New Telecom Quarterly Benchmarking … · Benchmarking Telecommunications in Developing Countries: ... industry in this region to draw conclusions ... Mid Greece 49 Slovak Republic

3Q98

New Telecom Quarterly

Page 171070-3683/98/$5 © 1998 Technology Futures, Inc.

BenchmarkingTelecommunications inDeveloping Countries:A Poland Case StudyStanley L. Kroder, Ph.D. & Gary F. Wilkinson, Ph.D.

Dr. Stanley L. Kroder isprogram director, telecommanagement and directorof the Center for DistanceLearning at the Universityof Dallas. His researchinterests are in interna-tional telecom develop-ment and distanceeducation.

S ince the early 1990s, the economies ofCentral and Eastern Europe (CEE)have been dramatically transformed.

Changes in the telecommunications industryhave been a reflection of the overall eco-nomic and social transformation of theregion. This article uses the techniques ofbenchmarking and diffusion analysis todescribe the changes within the telecomindustry in this region to draw conclusionsabout telecommunications policy.Benchmarking is often used to examine anorganization’s characteristics (usually acompany) by assessing its position relativeto a carefully chosen comparison set. Thispaper uses that paradigm to assess a devel-oping country’s telecommunications system.Poland is the focus of discussion in thisarticle; however, the techniques used toanalyze Poland’s telecommunicationsdevelopment are applicable to any country.

Many countries are rapidly modernizingtelecommunications as part of an overalleffort to provide the products and servicesto aid its domestic businesses in competingmore effectively in the global market.Nations require a well-developed telecom-munications system in order to grow domes-tically and attract and retain multinationalorganizations. By benchmarking telecommu-nications, we compare the focal country’stelecommunications infrastructure to that ofother countries and draw conclusions

concerning the effectiveness of its telecom-munications policies. We have used a basicdiffusion model to also draw policy implica-tions concerning the pace of telecommunica-tions infrastructure development.

Poland was chosen as the focus for thisstudy since it’s one of the most importantand largest developing countries in Centraland Eastern Europe. Its economy is robustby CEE standards and is being transformedfrom one that was centrally planned to onethat is market-oriented. Poland’s telecommu-nications sector languished for years underSoviet domination. The pent-up demand forservices is reflected by the rapid growth thathas occurred in that country since 1989,when Soviet domination ended. Bench-marking statistics are presented to show howPoland, as well as most of its CEE neighbors,dramatically changed telecommunicationsinfrastructure development since the socialistperiod.

We also compare Poland’s level oftelecom development with European Union(EU) countries and draw additional policylessons from that. While telecom in the EUcountries is clearly well ahead of that inPoland, there are two reasons for thiscomparison:

(1) Poland plans to enter the North AtlanticTreaty Organization (NATO) and theEuropean Union (EU). Its major tradingpartner is Germany, the largest member

Dr. Gary F. Wilkinson isthe manager of pricingand tariffs for GTETelephone Operations andhas been in the telecomindustry for over 25 years.Dr. Wilkinson’s researchinterests are demandanalysis and telecompolicy.

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of the EU. Thus, industries withinPoland may face higher costs and lessefficient production due to inferiortelecommunications services, comparedwith the EU countries with which it willtrade.

(2) We believe that the pattern of telecomdevelopment in the EU countries is aleading indicator of the situation inPoland. If this is true, Poland will take avery long time to come close to match-ing the telecom development in theWest, unless policy changes are madewhich encourage rapid wireless andbroadband infrastructure development.Our recommendation is that greaterliberalization in Poland is necessary tofurther accelerate the pace of telecomgrowth to close the gap with EU coun-tries.

BenchmarkingMany studies of an organization’s

effectiveness concentrate on internal factors.In the case of telecom, these may includegovernment policy, regulatory climate,extent of privatization and competition,pricing policies, business climate, andavailability of foreign exchange. By contrast,benchmarking concentrates on externalcomparisons. These measurable factors willbe at a country level and include, forexample, teledensity (main telephone linesper 100 in the population), productivity,GDP, and population.

In this article, we use the benchmarkingparadigm to compare one country’s telecom-munications sector to those of other coun-tries in the comparison set. During most ofthe period under review, there was only onetelecom company in the countries westudied, the state owned-and-operatedmonopoly. Recently, some of these countrieshave privatized telecom and/or opened thedoor to competition. Even where there aretwo or more telecom companies, theinformation source we used aggregated dataat the country level. Conclusions derivedfrom this analysis will apply only to thecountry as a whole. In this way, we are ableto observe how the target of the study

measures up to relevant groups. Readersmay gain a new perspective based on thisquantitative assessment.

Benchmarking has limits. The compari-sons are based on broadly aggregatedindices. However, there may be significantorganizational or environmental differencesthat are hidden by the level of this analysis.For example, currency fluctuations are notuniform across countries. The reader mustbe mindful of this situation when drawingconclusions from the data and analysispresented herein.

Selection of Poland as Focal CountryPoland is the largest country in Central

and Eastern Europe aside from the Ukraine,a former Soviet State.

• Its economy is changing from commandto market driven.

• Its telecom sector was under-developedduring the 45 years of Soviet domi-nance.1,2

• Its compound annual growth rate inteledensity was 12.3% between 1991 and1995.

Only Hungary, with a rate of 14.1%, wasgreater. The popular media considersHungary, the Czech Republic, and Poland asthe most “Western” among the CEE coun-tries. These three are the only CEE countriesunder consideration for entry into NATO.We selected Poland out of this group since ithas nearly four times the population ofeither of the other two, and its telecominfrastructure is less well developed (e.g.,1995 teledensity: Poland = 15 versus Hun-gary = 19 and Czech Republic = 24).

Poland is planning the first phase ofprivatization of its state-owned telephoneoperator (TPSA) in 1998. With the largestpopulation and a less well-developedtelephone system, Poland offers investorsand strategic partners the greatest opportu-nity in terms of unrealized market potential.The benchmarking done in this article maybe useful to those who are interested inPolish telecom including regulators, opera-tors, and manufacturers, as well as academ-

Our recommen-dation is thatgreater liberali-zation in Polandis necessary tofurther acceler-ate the pace oftelecom growthto close the gapwith EUcountries.

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ics. Furthermore, this technique can be usedfor any country; Poland is simply an interest-ing case study.

We believe this study is unique in that ituses longer time series than those in otherpapers reviewed in our literature search.This permits analysis of trends rather thanusing a snap shot approach of only one orseveral recent years of data.3 We haveconstructed three groups each of EU andCEE countries. Poland is compared to a totalof six relevant groups of countries over atleast 10 years in order to determine itsstanding in both east and west.

Selection of Comparison CountriesWe formed two independent compari-

son groups—the 14 other CEE countries4,5

and, separately, the 15 EU countries andranked them according to 1995 teledensities.Then, the top, middle, and lower thirdsaccording to teledensity were grouped andaverages of those were used to comparewith Polish telecommunications. The

following table shows the ranking and thecountries in each of the three categories.Poland is included in the CEE list to illustrateits position in the low segment. For allbenchmarking purposes, however, Poland isexcluded from the set of “low” CEE coun-tries. Polish telecommunications indicatorsare shown separately as the focal point ofthe study.

In the subsequent sections, we presentvarious benchmarking comparisons. In allcases, we show two sets for each parameter:Poland versus EU countries and Polandversus CEE countries. On each chart, Polandis compared to three sets of data represent-ing the average of the countries in the high,medium, and low set. Each section willcontain interpretation of the data in supportof the quantitative measures that are showngraphically.

TeledensityWe begin our analysis with the growth

in teledensity of wireline phones. Wirelesshas been excluded for two reasons:

Table 1EU & CEE Country Comparison Groups

European Union Central & Eastern EuropeCountry 1995 Teledensity Country 1995 Teledensity

Sweden 68 Slovenia 31Denmark 61 Bulgaria 31

High Luxembourg 56 Latvia 28France 56 Estonia 28Finland 55 Croatia 27

Netherlands 53 Lithuania 25UK 50 Czech Republic 24

Mid Greece 49 Slovak Republic 21Germany 49 Yugoslavia 19Austria 47 Hungary 19

Belgium 46 Belarus 19Italy 43 Ukraine 16

Low Spain 39 Poland 15Ireland 37 Moldova 13Portugal 36 Romania 13

Source: ITU World Telecom Indicators, 1996

We formed twoindependentcomparison groups—the 14 other CEEcountries and,separately, the 15 EUcountries and rankedthem according to1995 teledensities.

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0

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1975 1980 1985 1990 1995

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Tel

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Top 5 Mid 5 Low 5 POL

(1) The data sets we use cover the period of1975 to 1995. Wireless became impor-tant in Poland only in the last few yearsof this period.

(2) By 1995, wireless in Poland was grow-ing rapidly; yet, it was small by compari-son to wireline. That year, Poland hadnearly six million main telephone linescompared with 75,000 cellular phonesubscribers. By December 1997, thatnumber had increased more than tenfold to 875,000.

In the authors’ opinion, wireless willsoon need to be included in teledensitystudies as it becomes an equal partner withwireline service. That was not the caseduring the period of comparison.

The next two graphics illustrateteledensity for the EU and CEE countries andPoland. In Figure 1, the teledensity ofPoland lags behind EU countries, which isnot surprising since telecommunications wasnot a priority in Poland under the Commu-nists. At the start of the time series, the Low5 EU group was approximately wherePoland was 20 years later (teledensity of 15).From 1975 until 1990, teledensity in westerncountries was increasing at a steady pace,while that of Poland was nearly flat. Adramatic change started in 1990, the first fullyear after the collapse of the Soviet bloc.The radical nature of this shift is moreobvious in subsequent graphs where theteledensity range is smaller. Yet, in 1995,Poland’s teledensity was still far behind thatof the EU countries (15 versus 60). Later, weexamine the rate of change in teledensity.By so doing, we will be able to identify thedistinct phases of growth that have beenexperienced by the EU countries and drawadditional comparisons to Poland.

Next, we compare Poland’s teledensityto that of the CEE countries (Figure 2).Poland was below the teledensity for theCEE countries until the last year in theseries, 1995, when it reached the average ofthe “low” group. In 1985, the teledensity inPoland was approximately 7, less than halfthe average for the top group of CEEcountries. From 1991 forward, Poland

accelerated its telecom development andbegan to close the gap with the low group.

DiffusionBy inspecting teledensity over a rela-

tively long time horizon, we observe theclassic product diffusion model at work.6

Diffusion is characterized in three distinctphases. First, there is a slow initial deploy-ment as the costs are relatively high andmarket demand must be established. Sec-ond, there is a period of more rapid adop-tion as demand increases and prices drop.Third is when the rate slows as the productand market matures. In general, the diffu-sion curve is “S” shaped.

This can be seen in Figure 1 for the Top5 countries where the curve is turning down

Figure 1EU Teledensity


Figure 2CEE Teledensity


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1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

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toward the end of the period, indicating amaturing market. This slowdown can resultfrom a substitution effect which, in the caseof telecom, may be caused by the introduc-tion and rapid acceptance of wireless in themost developed nations. Poland, by contrast,experienced a very long first phase due tothe security policy of the Communist regime.During the 1990s, it is entering the secondphase with strong, pent-up demand and agovernment that is dramatically increasing itsinvestment in telecom. Due to the late start,the diffusion process in Poland may be morerapid than for its counterparts in the West.The substitution effect of wireless can beexpected to cause the wireline diffusionprocess to enter the third phase at a lowerlevel of teledensity than in the EU countries.

Rate of Change of TeledensityAnalyzing the rate of change of

teledensity with respect to time is also veryinstructive. First, this investigation exposesthe extent to which a country is committedto growth in the telecommunications sector.For example, the change in Poland’s ap-proach toward telecom can be observed bythe rate of change in teledensity that beganin 1990 (see Figure 3). That year, the annualchange in teledensity was 0.4. Five yearslater, in 1995, it had quadrupled to 1.8.

Second, by using this technique, we canshow the diffusion process in action. Noticethe shape of the curves for the EU countries.Each one has a distinct maximum represent-ing the point on the teledensity curve wherethe rate of change goes from acceleration todeceleration or the point of inflection. This isfurther evidence of a diffusion process. TheTop 5 reached a maximum in 1977 and theMid 5 in 1978. The Low 5 did not peak until1990. In contrast, Poland has a long flatcurve followed by a very steep ramp-up as itmoves from the first to second phase ofdiffusion.

Using diffusion theory, we expect thatthe rate of change for Poland will slowdown and eventually reach a maximum.From empirical observation, we note that, in1995, Poland’s rate of change in teledensitywas 1.8. In the 20-year history of the EU

countries shown in this study, the maximumrate was in the range of 2.0. Poland shouldhave reached that range in 1996. If historycan be trusted, we would expect to seePoland’s rate of change level off at about 2.0and drop slightly in the next few years to apace of 1.2 to 1.5 per year.

Figure 3 shows the diffusion processthat has taken place in the development ofthe telecom infrastructure over time. Thefirst phase is characterized by a flat rate ofchange for the teledensity followed by arapid increase during the second phase.When the peak is reached, we expect therate to become more moderate.

There is a striking anomaly in this dataset in 1990 for the Mid 5 EU countries. That

Figure 3EU—Rate of Change of Teledensity


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was the year German reunification wasreflected in the ITU data. The ITU mergedthe data on teledensity from West and EastGermany into a single entity, which pro-duced the effect of lowering Germanteledensity from 46.5 in 1989 to 40.2 in 1990.Although not reported separately by the ITU,East Germany must have had a teledensityof 18.1 before reunification, placing it in theLow 5 of the CEE countries. This is the onlycase where the rate of change of teledensityis negative.

Figure 4 shows the same analysis for theCEE countries. During the years of Sovietdominance in CEE, the change in teledensityis almost flat for all four plots. Clearly,Poland is substantially below the lowest

An Important Finding

The rate of change ofteledensity can beused as a barometerfor detecting shifts intelecom public policy.A surge in thismeasure indicatesthat the nation ischanging its policy byreacting to a strongdemand for increasedtelecommunicationsservices. A peakfollowed by a slightdecline suggests thatthe market ismaturing, reflected bythe slowing of the rateof change. Using thediffusion construct,the downturn of therate of change ofteledensity is a signalthat telecomexpansion is slowing.

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group, indicating the total lack of interest intelecommunications development prior tothe end of Soviet dominance. Note thatPoland passed the lowest group in 1991 andhas a slope approximately that of the toptwo groups.

Figure 4CEE—Rate of Change of Teledensity


0.0

0.4

0.8

1.2

1.6

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1986 1987 1988 1989 1990 1991 1992 1993 1994 1995


Measures of ProductivityIn this section, we explore two produc-

tivity indicators that are common to thisindustry—main lines per employee andrevenue per employee. These indicators areimportant in measuring where a telephoneoperator is with respect to others in theindustry and for normalizing results betweencountries. Indeed, in the United States, thestock market analysts watch these indicatorswhen assessing U.S. telecommunicationsservice providers.

Historically, the industry has been verylabor intensive. Productivity gains are madeby increased use of technology and bychanging management’s focus on productiv-ity. The latter factor may be addressed byone or more of these approaches:

• Re-engineering.• Renegotiating labor contracts.• Introducing competition.• Privatizing telecom with incentives on

productivity.

A benchmarking study provides adeveloping country’s telecom policy makerswith a basis for setting productivity goals.Undoubtedly, many developing countrieshave done that in preparation for obtainingfinancing, planning for privatization, anddeveloping strategies for strategic alliances.

Main Lines per TelecommunicationsEmployee

Poland’s lack of telecom developmentduring the period of Soviet dominance isapparent in Figure 5. In 1985, the gapbetween the EU Low 5 and Poland was 55lines per employee. By 1990, the gap hadwidened to 90. Even with the rapid build-upsince then, the gap increased to 105 by1995.

Figure 5Telephone Lines perTelecom Employee


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1985 1987 1989 1991 1993 1995

Year

Num

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The good news is that Poland is increas-ing worker productivity in an absolute senseas summarized in Table 2. The work force isnot growing as rapidly as is the number ofaccess lines, that is, the number of mainlines increased by a much greater extentthan did the work force.

Worker productivity is moving in theright direction, but it has a long way to go tocompare with that of any EU country. Thefollowing example puts Poland’s dilemma inperspective.

Productivityindicators areimportant inmeasuring wherea telephoneoperator is withrespect to othersin the industryand for nor-malizing resultsbetweencountries.Indeed, in theUnited States,the stock marketanalysts watchthese indicatorswhen assessingU.S. telecom-municationsservice providers.

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Table 2Worker Productivity in Poland

1990 1995 % Change

Number of Workers 65,000 73,267 13%

Number of Main Lines 3.293 million 5.728 million 74%

Main Lines per Employee 50.7 78.2 54%


Example: For Poland to catch upFor Poland to match the average of the

EU Low 5 worker productivity as of 1995,Poland must keep headcount flat andincrease the teledensity from 15 (which itwas in 1995) to 33. If Poland can increaseteledensity at the rate of two lines per year(in 1995, the rate of increase was 1.8 peryear), then, in 2004, Poland will be wherethe EU Low 5 average was 10 years earlier.

This analysis dramatizes the position inwhich Poland finds itself. The strides thatPoland has made since 1990 must besustained over an extended period of timeto close the gap with EU countries. This is adaunting task. An alternative approach forPoland and other developing countries is toshift to wireless, which is less labor andcapital intensive and faster to deploy.

Next, we compare telecom workerproductivity in Poland to its neighbors in theCEE. Poland surpassed the average of theLow 4 CEE countries in 1994 and, by 1995,was slightly ahead of this group. Thecomparison with the other two CEE groups,however, is not as favorable. As seen inFigure 6, the slope for Poland is about equalto that of the Top 5 and Mid 5 CEE coun-tries. This means that the gap remainsconstant. In a recent article, David Rocks7

stated that Poland’s neighbors—Hungaryand the Czech Republic—are significantlyahead of Poland according to this measure.

Telecommunications Revenue per MainLine

We start this section with two caveats.First is currency. The ITU database expressesfinancial indicators in local currency and inU.S. dollars. In this report, we will use U.S.dollars to normalize between countries. TheITU translates the local currency to U.S.dollars by taking the average exchange rate(local currency units per U.S. dollar) for ayear and dividing it into the financialmeasurement expressed in local currency.We have not attempted to remove currencyfluctuations and inflation that may differfrom country to country.

Figure 6CEE—Telephone Lines per

Telecom Employee


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1985 1987 1989 1991 1993 1995

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An alternativeapproach forPoland and otherdevelopingcountries is toshift to wireless,which is lesslabor and capitalintensive andfaster to deploy.

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Figure 8CEE—Telecom Revenue/Access Line


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Second is measuring telecom revenue.The telecom sector is notorious for usingsubsidies to implement public policy. Inmost countries, the price of local service isheld at or below cost while long distance,both domestic and international, is pricedwell in excess of costs. In developingcountries, low interest loans and grants frominternational agencies and other shifts in acountry’s public funding for telecom maydistort the revenue picture for intercountrybenchmarking. Yet, we use the data forcountry to country comparisons. Both factorsrepresent limits in our ability to benchmarkthese dimensions effectively. While moresophisiticated modeling could be done, webelieve that an adequate benchmarkinganalysis can be accomplished with the ITUdata in spite of these limitations.

In Figure 7, we show revenue peraccess line. On the surface, Poland appearsmuch lower than the EU countries. How-ever, when we consider the differencesbetween GDP per person, the relationshipchanges. For example, in 1995, the averageGDP per person for the Top 5 EU countrieswas $25,016, while it averaged $2,415 forPoland, a ratio of approximately 10:1. Onthe other hand, revenue per access line forthe Top 5 EU countries was $1,033, andPoland’s was $377 or 2.7:1. If we adjust thenumbers based on the difference in GDP perperson, Poland’s revenue per access line isconsiderably more than that of the EUcountries.

Poland’s telecom revenues in compari-son to its CEE peers is very favorable. SinceGDP per person displays a greater similarityamong the CEE countries than betweenPoland and the EU countries, this may be amore useful comparison than with the EUcountries. Poland’s position on this measureis outstanding; however, potential shortcom-ings remain as mentioned earlier.

Telecommunications Revenue as aPercent of GDP

Another common measure used tocompare telecom policy between countriesis telecommunications revenue as a percentof GDP. In countries that lag in the develop-

Figure 7EU—Telecom Revenue/Access Line


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ment of telecom, we would expect to see alow ratio. As seen in Figure 9, Poland has adramatically lower ratio when compared tothe EU countries during the time of theSoviet domination. After the Communistsceded power, however, Poland’s change intelecom policy increased rapidly fromapproximately 0.5% to 1.7%. This is a verypositive sign considering that the EU coun-tries hovered between 1.7% and 2.1% from1985 to 1994. If Poland’s GDP grows, weexpect to see similar gains in telecomrevenue. The ratio does have some room forgrowth though, if it is to track EU experi-ence.

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$0

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Figure 9EU—Telecom Revenue as

Percentage of GDP


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The data is more sparce for the CEEcountries, as seen in Figure 10. There areonly two years (1993-1994) for which wehave data for all four sets in thisbenchmarking group. Poland is below boththe Top 5 and Mid 5 comparison groups,which is consistent with its place in mostother measures. We should note that theTop 5 CEE countries exceed the Top 5 EUcountries on this measure, which means thatPoland does not have to feel constrained tothe 2% maximum that is derived from theEU analysis.

GDP per PersonThis measure compares one country’s

economy to others. Poland was far behindthe EU countries before 1985, and the gaphas increased significantly since that time.The GDP of three EU groups rose dramati-cally from 1985-1995, while Poland’s GDPper person remained flat. In 1995, Poland’sGDP per person was one-tenth that of theTop 5 in EU countries. This disparity in thebroadest measure of economic vitality isimportant to consider when benchmarkingvarious telecom indices between East andWest.

When we compare the GDP per personfor the CEE countries and Poland, we find amuch narrower range in that variable. Figure

Figure 10CEE—Telecom Revenue as

Percentage of GDP


0.00

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1985 1987 1989 1991 1993

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Figure 11EU—GDP per Person


12 shows that Poland and the top twocomparison groups of CEE countries arecomparable, which indicates Poland is notdisadvantaged. This measure is subject tothe vagaries of general economic fluctuationthat takes place between countries withdifferent currencies and ever-changingexchange rates.

Telecommunications Investment perAccess Line

Investment in telecommunications isanother important factor to include in thisbenchmarking analysis. As we have donepreviously, the country data is normalized

GDP per personis important toconsider whenbenchmarkingvarious telecomindices betweenEast and West.

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$0

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Figure 13EU—Telecom Investment per

Access Line


Figure 14CEE—Telecom Investment per

Access Line


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Figure 12CEE—GDP per Person


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by dividing the telecom investment in U.S.dollars by the number of access lines. Thiscomparison, as shown in Figure 13, illus-trates the growth of the EU countries fromapproximately $150 in 1985 to $250 in 1995.The data for Poland begins in 1988 when itsinvestment per access line was $50. By 1995,that figure tripled. Considering the differencein GDP per person, Poland, with a telecominvestment per access lines of $150, com-pares favorably to the EU on this measure,which represents a clear shift in policy.

You will note an interesting characteris-tic in this data. During the period of 1988-1990, the Low 5 EU countries were making aheavier investment per access line than theTop 5. This inversion suggests that the Low5 were attempting to catch up with theirpeer group.

In Figure 14, we see that Poland ismaking an investment per access line that isvery close to the average of the Top 5 andMid 5 CEE countries, and nearly four timesthat of the Low 4. Based on this analysis,Poland seems to be positioned well on thisdimension.

Policy ImplicationsA major policy issue facing all develop-

ing countries is what type of market struc-ture will provide the greatest incentive fordevelopment of the telecommunicationsinfrastructure. The example we have pre-

sented with benchmarking the telecomdevelopment in Poland clearly demonstratesthat the command economy under socialismwas far inferior to the current market-oriented economy. Western economists havealmost unanimously held the belief thatsocialism was inferior to capitalism inpromoting general economic development.However, growth in some sectors of socialisteconomies rivaled similar sectors in Westerneconomies. Our information shows that thetelecommunications sector lagged far behindits Western counterparts.

Considering thedifference in GDPper person,Poland, with atelecom invest-ment per accesslines of $150,comparesfavorably to theEU on thismeasure, whichrepresents aclear shift inpolicy.

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The change from a system of govern-ment controls and management of thetelecommunications system to one withprofit incentives resulted in a radical changein the teledensity growth. In Poland, thischange was not caused by the introductionof significant levels of competition. The

Table 3Benchmark Summary

Poland Compared with EU Poland Compared with CEE

Teledensity Starts and ends the comparison Started period behind the CEE Lowperiod at 25% of EU Mid 5.But, group. Caught up with them by 1995.Poland’s growth rate increases Not closing the gap with Top 5 anddramatically starting in 1990. Mid 5.

First Derivative of Poland shifts dramatically starting in Poland lags all CEE groups up to 1990Teledensity 1990. Peaks in 3 EU groups indicating when it overtakes the CEE Low group.

a slowing in the rate of growth. By 1995 Poland has approximatelyPoland growing more rapidly. same rate as Top 5 and Mid 5 groups.

None has reached peak.

Phone Lines per Employee Gap is widening. Poland is falling Poland overtook Low group in 1994.further behind. Poland has a 54% It has the same rate as the top twoimprovement from 1990 to 1995, groups. Not gaining on them.but is clearly in a different league.

Telecom Revenue per Poland’s considerably below the EU Poland is consistently higher than itsAccess Line groups; however, when GDP per neighbors. This is the best comparative

person is considered, Poland performance that Poland has shown.compares favorably.

Telecom Revenue as a Gap is dramatically narrowing. Poland Scanty data for the comparison. PolandPercentage of GDP made great strides in the period since is just off the pace of the Mid 5

1990. If Poland increases by 20%, it indicating that there is growth possible.will be on a par with the EU countries. Poland is earning more per line; hence,

more productive

GDP per Person Poland 1/10th the Top 5 EU Poland is much more stable than itscountries. Poland has lower growth neighbors are and above the Low andrate. This difference must be Mid CEE groups.considered when comparing financialmeasures.

Telecom Investment Poland is growing faster than EU Poland is very competitive with Topper Access Line countries and closing the gap. If and Mid 5 CEE groups and dramatically

Poland continues at recent pace, ahead of the Low group.it could reach parity with EU countries.

Source: Kroder & Wilkinson

market structure has remained almost a totalmonopoly.8 The change has been largelydue to the change in incentives for themanagement of the telephone system.

Beyond the clear policy directionfavoring free market incentives, marketstructure recommendations are less defini-

We comparedPoland to the 15EU countries andthe 14 other CEEcountries basedon sevendimensions.

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Present policies,which arebringing aboutgradual changeand the pros-pects for a con-tinued monopolymarket structure,do not appear toprovide sufficienteconomic incen-tives for Polandto close the gapin telecomdevelopment withthe EU.

tive. We have shown evidence that theslower pace for introducing competition intothe Polish market very likely resulted inslower teledensity growth than would havebeen the case if more aggressive policiespromoting competition had been imple-mented. Both Hungary and the CzechRepublic instituted policies that encouragedgreater competition compared with Poland,and teledensity growth was higher. Othereconomic and demographic factors mayhave also contributed to teledensity differ-ences between these countries such asdifferences in income levels, level of foreigninvestment in the telecom sector, andgeneral economic conditions.

Finally, the benchmarking and diffusionanalysis comparing telecom development inPoland with the EU countries shows thatPoland should not simply adopt policieswhich place the country on a similar path asthe EU. Our recommendation is that policieswithin Poland must accelerate telecomdevelopment in order to close the gap withthe EU countries. Technology may providethe means for this accelerated developmentthrough wireless and fiber optic deployment,but policies must encourage greater compe-tition and foreign investment. Presentpolicies, which are bringing about gradualchange and the prospects for a continuedmonopoly market structure, do not appearto provide sufficient economic incentives forPoland to close the gap in telecom develop-ment with the EU.

SummaryWe compared Poland to the 15 EU

countries and the 14 other CEE countriesbased on seven dimensions. Table 3 summa-rizes our findings and conclusions.

Authors’ Note: The methods used in this study provide aframework for comparing any developing country to itsrelevant peer group. However, using countrywide datacertainly can mask important developments. In spite ofthis, we believe that, by using time series and countryaverages to smooth the data, the relative positions canbe judged equitably. We hope that other researchersmight extend this analysis to other countries anddimensions in order to verify the value of this ap-proach.

Editor’s Note: The text of this article has been abridgedfor the printed version of NTQ. To get the full text ofthis article, go to NTOnline at www.tfi.com/clientsvcs/ntonline.

1 Paul J. J. Welfens, “Telecommunications and Transitionin Central and Eastern Europe,” TelecommunicationsPolicy, Vol. 19, No. 7 (1995):561-577.2 Johannes M. Bauer and Joseph D. Straubhaar,“Telecommunications in Central and Eastern Europe,” inC. Steinfield, J. M. Bauer, and L. Caby, Eds., Telecom-munications in Transition (Thousand Oaks, CA: Sage,1994), pp. 255-271.3 Robin Brown, “Eastern European Market Opportuni-ties,” New Telecom Quarterly, Vol. 1, No. 4 (November1993):3-6.4 Gyula Sallai, Ivan Schmideg, and George Lajtha,“Telecommunications in Central and Eastern Europe,”Telecommunications Policy, Vol. 21, No. 5 (1996):325-340.5 Albania is a CEE country, but its telecom infrastructureis so weak by comparison that we have eliminiated it.Albania’s teledensity in 1991 was 1.25 and in 1995, itwas 1.15. Therefore, it has been omitted since itstelecommunications sector is so vastly different from theother CEE countries.6 Jaishankar Ganesh, V. Kumar, and VelavanSubramaniam, “Learning Effect in MultinationalDiffusion of Consumer Durables: An ExploratoryInvestigation,” Journal of the Academy of MarketingScience, Vol. 25, No. 3 (1997):214-228.7 David Rocks, “Going to Market,” tele.com, Vol. 3, No.8 (1998):85-90.8 An interesting insight was provided by Dr. HenrykLasota, Professor of Telecommunications, PolytechnicUniversity in Gdansk, Poland who noted that there isconsiderable competition in the telecom equipment andlabor sectors even though the TPSA still holds amonopoly for services.

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