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178 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA it is unlikely that SAFTA countries will seek multilateral concessions in the telecom sector in response to improving the quality of their commitments in telecom. India’s interests lie in ITes and movement of natural persons, Pakistan’s and Sri Lanka’s in textiles and apparels etc. SAFTA members may, therefore seek offsetting concessions in other sectors in multilateral negotiations in response to say, binding their regime at the current levels when negotiations get underway again. One possible explanation for the meager level of commitments made by SAFTA countries in telecom under the multilateral framework is provided by Fink et al. They note that the failure to complete the negotiations before the end of the Uruguay Round effectively turned basic telecommunications into a single-sector negotiation. As a result countries with no export interests in telecommunications (for example, SAFTA countries, among others) committed to the policy status quo rather than to new liberalisation. In fact, certain countries bound to less than the status quo, with respect to certain aspect of their regimes. India did this with foreign equity participation. While the GATS commitments have been frozen at the status quo, unilateral liberalisation has progressed in each of these countries at varying pace to engineer a radical transformation of the sector in the respective countries. Table 15.9 provides summary indicators for the telecom sector. However, apart from Maldives, no other country is close to achieving telecoms penetration observed in the advanced countries. For example, mobile teledensity has breached 100% in most of Western Europe, and these countries are now focusing on delivering high speed digital data services through next generation networks (NGN). Thus, while telecom sector has progressed in each of the countries, there is still a lot of development that Table 15.9 Summary Indicators in SAFTA S. Country Popula- Tele- Mobile Tele No. tion (in Density (Lines Rev/ million) Fixed per GDP (Lines 100) per 100) 1. India 1110 5 20 2.1 2. Bangladesh 144 1 22 1.6 3. Sri Lanka 20 10.4 30 2.0 4. Pakistan 159 2.97 44 2.4 5. Nepal 128 2.73 5.61 1.6 6. Bhutan 2.33 .013 3.53 NA 7. Maldives 0.33* 11.13 96 NA Source: WDR: 2008, Agriculture for Development, World Bank, WTDR, 2006 and individual regulator web sites needs to occur. Although overall telednsity has increased considerably after the introduction of competition, mounting evidence exists in countries such as India and Pakistan that penetration has been overwhelming biased in favour of urban areas. And it will still be sometime before the stalled WTO talks get underway again. Liberalisation at the multilateral level presents uncertainly, making it attractive for countries to pursue liberalisation at the plurilateral or regional level. Telecommunication is an important sector in all the US FTAs. It is an important sector covered under the Indo-Singapore Comprehensive Economic Cooperation Agreement (CECA) – the first (and so far only) bilateral agreement signed by India encompassing the service sector. Trade in services within SAFTA will be highly dependent on the growth of telecommunication network, connectivity and charges. Opportunities, therefore, exist for SAFTA countries to cooperate in this sector at the regional level. This is discussed in the next section. OPPORTUNITIES AND NEED FOR FURTHER LIBERALISATION IN THE SECTOR A truly extraordinary feature of telecommunications performance in SAFTA countries over the recent years has been the widespread diffusion of mobile telephony. In each of the countries, including the Maldives, there is currently more than one mobile operator and unlike fixed-line services, the mobile telephony segment was subject to competition from the beginning. Table 15.9 above shows that mobile teledensity exceeds fixed teledensity for the entire sample and in certain cases by a sizeable amount. The exponential growth of mobile telephony can be attributed to the introduction of digital cellular technology and the opening of mobile service provision to additional operators, i.e. to a liberal policy environment. Interestingly, unlike Europe and the Americas, where mobile services are likely to be a complementary service, as most business and households already have access to the fixed network, in SAFTA mobile can be a substitute to fixed-line services, particularly in countries with long waiting lists for fixed line. In Nepal and to an extent in India and Sri Lanka, one of the factors driving cellular growth is the popularity of pre-paid plans. At the end of March 2007, 70% of Nepalese mobile subscribers were using these plans. Additions to the mobile subscriber base in other countries are also overwhelmingly on the pre paid platform. The policy environment for mobile has been more
P ROSPECTS FOR THE TELECOMMUNICATION SECTOR UNDER SAFTA 179 liberal partly because there is less need to protect incumbent operators with state ownership. While competition may have always existed for mobile telephony, other restrictive policies and regulatory shortcomings adversely affected mobile performance. For example, high import taxes on handsets in India and Pakistan slowed consumer adoption of cellular technology in the initial years. High interconnection prices with the fixed-line network negatively affected mobile operators. For example, in Bangladesh, the incumbent’s lack of responsiveness with regard to interconnection led to the operation of a mobile network independently of the fixed-line network. When the adverse policy was removed, it was accompanied by massive growth. What emerges therefore in the sector is a picture of competition having being ‘managed’ across most countries of SAFTA. While the traditional public monopoly is becoming a rarity, most governments seem reluctant to forego discretionary policy-making and delegate choices completely to the market. 13 Thus, governments have been unwilling to allow unrestricted entry, and in most cases there are limits to the extent of private and foreign ownership. In India, foreign ownership ceiling was increased from 49% to 74% after protracted lobbying and debate that stretched well over three years. In Sri Lanka the committed ceiling on foreign equity is 40%, despite the fact that foreign equity has brought in recognised benefits to the sector. In Pakistan, although 100% foreign equity is permissible, approval is done on a case by case basis and virtually no competition has emerged in the access sector. There is also a high degree of variability in the acceptance of regulatory principles, adherence to which is crucial for engendering competition in the sector. While Nepal and Sri Lanka have endorsed the RP on regulatory principles, Pakistan and India are reviewing their commitment in this respect. Perhaps the most important disciplines of the reference paper relate to interconnection. It is required that interconnection must be inter alia on non-discriminatory, transparent and reasonable terms, conditions (including technical standards and specifications) and rates; of a quality no less favourable than that provided for its own like services or for like services of non-affiliated service suppliers or for its subsidiaries or other affiliates; at cost-oriented rates; and in a timely fashion. Other reference paper provisions provide for competition safeguards, greater transparency and require the creation of dispute resolution mechanisms. Competition safeguards oblige Members to prevent a major supplier from abusing control over information, or engaging in anti-competitive cross-subsidisation – i.e. to prevent a major supplier from using profits made in one segment of the market to subsidise its output sales in another segment and thus drive out rival suppliers. The approach of SAFTA countries to the principles in the Reference Paper reveals an interesting pattern of reluctance to assume key multilateral disciplines That independent regulators are not yet established in many countries reflects an unwillingness to guarantee the independent action by regulators in countries such as India, Maldives, Bhutan and Bangladesh. Furthermore, a number of countries (India, Pakistan, Bangladesh) have excluded the central commitment to guarantee interconnection at cost-based rates. These departures reveal that where there is domestic resistance, adoption of multilateral disciplines may not be sufficient to create enabling conditions for sector reform. In this situation, the motivation has to be developed around the potential benefits of unilateral liberalisation. Economic theory has us believe that trade liberalisation is good, and that even unilateral liberalisation under certain conditions can be good. The actual changes to policy pursued by SAFTA countries with regard to telecom services support this view. In the past 5–10 years, governments have acted unilaterally to reduce entry barriers, increase competition and reduce termination rates. Yet, more barriers exist that need to be dealt with to fully exploit the potential of telecommunications liberalisation. SAFTA offers significant investment opportunities in Telecom. As Table 15.9 shows, while mobile teledensity has surpassed fixed and is in the range of 20–30% (excluding Maldives), it is still below the industrialised world average. SAFTA is home to 24% of the Worlds population but contributes only 2% to World GDP. In terms of sectoral contribution to GDP, telecommunication revenue in SAFTA countries is also below the world average of 3.1% (ITU 2003). Finally the growth of the knowledge-based sector is directly dependent on the speed of development of telecom network. Hence, countries needs investment in this key infrastructure sector. It has been demonstrated that foreign equity is important for the growth of the telecommunication sector since it leads to better incentives for technology 13 Ibid.
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QUANTIFICATION OF BENEFITS FROM ECO
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QUANTIFICATION OF BENEFITS FROM ECO
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Preface Our consultations with seni
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viii CONTENTS 7. Revenue and Welfar
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Executive Summary OBJECTIVE This st
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EXECUTIVE SUMMARY xiii Table 1 EAMA
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EXECUTIVE SUMMARY xv India A full S
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EXECUTIVE SUMMARY xvii indicates th
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EXECUTIVE SUMMARY xix ments on basi
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Part I BENEFITS FROM TRADE, INVESTM
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2 Literature Review and Rationale f
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4 Effective Additional Market Acces
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6 Impact of SAFTA on Member Countri
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7 Revenue and Welfare Implications
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8 Impact of SAFTA on Inward and Out
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Part II BENEFITS FROM DEEPENING INT
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Appendix 14 Table A14.1 Telecommuni
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Appendix 15 REFERENCE PAPER Scope T
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Bibliography Abelson, P. (1996),
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BIBLIOGRAPHY 241 Cuba (2002), Negot
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BIBLIOGRAPHY 243 (2004), Impacts of
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BIBLIOGRAPHY 245 Silva, Patricia an
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