Process and impact of market liberalisation: Worldwide trends
Dr Tim Kelly, ITUTuesday Session 1
CTO Senior management seminar: Telecoms
restructuring and business change
Malta, 17-21 May, 1999
The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Dr Kelly can be contacted at [email protected].
AgendaAgendaMarket liberalisation: Trends
Why? Where? When? How fast?
WTO market liberalisation processAlternatives to competition/privatisation
Build/Transfer arrangements
Impact on tariff rebalancingUniversal service concerns
Does competition bring the expected benefits?
Degree of competition in basic Degree of competition in basic services, 1998, by regionservices, 1998, by region
Source: ITU Telecommunication Regulatory Database.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Africa Americas ArabStates
Asia-Pacific
Europe
Monopoly
Competition
Status of competition by market Status of competition by market segment, worldwide, 1998segment, worldwide, 1998
Source: ITU Telecommunication Regulatory Database.
InternationalLocal Long distance
47%
Competition
53%
Monopoly
56%
Competition
44%
Monopoly
54%
Competition
46%
Monopoly
Degree of competition in mobile Degree of competition in mobile services, by region, 1998services, by region, 1998
Source: ITU Telecommunication Regulatory Database.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Africa Americas Arab States Asia-Pacific Europe
Monopoly
Competition
Why introduce competition into Why introduce competition into the Sector?the Sector?
To introduce fresh investment and/or foreign investment into the Sector Existing network may be ageing or poorly maintained Existing operator may be debt-ridden or financially constrained
To introduce innovation, price competition and new management techniques
To create new business opportunities for local entrepreneurs and other suppliers
To create more choice for consumersTo improve level of teledensity and pace of network roll-
out
Competitive markets tend to grow Competitive markets tend to grow faster than monopolistic onesfaster than monopolistic ones
Cellular subscribers per 100 inhabitants,
developing countries
-
0.20
0.40
0.60
0.80
1.00
1992 1993 1994 1995 1996
Competitivemarkets
Non-competitive
marketsSource: ITU “World Telecom Development Report 1998: Universal Access”
0
25
50
75
100
125
150
175
200
1990 1991 1992 1993 1994 1995
Competitive markets
Non-competitive markets
Source: ITU World Telecommunication Development Report, 1996/97.
Growth in international traffic per line, in Growth in international traffic per line, in emerging markets (1990=100)emerging markets (1990=100)
Different approaches to market Different approaches to market liberalisationliberalisation
Introduce competition first in mobile and value-added, and only later in basic services e.g., South Africa has had mobile competition since 1994
(Vodacom and MTN) but Telkom SA has an exclusivity until 2003/4 over basic service.
Introduce a duopoly for a period followed by more open competition e.g., UK introduced duopoly (BT/Mercury) in 1982 but went for full
competition in domestic services in 1991 and in international service in 1996.
Go for “big bang” approach to market liberalisation e.g., SwissCom had full monopoly in Switzerland until 1998; now
open competition.
From duopoly to competition ...From duopoly to competition ...
0
2'000
4'000
6'000
8'000
85 86 87 88 89 90 91 92 93 94 95 96
Mobile cellular subscribers in the UKIn thousands
Licensing of tw o additional digital service providers
Source: ITU “World Telecom Development Report 1998: Universal Access”
Trade in telecoms: The WTO Trade in telecoms: The WTO processprocess
Dual role of telecommunications As a facilitator of trade in other sectors (GATS) As a directly traded product and service (BTA)
How can telecom services be traded? Modes of delivery Cross-border (e.g., international calls) Commercial presence (e.g., Foreign Direct Investment) Consumption abroad (e.g., calling cards) Movement of staff (e.g., consultancy services)
Total value of telecoms trade around US$120 bn in 1998 (principally equipment)
WTO timetableWTO timetable
1986-1993: Uruguay Round15 April 1994: Marrakech Treaty (GATS)1994 - 1997: Group on Basic Telecommunications
(GBT)April 30 1996: “Standstill” Feb 15 1997: Basic Telecommunications Agreement
(BTA)April 1997: Information Technology Agreement (ITA)5 February 1998: Implementation of BTANovember 1999: New round launched in Seattle?
General Agreement on Trade General Agreement on Trade in Services (GATS) principlesin Services (GATS) principles
Most-favoured nation (MFN), Article IITransparency, Article IIIDomestic regulation, Article VI:
qualification requirements and procedures technical standards licensing requirements
Monopolies and exclusive service supply (Article VIII)
Market access (Article XVI)National Treatment (Article XVII)
Countries permitting competition in Countries permitting competition in basic telecoms:basic telecoms:1990 1995 1998JapanUnited KingdomUnited States
AustraliaCanadaChileFinlandJapanKorea (Rep.)New ZealandPhilippinesSwedenUnited KingdomUnited States
AustraliaAustriaBelgiumCanadaChileChinaDenmarkEl SalvadorFinlandFranceGermanyGhanaHongkong SARIsraelItalyIreland (Dec 98)
Japan Korea (Rep.)MexicoNew ZealandNetherlandsNorwayPhilippinesRussiaSpain (Dec 98)SwedenSwitzerlandUgandaUKUSA
plus others ....
35%46%
74% 85%
1990 1995 1998 2005
Mono-poly
Compe-tition
4 14 29 48
Number of countries permitting more than one operator for international
telephony
Percentage of outgoing international Percentage of outgoing international traffic open to competitiontraffic open to competition
Note: Analysis is based on WTO Basic Telecommunications Commitments and thus presents a minimum level of traffic likely to be open to competitive service provision. Source: ITU, WTO.
Level of competition in Level of competition in international services in WTO international services in WTO basic telecoms agreementbasic telecoms agreement
CompetitionMonopoly
Source: ITU Telecommunication Regulatory Database.
African countries making GATS African countries making GATS commitments to liberalisationcommitments to liberalisation
Côte d’Ivoire Full competition by 2005
Ghana Duopoly for five years, then review
Mauritius Competition by 2004
Senegal Competition some time between 2003-2006
South Africa Competition by 2003
Uganda Duopoly, 1998-2003; thereafter review
Alternatives to introduction of Alternatives to introduction of competitioncompetition
Liberalisation of sectors other than basic telecoms mobile communications public payphones Internet Service Providers
Award of franchises for different regions “comparative” or “peer” competition, but not in same
geographic area (e.g., Indonesia)
Award of build/transfer arrangements Build Operate Transfer (BOT), Build Transfer Operate
(BTO), Build Own Operate Transfer (BOOT) etc (e.g., Thailand)
Examples of strategic foreign Examples of strategic foreign investors in mobile, SADCinvestors in mobile, SADC
Country MobileOperator
Foreigninvestor
Stake
Botswana Vista France Telecom 51%Botswana Mascom Portugal Telecom /
EcoNet (Zimbabwe)49%
Lesotho VCL Vodacom (RSA) 51%Malawi TNM Telekom Malaysia 60%Mauritius Emtel Millicom
(Luxembourg)50%
Mozambique TMM Deutsche Telekom 26%Namibia MTC Telia (Sweden) 26%South Africa Vodacom Vodafone (UK) 32%Swaziland Swazi MTN MTN (South Africa) 31%Tanzania MIC Millicom 57%Tanzania TriTel TRI (Malaysia) 60%Zambia Telecel Telecel (USA) 70%Zimbabwe Telecel Telecel (USA) 40%
Private sector participation Private sector participation through “Build/Transfer”through “Build/Transfer”
-
1
2
3
4
5
6
7
1990 1991 1992 1993 1994 1995 1996
0
1
2
3
4
5
6
7Pre-
Build /Transfer
Post-Build /Transfer
Tele-density
Contractors
TOT
ThailandTwo build/transfer agreements were signed between TOT (Incumbent) and:
Telecom Asia (92) for 2.6 million lines
TT&T (93) for 1.5 million lines
to be completed by end-1996
Source: ITU “World Telecommunication Development Report 1998: Universal Access”
Regional franchises (KSOs): Regional franchises (KSOs): IndonesiaIndonesia
Impact of competition on tariff reformImpact of competition on tariff reformHistorically, tariff structures have used cross-subsidy
to fund low-priced connection, line rental and local call services from high-priced long-distance and international calls Competitors will target those market segments where
potential returns are greatest
Technology is tending to reduce the distance and duration element of tariff structures Competition will hasten trends towards cost-oriented tariffs
Interconnection becomes critical to market evolution Should regulator mandate terms for interconnection or
leave it to the market?
0
2
4
6
8
10
12
1990 1991 1992 1993 1994 1995 1996 1997
300 minutes, local calls
3 mins Int'l call to US
Monthly line rental
Tariff rebalancing trends, in US$ Average of 39 major economies
Source: ITU World Telecommunication Indicators Database.
$12.83
$12.05
$9.75
$9.39
$8.94
$8.91
$8.53
$7.22
$7.11
$5.15
$4.16
$4.12
$3.43
$3.19
Argentina
S. Africa
Mexico
Average
Brazil
Hongkong
Philippines
Indonesia
Malaysia
India
Venezuela
Turkey
Russia
Thailand
Monthly residential subscription, in US$: Selected countries plus World average
Source: ITU World Telecommunication Indicators Database.
… … lead to faster lead to faster growth ratesgrowth rates
Monthly residential subscription charges, US$
$-
$2
$4
$6
$8
$10
1990 1991 1992 1993 1994 1995 1996
Uruguay
Malaysia
Hungary
MoroccoPercentage of households with telephone
0
10
20
30
40
50
60
70
1990 1991 1992 1993 1994 1995 1996
Malaysia
HungaryUruguay
Morocco
Higher monthly subscription
charges ...
Source: ITU World Telecommunication Development Report, 1998: Universal Access.
Long distance market share% share of long distance calls
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996
NCCs (Japan) Clear (NZ) Optus (Aust.)
Long distance pricesIndex, 1993=100
75
80
85
90
95
100
1993 1994 1995 1996
JapanNew ZealandAustralia
As competitors gain market share ...
Long distance prices come
down ...Source: ITU Asia-Pacific Telecommunication Indicators, 1997.
Universal service: Fears and responsesUniversal service: Fears and responsesCompetitors will only invest in most profitable areas
(“cherrypicking”) and will avoid rural areas Use license obligations to ensure that a prescribed minimum of
investment reaches target
Competitors will put incumbent operator out of business Incumbents have generally done better once competition is introduced
Competition will mean super-serving existing users not reaching new users Teledensity grows faster under competition
Competition means foreign ownership Liberalisation can create local entrepreneurs (e.g., EcoNet in
Zimbabwe, private telecentres in Senegal)
Teledensity in Philippines (competitive) Teledensity in Philippines (competitive) and Pakistan (monopoly)and Pakistan (monopoly)
0
0.5
1
1.5
2
2.5
3
1989 1990 1991 1992 1993 1994 1995 1996 1997
Philippines
Pakistan
Introduction of competition in Philippines
The benefits of liberalising the market The benefits of liberalising the market for privately-operated payphonesfor privately-operated payphones
Payphones can be used to extend access to under-served regions
Privately-operated payphones can form basis for teleshops, telecentres
In Senegal, operators of private telecentres receive discount on price of calls
Telecentres in Senegal employ more people than SONATEL
P a y p h o n e s in S e n e g a l
0 %
1 %
2 %
3 %
4 %
5 %
6 %
7 %
8 %
9 %
1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7
A s % o f m ain l in es
Per 1 '0 0 0in h ab i tan ts
Source: ITU World Telecom Indicators Database.
Positive impact of competition Positive impact of competition on Telstra (Australia)on Telstra (Australia)
-
2
4
6
8
10
12
14
1990 1992 1994 1996
Rev
enu
e (U
S$b
n)
-
0.5
1.0
1.5
2.0
Pro
fits (US
$ bn
)
Revenue
Profit
Conclusions: Getting the recipe Conclusions: Getting the recipe rightright
Identify objectives of introducing competition What are the measures of success? What are the concerns of incumbent, unions, consumers?
Define a long-term market strategy Sequencing of competition in different market sectors Timing of competition vis-a-vis privatisation
Establish licensing procedure and regulatorAddress interconnection issues
Interconnection will make or break competition
Set out strategy for achieving Universal Access / Universal Service