Trade in Infrastructural Services: Selected

African Experiences

By

Dominique Njinkeu (AERC)

I. INTRODUCTION

Understanding of commitments and link to ongoing reform (privatization /liberalization)

Special focus on

1. Policies and market structure (competition; ownership, regulation) and

2. Performances (prices, quality, access)

Introduction (Ctd)

How further own development goals? Respective roles of domestic policies/

WTO? Competitive effects have positive static

and dynamic dimensions: static effect with reduced mark-up of prices over costs, then reduced costs. Dynamic effects in In LT with innovation and adoption of modern technology through enhanced foreign investment

This presentation’s concerns

What issues are likely to arise in the design and implementation of pro-competitive regulation.

What implications for ongoing negotiations?

Presentation draws on on-going efforts of AERC and collaborative institutions (e.g.SATRN): preliminary results; Cameroon, Cote d’Ivoire, Ethiopia, Guinea.

Comparison with process in other countries e.g. Botswana…

Sector Specific Experiences: Telecommunications

Market access.

The limitations on number of suppliers for natural monopolies reasons.

Restrictions on legal entity to allow foreign/private investors to set up.

Restrictions on foreign ownership through minority limits on foreign ownership.

African government reasons for access restrictions

a. To give incumbents time to prepare for competition: Ethiopia (mobile+Fixed), Cameroon (fixed)

b. To increase government revenue from privatization or license fees: Ethiopia(mobile+fixed)

c. Exclusive rights necessary to attract (strategic) investment: Ethiopia (mobile), Cameroon (fixed)

d. Exclusive rights to allow the provision of universal service: Cote d’Ivoire, Cameroon (fixed) 

National treatment.

Through "limitations on nationality requirements" and through a variety of other "domestic regulations". The main measures include (a) tax measures, (b) nationality requirements, (c) residency requirements, (d) licensing, standards, qualifications, (e) registration requirements, (f) authorization requirements, (g) ownership of land and other property.

Private / Foreign ownership (opening) in sample

Fixed lines Local, long distance and international services:

Cameroon, Cote d’Ivoire, Ethiopia Leased line: Cameroon, Cote d’IvoireMaximum equity: 100% Cote d’IvoireMobile lines Analogue: Cameroon, Cote d’Ivoire, Guinea Digital: Cameroon, Cote d’Ivoire, Guinea Maximum equity:100% Cote d’Ivoire; 70% Cameroon,

Guinea

Regulation and Competition

New entrants to compete with incumbent operator : competition enhances efficiency

Process and timing. How to avoid collusion and abuse of market power: 4 methods.

Regulation1. Through facilities- or non-facilities-based modality2. By geographical areas covered by the license;3. Through number of operators licensed4. Through specification of implementation time frame

State of regulation in sample

Separate regulatory agency created recently: Cote d’Ivoire (1995), Ethiopia (1996) Cameroon(1998)

Regulatory responsibility shared with Ministry in charge of telecommunications: all

Countries with regulatory agencies but interconnection responsibility with a telecommunication operator: Cameroon, Cote d’Ivoire; in both case the fixed telephony monopoly.

Countries with regulatory agencies without dispute settlement responsibility :Guinea

With public service monopoly + possibility of private entry: all

Regulatory responsibilities in African countries

Mobile telephony

Licensing: Regulator (Cameroon, Cote d’Ivoire, Ethiopia) Ministry (Guinea)

Interconnection: Operator (Cameroon, Cote d’Ivoire)

Retail tariffs : Operator in Cameroon and Cote d’Ivoire, regulator in Ethiopia

Dispute settlement & arbitration: Regulator (Cameroon, Cote d’Ivoire), Ministry (Guinea)

Regulatory responsibilities in African countries (ctd)

Fixed telephony

Licensing: Regulator (Cote d’Ivoire), Ethiopia) Ministry (Guinea)

Interconnection: Operator (Cameroon, Cote d’Ivoire)

Retail tariffs : Regulator (Cameroon, Cote d’Ivoire), Operator(Ethiopia)

Dispute settlement & arbitration: Regulator (Cote d’Ivoire)

Meeting a twin objective: profitability and social goals (USP).

Infrastructure rollout to under-serviced areas: e.g. Cameroon over five years all cities with at least 50,000 inhabitants.

universal service fund: Botswana. Also use a subsidy. Village with 250- 500 required to have 3-7 lines placed at strategic points.

ranting of a regulated monopoly for specified time period and licensing conditions: e.g. SA number of new lines, both overall and in under-serviced areas over the license period

Meeting a twin objective: profitability and social goals (USP) (Ctd)

Objective of USP hard to attain with current instruments b/o nature of industry: Convergence markets-technology make it difficult to sustain regulated monopoly for stipulated period + ensuring world-class quality services.

Difficulties associated with management of a special telecommunication development fund and reluctant private operators to invest in unprofitable areas. Lack of profitability due to high price and low consumption.

Effectiveness of Regulatory Bodies :Tariff and Interconnection

Tariff policy: align prices to costs to reflect their likely levels in a competitive environment.

Distortion with cross-subsidization b/o inefficient decision-making by consumers and service providers. Cost based prices subsidy mechanism reflects true economic costs and transparent ground for competition; sustainable base for investment decisions and technology acquisition.

Accounting and settlement systems

Effectiveness of Regulatory Bodies :Tariff and Interconnection (Ctd)

Interconnection Interconnection necessary in multi-operator

environment. Users to freely communicate. Incumbent operator that deters entry keeps

efficiency from being maximized. Property rights or rights of way are necessary to

protect against abuse of market power. Access to unbundled elements of network,

charged only for required facilities; Cost-based pricing directly pertaining to costs of

construction of link is desirable.

Effectiveness of Regulatory Bodies :Tariff and Interconnection (Ctd)

The interconnection requires TRB. To centralise sector key indicators (access to

relevant information) To regulate market on transparent, objective and

non-discriminatory manner. Regulatory bodies face stringent constraints i.Technical e.g. direct+indirect connection

compatibility of switch and equipments.ii. Legal, especially on dispute settlement;iii. Economic:determination of price reflecting true cost.

Effectiveness of Regulatory Bodies : The challenges

Accounting for legacy of past policies, commitments and capacity for reform.

How to reverse past commitments that could limit effectiveness and how to compensate to ensure credibility?

Division of responsibilities between administrative and regulatory functions to avoid conflict of interest, taking capacity into account and concern for effectiveness.

Effectiveness of Regulatory Bodies : The challenges (Ctd)

Countries launched reforms without sectoral restructuring policy; reform happened before or simultaneously with design of rules and creation of regulatory agencies. Hence complex implementation problems.

Countries too small to allow entry of adequate number of firms for effective competition (instead of collusion): objective of economic efficiency, reduced cost, improved quality hard to achieve.

Special case: Experience of Botswana

Number of fixed lines doubled in 5 yrs reaching 10% of population. Mobile used by 16%; estimated mobile could reach 35% of the population in a few years.

Weak accounting services pose problems e.g. lost of customers. 90% of mobile subscribers use pre-paid services. When billing problems rectified most customers preferred to stick to mobile despite higher prices. Strong preference for quality.

Competition led to falling prices

Special case: Experience of Botswana (Ctd)

Fast-track dispute settlement. Staffing, leadership, compensation. Overall policy environment in the rest of the

country. Telecommunication Regulators Association of

Southern Africa (TRASA): role of SADC, large market, institutional framework for regional model telecommunication policy

Detailed studies required to assess relevance for other countries/regions.

Conclusions and Lessons

GATS complex and not sufficiently understood;

Market size a constraint: regional dimension, develop inter-linkages with regional and continental blocks; significantly liberalize at regional levels, as building block to multilateral liberalization.

Competition crucial for market contestability. Effective regulatory mechanisms and institutions are either lacking are grossly understaffed and under-funded.

Conclusions and Lessons (Ctd)

Provision of services requires access to networks; adequate interconnection.

Prices too high (mobile or fixed) Best way of reaching-out to many;

provisions for universal service, detailed study of cyber cafes and community centers, role of Internet and other new technologies.

Conclusions and Lessons (Ctd)

How to negotiate away existing some restrictions / commitments, promote national/regional objectives, be WTO compatible such as to enhance credibility.

Given current reform was under SAPs study coherence between objectives / instruments / commitments in WTO: links to be understood.

Replicate TRASA in other African regions? Africa Telecommunication Regulators’ Network (ATRN)

Do the same on administrative side of telecommunication