Telecommunications

Document Sample
Telecommunications Powered By Docstoc
					       Telecommunications

Infrastructure in EAP: The Way Forward
           Second Workshop
         Bali, 27-29 June 2004
                 John Ure
Director Telecommunications Research Project
           University of Hong Kong
            http://www.trp.hku.hk
              Issues Addressed
   The Key Issue?
   Investment in telecommunications in EAP –
    setting the scene
   Telecom’s utility cost-structure + economies of
    scope
   Why has telecom succeeded in attracting private
    investment? Critical success factors
   Modes of ownership, investment and growth
   Lessons from telecom ? - some Questions and
    Answers
   What role is most effective for the public sector?
            The Key Issue?
   Telecom liberalization (strategic new
    entry and investment) has been very
    successful – if telecom, why not other
    utilities?
      Why telecom?
      What role for public sector in
       telecom? (opposite to question
       ‘what role for private sector in
       water, power, etc.’)
 Introducing the
Investment Story
                            Fixed line teledensity by per capita GDP
          Teledensity

             20                                                             Malaysia

             18
                                      China
             16

             14

             12                               Thailand

             10

               8
                       Vietnam
               6
                   Mongolia         Philippines
               4
                                 Indonesia
               2
                          Laos                           PNG
               0         Cambodia
                                                                                              Per Capita GDP
                   0              1000            2000         3000       4000         5000
Source: EIU, World Bank, Paul Budd, ADB
Note: Fixed line teledensity figures for Cambodia, Mongolia and PNG are for 2001
                              Mobile teledensity by per capita GDP
          Teledensity

             40
                                                                Malaysia
             35

             30
                                                  Thailand
             25

             20
                                    Philippines
                                    China
             15
                        Mongolia

             10
                             Indonesia
               5
            Cambodia
                          Vietnam
                        Laos                         PNG
               0                                                                          Per Capita GDP
                   0          1000            2000           3000          4000    5000
Source: EIU, World Bank, Paul Budd, ADB
Note: Fixed line teledensity figures for Cambodia, Mongolia and PNG are for 2001
                                                  Investment by Project Type




                                 14

                                 12
                                                                                                                   M an ag em en t an d
  N u m b e r o f P ro je c ts




                                 10                                                                                lease co n tract
                                                                                                                   G reen field P ro ject
                                  8

                                  6                                                                                D ivestitu re

                                  4
                                                                                                                   C o n cessio n
                                  2

                                  0
                                      90

                                            91

                                                  92

                                                        93

                                                              94

                                                                    95

                                                                          96

                                                                                97

                                                                                      98

                                                                                            99

                                                                                                  00

                                                                                                        01

                                                                                                              02
                                  19

                                           19

                                                 19

                                                       19

                                                             19

                                                                   19

                                                                         19

                                                                               19

                                                                                     19

                                                                                           19

                                                                                                 20

                                                                                                       20

                                                                                                             20
                                                            F in an cial C lo su re Year




Source: World Bank PPI database
                                                            Investment by Sector




                                 14

                                 12
  Nu m b e r o f P r o je c ts




                                 10                                                                                   M o bile Ac c e s s


                                  8                                                                                   F ixe d a nd M o bile


                                  6                                                                                   F ixe d Ac c e s s a nd Lo ng
                                                                                                                      D is ta nc e

                                  4

                                  2

                                  0
                                      90

                                            91

                                                  92

                                                        93

                                                              94

                                                                    95

                                                                          96

                                                                                97

                                                                                       98

                                                                                             99

                                                                                                     00

                                                                                                           01

                                                                                                                 02
                                 19

                                           19

                                                 19

                                                       19

                                                             19

                                                                   19

                                                                         19

                                                                               19

                                                                                     19

                                                                                            19

                                                                                                  20

                                                                                                          20

                                                                                                                20


                                                              F in a n c ia l C lo s u r e Y e a r




Source: World Bank PPI database
     Telecom Investment in EAP
   Telecom = for 44% investment going into
    infrastructure projects in developing
    countries, 1990-2001
      Divestiture = 40% (partial privatization)

      Greenfield projects > 50% (mostly
       mobile and mobile/fixed mix)
      Concessions = 8% (BTOs/BOTs)
                      From SOTE to POTE


                       Initial Investment
Privatization          Concessions           New Licences
IPOs, Auctions, JVs    BTs, BTOs, BOTs      Greenfield projects, JVs
                           Expansion

                Equity, Debt, Retained Earnings


                          Pull Factors
Emerging markets; Growth markets; Global synergies;
Servicing MNCs; Experimental
                          Push Factors
Saturation in home markets; Supporting domestic stock
price; Strategic expansion
                     Levels of Interest by Investors
Privatization             Concessions              New Licences
High        Medium       Medium          Low       High      Low
                     Issues of Concern to Investors
Tariff policy              Exclusivity            ‘New’ new entry
USO                        Duration               Interconnection
Unbundling                 Transfer of assets     > 50% Control
                         From Entry to Exit


                               Pull Factors

3G debt; Dot.bomb; Threats and opportunities in home
markets, especially broadband; International alliances fail
                               Push Factors

1997; Regulatory failure*; No chance of 50% ownership

• Exit by strategic investors based in larger, especially
  non-Asian economies
• Exit by fund investors from smaller Asian economies
 - but some are stranded
• Staying for more - strategic investors from small
developed Asian and Scandinavian economies still invest
      * For example, Indonesia replaced 15 year KSO exclusivity with
      competition between IndoSat vs Telkom and failed to rebalance tariffs.
    Has Investment Sentiment Changed?
   Pre-1997 - Pull factor (Return on Investment)
    both necessary and sufficient
       Investment sentiment (‘Asian economic miracle’) +
        opportunity over-rode policy and regulatory weakness
   Post-1997 - Pull and Push factors both necessary
    but neither sufficient of their own
       Investment sentiment more company focused
       Investment in China’s and India’s growth markets are
        country focused
       Foreign strategic investors from small saturated
        markets looking for moderate-to-good RoIs
    [Examples: SingTel, Korea Telecom, Millicom, Telenor, CP Group
        (Thailand), Telekom Malaysia and Maxis (Malaysia)]
Introducing the
  Telecom as
  Utility Story
   Telecom as Utility + Economies of Scope
• Telecom is a classic utility – yet economies of scope =
heterogeneous products and services = offer multiple revenue
streams

• Falling MC and AC –
    • supply-side: economies of scale and scope
    • demand-side: network economics (telecom is duplex – unlike
    other utilities?)

• Why doesn’t incumbent price everyone else out of the market?

   •Regulation + diversity of markets and technologies
   standalone options
   • Facilities competition - NGNs, cable networks, Vsat, WLL
   • Services competition – dels (Res & Bus), VPNs, BB, VoIP, etc.
Lowering Barriers    Countervailing tendencies            Raising Barriers
Technology                          vs                      Economics

‘Moore’s Law’                                                Economies
                     Falling cost vs Growing                  of Scale
                     of electronic   scale of
                     components      network
Next
Generation          IP-structured    vs Diverse              Economies
Networks            architecture        software-driven      of scope
                    with routers        services

Standalone                                                    Network
Networks            Contestable      vs Externalities         Economics
                    markets             (duplex)
             Disruptive New Technologies
         VoIP                   Mobile Cellular

                 Undermine Fixed IDD and NLD
                 revenues, and substitution of
                 mobile cellular for fixed

                 Reduce Fixed IDD and NLD
                 cross-subsidy to local loop


                 “Rebalance” local loop tariff
                 and accelerate mobile:fixed
                 substitution

Note: IDD and NLD price elasticity uncertain. Indosat’s IDD revenue contribution
fell from 73% to 27% 2000-1/4 2004; mobile revenue (Satelindo) rose to 55%
               Switching and Transmission Costs Compared

                 Cost Estimates of Network Elements in Philippines
Network Elements                           Average Costs (ballpark figures)
Mobile Cellular                            US$50 per subscriber
Landline switching and equipment costs     US$600 per direct exchange line
Landline transmission and connection costs US$400 per direct exchange line
Landline NGN routing and equipment costs US$200-300 per direct exchange line
Source: Case study
                               Looking Forward

      •Wireless Local Loop
         • 2002 - Telkom (Indonesia) new fixed line local loops
         fell from $1,000 to $530 per line
         • 2004 - Telkom $368 per line ; Ratelindo $240 per line
      • Vendor competition
         • Chinese vendors cutting switching costs up to 60%?
    Fixed and Mobile Cost and Revenue Characteristics


                                       Costs
         Fixed                                                Mobile
         75C:25V - 40% sunk                      70C:30V - 40% sunk
         High and falling                            Half* and falling

                                       Tariffs
         Regulated                                        Competitive
         Rebalancing                                      Unbalancing

                                    Revenues
         Steady         Falling                      Rising        Steady

* Note: Thailand, TelecomAsia’s fixed network (mid-90s) cost Baht 80 billion - capacity 2.6
million; TA’s Orange mobile network cost Baht 40 billion - capacity 3 million
Critical Success Factors
Critical Success Factors Form a Virtuous Loop



  Technology
  Innovation allowed to
  influence regulation -
  by-pass, licensing, etc.   Markets
                             Opportunities enabled by
                             regulation, encouraged
           Regulation        technological innovation
          Prepared to
          abandon PTT
          model - more
          open markets
                     Technology Effects

                                Markets
• Mobile cellular (including pre-paid electronic transfers)
• Internet Protocol-enabled networks (including broadband)
• Wireless access (WLL, WiFi, WiMax, etc)



           Costs                                 Policy & Regulation
  • Switching costs down                         • Deregulation of CPE and VAS
  • Transmission costs down                      • Competitive and convergence
  • CPE (Handsets, PBX, etc)                     licensing
                                                 • Cost-based pricing


                               Investment
• Greater network technology and service options
• Lower cost barriers to entry
• Firm-specific and first-mover advantages versus commodity markets
            Policy and Regulatory Effects

                               Markets
• Mobile cellular users overtake fixed users (unforeseen at first)
• Diffusion of ICT usage (traffic)
• Convergence (networks such as cable TV-telephony and fixed-wireless)



           Costs                                Technology
  • Cost-based interconnect                     • Type approval procedures
  • Tariff rebalancing                          • Spectrum management
  • Competitive pricing                         • Deregulation of procurement



                              Investment
• Opportunity through licensing
• Policies encourage market growth
• Free to choose technologies and market segments
                            Market Effects

                       Policy and Regulation
• Pro-consumer, pro-competitive policies
• Telecom seen as a trade and investment issue
• Universal access and ICT promotion-specific policies



            Costs                                 Technology
  • By-pass and arbitrage of                      • New technology tested and
  traditional tariff structures                   diffusion accelerated
  • Flat-rate, Ramsey and                         • IP-based and e-technologies
  other pricing models                            • Technology convergence
  • Elasticity and investment

                                  Investment
• High returns on investment
• Exit strategies if market is buoyant
• Eases access to finance
                        Combined Effects
                                  Access
 • Faster growth of the private sector increases attraction of commercially
 incremental service areas (eg, pre-paid mobile cellular services; WLL)
 • Releases and adds to public sector resources for devoting to access
 • Public policy can focus on ICT diffusion

           Costs                                   Revenues
• Incrementally efficient                          • Revenue models uncertain
• Transparent or revealed                          • Commodity level prices will
through incentive mechanisms                       drive convergence to gain traffic
• Wholesale/retail competition                     • Product and service
regulation watchdog required                       substitution is likely to grow

                                 Investment
• Incumbent fixed line carriers either (a) as low-cost competitive oligopolies
rather than inefficient monopolies, or (b) broadband innovators
• Mobile cellular operators likely to consolidate, maybe convergence with
fixed, with higher returns for scale and scope (eg. 3G applications)
• Investors looking for regional/global synergies and require ownership
            Models of Ownership
       Ownership       Market           Private Participation
       SOTE            Closed           Concessions (BT,BTO,
                                        BOT)

       Partial         Partially Open Public-Private JVs
       Privatization

       Fully Privatized Fully Open      Fully owned and
                                        operated

Each of these models can produce high, medium or low growth -
examples: China is high growth SOTE open to VAS; Vietnam is medium
growth SOTE offering BCCs; Myanmar is low growth SOTE mostly closed.
Conclusion – open models (even SOTE models) enjoy higher growth?
            Lessons From Telecom?
          Some Questions and Answers
Questions               Answers
   Effects of tariff rebalancing?          Accelerate substitution (mobile for
                                             fixed) but promotes broadband


   Can the provision of universal          It reveals unrealized demand
    access benefit investors?                (private sector provision) and/or
                                             increases calling opportunities


   Is the concept of a universal           If the industry itself benefits, but
    service fund the way to go?              does it risk being plundered?


   Is general taxation the way to go?      For social equity or development
                                             aims, better but then competes
                                             more openly with other priorities

   Why licence telecom?                    (a) means of handling scarce
                                             resources and IPRs; (b) cheap,
                                             efficient and effective way to offer
                                             consumer protection
            Lessons from Telecom?
          Some Questions and Answers
Questions               Answers
   Is there a way to lower the cost of      Class licences and raise common
    licensing?                                licence conditions to the level of a
                                              Telecom Law (= transition to a
                                              Competition Law?)


   Is there a way to reduce the cost        Unified regulation that oversees
    of regulation?                            networked industries? But how
                                              important is industry specific
                                              knowledge? Is ICT convergence
                                              regulation the half-way house or
                                              something entirely different?

   How to lower the cost barriers to        Facilities building or sharing - does
    entry in highly innovative markets        it promote investment?

   Can other utilities offer economies      Utility networks can carry telecom,
    of scope?                                 can offer machine-to-machine
                                              services, etc
                   Some Conclusions -
         Applicable to Other Networked Utilities?
   Utilities subject to technological innovation
       Policy and regulation must not get locked-in to unsustainable
        business models of incumbents in an era of fast technological
        innovation
   Raising FDI ceilings will be critical in attracting future major
    investments in telecommunication infrastructure
   Industrial cycles create need for M&A and Competition Laws
    to attract investment on a stable basis
   Universal access can be tackled from several different
    directions once the Natural Monopoly model is abandoned -
    but marginal cost pricing issues do not disappear
   Competition reduces costs but regulation of quality and
    hazard safeguards are IMPORTANT even for investors
       Is this best done industry specific or general?
    What Role is Most Effective for the Public Sector
   Special Projects?
        Does cost-benefit analysis support the case? Would the private
         sector investment? Are there externalities and public good
         issues? etc) – examples include China’s 5 and 10 Year Plans;
         Malaysia’s National Broadband Plan; Mekong region (GMS)
         backbone
        Local State-sponsored projects - optical fibre rings for towns and
         cities (for example, China)
   Universal access, environment and digital divide issues -
    the State as sponsor but also as catalyst
   Reallocation of scarce (State) resources
        Relieves State deficits and adds to tax revenues
        Frees resources for universal access and ICT diffusion
        Puts radio spectrum to revenue-generating and more efficient
         use

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:10
posted:3/2/2012
language:
pages:30