1. Telecom Reforms in Transition Economies – Progress and Challenges Maria Vagliasindi, Senior Economist Office of the Chief Economist, EBRD “ICT Policy Reform and Rural Communication Infrastructure”, Tokyo, 24 August 2004 Telecom Reforms in Transition Economies – Progress and Challenges Maria Vagliasindi, Senior Economist Office of the Chief Economist, EBRD “ICT Policy Reform and Rural Communication Infrastructure”, Tokyo, 24 August 2004

2. Structure 1. Introduction 2.Infrastructure and institutional challenges for Central Asia and the Caucasus 3. The impact of competition and privatisation on telecom performance indicators 4.Policy recommendations

3. 1.Introduction: Evolution of Telecom Sector Start Medium Term Long Term State ownership and regulation Independent regulator Competitive Market Public monopoly Privatisation of dominant operators Competitive safeguards in place Selective services open to competition Liberalisation of all services

4. Global trends: mobile users are higher than ever Lifestyle choice Lifestyle choice –no need/desire to use fixed voice now, but might want broadband –most will eventually get a fixed line – but the number without one at any time will grow Price sensitive Price sensitive –could afford a fixed line, but currently mobile bundle represents better value given their need and budgets Low income Low income –cannot afford/cannot get a fixed subscription UK household penetration of fixed and mobile phones, May 2003 Neither Mobile only Both Fixed only 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% May-03Mobile only Source: Oftel

5. Global trends: Balance btw defence of voice and lt strategy 0 20 40 60 80 100 120 200220032004200520062007 EUR (billion) Broadband Internet access Dial-up Internet access Business data services Voice End user spend on fixed telecoms services, Western Europe, 2002–2007 Source: Analysys Research

6. 2. Central Asia and Caucasus: Infrastructure challenges and …

7. … Institutional challenges PrivatisationNew Telecom lawIndependent Regulator Armenia 90% (OTE) 1998 Azerbajian1997 Georgia1999 (2000) Kazakhstan1998 (2003) Kyrgyzstan10%1999 (2001) Moldova2001 (2000) Tajikistan2002Planned (2004) Uzbekistan1999

8. 3. Competition and Privatisation in the Telecom Sector for CEE Countries … DateUS$Private buyer Estonia19922749% (Telia/Sonera) Hungary1993 1995 1997 875 852 30% (Ameritech/DT) 37% (Ameritech/DT) 27% IPO Czech Rep.1995 2001 157627% (SwissT/KPN) withdrawn

9. … Links between privatisation and performance indicators Fixed line penetration Network investment Pre-privatisation Post-privatisation

10. Links between competition and performance indicators Fixed line penetration Network investment Pre-competition Post-competition

11. 4. Challenges in telecom reforms Regulatory process must : be transparent be transparent –Extensive consultation process –Open decision-making provide incentives for efficiency provide incentives for efficiency –Balance of sticks and carrots minimise risks to investment minimise risks to investment –Ensure returns sufficient to attract investment

12. 4. Challenges in telecom reforms (ctd) Privatisation and regulation Having no independent regulator means that the government is still able to interfere even if the network utility is privatised Having no independent regulator means that the government is still able to interfere even if the network utility is privatised Competition and privatisation While competition may well lead to privatisation, the opposite is not true While competition may well lead to privatisation, the opposite is not true  A private monopoly will often attempt to use its influence to stifle reforms that threaten to introduce greater competition Regulation and Competition Only adequate regulation (particularly on terms of interconnection) ensures development of competition Only adequate regulation (particularly on terms of interconnection) ensures development of competition

13. 4. Challenges in telecom reforms (ctd) Sequencing matters: Sequencing matters:  establishing an effective regulatory structure before privatising network utilities separation between operational and regulatory rules separation between operational and regulatory rules independent settlement of disputes independent settlement of disputes  introduce greater competition if possible before privatisation.

14. 4. Challenges in telecom reforms (ctd) How to overcome constraints to regulatory reforms:  regional vs national approach to regulation  cross-sectoral competition policy vs sectoral regulatory approach … and to address specific challenges:  Affordability  Universal access Lessons to be learned by the experience of developing countries outside the region (e.g. Latin America)