Trade in Infrastructural Services: Selected African Experiences

1. Trade in Infrastructural Services: Selected African Experiences By Dominique Njinkeu (AERC)

2. I. INTRODUCTION Understanding of commitments and link to ongoing reform (privatization /liberalization) Special focus on • Policies and market structure (competition; ownership, regulation) and • Performances (prices, quality, access)

3. 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

4. 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…

5. Sector Specific Experiences: Telecommunications

6. 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.

7. 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)

8. 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.

9. Private / Foreign ownership (opening) in sample Fixed lines • Local, long distance and international services: Cameroon, Cote d’Ivoire, Ethiopia • Leased line: Cameroon, Cote d’Ivoire Maximum equity: 100% Cote d’Ivoire Mobile lines • Analogue: Cameroon, Cote d’Ivoire, Guinea • Digital: Cameroon, Cote d’Ivoire, Guinea • Maximum equity:100% Cote d’Ivoire; 70% Cameroon, Guinea

10. 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. Regulation • Through facilities- or non-facilities-based modality • By geographical areas covered by the license; • Through number of operators licensed • Through specification of implementation time frame

11. 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

12. 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)

13. 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)

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

15. 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.

16. 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

17. 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.

18. 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.

19. 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.

20. 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.

21. 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

22. 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.

23. 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.

24. 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.

25. 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