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Market Liberalization
Liberalization of telecommunications markets started back in February 1997 when 70
countries, accounting for 90% of the world telecom revenues, pledged in varying degrees to
open their markets to foreign competition. The WTO/GATS agreement accelerated changes
in telecommunications industry, since it:
- opened the signatories’ markets to competition
- increased market access
- lessened foreign ownership restrictions
In Jordan, opening up of economy is supported by accession to the WTO, ratification of EuroMed Agreement and signing the Free Trade Agreement with USA.
Liberalization creates competition in provisioning of telecommunications services. It benefits
all stakeholders: customers, existing and new operators, domestic and foreign investors and
governments as well. The most noticeable benefit of liberalization is the dramatic reduction in
prices. Yet the extent and timing of benefits vary from country to country.
In most developing countries, the Ministry of PTT used to play a multiple role, the policy
maker, the regulator, the owner and the operator of the national telecom network. Recently,
and in preparation for markets liberalization, those roles have been separated. Moreover,
some structural changes are imposed to differentiate and divest lines of business.
The global ICT industry sector is huge. It is estimated at 650 billion US$ p.a and accounts for
2% of the global GDP. In the last few years, this sector has been leading the downturn in
economy. Difficult trading environment, saturated market and record debt levels are
challenging the telecommunications industry. The stock market value of telecoms operators
and manufacturers fell by more than three trillion US$ since its peak in 2000, and the book
value of the world's telecoms network is cut in half.
Many international reputable carriers are struggling to survive. Technology evolution is
leading to creative destruction; some operators vanish, others emerge. Iridium and Global
Crossing who planned to surround the planet with satellite and optical cables ended in
bankruptcy. Global competition will continue to drive inefficient telecos out of the market.
Capacity of the incumbent operators to maintain profitability of fixed services is doubtful, in
particular, when local loop is unbundled which allows others to compete. Incumbents are not
successful in offsetting price reduction with increased demand (usage of services). They
have either to keep prices high and lose customers or cut prices and lose margins.
We, in the Arab region, should learn from the troubled liberalized markets to know what are
the root causes of their dilemma. Is it the over investment in telecommunications industry? Is
it the dramatic decline in prices of services? Is it the stringent regulations and rules of
competition? Is it the weakening of demand? Is it the reflection of stagnated global economy?
or is it a combination of all?
Nevertheless, Arab countries can renovate and modernize their telecom infrastructures at a
relatively low cost, benefiting from the decreasing global demand for infrastructure and
telecom equipment. The Arab telecom operators should accelerate necessary transitions,
namely:
-
Circuit-switched to packet-switched technology
-
Physical connectivity to VAS platforms
-
Narrowband copper-based to broadband optical fiber
-
Traditional PSTN to IP-based networks
Efficient legislative and regulatory frameworks are critical success factors for liberalization.
Telecom regulators must be independent from governments and at equal distance from all
operators, in particular the dominating ones. Access rights for competitors must be
guaranteed; access to infrastructure and other facilities. It allows for establishment of
physical POI and minimizes duplication, which is a waste of resources. However, regulators
in this context have to avoid harming facility-based carriers and encourage whenever feasible
infrastructure investment instead of freeloading.
Dominant incumbent operators have to provide unbundled services on all network elements,
particularly local loops and tariffs. They should not be allowed to set tariffs below cost and
therefore drive out competitors.
Universal service obligation is another significant issue. Telecom services must be made
available, and at affordable prices, to all users irrespective of their geographical locations.
Some countries designate dominant operators as universal service providers; others request
all operators acquiring a specified share of the market to contribute to the USO cost.
One prime objective of regulating telecommunications is to protect the interests of customers.
Inefficient public operators, or greedy private licensees, usually overprice telecom services.
Regulatory authorities, therefore, are requested to raise awareness amongst customers in
order to enable them making informed spending.
In monopolistic or partially liberalized markets, regulation is viewed as a substitute for
competition. Whereas in fully liberalized markets, competitive forces provide some sort of
self-regulation. However, the net effect of telecom regulations in the Arab countries is
unclear. It will take sometime to have a reliable record of accomplishment.
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