TELECOMMUNICATION REFORMS IN THE ASIA-PACIFICREGION · 5The WTO Agreements on Basic Telecommunication Services (1997) is a multi-lateralaccord to increase access to telecommunication

TELECOMMUNICATION REFORMS IN THE ASIA-PACIFIC REGION

Sang H. LeeSoutheastern Louisiana University

andSanford V. Berg

University of FloridaNovember 1999

Abstract: Countries of the Asia-Pacific region have adopted a variety of structural andregulatory reforms in the telecommunications sector for two reasons: (1) to promote thedevelopment of the industry, expanding basic service availability and (2) to further enhance theinfrastructure, providing greater diversity of advanced telecommunications services. Where theAsia-Pacific region departs from the other regions is in the introduction of limited or controlledcompetition and the nature of ownership reforms. In most of the countries, the introduction ofcompetition has been managed in such a way that growth of a national (i.e., incumbent)telecommunication operator is protected from direct competition or uncontrolled competition,in particular from overseas competition. Also many countries in the region have promoted thecreation of innovative arrangements such as Build-Transfer (BT) schemes and traditional jointventures so that the private investment is allowed in the sector while the governments retainmajority control. In this paper, the general trend of the telecommunication reforms in the regionis descriptively analyzed by reviewing the region's telecommunications legislative andownership reforms and competitive market restructuring efforts of the governments in theregIon.

This study has benefitted a lot from the support provided by the Public Utility Research Center.I thank Dr. Sanford Berg for his valuable comments. Luis Gutierrez also provided valuableinformation on numerous occasions.

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1. Introduction

Regulatory reform depends on a country's circumstances--in particular, its regulatory

background and administrative and political institutions. Countries of the Asia-Pacific region l

have adopted a variety of structural and regulatory reforms in the telecommunications sector for

two reasons: (1) to promote the development of the industry, expanding basic service

availability and (2) to further enhance the infrastructure, providing greater diversity of

advanced telecommunications services.2 To a large extent, the level of existing network

development has dictated the nature and scope of policy reforms in the region.

The major trends of telecommunication reform in the region can be characterized as

ownership reforms by privatization (typically by corporatization)3 of a monopoly

telecommunication operator and the establishment of a separate regulatory agency4 through

changes in telecommunication legislation. First, privatization of the monopoly operator has

been common, with private sector participation being a key component of sector development

strategies in the region. However, private participation in the incumbent operator has generally

been limited to the sale of minority shares on a national or international stock exchange

(International Telecommunication Union, 1998b). Second, most countries in the region have

made changes to existing telecommunication laws in order to implement their sectoral reforms.

1Among many countries in the region, 15 countries that provide sufficient statistics forempirical studies in another study are focused on in this paper: Australia, Bangladesh, China, HongKong SAR (Special Administrative Region), India, Indonesia, Japan, Korea, Malaysia, New Zealand,Pakistan, Phillippines, Singapore, Sri Lanka, and Thailand.

2Economies such as China, Bangladesh, India, Indonesia, Pakistan, Phillippines, and Sri Lanka,which have less than five main telephone lines per 100 inhabitants, fit into the first category, whileeconomies such as Australia, Hong Kong SAR, Japan, Korea, New Zealand, and Singapore, which haveabout 40 or more lines per inhabitants, fit into the second. See International Telecommunication Union(1998a).

3Corporatization--the transformation of the national carrier from a government department to acommercial entity as a way of ownership restructuring--is most frequently the sale of a minority ofshares, either to a strategic investor or as a public offering. Rather than full privatization, the Asia­Pacific region has utilized corporatization of state-owned telecommunication companies.

41t implies the separation of regulatory functions from telecommunication operations.

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The majority of countries have opted for gradual legislative change by enacting additional laws

for specific policy initiatives, while a few countries have chosen instead to overhaul the entire

system by introducing comprehensive new legislation. In several countries, legislative change

has been accompanied by the establishment of a separate regulatory agency. Since Asia's first

separate regulator was set up in 1979 in the Phillippines, 7 out of the 15 countries--Australia,

India, Malaysia, Pakistan, Phillippines, Singapore, and Sri Lanka--have established separate

regulatory agencies. This trend towards the establishment of separate regulatory agencies is

expected to continue since the 6 other countries--Hong Kong, Indonesia, Japan, Korea, New

Zealand, and Thailand--have adopted either entirely or partially the World Trade Organization

(WTO) Reference Paper on Regulatory Principles that calls for a regulator that is separated

from the operator.5

However, where the Asia-Pacific region departs from the other regions is in the

introduction of limited or controlled competition and the nature of ownership reforms. In most

of the countries, the introduction of competition has been managed in such a way that growth of

a national (i.e., incumbent) telecommunication operator is protected from direct competition or

uncontrolled competition, in particular from overseas competition.6 Also many countries in the

region have promoted the creation of innovative arrangements such as Build-Transfer (BT)

5The WTO Agreements on Basic Telecommunication Services (1997) is a multi-lateral accordto increase access to telecommunication markets worldwide. Out of the 69 countries that signed theAgreement, 16 are from the Asia-Pacific region. The regulatory implications of the WTO Agreementfor the Asia-Pacific countries are significant in that most of the participating governments adhere alsoto the Reference Paper that outlines key regulatory principles aimed at avoiding anti-competitivebehavior in their local markets. With that purpose, the governments in the region have to establishmechanism to ensure separation of regulation from operation, interconnection on non-discriminatoryterms and conditions, transparency in licensing process, universal service obligation in a transparent,non-discriminatory, and competitively neutral manner. See International telecommunication Union(1997).

6This also has been a typical case for countries where an incumbent telecommunicationoperator constitutes a significant part of the total market capitalization. In such circumstances,privatization of the incumbent has been used to promote the development of the local stock exchange,while the degree of market competition has been under the state control to keep the stock exchangeattractive to foreign capital. Privatization of national operators in Indonesia, Malaysia, Pakistan, Korea,and Singapore has helped the development of local stock exchanges.

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schemes and traditional joint ventures so that the private investment is allowed in the sector

while the governments retain majority control. This feature explains why several Asian

governments have preferred to work with the legacy of legal restrictions on ownership and to

use structural tools such as BT schemes to achieve infrastructure development. Some cultural

and historical factors are also associated with the region's persistent reluctance to give up state

control in the telecommunication sector. Two arguments are used to support state control:

underlying national security concerns or beliefs such that the assets which control the processes

of national economic development should remain in state hands. In short, a key feature of

telecommunication reforms in the Asia-Pacific region lies in the fact that regulators have

focused on (1) balancing the dual aims of protecting strategic national assets while expanding

supply to meet demand and (2) adopting policies that limit the industry's vulnerability to

overseas competition.

Another important feature of telecommunication reforms is that countries in the region

have avoided granting long term exclusivity to incumbent telecommunication operators. As a

consequence, a large number of new operators have been licensed, introducing a degree of

competition in some segments of telecommunications services, typically in value-added

services.?

The rest of the paper is organized as follows. In Section 2, I review how the

telecommunication legislative reform has proceeded and what principal issues have generally

been addressed in the reform. Section 3 explains the nature of ownership reforms and outlines a

variety of privatization schemes adopted in the Asia-Pacific region. In Section 4, we address

market liberalization and competitive market restructuring issues, and explain how the

governments in the region have introduced competition in the telecommunication sector.

Finally, in Section 5, other important regulatory issues such as interconnection, universal

service, and price regulation are examined. Concluding remarks follow in Section 6.

7The most significant impact of progressive liberalization has been observed in the market forlong-distance calling. In three of the region's developed countries such as Australia, Japan, and NewZealand, new entrants have succeeded in taking up to a third of the market for long-distance calling andservice rates in the market have come down by 10-15 percent since 1993 as the incumbent operatorshave responded to the new entrants. See International Telecommunication Union (1997).

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2. Legal Instruments and Institutional Profiles in the Telecommunication Sector

2.1 Changes in Telecommunication Legislation

Introduction of a sound legal infrastructure for the telecommunication sector not only

eases the process of implementing policy objectives but also has a significant impact on

attracting private or foreign investment into the sector. 8 As countries have realized that an

adequate legislative framework can have positive effects on the growth of the

telecommunication sector, new legislation has been introduced in most countries in the Asia­

Pacific region.

Even though policy initiatives vary depending on the economic characteristics and the

institutional endowments in each country, the main common telecommunication issues that

have prompted the new legislation have been as follows: the introduction of market aspects not

previously covered, such as competition; the separation of regulation from operational

functions; and the liberalization of certain activities, such as foreign ownership. Thus,

telecommunication legislative reform has generally addressed four principal areas: the

introduction of competition into local markets; the type of regulatory structure and the

processes that are appropriate to obtain the desired telecommunication environment; the extent

of ownership change with respect to existing operators; and the specific rules under which

telecommunication service providers are to operate (lTV, 1998a).

The changes in telecommunication legislation in the region have taken a variety of

forms depending on cultural, economic, and social characteristics, as well as the timing of

reform. The majority of the countries have chosen to introduce new legislation gradually by

modifying existing legislation, while a handful have chosen to overhaul the entire system by

introducing comprehensive new legislation.

Overhauling a complete legal framework is a lengthy process and, as a result, progress

can be extremely slow. One of the principal reasons for this approach is that telecommunication

8Some economists have argued that "transaction costs" associated with the political process ofan economic policy are the primary reason markets do not function as effectively as suggested byneoclassical economic theory. For an analysis of new institutional economics or transaction-costeconomics in the context of industrial organization, see Williamson (1989), North (1990), and Dixit(1996).

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legislation often remains untouched for many years. Where countries have adopted to overhaul

the entire system, the aim has often been to establish a new institutional and legislative

framework for the sector that will be both effective and long-lasting. In the region, Pakistan and

Taiwan-China opted for this comprehensive approach. In Pakistan, the Pakistan

Telecommunication (Reorganisation) Act XVI in 1996 permitted the transfer of services to the

private sector and established new institutional structures such as the Pakistan

Telecommunication Authority (PTA). The legislation also included provisions for regulation of

the sector. The Reform Bills passed in Taiwan-China in 1996 marked a total revamping of the

existing principal telecommunication law--the Telecommunication Act enacted in 1950. The

major changes made under the Reform Bills are the separation of regulation (the Directorate

General of Telecommunications) from a telecommunication operator, corporatization of the

telecommunication operator, and opening the sector to the private participation as well as

foreign investment. However it is noteworthy that, in Taiwan-China, four years of heavily

politicized negotiations were required for the Reform Bills to be passed.

The majority of Asia-Pacific countries have opted for gradual legislative changes and

have passed additional laws or amendments to achieve policy initiatives that were not allowed

under the existing laws. An example of such partial legislative modifications is adding

provisions to permit competition in certain market segments or to allow private participation

into segments under the control of the state. The MTPT Decree 124/1995 in Indonesia opened

the national network to private sector joint ventures under limited-life BT schemes. In Korea,

the Telecommunication Business Law amended in 1995 authorized the liberalization of the

basic service market.

In countries such as Indonesia and the Phillippines, specific legislation has been used to

support exclusive monopoly periods over certain market segments or to force operators to

undertake specific actions such as to allow interconnection. In Indonesia, the MTPT Decree

60/1995 granted the incumbent operator (Telkom) exclusive rights to provide nationwide local

fixed-line services until 2010 and domestic long-distance services until 2015. Together with the

Law 3/1989 that laid the groundwork for private sector participation along with the incumbent,

the specific legislation helped increase the private sector's involvement in its privatization. As

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an example of the latter, in the Phillippines, the Executive Order (EO) 59 mandated compulsory

interconnection between all operators and allowed the regulator to intervene in interconnection

disputes that were not resolved within 90 days.

Specific legislation has also been used to specify the parameters and procedures for

achieving policy or regulatory goals or to indicate where responsibilities lie. In Singapore, the

scope of the regulator's responsibilities and powers in licensing and regulating the sector is

stated in the Telecommunication Authority of Singapore Act (1992). Another example is the

Telecommunication (Disclosure) Regulations (1990) in New Zealand. Even though the market

has been open to full competition since the Telecommunication Act was amended in 1987, the

Telecommunication Regulations require the incumbent (Telcom New Zealand) to disclose

prices and details of interconnection agreements.

As a whole, countries that take legislative reform in response to the new

telecommunication environment have a series of broad options: separation of regulatory

function from an operator; the corporatization and privatization of the incumbent operator and;

liberalization of the market by introducing competition into market segments. As the industry

goes through transition, the primary question will be whether recourse is sought through the

existing bureaucratic mechanisms, through the judicial system of the country, or through new

sector-specific regulatory agencies.

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Table 1. Telecommunication Reform Legislation in the Asia-Pacific Region

Country Year Main Laws/Regulations Main Provisions

Australia 1991 Telstra Corporation Act Provides for price controls on Telstra alongwith matters relevant to the government'srole as Telstra shareholder.

1996 Telstra Act (Dilution of Provides for the sale of one third of Telstra.Public Ownership)

1997 Telecommunications Act Provides for licensing carrier and serviceprovider rules, consumer measures andtechnical regulations.

India 1997 Telecommunication Establishes TRAI as the new regulator andRegulatory Authority of rules its functions and structure.India (TRAI) Act

Indonesia 1993 Government Regulation Creates framework for organizing8/1993 telecommunications.

1993 Decision of the Minister of Facilitates cooperation in arranging basicTourism, Posts and telecommunication services.Telecommunications(MTPT)

1995 KM.39/KS.OO2/MTPT Allows private sector participation in theMTPT Decree 124/1995 national network.

Japan 1984 Telecommunications Governs such items as permission,Business Law authorization, etc., regarding the

telecommunications business.1997 NTT (Nippon Telegraph & Reorganizes NTT into two regional

Telephone) Law companies for eastern and western Japanand one long distance company under aholding company, to take effect in 1999.

Korea 1995 Telecommunications Provides for licensing, registration ofBusiness Law telecommunication operators, competition

safeguards, rights of telecommunicationservice users, andconstruction/maintenance of

1995 Telecommunications Basic telecommunications facilities.Law Provides for ministerial authority regarding

promotion of telecommunicationstechnology, management oftelecommunications network, andorganization/operation of the KoreaCommunications Commission (KCC).

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Table l.--continued.

Country

NewZealand

Pakistan

Phillippines

Singapore

Thailand

Year

1987

1990

1994

1996

1979199319931995

1992

1934

Main Laws/Regulations

Telecommunications Act

Telecommunications(Disclosure) Regulations

Telecommunications(International Services)Regulations

PakistanTelecommunications(Reorganisation) Act XVI

Executive Order (EO) 546EO 109E059Public TelecommunicationPolicy Act (RA 7925)

TelecommunicationAuthority of Singapore(TAS) Act

Telegraph and TelephoneAct

Main Provisions

Provides government with power to regulateand establish rights for access to land or laycable.Imposes information disclosure requirementson Telecom New Zealand on prices andterms/conditions under which certain servicesare supplied.Establishes registration for certaininternational services.

Creates framework for thetelecommunication system, includingestablishment of PakistanTelecommunication Authority (PTA),regulation of telecommunication industry,transfer of telecommunication services to theprivate sector, etc.

Creates regulatory agency.Provides for universal access.Provides for mandatory interconnection.The Telecom Policy Act of 1995.

Defines the functions and powers of TAS inthe area of licensing and regulation.

Empowers the Post and TelegraphDepartment (PTD) to monopolize theprovision of telecommunication services tothe public, which are at present, transferred tothe Telephone Organization of Thailand(TOT) and the Communications Authority ofThailand (CAT).

Source: International Telecommunication Union (ITU)/Telecommunication Development Bureau(BDT) Regulatory Database.

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2.2 Separate Regulatory Agencies

One key issue of restructuring infrastructure sectors such as network utilities is to

develop an internal organization that has the institutional capacity to restrain arbitrary political

interference and to commit to a stable and credible regulatory process. In the context,

separating operational activities from government oversight and regulation is perhaps the most

important element of regulatory reform. This separation is necessary to ensure fair and

impartial policy development, to insulate telecommunications from short-term political

pressure,9 and ultimately to admit competition into the sector (Kambhato, 1998).

Historically, with the exception of a few countries with competitive markets or those in

which the monopoly service providers were in private hands, the majority of state-owned

operators were under a regime of self-regulation. This means that the relevant ministry was in

charge of macro-regulation for the sector (maintaining a monopoly market structure through

which it could implement policy) with the monopoly operator responsible for micro-regulation

(monitoring quality of service, dealing with consumer complaints, tariff issues, and so on).

As the telecommunication sector is increasingly liberalized, new operators, struggling to

compete with an incumbent carrier that controls the public network, have begun demanding the

establishment of independent regulatory bodies capable of mediating among the various players

in the sector. In other words, the new profile of the industry have created an urgent need for the

development of separate and capable regulatory institutions. This pressure is heightened in

those cases where the state retains ownership or control of the dominant domestic carrier. One

of the most explicit manifestations of this is imbedded in the regulatory principles adopted in

the context of the recent WTO Agreement on Basic telecommunication Services. The WTO

Reference Paper on the Regulatory Principles states that "the regulatory body is separate from,

and not accountable to, any supplier of basic telecommunications services. The decision of and

the procedures used by regulators shall be impartial with respect to all market participants."

9Governments have a strong incentive to pursue policies with short-term benefits, even if theyhave high long-term costs. In particular, when budgetary constraints are tight, governments have anincentive to use public enterprises, such as network utilities, to advance political and social goals.

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Two important but closely related issues associated with the establishment of a separate

regulatory agency are its autonomy and independence from political interference. Among the

regulatory agencies separated from the incumbent carrier, it is possible to identify two main

types: the agency with no (or strictly limited) policy oversight from the relevant ministry; and

the agency, with a given mandate to regulate the sector, but with oversight by the relevant

ministry which retains the authority to issue general directives and/or control funding. Even

though the latter type has been a predominant model in emerging economies in the Asia-Pacific

region, the relevant ministry has tended to remain closely involved in the operation of the

regulatory agency. Insulation from the political process is one of the most difficult goals for the

regulatory body to achieve. The institutional structure of the regulatory agency may have an

impact on its independence. For example, whether the institution is headed by a single person

(e.g., a director general) or a collegial body (e.g., a commission) may possibly influence the

degree of potential independence of the agency. However, the level of real autonomy achieved

by the regulatory agency will depend just as much upon random factors such as the personality

of the individuals involved, political and institutional traditions in the country, and the existing

economic and political conditions.

The creation of separate regulatory agencies in the Asia-Pacific region has proceeded

slowly. A decade after the region's first separate regulator--the National Telecommunication

Commission (NTC) of the Phillippines, only two separate regulatory agencies were added-­

Jabatan Telekom Malaysia (JTM) and the Australian Telecommunication Authority (AUSTEL,

now Australian Communications Authority (ACA)). These were followed in 1992 by the

Telecommunication Authority of Singapore (TAS); in 1993 by Hong Kong SAR's Office of the

Telecommunication Authority (OFTA); in 1996 by the Pakistan Telecommunication Authority

(PTA); and in 1997 by the Telecommunication Regulatory Authority of India (TRAI), the

Nepal Telecommunication Authority (NTA), and the Telecommunication Regulatory

Commission of Sri Lanka (TRCSL).

Despite the significant diversity in terms of institutional arrangements, powers,

jurisdiction, and mode of operation, the growing trend towards standardization of regulatory

agencies may be expected since many countries in the region have adopted entirely or partially

the WTO Reference Paper on Regulatory Principles that set down regulatory reqllirements

worldwide. Table 2 summarizes the structures and main responsibilities of the separate

regulators in the region.

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Table 2. Telecommunication Regulators in the Asia-Pacific Region as of 1997

Country Regulator Supervision/Finance Main Responsibilities

Australia ACA (1997) Department of ACA deals with licensing andACCC (1989) Communications and monitoring carrier performance

Arts/ including customer satisfaction andLicence fees, quality of service. ACCC regulatesgovernment competition policy functions.appropriation

Hong OTA (1993) Economic Services Licensing, promoting fair andKong Bureau, Government competitive operating environment,SAR Secretariat/ resolution of interconnection disputes,

Licence fees, and protection of consumer interests.governmentappropriation

India TRAI (1997) Parliament/ Tariff setting, deciding revenue sharingAccess fees, between operators, quality of service,government dispute settlement, effectiveappropriation interconnection, consumer complaints.

Malaysia JTM (1987) Ministry of Energy, Monitoring carriers, promotingTelecommunications competition, orderly development of theand Posts/ sector.Governmentappropriation

Nepal NTA (1997) Ministry of Informationand Communications/Licence fees

Pakistan PTA (1996) Ministry of Licensing, determining interconnectionCommunications/ charge, enforcing interconnection,Licence fees, own promoting competition, monitoringresource and royalty quality of service, tariff setting, price

control, customer complaints, disputesettlement and providing policy advice.

Table 2.--continued.

Country Regulator

Phillippines NTC (1979)

Singapore TAS (1992)

Supervision/Finance

Department ofTransportation andCommunications/Governmentappropriation

Ministry ofCommunications/Licence fees,numbering fees,spectrum fees

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Main Responsibilities

Licensing, tariff regulation, monitoringoperator activities, quality of service,ensuring compliance, tariff setting, pricecontrol, and setting guidelines forinterconnection.

Policy making and developinglegislation for the sector, licensing,ensuring compliance, tariff setting, pricecontrol, promoting fair and competitiveoperating environment, resolvingdisputes, setting principles ofinterconnection and access charges,service quality, and consumercomplaints.

Sri Lanka TRCSL (1997) Ministry of Posts,Telecommunications &MedialLicence fees, spectrumfees, government grant

Licensing, monitoring operatoractivities, service quality, ensuringcompliance, tariff approval, determininginterconnection rates, and establishmentof license fees together with the sectorministry and another ministry.

Note: ACCC=Australian Competition and Consumer Commissions.Source: ITU/BDT Regulatory Database.

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3. Ownership Reforms in the Asia-Pacific Region

3.1 Rationale behind Telecommunication Privatization

Most economists argue that a primary objective of economic policy should be to

promote effective competition where feasible in order to induce more efficient allocation of

resources. Privatization, along with other instruments of microeconomic policy, can help

achieve that goal by changing the structure of incentives and opportunities for decision makers

within firms (Kessides, 1998). In the telecommunications sector, where public ownership is

extensive, private sector participation has been constrained by concerns about market failure

due to perceived characteristics of telecommunications: large specific, sunk investment;

economies of scale and scope; and massive consumption by a broad range of domestic users.

However a reassessment of conventional policies and ownership structure is advocated by

many policy analysts in response to substantial technological and structural changes.

Recent advances in economic theory--especially recognition of the importance of

principal-agent problems--have also played a crucial role in preparing the ground for

privatization. The relationship between managers (agents) and owners (principals) of a firm

gives rise to specific agency problems since they do not necessarily share the same objectives.

Hence, the owner of the firm seeks to establish incentives that will induce the manager to act in

ways that contribute maximally to the principal's interests. Io For example, under private

ownership, not only is the pursuit by management of its own objectives restrained by

shareholders and potential strategic investors but also the firm can tie managerial compensation

to corporate performance through rewards such as bonuses and stock options.

However, in state-owned enterprises, the aforementioned mechanisms are nonexistent or

less effective. Governments (principals) do not necessarily seek to maximize profits or

efficiency since their shares are nontransferable and there is little threat of bankruptcy as a

constraint on financial performance. Also, perhaps most importantly, politicians, who have the

power to dismiss managers, are subject to pressure from favored customer groups and

laThe main difficulty in establishing such an incentive structure is that the principal does nothave full information about the agent's circumstances and behavior. See Baron and Myerson (1982),Laffont and Tirole (1986, 1990a, 1990b, 1994), and Lewis and Sappington (1988a, 1988b, 1989, 1997).

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employees, who do not want to see profits achieved at the expense of high prices and low

wages.

Neither form of ownership--public or private--is absolutely superior to the other in all

industries or all countries. Nevertheless, the evidence on comparative performance indicates

that the lack of incentives under state ownership is critical and pervasive enough to justify a

general presumption that the structure of property rights has significant effects on the behavior

and performance of firms in favor of private ownership. 11

3.2 Privatization in the Asia-Pacific Region

In the Asia-Pacific region, private participation in the ownership of incumbent national

carriers has generally been implemented through traditional privatization--the sale of minority

shares on national and international stock exchanges. For instance, either full or partial

privatization of state-owned operators had been undertaken by the end of 1992 in Australia,

Japan, Malaysia, and New Zealand. And (minority) sales of incumbent carriers in India,

Indonesia, Korea, Pakistan, and Singapore were all completed between 1988 and 1996. 12 In

1997, Sri Lanka Telecom and Australia's Telstra were partially privatized.

In addition to retaining strong state control in the sector, Asia-Pacific governments have

kept a tight curb on foreign investment. This was highlighted during the recent WTO

negotiations on basic telecommunication services where most countries in the region retained

lower caps on foreign ownership of local telecommunication companies compared with other

regions. State control is one of the key features that differentiates these sales from those in other

parts of the world. Asia-Pacific governments long ago identified telecommunication

infrastructure as a strategic industry that serves as a catalyst for economic development and

IlFor quantitative analyses of the effects of privatization and competition on thetelecommunications sector, see Ramamurti (1996) and Ros (1999). Based on a panel data analysis, Rosconcludes that privatization is positively associated with network expansion, while competition isfound to positively affect network efficiency.

12Pakistan has attempted to place 26 percent strategic equity in the incumbent carrier with aforeign telecommunication company, but the process has been delayed by more than four years mainlyby political difficulties unrelated to the privatization.

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have been reluctant to give up ownership of the companies and the assets that control that

process. Only a handful of economies such as Australia, Hong Kong SAR, and New Zealand

have instituted liberal ownership reforms that encourage private and foreign ownership across

all segments. In particular, New Zealand's privatization departs from the main trend in

privatization in the region. The sale was unique in that 100 percent of Telecom New Zealand

was sold via a private sale to two foreign telecommunication companies. 13

Despite a growing propensity to privatize the incumbent carriers, more than half of the

Asia-Pacific operators still remain 100 percent state-owned. And those states that have

employed corporatization have also retained majority control. The motivation for privatization

has most often been to raise capital--either to plow back into infrastructure development or to

fund other social programs--rather than to introduce private sector participation within the

national operator as part of a broader liberalization scheme. 14

l3U.S. carriers Ameritech and Bell Atlantic each purchased 50 percent in Telecom NewZealand in a private sale in 1990. See International Telecommunication Union (1998a).

14For example, a key reason behind the privatization of Singapore Telecom was to boost thelocal stock market. See Ure (1995).

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Table 3. Privatization of the Incumbent PTOs as of 1997.

Country

Australia

Bangladesh

Company

Telstra

Bangladesh Telegraphand Telephone Board(BTTB)

Privatization

33.3% (1997)

State-owned

Foreign Ownership

No restriction

No commitment

Hong Kong SAR Hong Kong Telecom(HKT)

India Mahanagar TelephoneNigam (MTNL)

Indonesia PT Telkom

Japan NTT

Korea Korea Telecom (KT)

Malaysia Telekom Malaysia

New Zealand Telecom New Zealand

Pakistan Pakistan Telecom

Phillippines Phillippine LongDistance TelephoneCompany (PLDT)

100% No restriction

42.6% (1994-97) 49%

23.15% (1995-96) 35%

34.6% (1986-88) No restriction, but20% for KDD and NTT

28% (1993-96) 49%, but 20% (33% from2001) in KT

33% (1990-97) 30% in existing licensedPTOs

100% (1990) No restriction

11.8% (1994-96) 40%

100% 40%

Singapore

Sri Lanka

Thailand

Singapore Telecom

Sri Lanka Telecom

Telephone Organizationof Thailand (TOT)

17% (1993-96)

33.5% (1997)

Adopted BOTschemes since1990

49%

35%

20%

Note: Limits on foreign ownership in the last column are the commitments the countries havemade to the WTO Agreements and apply to the whole telecommunication sector, including thestate-owned incumbent unless indicated otherwise. Malaysia, Pakistan, and the Phillippines havepartially adopted the WTO Regulatory Principles. Bangladesh has committed only to futureadoption. All other countries have entirely adopted the WTO Regulatory Principles.

Source: ITU World Telecommunication Report 1996/1997; ITU/BDT Asia-PacificTelecommunication Indicators, 1997; ITU/BDT Regulatory Database.

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3.3 Non-traditional Strategies of Privatization Adopted in the Asia-Pacific Region

The feature of state ownership carries through into the ownership profile of

telecommunication entities that have pursued non-traditional privatization strategies 15 as well.

Governments in the region have been careful to maintain state ownership in "strategic

segments" of the sector, which generally equate with basic services. This has been achieved

through the use of various mechanisms that encourage private participation but leave existing

legal prohibitions on private ownership intact.

(1) Build-Transfer-Operate (BTO)

Under the BTO scheme, a company is first awarded a concession to build a

telecommunication network or service. Immediately after completion of its construction, the

company hands over its ownership to the national telecommunication administration or public

telecommunication operator (PTO) and operates it for a specified period of time. For instance,

in Thailand, there are two 25-year BTO concessions involving the construction of fixed lines.

Thai Telephone and Telecommunication (TT&T) and TelecomAsia are awarded the concession

for the construction of 1.5 million lines in provincial areas and 2.6 million lines for Bangkok,

respectively.

(2) Build-Operate-Transfer (BOT)

The BOT scheme differs from the BTO in that a company awarded a concession

operates its investment for a certain period of time before handing over its ownership to the

national telecommunication administration or public telecommunication operator (PTO). In

addition to the purpose of injecting private capital to help fund local build-out, this scheme has

been used to limit direct competition to the incumbents. This has been the case in Indonesia,

Thailand, and Vietnam where new ventures have been set up to provide local services in areas

served by the incumbents, but do not constitute direct competition because they share the

market, and revenues are split between them. The Joint Operating Schemes currently adopted

15All subsequent examples for the non-traditional strategies are cited from InternationalTelecommunication Regulatory Database and Ure (1995).

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by Indonesia are quasi-BOT schemes. In Indonesia, when the country was split into seven

operating zones, five zones were transferred to BT ventures between local-foreign firms; the

incumbent (PT Telkom) retained the most lucrative areas including the capital, Jakarta.

(3) Joint Operating Scheme (JOS)

The JOS refers to an arrangement whereby a private operator constructs and operates a

section of the national network in return for revenue sharing with the PTa. In Indonesia, where

the law dictates that the private sector can only provide domestic basic services jointly with the

incumbent PT Telkom, the government opted for the JOS to encourage private participation in

the development of the national network. The private operators (KSOs) operate the network on

behalf of PT Telkom and must hand over the assets at the end of the I5-year term in 2010. 16

(4) Business Cooperation Contract (BCC)

The BCC refers to loose agreements which establish an intention to cooperate on a

specific project. Under a BCC, an appropriate level of revenue share is agreed to in return for

the construction of infrastructure. For instance, in Vietnam, Telstra of Australia has provided

international long-distance services under the BCC with the Vietnam Posts and

Telecommunications (VNPT).

(5) Build-Own-Operate (BOO)/Joint Venture

Unlike all other schemes mentioned above, few or limited restrictions are imposed on

ownership in the BOO/Joint Venture scheme in that the assets remain with the investors at the

end of licensing period. Foreign ownership restrictions usually dictate that overseas investors

are involved by way ofjoint venture with local firms. This scheme has been used in Australia,

Hong Kong, Japan, India, Malaysia, and New Zealand.

Among the several ownership reforms mentioned above, the ownership reform that has

had the biggest impact in the region is licensing, in which governments directly license private

firms. Licensing has been widely used by regulators in the region as a tool for achieving

specific policy objectives by tailoring license terms. Numerous economies have taken this

16There are five KSOs in Indonesia--Pramindo Ikat, Aria West, Mitra Global Telekom, DayaMitra, and Bukaka SingTel--which together have committed to construct a minimum 2 million lines by1999.

22

approach, including Australia, Hong Kong SAR, India, Korea, Malaysia, New Zealand, the

Phillippines, Singapore, and Taiwan-China. 17 Another characteristics that sets the Asia-Pacific

region apart from other regions is that regulators have favored direct assignment of licences

rather than sales by auction. Increasingly, the model for licence allocations appears to be that

operators put down a performance bond, propose tariff rates and their plans for network

development, and state when the network will be up and running.

4. Competitive Market Restructuring

4.1 Is Privatization Alone Good Enough?

Most regulatory regimes under which long-term exclusive monopolies were awarded to

the incumbents have been based on (undue) concerns about market failure and (potentially)

excessive optimism about the ability of governments to increase efficiency through

intervention. However, recognition of the lack of management incentives under state

ownership and increasing private participation in the telecommunication sector have been a

rationale for privatization of the incumbents.

One important lesson that emerges from the experiences of both developed and

developing countries is that for privatization to generate significant gains in economic

efficiency, it must be accompanied by market liberalization and competitive market

restructuring. In other words, it is not enough to simply replace a public (natural) monopoly

with a private one. 18 Petrazzini and Clark (1996), based upon a study of the effects of

liberalization in 26 developing countries, argue that competition is likely to be the primary

driver towards dynamic welfare effects, and that privatization alone does not guarantee

l7In developing Asia-Pacific markets, however, such ownership is generally limited toperipheral service segments such as mobile cellular.

l8It is never clear ex ante what the extent of the natural monopoly is. So it might be useful to letmarkets determine whether the monopoly is indeed natural. Competition is often valuable for the verysame reason that it is impossible to quantify ex ante that it will be valuable. For instance, if one couldpredict innovation, whether organizational or technological, any incumbent could match thecompetitive outcome. It is precisely because one can not predict innovation that competition isbeneficial and by the same token one can not quantify its benefits. See Klein (1996) and Kessides(1998).

23

competition.

Competition or liberalization essentially refers to the removal of barriers to market

entry. To achieve liberalization as a policy objective, the rules, regulations, and procedures

governing the behavior of the dominant telecommunication operator towards the new entrants

must be more critical. Issues such as interconnection, predatory pricing, structural and

separation accounting to prevent hidden cross subsidies, discriminatory pricing, tie-in

arrangements, and so forth, are the nuts and bolts of regulation in the telecommunication

industry. Baumol and Sidak (1994) specifically address the competition issue in local

telephony. They argue that virtually any arrangement on the part of regulators to manage

markets will seriously distort economic efficiency, and that the best method to determine

"natural monopoly" is to ensure that entry barriers are not erected.

Until recently, most economies that introduced market liberalization shared a common

characteristic in that competition emerged first in the periphery of the telecommunication

sector, where services are marginal to the incumbent's operation. In most countries around the

world, the first segments of the market opened to competition were value-added and mobile

cellular services. However, with the successful conclusion of the WTO Agreements on Basic

Telecommunication Services, a number of countries are expected to introduce competition in

basic services in the near future.

4.2 Competition Trends in the Asia-Pacific Region

While the Asia-Pacific has become one of the most competitive regions in the world in

terms of mobile cellular services, the introduction of competition into basic services in the

region is at an earlier stage. More than 60 percent of Asian countries have yet to introduce any

competition into local or long-distance services. Most countries have focused on opening

mobile cellular and data services to competition first. This trend holds true for developed as

well as developing economies in the region. For instance, Korea and Taiwan-China have

introduced competition in mobile cellular but have been comparatively restrictive of

competition in the fixed network, given their level of economic development. In particular,

Taiwan-China has an open-ended monopoly over fixed services--Iocal and domestic and

24

internationallong-distance--extending a minimum of five years beginning in 1995. In

Singapore, competition in fixed line services will not begin until Singapore Telecom's

exclusive monopoly expires in 2000.

Where countries have introduced competition into basic services, they have often taken

a tentative approach by allowing limited competition--often in phases. 19 In Korea, for instance,

competition began in core basic services in 1991 when a duopoly was permitted in international

long-distance. Five years later a duopoly in domestic long-distance began with a third

international operator, Korea Global Telecom, in 1997. Such an approach was adopted even in

Asia's most progressive markets. In Australia, the move from a monopoly to multi-operator

environment took more than six years. Liberalization began in 1991 when Optus

Communications was licensed to compete with the then state-owned national operator Telstra,

and unrestricted access commenced in 1997.

Two clear exceptions to this trend are Malaysia and the Phillippines. Both countries

have introduced a high level of competition across all segments. Malaysia has six operators in

local and international long-distance services, and seven in domestic long-distance services.

The Phillippines has 74 companies licensed to provide local services, four in domestic long­

distance, and nine in international long-distance services. However, the Phillippines case is

unique among the region's developing countries in that there is no state ownership in the sector.

Even the incumbent, Phillippine Long Distance Telephone Co. (PLDT), is completely private­

owned.

19All subsequent examples are cited from the International Telecommunication UnionRegulatory Database.

Table 4. Telecommunication Sector Reform on Market Access as of 1997.

25

Country

Australia

Bangladesh

Hong Kong SAR

India

Indonesia

Japan

Korea

Malaysia

New Zealand

Pakistan

Phillippines

Singapore

Sri Lanka

Progress in the Telecommunications Sector Reform on Market Access

Liberalized in 1992

Partial liberalization of rural Public Switched Telecommunications Network(PSTN).

4 private PSTN operators since 1995. Competition in infrastructure after1998.

Liberalization in local PSTN in 1996. New licenses for fixed networks uponapproval of regulatory authority. One operator in addition to incumbent ineach service area.

Liberalization of state-owned operators on joint-operating scheme (KOS)basis. A review of exclusive right policy in 2001 for local, in 2006 for long­distances, and in 2005 for international.

Domestic market liberalized.

Competition in fixed network services.

Already open market access.

Liberalized in 1990.

Phase-out of restrictions on voice telephony from 2004.

Liberalization of private PSTN in 1994. Market access for new entrants by a"public interest" test.

Phase-in of competition in facilities-based services from 2000 up to twoadditional operators.

Partial liberalization in international telephone services from 2000 onsatisfactory progress in tariff rebalancing. Competition in local and domesticlong-distance telecommunication services

Thailand BTO schemes in 1990. Introduction of market access from 2006.

Source: lTD World Telecommunication Report 1996/1997; Privatization and Competition inTelecommunications (1997)

26

Table 3.5 Level of Legally Permissive Competition in Telecommunication Markets in the Asia-Pacific Region as of 1997

Country Local Long-distance International Mobile-cellular

Australia C C C C

Bangladesh PC M M C

China PC PC M C

Hong Kong SAR PC M C

India C M M C

Indonesia PC M PC C

Japan C C C C

Korea PC PC PC C

Malaysia C C C C

New Zealand C C C C

Pakistan M M M C

Phillippines C C C C

Singapore M M C

Sri Lanka C C M C

Thailand M M M C

Key: M=Monopoly; PC=Partial Competition; C=Competition.Note: This table reflects what is legally permissible; therefore, it may not reflect the actual number of

operators in the market. In the case of mobile-cellular services, all countries allowing more thanone mobile-cellular operator have been listed as "competitive".

Source: ITU/BDT Regulatory Database.

27

5. Other Important Regulatory Issues

The rise of private ownership and the emergence of competitive markets have increased

the need for a closer and more thorough oversight of carriers operating in the market. The

introduction of competition has brought about complex regulatory issues involving

interconnection, universal service provision, and tariff setting. In many cases, the regulatory

framework or required expertise has not been sufficient to deal with a host of new regulatory

issues. Since the result of inadequate regulatory systems and anti-competition safeguards most

often gives competitive advantages to the incumbent, the greatest impact is on the new market

entrants. For emerging economies in the region, this will not only dictate the extent to which

new operators can contribute to market competition and efficiency gains in the sector, but also

affect the pace and pattern of growth in the industry. In a number of countries in the region,

common shortcomings in the regulatory process are the absence of clarity and conciseness in

policy objectives, and inadequate authority and funding for the regulator.

(1) Interconnection

As technological changes and deregulation reduce entry barriers in the sector,

interconnection has become one of the most urgent regulatory issues in the region.20 Since the

interconnection charges comprise the major costs for new operators, these have a significant

effect on the earnings and growth of new operators using the incumbent's network. In the

majority of countries in the region, the lack of interconnection policy has also slowed the

introduction of competition into the sector.

In China, for instance, the second network operator (Unicorn) had to wait up to 15

months for interconnection with the Ministry of Posts and Telecommunications (MPT) local

network. In New Zealand where a non-interventionist approach was adopted, the

interconnection dispute between the incumbent Telcom New Zealand and the second network

operator Clear Communications lasted more than four years.

Interconnection problems have most often arisen in situations where the incumbent is

2°For a concise review of the interconnection configuration, see NTT (1998). Also for arigorous review of interconnection issues, See Tyler, Letwin, and Burstin (1995).

28

responsible for setting the interconnection rates or where the regulator has set rates that are

unduly favorable to the incumbent. In 1995 in Japan, for instance, new common carriers

(NCCs) questioned the fact that NTT was including certain costs that were not necessary for

connecting the NCCs. After interconnection review, NTT reduced its access charges. In the

region as a whole, the interconnection charge is determined by the regulator in 20 percent of

countries while operators set the rates in 30 percent of countries and the telecommunication

ministry in 27 percent.

In general, there are three different types of approaches to the interconnection issue-­

anti-interventionist, case-contingent interventionist, and active interventionist. The anti­

interventionist approach leaves the interconnection charge to commercial negotiations.

However, this approach is likely to result in the extended legal disputes as New Zealand

experienced. Hong Kong SAR and the Phillippines have adopted the second approach by

encouraging service providers to conduct bilateral negotiations with the proviso that the

regulator would intervene in instances where negotiations fail. With the active interventionist

approach, the regulator either sets the rates or give its approval. In Singapore, TAS has set

interconnection charges for the first three years of competitive entry for new fixed-line service

providers. In Japan, the Minister of Posts and Telecommunication (MPT) can intervene

through interconnection orders and arbitration. Thus, Japan is considering issuing rules for

interconnection--Basic Rules for Interconnection--which require the disclosure of the

incumbent's accounts as well as the implementation of accounting separation and unbundling

of interconnection fees.

Two main aspects of an interconnection regime are (1) determination of an appropriate

cost-based fee and (2) the technical conditions. Various approaches have been taken in the

region?l In Indonesia, for instance, the framework for interconnection charges was transformed

from revenue sharing to volume-based accounting to make the collection and the forecasting of

interconnection charges easier.

21For a detailed framework of interconnection rates, see Ovum (1997).

Table 6. Interconnection Arrangements in the Asia-Pacific Region as of 1997

29

Country Separation of Policy and Interconnection GuidelinesRegulatory Roles and Legislation

Australia Yes Yes

China No No

Hong Kong SAR Yes Yes

Indonesia No Yes

Japan No Yes

Korea No Yes

Malaysia Yes Yes

New Zealand Not available Yes

Phillippines Yes Yes

Singapore Yes Yes

Thailand No No

Source: Effective Interconnection in the APEC Region (1997).

CompetitiveSafeguards

Yes

Not available

Yes

Not available

Yes

Yes

Developing

Yes

Yes

Yes

Not available

30

Table 7. Arrangements for Establishing Interconnection Charges in the Asia-Pacific Region asof 1997

Country Commercial Negotiation Role of Regulator Charging Basis

Australia Yes, preferred Accept access undertakings, Cost-based (totalmay intervene if negotiation service long-runfails incremental cost)

China Not available Not available Not available

Hong Kong SAR Yes, preferred May intervene ADC, Deliveryfee

Indonesia Yes, on occasion Determines charges Volume -based

Japan Preferred in past, moving Tariff approval Cost-basedto a tariff approach fordominant carriers in thefuture

Korea No Determines charges Cost-based

Malaysia Negotiated revenue sharing None, at present Revenue sharing

New Zealand Yes, preferred No telecom specific As negotiatedregulator, parties haverecourse through the courts

Phillippines Yes Supervisory Negotiated,revenue sharing,cost-based

Singapore Yes, preferred May intervene Cost-based(economic costand long-runincremental cost)

Thailand Revenue sharing May intervene if negotiation Cost-based (long-fails run incremental

cost)

Note: ADC=Access Deficit Contribution.Source: Effective Interconnection in the Asia-Pacific Economic Cooperation (APEC) Region (1997).

31

(2) Universal Service

The concept of universal service varies more significantly between developed and

developing countries. In the developed countries, universal service is typically defined as a

telephone in every home, with regulation focused on the provision of services to the marginal

groups in society. For many developing countries that are commonly characterized by low

household teledensity, the provision of service to every home remains a long-term objective.

Thus, the regulatory focus has been on providing universal access to a telephone in the form of

village phone and public call offices.

As regulators in the region have devised a variety ways to ensure that the goal of

universal service is met, the traditional way of promoting universal access--using profits from

domestic long-distance and international services to subsidize the provision oflocallines--is

being replaced by new methods to ensure that the associated costs are borne by all or some

telecommunication service providers.22 For instance, Indonesia requires operators under BOT

agreements with the national operator PT Telkom to spend 20 percent of annual capital

expenditure in unserved or underserved areas. In Malaysia and the Phillippines, the universal

service obligation (USO) aim is built into the licensing of full-service/multiple-service carriers

which are required to construct local lines as well as develop a variety of other services. Other

countries, including Australia, Hong Kong SAR, and Taiwan-China, require telecommunication

service providers to contribute a percentage of revenues towards the incumbent's universal

service obligations.

(3) Tariff Control

Prior to the 1980s in the U.S., tariffs were mainly controlled through rate of return

regulation (RORR). This form of regulation focuses on limiting profits by specifying a

maximum rate of return the investor can earn on the capital required to provide the

telecommunication services. The RORR can be divided into three basic steps: (1) The firm's

costs are reviewed, and costs deemed to be unnecessary are eliminated; (2) A rate of return

22For an extensive analysis of issues related to funding universal access, see InternationalTelecommunication Union (1998c).

32

judged to be fair for the firm is specified; and (3) Prices and their structure are set to generate

enough revenue to cover costs and provide a fair rate of return.23 However, the cost-plus nature

of rate-based regulation provides weak incentives for technical efficiency, while it can create

incentives to overinvest in capital or other items covered by the rate base.24 In most countries

with privately owned monopoly providers, such rate-based price control has been used to

control the incumbent's profit.

In the emerging competitive environment, a key purpose of price controls is to

discourage the dominant carrier from abusing its market power and exercising anti-competitive

pricing strategies (predatory pricing). A common feature of price control in the Asia-Pacific

region is that prices in fixed-line services are fixed at the same level for all operators, whereas

operators in mobile cellular services are allowed greater flexibility in pricing. Another feature

is that, in basic services, rates have to be authorized by the regulator or the ministry, and that

operators must obtain approval of rates every time a change is made. Service pricing in these

segments is not only closely regulated and rates more rigid, but the approval procedure for tariff

changes can be complex and lengthy. In Korea, for instance, service rates are agreed upon by

the Ministry of Information and Communication (MIC) following formal discussions with the

operators involved and consultation with the Ministry of Finance and Economy. Such a tight

price control as a method of controlling market power is often criticized for it provides little

incentive for operators to improve services or reduce costs. Also, the lack of transparency in the

process raises concerns over fair competition.

One of the other methods employed to control price and competition in the region is to

put the incumbent under a price cap regime. The idea behind price regulation is to control the

prices charged by the regulated firm, rather than its earnings.25 This approach is intended to

23For a comprehensive analysis of rate of return regulation, see Berg and Tschirhart (1988).

24The latter incentive is the so-called Averch-Johnson effect. Conversely, of course, lessattractive or less secure returns can be expected to lead to under-investment in capital. See Smith andKlein (1994).

25For a full analysis of price cap regulation as an incentive regulation, see Sappington andWeisman (1996).

33

create strong incentives for efficient performance: with fixed prices, profits are increased by the

firm reducing its costs. The price cap regulation introduces a degree of automaticity to price

increases, and may thus relieve some of the political difficulties associated with regulators

approving regular price increases.26 In Australia, the incumbent Telstra operates under a price

cap regIme.

Another sensitive pricing issue associated with the rise of competition is rate

rebalancing. Many countries in the region derive more than half of their revenues from

international services. Tariff rebalancing has been less dominant outside the ED countries, but

since rebalancing would inevitably see local tariffs rise, the political consequence of which are

not attractive.

6. Conclusion

In this paper, with a view point of organization theory, I have attempted to consider

both normative and positive aspects of the telecommunication reforms undertaken in the Asia­

Pacific region. Even though policy initiatives vary depending on the economic characteristics

and the institutional endowments in each country, the main common telecommunication issues

addressed in the reforms have been as follows: (1) the introduction of competition into local

markets; (2) the separation of regulation from operational functions to obtain the desired

telecommunication environment; and (3) the extent of ownership changes with respect to

existing public telecommunication operators.

However, where the Asia-Pacific region departs from the other regions is in the

introduction of limited or state-controlled competition and the nature of ownership reforms. In

most of the countries, the introduction of competition into basic telecommunication services

has been managed in such a way that growth of an incumbent telecommunication operator is

protected from direct competition or uncontrolled competition, in particular from overseas

competition. Also many countries in the region have promoted non-traditional privatization

26However, it is difficult to establish a productivity offset term (or a specified rate). Judgmentneeds to be made on the likelihood of achieving cost reductions in the firm over a relatively longperiod.

34

schemes so that the private investment is allowed in the sector while the governments retain

majority control.

In addition to the region's legacies of legal restrictions on ownership and a strong state

control in the sector, some cultural and historical factors are also associated with another

distinctive aspect of the sector in the region--the arbitrariness in the administration of laws and

the allocation of resources. Compared to most developed societies, societies in the region have

been lacking independent civil institutions through which social matters can be debated. This

heightens the potential role of the state as the arbiter of social issues. In most of the countries in

the region, policymaking and policy administration have been frequently unclear. In the

absence of transparency or precision of regulatory rules, it often remains unclear which

government agency is responsible for what, where, when, and how a particular decision was

made, or indeed if a decision was made at all. This clearly adds political risk to

telecommunication investment which may already carry substantial commercial risk. In the

context, the insulation of regulatory functioning from political process appears to be one of the

most difficult goals for the governments in the region to achieve.

An analysis of regulatory reforms involves more than studies of specific regulated

industries or of administrative procedure, although they are essential. Rather, its central focus

should be on the characteristics and consequences of rules and institutions governing them.

Also a regulatory reform can be viewed as a bargaining process in which market participants

form coalitions and negotiate over regulatory policies and their implementation. Particularly in

administrative regulation, the process of public rule-making hearings plays an important role in

information gathering by agencies and in adversarial interaction by competing interest groups.

For that reason, particular characteristics of administrative regulation in each country need to be

more emphasized in future studies.

35

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