1. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Rethinking telecom reform model: the case of South Africa. Alison Gillwald gillwald.a@pdm.wits.ac.za LINK Centre Graduate School of Public and Development Management Witwatersrand University, South Africa http://link.wits.ac.za gillwald.a@pdm.wits.ac.za http://link.wits.ac.za

2. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 2 Why is telecom reform necessary? -Poor teledensity -Rationale of telecommunications as ‘natural monopoly’ undermined by digitised low cost technologies -Challenges of affordable access and accelerated network development -Marginalisation from global economy and own developmental objectives

3. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 3 What are the key elements of the of the multilateral reform model? -Privatisation, with extension of monopoly - Limited liberalisation network and service based competition -Sector regulator -Universal service mechanism -Market failure mechanism to service poor

4. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 4 What is privatisation and why has it been emphasised in the reform process? -Transfer of ownership from state to private interests -Affordable access through improving efficiency of incumbents -Struggle between market access desire of multilateral agencies and maximisation of value of state assets or instruments of income generation

5. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 5 What have some of the effects been? -Markets structured around vertically integrated incumbents -Creates anti competitive incentives for the incumbent to deny access to its network -Requires complex and resource intensive access regulation -which has had chilling effect on VANS and ISPs

6. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 6 Has privatisation contributed to sector growth and national objectives? -In SA sector grew from R7billion in 1992 to over R50billion in 2001 but masked policy failures -Network not doubled to 6 million, 2 million fixed line subscribers disconnected, largely as a result of average 24% pa increase in local tariffs despite efficiency gains including loss of 30 000 jobs -Monopoly chilling effect on VANS, ISP -Unintended outcome of policy mobile platform for universal service with 18 million subscribers four times more than PSTN

7. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 7 Size of SA Telecom Sector* Source: ITU World Telecommunications Indicators Database (2002), Telkom IPO Prospectus, 2002 MTN Annual Report, 2002 BMI-Techknowledge Communications Handbook *Billions of Rands

8. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Source: Telkom annual reports

9. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Source: ITU World Telecommunications Indicators 2003

10. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Source: ITU World Telecommunications Indicators 2003

11. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Sources: Residential monthly telephone rental: 1997 - 2001: ITU World Telecommunications Indicators Report 2003 2002 - 2004: Telkom Annual Reports Residential telephone connection charge: 1997 - 2001: ITU World Telecommunications Indicators Report 2003 2002 - 2004: Telkom Annual Reports Cost of 10 hours worth of calls: 1997 - 1999: ITU World Telecommunications Indicators Report 2003 2000 - 2004: Telkom Annual Reports Total fixed-line telephone lines per 1000 inhabitants: Telkom Annual Reports

12. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Source: Telkom annual reports

13. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Source: ITU World Telecommunications Indicators 2003 Note: For South Africa and Poland the data is only up to 2001. For Argentina, there are no stats after 1999

14. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan Source: ITU World Telecommunications Indicators 2003 Note: The RHS axis denotes subscribers per 100 inhabitants

15. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan * 2004 amount is an estimate based on average increase since 1997 Sources: % growth of total internet subscribers: The Goldstuck Report: Internet Access in South Africa 2004 Fixed line cost: 1997 - 2000: ITU World Indicators Report 2003 2000 - 2004: Telkom Annual Reports Average ISP costs: www.internet.org.za

16. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 16 Source: World Wide Worx: The Goldstuck Report: Internet Access in South Africa 2004

17. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 17 What are some of the associated policy and regulatory challenges for developing countries undergoing telecom reform? -Structural conflict of interest between shareholder ministry and regulator -Stimulating long term investment while regulating fair prices -Inability to regulate private monopoly negative effect on wholesale and retail pricing. -Access regulation resource intensive and even skilled and experienced regulators cannot overcome information asymmetries requires incentive regulation and alternatives such as benchmarking

18. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 18 How might these challenges be overcome in to build an efficient infostructure required by a modern economy? -Remove artificial restraints on market that create inefficiencies -Regulated market accompanied by innovative deployment of universal access levies, that stimulate market growth through innovative new entry, increased calling opportunities and lower costs -Structural separation creates competitive incentives, easier to set tariffs for non-competitive essential facilities, due to separation of the component parts and accounts -With tariff fee structure sufficiently above cost and no business unit to protect downstream, incentive to encourage access. -Create conditions for development of information infrastructure

19. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan 19 What are the lessons of reforms to date? -Sequencing of reform stages – privatisation, liberalisation -Appropriateness of policy and conduciveness to implementation -Extended monopolies chilling effect on competitive sectors, ISPs, VANS and drag on national economy -Demand for communications met through market mechanisms, relieve demand on state subsidies, which can be transparently targeted. -Efficiencies associated with vertically integrated operations need to be weighed against cost to industry and cost of resource intensive regulation. -Is core infrastructure may remain natural monopoly but demand for communications services innovatively met through strategic regulation of market forces.

20. International Seminar on ICT Policy Reform and Rural Communication Infrastructure, Keio University, Japan http://link.wits.ac.za Alison Gillwald LINK Centre Graduate School of Public and Development Management Witwatersrand University gillwald.a@pdm.wits.ac.za