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The liberalization of trade in goods, which has been promoted in particular through negotiations in the GATT over the past 50 years, has been one of the greatest contributors to economic growth and the relief of poverty in mankind's history. Following the catastrophic experience of the first half of the 20th century, Governments deliberately turned away from the policies of economic nationalism and protectionism, which had helped to produce disaster, and towards economic cooperation based on international law. Growth in this period was not uniformly shared, but there is no doubt that those countries, which chose deeper involvement in the multilateral trading system through liberalisation, benefited greatly from doing so.
The telecommunication sector is important for the development of the ICT sector as a whole, and as one of its crucial backbones, it contributes to the development of the entire economy.
Liberalisation in the sector has the potential to facilitate a step change in the ICT infrastructure of developing as well as developed countries, and therefore enhance their economic and social well-being altogether.
Typically, liberalisation can indeed result in benefits such as:
A carefully planned market opening, conducted in an open and transparent manner, allows market predictability - this is what attracts potential investors to the sector.
Investors are indeed wary of situations where there is a lack of regulatory clarity and transparency: they want a stable investment climate. Essential rules governing the regulatory and economic infrastructure need to be laid down, concerning private sector participation, market competition and the creation of an independent regulator.
In the detail, regulations can address the licensing regime, competitive practices (including the rights and obligations of various market players), pricing policy, interconnection with the incumbent, and universal service obligations.
Liberalisation can also be used indirectly to achieve objectives of universal access to services. Private investment and competition in the telecoms sector usually lead to increased supply of infrastructure and services. But strong and innovative approaches to sector reform can also ensure that marginalized groups or regions are not forgotten, without automatically deterring investors.
As part of regulatory reform, restrictions on the scope of liberalised services or on the number of entrants allowed to offer specific services in return for market entry, can be shaped to fulfil universal service objectives, such as growth in teledensity and infrastructure development.
For instance in Hungary, the Government licensed new entrants on the condition that they meet targets of 15.5% growth in fixed lines annually and fulfil 90% of customer demand for new lines within six months.
Even without specific regulation, the liberalisation process of the 1990’s has encouraged private capital to invest in services and technology, increasing teledensity, eliminating or drastically reducing waiting lists, improving network availability and overall quality of service. Competition between operators has largely driven this development, and this was reinforced by the (indirect benefits of the) introduction of new technologies, such as mobile, VSATs or VoIP.
The liberalisation of specific services can indeed have wide-ranging benefits. The opening of the mobile sector can help develop end user access to telephony services, for instance – Morocco is a perfect example, where teledensity rocketed once mobile competition was introduced (see case study).
Mobile services can also enable telephony in rural areas, at lower costs than rolling out fixed lines. Colombia illustrates this point well: there, rural fixed lines are linked to local GSM base stations, in the same way as mobile handsets – this meant a cheaper, faster network development, with extra services compared to fixed lines, such as SMS.
Similarly, VSATs are a low-cost and appropriate technology, ripe for liberalisation, especially for LDCs and landlocked countries with no undersea fibre optic connections. The combination of market liberalisation and VSATs can have immediate results for internet connectivity and increased bandwidth – for instance Nepal saw its bandwidth grow from 320kbps to 5Mbps in 6 months after the introduction of competition in the market(see case study).
In the end, consumers should be the main beneficiaries of liberalisation. This is true for the quality and availability of services, as highlighted above, but also simply because it gives them the choice to use the service and the provider most suited to their needs, at the most competitive price.
The competition between PSTN carriers and alternative operators, such as those providing VoIP, that between foreign investors newly entered in the market and local entrepreneurs encouraged to invest without regulatory constraints, all result in greater service and, over the last 10 years OECD figures show a marked reduction in prices - international call rates in OECD countries where on the whole liberalisation has taken effect, have fallen by 73% at USD 0.33 since the early 1990’s.
On 15 February 1997, 69 Members of the World Trade Organisation (WTO) agreed to open their basic telecoms markets to competition, thus liberalising over 90% of global trade in telecoms services (93%). This marked the successful end of negotiations, under UK chairmanship, to extend the general Agreement for Trade in Services (GATS) to basic telecommunication services.
Coming into force on 5 February 1998, the Agreement on Basic Telecommunications (BTA) not only provided a framework for the gradual liberalisation of market access but also established a framework of basic regulatory principles (such as measures to prevent anti-competitive behaviour and non-discriminatory and timely provision of interconnection at cost-oriented rates) to which the majority of countries also committed themselves.
For those countries at present negotiating accession to the WTO, the agreement gives a clear framework within which to address the reform of their own telecommunications market.
See Annex 1 for a full list of case studies
See Annex 2 for more on the impact of liberalisation in the EU and WTO context.
Liberalisation has been a widespread phenomenon in the 1990’s. For the first time since the 19th century, there are now more ITU Member States with partially- or wholly-owned operators than those with state-owned operators. This is explained by the success encountered by telecommunications liberalisation schemes.
Chile, El Salvador, Hungary, Jamaica, Mauritius and the Philippines all appear in the short list of countries that jumped more than 30 places in the ITU teledensity rankings in the 1990s – all of these countries adopted the pro-liberalisation agenda of the WTO Basic Telecommunications Agreement in that period.
Amongst those that lost ground in the ITU rankings, many did not privatise and have not yet opened their markets to competition.
An interesting example, and a country that clearly stands out, is China: in 1990 they stood at 0.6% teledensity, ranking 159th in the world; and in 2000, they had reached a 17.6% level in teledensity reaching rank 97th in the world. Vietnam similarly jumped from the bottom 5 up 48 places in the ITU teledensity rankings. Both countries, though communist, command economies, followed similar policies in the 1990’s of a relatively high degree of competition, with for instance in Vietnam the Defence Ministry competing against the incumbent VNPT with its own alternative provider (note that there is no direct private sector ownership in these countries, although foreign investors are involved joint ventures and related schemes).
Though privatisation has encountered much success, the comparison below shows that the introduction of competition works even better, as only this formula generates the competitive dynamics that can reap the maximum benefits of liberalisation.
A comparison between Chile and Argentina illustrates this point well. In 2000 after ten years of privatisation with competition, Chile’s teledensity grew by 15.4% per annum on average; whereas in the same period Argentina, where privatisation was introduced, but no competition, teledensity grew by only 8.6% on average.
Similarly in the UK, the PSTN duopoly was relaxed in 1990, and Cable TV and other operators entered a fully competitive market. The results: Since the privatisation of BT in 1984, the UK telecommunications market has experienced unprecedented expansion, in terms of both the overall volume of business (£7.5 bn in 1984, over £31bn per annum in 2000) and the range of services on offer. 10m new fixed lines installed during the 1990s, 40m new mobile subscribers, investment in the telecoms sector more than doubled from $3.5bn in 1980 to $8bn in the 1990s, and the UK went from 16th in 1990 to 8th in 2000 in the ITU teledensity rankings. At the same time, prices went down considerably, especially for international services.
Not only in the UK did telecoms charges fall: even when discounting other factors such as technological change, call charges were found to fall dramatically, especially for long distance calls. Since the early 1990’s, international rates in OECD countries have fallen by 73% at USD 0.33 (70% on average for a majority of OECD countries). Most of the reduction came after 1998, which tends to reflect the fact that 1998 was the first year in which a majority of OECD countries had liberalised their telecoms market.
Broadband has recently been a key driver in the development of IP telephony (Internet Protocol, which accounted for 7.3% of international outgoing traffic in 2001 vs. 0.01% in 1997), driving down prices by up to 90% on long distance calls in Japan for instance.
Overall, in most markets it is very clear that liberalisation has brought tremendous benefits to users through price reductions and improvements in quality of service. At the same time, it has contributed to an unprecedented sector growth in all countries concerned, accompanied by major infrastructure developments.
Report for the OECD by consultancy Analysis: Roadmaps for success in telecoms liberalisation: issues and best practice – Integrating ICT in development programmes. OECD: Paris, 27 March 2003. (published at the occasion of the Joint OECD/UN/World Bank Global Forum on the Knowledge Economy, Pairs, 4-5 March 2003).World Telecommunications Development Report – Reinventing telecoms. Geneva: ITU 2002.
Communications liberalisation in the UK - Key elements, history and benefits. London: DTI March 2001.
GATS: Facts and Fiction. Geneva: WTO 2001.
http://www.wto.org/english/tratop_e/serv_e/gats_factfiction2_e.htm
DTI International Communications, September 2003 (Revised July 2004)