Prior to the telecommunications sector reforms undertaken in many countries during the last two decades, telecommunications services were largely provided under monopoly conditions, either by state entities or, to a lesser extent, by private companies. Often the operator and regulator for telecommunications services was the government; therefore, no regulatory independence existed. This classic model of supply generally concentrated policy-making, regulatory, frequency management and network operating responsibilities in a single entity.
This model worked well for many years in the more developed economies, where long-distance and international tariffs, which stayed high despite significant decreases in costs due to technological change, basically subsidized local services and led to relatively high levels of universal service. However, the model did not work as well in developing countries where networks were generally restricted to urban areas and more accessible to middle/high income consumers. Cross-subsidization kept local prices low for the wealthy, but did not generate sufficient income for infrastructure investment, and low-income consumers were subject to long waiting lists and poor quality of service.[1]
In the 1980s, countries began to recognize the increasingly important role of the telecommunications sector for economic growth. As a result, in primarily developed nations, policies evolved to introduce competition – albeit, often limited in scope, in an effort to inject dynamism into the sector, spur innovation, increase choice, enhance availability, and lower tariffs. In the 1990s, partly as a result of national, regional and multilateral efforts (further discussed in Chapter 3), many countries introduced the first wave of reform by privatizing their national operators. In the second wave of liberalization, which sometimes occurred simultaneous with the privatization or followed soon thereafter, governments began allowing the introduction of new services ( e.g., mobile services and value-added services) into the market. These new services generally did not compete directly with the privatized basic telecommunications operator, which often had been granted an exclusivity period, or the non-privatized government-owned incumbent operator. The third wave of liberalization occurred once the incumbent operator's exclusivity period was over and full competition could be introduced.
ENDNOTES
[1] See Peter Smith, Subscribing to Monopoly: The Telecom Monopolist's Lexicon—Revisited , Public Policy for the Private Sector, September 1995, stating that “… the idea that low, subsidized local telephone access prices are the best route to universal service is wrong. In most developing countries suffering from chronic unmet demand for telephone service, the key problem is inadequate supply (inadequate investment and inefficient investment and operations), not inadequate demand.” http://rru.worldbank.org/Documents/PublicPolicyJournal/053smith.pdf [Accessed 9 October 2005].