WDR Theme for 2004/05

Diversifying Participation in Network Development

In the following article, William Melody, WDR's Managing Director, responds to a query posted to the WDR Online Dialogue about how the new WDR theme, Diversifying Participation in Network Development, will be developed and how it relates to last year's theme, Stimulating Investment in Network Development: Roles for Regulators.

After considerable discussion the WDR Dialogue Theme for 2004-05 has been selected to build on and expand the focus of the just completed network investment theme. For the past 15 months the research and dialogue on the theme, Stimulating Investment in Network Development: Roles for Regulators, has identified areas where regulators can reduce barriers to investment and investment risk, and enhance consumer opportunities. At the same it has begun to identify an increasing diversification in the sources, and potential sources of network investment.

Historically funds for investment in telecom network infrastructure have been supplied either by the state, by donor agencies for developing countries, or by private capital markets, to national government or private monopoly telecom operators. During the first phase of liberalization, private capital market funds were supplied primarily to new operators rather than incumbents, overwhelmingly in the mobile sector. Equipment manufacturers also played a major role providing major loans to new operators that purchased their equipment.

In most developing countries, the national government monopolies have invested little in network development as the state has not provided significant investment funds and the operators did not generate significant funds for investment from operations. Under conditions of minimum or deteriorating financial sustainability, private capital market funding (domestic or foreign) and loans from equipment manufacturers were very limited. For most poor countries network development has been determined by sporadic donor funding, often tied to equipment purchases from donor countries, resulting in patchwork networks with built-in incompatibilities and inefficiencies. At the same time, investment in the technical, managerial and policy expertise needed to manage the networks and the reform process was primarily in the form of donor funded injections of foreign expertise rather than building institutional capacity for professional development and independence in the recipient countries.

Independent mobile operators have been able to bypass most of the institutional barriers to network investment associated with the failed policies linked to national government incumbent monopolies, attracting major amounts of foreign direct investment and in some cases domestic investment as well. In virtually every country the demand has turned out to be many times expectations, investment for continued network rollout has been forthcoming, and in most countries mobile penetration has rapidly surpassed that of the fixed network. The new mobile operators have attracted a more diversified array of investors into the telecom sector that have been willing to support green-field mobile network development even in very poor countries.

Yet the historic institutional barriers to fixed network development have had a major impact on the relatively slow development of Internet services in most developing and many developed countries, which for the most part must travel over the fixed network. This has led to serious examinations of alternative sources of investment in network development, both to complete Internet connections on incumbent fixed lines and to substitute for them. This involves both private and public initiatives and public-private partnerships.

One set of alternatives is investment in upgrading the telecom networks of other infrastructure providers – electricity, gas, rail, road, media signal carriage – and using them to provide Internet and other public telecom services. But these possibilities often get caught in the web of obsolete inherited institutional rigidities associated with government protected incumbent monopolies. Another set is regional and municipal governments, local cable TV operators, co-operatives and private entrepreneurs, all of which are potential sources of regional and local network investment and service provision. Even consumer funding of local connections as part of home (or apartment block) finance, or investment by intermediaries in telecentres are ways of extending networks to customers and communities. Internet cafés are already making an impact in some countries. In others, experiments with local initiatives are demonstrating unexpected potential, e.g., Bangladesh (Grameen) and Indonesia.

It is becoming increasingly evident that the infrastructure for Internet and e-economy services networks will have to be developed with a diverse array of investors and service providers if universal access to the Internet and multimedia services is to be seriously pursued. Yet, there are significant barriers and investment risks associated with each of the diversified possibilities for participation, not the least of which are increasing interdependence with network elements provided by other entities, dependence on effective regulation of interconnection, shortages of essential skills (human capital), and other matters. The range of possible sources of investment for network development, the opportunities they provide and the barriers they must overcome, have not been comprehensively documented or systematically examined. The WDR research and dialogue for 2004-05 will do that through a series of country case studies as well as examinations of the particular sources, types and methods of investment funding for network development, the factors determining their availability and application, and the conditions influencing their success or failure.

It is apparent that for many of these potential sources of network investment, the major constraint is neither a lack of effective consumer demand, nor an unwillingness to invest on pure investment grounds, as has been demonstrated with prepaid mobile services. Rather the barrier is inherited institutional rigidities as reflected in obsolete laws, policies, regulations, unrestrained monopoly power and political interference that makes investment impossible or raises investment uncertainties dramatically. Telecom regulations often are a part of this package of institutional rigidities, but the majority of the rigidities go far beyond the remit of telecom regulators. The research just completed on the roles of regulators in stimulating investment in network development demonstrated that, and will contribute to this year’s research and dialogue. But this year the scope for examination is being extended far beyond the role of telecom regulators to encompass the broader scope of institutional rigidities, as well as opportunities for new forms of participation in network development by new players, forms of finance and organizational arrangements.

As with mobile development, there is a very good chance in many countries that activities relating to the organization of both supply and demand for potential services at the regional and local levels (both public and private) may be able to bypass the rigidities and barriers that often exist at the national government levels. In addition, activities being generated from outside the traditional telecom sector, which are playing an increasingly important role in network development in developed countries, may have an even more important role to play in developing countries. Finally, human capital may be a much more important factor in more locally based network development initiatives. Rural areas of developing countries may suffer a shortage of technical skills, but no shortage of initiative and inventiveness in making communication opportunities work for them, as the prepaid mobile experience has demonstrated around the world. The WDR Theme for 2004-05 will examine the possibilities for attempting to repeat this experience by opening up a range of diversified opportunities for network development to provide access to Internet, multimedia and e-economy services.

William Melody
May 2004

Post your comments on the WDR Dialogue http://regulateonline.org/dialogue/. This question appears under the discussion of Dialogue 2004

News

Home

Dialogue 2003/04

Dialogue 2002

About WDR

WDR Theme for 2004/05

Diversifying Participation in Network Development