 | Issue: | Latin America II 1999 |
| Article no.: | 13 | |
| Topic: | Telecommunications: Managing the Transition to a Competitive Environment | |
| Author: | Selby Wilson | |
| Title: | Secretary General | |
| Organisation: | Caribbean Association of National Telecommunications Organisations, Trinidad and Tobago | |
| PDF size: | 24KB |
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Article abstract
There is no set formula to be applied in the liberalisation of the telecommunications sector. Governments must determine the pace, timing and structure that the liberalisation process will take. What one does know is that there is a myriad of difficult issues to be addressed regardless of the scope of the liberalisation program. The manner in which these issues are managed will, in the final analysis, determine the success or otherwise of the initiative. Liberalisation should only be a means to an end and not an end in itself.
Full Article
In recent times, telecommunications have been going through dramatic changes. Many of these changes are being influenced by the convergence of technologies, particularly computers and telecommunications, including broadcast and other information services. This convergence of technologies, spearheaded by the Internet, has ushered in the era of the Information Society. This awareness and realisation of the importance of the Knowledge and Information Age has caused many governments to think quite differently about telecommunications. It has always been acknowledged that telecommunications is essential for the economic, social and cultural development of societies, but that requirement has become even more urgent as the Information Age is increasingly being recognised as the future of all societies. Indeed, it is instructive to note that under the Uruguay round of trade talks, trade in telecommunication services was included for the first time. It is now a part of history that 69 countries have signed the WTO Agreement on basic telecommunication services. The signatories to the Agreement are committed to liberalising and opening up the telecommunications sector to competition over varying periods of time. As a result, the percentage of the market that will be exposed to competition should rise to 85% early in the next decade. The focus today is to identify the requirements that are necessary prerequisites to manage the transition of the telecommunication sector to a competitive environment. This need to manage the transition is necessary to ensure that incumbent operators are fairly treated while the government pursues its objectives for the general good of society. ‘Right to Communicate’ Telephony at its inception was considered a public good in a similar way to other utilities. Thus, telecommunications companies were either granted private monopolies or were state-owned companies servicing whole countries or regions. During this stage of telecommunications evolution, the primary universal service objective was to develop a national network that covered as many people as possible regardless of their location. This policy committed operators in Europe to pass all homes; whereas the policy in the US and Canada was to connect all households. Due to limited resources, in most developing countries, telecommunications operators connected users with the most needs: government agencies, state-owned enterprises, businesses and individuals that could pay for services. In the case of developing countries, these objectives have been met but generally the penetration levels of telephones per 100 population have remained very low. Consequently, the rural and urban poor communities do not have adequate access to telecommunication services. Indeed, they are being denied the right to communicate that is now considered a basic right in the developed world. Arbitrage Arrangements In monopoly environments, providers used various forms of cross subsidies to keep prices affordable for the majority regardless of income, disability and geography. Providing total revenues were high, operators did not care how much money came from which segment of their operation. The cross subsidies shift costs from urban to rural, business to residential, long-distance to local, and international to national. In the Caribbean, the telecommunications sector, except for paging services, some fixed based mobile services and Internet service providers, the basic voice telephone operators are private or govemment-owned monopolies. In some of the countries there is limited competition in the provision of customer equipment market. However, on the international services there is evidence that arbitrage arrangements are eroding international service revenues. These arbitrage arrangements include by-pass, call back, country direct, and looming on the horizon is Internet telephony. These developments have caused US carriers to prompt the Federal Communications Commission (FCC) to regulate the settlement rates for international service between them and foreign carriers. The impact of this action is to substantially reduce settlement revenues to developing countries in particular. Quite apart from the commitments under the WTO Agreement, these arbitrage arrangements establish that competition is a reality whether we like it or not. The forces of technology will not have it otherwise, not to mention the developments in satellite communication services and the universal roaming that this would permit, despite the understandings being encouraged by the International Telecommunication Union (ITU). Transitional Issues It is imperative to recognise that any country making the transition from public monopoly to private competition in the telecommunications sector faces a myriad of difficult issues. These issues take time and resources to resolve. They cannot be ignored. To do so would be to hinder the orderly development of the sector and, more importantly, the stated or perceived benefits of liberalisation from a government’s perspective. The transitional issues that should engage the attention of governments would include the following. Regulatory Framework and Functions The existence of a strong and independent regulator is of crucial importance for the rapid and orderly development of the sector with particular attention to the provision of basic telephone services. Such a regulator is needed to build confidence and encourage potential investors who normally look for a fair, transparent, impartial and competitive telecommunications environment. Argentina’s liberalisation program was constrained by both legal challenges and the absence of a clear blueprint. In developing the regulatory framework the following basic requirements must be established: · Autonomy: operators and regulators are completely separate. Regulatory entity operates independently from the executive branch and political party influence. · Efficiency: procedures required for regulatory approvals occur in a predictable time frame. · Credibility: market players believe that existing regulations will be enforced. · Transparency: information on licence application procedures, requirements and fees, as well as current licensees, is publicly available and concessions follow clearly delineated procedures. · Long Term Vision: regulations are implemented with an eye towards establishing a competitive industry and optimising sector growth. The legislation establishing the regulatory framework must be clear on the promotion of the nation interest and the objectives to be fulfilled by the regulatory agency. Licensing of System Operators All telecommunications operators must have a licence to provide telecommunications services. Competitive bidding in response to clearly defined criteria established by the government should be the basis of granting licences. These license conditions are intended to project the interest of consumers and other users as well as ensuring fair competition among licensed operators. These conditions require operators to publish their charges and the terms and conditions applicable to services provided by them. The prohibition of linked sales and of certain exclusive dealing arrangements are examples of conditions imposed to curb anti-competitive practices on the part of private sector operators. Interconnection of Networks and Pricing Issues A clear and unambiguous policy on network interconnection must be in place to promote effective competition among licensed operators. Many countries have found that it cannot be left to negotiations between the incumbent operator and new entrants. This is because there is little or no incentive for a dominant operator to provide expeditious and equitable interconnection to new entrants in the market. The interconnection policy must clearly stipulate: · pricing for local call termination; · long distance call transit and termination; · international origination and termination; and, · respective responsibilities for physical interconnection links and provision of interface connection units. Tariff Re-balancing Competition implies that the system of cross subsidisation between the services will have to be dismantled in the medium to long term. Indeed there is mounting international pressure for telecommunications organisations to move to cost-based rates. This effectively means that international service rates will decline over time, while one can expect to see higher rates for residential and other subsidised services. It is known that the prices for domestic service are significantly below cost, and that such losses are recovered from or sustained by profits from international calls, including incoming calls, which are priced significantly above cost The social implications as a result will have to be addressed through a clearly defined universal service and funding program. Such a program should not put the incumbent operator at a disadvantage. Desired Market Structure The government policy must clearly enunciate its main policy objectives and then develop policy decisions that will influence the market structure. The shape of the market structure will define the pace of the liberalisation process. The policy decisions should define the following: · Separation between fixed voice services, cellular services, fixed mobile, mobile services and data services. · Whether GMPCS licenses will be issued to operators to establish gateways and provide these services? · Would there be restrictions on the dominant incumbent operator, the nature and duration of such restrictions? · Would the number of new entrants be limited and the conditions and obligations imposed upon them? · Does the policy make a separation between wire line services and wireless local loop services? · Would the market provide for new entrants for the provision of international voice services? · Would fixed basic voice telephone operators be permitted to provide mobile services and vice versa? · Would Internet service providers be regulated and provide phone to phone services over the Internet? Management of Radio Spectrum As the telecommunications sector, particularly with the proliferation of wireless technologies, the management of the radio spectrum resource is going to be extremely important. It is a resource that is scarce and also has value. In many countries it provides a source of revenue for the government. Decisions will have to be made on its allocation and management. Numbering Management Numbering is a key issue in providing easy access to networks and services in a competitive environment. Geographic significance in numbers should be shared among all competitors to minimise the risk of confusing the general public and disadvantaging some competitors. Number portability should also be provided for, in order to enable subscribers to change access carriers while retaining the same number. Consequently, the regulatory agency or some other independent authority should administer this resource. Universal Service and Funding Most countries are concerned that telephone and other information services should be provided to all of their citizens. It is therefore important to develop a clearly defined policy on universal service and its funding. This policy should be transparent, fair and non-discriminatory among all operators in the sector. It must be recognised that this obligation, in a competitive environment, cannot be the responsibility of the dominant operator or incumbent as was the case in monopoly conditions. If it is placed on the incumbent then appropriate arrangements must be made to fund the cost of providing the service so as not to place the incumbent at a competitive disadvantage. One must also be mindful that in the Information Age, universal service or access is a changing definition. Adequate provision must be made to accommodate the evolution of this service. The Role of Incumbent Operators In the process of liberalisation the role played by the incumbent operator cannot be ignored. The government must be sensitive to the existing arrangements with the incumbent operator. It is imperative that the advance to liberalisation is conducted in such a manner that it prevents new entrants from cream skimming off the profitable services in an uncontrolled environment. If this were to happen, not only would the position of the incumbent be jeopardised, but the government’s objectives, particularly those of universal service, would not be satisfied. It must be acknowledged that overall, the mandate of incumbent operators has been achieved. In this new global trend and pressure for a liberalised telecommunications sector, the government and the incumbent must work co-operatively to ensure that the policy shift is properly managed to the mutual satisfaction of all parties, incumbents and new entrants. Pace of Transition There is no set formula to be applied in the liberalisation of the telecommunications sector. It is left to each government to determine its objectives in taking this route. Governments must determine the pace, timing and structure that the liberalisation process will take. What one does know is that there is a myriad of difficult issues to be addressed regardless of the scope of the liberalisation program. The manner in which these issues are managed will, in the final analysis, determine the success of the initiative. It is important to resist the temptation to leap before they have grasped and understood all of the issues and more importantly determined their objectives. It is not sufficient to believe that prices to the consumer will drop as a result of a more competitive environment. Indeed it is possible to experience deterioration in services if the process is done in an improper manner. Liberalisation should only be a means to an end and not an end in itself. Conclusion A recent advertisement put out by the government for another cellular operator falls short in many significant respects. It seems to suggest that no clear objectives have been identified. A proper bid document should have been prepared addressing most of the issues enunciated in this presentation. More importantly, the opening up of this sector should be a revenue earning opportunity for the government just as the allocation of drilling blocks in the energy sector.
