Transcript investment
Telecom for improving
investment climate & ICT use
Rohan Samarajiva, Public Interest
Program Unit, Ministry of Economic
Reform, Science & Technology
[email protected]; +94 1 247 8733
Purpose of presentation
Reform of telecom is a necessary
condition for investment overall
Creating conditions for private
investment in telecom
Market entry
Independent & effective regulation
Examples from Sri Lanka throughout
Sri Lanka’s telecom sector after 12
years of reforms
Multiple operators (70+)
3 national fixed (no waiters in urban areas)
4 national mobile (overtook fixed; real price
declined)
5+ facilities-based data
30 external gateway (~66% decrease in price)
20+ non-facilities based data
Fixed teledensity < 1 in 1991 almost 5 in
2003; Mobile ~0.01 in 1991 5 < in 2003
Telecom & banking are fastest growing
sectors in economy in 2003 (~16%)
Telecom no longer a barrier to investment
Telecom as a necessary condition
for increased investment
Two solutions
Improve service only in enclave
Improve sector performance everywhere
Sri Lanka tried the enclave solution in
1980s
Supplementing exchange & outside plant in
Katunayake EPZ
Giving priority to GCEC factories (investors)
Poor results including ridiculous outcome of
banning automatic rediallers
Investment in telecom sector
overall is key . . .
What we want is
Adequate supply of services
Lower prices
Higher quality
More choice
How do we get it?
Not another reform of the failed government
monopoly
Not regulation, per se
More investment
Private investment to improve
telecom
Telecom is the infrastructure with the
most dynamic industry structures and
technologies
Integrated government monopolies lack
nimbleness to play
No multilateral/bilateral assistance for
unreformed monopolies
Public investments better used
elsewhere
Government action to attract
private investment in telecom
Greater private investment depends
on positive answers to 2 questions
Are the returns adequate? (market risk)
Are safeguards against administrative
expropriation adequate? (regulatory risk)
What can government do?
Let investors look after market risk: no
market-position guarantees
Reduce regulatory risk
Government actions: Market entry
& privatization
Minimize barriers to entry; SL policy
is
License only where scarce resources are
involved
Otherwise authorizations
Examples
External gateway operator licenses
30 given since March 2003
No discretion; no numerical limits
Entry conditions compared
One-time
fee (USD)
Annual
fees
Bank
guarantee
India
5,200,000 15% of
gross rev.
Very high
Pakistan
500,000
USD 10
million
Sri Lanka
50,000
<0.5% gr.
rev. + acc.
contr.
0.3% of
gr. rev.
None to
govt.
Results . . .
From unstable
monopoly to open
entry . . .
From SLR 75 a
minute to 20-25 . .
.
Telecom no longer
seen as barrier to
BPO investments
Fixed telephony investments in
Sri Lanka, 1992-2002
Fixed Telephony Investments (SLR m)
20,000.00
Incumbent Government
Owned; No Competition
Incumbent Partially
Privatized; Foreign
Management; Competition
15,000.00
10,000.00
Lanka bell
Suntel
SLTL
5,000.00
1992
(5,000.00)
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Implications for the exchequer
Before the reforms, telecom was an easy but small
source of government revenue
Very low rates for domestic (<40% revenues); high
rates on international outgoing and termination
(60<% revenues)
Periodic levies
After the reforms, it is an easy, reliable and LARGER
source of government revenue
~20% tax (VAT; BTT earlier); reliable
On a user base that has increased seven fold
Equity sales; licensing; spectrum fees; contributions
to Vishva Grama Fund (for rural rollout)
Dividends from shareholding
Key reform events
1989-1994
Licensing of 15+ facilities-based operators,
including Incumbent which was changed to
corporation
1996
Licensing of two fixed competitors (USD 120 m)
1997
35% sale of Incumbent to NTT of Japan for USD
225 million with 5-year management agreement
Key reform events
1998
Active regulation starts
First step of 5 year rate rebalancing
Satellite gateways liberalized
1999
Incumbent found to be in violation of
license condition and pays consumers
US$ 1 million
First public hearing conducted
Key reform events
2002
Government sells 12.5% of Incumbent’s
equity, bringing government ownership
to <50%
2003
30+ External Gateway Licenses issued
New Interconnection Rules gazetted
Implementation ongoing
Already a commitment of USD 90 million
additional investment
Government actions: Regulation
Reduce regulatory risk
Poor countries are poor because
Government does not work well
regulatory risk is high investments are
low/skewed infrastructure is inadequate
economy is hobbled
Solution: independent and effective
regulatory agency
Characteristics of effective
regulation
No interference by government/incumbent
Constrained discretion
Professional and competent staff
Transparent participatory processes
Expeditious decision making
Efforts to reduce adversarial modes;
increase buy-in
Doing a few things well
Independence of regulatory agency
Information & Communication
Commission that will replace TRC
Members appointed with concurrence of
Constitutional Council
Accountable to/removable by Parliament
Not reporting to Minister for Telecom
Constrained discretion
Rate rebalancing in 1998-2003
governed by legal agreement that set
revenue requirements
Regulator decided specific tariffs that
would yield promised revenues
Telecom regulation should focus
on
Interconnection & anti-competitive
issues
In Sri Lanka
New interconnection rules in March 2003
Including access to undersea cable station
Implementation in process
Dominant position rules being framed
New legislation will remove tariff regulation
from non-dominant operators
Anti-competitive practices proceedings soon
Regulation should focus on
Efficient management of scarce
resources (spectrum, rights of way
and numbers)
In Sri Lanka
Allocation & assignments made public
1800 MHz, CDMA & WiFi consultations
First frequency auction in May 2003
New legislation on rights of way including
“final offer” arbitration
New numbering plan being implemented
. . . And get out of unnecessary
areas
Most retail tariffs unregulated in new
Act (except of dominant operators)
Equipment approvals power replaced
by Mutual Recognition approach
Consumer issues to be covered by
consumer contracts
Regulator intervenes only when contract
provisions exhausted
SAARC countries 1995-2001
telecom performance
F/100
CAGR
M/100
CAGR
B’desh
0.43
12
0.4
143.4
Bhutan
2.54
22.3
-
-
India
3.75
21.5
0.63
109.2
M’dives
9.94
11.9
6.89
-
Nepal
1.31
23.6
0.08
-
Pakistan 2.33
8
0.56
64.5
SL
26.1
3.56
53.4
4.43