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February 2005 1-33
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Telecommunications Technologies Deployment in Developing Countries-
ROLE OF MARKETS AND INSTITUTIONS
Farid GasmiUniversité de Toulouse I (GREMAQ, IDEI)
Laura Recuero VirtoUniversité de Toulouse I (GREMAQ)
February 2005 2-33
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Introduction
• Policies for the provision of telecommunication services in developing countries significantly differ from those typically implemented in developed countries:
- Fundamental objectives- Technological strategies deployed- Institutional and market framework
• Analysis of reforms in developing countries needs to account forthese countries’ specificities.
• Objective: Illustrate strength of these arguments in the case of universal service.
• Observation: Striking asymmetry between institutional and academic literatures..
February 2005 3-33
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Fundamental Objectives
• Individual vs. collective access
• Level of service vs. level of geographical coverage
February 2005 4-33
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Individual vs. Collective Access
Developed countries:
High GDP High teledensity Private or per capita (over 40%) individual ownership
Individual line50.333,231Japan
Individual line56.725,625Germany
Individual line66.130,173USA
Individual line63.420,608Canada
Telecom targetTeledensity(telephone lines per 100 people 1998)
GDP per capita (1997 USD)
COUNTRY
Source: ITU(1999).
February 2005 5-33
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Individual vs. Collective Access
Developing countries:
Low GDP Low Public orper capita teledensity shared access
(5% or less)
A public phone in every village0.29260Madagascar
A phone in every village 1.992,600Pakistan
A telephone within walking distance0.94350Kenya
A telephone booth in every town0.26 (1997)118 (1995)Ethiopia
Telecom targetTeledensity(telephone lines per 100 people 1998)
GDP per capita (1997 USD)
COUNTRY
Source: ITU(1999).
February 2005 6-33
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Level of Service vs. Level of Geographical Coverage
• Main objective of developed countries: Level of service
USA, EU: Periodical update of a “basket” of services for individual households
Voice grade access, with the ability to place and receive calls;Touch-tone signaling or its functional equivalent; single party service; access to emergency services; access to operator services; access to directory services; access to long distance services.
USA
Individual line local service with touch-tone dialing, enhanced calling features; access to operator and directory assistance services; access to long distance network; a copy of a current telephone directory.
Canada
Universal Service TargetsCOUNTRY
Source: OCDE (1999).
February 2005 7-33
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Level of Service vs. Level of Geographical Coverage
• Main objective of developing countries: Level of geographical coverage
• Telephony to all villages of 500 inhabitants or more (160,000 access lines and 500 public phones).
Botswana
Three access goals: • Public payphones in rural villages with less than 3.000 inhabitants (5.000 villages with a total of 3,9 million inhabitants) and, • in localities with insufficient service (1.600 localities with 1,8 millions inhabitants) and, • internet access in all district capitals of the country (911 district capitals, 1,5 million of habitants).
Peru
Universal Access TargetsCOUNTRY
Source: FITEL (1996), Navas- Sabater (2002).
February 2005 8-33
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Level of Service vs. Level of Geographical Coverage
Traditional approach:
• Telephone booths
Innovative options:
• Telephone cards
• Village phones
Bangladesh, India, South Africa and Morocco.
• Multipurpose Community Telecenters (MCT)
Brazil, Vietnam have launched projects in large cities; India, Uganda and Surinam have “regional information centers” in rural areas.
• ICT cooperatives
Poland, Bolivia.
February 2005 9-33
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Technological Strategies
• Economies of rural areas
• Specific technological approaches
February 2005 10-33
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Economies of Rural Areas
Why different technological strategies in rural areas of developing countries?
• Lower disposable income:
– In countries with low GDP per capita, between 5 % and 1 % is spent on telecom services.
Despite higher consumer surplus per call..
Total consumer surplus often not high enough to cover marginal costs of network expansion.
February 2005 11-33
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Economies of Rural AreasWhy different technological strategies in rural areas of developing countries?
• Higher installation and maintenance costs per line for wired and wireless:
– Lack of associated infrastructure: Rural roads, electricity networks most importantly.
For cellular and VSAT, installation cost double or triple
– Lack of on site technical personnel and high failure in trainingrural inhabitants: Costly repairing, monitoring, configuration and tariff adjustment services.
– Lack of on site spare parts.
February 2005 12-33
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Specific Technological Approaches
• Use of wireless technologies:
– Lower incremental costs in low density areas and beyond a certain radiusfrom the telephone exchange.
However, lower quality and capacity..
Source: Navas-Sabater (2002).
February 2005 13-33
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Specific Technological Approaches
• Low frequency bands
– Lower frequencies better adapted to rural areas from a cost/coverage ratio viewpoint both for cellular and satellite technologies.
No impact on quality..
Quality is determined by bandwidth not by frequency range.
GSM 400
GSM 1800
GSM 900
February 2005 14-33
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Specific Technological Approaches
• Low power requirements
– The operator is responsible for the costs of purchasing, installing, and maintaining the power system.
Strong incentives to use off grid and renewable systems.
Wireless power provision with solar panels in the village of
Villianur, India
February 2005 15-33
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Specific Technological Approaches
And the list is long..
– Remote network management
– Flexibility in terms of scalable and modular systems
– Simplified user terminal configuration and operation
– Long life cycles
– Multi-user terminals
– Flexible user interface
February 2005 16-33
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Institutional and Market Framework
• Commercially viable Universal Access: No direct public intervention
• Non commercially viable Universal Access: Direct public intervention
Affordabilityfrontier
MarketAccess Gap
MarketEfficiency
Gap
Commerciallyviable UA
Non commerciallyviable UA
Increasing geographical isolation
February 2005 17-33
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Institutional and Market Framework
Dual view of universal access in developing countries:
Commercially viable Universal Access
• Tariff rebalancing• Privatization• Competition• Concessions
(under an appropriate regulatory framework)
Non commercially viable Universal Access
• Universal Service Funds • Mandatory service obligations
February 2005 18-33
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Commercially Viable Universal Access
Developed countries’ typical measures are
– Tariff rebalancing– Privatization + Regulation– Competition
In following these measures, developing countries are
– Delayed– Restricted
Early assessment of the impact of these measures..
February 2005 19-33
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Commercially Viable Universal Access
• Tariff rebalancing: (empirical data suggest) positive correlation with network expansion.
Often low penetration due to constrained supply.
Higher prices provide operators with incentives to meet demand.
A 10 % increase in the average residential price reduces unmet demand by 4.1 % in 23 Latin American countries from 1986 to 1995 (Banerjee, 2000).
Similar effects in Malaysia, Hungary, Morocco and Uruguay in the 90s (ITU, 2000).
February 2005 20-33
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Commercially Viable Universal Access
• Privatization: (empirical studies suggest) positive correlation with network expansion.
Also due to constrained supply, private capital and higher prices allowed by tariff rebalancing gives operators incentives to meet demand.
After controlling for tariff rebalancing, privatizing reduces unmet demand by about 28 % (Banerjee, 2000).
Reduction of unmet demand of by 10 to 18 % in 22 Latin American countries in 1980-1997 (Gutierrez, 2003).
February 2005 21-33
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Commercially Viable Universal Access
• Privatization: BUT the impact on network expansion depends heavily on..
– Government commitment: Risks of asset expropriation and interference with regulation.
– Degree of independence of regulatory body
Countries with low government interference have higher levels of network expansion (Gutierrez, 2003).
Privatization coupled with independence of regulation results in increasing network expansion in 30 African and Latin American countries during the period 1984-1997 (Wallsten, 2001).
February 2005 22-33
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Commercially Viable Universal Access
• Competition: (empirical studies suggest) positive correlation with network expansion and efficiency.
Evidence for Latin American and African countries (Gutierrez, 2003, Ross, 1999, and Wallsten, 2001).
Side effects:
– Might threaten traditional cross-subsidy mechanisms.
– Expected decrease in the firm’s rent due to asymmetric information. How well the regulator will do in developing countries?
February 2005 23-33
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Commercially Viable Universal Access
• Competition: BUT the impact on network expansion depends on..
– Government commitment (as with privatization), e.g., Senegal.
– Regulation of access: Capacity of the regulator to enforce rules and tariffs, e.g., Ghana.
February 2005 24-33
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Commercially Viable Universal Access
• Concessions: alternative mechanisms
– Arrangements between the government or incumbent and private investors: BTO (Thailand, Philippines), BOT (Lebanon, India and Indonesia), BOO (Malaysia and Solomon Islands)…
Though BTO and BOT had initially relative success, incentives problems seem to currently arise, e.g., Thailand, Lebanon, and Indonesia.
February 2005 25-33
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Institutional and Market Framework
• Commercially viable Universal Access: No direct public intervention
• Non commercially viable Universal Access: Direct public intervention
Affordabilityfrontier
MarketAccess Gap
MarketEfficiency
Gap
Commerciallyviable UA
Non commerciallyviable UA
Increasing geographical isolation
February 2005 26-33
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Non Commercially Viable Universal Access
• Role of technological innovations
– Allow to expand the reach of the mechanisms used to reduce the market efficiency gap.
– But, need for a flexible regulatory framework
• Radio spectrum allocation.
• Coordination between standards.
• Unbundling incumbent’s network elements.
February 2005 27-33
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Non Commercially Viable Universal Access
For those activities that remain non profitable...
• Developed country’s typical financing measures:
― Universal Service Funds (USFs)― Mandatory service obligations
• Early assessment of the applicability and performance of these mechanisms in developing countries may partly justify restoring the use of cross-subsidies..
February 2005 28-33
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Non Commercially Viable Universal Access
• USF: Increasing use
Brazil, Chile, Colombia, Dominican Republic, Guatemala, Malaysia, Morocco, Nepal and Peru;
Bolivia, Uganda and Egypt in their planning phase.
Limitations:
– In some cases, inability to levy enough funds through taxation of operators’ revenues to cover costs of network expansion, e.g., Nepal.
– Risk of funds being diverted to other public expenditures or private use, e.g., Ghana and Côte d’Ivoire.
February 2005 29-33
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Non Commercially Viable Universal Access
• USF Auctions: Used to allocate universal access subsidies.
Limitations:
– Lack of competitive bidding, e.g., Ghana.
– Lack of expertise
Loose screening rules, e,g., Chile, Colombia, Guatemala, and Peru.
Loose bidding criteria, e.g., Chile and Peru.
February 2005 30-33
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Non Commercially Viable Universal Access
• Mandatory service obligations
Limitations:
– Weak enforcement through the legal and judiciary system, e.g., India.
– Too heavy burdens may not be feasible, e.g., Argentina, Botswana, Chile, Malaysia, Peru, Singapore, and Venezuela.
February 2005 31-33
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Non Commercially Viable Universal Access
• Mandatory service obligations
Limitations:
– Poor experience and expertise in specifying targets.
Targets might be ex post not enforceable, e.g. Philippines and India.
Targets might mismatch effective demand, e.g., Uganda and Philippines.
February 2005 32-33
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Conclusion
• Developed countries’ experiences can (at best) provide guidance to public utility policy making in developing countries.
• Governments in developing countries have an active role:
– Removal of market barriers– Flexible regulatory rules– Intervention in non economically viable activities
• "Developing-country approach“ to regulation needs to be supported by theoretical and empirical work.
February 2005 33-33
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Thank you for your attention
