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Telecom for improving
investment climate & ICT use
Rohan Samarajiva, Public Interest
Program Unit, Ministry of Economic
Reform, Science & Technology
[email protected]; +94 1 247 8733
Purpose of presentation
 Reform of telecom is a necessary
condition for investment overall
 Creating conditions for private
investment in telecom
 Market entry
 Independent & effective regulation
 Examples from Sri Lanka throughout
Sri Lanka’s telecom sector after 12
years of reforms
 Multiple operators (70+)
 3 national fixed (no waiters in urban areas)
 4 national mobile (overtook fixed; real price
declined)
 5+ facilities-based data
 30 external gateway (~66% decrease in price)
 20+ non-facilities based data
 Fixed teledensity < 1 in 1991  almost 5 in
2003; Mobile ~0.01 in 1991  5 < in 2003
 Telecom & banking are fastest growing
sectors in economy in 2003 (~16%)
 Telecom no longer a barrier to investment
Telecom as a necessary condition
for increased investment
 Two solutions
 Improve service only in enclave
 Improve sector performance everywhere
 Sri Lanka tried the enclave solution in
1980s
 Supplementing exchange & outside plant in
Katunayake EPZ
 Giving priority to GCEC factories (investors)
 Poor results including ridiculous outcome of
banning automatic rediallers
Investment in telecom sector
overall is key . . .
 What we want is




Adequate supply of services
Lower prices
Higher quality
More choice
 How do we get it?
 Not another reform of the failed government
monopoly
 Not regulation, per se
 More investment
Private investment to improve
telecom
 Telecom is the infrastructure with the
most dynamic industry structures and
technologies
 Integrated government monopolies lack
nimbleness to play
 No multilateral/bilateral assistance for
unreformed monopolies
 Public investments better used
elsewhere
Government action to attract
private investment in telecom
 Greater private investment depends
on positive answers to 2 questions
 Are the returns adequate? (market risk)
 Are safeguards against administrative
expropriation adequate? (regulatory risk)
 What can government do?
 Let investors look after market risk: no
market-position guarantees
 Reduce regulatory risk
Government actions: Market entry
& privatization
 Minimize barriers to entry; SL policy
is
 License only where scarce resources are
involved
 Otherwise authorizations
 Examples
 External gateway operator licenses
 30 given since March 2003
 No discretion; no numerical limits
Entry conditions compared
One-time
fee (USD)
Annual
fees
Bank
guarantee
India
5,200,000 15% of
gross rev.
Very high
Pakistan
500,000
USD 10
million
Sri Lanka
50,000
<0.5% gr.
rev. + acc.
contr.
0.3% of
gr. rev.
None to
govt.
Results . . .
 From unstable
monopoly to open
entry . . .
 From SLR 75 a
minute to 20-25 . .
.
 Telecom no longer
seen as barrier to
BPO investments
Fixed telephony investments in
Sri Lanka, 1992-2002
Fixed Telephony Investments (SLR m)
20,000.00
Incumbent Government
Owned; No Competition
Incumbent Partially
Privatized; Foreign
Management; Competition
15,000.00
10,000.00
Lanka bell
Suntel
SLTL
5,000.00
1992
(5,000.00)
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Implications for the exchequer
 Before the reforms, telecom was an easy but small
source of government revenue
 Very low rates for domestic (<40% revenues); high
rates on international outgoing and termination
(60<% revenues)
 Periodic levies
 After the reforms, it is an easy, reliable and LARGER
source of government revenue
 ~20% tax (VAT; BTT earlier); reliable
 On a user base that has increased seven fold
 Equity sales; licensing; spectrum fees; contributions
to Vishva Grama Fund (for rural rollout)
 Dividends from shareholding
Key reform events
 1989-1994
 Licensing of 15+ facilities-based operators,
including Incumbent which was changed to
corporation
 1996
 Licensing of two fixed competitors (USD 120 m)
 1997
 35% sale of Incumbent to NTT of Japan for USD
225 million with 5-year management agreement
Key reform events
 1998
 Active regulation starts
 First step of 5 year rate rebalancing
 Satellite gateways liberalized
 1999
 Incumbent found to be in violation of
license condition and pays consumers
US$ 1 million
 First public hearing conducted
Key reform events
 2002
 Government sells 12.5% of Incumbent’s
equity, bringing government ownership
to <50%
 2003




30+ External Gateway Licenses issued
New Interconnection Rules gazetted
Implementation ongoing
Already a commitment of USD 90 million
additional investment
Government actions: Regulation
 Reduce regulatory risk
 Poor countries are poor because
 Government does not work well 
regulatory risk is high  investments are
low/skewed  infrastructure is inadequate
 economy is hobbled
 Solution: independent and effective
regulatory agency
Characteristics of effective
regulation
No interference by government/incumbent
Constrained discretion
Professional and competent staff
Transparent participatory processes
Expeditious decision making
Efforts to reduce adversarial modes;
increase buy-in
 Doing a few things well






Independence of regulatory agency
 Information & Communication
Commission that will replace TRC
 Members appointed with concurrence of
Constitutional Council
 Accountable to/removable by Parliament
 Not reporting to Minister for Telecom
Constrained discretion
 Rate rebalancing in 1998-2003
governed by legal agreement that set
revenue requirements
 Regulator decided specific tariffs that
would yield promised revenues
Telecom regulation should focus
on
 Interconnection & anti-competitive
issues
 In Sri Lanka
 New interconnection rules in March 2003
 Including access to undersea cable station
 Implementation in process
 Dominant position rules being framed
 New legislation will remove tariff regulation
from non-dominant operators
 Anti-competitive practices proceedings soon
Regulation should focus on
 Efficient management of scarce
resources (spectrum, rights of way
and numbers)
 In Sri Lanka
Allocation & assignments made public
1800 MHz, CDMA & WiFi consultations
First frequency auction in May 2003
New legislation on rights of way including
“final offer” arbitration
 New numbering plan being implemented




. . . And get out of unnecessary
areas
 Most retail tariffs unregulated in new
Act (except of dominant operators)
 Equipment approvals power replaced
by Mutual Recognition approach
 Consumer issues to be covered by
consumer contracts
 Regulator intervenes only when contract
provisions exhausted
SAARC countries 1995-2001
telecom performance
F/100
CAGR
M/100
CAGR
B’desh
0.43
12
0.4
143.4
Bhutan
2.54
22.3
-
-
India
3.75
21.5
0.63
109.2
M’dives
9.94
11.9
6.89
-
Nepal
1.31
23.6
0.08
-
Pakistan 2.33
8
0.56
64.5
SL
26.1
3.56
53.4
4.43