Exploiting new market opportunities in telecommunications : lessons for developing countries

This paper is about policy reform in the telecommunications sector, where not only the physical network elements, but also the institutional elements are interdependent. Developing countries are in transition from telecommunications monopolies to multiple providers that compete with and complement each other. The promise of a pluralistic market structure may represent the only realistic hope of more than doubling telecommunications investments in the developing world to meet unfulfilled and growing demands for conventional and new services. For the promise of technological opportunities to be realized, interlocking measures will be needed to: (1) render incumbent providers more commercially oriented and subject to the same basic rules as other providers; (2) create a regulatory environment that provides incentives for efficient investment, protects consumers, and ensures fair competition; and (3) sensitively manages conflicting interests during the transition, especially in addressing the concerns of traditional telecommunications workers. Hence, the successful transition to a competitive structure follows not merely from technological developments that have reduced the economic benefits of large-sized operations, but it also follows, more importantly, from coordinated institutional reforms. As a consequence of their past failures in resource mobilization and service delivery, and aided by technological change, monopolies are giving way to a heterogeneous structures where competition exists in numerous markets. Promoting competition requires encouraging market entry. Eliminating cross-subsidization across services, physically separating assets and operations, and separating network and retail services through accounting measures are all ways to facilitate competition. The longer term regulatory task is to implement pricing rules that protect customers and provide incentives to operators to reduce their costs. At the same time, a regulator in a pluralistic regime must establish rules and prices for interconnecting multiple networks. Since the pace of change can be slowed by incumbent interests, like workers fearing displacement, sectoral reform must be led by forces outside the traditional sectoral establishment.