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| Sunday, 12 March 2006 |
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Telecommunication prices and policies: Good, bad and the ugly by Professor Kumar David Telecommunication services are a key factor in development and thankfully costs worldwide are declining at more than 10 per cent per annum. Although these benefits are being passed on to customers in other countries, alas not in Sri Lanka. Is something terribly wrong about telecommunication prices and policies in this country? Prices are unconscionably high and policies impede competition and deprive thousands of access to affordable communication services. This also impedes Internet penetration, with all its modernising benefits, into low-income households and rural communities. An example, in SLT's fixed line network, the Capital Expenditure per line (CAPEX) and the Operating Expenditure per line per month (OPEX) are several times higher than for Asian neighbours including India, Pakistan and even mountainous Nepal's small network. Call and rental charges are appalling by regional standards and SLT is in the unenvied position of going just the opposite of the global trend towards "near-zero" telecom tariffs predicted by the World Bank in 1995. Undoubtedly privatisation of the incumbent operator has led to rapid growth in the number of telecom users - tele-density has grown to 21.5%. However, this does not reflect the true accessibility, as it does not separate out the high percentage of affluent users with more than one connection. What's going wrong? Delivering the Professor R. H. Paul Memorial Lecture entitled "Globalisation and socio-economic interconnections the prerequisites to make it work", earlier this year, a telecommunications specialist of eminent national and international repute undertook a no holds barred analysis of the liberalised telecom industry in Sri Lanka. Below we recount the highlight. High CAPEX and OPEX A few numbers is a good way to get started. The presentation provided Year-2005 estimates, shown in Table 1, for CAPEX and OPEX for Nepal, Pakistan and Sri Lanka, based on each operator's own statistics. Technology advancement and competition is bringing down steeply the cost of telecommunications equipment and the CAPEX/OPEX figures for mobile services are about three times less than the fixed line values in table 1. The CAPEX figure for Nepal was US$550 in 1994, for Pakistan US$350 in 1999 and a horrendous $1600 for Sri Lanka in 1998. But why is equipment for the local network so much more expensive than elsewhere? There is a straightforward answer: Weakening of competition because of unrealistic sectoral policies. And what about call charges in the Asian region? In Table 2 are simplified figures in respect of a basket of tariffs. Astounded, I rubbed by eyes and undertook a little independent cross checking; the numbers are correct. 'Something is rotten in the state of Denmark' is an opposite remark in these days of reckless cartoon sketching; something is also rotten in the state of affairs described by these numbers. It is a holistic appraisal of the basket, not each individual item, that is meaningful in comparison; but the tariffs of all the Sri Lankan operators fail on every count! In the UK, in the period from 1997 to 2002, it is estimated that per minute cost declined at 12 per cent per annum, and diurnal usage rose at over 15 per cent per annum considering all service providers (1 per cent for BT only). This clearly indicates the effectiveness of UK telecom regulation. Increasing usage drives per minute tariffs down, but in Sri Lanka rising tariffs are perversely reducing monthly usage per line! The forecast world trend towards near-zero telecommunications prices is not a dream, it is happening. The future value of telecommunications resides in clearing bottlenecks inhibiting affordable services and offering the correct type of bandwidth driven content, including not only traditional voice calls but a mix of information services - cable-video, tele-conferencing, tele-education and Internet access. Anti-competitive practices The biggest barrier to market entry in Sri Lanka is the inability of new entrants to readily interconnect with the networks of existing operators. Existing operators act as a syndicate, exploiting the exclusivity of interconnection inherited from the state monopoly days of long ago. This compels a new entrant to beg every existing operator for connectivity; this is costly and delays or purges new entrants. Obviously, a new business is infeasible unless it can ensure that its subscribers can talk to every other existing subscriber. To quote: "This constraint is skilfully deployed by existing operators to bar the entry of new licensees to the market." The solution is to simplify the current practice by providing several public, neutral, points of interconnection where access is provided to any network on demand. That is to say, to open up access, to establish a level playing field. This will make both local and international calls cheaper by breaking the 'inter-connectivity cartel'. Did you ever wonder why a stressed out housemaid pays five times as much to call home from Dubai, compared to calling her friend in Singapore? Did you wonder why you pay five times more to call New York from Colombo than calling the Big Apple from Tokyo, London or Hong Kong? Well you know the answer now. You pay a ransom whether you want to get in or to get out; like the tolls imposed on unwary travellers by robber barons of yore.In a nutshell, the 'public good' character of the interconnections so vital for competitive business has not been recognised. Previous Telecommunications Regulators have been impotent on this matter. Furthermore, a powerful body called the Public Interest Programme Unit set up in 1997 to influence Telecom's policy and now disbanded, has behaved very questionably.When a 'public service' becomes the property of an ineffective, lightly regulated, virtual monopoly, and government allows itself to be misled, competition suffers and consumers pay the price. Complaints about SLT's poor customer services are also frequent. The shortcomings of CEB's distribution branches, I said in an earlier article, illustrate the inability of state enterprises to respond to public needs in the service and retail sectors; monopolistic joint-ventures are no better. Near 50 per cent of our GDP is reported to come from the service sector, hence clearing the bottleneck in communications will help greatly - quicker and more effective business activity, savings on road congestion and fuel, and new marketable products. However existing sector stakeholder interests do not align with the common interest, and the public is unaware that it is loosing out. Table 1 Nepal Pakistan Sri Lanka CAPEX (US$ per line) 60 150 350 OPEX (US$ per line per month) 5 9 18.2 Table 2 Converted to Sri Lanka Rupees India Pakistan Nepal Sri Lanka (SLT) Connection charge 1850 1250 2520 23,500* Monthly rental 265 288 280 565 Peak-hour rate per minute 0.56 0.67 0.68 3.45 (fixed-line to fixed-line) * In Colombo; outside Colombo up to Rs. 65,263 ** The prices charge by other Sri Lankan operators are higher. |
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