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§ Why liberalise?
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:
§ attracting and increasing investment in the sector
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.
§ universal access to services
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.
§ infrastructure development, particularly increased teledensity and improvement in the quality of service
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).
§ consumer choice and price
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.
§ The helpful impact of WTO on liberalisation
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 2 for more on the impact of liberalisation in the EU and WTO context.
Botswana (i) – Cat 1: Benefits of liberalising the mobile market
Botswana (ii) - Category 3: the benefits of a strong and effective regulator
Hong-Kong - Category 3: the benefits of a strong and effective regulator
Hungary (i) – Category 2: the benefits of effective and/or innovative Universal Service arrangements
Hungary (ii) - Category 3: the benefits of a strong regulator / pro-competitive regulatory reform
Morocco – Cat.1: Benefits of liberalising the mobile market and Cat. 3: Benefits of a strong regulator
Nepal / Bangladesh - Category 5: the benefits of introducing competition for inter-connectivity
Peru - Cat 1: Benefits of liberalising the mobile market
Singapore - Category 4: the benefits of introducing competition (as opposed to monopoly)
Sri Lanka - Category 4: the benefits of introducing competition
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).
Benefits of competition
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.
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.
Lowering prices for end users
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)
ANNEX 1: Case studies on Market liberalisation
Per type of approach
Category 1: the benefits of liberalising the mobile market
Category 2: the benefits of effective and/or innovative Universal Service arrangements
Category 3: the benefits of a strong and effective regulator
Category 4: the benefits of introducing competition (as opposed to monopoly)
Category 5: the benefits of introducing competition for inter-connectivity
Per country
Botswana (i) – Cat 1: Benefits of liberalising the mobile market
Botswana (ii) - Category 3: the benefits of a strong and effective regulator
Hong-Kong - Category 4: the benefits of introducing competition (as opposed to monopoly)
Hungary (i) – Category 2: the benefits of effective and/or innovative Universal Service arrangements
Hungary (ii) - Category 3: the benefits of a strong regulator / pro-competitive regulatory reform
Morocco – Cat.1: Benefits of liberalising the mobile market and Cat. 3: Benefits of a strong regulator
Nepal / Bangladesh - Category 5: the benefits of introducing competition for inter-connectivity
Peru - Cat 1: Benefits of liberalising the mobile market
Singapore - Category 3: the benefits of a strong and effective regulator
Sri Lanka - Category 4: the benefits of introducing competition
Category 1: the benefits of liberalising the mobile market
Key messages
Goal: Botswana’s number one priority in the early 1990s was to improve the level and quality of basic telecommunications service provided to its citizens. Its efforts in this regard have been an overwhelming success. At the same time the Government became interested in mobile technology.
Result: While more than 10% of the population now has access to fixed-line service, 16% of the population now subscribes to one of the mobile cellular operators services. Liberalisation improved teledensity (fixed lines from 59,673 in 1996 to 140,000 by mid-2001; mobile from 0 in 1998 to 250,000 in 2001 – 16% of the population), service quality and Botswana’s attractiveness to international investors.
The introduction of mobile technology also helped improve the links between urban and rural population, therefore contributing to reducing the digital divide.
Method:
Botswana has accomplished this goal by an unwavering support for sector reform in the 1990s at the highest levels of government and by empowering an effective and independent regulatory body (Botswana Telecommunications Authority, BTA) to establish a regulatory framework conducive to competition and innovation, with full licensing authority and financial independence from government, based on strong legal processes.
The introduction of mobile technology created effective competition against the incumbent’s fixed-line monopoly, at least on quality of service, leading to a reduction in prices and vastly increased access to telecoms.
Botswana undertook liberalization in stages:
1. Consultation across the country, in urban as in rural areas; best practice gathered abroad
2. Policy devised and supported by Government, leading to consistent and transparent legislation
3. Establish a strong regulatory authority charged with facilitating competition in the provision of telecommunications services –
These steps were all prior to authorizing market entry by competitive players, and met two goals: (i) improving the domestic infrastructure, (ii) attracting foreign capital / investors.
Source
Effective regulation - Case study: Botswana – 2001 - A Case Study on Effective Regulation in Sub-Saharan Africa and Regional Cooperation. Geneva: ITU 2001
http://www.itu.int/itudoc/itu-d/publicat/bo_ca_st.pdf
Initial situation: Background to Sector Reform
By the mid-1990s, citizens began to complain about the poor quality and lack of availability of service provided by the incumbent BTC; at the same time the Government became aware of mobile technology. The government charged the Ministry of Works,
Transport and Communication (MWTC) with introducing sector reform and competition.
What worked well: Success factors according to Botswana’s officials
During the field research for this case study, Mr Moatshe (who supervised the sector reform) emphasized the importance of the sequence of sector reform. He believes that it is vital that countries first prepare a policy, derive their legislation directly from that policy and then establish a regulatory authority charged with facilitating competition in the provision of telecommunications services - all prior to authorizing market entry by competitive players.
Mr Moatshe also noted the importance of preparing a clear policy and legislation. Investors seek transparency and consistency. These key legal instruments allow investors to have insight into the country’s thinking. Clear policy and legislation further enable nations to attract quality investors willing to make long-term commitments. Without these key legal instruments, countries may only succeed in attracting investors interested in short-term activities, the government official explained.
The Ministry held meetings in every major town, talking to local people about their perception of sector reform. They met with the civil society, which included local politicians, business leaders and village chiefs, to exchange ideas and views. Everyone expressed consensus on the need to introduce competition in the provision of telecommunication services. In addition to the government representatives explaining the planned sector reform programme, people in
rural areas yielded new ideas to the sector reform architects.
Legislation governing Botswana’s telecommunication sector
Telecommunications Act 1996, provides for the creation of the regulatory authority and introduces competition in the provision of telecommunication services.
Botswana Telecommunications Corporation (Amendment) Act 1996, eliminates BTC’s legal monopoly over the provision of all public telecommunication services.
National Broadcasting Act 1998, establishes the National Broadcasting Board.
Telecommunication Regulations 1997, promulgated by BTA Board establishes rules, inter alia, on:
- Numbering;
- Property access;
- Radio communication equipment and testing;
- Type approval.
In 1998, the regulatory authority licensed two new market entrants, Mascom Wireless (PTY) LTD (Mascom) and Vista Cellular (PTY) LTD (Vista), to provide mobile cellular services.
Mobile ops forcing fixed incumbent operator to improve its service
The presence of the two competitive mobile operators has served as an incentive to improve the incumbent’s performance. It forced BTC to realize that if it did not provide the level of service customers demanded they would bring their business to another service provider. The majority of end users are also better educated than when the 1996 Telecommunications Act was passed. Consumers are beginning to appreciate the differences in service provided by different operators.
Mobile bridging the digital divide and helping mobility
It was recognised by the authorities that the explosion in mobile subscribers has been of benefit to small and medium enterprises and rural populations. Plumbers, for example, can now be reached throughout serviced areas. The result is that small businesses are more vibrant and their customers get better service. Many people living in Gaborone come from rural areas. These new city dwellers used to spend a lot of money on travel to maintain contact with their relatives. They can now use more widely available telecommunication services to keep in touch with family, reducing their travel expenses.
Background and take-up statistics
The 1996 Telecommunications Act allowed the introduction of two operators, Mascom and Vista. The number of mobile subscribers has jumped from 0 in 1998 to nearly 250,000 in mid 2001, reaching 16% of the population.
Vista reported 80,000 mobile cellular subscribers as of July 2001 (not counting an additional 20,000 that have been de-activated). Mascom reported 157,000 to 160,000 customers as of early July 2001. Vista estimated that together, Vista and Mascom had 250,000 subscribers in July 2001.
Vista had reported 50,000 subscribers at the end of December 2000, adding 5,000 per month on average since this time. Vista predicted 120,000 customers by the end of 2001 while its competitor Mascom estimated close to 200,000 to 210,000 subscribers by this time. Vista believes the total mobile market in Botswana could reach 500,000 to 600,000 subscribers or 35% of the nation’s population.
Category 1: the benefits of liberalising the mobile market
Category 3: the benefits of a strong and effective regulator
Key messages
Goal: In 1998, Morocco was both the poorest country in North Africa, and the one with the lowest telephone access levels. It then decided to liberalise to improve its standing.
Result: after 5 years, Morocco now has the highest telephone access levels in North Africa, from 6.5 lines per 100 inhabitants in 1999 to 15.2% the following year, mostly attributable to the development of mobile telephony. The choice, availability and quality of service have all improved, and the reform process attracted significant foreign investment.
Method: Morocco licensed the second mobile operator Medi Telecom for a record US$902m, and incumbent Maroc Telecom was bought into (35%) by Vivendi Universal for a high price - forcing those investors to encourage a rapid take-up to recoup their costs; also, relatively high tariffs for fixed lines encouraged users to jump to mobile subscription; and finally, Morocco has North Africa’s most independent regulator, which has inspired confidence to international investors.
The relatively low growth in fixed line (from 4.3% density in 1995 to 5% in 2000), which is still under Maroc Telecom’s monopoly, compared to the exponential growth in mobile subscription (from 0.1% in 1995 to 10.4% in 2000), exemplifies the benefits of liberalization with competition, as opposed to simple privatization of the incumbent.
http://www.itu.int/itudoc/itu-d/publicat/ma_ca_st.html
In terms of tangible effects having a direct impact on the population, the reforms have thus far brought about the following:
Teledensity
The teledensity (number of fixed and mobile lines per 100 inhabitants) grew sharply following the sale of the second licence, rising from 6.5% to 15.2% in the space of one year (see Figure 6). This growth comes as a result of the government’s efforts in pursuing reforms and the role-played by the ANRT in opening up the market.
Growth
• Soaring growth in the number of fixed and mobile subscribers (134% from 1998 to 2000): The advent of competition has been beneficial for the market, and not only for operators but also for consumers. According to the latest data from Maroc Télécom, that firm’s fixed and mobile subscribers now total 3 767 000, and the annual rate of growth is 105%. In 2000, […] the number of Maroc Télécom’s mobile subscribers exceeded the number of its fixed subscribers. With a staff of approximately 14 500, it has an average productivity of 131 lines per employee.
• A local presence on the part of foreign telecommunication equipment manufacturers.
• Major investments in telecommunication and in new information technologies.
• Growth in GDP.
Quality
• Virtually complete digitization of Morocco’s transmission network.
• In the case of mobile telephony, a choice between two operators at competitive prices.
• A vast range of value-added mobile services (radio messaging, MSS, etc.).
• A wide selection of Internet access providers.
• Satellite services (GMPCS, VSAT).
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Figure 6 – Number of lines per 100 inhabitants |
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Source: Maroc Télécom, 2001. |
Once the reform process was begun, the telecommunication landscape was swiftly transformed, and its effects were very soon felt throughout the country.
At the institutional level, the reforms undertaken to date are as follows:
• The establishment in 1997 of the National Telecommunication Regulatory Agency as the governing and regulatory body for the telecommunication sector.
• The establishment of Itissalat al Maghrib [Maroc Télécom] as a corporation with public equity.
• The opening up of certain parts of the telecommunication sector to competition: mobile telephony in 1999, GMPCS in November 1999 and VSAT in 2000.
• Full liberalization of value-added services (opening up of the market to Internet access and service providers (ISPs)).
• The opening up of Maroc Télécom’s ownership structure in December 2000 so as to permit foreign firms to take equity stakes (Vivendi Universal, 35%).
Category 2: the benefits of effective and/or innovative Universal Service arrangements
Key messages
Goal: Establish a pro-competitive regulatory environment, while improving and developing the telecoms infrastructure.
Result for Sector development
Hungary succeeded in developing its telecoms infrastructure through regulatory arrangements, not dissimilar to universal service provisions:
Method:
§ The 1992 Telecommunications Act started the regulatory reform aimed at establishing an effective pro-competitive, pro-investment environment.
§ In February 1994, Hungary was divided into 54 local telecoms franchise areas, and new entrant local operators won tenders for 18 franchises, with exclusive right until January 2002.
§ The licence conditions required that, by January 1997, each operator had to be able to achieve annual growth of 15.5% in fixed lines and fulfil 90% of customer demand for new lines within six months, which massively helped infrastructure development in Hungary.
Uganda
Category 2: the benefits of effective and/or innovative Universal Service arrangements
Key messages
Goal: the universal service provision objectives set for Ugandan mobile providers is to make telecommunications available to all.
Result: in 1999, Ugandan teledensity was one of the lowest in Africa at 0.26% - it has now more than tripled to reach 1.2% (the average in Africa is 0.98%). There are now 330,000 mobile phone subscribers compared to 55,000 for fixed lines.
Initial growth rates were low in the mobile sector due to the high cost of handsets and connection, but innovative approaches and the development of competition saw prices fall dramatically – up to 50% in some cases.
Method:
§ Uganda Communications Act 1997 established the Uganda Communications Commission which is responsible for regulating the communications sector. It also provided for the establishment of the Uganda Telecommunications Ltd (UTL) as a telecommunication operator. The Ugandan Government concluded a deal to sell off 51% of its shares in UTL to a consortia made up of Detecon GmbH of Germany, Telcel International Ltd. of Switzerland and Orascom Telecom of Egypt.
§ In April 1998, Uganda moved to increase its telephone density when it finally cleared Mobile Telephone Networks (MTN) Uganda to operate a second telecommunication network. This marked the end of a partial monopoly enjoyed by the state-owned Uganda Posts and Telecommunication Corporation.
§ Teledensity in Uganda was highly skewed towards the area surrounding the capital, Kampala; so MTN was given universal service obligations, which it saw as marketing opportunities.
§ MTN Uganda, through its subsidiary MTN Publicom, aggressively installed payphones throughout the country from 1999. In just one year, over 1,800 public payphones had been installed.
§ One of the barriers experienced to meet the USO was the absence of mains power in some regions – to overcome this, MTN pioneered a solar-powered payphone together with the wireless payphone technology to serve areas where mains power was absent or erratic. Fixed wireless terminals are also being used as fixed line substitutes in businesses and homes with GSM coverage.
Category 3: the benefits of a strong and effective regulator
Key messages
Goal: Botswana’s number one priority was to improve the level and quality of basic telecommunications service provided to its citizens, as well as grow the market and attract outside investment. Its efforts in this regard have been an overwhelming success.
Result: Liberalisation improved teledensity (fixed lines from 59,673 in 1996 to 140,000 by mid-2001; mobile from 0 in 1998 to 250,000 in 2001 – 16% of the population), service quality and Botswana’s attractiveness to international investors. More than 10% of the population now has access to fixed-line service, and 16% of the population subscribes to one of the mobile cellular operators’ services.
Method:
Botswana has accomplished this goal by an unwavering support for sector reform in the 1990s at the highest levels of government and by empowering an effective and independent regulatory body (Botswana Telecommunications Authority, BTA) to establish a regulatory framework conducive to competition and innovation, with full licensing authority and financial independence from government, based on strong legal processes.
Success factors were:
· The BTA enjoys complete freedom in the functions of licensing operators and in establishing and financing its own budget (of which 90% derives from operating licenses and spectrum fees)
· It has developed policy through phased consultative processes, including a series of open meetings held in all major cities:
Consultation across the country, in urban as in rural areas; best practice gathered abroad
Policy devised and supported by Government, leading to consistent and transparent legislation
Establish a strong regulatory authority charged with facilitating competition in the provision of telecommunications services.
(These steps were all prior to authorizing market entry by competitive players, and met two goals: (i) improving the domestic infrastructure, (ii) attracting foreign capital / investors.)
· Botswana has moved relatively quickly, for instance converting the telecoms policy into an Act within a year, and completing the process of awarding GSM cellular licenses to Vista and Mascom within just nine months.
· The BTA has not been afraid to take controversial decisions, notably by not awarding a mobile license to the incumbent operator BTC.
· It has consistently invested in human resources development and gender equality.
Sources
· Effective regulation - Case study: Botswana – 2001 - A Case Study on Effective Regulation in Sub-Saharan Africa and Regional Cooperation. Geneva: ITU 2001.
http://www.itu.int/itudoc/itu-d/publicat/bo_ca_st.pdf
Teledensity: Botswana’s teledensity rate has jumped since it embarked on its sector reform program.
The number of fixed lines has more than doubled since the 1996 Act was passed, growing from 59,673 in 1996 to 140,000 by mid-2001 to reach almost 10% of the population. The number of mobile subscribers has jumped from 0 in 1998 to nearly 250,000 in mid 2001, reaching 16% of the population.
Quality of service: The presence of the two competitive mobile operators has also served as an incentive to improve the incumbent’s performance. It forced BTC to realize that if it did not provide the level of service customers demanded they would bring their business to another service provider.
Attracting investment: thanks to liberalisation, in 1998, the regulatory authority licensed two new market entrants, the Botswanan-Zimbabwean-Portuguese-owned Mascom Wireless (PTY) LTD (Mascom) and Botswanan-French-owned Vista Cellular (PTY) LTD (Vista). BTA also granted licences to 10 ISPs and to six international Data Gateway VSAT operators.
Mr Moatshe (who supervised the sector reform) emphasized the importance of the sequence of sector reform, started in the mid-1980s. He believes that it is vital that countries first prepare a policy, derive their legislation directly from that policy and then establish a regulatory authority charged with facilitating competition in the provision of telecommunications services - all prior to authorizing market entry by competitive players.
Mr Moatshe also noted the importance of preparing a clear policy and legislation. Investors seek transparency and consistency. These key legal instruments allow investors to have insight into the country’s thinking. Clear policy and legislation further enable nations to attract quality investors willing to make long-term commitments. Without these key legal instruments, countries may only succeed in attracting investors interested in short-term activities, the government official explained.
The success factors in Botswana’s liberalisation were notably the creation of a strong regulator, the Botswana Telecoms Authority (BTA):
- Commitment to strong legal processes in implementing its mandate;
- Full authority to decide which services should be licensed, how many licenses should be issued and which operators will be awarded a license;
- Full financial independence from the government, ensuring that its regulatory decisions are not influenced by funding concerns;
- An organizational structure designed to address market conditions;
- Full authority to recruit staff and to set their compensation packages;
- Recruitment of staff as needs evolved;
- An unwavering support to staff training;
- The charismatic leadership of the Executive Chairman that has enabled BTA to act in a bold, confident and effective manner;
- Establishing clear priorities and implementing those priorities;
- An operational philosophy based on committing to perform only those tasks that the Authority is confident it has the skills and resources to carry out; and
- The flexibility to add additional responsibilities as it builds capacity.
Legislation governing Botswana’s telecommunication sector
Telecommunications Act 1996, provides for the creation of the regulatory authority and introduces competition in the provision of telecommunication services.
Botswana Telecommunications Corporation (Amendment) Act 1996, eliminates BTC’s legal monopoly over the provision of all public telecommunication services.
National Broadcasting Act 1998, establishes the National Broadcasting Board.
Telecommunication Regulations 1997, promulgated by BTA Board establishes rules, inter alia, on:
- Numbering;
- Property access;
- Radio communication equipment and testing;
- Type approval.
Category 3: the benefits of a strong and effective regulator
Key messages
Goal: At the time telecommunications were privatized in Peru, they were in a difficult situation. Teledensity was a bare 2.9 per cent of the population and short-term prospects for any increase were fairly discouraging, since a connection could cost up to USD 1 500 and the installation of a line could take up to nine years. Peru was also looking at attracting investment to the sector.
Result: much improved infrastructure (thanks to private sector investment after privatization in 1993); teledensity and quality of service (670,000 lines in ’93 to 2m + in 2001; this is notably thanks to tariff re-balancing between line rental and infrastructure costs, meaning that operators can more easily recoup their costs and so are incentivised to develop the local access infrastructure, leading in turn to a sharp fall in waiting list for new lines); as well as lowering call charges, together with a buoyant competitive market.
Method:
When the market was liberalized, in accordance with Peru’s WTO commitment to fully open their telecommunication market, the Government approved the Policy Guidelines for the Liberalization of the Telecommunications Market, setting out general future policy under a system of free competition, with an effective and independent regulator.
Recently some of the rules and standards have achieved the status of law, which adds greater legal security to the regulatory framework, although much still remains to be done in this respect.
Founded in February 1993, the regulator OSIPTEL grew to become an independent and highly professional regulatory authority in a highly volatile political, social and economic environment – it is a typical example of the various challenges frequently faced by new regulators in developing countries.
OSIPTEL has always been steadily and directly supported by the President of the Nation to preserve its independence in relation to other State bodies. OSIPTEL’s attachment to the Office of the President of the Council of Ministers has been a significant factor in securing its structural and institutional independence, although it is still to some extent exposed to the same political vicissitudes as the Ministries.
So Peru has gone a long way in improving its telecommunications services through liberalization, though there is still much to do.
Source:
§ Report for the OECD by 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).
Quality of service / Teledensity:
Graph 1 – Much investment, few lines
Trend of investment in the telecommunications sector in Peru, 1989-2000; and number of fixed lines per 100 inhabitants in a selection of Latin American countries, 2000 (Source: OSIPTEL and ITU)
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Lower call prices, and innovative price packages:
Table 3 – Growing in mobility and bandwidth
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|
1993 |
08-1998 |
03-2001 |
|
Cellular telephone subscribers |
36 000 |
750 000 |
1 400 000 |
|
Towns equipped with cellular telephony |
7 |
117 |
120 |
|
Cable TV subscribers |
725 |
350 000 |
430 000 |
|
Cable broadcasting companies |
6 |
52 |
109 |
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Internet users |
n.a. |
+ 100 000 |
+ 800 000 |
Source: OSIPTEL
Internet penetration:
The growth of the Internet in Peru has been considerable. The 208 000 users in 1998 had swelled to over 800 000 by May 2000, which represents a penetration rate of 80.05 for every 10 000 inhabitants with online connections of almost ten hours a month. There are 13 companies offering an Internet access service in a freely competitive environment. In May 2001, INICTEL was awarded the installation and operation of the first NAP (network access point) in Peru.
On the basis of full market liberalization and the rapid growth occurring recently in the sector, the Peruvian government intends to keep encouraging the development of telecommunications - through a policy and regulations to stimulate private investment, ensuring a competitive market. (see Box 2 for details)
Building on the principles it followed in the last decade (as highlighted in Box 2) and starting from the liberalization of the sector, the government is aiming to achieve the following targets by end 2003 in terms of sector development:
• Teledensity of 20 lines per 100 inhabitants.
• Bringing services to 5 000 new localities or settlements.
• Substantially increasing user access to Internet.
• Modernizing telecommunication services even further.
• Implementing the introduction of ISDN (Integrated Services Digital Network).
• Ensuring that 98 per cent of requests for new connections are satisfied within not later than five days (in urban areas).
Box 2: Parameters for a competitive market
Main policy guidelines for the liberalization of the telecommunications market in Peru, 1998.
Tariffs. The tendency is to deregulate tariffs for all services subject to conditions of effective competition.[1]
Licensing. Based on the principles of simplicity, transparency, objectivity, non-discrimination, speed and reserve, leaving the market to decide the viable number of operators, except in cases of limited spectrum availability, when competitive mechanisms (auctions) are applied for purposes of assignment.
Interconnection. Seeks a balance between the need to guarantee operators’ access to networks and the need to allow network maintenance and modernization, generating incentives for its expansion.
End user access to long-distance carrier. The “pre-dialling” system will be introduced for the first two years. After that period, the “pre-dialling” and “call-by-call” modes will coexist.[2]
Billing, collection, fraud and access to user information. Billing and collection terms for services to third parties must not be based on the amount invoiced, but on the underlying costs of the service, respecting the principles of neutrality and non-discrimination. Discount policies must be made public.
Accounting rates. So long as the International Accounting Rates System continues, operators are free to negotiate the accounting rate in conformity with the established guidelines. Accounting rates must be transparent, non-discriminatory and must tend gradually towards costs, with floor accounting rates set for each of the first three years of liberalization.
Universal access. For the period 1999-2003, the level of universal access shall include installing public telephones in 5 000 rural settlements that have no service at present, capable of transmitting voice, faxes and low-speed data. Internet access shall be provided in localities where appropriate from a cost-benefit point of view. The provision of universal access is to be promoted and financed through the Telecommunications Investment Fund (FITEL), administered by the regulatory authority, OSIPTEL.
Assignment of scarce resources: Numbering and spectrum. Spectrum assignment will not be included in the licensing title, with the supply of several services being permitted in a single band. The determination of the cost of the right to use the radio spectrum and the form of payment thereof shall be set out in a specific regulation.
Operator regulation. Operators offering more than one service which have revenues of at least USD 15 million shall be obliged to keep separate accounts for each service according to the type of operation and the relevant guidelines.
Category 3: the benefits of a strong regulator
Key messages
Goal: attract investment and make Singapore a telecom hub.
Result: mobile penetration stands at 71% (one of the highest in the world), high Internet penetration, good infrastructure, 6/7 submarine cables planned to land in Singapore, and a large number of international companies now operating in the country (such as Telstra and WorldCom/MCI).
Method: This attractive market environment can be attributable in large part to the wave of liberalisation has swept the island.
In April 2000, the IDA (Singaporean regulatory body) introduced two significant pieces of telecoms legislation, which have opened up the marketplace. The first was the Telecoms Competition Code (TCC) which details the rules and guidelines for competition. The second was the Interconnect Offer Agreement. This law stipulates that any licensed operator can interconnect with SingTel.
The IDA has been widely praised for introducing these two pieces of regulation following a consultative and open process. The general view is that these laws have reduced the timescale for new entrants to start services, and they can now operate under well-understood terms and certain rights, which they didn't previously have. "These laws were vital because the power of SingTel is extremely strong," says StarHub's Poston. "You have to have significant regulation for a period in order to make sure that a competitive basis is created."
On the technical side, the IDA’s insistence that StarHub have all its networks built by the time it launched in April 2000 was very beneficial, as it helped guarantee competition and an alternative source of supply to all commercial buildings.
Note: industry(C&W) has notified us that the 83% Singapore government share in incumbent SingTel poses a slight problem, especially since interconnection costs are deemed as ‘outrageous’.
Category 3: the benefits of a strong regulator / pro-competitive regulatory reform
Key messages
Goal: Establish a pro-competitive regulatory environment, moving to a market-driven economy after a long period of communist command economy.
Result:
Although there is more to do, particularly on the clear independence of the regulator, on transparency and on non-discrimination, the onset of competition and the limited entry of operators backed by strong international companies is yielding benefits by way of:
§ Lower national and international long distance prices for fixed-line service (although offset to some extent by increased local service subscribership and usage charges);
§ Accelerated network development and modernization;
§ Wider range of services, including advanced services
§ Increasing choice for customers of mobile services; and
§ Improved quality
§ Long-term: dynamic growth, innovation and employment; acceleration of the development and adoption of new technologies and services, including the growth of electronic commerce and other information-intensive sectors, and the development of the information economy.
Method:
Once the Communist era was over, the new Government recognised the need for effective pro-competitive regulation to succeed in the transition to a market-driven economy.
§ The 1992 Telecommunications Act started the regulatory reform aimed at establishing an effective pro-competitive, pro-investment environment.
§ Mobile service licences were awarded in 1994 to Pannon GSM and in 1999 to Primatel – both are linked to large international European and US telecommunications operators. Other new entrants are positioning themselves for market opening, with new technologies.
§ Price re-balancing has been occurring since 1994 with a published schedule for further rebalancing.
§ Gradual installation of pro-competitive telecommunications legislation that is consistent with EU and WTO regulatory principles.
§ Matav, the incumbent dominant operator, is now fully privatized thereby separating the Government’s ownership interests in Matav from its regulatory concerns.
§ Recognition by the government of the potential for development of infrastructure competition through cable networks.
§ A competent pro-competitive Competition Office with some recent successes.
Category 4: the benefits of introducing competition (as opposed to monopoly)
Key messages
Goal: expand and improve the telecommunication service, and address the digital divide
Results:
§ Teledensity: In 1999, fixed line penetration was at 3.55 per 100 inhabitants, up from 1.14 in 1995.
§ Between 1994 and 2000, incumbent Sir Lanka Telecom (SLT) tripled the size of its network, and its performance improved dramatically.
§ Vast improvements in quality of service: from 8,000 faults a day in 99 to only 1,000 by the year 2000, thanks to network upgrading and the introduction of preventive measures. In late 2000, up to 96% of all reported faults were cleared by SLT within 24 hours, against about 50% in 1999.
§ Following liberalisation, more new access lines have been added in regional areas than in the metropolitan area that includes Colombo.
Method:
In the 1990’s, the Government of Sri Lanka introduced a number of reforms including the creation of a telecommunication regulator.
In 1996, two new operators were licensed (Suntel and Lanka Bell), using fixed wireless local loop technologies to compete against the incumbent. The benefits of market liberalisation were almost immediate: not only did the new entrants begin installing new lines but the incumbent operator also dramatically improved its performance in the face of competition.
The mobile market was also liberalized by licensing four operators. By 1999, mobile penetration had reached 1.35 subscribers per 100 inhabitants.
This process has been fundamental in addressing the digital divide in the country. Not only the provision of basic telephony is important in that regard: the expansion of the network and the considerable boost in quality of service are just as important for increasing access to services such as the Internet, who benefit enormously from fewer connection faults, a common issue for internet access in developing countries.
Competitive pressures have driven incumbent SLT to expand its network, increase quality and introduce new services (e.g. higher-speed internet access rates via ISDN, Internet access, Web hosting). The company also aspires to become a major player in e-commerce and a regional hub for traffic. Clearly, this experience shows that the future of any developing country in addressing the digital divide is to reform their telecoms market to enable growth. This growth will most likely occur through new opportunities and development of previously underdeveloped services, as was the case in Sri Lanka.
As for the argument that liberalisation negatively impacts incumbents’ revenues and universal service, it is worth noting that SLT’s revenues have increased every year since liberalisation and its operating profits (and after tax profits) are greater than when the company had a monopoly. As in other countries that have liberalized their markets, the incumbent’s market share has decreased, but the overall market has grown considerably to the benefit of all operators.
Category 4: the benefits of introducing competition (as opposed to monopoly)
Key messages
Goal: provide alternative choices to consumers through competition in a liberalising market.
Result: Hong Kong have benefited substantially from their liberalisation policy - competition has led to quality and innovative services at competitive prices, bringing benefits to the consumers and the business community. A few notable examples are:
· IDD customers have benefited from a tremendous saving of HK$9.4 billion in 1999 and 2000 since the introduction of competition in January 1999.
· The prices of international private leased circuits (IPLC) have dropped significantly since the external facilities market was open in January 2000. For instance, the monthly rental of an IPLC with a capacity of 2 Mbps between Hong Kong and Mainland China has plummeted from HK$140,000 to HK$20,000 since 2000, a reduction of 86 per cent.
· With ten fixed telecommunications network operators, broadband service has improved and the number of customers has increased from 51 494 in February 2000 to 543 433 in October 2001, more than 10-fold in less than two years. The average monthly rental is in the region of HK$200, one of the cheapest in the world.
· In the local telephone market, more customers have alternative suppliers who offer monthly rentals ranging from HK$48 to HK$88.
Method: Phased liberalization, introducing competition to improve users’ benefits and infrastructure/coverage:
In 1995, three new operators were licensed to provide fixed telephone services. To enhance coverage of the new operators, the Government secured commitments from three new operators in 1998 to roll out their networks. Since then, the Government has been actively monitoring the progress of roll out and facilitating the related work. As at September 2001, the three new operators already achieved a coverage whereby over 35 per cent of the residential customers had an alternative choice. Our target is to enable 50 per cent of the consumers to have an alternative choice by end 2002 and we are fairly confident that the target can be achieved.
In terms of market share, we estimate that the three new operators currently have a market share of about 10 per cent. We would however like to highlight that market share of the three new operators is a matter for the market which depends on, inter alia, customer preferences.
Official Minister’s correspondence on the rationale and benefits of liberalisation.
From the Hong Kong Government Information Centre http://www.info.gov.hk/gia/general/200201/16/0116228.htm
(Question by the Hon Howard Young, and a written reply by the Secretary for Information Technology and Broadcasting, Mrs Carrie Yau, in the Legislative Council on January 16, 2002)
Category 5: the benefits of liberalisation for inter-connectivity
Key messages
Goal: expand local access to telecommunications
Result: five-fold increase in Nepal’s interconnectivity in a few months after liberalisation
Method:
Nepal chose to conduct a strategic liberalisation.
Nepal Telecommunications Corporation had a monopoly on all international connectivity, the simple step of allowing others to provide international data connectivity has had a transforming effect on the local Internet market. Nepal’s international interconnectivity rose five-fold in a few months after the VSAT market was liberalised.
This goes to prove that ultimately, even in countries that choose to retain a monopoly, there are opportunities to open parts of those networks or services to competition and private-sector participation.
Bangladesh
A similar experience with strategic liberalisation was recorded in Bangladesh, where the Administration – once again, in an effort to quickly expand local access to communications – partially deregulated the VSAT sector. A representative of the regulatory agency reported an eight-fold increase in connectivity as a result.
ITU Study Group D: Satellite Regulation in Developing Countries. Geneva 2003: ITU (Document RGQ17/1/029-E).
(For more on Nepal, see the ITU case study at www.itu.int/ti/casestudies.)
ANNEX 2: Impact of liberalisation
This annex provides a summary of the key benefits of liberalisation, in the EU then in the WTO context.
a) In the European Union
With the arrival of the full liberalisation of telecoms in the majority of the Member States of the European Union on 1 January 1998, a 10-year process of harmonisation and liberalisation was completed.
The effects of liberalisation: new players come onto the market, quality improves and the prices of many services fall in real terms. Mobile communications and on-line services, notably via the Internet, are seeing continued strong growth as telephone companies compete with each other to offer new, combined, fixed/mobile packages and cheaper second phone lines as well as new pricing formulae and new ways of paying for services.
b) In the WTO context
The advantages of liberalisation:
[1] In markets with dominant operators, tariffs are to be regulated by means of price caps, which also apply to competitors' tariffs.
[2] The incumbent must facilitate interconnection with at least three new long-distance operators under the pre-dialling system for at least 85 per cent of telephone lines
