Effective regulation has proven to result in greater economic growth, increased investment, lower prices, better quality of service, higher penetration, and more rapid technological innovation in the sector.
Increased Investment
Liberalization in the telecommunications sector has been greatly encouraged by World Trade Organization (WTO) commitments and obligations, particularly the WTO Reference Paper on regulatory principles.[1] Early evidence of the impact of liberalization under the WTO's Basic Telecommunication Agreement (BTA) in low income Sub-Saharan African countries shows that growth in telecommunications revenues as a percentage of GDP is higher in countries that have made GATS commitments in telecommunications.[2] Thus, investors are likely to be more willing to commit capital and technology in countries with WTO telecommunications commitments, as they are likely to be rewarded with higher revenues. Uganda, for example, reformed its telecommunications sector and enjoyed healthy revenue growth, while Ethiopia, which had not reformed, experienced much lower revenue growth.[3]
Morocco understood how important effective regulation was to attract foreign investment to developing economies as it began laying the groundwork for privatization and liberalization of its telecommunication market in the late 1990s. It passed the Post Office and Telecommunication Act [ Loi sur la poste et les télécommunications ] (August 1997) and created the National Agency of Telecommunications Regulation (Agence Nationale de Réglementation des Télécommunications, ANRT) in February 1998.
Because the Moroccan Government designed its vision for the market, including liberalization, in a clear and transparent way, this inspired investor confidence, which was reflected in the country's auction of a second mobile digital cellular licence in 1999. The winner, Medi Telecom (a joint venture of Spain's Telefonica and Portugal Telecom along with local investors) paid USD 1.1 billion for a 15 year license. This was the largest investment ever in Morocco and one of the highest prices ever paid for a mobile licence (in relation to the population).6 From being the country with the second lowest telephone penetration in the North Africa region, Morocco became the country with the highest (Figure 5-C). The number of mobile subscribers grew from 375,000 in 1999 to over 9 million by year-end 2004. While just over 1% of the population had a mobile phone in 1999, this had risen to almost one third by 2004.
Figure 5-C: Telephone Penetration in Morocco
Source: Telecommunications Management Group, Inc.
In December 2000, the incumbent operator, Maroc Télécom, was partially privatized through the sale of 35% of its equity to Vivendi Universal, a French conglomerate. The privatization was regarded as one of the most successful ever in a developing country, generating MAD 23 billion (USD 2.3 billion).7
Morocco's success clearly illustrates how effective regulation of the sector can trigger dramatic increases in ICT development. Since the creation of the regulator, telecommunications investment has risen dramatically and the share of the sector in the national economy has doubled (Figure 5-D).
Figure 5-D: Growth of Telecommunications Investment and National Economy in Morocco
Note: GFCF = Gross Fixed Capital Formation. GDP = Gross Domestic Product.
Source: Adapted from ANRT, Direction de la Statistique.
Investors consider the regulatory environment to be a critical factor in their analysis of whether or not to invest in a country. They often have a set of regulatory conditions that must be present for them to consider an investment in a particular country. A report 4 presented at the ITU's 2002 Global Symposium for Regulators summarizes several key findings from the private sector on this issue:
• Regulatory issues are a key factor in market entry and expansion decisions;
• Interactions between regulators and operators are most challenging during times of transition;
• Companies look at the overall regulatory environment – not just specific regulations. Transparency and responsiveness are important factors in the willingness of companies to enter and stay in markets;
• Companies employ a variety of ways to ensure that regulatory information is factored into business planning and decision-making.
As noted by the European Competitive Telecommunications Association (ECTA), a link exists between good regulation and the amount of investment attracted into a country. ECTA has designed a “scorecard” to assess regulation in the European Union. It compared the results of the scorecard to investment in the ICT sector and found that “…effective regulation continues to have a strong and positive impact on the level of investment in telecommunications networks and services.”5 Countries that rank high in the scorecard tend to have higher levels of telecommunications investment in relation to total investment in the economy (Figure 5-E).
Figure 5-E: Relationship between ECTA Scorecard and Investment
Note: Investment refers to telecommunications investment as a percentage of Gross Fixed Capital Formation (GFCF, the total amount of investment in the economy). The dots show the situation of the European Union with each country represented by its two letter country code. The Scorecard is an assessment of various regulatory functions.
Source: ECTA, “Regulatory Scorecard”.
Economic Growth and Consumer Benefits
Developing economies in Asia have made significant strides towards pro-competitive regulation and in return have achieved considerable progress in bridging the digital divide. One such country is India, where the Telecom Regulatory Authority of India (TRAI) has made a comprehensive reform of the regulatory framework to promote technological neutrality and take advantage of inter-modal competition.8 Competition was enhanced by issuing additional mobile licenses in 2001 and 2002 and awarding wireless local loop (WLL) licenses in 2002. Another relevant measure taken by TRAI was to move from a receiving-party-pays (RPP) to a calling-party-pays (CPP) structure in an effort to spur mobile take-up. The results of these policies have brought economic growth to the sector and produced a marked increase in mobile subscribers and a fall in mobile tariffs (see Figure 5-F). By contrast, the failure to adopt such measures, along with other factors such as delay in the introduction of a sufficiently pro-competitive interconnection regime between fixed and mobile services, has been identified as one of the causes that slowed investment and customer growth in the mobile market in Sri Lanka.9
Figure 5-F: The impact of India's Regulatory Reforms on Mobile Penetration and Price10
Source : Boutheina Guermazi and David Satola, “Creating the “Right” Enabling Environment for ICT,” in Chapter 2 of “ e-Development: From Excitement to Efficiency”, The World Bank, 2005, citing to the Telecom Regulatory Authority of India.
Growth of New Services
Competitive mobile markets typically show higher penetration rates than those that have not been liberalized. Jordan and Oman are good examples. Jordan's GDP per capita in 2003 was roughly USD 1800, less than one fourth of Oman's GDP per capita of USD 8000. However, Jordan's mobile penetration rate of 22.9 in 2002 was higher than Oman at 18.3 (see Figure 5-G). Much of Jordan's success in the mobile market can be attributed to the regulatory reforms started in 1994. Jordan lagged behind Oman in mobile penetration until competition was introduced into the mobile market in 1999. Oman's mobile growth has still been considerable, given the mobile operator's monopoly position. However, the liberalized market in Jordan eclipses Oman's growth, despite differences in income levels between the two.11
Figure 5-G: Mobile growth in Jordan and Oman
Lower Prices for Consumers
Lower prices for international telephone calls, for example, are also highly correlated with the level of competition. In Africa, one of the regions of the world where competition in long-distance telephony is lowest, prices for both international telephone calls and broadband services are much higher than in other regions of the world (see Figure 5-H).12 Regulators must often intervene to remedy shortcomings in competition and ensure that competition is working effectively, which sometimes includes imposing some form of regulation, such as regulation on interconnection charges to force incumbent operators to charge competitive operators wholesale cost-oriented rates and eliminating restrictions on resale to allow entry of multiple operators and greater competition.
Figure 5-H: Lack of Competition Leads to High Prices
Liberalized markets in the same region and at similar income levels typically have penetration rates higher than those with non-liberalized markets. For example, the Latin American countries of Belize and Brazil have similar income levels but fixed-line penetrations vary considerably. In Belize, the incumbent operator maintains a monopoly on fixed-line provision and the penetration rate is low at only 11.3 lines per 100 inhabitants. In Brazil, the fixed-line market is considered fully competitive and the penetration rate is more than double that of Belize, at 24.1 subscribers per 100 inhabitants.
As demonstrated in Chapter 3, regulation is impacted by a variety of factors, including legal traditions, multilateral and regional commitments, other legislation and the nature of the marketplace. Thus, while the design of the regulatory framework may vary, certain critical elements should be included in an effective regulatory framework. These features, discussed in Chapters 5, 6, and 7, relate to elements for effective regulation, aspects to consider when designing the regulatory framework, functional aspects of the regulatory authority, and decision-making, accountability, consumer protection, dispute resolution and enforcement powers. Consideration and proper implementation of these features are the formula for success and will facilitate the benefits to consumers, the market, and the economy that have been achieved in many countries that have undergone regulatory reform.
ENDNOTES
[1] Id . at 7-8.
[2] Boutheina Guermazi and David Satola, Creating the “Right” Enabling Environment for ICT, at 9, citing to Harris Wiltshire & Grannis LLP, Telecommunications Trade Liberalization and the WTO , Final Report for the GICT Department, World Bank, 2004.
[3] Id . at 8.
[4] Compass Rose International, Report to the International Telecommunications Union Global Symposium for Regulators 2002 – Feedback to Regulators from the Private Sector , ITU, November 2003.
[5] European Competitive Telecommunications Association, Report on the relative effectiveness of the regulatory frameworks for electronic communications , 2005, available at http://www.spcnetwork.co.uk/cgi-bin/publisher/search.cgi?dir=news&template=news.html&output_number=1&ID_option=1&ID=927-3106-35601
[6] http://rru.worldbank.org/Documents/PublicPolicyJournal/199welle.pdf .
[7] ITU Effective Regulation Case Study: Morocco (2001), at 12.
[8] TRAI has been in the process of moving towards a unified licensing regime that would replace separate licensing based on technology, service or geographic area. Licensees would be able to provide any service including: telephony, Internet access, broadband, television and other value-added services.
[9] See Rohan Samarajiva, Anupama Dokeniya, Sabina Fernando, Shan Manikkalingam and Amal Sanderatne, Regulation and Investment: Sri Lanka Case Study , World Dialogue on Regulation of Network Economies (WDR), Stimulating Investment in Network Development: Roles of Regulators, WDR Research Cycle 2, 2005 at 154.
[10] OECD, Regulatory Reform as a Tool for Bridging the Digital Divide, Fig. 13, at 19.
[11] OECD, Communications Outlook 2005, at 306.
[12] Boutheina Guermazi and David Satola, Creating the “Right” Enabling Environment for ICT, at 6.