Telecom Regulatory Environment 2006.2

Telecom Regulatory Environment, 2006 Rohan Samarajiva, Divakar Goswami, Malathy Knight John, Payal Malik, Deunden Nikomborirak, Lorraine Carlos Salazar, Joseph Wilson

Agenda l l

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TRE explained Detailed analysis of six components across six countries Overall results, including comparison with Pakistan and Philippines (top three) Discussion

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TRE explained l l l

Regulation is one important variable affecting sector performance Regulation is not the end, it is one of the means What really matters is performance l l l l

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Connectivity Price Quality Choice 3

Cause-effect problems l l

Sector regulation alone not enough Good performance cannot be explained solely as an outcome of regulation l

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Thailand in present study

Regulation affects investment, it also affects competition . . . Not possible to impute regulatory performance from sector performance only

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Causal chain Country risk

Capital markets/ Parent co. dynamics

Investment

Market risk

Performance

Sector regulation

Competition/ Regulation

Institutional climate

Open system, where it is not possible to hold other things constant 12/21/2006

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An alternative approach l l l l

Necessary condition for good performance = investment Significant and controllable factor that affects investment = sector-specific regulation What really matters in investment decisions is perception of risk Instead of looking at objective measures of regulatory performance (which is quite difficult) why not go straight to perception? l

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As an investment driver, perception is not second best, it is the first best 6

How are investor perceptions formed? l

Primarily from the symbolic environment constituted by l l l l l

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Investment research reports and investment firms General and specialized media Opinion leaders Intra industry; intra-firm NOT by public opinion

Secondarily from direct observation of regulatory entities

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Method l

Panel studies using as small a number of questions as possible l l

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Effective perception studies based on one question alone Need to make minimal demands on the time of senior respondents

Use a large number of respondents to balance out the biases Use traditional social-science perception instrument: 5-point Likert scale Focus on telecom regulatory environment not regulatory agency per se l

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In India, three dimensions reflect TRAI performance; three reflect DoT performance 8

Method l

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Five dimensions derived from GATS regulatory reference paper in 2004 and pilot tested Sixth added in 2006 at research planning meeting TRE studies completed in Latin America and Caribbean and being conducted in Africa Asian study conducted in August-October 2006

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Panel composition IN (50)

ID (58)

PK (40)

PH (52)

LK (101)

TH (31)

Operators/equip. suppliers/industry assns

16 (32%)

37 (63.8%)

18 (45%)

19 (36.5%)

30 (29.7%)

18 (58%)

Educ./research orgs/telecom consultants/law firms

18 (36%)

13 (22.4%)

16 (40%)

16 (30.8%)

21 (20.8%)

1 (3.2%)

Journalists/ telecom user groups / civil society

14 (28%)

2 (3.5%)

2 (5%)

12 (23.1%)

16 (15.8%)

8 (25.8%)

Fin. institutions & private investment houses/banks & credit rating agencies

2 (4%)

4 (6.8%)

1 (2.5%)

2 (3.8%)

17 (16.8%)

0 (0%)

Fmr. members/ senior staff of reg. agencies/ other government agencies

0 (0%)

2 (3.5%)

3 (7.5%)

3 (5.8%)

17 (16.8%)

4 (12.9%) 10

India, compared with . . . l l l l l

Indonesia Pakistan Philippines Sri Lanka Thailand

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TRE Overall, Fixed & Mobile 5.0

4.5

4.0

3.5 3.1 2.9

3.0

2.8

2.7

2.9

2.8

2.9 2.8 2.5

2.5

Fixed

2.4

2.5

Mobile 2.0

1.8

1.5

1.0

0.5

0.0 India

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Indonesia

Pakistan

Philippines

Sri Lanka

Thailand

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Detailed analysis, across each of six dimensions

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TRE Market Entry, Fixed & Mobile 5.0

4.5

Highest Mobile

Highest Fixed 4.0

4.0

3.5

3.5 3.3

3.3

3.2

3.3

3.2

3.0

3.1 2.8

2.7

Fixed

2.5

Mobile 2.1 2.0

1.8

1.5

1.0

0.5

0.0 12/21/2006

India

Indonesia

Pakistan

Philippines

Sri Lanka

Thailand

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Market entry (licensing) l

Mobile-market entry TRE > fixed-market entry TRE, except in l l

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Thailand India (equal)

India only below Pakistan Best performance on average both for fixed (2.9) and mobile (3.1)

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TRE Scarce Resources, Fixed & Mobile 5.0

4.5

4.0 Highest Mobile Highest fixed 3.4

3.5

3.1 3.0 3.0

2.9

2.8 2.6

2.5

Fixed

2.8

2.6

Mobile

2.5

2.3

2.0

1.8

1.5

1.0

0.5

0.0 India

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Indonesia

Pakistan

Philippines

Sri Lanka

Thailand

16

TRE scarce resources (primarily spectrum) l l

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Lower overall performance India leading from the rear especially re all important mobile spectrum Pakistan stands out Thailand did not ask question re fixed sector

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TRE Interconnection, Fixed & Mobile

5.0

4.5

4.0 Highest Fixed

Highest Mobile

3.5 3.1

3.2 2.9

3.0 2.7

2.9

2.7

2.7

2.5

Fixed

2.5

2.5

Mobile

2.3

2.3

2.0 1.6 1.5

1.0

0.5

0.0

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India

Indonesia

Pakistan

Philippines

Sri Lanka

Thailand

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TRE interconnection l l

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Again, all countries have low performance India barely satisfactory; much room for improvement, especially in fixed (2.5/5) Pakistan ahead significantly

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TRE Price, Fixed & Mobile

5.0

4.5

Highest Fixed & Mobile 3.9

4.0 3.7 3.5

3.0

2.8

2.8

2.9

2.9

2.9

2.9 2.7

2.6 2.5

2.3 2.2 Fixed

2.0

Mobile 1.5

1.0

0.5

0.0 India 12/21/2006

Indonesia

Pakistan

Philippines

Sri Lanka

Thailand 20

TRE price l

India is undisputed leader l l

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Less is more Fruits of forbearance and low prices

Others with low prices such as Sri Lanka not getting TRE recognition possibly because l l

Procedure is cumbersome and Low price levels have not been communicated l

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Doing well is not enough; need to communicate it too

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TRE Anti-competitive Practices, Fixed & Mobile 5.0

4.5

4.0 Highest Mobile 3.5 3.1

Highest Fixed

3.0 2.7 2.5

2.5

2.5

2.5

2.5

2.6 2.5

2.4

Fixed 2.3

Mobile

2.2 2.0

1.8

1.5

1.0

0.5

0.0 India

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Indonesia

Pakistan

Philippines

Sri Lanka

Thailand

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TRE anti-competitive practices l l

All countries low India a mystery . . . l

How can TRE be best in mobile and one of the worst in fixed? l

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BSNL?

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TRE Universal Service, Fixed & Mobile 5.0

4.5

4.0

3.5 Highest Fixed Highest Mobile 3.0

2.8 2.6

2.5

2.3 2.0

2.3

2.4

2.6 2.5 2.4

2.3

Fixed Mobile

2.0

2.0

1.5

1.0

0.5

0.0 India

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Indonesia

Pakistan

Philippines

Sri Lanka

Thailand

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TRE universal service l

India at bottom of the class l l

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Sri Lanka, a country with minimal USO activity, gets the highest ranking But note that TRE US scores are uniformly low; USO in most countries seen as unsatisfactory l

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More is less World’s 2nd largest USO fund; transparent smart subsidies

Worst performance in both fixed (2.3) and mobile (2.5)

Thailand did not ask question re mobile sector

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TRE Overall, Fixed & Mobile 5.0

Main comparators; two of top three

4.5

4.0

3.5 3.1 2.9

3.0

2.8

2.7

2.9

2.8

2.9 2.8 2.5

2.5

Fixed

2.4

2.5

Mobile

2.0

1.8

1.5

1.0

0.5

0.0 12/21/2006 India

Indonesia

Pakistan

Philippines

Sri Lanka

Thailand

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Mobile TRE, India, Pakistan and Philippines Compared 5.0

4.5 4.0

3.9

4.0

3.5

3.5

3.4

3.3

3.2

3.1

2.9

3.0

3.1

3.1 2.9 2.9

2.9

2.6

2.5 2.5 2.5

2.9

2.8

2.7

India Pakistan

2.3

Philippines

2.0 2.0

1.5

1.0

0.5

0.0 Market entry

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Scarce resources

Interconnection

Price

Anti-competitive Universal service practices

Overall

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Fixed TRE, India in relation to Pakistan & Philippines 5.0

4.5

4.0 3.7 3.5

3.3 3.3 3.2

3.1

3.0 2.9

3.0

2.9 2.8

2.6

2.9 2.7

2.5

2.9 2.8 India

2.5 2.5

2.4

2.5

Pakistan

2.3

2.2

Philippines

2.0 2.0

1.5

1.0

0.5

0.0 Market entry

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Scarce resources

Interconnection

Price

Anti-competitive Universal service practices

Overall

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Discussion l

All countries can do better l

Most converge on 2.5/5 (neither good nor bad) with exceptions of l l

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TRE market entry (big-bang reform) and TRE price (driven up by India’s forbearance)

Pakistan is best performer l l l

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India and Philippines form second tier Indonesia and Sri Lanka next Thailand last 29

Discussion l

Thailand is the most prosperous country in the set (in per capita GDP terms) with highest sector performance indicators, yet l

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It has abysmal TRE indicators

Possible explanations l

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Demand side: Thailand has highest per-capita income of all six; higher before Asian Economic Crisis There may be perceptional difference re the questionnaire l Survey conducted immediately after Thaksin scandal re sale of mobile company to Temasek 30

Discussion l

Pakistan which overtook both India and Sri Lanka in basic telecom measures (fixed+mobile per 100 people) within the last two years shows that l

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Correct “big-bang” reforms (transparent and broad market entry; privatization) followed by credible, effective implementation by a motivated regulatory agency can make a huge difference l Unlike in India, regulatory agency controls all six dimensions of TRE and plays powerful role in policy as well l Massive increase in investment: more than 50% of total FDI into Pakistan comes to telecom sector 31

PK, IN, LK basic data

Sources: PTA, TRAI and TRC websites. Data as of September 2006; actual numbers may be higher. 12/21/2006

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Discussion l

India and the Philippines are above average but not stellar performers l

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India is dragged down by TRE in spectrum and universal service: food for thought for the DoT TRAI has a way to go on interconnection and anticompetitive practices

Major soul searching required in Sri Lanka and Indonesia l

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Sri Lanka is moving in the wrong direction, while Indonesia is moving in the right direction Hypothesis: Indonesia will pull ahead of Sri Lanka in 2007 33

Next steps l

LIRNEasia plans to conduct annual TRE surveys and publicize them in order to help improve regulatory environments l

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Hopefully covering additional countries

TRE is a diagnostic tool l

If scores are low l l

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Possible that performance is poor Also possible that communication of performance is inadequate 34