This section draws on the ITU series “Trends in Telecommunication Reform”.
Internationally the way telecommunication services are provided is shifting. Many countries are replacing traditional state-owned service provision with a competitive, market-based model.
The World Trade Organisation Basic Telecommunications Agreement has been an important catalyst for reform in the telecommunications sector. This agreement commits countries to put in place transparent regulatory structures, laws, and procedures for the sector. As of November 2006, nearly 90 governments had made commitments to liberalize their telecommunications markets to various degrees. At the time the agreement was reached in 1997, the signatories represented more than 90 per cent of international telecommunications traffic.
This section summarizes some key trends in telecommunication reform, covering:
Ownership Reform
The latter part of the 1980s saw the beginning of dramatic changes in the ownership of many state-owned operators. This wave of privatization followed the sale of both British Telecom and Cable and Wireless in the United Kingdom in the early 1980s.
In the following decade private sector participation in the telecommunications sector increased dramatically (although but not to the extent that had been predicted by industry analysts). Rather than full privatization, corporatization of state-owned operators has emerged as the dominant model for ownership reform.
In general, ownership reform is driven by the goals of improving efficiency, productivity, and service quality. Other factors also come into play:
- The political philosophy of the government in power at the time. This was behind some of the early privatizations, such as in the United Kingdom and Chile,
- Financial crises. This was behind privatizations in several developing countries in the late 1980s, for example Argentina, Mexico and (to some extent) Malaysia,
- The need to raise capital to expand infrastructure. For example this was an important factor in Singapore,
- The desire to improve technology and management expertise. This has been a driver of reform in several African countries,
- The intention of the government to open the market to competition, as in the case of Brazil, or
- A combination of the above factors, as in Bolivia and Peru.
Legislative Reform
Telecommunication specific legislation has a number of benefits. Once written into law, the process of implementing policy objectives becomes easier. Further, a sound legal infrastructure helps to add clarity and certainty to the sector, and helps to attract foreign investment.
Early approaches to sector reform in the mid to late 1980s saw the introduction of complementary but piecemeal elements of legislation to address reform objectives over a period of time. By contrast, countries that began their reforms in the mid 1990s (for example Botswana and Zambia) issued single new telecommunication laws that overhauled their entire regulatory framework. This is still the most common approach to legislative reform. See Module 6: Legal and Institutional Framework.
Liberalization and the Introduction of Competition
Historically, many countries have maintained a statutory monopoly in the telecommunications sector. That is, competing providers were not permitted to enter telecommunications markets. This approach was based on the belief that economies of scale in telecommunications meant that it would be wasteful for more than one firm to operate in the market.
Now, the international trend is to open telecommunications markets up to competition. Concerns about economies of scale do still exist in some areas, for example where such economies mean that essential facilities cannot feasibly be duplicated. Where this is the case, regulators or competition authorities usually require the incumbent to make the facility available to downstream competitors on efficient, non-discriminatory terms.
Until recently, most countries that introduced competition did so by stages. Competition was first permitted in the “periphery” — services that were marginal to the incumbent’s operations. For example, this might include markets for telecommunications equipment, such as handsets and facsimile machines. The market for long distance services was generally opened up to competition before basic local services. In recent years an increasing number of countries have introduced competition for basic services.
Competition is more common in markets for “new” services, such as mobile telephony and Internet services. For example, the majority of countries with mobile cellular services have either partial or full competition. (For a more detailed comparison of the level of competition by sector and region, click here.)
Regulatory Reform
Until recently, the majority of telecommunications operators were state-owned, self regulated entities. Sector reforms have usually been accompanied by the establishment of separate regulatory authorities for the telecommunications sector.
A separate regulatory authority is important to support liberalization. For competition to develop, new entrants need confidence that the institution that sets the rules will be independent, and not biased in favour of any particular market participant(s). This is especially the case where the incumbent continues to be state-owned.