Telecom Policy Reform (I) -Introducing competition


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  • Introduction G. Steyn: regulatory economist – previously advisor to DME/DPE/NER regarding electricity restr Gillwald: former SATRA telecoms councillor – Head of research LINK Centre, ICT policy and regulation E. Teljeur: regulatory economist – competition & regulation background, currently advising electricity users regarding electricity restructuring D. Storer: regulatory and tariff expert, specialist skills in reform, regulation and economics of infrastructure provision – international experience
  •     The telecommunications sector is increasingly important to the overall health of the South African economy. In the ten year period between 1992 and 2001 the revenue generated by the sector grew from R7 billion to R56 billion (ITU (2002); BMI-T (2002), Link Centre Analysis). In the process it grew from representing 1.9% of South Africa’s GDP to 5.8% of its GDP. In this sense South Africa has performed very well in South Korea telecommunications only represented 4.3% of GDP in 2001. Figure 1.1 breaks down the contribution of the various parts of South Africa telecommunications sector to the total revenue generated by the sector. As can be seen both the size and the composition of the sector has change dramatically over the past ten years as Vodacom, MTN, and the competitive VANS providers have entered the market. The composition of the sector continues to change as Cell C entered the market in late 2001 (and was therefore not included here) and the SNO will probably come on to the scene in late 2003 or early 2004. Data services, which include leased lines, Internet, corporate networks, and virtual private networks, continues to grow and now represents 12% of the sector, or just under R7 Billion – approximately equal to the size of the entire sector in 1992.
  • Telecom Policy Reform (I) -Introducing competition

    1. 1. Rethinking telecom reform model: the case of South Africa. Alison Gillwald [email_address] LINK Centre Graduate School of Public and Development Management Witwatersrand University, South Africa http://
    2. 2. Why is telecom reform necessary? <ul><ul><li>Poor teledensity </li></ul></ul><ul><ul><li>Rationale of telecommunications as ‘natural monopoly’ undermined by digitised low cost technologies </li></ul></ul><ul><ul><li>Challenges of affordable access and accelerated network development </li></ul></ul><ul><ul><li>Marginalisation from global economy and own developmental objectives </li></ul></ul>
    3. 3. What are the key elements of the of the multilateral reform model? <ul><ul><li>Privatisation, with extension of monopoly </li></ul></ul><ul><ul><li>Limited liberalisation network and service based competition </li></ul></ul><ul><ul><li>Sector regulator </li></ul></ul><ul><ul><li>Universal service mechanism </li></ul></ul><ul><ul><li>Market failure mechanism to service poor </li></ul></ul>
    4. 4. What is privatisation and why has it been emphasised in the reform process? <ul><ul><li>Transfer of ownership from state to private interests </li></ul></ul><ul><ul><li>Affordable access through improving efficiency of incumbents </li></ul></ul><ul><ul><li>Struggle between market access desire of multilateral agencies and maximisation of value of state assets or instruments of income generation </li></ul></ul>
    5. 5. What have some of the effects been? <ul><ul><li>Markets structured around vertically integrated incumbents </li></ul></ul><ul><ul><li>Creates anti competitive incentives for the incumbent to deny access to its network </li></ul></ul><ul><ul><li>Requires complex and resource intensive access regulation </li></ul></ul><ul><ul><li>which has had chilling effect on VANS and ISPs </li></ul></ul>
    6. 6. Has privatisation contributed to sector growth and national objectives? <ul><ul><li>In SA sector grew from R7billion in 1992 to over R50billion in 2001 but masked policy failures </li></ul></ul><ul><ul><li>Network not doubled to 6 million, 2 million fixed line subscribers disconnected, largely as a result of average 24% pa increase in local tariffs despite efficiency gains including loss of 30 000 jobs </li></ul></ul><ul><ul><li>Monopoly chilling effect on VANS, ISP </li></ul></ul><ul><ul><li>Unintended outcome of policy mobile platform for universal service with 18 million subscribers four times more than PSTN </li></ul></ul>
    7. 7. Size of SA Telecom Sector* Source: ITU World Telecommunications Indicators Database (2002), Telkom IPO Prospectus, 2002 MTN Annual Report, 2002 BMI-Techknowledge Communications Handbook *Billions of Rands
    8. 8. Source: Telkom annual reports
    9. 9. Source: ITU World Telecommunications Indicators 2003
    10. 10. Source: ITU World Telecommunications Indicators 2003
    11. 11. Sources: Residential monthly telephone rental: 1997 - 2001: ITU World Telecommunications Indicators Report 2003 2002 - 2004: Telkom Annual Reports Residential telephone connection charge: 1997 - 2001: ITU World Telecommunications Indicators Report 2003 2002 - 2004: Telkom Annual Reports Cost of 10 hours worth of calls: 1997 - 1999: ITU World Telecommunications Indicators Report 2003 2000 - 2004: Telkom Annual Reports Total fixed-line telephone lines per 1000 inhabitants: Telkom Annual Reports
    12. 12. Source: Telkom annual reports
    13. 13. Source: ITU World Telecommunications Indicators 2003 Note: For South Africa and Poland the data is only up to 2001. For Argentina, there are no stats after 1999
    14. 14. Source: ITU World Telecommunications Indicators 2003 Note: The RHS axis denotes subscribers per 100 inhabitants
    15. 15. * 2004 amount is an estimate based on average increase since 1997 Sources: % growth of total internet subscribers: The Goldstuck Report: Internet Access in South Africa 2004 Fixed line cost: 1997 - 2000: ITU World Indicators Report 2003 2000 - 2004: Telkom Annual Reports Average ISP costs:
    16. 16. Source: World Wide Worx: The Goldstuck Report: Internet Access in South Africa 2004
    17. 17. What are some of the associated policy and regulatory challenges for developing countries undergoing telecom reform? <ul><ul><li>Structural conflict of interest between shareholder ministry and regulator </li></ul></ul><ul><ul><li>Stimulating long term investment while regulating fair prices </li></ul></ul><ul><ul><li>Inability to regulate private monopoly negative effect on wholesale and retail pricing. </li></ul></ul><ul><ul><li>Access regulation resource intensive and even skilled and experienced regulators cannot overcome information asymmetries requires incentive regulation and alternatives such as benchmarking </li></ul></ul>
    18. 18. How might these challenges be overcome in to build an efficient infostructure required by a modern economy? <ul><ul><li>Remove artificial restraints on market that create inefficiencies </li></ul></ul><ul><ul><li>Regulated market accompanied by innovative deployment of universal access levies, that stimulate market growth through innovative new entry, increased calling opportunities and lower costs </li></ul></ul><ul><ul><li>Structural separation creates competitive incentives, easier to set tariffs for non-competitive essential facilities, due to separation of the component parts and accounts </li></ul></ul><ul><ul><li>With tariff fee structure sufficiently above cost and no business unit to protect downstream, incentive to encourage access. </li></ul></ul><ul><ul><li>Create conditions for development of information infrastructure </li></ul></ul>
    19. 19. What are the lessons of reforms to date? <ul><ul><li>Sequencing of reform stages – privatisation, liberalisation </li></ul></ul><ul><ul><li>Appropriateness of policy and conduciveness to implementation </li></ul></ul><ul><ul><li>Extended monopolies chilling effect on competitive sectors, ISPs, VANS and drag on national economy </li></ul></ul><ul><ul><li>Demand for communications met through market mechanisms, relieve demand on state subsidies, which can be transparently targeted. </li></ul></ul><ul><ul><li>Efficiencies associated with vertically integrated operations need to be weighed against cost to industry and cost of resource intensive regulation. </li></ul></ul><ul><ul><li>Is core infrastructure may remain natural monopoly but demand for communications services innovatively met through strategic regulation of market forces . </li></ul></ul>
    20. 20. Alison Gillwald LINK Centre Graduate School of Public and Development Management Witwatersrand University [email_address]
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