Report

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.