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Regulatory Regimes As Enablers O

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Regulatory Regimes As Enablers O Powered By Docstoc
					TM INTERNATIONAL SDN BHD
REGULATORY REGIMES AS
ENABLERS OF GROWTH:
AN INVESTOR PERSPECTIVE

ASSOCHAM TELECOM CONFERENCE 2006
19 APRIL 2006
New Delhi




                                   Date: 20 April 2005
              AGENDA

•   BACKGROUND
•   REGULATORY RISK ASSESSMENT: AN
    INVESTOR’S PERSPECTIVE
•   REGULATORY EFFICTIVENESS AS GROWTH
    ENABLER
•   TYPICAL EMERGING MARKET REGULATORY
    ISSUES FROM TM INTERNATIONAL’S
    EXPERIENCE
•   NEW CHALLENGES



                                         2
BACKGROUND




             3
TM adopts a prudent international expansion strategy
             focussed on the following:

  •   To look at emerging markets particularly with high growth potential,
      closer to home, thereby strengthening TM’s regional presence.

  •   Rapid growth strategy of existing investments including possible
      strategic alliances which would provide TM with outstanding
      international partners. This is aimed at improving TM’s ability to
      compete in the increasingly competitive global mobile
      telecommunications market.

  •   Divestment of our African investments:
      -    sale of the Telkom S.A Ltd stake concluded November 2004,
      -    amicable resolution of Ghana arbitration process in May 2005,
      -    the process to divest remaining investments in Africa (Guinea
           and Malawi) is ongoing.




                                                                             4
    TM International Sdn Bhd is the vehicle overseeing
                  TM’s ventures abroad

•     As Telekom Malaysia Berhad’s (TM) vehicle overseeing and managing its
      foreign ventures, TM International Sdn Bhd (TM International) aspires to be an
      established, well-recognised, self supporting and profitable company that
      serves as the flagship for the group’s international investments.

•     Commenced as an operating division within the TM Group. Pioneer investment
      in Sri Lanka in 1995.

•     In line with TM’s restructuring exercise, TM International was activated in 2001
      to be the operating investment holding company for the TM Group. A wholly-
      owned TM subsidiary.

•     Current investments are primarily in mobile cellular though new possibilities in
      broadband, VOIP are being considered.

•     Total initial capital employed = US$588.34 million


                                                                                         5
          TM International Vision and Mission

Our Vision
•   To be an established, well recognised, self-supporting and
    profitable global company that serves as the flagship for TM’s
    international investments

Our Mission

•   As an investment holding company, TM International’s
    responsibilities are:
     To identify, select and evaluate investment opportunities for
        TM’s telecommunication business overseas;
     To maximise value and return for all the stakeholders in
        existing ventures
     To promote TM as the regional player with global presence
        in the telecommunications industry

                                                                      6
      Regional footprint of investments managed by
                    TM International




                       *
               **

                               *
               *
                           *
                                   *
                               *
 * Mobile operations
** Pending approvals

                                                     7
              Current investments - Subsidiaries

Company name / Country                               Business Type     Shareholding

Cambodia Samart Communication Co Ltd (Casacom),      Cellular          100%
Cambodia
Dialog Telekom Limited (Dialog), Sri Lanka           Cellular, ISP     87.7%

Multinet Pakistan (Private) Limited (Multinet)       Broadband         78.0%

PT Excelcomindo Pratama (Excelcomindo), Indonesia    Cellular          56.9%

Societe Des Telecommunications De Guinee (Sotelgui   Fixed, Cellular   60.0%
s.a.), Guinea
Telekom Networks Malawi Limited (TNM), Malawi        Cellular          60.0%

TM International (Bangladesh) Limited (TMIB),        Cellular, ISP     70.0%
Bangladesh




                                                                                      8
                  Current investments - Affiliates

Company name / Country                            Business Type   Shareholding

MobileOne Limited (M1), Singapore                 Cellular        29.85%

Samart Corporation Public Company Ltd (Samart),   Holding         19.24%
Thailand                                          Company
Samart I-Mobile                                   Mobile          24.4%

Spice Communications Private Limited              Cellular        49.0% *



* Pending approvals




                                                                                 9
  Through its international investments, TM has access to some 13.8 million
international cellular subscribers, in markets experiencing exponential growth


Subsidiary                Q2 2005       Q3 2005           Q4 2005

Aktel, Bangladesh         1,992,825     2,073,600         3,054,700

Casacom, Cambodia         131,577       144,500           157,773

Dialog, Sri Lanka         1,740,190     1,925,200         2,123,800

Excelcomindo, Indonesia   4,355,959     5,864,900         6,978,500

MobileOne, Singapore      - na -        1,285,000         1,246,000

Sotelgui s.a., Guinea     160,218       161,800           162,700

TNM, Malawi               106,798       136,605           131,500

TOTAL                     8,487,567     11,591,605        13,854,674




                                                                            10
REGULATORY RISK ASSESSMENT:
 AN INVESTOR’S PERSPECTIVE




                          11
 Telecommunications operators include “regulatory risk”
 as a key factor in determining their investment strategies

• Regulation relating to telecommunications reform, information
  infrastructure development, next generation networks, e-commerce, etc.
  plays a crucial role in shaping the environment and incentives for
  investment.

• Effective regulation need not add a new element of risk that increases
  investment risk. Rather it can reduce and stabilize inherent uncertainties
  in network markets.

• While not as volatile as the boom and bust cycles of financial markets
  and macro economy,telecom policy and regulatory decisions clearly have
  an impact the investment climate and investment opportunities in the
  industry.


                                                                        12
    Some key questions in regulatory risk assessment (1)

Policy and Regulatory Framework
 Observations on telecommunications policy (if in place);
 What are considered definite “must wins” from a regulatory perspective?;
 Regulatory uncertainties – what are desired changes or amendments?
 Key regulatory issues faced and how the company is working to resolve them

Licensing
 What is the licensing policy? What are the considerations for gaining entry into
   the market? Are licenses standard or are there special license conditions?
   Exclusivities or moratoriums?
 Has service-technology neutral/unified licensing regime been implemented?
 What are the terms of the company’s license in terms of the scope, rights,
   obligations?
 What are the license fees and terms of the license?




                                                                                13
   Some key questions in regulatory risk assessment (2)

Interconnection
 What is the interconnection regime like and what regulatory instruments apply;
 Charging: Mechanism: cost-based, revenue-share? Methodology: LRIC, FAC?
 What are the interconnection arrangements like?
 How are interconnection agreements forged?
 How are interconnection disputes settled?

Tariffs
 How are tariffs set? Regulated? Market forces?
 What methodology is used to establish and change tariffs?
 How is competition is terms of tariff setting?
 Are tariffs associated with interconnection rates?




                                                                              14
   Some key questions in regulatory risk assessment (3)
Spectrum
 What is the spectrum policy? How is spectrum managed in terms of application,
   allocation, pricing, refarming, etc;

Universal Service
 Is there a Universal Service regime in place? How does it work?

Competition
 Is the a framework for competition regulation? How is competition regulated?
 Are there asymmetrical rules that apply to the dominant operator?

Quality of Service
 Is there a framework for QoS? How is QoS regulated?

Consumer Protection
 Is there a framework for Consumer Protection?

                                                                             15
Careful and astute management of regulatory risk is
central to telecoms investments
                              Above the Line: will influence investment decisions

  Business Base Case           MARKET RISK
   [Establish Internal       [External operating
  Rate of Return: IRR]      Conditions e.g. market
                               saturation, etc]            CAPABILITY RISK
   Will vary depending                                     [Internal issues eg
    on investment and                                        billing, systems,
  associated risk factors                                     management
                                                             Integration etc]



             -IRR

                                                                                         REGULATORY RISK
                                                                                         [Economic, technical
   Indicative Range:                                                                        and consumer]
    Return on Capex
   2002 for 10 largest
  Asia Pacific operators

     -12% for Japan           Below the Line: will determine investment decisions
  Telecom to +41% for
        Singtel
                                                     In the context of global wireless markets, regulatory and
                                                         political risks are becoming the dominant factor in
                                                                assessing the business prospects for
                                                                     telecommunications operations


                                                                                                                 16
REGULATORY EFFECTIVENESS AS
     GROWTH ENABLER




                          17
    Recent analyst observations on the impact of
             regulatory effectiveness

• “Regulation can affect growth trajectory.
  Ongoing reforms in India, most notably to its high
  regulatory fees, could result in operator cost savings being
  passed onto consumers via lower tariffs. This could drive
  affordability and accelerate growth. Other potential changes
  include spectrum allocation and rural build-out subsidies…”
   Source: “Where will regulation risk rise or fall?”, Asian Telecom Themes & Strategy,
   UBS Investment Research (24 March 2006)


• “Europe is missing up to Euro 14 billion of telecom
  investment each year due to ineffective regulatory
  environments in some countries…
   Source: Strategy & Policy Consultants (SPC) Network (29 March 2006)




                                                                                          18
         Regulatory Risk versus Effectiveness
•    Some national telecom regulatory environments create
     “regulatory risk” that drives up investment risk, whilst the
     expectation is that regulation should be providing a degree
     of confidence that would reduce investment risk.

•    Among the key regulatory outcomes which enhance
     effectiveness and promote growth are:
1.   A robust institutional structure;
2.   Clarity of policy directions;
3.   Efficacy of regulatory processes including enforcement;
4.   Appropriate regulatory standards;
5.   A rigorous economic regulation regime.




                                                                    19
       1. Robust Institutional Structure in the Sector


• Degree of regulatory independence from political interference by the
  Government;

• Independence to manage the strength of incumbency;

• Clarity and transparency of these relations with respect to the law
  and administrative procedures




                                                                        20
                  2. Clarity of Policy Directions
• Policy directions that the regulator is supposed to implement, and the
  discretion on technical and specialized matters delegated to the
  regulator;

• Investment risk is increased by arbitrary regulatory decisions;

• Consistency of sector legislation with policy decisions;

• Any exclusivities/exemptions that may be granted to particular
  parties, and the terms of such exclusivity.




                                                                      21
       3. Efficacy of Regulatory Processes including
                        Enforcement


• May have a major barrier to entry as a result of lack of transparency,
  accountability and efficiency (e.g. time consuming regulatory filings);

• Complex regulatory compliance schemes may mean incurring
  burdensome costs;

• This can raise investment risk to the point of driving away investment.

• Enforcement the litmus test – often subsumed by more exciting,
  futuristic industry concerns



                                                                        22
             4. Appropriate Regulatory Standards
• The application of substantive regulatory standards (e.g. price
  regulation, cost-oriented standards for access/interconnection,
  competition rules, spectrum standards, etc;

• Appropriateness of standards to achieve specific regulatory objectives
  + how, where and when they are applied;

• The above requires both technical and strategic competence which in
  turn will foster investor confidence and investment in networks.




                                                                      23
         5. A Rigorous Economic Regulation Regime
• Transparent and non-discriminatory access and interconnection
  framework;

• Transparent and technology-neutral Licensing Framework that is
  integrated into broader industry arrangements;

• Effective tariff regime that reflects underlying costs and delivers
  optimal competition outcomes;

• Effective universal access scheme that are aligned with proven global
  best practice mechanisms and the recognition of existing (and
  successful) commercial contributions that support the Government’s
  universal access goals.


                                                                        24
  TYPICAL EMERGING MARKET
  REGULATORY ISSUES FROM
TM INTERNATIONAL’S EXPERIENCE




                                25
                                    Country A
(1) Sector Policy and Reform
• National Telecommunications Policy 1998 (NTP) predates new legislation (2001)
    by 5 years;
• Review of NTP is essential also due to recent global sector developments, growing
    importance of wireless access, consistency of legislative instruments, creation of
    level playing field. Also captures monopoly by incumbent of international services;

(2) Competition
• Competitive landscape has changed given recent liberalization and opening up of
    market;
• Competition intensifies yet level playing field far from being achieved;
• Concerns: falling retail tariffs, “grey” traffic and bypass, spectrum issues, parity
    issues with incumbent

(3) Interconnection
• Interconnection Regulations provide options to charging methodology – not
    practical and may lead to arrangements that are highly anomalous and difficult to
    manage.

                                                                                    26
                              Country B
(1) Sector Policy
• Lack of policy coherence and direction with multiple, complex web of
    stakeholders;
(2) Access and Interconnection
• Unsustainable and inequitable interconnection arrangements;
• Access regime still based on MPP retail regime
(3) Anti-Competitive Practices
• Lack of certainty on integrated framework for competition regulation
    and enforcement instruments
(4) International Licensing and Call Market
• Rampant international bypass and over-licensing of External Gateway
    Operators
(5) Spectrum Issues
• Proposal to re-align spectrum bands to the benefit of certain operators
    and detriment to others

                                                                       27
                              Country C

(1) Sector Policy
• Duopoly of IDD still exists and awaits review;

(2) Interconnection
• Comprehensive interconnection framework being developed, however,
   certain elements on costing may have negative impact on certain
   operators;

(3) 3G
• Government to re-allocate 3G spectrum; however, broad spectrum
   management and policy remains unclear.

(4) Retail Tariffs
• Efficacy of current retail tariffing mechanism questionable


                                                                   28
Whether assessing regulatory risk at the point of making an investment
 decision or managing existing risk, TM International views regulatory
  elements as a mutually reinforcing package of “regulatory levers”


 Other Legal Parameters
                                    TARIFF REGULATIONS                Distortions between            INTERCONNECTION
 Competition Law
                                                                       retail + wholesale
 Investment + Tax Law
                                                                      Commercial rates of
 Rights of Way
                                                                              return
 Consumer Regulation
 Quality of Service
 Content Regulation
 Industry Development                   Affordability               INTEGRATED                          What access rights per
 Arrangements                      Scope of Basic Services     COMMUNICATIONS SECTOR                       license category
 WTO Obligations                                                     STRATEGY                            Types of services or
                                                                                                          facilities to provide




                                    UNIVERSAL SERVICE                                                    LICENSING
                                                                      USO Obligations
                                                                     Contributions to USO
                                                                            Costs

             Direct Impact on country
             competitiveness                            Sector Building Blocks
             Related Regulatory issues                  Spectrum, Numbering, Electronic Addressing, Technical
                                                        Standards, Interoperability

                                                                                                                         29
      TM International constantly seeks the following
regulatory outcomes to ensure growth of its investments…

• Integration of policy settings and regulatory mechanisms;
• Formalized rules and commercially binding contracts for
  interconnection and access;
• Application of fair and equitable competition rules;
• Optimal spectrum and licensing arrangements;
• Transparent and technology neutral licensing framework;
• Tariff regulations that are linked to costs;
• Universal service programs that are fair, transparent and reflect the
  broader impact of (wireless) technologies;
• “Future proof” numbering and electronic addressing.



                                                                          30
NEW CHALLENGES CONFRONTING
    REGULATORY REGIMES




                             31
        1. New challenges in regulatory approach…

• Is a full convergence regulatory model based on technology & service
  neutrality the way to go (ie merging the communications, broadcasting
  and Internet value chains)?
• What should the approach to regulation be – light-handed, intervening
  only when there is impending market failure, or prescriptive?
• Should provision for self-regulation mechanisms be made?
• How and where should the regulation of content be tackled, if at all?
• How shall depletable resources – spectrum, numbering, electronic
  addressing – be tackled and made “future proof”?
• How should competition levels dictate if services should be regulated
  or unregulated?
• How will consumer protection feature as regulatory regimes evolve?



                                                                     32
            2. New challenges in mobile operations


  “A paradigm shift in the mobile value chain now means that
   operators need to turn their large internal organisations inside
   out and examine them very closely to be able to adapt and
   optimise their procedures and organisations to the new mobile
   reality. The paradigm shift will lead to an upheaval of the existing
   value chain and all the market players will be forced to redefine
   their tasks and structure…”

Source: “The Mobile Operators Business: Turning Inside Out and Upside Down”,
   www.cellular-news.com, posted 12 April 2006




                                                                          33
              New challenges in mobile operations

New arrangements are characterising mobile operations

•       Managed networks:
        - No longer an option suited to new entrants or specialist players alone;
        - Fast paced evolution and decreasing profit margins demand that
          operators establish a more flexible, nimble organisation;
        - Processes previously considered core competencies are being
          outsourced to external companies.

•       Infrastructure sharing models:
        - Stated policy intent promoting service-based rather than facilities-
          based competition helps;
        - Should this be limited to physical network elements or also airtime
          capacity?
        - Should this be mandated or left to commercial arrangements?


                                                                                 34
                    New challenges in operations
•   MVNO arrangements:
    -  Demands a rethink of the regulatory framework
    -  Regulators would need to consider a new class of licensees capable
       of providing public cellular services, but without spectrum allocations
    -  Absolute clarity needed on the benefits of lowering market entry,
       shortening time to market and increasing levels of competition to be;
    -  Regulators need to be aware that the sustainability of MVNOs is
       dependent on network operators – competition issues arise - is
       intervention necessary?




                                                                                 35
               3. Challenges posed by new services

•   IP networks and broadband services:
    -     Potentially alter industry dynamics as they can accommodate multiple
          services (voice, data, video);
    -     In otherwise stable markets, multiple access platforms can cause
          fragmentation of markets and foster competition (eg 3G);
    -     Bundling to increasingly arrest market share leakage.

•   Emerging wireless technologies eg WiMAX
    -   Redefining wireless broadband
    -   Potentially disruptive technology unless careful policy can ensure
        maximum benefits to consumers;
    -   Regulators to be alert to potential anti-competitive impact of WiMAX
        networks, interconnection regime, as well as role of wireless broadband
        technologies in rural roll-out.



                                                                                 36
THANK YOU




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