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Stimulating Investment in Network Development: Roles for Telecom Regulation

William H. Melody

Background paper WDR 0301

Executive Summary

The Dialogue Theme 2003 stems not only from the desperate need for network rollout in most developing countries and concerns about the slow rate of broadband network upgrading in most developed countries, but also from the drying up of investment funds for the telecom sector. All regulated telecom operators and potential investors include “regulatory risk” as a key factor in determining their investment strategies. Possibilities for reducing regulatory risk include, strengthening the credibility of the regulator, improving the efficiency of the regulatory process, reducing barriers to participation in network development, managing public resources to facilitate network rollout, and clarifying rules where ambiguity and uncertainty exists. There are a number of examples (e.g., Chile, Morocco, Denmark, Korea) where informed policy and strategic regulation have stimulated waves of investment in network development. Effective regulation need not be cause of investment risk. It can act to reduce the investment risk associated with the inherent uncertainties in cyclical oligopoly telecom network markets.

There are several specific domains that require examination in any programme to reduce barriers to investment and regulatory risk: the institutional structure of government in the sector; policy directions for regulation; the regulatory process; applications of substantive regulatory standards (return on investment, price caps, LRIC, SMP, etc.); and steps to stimulate demand. However, stimulating investment in the current environment will require a shift in focus from the supply of network physical capacity to the stimulation of demand to justify investment. This in turn will require greater private and public investment in facilitating the awareness, skill, and capabilities for service applications by end users, especially SMEs, public institutions and individuals. 

For the future, mobile is the vehicle for achieving universal access to voice-related services. But Internet services are becoming recognised as the new target for universal access. If some kind of universal access to limited Internet service is to be achieved for the great majority of people in developing countries within the foreseeable future, it will have to be provided over existing radio and TV transmission and distribution networks. This will require a greater role for intermediary organisations in facilitating service applications to satisfy demands and needs.

International organisations (World Bank, WTO, ITU, development aid agencies, etc.) influence the telecom/ICT investment environment, as well as the roles and activities of national telecom regulators - primarily in harmonizing national telecom policies and regulations, and investing in human capital in developing countries. Yet experience suggests that the limiting factor on the capabilities and effectiveness of regulation is the shortage of essential skills. The Final Report of the WDR Dialogue 2002 on Next Generation Regulation concluded that the key factor leading many developing countries to consider establishing multisector utility regulators is the severe shortage of the skills necessary to regulate effectively. 

Investment in human capital is essential to reduce regulatory risk and stimulate demand. In particular, the strategic management capabilities of regulators will be the key competence determining the capacity to stimulate telecom reforms and network investment. The WDR Dialogue 2003 can best begin by focusing on the priorities for regulatory attention. What are the specific areas where regulation can have the greatest positive impact on the investment environment in the short run? 

Keywords: Network rollout,  network development, investment, developing countries, broadband network, regulatory risk, , telecom sector, credibility of regulator, strategic regulation, institutional structure, regulatory standards, stimulating investment, investment risk, stimulation of demand, universal access, WTO, ITU, Internet, World Bank, telecom policies, human capital.

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Document Date:
March 2003
Author:
William H. Melody
Discussion Paper No.: 
wdr0301
Pages:
25 pp
Title:
Stimulating Investment in Network Development: 
Roles for Telecom Regulation
Collection Title:
World Dialogue on Regulation for Network Economies