1

The World BankThe World Bank

International Integration of Services MarketPriorities for LDC

ICT Sector Perspective

Boutheina GuermaziGICT

June 18, 2008

2 22

Agenda

Setting the StageElements of successful telecommunications liberalization Dividends of Liberalization: Case studiesChallenges of reform: Zambia case study

3 33

A US$3 trillion Industry with an Increasing Share for Developing Countries

Source: Pyramid Research, IDC, Gartner, PriceWaterHouseCoppers

Worldwide Telecoms, IT and Media Revenues Worldwide Telecoms, IT and Media Revenues

$1,323 bn

Media

IT

Telecoms

$806 bn

$1,115 bn

2005*

Developing countries’share of worldwide mobile revenues:

2005: 40% 2010: 50%

4 44

A growing sector – Access & technology

Mobile has become the dominant platform over fixed

Overall, voice connectivity gap shrinking, but significant demand needs remain unfulfilled

Broadband is growing exponentially in developed markets. Broadband take-up in developing countries expected to mirror today’s mobile footprint.

0%

5%

10%

15%

20%

25%

30%

35%

2000 2001 2002 2003 2004 2005 2006 2007 2008

Pene

trat

ion

of P

opul

atio

n (%

)

Fixed Penetration Mobile Penetration

Source: Pyramid Research – GICT Workshop (April 2005)

0

200

400

600

800

1,000

1,200

1,400

1992 1994 1996 1998 2000 2002 2004

Mill

ion

Subs

crib

ers

High income Low & Middle income

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008

Mill

ion

Subs

crib

ers

Global Broadband SubscribersGlobal Mobile Subscribers

5 55

Africa Challenges in terms of Access and cost to end users

0

100

200

300

400

500

600

EAP ECA LAC MNA SAR SSAFixe

d an

d M

obile

Lin

es p

er 1

,000

Peop

le

02468

1012141618

EAP ECA LAC MNA SAR SSABro

adba

nd S

ubsc

ribe

rs p

er 1

,000

Pe

ople

27% 25%

47%

14%

59%

17%

0

0.5

1

1.5

2

2.5

3

Sub-Saharan

Africa

South Asia LatinAmerica &Caribbean

MiddleEast &

North Africa

Europe &Central

Asia

East Asia& Pacific

0%

10%

20%

30%

40%

50%

60%

Cost of 3 min call to US (USD) % of countries with full competition

$354 $300 $256$101 $48

Ethio

pia

Ugan

da

Tanz

ania

Keny

a

Rwan

da

Suda

n

ADSL prices, 256 kbps/ per month US$, 2007

6 66

Agenda

Elements of successfulliberalization

7 77

Elements of successful services liberalization:

Optimal industry structure, privatization, and competition policy

Optimal industry structure, privatization, and competition policy

Promotion and development of new technologies, services, infrastructure and ICT’s

Promotion and development of new technologies, services, infrastructure and ICT’s

Organization of sector stakeholders – separation of Policy, Regulation, and Operations

Organization of sector stakeholders – separation of Policy, Regulation, and Operations

Human ResourceDevelopment

Sector Promotion /Development

Sector Organization

National TelecomSectorPolicy

RegulatoryFramework

Market Liberalization 33

44

55

11

Establishment of legal structure, independent regulatory authority, and fundamental regulations

Establishment of legal structure, independent regulatory authority, and fundamental regulations

Capacity building, training, placement and outsourcing, and employment growth

Capacity building, training, placement and outsourcing, and employment growth

22

8 88

Competition: Unleashing market forces for improved sector performance

Mobilization of additional investment resources;

Additional incentivesto improve efficiency;

Increased consumer choice;

Competition drives down prices.

9 99

Private participation in InfrastructureBenefits of Privatization:

Mobilization of investment resources;Public sector may not be able to provide sufficient investment resources.Private firms may be better positioned to draw on domestic and international capital markets.

Incentives for improving managerial efficiency;Transfer of technology and managerial know-how (especially through foreign direct investment).Establish credibility of reform process.

How to best sequence gradual liberalization?The nature of competition depends on whether the incumbent PTO is privatized.Evidence suggests emphasis should be placed on the early introduction of competition. Exclusivity periods should be minimized.

10 1010

Regulation a means to an end- not an end in itself

Regulation exists within ever changing social and economic context

Particularly influenced by level of competitionWhy Regulate?

Avoid market failureEnsure consumer interests are protectedImplement safeguards to create effective competitionPrevent anticompetitive practices

End Goal:Effective competitionProtect consumers and ensure that they are able to attain new servicesAdvance equity objectives:

Promote universal service/access

11 1111

Schematic of Effective Regulatory Framework

CertaintyCertaintyPredictabilityPredictabilityTransparencyTransparency

ProportionalityProportionalityFairnessFairness

Roles & Resp.

Ministry

Regulator

InstitutionalIssues

Checks&balances

Governance Structure

Licensing/

Interconnection and Access

Universal service

Tariffs

Consumer protection

Substantive rules

Competitionrules

Marketstructure

Market Governance

Spectrummanagement

Numbering

Rights of way

Scarceresources

Enforcement

Disputeresolution

Appeals

Consultation

Regulatory Process

Technological neutrality

Forwardlooking

12 1212

Agenda

Dividends of sector reform

13 1313

05

1015202530354045

1990 1995 2000 2005

Fixed Lines Mobile Subscribers

Liberalization in Sub-Saharan Africa triggered the explosion of the mobile market

1996: 4 countries have 2 or

more mobile

operators

2000-2001: Mobile prevails

over fixed lines

2001: 30 countries have 2 or

more mobile

operators

2005: Over 40 millions

Mobile Subscribers

05

1015202530354045

1990 1995 2000 2005

Fixed Lines Mobile Subscribers

Liberalization in Sub-Saharan Africa triggered the explosion of the mobile market

1996: 4 countries have 2 or

more mobile

operators

2000-2001: Mobile prevails

over fixed lines

2001: 30 countries have 2 or

more mobile

operators

2005: Over 40 millions

Mobile Subscribers

Increased Liberalization of the ICT Sector

Dividends of reform: Improved Access: Africa

14 1414

Market response to Sector reform: Uganda

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006-

2.00

4.00

6.00

8.00

10.00

12.00

Fixed- wire or wireless lines Mobile susbcribers Teledensidty

1 operator fixed1 operator mobile

SNO issued2operator fixed2 operators mobile

Privatization of UTL3RD mobile

End of duopolyAnticipation of more competition

15 151515

Market Response to sector Reform: Ghana

15

16 1616

The Case of Post Conflict Countries

Mobile subscribers

120.64

20.10

0.850.62

28.26

42.73

59.2472.75

93.69

6.464.99 10.3112.39 16.83

42.2427.06

48.73

29.12

0.490.63

14.66 41.0025.20

22.12

13.695.742.65

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005

year

per 1

,000

peo

ple

Cote d'Ivoire Guinea Guinea-Bissau Liberia Sierra Leone

17 1717

Dividends of Liberalization: FDI trends

Source: P. Guislain, C. Qiang 2006.

56

20

0

10

20

30

40

50

60

Total FDI Telecom FDIU

SD

Bill

ions

Telecom FDI versus Total FDI in SSA (2000-2004)

During 2000-2004, 35% of total FDI was telecom FDI in SSA.

South- South FDIThe Emergence of Strong Players from

Developing Countries...

34% 35% 37% 40% 40%

51% 55%60% 60%

65%

97% 99% 100% 100%

Zant

el(T

anza

nia)

Tanz

ania

Tele

com

Can

ar (S

udan

)

MTN

(Rw

anda

)

Safa

ricom

(Ken

ya)

Uga

nda

Tele

com

MTN

(Sud

an)

Cel

tel (

Keny

a)

Cel

tel

(Tan

zani

a)

Voda

com

(Tan

zani

a)

MTN

(Uga

nda)

Rw

anda

tel

Mob

itel (

Suda

n)

Cel

tel (

Uga

nda)

18 1818

Dividends of Liberalization: Traffic and Pricing

Competition 2004

Monopoly88 Countries

Full Competit ion 65 Countries

P artial Competition35 Countries

•85% of the global traffic originates from competitive markets, compared to 35% in 1990

•More significant growth as the number of countries allowing full competition continues to grow

$3.45

$3.13

$1.57

$1.20

$0.93

$0.84

$0.81

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Zambia

Kenya

Egypt

Mauritius

Tunisia

South Africa

Ghana

19 1919

Wider Benefits: ICT and Growth

Significant Contribution to GDPSignificant Contribution to GDP10% increase in mobile density leads to 0.6% GDP growthenhanced competitivenessTelecom is an increasingly important link in all value chains (Tourism, banking, apparel),

Employment generationEmployment generationThe telecom sector employs around 30,000 people in Kenya.Downstream employment is much greater. For example, employment generated by mobile operators estimated at 160,000.

Generates significant income to Generates significant income to GovernmentsGovernments

Taxes and fees

1.6%

2.7%

4.1% 4.3%

3.4%

4.8%

Ethio

pia

Rwan

da

Ugan

da

Tanz

ania

Suda

n

Keny

a

15% 16% 16% 20% 18% 18%

0% 2%10%

7% 10% 12%

0%5%

10%15%

20%25%

30%35%

Eth

iopi

a

Afri

ca

Ken

ya

Tanz

ania

Rwan

da

Uga

nda

VAT Excise

20 2020

Wider benefits

ICT and Improved Delivery of Social Services

ICT for Greater Transparency Financial Management Systems for budgetary & fiscal control

E-Taxation & e-Customs for improved revenue collection

E-Procurement systems for efficient government purchasing

Example: GHANA Customs Modernization -Investment: Gov. $1.1m, PS $ 4.3m; Revenues: 49% Increase in 1st 18 months

ICT for Empowerment ofthe Poor

ICT for integration in globaland regional trading systems

21 2121

$30 $33$50

Jan-06 Sep-06 Mar-07

6,500

11,3128,141

2003 2004 2005

South Africa call center agents

Accumulated FDI in Mauritius BPO market, US$ million

Source: CallingtheCapeSource: BOI

Dividends of Liberalization: Enhancing Comparative advantage in IT and IT-Enabled Offshoring

$300 billion global market - only 10% realized

Offshore IT industry growing at 21%

IT enabled services growing at 49%

Major corporations now looking to Africa

22 2222

Agenda

Challenges of reform

Zambia case study

23 2323

Resisting Reform: Zambia’s case study

Distributional Equity concerns

Regulatory concerns Resisting Liberalization Government

concerns

Incumbent concerns

24 2424

Incumbent Concerns

Fear of bankrupting the Incumbent operatorConcern less relevant in a converged environmentIncreased portion of international traffic is handled over IP platform

Non- significant risks on the business viability of ZAMTELImmediate losses could be mitigated by significant increase in traffic; Risks are easily mitigated if appropriate actions are taken.

RestructuringTariff Rebalancing

25 2525

Government Concerns

Security ConcernsPreserving national security could be assured by specific license conditions Cost of security equipment and technology could be shared by alloperatorsImportance to balance security concerns and consumer privacy

Empowerment ConcernsNeed to balance importance of local ownership with need of an enabling investment climateZambia is competing with the ROW for limited investment opportunitiesNeed to be aware of potential costs of FDI limitations

Fiscal RevenuesCompetition increases revenues and profits and increases future taxes

26 2626

Distributional Concerns

Geographical reach

Socio-economic

reach CurrentPenetration Commercially

feasible reach

Requiresongoingsupport

Market Efficienc

y Gap

True Access

Gap

After initial subsidy, will become commercially viable

Smart Subsidy Zone

27 2727

Regulatory Constraints

How independent is the regulator?Structural independence?Functional independence?Independence vis a vis the incumbent?

Limited Enforcement capacityCross subsidization practices

Limited Technical capacity to deal with interconnection and pricing