telecom for improving investment climate & ict use rohan samarajiva, public interest program...
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Telecom for improving investment climate & ICT use
Rohan Samarajiva, Public Interest Program Unit, Ministry of Economic Reform, Science & [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 <0.5% gr. rev. + acc. contr.
USD 10 million
Sri Lanka 50,000 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 (SLR m)
(5,000.00)
-
5,000.00
10,000.00
15,000.00
20,000.00
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Lanka bell
Suntel
SLTL
Incumbent GovernmentOwned; No Competition
Incumbent PartiallyPrivatized; Foreign Management; Competition
Fixed telephony investments in Sri Lanka, 1992-2002
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