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Telecom Regulatory Environment 2006Rohan Samarajiva & Joseph Wilson with contributions byDivakar Goswami, Malathy Knight John, PayalMalik, Deunden Nikomborirak, Lorraine Salazar, & Helani GalpayaIslamabad, 15 June 2007
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Agenda
Telecom Regulatory Environment studiesContext and rationaleMethod
Analysis of six components across five countriesOverall resultsDiscussion
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Causal chain
Open system, where it is not possible to hold other things constant; competition/sector regulation affects investment AND industry performance
Performance
Investment
Country risk
Institutional climate
Capital markets/Parent co. dynamics
Market risk
Competition/Sector regulation
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Investment and TRE
Necessary condition for good performance = investmentSignificant and controllable factor that affects investment = sector-specific regulationWhat really matters in investment decisions is perception of riskInstead of looking at objective measures of regulatory performance (which is quite difficult) why not go straight to perception?
As an investment driver, perception is not second best, it is the first best
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How are investor perceptions formed?
Primarily from the symbolic environment constituted by
Investment research reports and investment firmsGeneral and specialized mediaOpinion leadersIntra industry; intra-firmNOT by public opinion
Secondarily from direct observation of regulatory entities
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Method
Panel studies using as small a number of questions as possible
Effective perception studies are conducted using one question aloneNeed to make minimal demands on time of senior respondents such as CEOs
Use a large number of respondents to balance out the biases; also use statistical methods to reduce bias caused by group representationUse traditional social-science perception instrument: 5-point Likert scaleFocus on telecom regulatory environment not on regulatory agency per se
In India, three dimensions reflect TRAI performance; three reflect DoT performanceIn Pakistan, PTA controls all six
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Method
Five dimensions from GATS regulatory reference paper (document with greatest international legitimacy) + price regulation
Others under considerationService-quality regulationConsumer protection
TRE studies being conducted in Latin America and the Caribbean and AfricaAsian six-country study conducted in August-October 2006
Building on pilot conducted in 2003: http://www.regulateonline.org/content/view/207/65/
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Panel composition: categories
Category 1 : Operators, industry associations, equipment suppliers
Category 2 : Financial institutions, private investment houses, banks and credit rating agencies
Category 3 : Educational/research organizations, telecom consultants, law firms
Category 4 : Journalists, telecom user groups, civil society, former members of regulatory/other government agencies
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52101595040Total
1325.2514.512.510Weighted Count
0.870.602.460.891.25Weight
15 (28.85%)42 (41.6%)6 (10.2%)14 (28%)8 (20%)Count
Category 4
1325.2514.512.510Weighted Count
0.811.201.340.780.63Weight
16 (30.77%)21 (20.8%)11 (18.6%)16 (32%)16 (40%)Count
Category 3
1325.2514.512.510Weighted Count
6.501.497.383.135.00Weight
2 (3.85%)17 (16.8%)2 (3.4%)4 (8%)2 (5%)Count
Category 2
1325.2514.512.510Weighted Count
0.681.200.370.780.71Weight
19 (36.54%)21 (20.8%)40 (67.8%)16 (32%)14 (35%)Count
Category 1
PhilippinesSri LankaIndonesiaIndiaPakistan
Panel Composition
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Countries
PakistanIndia IndonesiaSri LankaPhilippines(Thailand)
Included in original study, but excluded from analysis because of low response rate & coincidence with Shinwatara scandal
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Detailed analysis, across each of six dimensions
Countries arranged in order of per capita GDP (Purchasing Power Parity), with Pakistan (PK) lowest and the Philippines (PH) highestNumbers reported are average scores, rounded to one decimal Midpoint (3) as threshold of adequate performanceAnalysis by each of the six dimensions can be a useful diagnostic tool
Does the score reflect the perceptions of the regulatory agency?If not, perhaps more should be done to communicate its actions
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Market Entry
2.9
4.0
3.2 3.3
2.73.0
2.73.1 3.3
3.7
1.01.52.02.53.03.54.04.55.0
Pakistan India Indonesia Sri Lanka Philippines
Fixed Mobile
Highest MobileHighest Mobile
Highest FixedHighest Fixed
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Market entry
Pakistan mobile well above threshold, but fixed belowIN and PH above threshold in both fixed and mobileMore discussion of PK specific issues by my colleague in second half
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Access to scarce resources
3.1
3.6
2.62.2
2.5 2.6 2.52.8
3.3 3.5
1.01.52.02.53.03.54.04.55.0
Pakistan India Indonesia Sri Lanka Philippines
Fixed Mobile
Highest MobileHighest Mobile Highest
FixedHighest Fixed
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Interconnection
2.62.8
2.5 2.6
2.1
2.82.3 2.4
2.92.6
1.01.52.02.53.03.54.04.55.0
Pakistan India Indonesia Sri Lanka Philippines
Fixed Mobile
Highest MobileHighest Mobile
Highest FixedHighest Fixed
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Interconnection
Everyone is below the thresholdInterconnection continues to be a difficult challenge for regulators
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Tariff regulation
2.7 2.6
3.7 3.5
2.52.9
2.72.9 3.0 2.9
1.01.52.02.53.03.54.04.55.0
Pakistan India Indonesia Sri Lanka Philippines
Fixed Mobile
Highest MobileHighest Mobile
Highest FixedHighest Fixed
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Tariff regulation
Only India, the country that has forborne almost all tariff regulation is above thresholdGiven PK prices, it appears that IN is being rewarded not just for low prices but for the efficacy of its procedures
Less regulation high TRE?
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Regulation of anti-competitive practices
2.3 2.3 2.1
3.0
2.42.7
2.4 2.6 2.5 2.4
1.01.52.02.53.03.54.04.55.0
Pakistan India Indonesia Sri Lanka Philippines
Fixed Mobile
Highest MobileHighest Mobile
Highest FixedHighest Fixed
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Anti-competitive practices
Only India mobile is reaches the thresholdBig gap between India mobile and India fixed
BSNL?
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Universal service obligation
2.22.6
1.9 1.9
2.5 2.5 2.5 2.62.3
2.6
1.01.52.02.53.03.54.04.55.0
Pakistan India Indonesia Sri Lanka Philippines
Fixed Mobile
Highest MobileHighest Mobile Highest
FixedHighest Fixed
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Universal service
India has world’s second largest USO Fund and has done several disbursements
Yet, worst performance among the dimensions and within the group
Sri Lanka which had done nothing re USOsand does not collect USO contributions from operators (only from international) gets high scores
Less is more?
Everyone has poor scores
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Pakistan India Indonesia Sri Lanka Philippines
Market Entry Access to Scarce ResourcesInterconnection Tariff RegulationAnti-comp practices Universal service
fixedOverall TRE scores
Maximum score
Minimum score
Mid-point
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Pakistan India Indonesia Sri Lanka Philippines
Market Entry Access to Scarce ResourcesInterconnection Tariff RegulationAnti-comp practices Universal service
MobileOverall TRE scores
Maximum score
Minimum score
Mid-point
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Not intended to be a country ranking as such . . .
But natural to look for the leaderIn the dynamic mobile sector PK has highest overall score, closely followed by PHIn the fixed sector, PH leads, with PK and IN almost tied for second placeID and LK have cause for concern
OverallMobile TRE > Fixed TREAll countries have a long way to go to achieve satisfactory performance, only PK mobile and PH fixed and mobile even come close to threshold
Tracking performance over time will yield even better data for assessing regulatory performance
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Pakistan: Market Entry (4.0)
Mobile TRE score 4.0 (highest)Mobile Cellular Policy of 2004
Telenor (March 2005)Warid (May 2005)
License Fees
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Mobile Cellular Teledensity
4.127.88
22.2026.70
31.10 32.70
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2004 2005 Jun-06 Sep-06 Dec-06 Jan-07
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Market Entry Fixed (TRE: 2.9)
Telecom De-regulation PolicyPTA awarded 38 fixed local loop (FLL) licensees in 14 telecom regions of Pakistan in the first round of awarding licensesHowever, only 4 companies have started operations: Brain Limited, Union Communication, WorldCall Broadband & WorldCallDespite Reference Interconnection OfferLarge Sunk CostsPerception of Breaking Incumbent’s Monopoly
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Wireless Local Loop
low penetration is attributed to: non-availability of required investment to the operators; non-availability of equipment in some frequency bands; higher tariffs for low-income target market
WLL Subscribers and Teledensity
1,57
3,57
2
1,32
4,70
9
1,02
5,32
8
688,
831
511,
244
1.01
0.85
0.66
0.45
0.33
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Dec-05 Mar-06 June-06 Sep-06 Dec-06Su
bscr
iber
s0
0.2
0.4
0.6
0.8
1
1.2
Tele
dens
ity
WLL Subscribers
Teledensity
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Access to Scarce ResourcesTRE (3.1 and 3.6)
Frequency Allocation BoardNational Frequency Management and Monitoring System (NFMMS) Para 4.4.8 of De-regulation Policy: 30 day Period to process the applications for FS
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Spectrum Allocation
21
92
56
71
020406080
100120140
Num
nber
of L
icen
ses
Issu
ed
2004-05 2005-06
VAS and CVAL Licenses
Converted
CVALs
WLL
VAS
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Interconnection (2.6 and 2.8)
Free Interconnection Regime – Rule 13 PTRSMPs to have Reference Interconnection Offers detailing the services and tariffs they provide to other Licensed operators Interconnect Dispute Resolution Regulations, 2004
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Tariff Regulation (2.7 & 2.6)
Section 3 of the Fixed Line Tariff Regulations 2004 “the non-SMP operators are free to set and revise their tariffs at any time and in any manner as they like.”The operators should however inform the Authority of their proposed tariffs thirty days prior to the applicability of the new tariffs. In case the Authority finds the tariffs unfair and burdensome, it may amend the tariffs, and its decision shall be final and binding.SMPs: Tariffs are regulated by the Authority.
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Tariffs
Heavy taxes: Adverse impact on tariffsCorporate taxes including General Sales Tax (GST) and Withholding Tax are significantly higher in Pakistan than in other countries. In addition, Activation Tax, Central Excise Duty, Sales Tax, and Advance Tax added in the consumers’ bill has adverse bearing on the cost of telecom services.
26.5
17.9
15
10.2
5
05
1015202530
(Per
cent
age)
Pakist
anSri L
anka
Bangla
desh
India
Malays
ia
Taxes on Telecom by Countries
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Regulation of Anti-competitive Practices (2.3 & 2.2)
2006 Amendment giving PTA powers to regulate & make rules for “preventing, prohibiting, and remedying the effects of anticompetitive conduct by licensees.”Mobile Market gradually becoming competitiveFixed market still long way to go: PTCL 98% enjoys 98% market share
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Universal Service Obligation (2.2 & 2.6)
Telecom Act, 1996De-regulation PolicyMobile Cellular PolicyAccess Promotion Contribution
One Country one rate Principle – may ran afoul of global competition principles
Universal Service Fund PolicyUniversal Service Obligation on SMPsNo disbursement from USF despite large collection of funds and aid by the World Bank
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For more information:
Rohan Samarajiva (samarajiva@lirne.net) & Joseph Wilson (joseph@lums.edu.pk)
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