Download pdf - Telecom Regulatory Environment 2006 - LIRNEasia · 2018-05-21 · Telecom Regulatory Environment 2006 Rohan Samarajiva & Joseph Wilson with contributions by Divakar Goswami, Malathy

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Telecom Regulatory Environment 2006Rohan Samarajiva & Joseph Wilson with contributions byDivakar Goswami, Malathy Knight John, PayalMalik, Deunden Nikomborirak, Lorraine Salazar, & Helani GalpayaIslamabad, 15 June 2007

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Agenda

Telecom Regulatory Environment studiesContext and rationaleMethod

Analysis of six components across five countriesOverall resultsDiscussion

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Causal chain

Open system, where it is not possible to hold other things constant; competition/sector regulation affects investment AND industry performance

Performance

Investment

Country risk

Institutional climate

Capital markets/Parent co. dynamics

Market risk

Competition/Sector regulation

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Investment and TRE

Necessary condition for good performance = investmentSignificant and controllable factor that affects investment = sector-specific regulationWhat really matters in investment decisions is perception of riskInstead of looking at objective measures of regulatory performance (which is quite difficult) why not go straight to perception?

As an investment driver, perception is not second best, it is the first best

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How are investor perceptions formed?

Primarily from the symbolic environment constituted by

Investment research reports and investment firmsGeneral and specialized mediaOpinion leadersIntra industry; intra-firmNOT by public opinion

Secondarily from direct observation of regulatory entities

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Method

Panel studies using as small a number of questions as possible

Effective perception studies are conducted using one question aloneNeed to make minimal demands on time of senior respondents such as CEOs

Use a large number of respondents to balance out the biases; also use statistical methods to reduce bias caused by group representationUse traditional social-science perception instrument: 5-point Likert scaleFocus on telecom regulatory environment not on regulatory agency per se

In India, three dimensions reflect TRAI performance; three reflect DoT performanceIn Pakistan, PTA controls all six

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Method

Five dimensions from GATS regulatory reference paper (document with greatest international legitimacy) + price regulation

Others under considerationService-quality regulationConsumer protection

TRE studies being conducted in Latin America and the Caribbean and AfricaAsian six-country study conducted in August-October 2006

Building on pilot conducted in 2003: http://www.regulateonline.org/content/view/207/65/

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Panel composition: categories

Category 1 : Operators, industry associations, equipment suppliers

Category 2 : Financial institutions, private investment houses, banks and credit rating agencies

Category 3 : Educational/research organizations, telecom consultants, law firms

Category 4 : Journalists, telecom user groups, civil society, former members of regulatory/other government agencies

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52101595040Total

1325.2514.512.510Weighted Count

0.870.602.460.891.25Weight

15 (28.85%)42 (41.6%)6 (10.2%)14 (28%)8 (20%)Count

Category 4


0.811.201.340.780.63Weight

16 (30.77%)21 (20.8%)11 (18.6%)16 (32%)16 (40%)Count

Category 3


6.501.497.383.135.00Weight

2 (3.85%)17 (16.8%)2 (3.4%)4 (8%)2 (5%)Count

Category 2


0.681.200.370.780.71Weight

19 (36.54%)21 (20.8%)40 (67.8%)16 (32%)14 (35%)Count

Category 1

PhilippinesSri LankaIndonesiaIndiaPakistan

Panel Composition

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Countries

PakistanIndia IndonesiaSri LankaPhilippines(Thailand)

Included in original study, but excluded from analysis because of low response rate & coincidence with Shinwatara scandal

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Detailed analysis, across each of six dimensions

Countries arranged in order of per capita GDP (Purchasing Power Parity), with Pakistan (PK) lowest and the Philippines (PH) highestNumbers reported are average scores, rounded to one decimal Midpoint (3) as threshold of adequate performanceAnalysis by each of the six dimensions can be a useful diagnostic tool

Does the score reflect the perceptions of the regulatory agency?If not, perhaps more should be done to communicate its actions

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Market Entry

2.9

4.0

3.2 3.3

2.73.0

2.73.1 3.3

3.7

1.01.52.02.53.03.54.04.55.0

Pakistan India Indonesia Sri Lanka Philippines

Fixed Mobile

Highest MobileHighest Mobile

Highest FixedHighest Fixed

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Market entry

Pakistan mobile well above threshold, but fixed belowIN and PH above threshold in both fixed and mobileMore discussion of PK specific issues by my colleague in second half

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Access to scarce resources

3.1

3.6

2.62.2

2.5 2.6 2.52.8

3.3 3.5

1.01.52.02.53.03.54.04.55.0


Fixed Mobile

Highest MobileHighest Mobile Highest

FixedHighest Fixed

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Interconnection

2.62.8

2.5 2.6

2.1

2.82.3 2.4

2.92.6

1.01.52.02.53.03.54.04.55.0


Fixed Mobile



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Interconnection

Everyone is below the thresholdInterconnection continues to be a difficult challenge for regulators

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Tariff regulation

2.7 2.6

3.7 3.5

2.52.9

2.72.9 3.0 2.9

1.01.52.02.53.03.54.04.55.0


Fixed Mobile



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Tariff regulation

Only India, the country that has forborne almost all tariff regulation is above thresholdGiven PK prices, it appears that IN is being rewarded not just for low prices but for the efficacy of its procedures

Less regulation high TRE?

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Regulation of anti-competitive practices

2.3 2.3 2.1

3.0

2.42.7

2.4 2.6 2.5 2.4

1.01.52.02.53.03.54.04.55.0


Fixed Mobile



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Anti-competitive practices

Only India mobile is reaches the thresholdBig gap between India mobile and India fixed

BSNL?

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Universal service obligation

2.22.6

1.9 1.9

2.5 2.5 2.5 2.62.3

2.6

1.01.52.02.53.03.54.04.55.0


Fixed Mobile

Highest MobileHighest Mobile Highest

FixedHighest Fixed

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Universal service

India has world’s second largest USO Fund and has done several disbursements

Yet, worst performance among the dimensions and within the group

Sri Lanka which had done nothing re USOsand does not collect USO contributions from operators (only from international) gets high scores

Less is more?

Everyone has poor scores

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Market Entry Access to Scarce ResourcesInterconnection Tariff RegulationAnti-comp practices Universal service

fixedOverall TRE scores

Maximum score

Minimum score

Mid-point

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Market Entry Access to Scarce ResourcesInterconnection Tariff RegulationAnti-comp practices Universal service

MobileOverall TRE scores

Maximum score

Minimum score

Mid-point

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Not intended to be a country ranking as such . . .

But natural to look for the leaderIn the dynamic mobile sector PK has highest overall score, closely followed by PHIn the fixed sector, PH leads, with PK and IN almost tied for second placeID and LK have cause for concern

OverallMobile TRE > Fixed TREAll countries have a long way to go to achieve satisfactory performance, only PK mobile and PH fixed and mobile even come close to threshold

Tracking performance over time will yield even better data for assessing regulatory performance

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Pakistan: Market Entry (4.0)

Mobile TRE score 4.0 (highest)Mobile Cellular Policy of 2004

Telenor (March 2005)Warid (May 2005)

License Fees

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Mobile Cellular Teledensity

4.127.88

22.2026.70

31.10 32.70

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2004 2005 Jun-06 Sep-06 Dec-06 Jan-07

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Market Entry Fixed (TRE: 2.9)

Telecom De-regulation PolicyPTA awarded 38 fixed local loop (FLL) licensees in 14 telecom regions of Pakistan in the first round of awarding licensesHowever, only 4 companies have started operations: Brain Limited, Union Communication, WorldCall Broadband & WorldCallDespite Reference Interconnection OfferLarge Sunk CostsPerception of Breaking Incumbent’s Monopoly

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Wireless Local Loop

low penetration is attributed to: non-availability of required investment to the operators; non-availability of equipment in some frequency bands; higher tariffs for low-income target market

WLL Subscribers and Teledensity

1,57

3,57

2

1,32

4,70

9

1,02

5,32

8

688,

831

511,

244

1.01

0.85

0.66

0.45

0.33

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Dec-05 Mar-06 June-06 Sep-06 Dec-06Su

bscr

iber

s0

0.2

0.4

0.6

0.8

1

1.2

Tele

dens

ity

WLL Subscribers

Teledensity

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Access to Scarce ResourcesTRE (3.1 and 3.6)

Frequency Allocation BoardNational Frequency Management and Monitoring System (NFMMS) Para 4.4.8 of De-regulation Policy: 30 day Period to process the applications for FS

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Spectrum Allocation

21

92

56

71

020406080

100120140

Num

nber

of L

icen

ses

Issu

ed

2004-05 2005-06

VAS and CVAL Licenses

Converted

CVALs

WLL

VAS

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Interconnection (2.6 and 2.8)

Free Interconnection Regime – Rule 13 PTRSMPs to have Reference Interconnection Offers detailing the services and tariffs they provide to other Licensed operators Interconnect Dispute Resolution Regulations, 2004

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Tariff Regulation (2.7 & 2.6)

Section 3 of the Fixed Line Tariff Regulations 2004 “the non-SMP operators are free to set and revise their tariffs at any time and in any manner as they like.”The operators should however inform the Authority of their proposed tariffs thirty days prior to the applicability of the new tariffs. In case the Authority finds the tariffs unfair and burdensome, it may amend the tariffs, and its decision shall be final and binding.SMPs: Tariffs are regulated by the Authority.

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Tariffs

Heavy taxes: Adverse impact on tariffsCorporate taxes including General Sales Tax (GST) and Withholding Tax are significantly higher in Pakistan than in other countries. In addition, Activation Tax, Central Excise Duty, Sales Tax, and Advance Tax added in the consumers’ bill has adverse bearing on the cost of telecom services.

26.5

17.9

15

10.2

5

05

1015202530

(Per

cent

age)

Pakist

anSri L

anka

Bangla

desh

India

Malays

ia

Taxes on Telecom by Countries

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Regulation of Anti-competitive Practices (2.3 & 2.2)

2006 Amendment giving PTA powers to regulate & make rules for “preventing, prohibiting, and remedying the effects of anticompetitive conduct by licensees.”Mobile Market gradually becoming competitiveFixed market still long way to go: PTCL 98% enjoys 98% market share

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Universal Service Obligation (2.2 & 2.6)

Telecom Act, 1996De-regulation PolicyMobile Cellular PolicyAccess Promotion Contribution

One Country one rate Principle – may ran afoul of global competition principles

Universal Service Fund PolicyUniversal Service Obligation on SMPsNo disbursement from USF despite large collection of funds and aid by the World Bank

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For more information:

Rohan Samarajiva ([email protected]) & Joseph Wilson ([email protected])

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