telecommunications development, it is impossible to restructure pricing too abruptly without any transitional period. The Law on Telecommunications provides for such a transitional period which must terminate not later than 31 December 2002.

Paragraphs 1 and 2 of Article 8 of the Law mention the abolition of the monopoly, which has always existed and the existence of which was economically grounded, i.e. it was useful to society, from 2003 without considerable increase of the expenses for the provision of services. Paragraph 3 of Article 8 of the Law of Telecommunications prohibits call-back services, first, because of the said unbalanced tariffs, and, second, because call-back services are contraband, their providers act in the Lithuanian market unlawfully and evade taxes. All contraband goods are cheaper to the consumer, however, it is doubtful whether on the grounds of the narrow interests of consumers one may defend contraband. As Paragraphs 1, 2 and 3 of Article 8 of the Law contain the norms which are reasonable as regards economic standpoint and the interests of consumers, they do not contradict Articles 5 and 46 of the Constitution.

The representative of the party concerned is of the opinion that the petitioner attaches the meaning to Paragraph 7 of Article 16 of the Law which is practically opposite to the actual one. The Law obligates the company Lietuvos telekomas (or any other owner) to let the infrastructure to other operators but it does not grant this company any monopolistic rights. This is in line with the aforesaid way of demonopolisation, viz., to encourage several operators who might use the same fixed telephone network. The owner of the infrastructure does not enjoy any monopolistic powers during the negotiations on lease with another operator, as under Paragraph 6 of Article 12 of the Law, the Communications Regulatory Authority shall settle disputes between telecommunications operators concerning the interconnection of telecommunications networks and a joint use of conduits, cable ducts, collectors, towers and poles. By Paragraph 10 of Article 16 of the Law, if an operator disagrees with the decision of the Communications Regulatory Authority, he shall have the right to apply to court. Such procedure is in line with international practice and is held sufficient in order to implement demonopolisation. Paragraphs 7, 8 and 9 of Article 16 of the Law on Telecommunications are in conformity to the Constitution.

Concerning the explanation of Paragraph 9 of Article 16 of the Law, the representative of the party concerned emphasised that the company Lietuvos telekomas does not want the networks which have been installed at the expense of the consumers. It is the consumers who, on the grounds of privatisation, demand that Lietuvos telekomas purchase these networks. The Law on Telecommunications obligates the company Lietuvos telekomas to do so. The manner of purchasing these networks will be prescribed by the Government so that there would not arise disputes concerning it between the company Lietuvos telekomas and the consumers. In this way the Government will protect this company from endless judicial proceedings and, it goes without saying, it will satisfy the interests of the consumers. If the Law had emphasised that the purchase is compulsory, but the sale is voluntary, such a misunderstanding would never have arisen.

According to the representative of the party concerned, the Law on Telecommunications in all its aspects is in compliance with the Constitution.

IV

In the course of the preparation of the case for the judicial investigation, explanations by Rimantas Didžiokas, Minister of Transport of the Republic of Lithuania, Gintaras Švedas, Vice-minister of Justice of the Republic of Lithuania, Rimantas Antanas Stanikūnas, Director of the State Service for Competition and Protection of the Rights of the Consumers, as well as those by the specialists—Jonas Ūsas, Director of the Communications Department at the Ministry of Transport, Prof. Habil. Dr. Arvydas Pajuodis and Prof. Habil. Dr. Vytautas Pranulis who work at the Faculty of Economics of Vilnius University, Assoc. Prof. Dr. Brunonas Dekeris and Assoc. Prof. Dr. Arminas Ragauskas who work at the Faculty of Telecommunications and Electronics of Kaunas Technological University, and Remigijus Šimašius, a legal expert at the Lithuanian Institute for Free Market—were received.

1. R. Didžiokas explained that in an attempt to liberalise the market of telecommunications services one has to ensure that all the population were provided with universal (compulsory) telecommunications services. Therefore, as a rule, the national telecom, regardless of whether it is private or public, is granted a limited exclusive right to provide the main services. The national operator burdens itself with the investment designated for development of the network, its modernisation, instruction of the staff etc. so that the services of voice telephony were accessible to all the population under reasonable price. Besides, not only in Lithuania but in all central and eastern Europe the prices for local calls are unprofitable, while the prices for international calls are excessively high. The profit received from international calls is used to cover the losses experienced by the operators who provide the services whose expenditures are higher than the charged price.

The main duty of the national operator is the provision of universal services which is of utmost importance to rural population and those whose income is low and whose interests might not been taken into consideration in case the telecommunications market is liberalised too early. Due to such reasons the European Commission permitted several member states of the European Union—Spain, Greece, Portugal and Ireland—to liberalise this market only partially. The permission of the European Commission to extend the term of the liberalisation of the telecommunications market of these states is grounded on the fact that their telecommunications networks have not been developed enough (meanwhile, the density of the network of the national operators of these states is nearly twice as big as that of the company Lietuvos telekomas).

The states of central and eastern Europe are also determined to liberalise their national telecommunications markets later: Latvia in 2013, Macedonia in 2005, Albania has not decided as to liberalise it as yet, Poland, Bulgaria, Slovakia and Romania in 2003, Hungary in 2002, Slovenia, Estonia and the Czech Republic in 2001. The Hungarian telecom was privatised in 1993, while the Estonian telecom—in 1992. The survey of the privatisation process of the telecoms from central and eastern European countries shows that after the national telecommunications operator has been privatised, the monopolistic rights to provide services which it enjoyed are left to it for at least ten years. The company Lietuvos telekomas will have to accomplish the obligations of balancing the tariffs and development of networks far sooner than the national telecommunications operators of all member states of the European Union and those of some states from central and eastern Europe: from the moment of the signing of the transaction of the sale of the shares to the strategic investor in the middle of 1998 until 31 December 2002.

Under Licence No. 174/97 granted to the company Lietuvos telekomas, it is obligated to provide universal services. In addition, it is obligated to implement the following stipulations during this short period: to balance the tariffs so that the prices would conform to the expenditure; to increase the density of digital telephone lines from 23.7 per cent in 1998 until 50 per cent in 2002; to increase the general density of telephone lines from 30 per 100 residents in 1998 to 37 lines per 100 residents in 2002; to finish the modernisation of fixed public telephone network.

R. Didžiokas also presented explanations as regards the other questions regulated by the Law on Telecommunications. He noted that under the open network provision (European Community Directive 98/10/EC), every operator who began telecommunications activities before and is the owner of public telecommunications network may not hinder the activities of another operator. The former must permit the latter to use his telecommunications equipment under contract. The national telecommunications operator (such is the company Lietuvos telekomas) is the owner of public telecommunications network, it supervises and maintains this equipment by its means, therefore, other operators who make use of the infrastructure of the said network must pay in proportion with the exploitation of this infrastructure.

In most European countries the call-back service is banned as the national telecommunications operators pay for the licence, they invest into the development of the network and attempt to balance tariffs, meanwhile, foreign companies, making use of the differences in tariffs between non-developed and economically strong countries, use telecommunications networks of the countries which are less developed economically, and these companies provide cheaper international call-back services. Such companies grossly violate the rules of licensing, they do not pay taxes to the state, they use the telecommunications networks of another operator without any contract and thus ruin fair competition.

Some consumers of telecommunications services have installed telephone links at their own expense, i.e. telecommunications cables form public telecommunications network until network termination points (telephones) have been laid at their expense. Some time ago it was common practice that the consumers would transfer the laid part of the network into the balance of the telecom without any compensation, therefore, such consumers were not owners of the said part of the network, nor did they exploit nor manage it but they merely used it as the rest of the subscribers of the company Lietuvos telekomas.

2. G. Švedas noted in his explanations that the prohibition on undertaking certain economic-commercial activity or licensing certain economic-commercial activity may not be judged to be a groundless restriction on freedom of economic activity and initiative of persons. By taking account of certain objective circumstances, the Seimas is entitled to establish a prohibition on undertaking certain economic activities. Such circumstances are: situation of the national economy, variety and changing nature of economic and social life, economic, social and other interests of the state. In certain spheres where competition is impossible owing to the specific character of the market or where it is undesirable as it could violate the interests of consumers, the state may introduce a monopoly on the grounds of Paragraphs 3 or 5 of Article 46 of the Constitution, i.e. in an attempt to regulate economic activity so that it serves the general welfare of the nation, or in order to defend the interests of consumers. The Constitution itself does not prohibit monopolisation of production and the market, but it commissions the legislature to do so. This creates constitutional grounds for the legislature, when it bans the monopolisation of production and the market, to take account of the situation of the national economy, the variety and changing nature of economic and social life, and presupposes his respective discretion within the limits of the Constitution. Thus, prohibiting monopolies, the Seimas may, alongside, establish exceptions to this rule, which are grounded on the objective basis. Upon establishment of the temporary monopoly of public fixed telephone communication services, protection of the consumers of these services was also provided for.

In the opinion of G. Švedas, Paragraph 7 of Article 16 of the Law on Telecommunications provides for the right of a telecommunications operator to use the conduits, ducts, collectors, towers, poles and other equipment belonging to another operator, therefore, not only the company Lietuvos telekomas but also other telecommunications operators have the same right as well. The provision of Paragraph 9 of Article 16 of the Law on Telecommunications by which in a manner prescribed by the Government the company Lietuvos telekomas shall purchase the telecommunications networks installed at the consumers’ expense must be understood as an obligation for this company to purchase the telecommunications networks from the consumers which were installed at the consumers’ expense. Most networks installed at the consumers’ expense are of little or no value, therefore, it is more profitable for the company Lietuvos telekomas to lay new networks. By the obligation established in the Law on Telecommunications for the company Lietuvos telekomas one attempts to protect the interests of the consumers.

3. R. A. Stanikūnas noted in his explanations that scrutiny regarding exclusive rights in economic activity must be based on Paragraph 4 of Article 46 of the Constitution wherein freedom of fair competition is secured. Assessing the relation between Paragraphs 3 and 4 of Article 46 of the Constitution, one has grounds to believe that a reservation to the fair competition principle might be possible. Regulating economic activity, the state may grant entities of economy exclusive rights to undertake certain economic activity in cases when this is of necessity for the general welfare of the nation. Granting exclusive rights for an economic entity to provide certain services ought to be based on the obligation, under the established conditions, to provide services of defined quality which are necessary to ensure the general welfare of the nation and in cases when there is clear evidence that such services might never be provided on commercial basis or that they would be inaccessible to a certain part of society.

R. A. Stanikūnas pointed out that the legal acts which were in force prior to the adoption of the Law on Telecommunications did not provide for an opportunity to grant exclusive rights to provide telecommunications services. Therefore, it is necessary to assess the changed conditions linked with the provision of telecommunications services which determined the necessity to grant the exclusive rights. The Law on Telecommunications does not directly indicate the reason on the grounds whereof one must grant the exclusive rights. The object of the exclusive rights granted to the company Lietuvos telekomas is very extended and includes not only the exclusive right to provide voice telephony services between fixed network termination points but also virtually grants the aforesaid company the monopolistic right to the means of production of all commutation and transmission equipment and all infrastructure designated for reciprocal links by means of public telecommunications networks outside Lithuania and established the exclusive right of the said company to provide services of international voice telephony. Due to this one must assess whether such an extended object of exclusive rights is necessary for the general welfare of the nation. The Law does not directly indicate any reasons justifying the object of the exclusive rights.

In the explanations by R. A. Stanikūnas attention is paid to the fact that granting the exclusive rights to the company Lietuvos telekomas is not directly linked with the obligation to provide services of defined quality which are necessary to ensure the general welfare of the nation.

4. J. Ūsas explained that before the Law on Telecommunications went into effect, on 18 August 1995, the company Forenta was granted a permission by the Ministry of Communications and Informatics to lay wireless fixed digital telephone network in the Kaunas district and to provide telephone services by this network. The said company was due to begin this activity on 1 September 1996 but it did not begin it then nor during the additional time period established by the ministry, therefore, by the 10 February 1997 order (No. 17) of the Ministry of Communications and Informatics, the validity of this permission was abrogated. On 31 October 1997, a licence was granted to the national operator Lietuvos telekomas to lay and use fixed telephone communications network and provide universal services by this network. Other entities of economy do not have nor are they granted additional licences nor permissions, as such granting is prohibited by Paragraph 2 of Article 8 of the Law on Telecommunications.

5. In the opinion of A. Pajuodis, by way of creating the conditions for monopolising the exploitation of fixed public telephone network and the provision of services by this network until 31 December 2002 as provided for by Paragraphs 1, 2 and 3 of Article 8 of the Law on Telecommunications, one does not ensure the protection of the rights of consumers. Paragraph 9 of Article 16 of the Law on Telecommunications permits the monopolisation of the infrastructure of the telecommunications market, thus, pre-conditions are created to apply different conditions for competition and to dominate for one economic entity in the telecommunications market after 31 December 2002. The fact that Paragraph 9 of Article 16 of the Law provides for purchasing the telecommunications networks installed at the consumers’ expense according to the procedure prescribed by the Government but not to that established by law violates Article 23 of the Constitution.

6. V. Pranulis noted that Paragraph 4 of Article 46 of the Constitution clearly, strictly and unambiguously contains the prohibition against monopolisation of production and the market. The provision of Paragraph 1 of Article 8 of the Law on Telecommunications by which as of 31 December 2002 the main fixed public telephone communication operator has a right to remain the sole operator of fixed public telephone communication and the sole provider of fixed public telephone communication services legitimises the monopoly of one enterprise and thus abolishes competition. The norm established in Paragraph 2 of Article 8 of the Law on Telecommunications also restricts freedom of economic activity and initiative, grants monopolistic privileges and places limitations on competition. The provisions of Paragraph 7 of Article 16 of the Law on Telecommunications in the context of the aforesaid norms of Article 8 broaden monopolistic powers and legitimise them in the infrastructure of construction, networks, conduits, cable ducts, collectors, towers and poles, and, alongside, this legitimatises removal of competitors as well.

V. Pranulis emphasised that it is impossible to tolerate violations of Paragraphs 1 and 4 of Article 46 of the Constitution on the grounds of Paragraphs 2 and 3 of the same article. First, the theory of economics and examples of its practice show that those countries where the competitive market economy prevails enjoy greater economic progress as well as general welfare of the nation. Second, upon legalisation of the monopoly of one entity of economy, a mere vision of effect is created: the purchaser of the company Lietuvos telekomas, making use of its monopolistic situation, will attempt to recover through prices and tariffs everything for what it has paid to gain the advantage of the monopolistic position. Third, when the power of one monopolist is protected for five years by the Law on Telecommunications, the competitors will be discriminated and removed from the market, and, in addition, their technological, financial and organisational opportunities will be subject to limitation. Thus, it is a real fact that, after 31 December 2002, in Lithuania, the monopolist will dominate for quite a long time. Fourth, the monopolistic position, especially when protected by law, does not induce the monopolist to work economically, to reduce expenses and prices for provided services. The consumers who have no choice are forced to pay non-competitive prices.

7. B. Dekeris and A. Ragauskas pointed out in their explanations that until the adoption of the Law on Telecommunications the company Lietuvos telekomas was the only licensed operator of fixed public telephone network, therefore, it is possible to maintain that the monopoly in this market had already existed. In order to completely liberalise the communications market in Lithuania, one has to change the structure of prices for communications services. However, it is impossible to do so hastily and without any transitional period, as for the purpose of this one has to modernise technologies and big capital investments are needed.

Prior to the liberalisation of the market, it is necessary to create an independent Communications Regulatory Agency which has been provided for by the Law on Telecommunications and which will have to ensure fair competition in the telecommunications market. The term provided for in Paragraph 1 of Article 8 of the Law on Telecommunications is necessary so that telecommunications networks might be sufficiently developed and the tariffs balanced. At present rural and local calls are unprofitable to the company Lietuvos telekomas. The losses are covered from the profit received from international and inter-town calls. In case this market is liberalised at present, no provider of communications services would be able to provide unprofitable services, therefore, the tariffs for rural and local calls would inevitably increase.

In the opinion of the specialists, it is not correct to assert that Article 16 of the Law grants exclusive rights to the telecommunications infrastructure for the company Lietuvos telekomas. The provision of Paragraph 9 of Article 16 of the Law occurred in an attempt to correct the situation which historically appeared due to the transfer of the telephone networks installed at the consumers’ expense to the telecom for no consideration.

8. R. Šimašius explained that free entering into the market is an essential and necessary element of competition and that of the right to competition, while monopolisation is understood either as consolidation of one entity in the market or as creation of monopolistic conditions, i.e. prohibition for other entities from entering into the market. Paragraphs 1 and 2 of Article 8 of the Law on Telecommunications abolish all competition and establish a monopolistic situation. Paragraph 4 of Article 46 of the Constitution obligates not to limit or regulate but protect competition by law. Paragraphs 1 and 2 of Article 8 of the Law on Telecommunications contradict the objective to protect freedom of fair competition established in Paragraph 4 of Article 46 of the Constitution. Because the prohibition against monopolisation of the market as established in Paragraph 4 of Article 46 of the Constitution is applicable to all subjects and the Constitution does not provide for any reservations, there is no doubt that this provision is valid as regards the state and the legislature as well.

In the opinion of R. Šimašius, the prohibition on call-back communication established in Paragraph 3 of Article 8 of the Law contradicts the provision of Paragraph 1 of Article 46 of the Constitution by which Lithuania’s economy shall be based on freedom of individual initiative. The Constitution does not contain any other principles or objectives on the grounds of which the prohibition on call-back communication may be grounded, which, doubtless to say, restricts freedom of individual initiative.

V

In the Constitutional Court hearing the representatives of the petitioner V. P. Andriukaitis and J. Bernatonis reiterated the arguments set forth in the petition and presented additional arguments.

During the judicial investigation the representatives of the party concerned virtually reiterated the counter-arguments set forth in the written explanations.

VI

The specialists V. Pranulis, B. Dekeris, A. Ragauskas, R. Šimašius, R. A. Stanikūnas, J. Ūsas who spoke in the Constitutional Court hearing specified and more comprehensively reasoned in favour of their written explanations.

Also the specialist Prof. Habil. Dr. Vilenas Vadapalas, Director General of the Department of European Law under the Government of the Republic of Lithuania spoke at the Constitutional Court hearing.

V. Vadapalas explained that Paragraph 1 of Article 86 of the Treaty of European Union which was amended by the Amsterdam Treaty (i.e. former Paragraph 1 of Article 90) provides that in case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in this Treaty, in particular to those rules provided for in Article 12 and Articles 81 to 89. Under Paragraph 3 of Article 86 (former Paragraph 3 of Article 90), the European Commission shall ensure the application of provisions of this Article and shall, where necessary, address appropriate directions or decisions to Member States. On the grounds of this, on 28 June 1990 the Commission adopted Directive 90/388/EEC on competition in the markets for telecommunications services.

At that time in all member states of the European Community the rights of the provision of telecommunications services and exploitation of telecommunications networks were granted to one or several telecommunications organisations which were enjoying either special or exclusive rights. Telecommunications services were liberalised step by step by implementing principles of competition in particular types of telecommunications services. This was linked with the fact that it was necessary to create a smoothly functioning mechanism of regulation of competition equally applicable to public and private sectors, to separate the functions of the provision of telecommunications services and those of regulation of these services, to balance the prices for the provision of services while taking account of expenditure etc. Therefore, the provisions of Directive 90/388/EEC have been amended several times (Directives 94/46/EC, 95/51/EC, 96/2/EC). On 13 March 1996 Commission Directive 96/19/EC amending Directive 90/388EEC with regard to the implementation of free competition in telecommunications markets was adopted. After the said amendment, Paragraph 1 of Article 2 provides that Member States shall withdraw all those measures which grant exclusive rights for the provision of telecommunications services, including the establishment and the provision of telecommunications networks required for the provision of such services. Paragraph 2 of the same article provides that Member States may maintain special and exclusive rights until 1 January 1998 for voice telephony and for the establishment and provision of public telecommunications networks. It is also provided for therein that Member States with less developed networks shall be granted an additional implementation period of up to five years and Member States with very small networks shall be granted upon request an additional implementation period of up to two years, provided it is needed to achieve the necessary structural adjustments. On the grounds of this provision as well as requests filed by member states and upon the assessment of the actual situation of each state, the Commission established transitional periods of various degree for Ireland (by Commission Resolution 97/114/EC the liberalisation of voice telephony services and exploitation of voice telephony network was postponed until 1 January 2000), Greece (by Commission Resolution 97/607/EC its liberalisation was postponed until 31 December 2000) and Portugal (by Commission Resolution 97/603/EC its liberalisation was postponed until 1 January 2000).

V. Vadapalas noted that, in adopting its decisions allowing transitional periods for member states, the Commission was taking account of the necessity to change analogous lines by digital ones, to balance the prices for services provided by telecommunications operators with the expenditure, as well as the size of investments in order to achieve these purposes and possible negative effect arising following a prompt liberalisation of the market and after permitting other operators to perform while the latter would not face such problems. In its resolutions the Commission underlined the importance of the principle of common proportionality in this sphere: the imposed transitional periods must strictly be such so that necessary structural adjustments might be performed, and never exceed this as this is an exception to the general rule.

The specialist pointed out that, while analysing the exclusive rights granted to the company Lietuvos telekomas, one should take into consideration the above-mentioned provisions of European Union law, as well as the international obligations of the Republic of Lithuania in this sphere.

V. Vadapalas explained that European Union law does not regulate the provision of call-back services, leaving it to decide to member states.

The Constitutional Court

holds that:

I

Article 1 of the Law on Telecommunications points out that this Law shall establish the telecommunications regulatory framework of the Republic of Lithuania, with due regard to the requirements of the European Union law. It is also indicated therein that in the Law conditions for promoting competition in the telecommunications sector are set forth, as well as other telecommunications relations are regulated.

According to the petitioner, the norms established in Paragraphs 1, 2 and 3 of Article 8 and Paragraphs 7, 8 and 9 of Article 16 of the Law unreasonably restrict persons’ economic activity and initiative, consolidate a private monopoly, violate the principle of fair competition, therefore, the interests of consumers may clearly suffer. In the opinion of the petitioner, Paragraphs 1, 2 and 3 of Article 8 of the Law contradict Articles 5 and 46 of the Constitution, Paragraphs 7, 8 and 9 of Article 16 of the Law contradict Paragraph 4 of Article 46 of the Constitution, while Paragraph 9 of Article 16 of the Law also contradicts Article 23 of the Constitution.

II

1. Article 46 of the Constitution provides:

Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative.

The State shall support economic efforts and initiative which are useful to the community.

The State shall regulate economic activity so that it serves the general welfare of the nation.

The law shall prohibit monopolisation of production and the market, and shall protect freedom of fair competition.

The State shall defend the interests of the consumers.”

The principles laid down in this article constitute a whole, which is the constitutional basis of the economy of this country. The principles are in harmony with each other, and this pre-supposes their balance, therefore, each of them must be interpreted without denying another constitutional principle.

2. The provision “Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative” of Article 46 of the Constitution defines that the fundamental values on which the national economy is based are private ownership, freedom of individual economic activity and initiative.

The notion of freedom of individual economic activity and initiative is a broad one. It includes the right to choose business freely, the right to free conclusion of contracts, freedom of fair competition, equality of subjects of economic activity etc. Freedom of individual economic activity and initiative is a whole-complex of legal opportunities creating pre-conditions for an individual independently to adopt decisions necessary for his economic activities (18 June 1996 Constitutional Court ruling).

3. Freedom of individual economic activity creates pre-conditions for implementing various aspirations of an individual. The national economy is based on freedom of individual economic activity and initiative, therefore, society is concerned with the implementation of the said freedom and initiative. The state supports economic efforts and initiative which are useful to the community.

4. Freedom of individual economic activity is not unrestricted one. In the course of its implementation the interests of society are affected in various respects, therefore, the state regulates economic activity. In the constitutional provision “the State shall regulate economic activity so that it serves the general welfare of the nation” the constitutional principle is established which sets the guidelines and ways for as well as limits on the regulation of economic activity. As a rule, the national welfare is reflected by the consumption of material values. The Constitutional provision “general welfare of the nation”, however, may not be construed, while only taking account of the satisfaction of material values by an individual. It is also possible to judge as regards the general welfare of the nation according to the social development of the nation and the opportunities of self-expression of an individual. The content of the notion “general welfare of the nation” should be disclosed in every particular case, while taking account of economic, social and other important factors.

5. The necessary guarantees for an effective functioning of the market economy are provided for in the constitutional provision “the law shall prohibit monopolisation of production and the market, and shall protect freedom of fair competition”.

Competition creates self-regulation of the economy as a system, which promotes optimal distribution of economic resources, their effective use, economic increase and that of the welfare of consumers. However, freedom of individual economic activity by itself does not guarantee competition, therefore, the state must protect fair competition.

The constitutional guarantee of fair competition obligates the institutions of state authority to ensure freedom of fair competition by legal means. Such measures are a prohibition on any agreements between/among entities of economy by which one attempts to limit or limits or may limit competition, a prohibition on abusing the domineering position, the control over the concentration of the market and respective prohibitions of concentration, a prohibition against unfair competition, the control over adherence to the rules of fair competition protection as established by law, and liability for their violations.

It needs to be noted that the guarantee of the protection of fair competition means a prohibition for state authority or municipal institutions regulating economic activity to adopt decisions which distort or are capable of distorting fair competition.

6. An opportunity for competition decreases or competition is removed from a respective market when monopoly begins to dominate in it. The state must limit monopolistic tendencies by legal means. In case that a monopoly has been formed, the state shall regulate monopolistic economic activity by establishing by law corresponding requirements for the monopolist. The scope of such legal regulation may depend on a number of factors: the regulated economic area, peculiarities of the time period etc.

The provision “the law shall prohibit monopolisation of production and the market” of Article 46 of the Constitution means that one may not introduce a monopoly, i.e. one may not to grant an entity of economy exclusive rights to act in a certain sector of economy due to which this sector might become monopolised. However, the prohibition against monopolisation of production and the market established in Article 46 of the Constitution does not mean that it is prohibited to state in the law that there exists monopoly in a particular sector of economy. Such a statement creates legal pre-conditions for applying respective requirements to the monopolist in protecting the interests of consumers.

The special measures of protection of the interests of consumers are: limitation on the establishment of discriminatory prices, state regulation of the size of prices and tariffs for the goods of monopolistic market, establishment of the requirements for the quality of goods as well as other requirements for monopolistic entity of economy etc. State institutions exert control over how entities of economy adhere to the established regulations.

7. The Constitution is an integral act. The principle of harmonisation of interests of an individual and those of society is established therein. One must conform to this principle in the course of regulation of economic activity as well. On the grounds of an analysis of the constitutional principles of the organisation of the national economy, it should be concluded that in the course of regulation of economic activity, the key manner to ensure harmonisation of the interests of an individual and those of society is protection of fair competition.

8. Deciding the question of compliance of the impugned norms of the Law which regulate economic activity in the telecommunications sector with Article 46 of the Constitution, it is important to establish on what basis and by what scale the state may regulate economic activity in general so that it would not deny the protection of fair competition and other principles laid down in Article 46 of the Constitution.

Legal regulation is a form of establishment of certain social order. Peculiarities of legal regulation depend on the specific character of the regulated social relations. One area of such relations is economic activity. The constitutional principle of freedom of individual economic activity and initiative conditions the fact that regulation of economic activity is characteristic of the method of common permission: everything which is not forbidden is allowed. Thus, prohibitions are one of the ways of regulating economic activity.

Individual economic activity may be subject to limitation when it is necessary to protect the interests of consumers, fair competition and the other values entrenched in the Constitution. The prohibitions provided for in the law must be reasonable, non-discriminatory and clearly formulated.

Due to complexity of economic activity and dynamism of particular relations, regulation in this area may not be the same all the time, i.e. the proportion of prohibitions and permissions may fluctuate, however, in the course of alteration of the content of legal regulation the principles of regulation of the national economy established in the Constitution may not be denied.

III

On the compliance of Paragraphs 1, 2 and 3 of Article 8 of the Law on Telecommunications with the Constitution.

Paragraphs 1 and 2 of Article 8 of the Law on Telecommunications provide:

1. The Lithuanian market of operation of fixed public telephone communication networks and the provision of telecommunications services via fixed public telephone communication networks must be free as of 31 December 2002. Until this date, the main fixed public telephone communication operator has the right to remain the sole operator of fixed public telephone communication and the sole provider of fixed public telephone communication services.

2. Until the date specified in Paragraph 1 of this Article, no additional licences or authorisations may be granted that might alter the conditions for the activities of the main operator of fixed public telephone communication operator.”

1. As regards regulation of economic activity, the impugned norms of the Law provide that during the defined period, i.e. until 31 December 2002, respective activity—the provision of public telephone communication services—will be allowed for only one entity of economy, which is the company Lietuvos telekomas. The said provisions also contain a guarantee that during this period no additional licences or authorisations that might alter the conditions for the activities of this economic entity will be granted.

Investigating whether under such regulation of economic activity by the Law the limits set by the Constitution are not overstepped, one has to take account of the peculiarities of the telecommunications market and those of its development, as well as what purpose is sought by such legal regulation and the fact that the prohibition on competition in the telecommunications sector is not universal and absolute as the market of mobile communications services and that of the Internet network services are free.

2. Telecommunications are transmission, sending, receiving of signs, signals, written texts, images and sounds or other information via wire, radio, optical, and other electromagnetic systems (Paragraph 26 of Article 2 of the Law). Fixed public telephone communication services are local, long distance and international telephone communication services provided to the consumers via a public fixed telephone network (Paragraph 7 of Article 2 of the Law). Under Paragraph 8 of Article 2 of the Law, this is such telecommunications network which, in addition to other services, is used to provide voice telephony services between network termination points at a fixed location. It includes switching and transmission equipment and other infrastructure intended for interconnection with public telecommunications networks outside the boundaries of Lithuania.

Telecommunications is a specific branch of economy. In today’s society, after the need for transmission of the news, dissemination of information had increased, for an individual telecommunications became necessary means of communication, therefore, the state must take care of its development.

3. As mentioned above, the main pre-condition for economic development and satisfaction of the interests of consumers is the existence of a competitive market.

From the times of planned economy, in the telecommunications sector there was a state monopoly. After the state telecom enterprise had been re-organised into the company Lietuvos telekomas, the state became the owner of all the shares while fixed public telephone communication networks belonged to this company. No matter that under the Republic of Lithuania’s Law on Communications of 30 November 1995 other subjects were entitled to undertake economic activities in the telecommunications sector, however, in fact this market remained monopolised.

In the course of adoption of the Law on Telecommunications it was stated that there exists monopoly in fixed public telephone communication sector. As there existed such a situation, Paragraph 1 of Article 8 of the Law provided that as of 31 December 2002 the market of fixed public telephone communication must be free.

4. A real opportunity of demonopolisation of the telecommunications market is generally linked with world’s technological progress in this branch of economy. The creation of a competitive telecommunications market is linked with the necessity of restructuring the existing telecommunications infrastructure, therefore, it is recognised that, in the transitional period of the telecommunications market, a corresponding legal regulation of existing monopolies is needed. This is confirmed by the experience of the European Union which was acquired in the course of the liberalisation of the telecommunications market.

For instance, on 28 June 1990 the European Commission adopted Directive 90/388/EEC on competition in the markets for telecommunications services. Paragraph 1 of Article 2 of the said Directive provides that Member States shall withdraw all those measures which grant exclusive rights for the provision of telecommunications services, including the establishment and provision of telecommunications networks required for the provision of such services. Paragraph 2 of the same article provides that Member States may maintain special and exclusive rights until 1 January 1998 for voice telephony and for the establishment and provision of public telecommunications networks. It is also provided for therein that Member States with less developed networks shall be granted an additional implementation period of up to five years and Member States with very small networks shall be granted upon request an additional implementation period of up to two years, provided it is needed to achieve the necessary structural adjustments.

Thus, in the course of implementation of the said European Commission Directive, the liberalisation of telecommunications in member states of the European Community took place from 1990 till 1998. By its special resolutions the European Commission postponed the date of complete liberalisation of telecommunications for Ireland, Greece and Portugal until the end of 2000. According to the specialists, adopting its resolutions on transitional periods for member states, the European Commission took account of the necessity to change analogous lines by digital ones, to balance the prices for services provided by telecommunications operators with the expenditure, as well as the size of investments in order to achieve these purposes and possible negative effects arising following a prompt liberalisation of the market and permitting other operators to perform while the latter would not face such problems. In the opinion of the European Commission, these measures are necessary to create a smoothly functioning mechanism of regulation of competition equally applicable to public and private sectors, to separate the functions of the provision of telecommunications services and those of regulation.

5. The liberalisation of the telecommunications market means that equal conditions for competition are created to all the operators who perform in the market. It is obvious from the provisions laid down in the Law on Telecommunications that, adopting it, one was basing himself on the fact that conditions must be created for competition in the telecommunications sector (first of all international), and that transitional period in the telecommunications market is necessary.

The Law provides for the transitional period in the telecommunications market due to the necessity to strengthen the technological basis of telecommunications and gradually to restructure prices for telecommunications services. Such provision is in line with the said experience of the European Union which confirms that, unlike other sectors of economy, the telecommunications market must be liberalised gradually, by implementing principles of competition for individual types of telecommunications services.

6. The Constitutional Court emphasises that after it has been established in the Law on Telecommunications that in the fixed telephone communication sector the market will be free as of 31 December 2002, and, on establishing monopoly until then, it is necessary to establish respective requirements for the monopolist so that the interests of consumers might be protected which in case of absence of competition might be violated. Such requirements ought to be worded and laid down in the Law. In order to protect the interests of consumers the main requirement for the monopolist must be the provision of telephony services of defined type and quality under established conditions. The Law on Telecommunications does not contain any requirement of such nature designated for the monopolistic provider of telecommunications services. It is evident from the information presented to the Constitutional Court by the Ministry of Transport that the main operator of fixed public telephone communication, which is the company Lietuvos telekomas, is obligated under the licence granted to it to provide universal telephony services and develop them, respectively balance the tariffs, to finish modernisation of fixed telephone communication, however, the power of obligations established in the licence is not equal to that of the requirements established in the Law.

Under Paragraph 3 of Article 11 of the Law on Telecommunications, the maximum price for fixed telephone communication and universal services shall be established by the Government. This norm of the law is designated to protect the interests of consumers. Establishment of price limits is one of the ways to protect the interests of consumers. These interests would be protected in a more effective way, if the law provided for the other legal measures permitting minimising possible negative effects for the consumers which might occur due to the absence of competition in the area of the provision of fixed telephone communication services.

Taking account of the arguments set forth, it should be held that the regulation established in the Law on Telecommunications is insufficient and, therefore, defective, since it does not establish any respective requirements for the monopolist of fixed telephone telecommunication so that the interests of consumers might be protected in the Law in every way possible.

7. Paragraph 3 of Article 8 of the Law contains a prohibition for persons to provide, organise, advertise or take part in any other way in establishing call-back services.

Assessing the compliance of this impugned norm of the Law with Article 46 of the Constitution, the fundamental attitude is that an individual may indulge in any economic activity which is not prohibited by law. A prohibition on freedom of economic activity of individuals must be clear in every particular case and must be designated for the protection of the values entrenched in the Constitution, i.e. those of fair competition, interests of consumers etc.

In considering the question of the prohibition on call-back services, the fact is of importance that the national telecommunications operators pay for the licence, invest into expansion of the network and implement the requirements made by the state. Due to different development of telecommunications in different countries, the tariffs for calls are different. Certain foreign companies make use of the telecommunications networks of economically less developed countries and because of difference in the tariffs for international calls they provide much cheaper international call-back services. Providers of such services violate the rules of licensing, they do not pay taxes to the state, they use the telecommunications networks of another operator without concluding with him respective contracts and violate fair competition.

Protecting the interests of national operators and safeguarding fair competition, the state may establish a prohibition on providing call-back services.

A prohibition on advertising call-back services is based on the fact that commercial advertisement encourages to buy certain goods or services. By banning the provision of call-back services by law, the prohibition on advertising such services should be held reasonable. This prohibition should not be linked with dissemination of information of any other kind as regards call-back service.

On the grounds of the arguments set forth, the conclusion should be drawn that Paragraph 3 of Article 8 of the Law on Telecommunications does not violate the constitutional principle of freedom of individual economic activity and initiative.

8. The Constitutional Court notes that the establishment of exclusive rights in the sector of fixed telephone communication for a certain period and temporary limitation on competition in this sector at the same time should be regarded as an exceptional case of legal regulation of the transitional period in the specific telecommunications market.

Taking account of peculiarities of the relations regulated by the impugned norms of the Law and the purpose sought by the established legal regulation whereof as well as the fact that the limitation on competition in the fixed telephone communication market is only temporary, the conclusion should be drawn that Paragraphs 1, 2 and 3 of Article 8 of the Law on Telecommunications are in compliance with Article 46 of the Constitution.

9. In the opinion of the petitioner, Paragraphs 1, 2 and 3 of Article 8 of the Law of Telecommunications contradicts Article 5 of the Constitution.

The said article of the Constitution provides:

In Lithuania, the powers of the State shall be exercised by the Seimas, the President of the Republic and the Government, and the Judiciary.

The scope of powers shall be defined by the Constitution.

Institutions of power shall serve the people.”

After it was held that Paragraphs 1, 2 and 3 of Article 8 of the Law on Telecommunications are in compliance with Article 46 of the Constitution, the conclusion should be drawn that they are in compliance with Article 5 of the Constitution as well.

IV

On the compliance of Paragraphs 7 and 8 of Article 16 of the Law on Telecommunications with the Constitution.

Paragraphs 7 and 8 of Article 16 of the Law on Telecommunications provide:

7. The terms and conditions of using the conduits, ducts, collectors, towers, poles and other equipment belonging to another operator shall be established by contract. The telecommunications operator, who owns the telecommunications equipment referred to in this paragraph, may not refuse to conclude such a contract with another telecommunications operator, request its amendment, and termination if the obligations stipulated in the contract are fulfilled.

8. A telecommunications operator shall pay, under the agreement of the parties, an appropriate fee to another operator for using his conduits, ducts, collectors, towers, poles and other equipment.”

According to the petitioner, under the said norms of the Law the main operator of fixed telephone communication the company Lietuvos telekomas acquires the monopolistic right to all infrastructure of construction, networks, conduits, cable ducts, collectors, towers and poles. The petitioner is of the opinion that this contradicts Paragraph 4 of Article 46 of the Constitution wherein it is established that the law shall prohibit monopolisation of production and the market.

1. The impugned norms of the Law on Telecommunications regulate the relations of common use of telecommunications networks. The necessity of such legal regulation is determined by the fact that the state must ensure the minimum of telecommunications services (universal services) provided to all consumers.

The laying of telecommunications lines, construction of telecommunications facilities is a complex and expensive work. When telecommunications market services are developed, the fact is of importance that technically more than one operator is capable of making use of telecommunications infrastructure. Due to this in the telecommunications sector a rule of common use of telecommunications networks became firmly established. Under Directive 98/10/EC adopted by the European Parliament and Council of Europe, every operator who began telecommunications activities before and is the owner of public telecommunications network may not hinder the activities of another operator. The former must permit the latter to use his telecommunications equipment under contract. The provision of joint use of telecommunications networks is based on the fact that this helps to develop the market of telecommunications services and is one of the ways to demonopolise this market.

2. Paragraph 6 of Article 16 of the Law on Telecommunications provides: “In the event a telecommunications operator cannot exercise his right to lay new telecommunications lines and install telecommunications facilities or if the costs of exercising this right are disproportionately high, the Commissions Regulatory Authority may request any other telecommunications operator to allow the former operator to jointly use, on a non-discriminatory basis, the existing conduits, cable ducts, collectors, towers, poles and other facilities or to install telecommunications facilities when this is economically expedient and does not require any additional cardinal work.”

In case there are the aforesaid conditions, under Paragraph 6 of Article 16 of the Law the Communications Regulatory Agency has the right but not necessarily has to demand that the owner of telecommunications lines and telecommunications equipment allow using jointly the existing telecommunications infrastructure. Such legal regulation implies that other requirements of laws, too, may be binding on the Communications Regulatory Agency, e.g. those linked with the prohibition against monopolising production and the market. In cases when the Communications Regulatory Agency assents to the possibility of jointly using telecommunications networks, the questions regulated in Paragraphs 7 and 8 of Article 16 of the Law on Telecommunications are decided in a respective manner.

3. Several independent norms are to be distinguished from Paragraphs 7 and 8 of Article 16 of the Law on Telecommunications: 1) the terms and conditions of using the conduits, ducts, collectors, towers, poles and other equipment belonging to another operator shall be established by contract; 2) the telecommunications operator, who owns the telecommunications equipment, may not refuse to conclude such a contract on use of telecommunications networks with another telecommunications operator; 3) the telecommunications operator, who owns the telecommunications equipment, may request neither any amendment nor termination of such a contract if the obligations stipulated therein are fulfilled; 4) a telecommunications operator shall pay, under the agreement of the parties, an appropriate fee to another operator for using his equipment.

4. In the course of construction of Paragraph 4 of Article 46 of the Constitution, it has been mentioned in the present ruling that one may not to grant an entity of economy exclusive rights to act in a certain sector of economy due to which this sector might become monopolised.

In deciding the issue raised by the petitioner that under the impugned norms of the Law on Telecommunications a particular entity of economy the company Lietuvos telekomas acquires monopolistic rights to all infrastructure of the provision of telecommunications services, it should be noted that Paragraphs 7 and 8 of Article 16 of the Law on Telecommunications do not contain any norms designated particularly for one subject. The norm establishing that a telecommunications operator may not refuse to conclude a contract with another operator on use of his telecommunications lines and other equipment is applicable to every subject of this sector of economy, i.e. every telecommunications operator. The same applies to the norm of the Law under which no telecommunications operator may request either any amendment or termination of a contract on use of his equipment if the obligations stipulated in the contract are fulfilled. Thus, the conclusion should be drawn that, under Paragraph 7 of Article 16 of the Law on Telecommunications, the right to common use of conduits, ducts, collectors, towers, poles and other equipment is enjoyed by both the company Lietuvos telekomas and other operators. Particular conditions of the contract, the size of payment are established under agreement of the parties. In case of disagreements on the conditions of the contract the parties to the contract may apply to court.

The arguments set forth do not provide grounds to conclude that Paragraphs 7 and 8 of Article 16 of the Law on Telecommunications establish the monopolistic right to all telecommunications infrastructure for one telecommunications operator, therefore, the said parts of Article 16 of the Law are in compliance with Paragraph 4 of Article 46 of the Constitution.

V

On the compliance of Paragraph 9 of Article 16 of the Law on Telecommunications with the Constitution.

Paragraph 9 of Article 16 of the Law on Telecommunications provides:

9. In a manner prescribed by the Government of the Republic of Lithuania, the company Lietuvos telekomas shall purchase the telecommunications networks installed at the consumers’ expense.”

The petitioner maintains that this norm of the Law on Telecommunications contradicts Paragraph 4 of Article 46 of the Constitution as it grants the right to the company Lietuvos telekomas to purchase the telecommunications networks installed at the consumers’ expense and thus to monopolise all telecommunications infrastructure. Besides, according to the petitioner, the impugned norm contradicts the requirements established in Article 23 of the Constitution under which property may only be seized for the needs of society according to the procedure established by law and must be adequately compensated for.

1. Article 23 of the Constitution prescribes:

Property shall be inviolable.

The rights of ownership shall be protected by law.

Property may only be seized for the needs of society according to the procedure established by law and must be adequately compensated for.”

The inviolability of property means that an owner has the right to demand that other persons do not infringe his rights and it means an obligation of the state to defend and protect property from unlawful attempts on it. The Constitution guarantees protection of subjective ownership rights. Subjective ownership rights are the right of the owner to manage, use and dispose of his property without overstepping the limits established by law, without violating the rights and legitimate interests of other persons.

2. Under Paragraph 3 of Article 23 of the Constitution property may only be seized for the needs of society according to the procedure established by law and must be adequately compensated for. The seizure of property for the needs of society (eminent domain) is relation of administrative nature, while the parties to this relation is the state and the owner of private property.

The Constitutional Court notes that Paragraph 9 of Article 16 of the Law on Telecommunications regulate not the seizure of property for the needs of society but relations of different nature which appeared between the operator of public fixed telephone communication the company Lietuvos telekomas and the consumers of telecommunications services provided by the former.

3. Some consumers of telecommunications installed telephone communication at their expense, i.e. telecommunications cables form public telecommunications network until network termination points (telephones) which were in the estate of the consumers were laid at their expense. Such telephone networks were entered into the balance of the existing telecom enterprise and this enterprise exploited the said networks.

Entering telephone networks into the balance by itself does not mean that the question of ownership has been solved. After such relations occurred between two parties—provider of telecommunications services and consumers of such services—it is provided in Paragraph 9 of Article 16 of the Law on Telecommunications that the company Lietuvos telekomas shall purchase the telecommunications networks installed at the consumers’ expense.

Several aspects of this norm of the Law are to be noted. First, the provision of the Law by which “the company Lietuvos telekomas shall purchase the telecommunications networks installed at the consumers’ expense” indicates that these persons are treated in the Law as the owners of the said networks. Thus, it should be concluded that they are entitled to demand that their property be returned in kind, that it be compensated, etc.

Another crucial aspect is that the impugned norm of the Law is meant for the company Lietuvos telekomas. This norm obligates Lietuvos telekomas to settle accounts with the consumers for the telecommunications networks installed at the consumers’ expense which the said company at present exploits. Thus, one attempts to protect the interests of the consumers of telecommunications services who installed telecommunications networks at their expense.

On the grounds of these arguments, the provision of the Law “the company Lietuvos telekomas shall purchase the telecommunications networks installed at the consumers’ expense” must be construed in the following way: there is a concrete obligation for the company Lietuvos telekomas to settle accounts with the consumers in case the owners of telecommunications networks express their wish to transfer them into the property of the said company. From this provision the conclusion follows that in the regulated relations one must conform to the fundamental rule of the legal institute of purchase and sale by which the price for the property transferred into the ownership of another person shall be established under agreement of the parties. Thus, the payment for the telephone networks installed at consumers’ expense must be performed not according to the balance value established by the company Lietuvos telekomas or any other value established by the said company but under agreement of the parties. In case of failure of the agreement on the size of payment, the dispute may be settled in court.

The wording “in the manner prescribed by the Government” used in Paragraph 9 of Article 16 of the Law means the establishment of certain procedures without interfering with the legal regulation established in the Civil Code of the Republic of Lithuania and the Code of Civil Proceedings of the Republic of Lithuania. Thus, the Government may not determine the size of payment for the telecommunications networks installed at consumers’ expense and transferred into the ownership of the company Lietuvos telekomas. As mentioned, this is the matter to be settled under agreement of the parties.

What has been set forth does not give grounds to assert that Paragraph 9 of Article 16 of the Law on Telecommunications contradicts the provisions regarding protection of property as laid down in Article 23 of the Constitution.

4. According to the petitioner, under Paragraph 9 of Article 16 of the Law on Telecommunications, the company Lietuvos telekomas acquires the monopolistic right to all telecommunications infrastructure.

In deciding the compliance of this impugned norm of the Law with Paragraph 4 of Article 46 of the Constitution, one should take into consideration the fact that the said norm provides for purchasing telephone networks installed at consumers’ expense on the basis of free will but never by coercive way. It needs to be noted that regardless of to whom these networks belong at present or will belong in the future, under the impugned norm of the Law, the situation of the company Lietuvos telekomas in the telecommunications market virtually remains intact.

Taking account of the set forth above, it should be concluded that Paragraph 9 of Article 16 of the Law on Telecommunications is in compliance with Paragraph 4 of Article 46 of the Constitution.

Conforming to Article 102 of the Constitution of the Republic of Lithuania and Articles 53, 54, 55 and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

To recognise that Paragraphs 1, 2 and 3 of Article 8 and Paragraphs 7, 8 and 9 of Article 16 of the Republic of Lithuania’s Law on Telecommunications are in compliance with the Constitution of the Republic of Lithuania.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:

 

Egidijus Jarašiūnas     Egidijus Kūris      Zigmas Levickis

 

Augustinas Normantas     Vladas Pavilonis     Jonas Prapiestis

 

Vytautas Sinkevičius     Stasys Stačiokas      Teodora Staugaitienė