From Telecom Policies to e- Economy

Professor William H. MelodyManaging Director, LIRNE.NET

melody@lirne.net, www.lirne.net

Presentation to

Seventh Conference on Technology Policy and Innovation:

Connecting People, Ideas, and Resources across Communities

Monterrey, Mexico, 10 -13 June 2003

Characteristics of 21st Century Economies

• Driven by the services sectors• Founded on information/communication

networks – next generation Internet• Dependent on effective reforms in the

telecom sector – information infrastructure• Strengthening links among local, national,

regional, internatonal networks and markets

Stages of Telecom/Information Sector Reform

• Telecom Liberalization (Participation, Univ. Access)

• Expanding Network Capacity (Broadband)

• Preparing the Network Foundation for New Services

• Developing New Services - “killer applications!”

• Applying Services Productively in Different Societies

• Telecom Reform & Regulation – Key Driver for

Implementing Policy Reforms for the e-economy

INFORMATION INFRASTRUCTURE

Regional Development

Finance/ Banking

Disaster Management

Travel & Tourism ManufacturingMedia & Cultural Sectors

Health/Medical Government Services Education/Training

Applications

Electronic Services(Pay TV, VAS, Internet)

Multimedia, etc.(Public, User group, Private)

ContentBroadcast

MediaFilm

LibrariesSoftware

etc

Interactivity(Instant & Delayed)

VoiceData

SoundGraphics

VideoTelecommunication

Facilities Network(Information Superhighway)

Computing / Information Technology

Telecommunication Equipment Manufacturing

Equipment Supply

TelecomInfrastructure

ServiceDevelopment

Competitive Markets

Monopoly/duopoly/oligopoly Competitive Markets

Internet

VAS

Databases

NetworkManagement

TelecomEquipment

ComputerHardware

Software

ConsumerElectronics

PTOs

The telecom sector value chain

Significance of Network Unbundling

• Industry Sectors - Equipment, Operator Networks, Services

• Fixed and Mobile• Basic Network Layers• *Content

*Communication Services *Network OSS & Management *Raw Facility Capacity

Convergence Sectors Drivers of Convergence

•Technology

• Industry-Supply

• Market-Demand

• Policies/Regulation

•Industry Specific

•Convergent

Applications

• Finance

• Commerce

• Education

• Health

• Publishing

• Manufacturing

• etc.

Content

Telecom

Computing

The Dimensions of Convergence on the Information Infrastructure

Criteria for Economic Growth

Technologies

Policies

Markets

Applications Services

Regulations

Regulation: Catalyst for, or Constraint upon Growth?

Progress with Telecom Reform

• Now 120+ Countries with Separate Telecom Regulatory Authorities

• WTO Commitments to Liberalization• Industry Specific Focus of Reforms• Successes, Failures, Unanticipated

Difficulties, Continuing Delays• Regulatory Reform is Proceeding at a Slower

Pace than Technology Development or Market and Service Potential

Progress with Telecom Reform

• Regulation is the limiting factor constraining growth• It is not a simple matter of removing regulations or

eliminating regulators. It is enhancing their competence and credibility.

• Sound regulatory foundations are needed to attract investment, foster applications of new technologies and development of new services.

• The speed of regulatory reforms must increase and they must be directed to providing a foundation for network-based e- Economies.

Information Infrastructure: Investment 1990s

• Mobile - licenses - operating; spectrum

- network development• Privatising telecom incumbents

- licenses – operating; IPO

- network development obligations• Competitive network operators

- fibre transmission

- city / business LANs

• Software, services and content (e.g., Internet)

Information Infrastructure: Investment Deficiencies 21st C

• Local - basic services access

- broadband access• Universal access - fixed

- broadband• Internet - local services and content• Applications - e-economy; e-society

Policy, Regulation and Network Investment

• Licensing - paying for the privilege

• Annual Fees and charges

• Restrictions on investment opportunities

• Price and/or profit regulation

• Policy & regulatory risk

Assessing the Mixed Results of Market Liberalization

• Successes, failures and frustrations• Learning and adjustment?• Naivite and market failure?• Government failure in establishing the

policy/legislative frameworks?• Regulatory failure – bottleneck, rather than

facilitator?• Inevitable market failure?

Unresolved Network Market Issues

• Public Resource Infrastructures for Telecom Networks - Rights of Way, Spectrum, Numbers, Names

• Interconnection• Termination Number Monopolies• Access Limitations in the Face of Positive

Externalities• Leverage Opportunities for Monopoly Nodes

in the Network

Elements of Policy and Regulatory Risk in Information Infrastructure

Development

• Credibility – regulatory independence from political intervention on substantive issues

• Credibility – Regulatory independence from incumbent monopoly power

• Transparent processes• Accountability for performance• Competence and skills• Commitment to implement policy objectives• Evident fairness

Can Policy/Regulatory Structure Reduce Investment

Risk?• Morocco - licensing for mobile rollout• Chile - making rural areas financially viable• Denmark - minimizing barriers to participation• Korea - multi-faceted programme promoting

broadband rollout• Canada – innovative applications, wide

participation, universal access• Botswana – world model for credible regulation

Are Policy/Regulatory Structures Increasing Investment Risk?

• Mexico – Telmex/SBC monopoly power• South Africa – Telkom/SBC monopoly

power• US - tied up in administrative legal knots• Bangladesh - political nightmare• Ireland –”Celtic Tiger” of Europe in IT;

slugs in Telecom

Shifting Policy/Regulatory Priorities to Stimulate Investment

• From supply of network facilities to stimulation of demand to justify investment

• From physical capital to human capital

- awareness, skill, capabilities

- applications by individuals & organisations• Diverse sources of private and public investment

- operators, service providers,

- intermediaries (e.g., Telecentres), user applications

Regulatory Relations Regulatory Relations Affecting Sector Affecting Sector

InvestmentInvestmentDemand/Need

Regulation

Policy

End Users

Services

Facilities

Supply Telecom/ICTSector

Intermediaries

Public Resources Applications

Demand/Need

Regulation

Policy

End Users

Services

Facilities

Supply Telecom/ICTSector

IntermediariesIntermediaries

Public Resources Applications

NGI - High Speed Access

• Role of the Market• Digital Divide• Role of Government

*Promote Competition *Direct Regulation *Public Sector Applications *Public Investment - eg., Broadband

• At What Level Should Gov’t Intervene?

Moving to Convergence Regulation

• Security, Privacy• Intellectual Property Rights• Digital Signatures & Contracts• Micro payments and Funds Transfer• Network Quality - eg., e-commerce standards• Consumer Protection• More

Paths to Universal Access

• Voice - prepaid mobile• Internet, e-economy, e-society - fixed & wireless network extensions - new operators – energy, transport - radio and TV distribution networks - retail service suppliers, ISPs, VANS - greater role for intermediaries

Internet Governance

For the next Generation Internet-based e-Economy• In 2002 ICANN president Stuart Lynn

proposed that government representatives be appointed to Board positions.

• ”ICANN, which was created to save the Internet from governments, is now turning to governments to save ICANN.”

Michael Froomkin

Internet Governance

• Direct Internet-specific issues, eg., ICANN• ICT sector convergence and information

infrastructure development issues, e.g., national telecom regulators-mach 2

• Trade- related issues in the e-economy, e.g., WTO, WIPO

• Challenge: Making regulatory institutions credible at both national and international levels.

Capacity – building: Actions

• Build institutional networks for mutual development – local to international

• Strategic management in a dynamic ICT environment

• Experiment – the core of innovation

• Stimulate demand for skills

Capacity – building Requires Investment in Human Capital

• Policies – to direct, enable & support

• Institutions – to train & sustain

• Programmes for the development & dissemination of skills

• Programmes for the application & maintenance of skills

Capacity – building for Information Societies

• Policy analysis & regulation

• Strategic analysis & management

• Innovation, experimentation & flexibility

• Demand-led diffusion of core skills

• Network linkages

Infrastructure For Digital Economies

• Higher Capacity Facilities - Broadband?• Access to High Speed Networks?• Access to Minimal Level of Universal

Services? • Access to Minimal Levels of Information?

Characteristics of Information Networks

• High fixed costs and economies of scale• Specialized monopolies and destructive

competition• Extreme forms of price discrimination• Failure to serve segments of the polulation• Failures of coordination across networks• Positive network externalities – efficiency

benefits go far beyond the limits of private markets

The Foundation for Efficient Markets

• Market theory – all parties are fully informed, and information is available at minimum cost

• Is publicy requiring universal access to substantial levels of information necessary for markets in all sectors to function efficiently?

• Will market failures in information markets cause failures in services and product markets?

• If so, network access to information will be a new critical infrastructure for network economies

Proactive Policy & Regulation

• Create a favourable investment environment for physical & human capital

• Minimize barriers to participation• Facilitate demand as well as supply• Apply skills and strategic management to

achieve the spirit of the policy objectives• Can only be done if regulatory structure is

transparent and credible

World Dialogue on Regulation for Network Economies

Mission: • to facilitate an international dialogue that

generates and disseminates new knowledge• on frontier issues in regulation and

governance• to support the development of network

economies

World Dialogue on Regulation for Network Economies

Activities:

• Research on the annual theme

• Dialogue – www. Regulateonline.org

- e-Brief

• Expert Forum

• Report

World Dialogue on Regulation for Network Economies (WDR)

Dialogue Theme 2002:

• The Next Step in Telecom Reform:

• ICT Convergence Regulation or Multi-sector Utility Regulation ?

World Dialogue on Regulation for Network Economies (WDR)

Dialogue Theme 2003:

Stimulating Investment in Network Development: Roles for Regulators

World Dialoge Theme 2002

ICT Convergence

• Digitalization of the network

• Mobility

• Next generation Internet

• E-commerce

• Media integration

• Restructuring of industries

World Dialogue Theme 2002

ICT Convergence Regulation• Access to communication channels and

access to content• New issues of competition and monopoly• Privacy, security, IPR• Reducing digital divides?• Can content regulation be avoided?• The most effective role for national telecom

regulators?

World Dialogue on Regulation for Network Economies 2003:

Research Partners

• Centre for Tele-Information, TU Denmark

• Economics of Infrastructures, TU Delft, NL

• LINK Centre, Wits University, S.A.

• Media@lse, London School of Economics

World Dialogue on Regulation for Network Economies 2003:

Institutional Partners

• infoDev, World Bank• ITU, BDT• IDRC Canada• LIRNE.NET• Research Partner Universities

World Dialogue Theme 2003

Stimulating Investment in Network Development: Roles for Regulators

• Defining and Implementing Regulation to Facilitate Sector Investment in Network Development

• The Challenge: Creating regulation that leads rather than lags technology and market developments, providing a catalyst for investment and growth in network e-economies?

World Dialogue on Regulation for Network Economies

• Participate in the Dialogue; review and comment on the research, www.regulateonline.org

• For more information contact Merete Henriksen, WDR Coordinator, henriksen@lirne.net Tel. + 45 4525 5178; Fax + 45 4596 3171

LIRNE.NET, www.lirne.net • A Strategic Collaboration for applied research, training, policy and

regulation support, relating to information infrastructure and new network economy development

• Center for Tele-Information (CTI), TU Denmark• Economics of Infrastructures, TU Delft, Netherlands• LINK Centre, Wits University, South Africa• Media@lse, London School of Economics, UK