Rethinking telecom reform model: the case of South Africa.

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Rethinking telecom reform model the case of
South Africa.
Alison Gillwaldgillwald.a_at_pdm.wits.ac.zaLINK
CentreGraduate School of Public and Development
ManagementWitwatersrand University, South
Africahttp//link.wits.ac.za
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Why is telecom reform necessary?

• Poor teledensity
• Rationale of telecommunications as natural
  monopoly undermined by digitised low cost
  technologies
• Challenges of affordable access and accelerated
  network development
• Marginalisation from global economy and own
  developmental objectives

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What are the key elements of the of the
multilateral reform model?

• Privatisation, with extension of monopoly
• Limited liberalisation network and service based
  competition
• Sector regulator
• Universal service mechanism
• Market failure mechanism to service poor

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What is privatisation and why has it been
emphasised in the reform process?

• Transfer of ownership from state to private
  interests
• Affordable access through improving efficiency
  of incumbents
• Struggle between market access desire of
  multilateral agencies and maximisation of value
  of state assets or instruments of income
  generation

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What have some of the effects been?

• Markets structured around vertically integrated
  incumbents
• Creates anti competitive incentives for the
  incumbent to deny access to its network
• Requires complex and resource intensive access
  regulation
• which has had chilling effect on VANS and ISPs

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Has privatisation contributed to sector growth
and national objectives?

• In SA sector grew from R7billion in 1992 to over
  R50billion in 2001 but masked policy failures
• 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
• Monopoly chilling effect on VANS, ISP
• Unintended outcome of policy mobile platform for
  universal service with 18 million subscribers
  four times more than PSTN

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Size of SA Telecom Sector
Billions of Rands
Source ITU World Telecommunications Indicators
Database (2002), Telkom IPO Prospectus, 2002 MTN
Annual Report, 2002 BMI-Techknowledge
Communications Handbook
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Source Telkom annual reports
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Source ITU World Telecommunications Indicators
2003
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Source ITU World Telecommunications Indicators
2003
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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
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Source Telkom annual reports
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Note For South Africa and Poland the data is
only up to 2001. For Argentina, there are no
stats after 1999
Source ITU World Telecommunications Indicators
2003
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Note The RHS axis denotes subscribers per 100
inhabitants
Source ITU World Telecommunications Indicators
2003
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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
www.internet.org.za
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Source World Wide Worx The Goldstuck Report
Internet Access in South Africa 2004
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What are some of the associated policy and
regulatory challenges for developing countries
undergoing telecom reform?

• Structural conflict of interest between
  shareholder ministry and regulator
• Stimulating long term investment while regulating
  fair prices
• Inability to regulate private monopoly negative
  effect on wholesale and retail pricing.
• Access regulation resource intensive and even
  skilled and experienced regulators cannot
  overcome information asymmetries requires
  incentive regulation and alternatives such as
  benchmarking

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How might these challenges be overcome in to
build an efficient infostructure required by a
modern economy?

• Remove artificial restraints on market that
  create inefficiencies
• Regulated market accompanied by innovative
  deployment of universal access levies, that
  stimulate market growth through innovative new
  entry, increased calling opportunities and lower
  costs
• Structural separation creates competitive
  incentives, easier to set tariffs for
  non-competitive essential facilities, due to
  separation of the component parts and accounts
• With tariff fee structure sufficiently above cost
  and no business unit to protect downstream,
  incentive to encourage access.
• Create conditions for development of information
  infrastructure

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What are the lessons of reforms to date?

• Sequencing of reform stages privatisation,
  liberalisation
• Appropriateness of policy and conduciveness to
  implementation
• Extended monopolies chilling effect on
  competitive sectors, ISPs, VANS and drag on
  national economy
• Demand for communications met through market
  mechanisms, relieve demand on state subsidies,
  which can be transparently targeted.
• Efficiencies associated with vertically
  integrated operations need to be weighed against
  cost to industry and cost of resource intensive
  regulation.
• Is core infrastructure may remain natural
  monopoly but demand for communications services
  innovatively met through strategic regulation of
  market forces.

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http//link.wits.ac.za

• Alison Gillwald
• LINK Centre
• Graduate School of Public and Development
  Management
• Witwatersrand University
• gillwald.a_at_pdm.wits.ac.za