Download - MoldTelecom Tariffs Rebalancing Problem
MoldTelecomand
The Problem of Prices Rebalancing
Adrian, Camille, Natalia, Pavel
Corporate GovernanceIES FSV – Charles UniversityApril, 2011
Structure of the Presentation:
I. Introduction & Company Overview
II. The Rebalancing Prices Problem:
2.1. Economic Constraints
2.2. Social Constraints
2.3. Regulatory Constraints
2.4. Political Constraints
III. Recommendations & Conclusion
MoldTelecom and The Problem of Prices Rebalancing
Introduction & Company Overview
MoldTelecom and The Problem of Prices Rebalancing
Creation: In 1993, in the Republic of Moldova
Turning point: In 1999 MoldTelecom was reorganized and became a Joint Stock Company with the State being the unique stockholder
MoldTelecom and The Problem of Prices Rebalancing
Fixed Telephony Mobile OperatorInternet
Operator and also offers
Internet Access to other Internet
Providers
1.119 million customers (3rd trimester of 2010)
MoldTelecom and The Problem of Prices Rebalancing
Landline Market Share
MoldTelecom and The Problem of Prices Rebalancing
General Assembly
Supervisory Board
General Director
Vice-Director
6 Departments 5 Divisions 3 Centers
The hierarchy makes the internal communication more complicated, such that the decision making process is slowed down even between the representatives and is a time-consuming activity.
Many analysts are calling this phenomenon as: filtration.
1 state-representative from the Government
• In February, 2011, MoldTelecom announced that since 1st of March it will start its rebalancing program, which will look like this
• Generally, it is in-line with its development strategy announced before and a good step before company’s privatization
MoldTelecom and The Problem of Prices Rebalancing
HOWEVER!
It was made with the violation of OECD
corporate governance principles
Increase in tariffs for landline calls
Decrease in tariffs for international calls
MoldTelecom and The Problem of Prices Rebalancing
MAIN ISSUES of Corporate Governance:
- Low transparency
- Unfair treatment of stakeholders (principle-agent problem)
- Political conflict (prisoners’ dilemma)
- Unclear and inefficient regulatory framework
- It was too sharp (a gradual reform
would be more acceptable)
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom (tariff
rebalancing)
Regulatory constraints
Political constraints
Social constraints
Economic constrains
MoldTelecom and The Problem of Prices Rebalancing
Analytical Constraints
Map
The Rebalancing Prices Problem:Economic Constraints
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom (tariff
rebalancing)
Regulatory constraints
Political constraints
Social constraints
Economic constrains
MoldTelecom and The Problem of Prices Rebalancing
Analytical Constraints
Map
The OECD Principles of Corporate Governance
Principle I
ENSURING THE BASIS FOR AN EFFECTIVE CORPORATE GOVERNANCE FRAMEWORK
“The corporate governance framework should bedeveloped with a view to its impact on overall economic performance, market integrity and the incentives it creates for market participants and the promotion of transparent and efficient markets.”
MoldTelecom and The Problem of Prices Rebalancing
Political and social constraints
The necessity to cross-subsidize
MoldTelecom and The Problem of Prices Rebalancing
International calls pricesCash generator
Landline calls prices
Cash consumer
$$
MoldTelecom and The Problem of Prices Rebalancing
• Cheap land-line calls ensure MoldTelecom quasi-monopoly
No free competition
Expensive international calls (bad for citizens, businessmen, but also for country’s image)
Poor quality of services
• Thus, tariff rebalancing doesn’t seem to be a bad idea!
• However: it was made too sharp!
MoldTelecom and The Problem of Prices Rebalancing
• Tariff rebalancing strategy was adopted in 2000=> gradual rebalancing each year
• It was frozen in 2002, due to political reasons
• Policy-makers myopia: => short-term versus long-term benefits
• From 2002 up to 2011 no major changes, but the need for reform became imperative
+ the need for privatization, according to IMF program
Shock therapy amid a social crisis – bad idea!
MoldTelecom and The Problem of Prices Rebalancing
The Rebalancing Prices Problem:Social Constraints
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom (tariff
rebalancing)
Regulatory constraints
Political constraints
Social constraints
Economic constrains
MoldTelecom and The Problem of Prices Rebalancing
Analytical Constraints
Map
Alexander Graham Bell, inventor of the phone and first customer of landline phone
call services, obviously
The OECD Principles of Corporate Governance
Principle IV
THE ROLE OF STAKEHOLDERS IN CORPORATE GOVERNANCE:
“The Corporate Governance framework should *…+ encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.”
“*…+ Stakeholders *…+ should have access to relevant, sufficient and reliable information on a timely and regular basis.”
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom mission is:The client and his needs is our top priority.
Global Competitiveness Report 2010-2011:The degree of customer orientation in Moldovan businesses…
120 out of 139
Even if GCR refers to the business sector as a whole and not focused on MoldTelecom, let’s do not forget that MoldTelecom is one of the biggest, largest and most-profitable state-owned
companies in Moldova.
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom and The Problem of Prices Rebalancing
BUT let’s see how the price rebalancing was introduced to consumers and how transparent this process was…
MoldTelecom announces that Diasporas of Moldovan citizens living abroad have
solicited to reduce the price for international phone calls
19 January 2011
MoldTelecom announces that the company is going to decrease its prices
and implement a new price-strategy starting with March 2011
Consumers realize that the decrease of international calls prices are
compensated by substantial increase in national phone calls
28 January 2011
MoldTelecom and The Problem of Prices Rebalancing
National Calls Packages “Rebalanced” prices
Standard + 137,5%
Econom (renamed to Social) +150%
Facilities* No change*Facilities package is available only to disabled people, war invalids, participants of the liquidation of the consequences of Cernobal damages, Moldovan citizens illegally repressed and later rehabilitated, and also people who have under their guardianship minors, disabled persons since childhood.
International Calls “Rebalanced” prices
~Average~ -150%
MoldTelecom and The Problem of Prices Rebalancing
But it is obvious that national landline services are used more often by a bigger share of population and poorer households
SOCIAL BENEFITS < SOCIAL COSTS!
MoldTelecom announces that Diasporas of Moldovan people living abroad have solicited
to reduce the price for international phone calls
19 January 2011
MoldTelecom announces that the company is going to decrease its prices
and implement a new price-strategy starting with March 2011
Consumers realize that the decrease of international calls prices are
compensated by substantial increase in national phone calls
28 January 2011
11 Diasporas are blaming MoldTelecom for inventing their “solicitation” to decrease international calls prices
15 February 2011
MoldTelecom recognizes that there was no official letter from Diasporas, but the
company re-confirms that price-rebalancing will not be annulated
17 February 2011
By the decision of the National Agency for Competition Protection and the decision of
the prime-minister of Moldova, MoldTelecom is obligated to cancel any
price modifications
23 February 2011
MoldTelecom and The Problem of Prices Rebalancing
Agent
MoldTelecom
Principal
Consumers
Providing services
Paying bills
SELF INTEREST SELF INTEREST
-Higher prices-Lack of transparency-Market Inefficiency
-Lower prices for services-Transparency-Market Efficiency
MoldTelecom and The Problem of Prices Rebalancing
The OECD Principles of Corporate Governance
Principle IV
THE ROLE OF STAKEHOLDERS IN CORPORATE GOVERNANCE:
“The Corporate Governance framework should *…+ encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.”
“*…+ Stakeholders *…+ should have access to relevant, sufficient and reliable information on a timely and regular basis.”
No co-operation with the customers
No access to the financial information
No wealth creation
No transparency in decision-making
No reliability in the provided information
MoldTelecom and The Problem of Prices Rebalancing
The Rebalancing Prices Problem:Regulatory Constraints
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom (tariff
rebalancing)
Regulatory constraints
Political constraints
Social constraints
Economic constrains
MoldTelecom and The Problem of Prices Rebalancing
Analytical Constraints
Map
The OECD Principles of Corporate Governance
Principle I (C)
“The corporate governance framework should […] clearly articulate the division ofresponsibilities among different supervisory, regulatory and enforcementauthorities”
If it is not consistent and coherent it can easily result in costly market distortionsand undermine the accountability of both management and the state as an owner.
For MoldTelecom: there are 2 national regulation agencies with over-lappingresponsibilities!
MoldTelecom and The Problem of Prices Rebalancing
The National Agency for Protection of Competition was created on
February 2007.
NAPC’s missions are:1. to promote the state policy in the field of the protection of
competition
2. to prevent, limit and suppress anti-competitive activity
3. the state control over the observance of the Law on the Protection of Competition and advertising.
MoldTelecom and The Problem of Prices Rebalancing
The National Regulatory Agency for Telecommunications and Informatics started activity on August 2000 and was reorganized in 2008
NRATI’s missions are:1. to ensure the regulation of telecommunications service and
network market
2. to implement the national policy and strategy for the development of this very important economy sector
3. to promote fair competition
4. to enhance investments and innovations in this field.
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom and The Problem of Prices Rebalancing
February 2011: Moldovan Government invervened and enforced NRATI to decide whether MoldTelecom needs to be regulated or not (?!)
March 2011: It takes few weeks to NRATI to say: YES! Let’s regulate MoldTelecom!
2000: Creation of the NRATI
2007: Creation of the NACP + recognition of the dominant position of MoldTelecom by NACP
2008: NRATI was reorganized, being assigned with the ressponsibility to regulate telecom market and assign dominant position – OVERLAPPING BEGINS
2011: NAPC decides to cancel its decision: MoldTelecom is free to modify itsprices and right after few weeks MoldTelecom announced tariff rebalancing
February 2011: NRATI and NAPC “are fighting” for the right to “regulate” MoldTelecom. None of them is declaring it dominant on the market.
The Rebalancing Prices Problem:Political Constraints
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom (tariff
rebalancing)
Regulatory constraints
Political constraints
Social constraints
Economic constrains
MoldTelecom and The Problem of Prices Rebalancing
Analytical Constraints
Map
MoldTelecom and The Problem of Prices Rebalancing
Liberal
Democrats
DemocratsLiberals Communists
Alliance for European Integration
Majority in the parliament Opposition
MoldTelecom and The Problem of Prices Rebalancing
“Enforcing the process of privatization of state owned assets from the
liberalized industries, on the bases of opened auctions, announced and transparent.” (MoldTelecom is one to be privatized !)
“Liberalization and development of the markets of communication technologies”
“Reforming “MoldTelecom”, ensuring a transparent and fair access to the infrastructure for all the market players”
“Tariffs optimization and diversification of the services in the ITC sector”
MoldTelecom and The Problem of Prices Rebalancing
Liberal Democrats
DemocratsVlad Filat
President of PLDMPrime Minister
Marian Lupu President of PDM
Speaker of Parliament
1. Ministry of International Affairs2. Ministry of Finance 3. Ministry of Health4. Ministry of Education5. Ministry of Justice 6. Ministry of Internal Affairs7. Ministry of Agriculture
1. Ministry of Economy2. Ministry of Informational Technology3. Ministry of Culture 4. Ministry of Infrastructure 5. Ministry of Labor and Social protection
- NAPC - NRATI
MoldTelecom and The Problem of Prices Rebalancing
When MoldTelecom announced about rebalancing the prices, Prime Minister, Vlad Filat, reacted through a official letter (which very quickly was made public) for Minister of Economics, Valeriu Lazar.
MoldTelecom is a state owned company, so it is logic that in the Supervisors board, there is a person responsible for monitoring on behalf of the Government thus Government as a entity must have known about the decision before it was made public.
QUESTIONS ARISE ? ? ? ? ?1. Did the Prime Minister reacted in this way because it was a surprise for him ?
If YES => There is a lack of professional approach in Ministry of Economics
or
=> There is a reasonable lack of communication within the Government
2. Did the Prime Minister reacted in this way in order to gain political dividends (being on the side of the consumer = citizen)?
MoldTelecom and The Problem of Prices Rebalancing
Principle II
THE STATE ACTING AS AN OWNER
B. The government should not be involved in the
day-to-day management of SOEs and allow them
full operational autonomy to achieve their defined objectives.
D. The exercise of ownership rights should be
clearly identified within the state administration. This may be facilitated by setting up a coordinating entity or, more appropriately, by the centralization of the ownership function.
The OECD Principles for State-owned companies:
Liberal Democrats
MoldTelecom and The Problem of Prices Rebalancing
Democrats
Conflict of interests
Political
Privatization
Cooperate
Cooperate
Not Cooperate
Not
Cooperate
1 3
1 2
Liberal
Democrats
Democrats
MoldTelecom and The Problem of Prices Rebalancing
1
3
1
2
Social Benefit
Political Dividends
Conclusion & Recommendations
MoldTelecom and The Problem of Prices Rebalancing
- Low transparency
- Unfair treatment of stakeholders (principle-agent problem)
- Political conflict (prisoners’ dilemma)
- Unclear and inefficient regulatory framework
- It was too sharp (a gradual reform
would be more acceptable)
MoldTelecom and The Problem of Prices Rebalancing
1. MoldTelecom has to publish on a timely and regular basis its financial statements
2. The regulatory agency responsibilities must be clearly specified, in order to avoid their overlapping
3. The regulatory agencies must be politically independent
4. Moldtelecom has to avoid its cross-subsidizing practices, as it creates entry barriers on the market
5. Rebalancing has to be gradual and in-line with the OECD principles.
6. The state responsible entity must have a “face” and a clear position in the structure of the Government
7. Government has to avoid direct interventions in the activities of Moldtelecom, while strengthening the institutional power of regulatory agencies.
MoldTelecom and The Problem of Prices Rebalancing
MoldTelecom and The Problem of Prices Rebalancing
Adrian, Camille, Natalia, Pavel
Thank you!Mulțumesc! Merci! Спасибп! Díky! 고마워 Danke!
Grazie! Dzięki! 谢谢 Teşekkürler!
Graçias! Takk!Ви благпдариме! Cảm ơn! Lorem! Дзякуй!
Questions?Întrebări? Вппрпсы? Otázky? Pyetje? Пытанні?
Въпроси? 问题 Küsimused? კითხვები? Fragen?Kérdések? Domande?
質問はありますか?Spørsmål? Preguntas? Питаоа?
MoldTelecom and The Problem of Prices Rebalancing
The OECD Principles of Corporate Governance:
http://www.oecd.org/dataoecd/32/18/31557724.pdf
The OECD Guidelines on Corporate Governance of State-owned Enterprises:
http://www.oecd.org/dataoecd/46/51/34803211.pdf
ITC Sector in Moldova: Policy White Book:
http://atic.md/files/documents/ICT_en_final.pdf
Code of Corporate Governance of Moldova:
http://www.ebrd.com/downloads/legal/corporate/moldova_code.pdf
Corporate Governance Country Assessment for Moldova:
http://www.worldbank.org/ifa/rosc_cg_mdveng.pdf
MoldTelecom website:
http://www.moldtelecom.md/en/companie/
MoldTelecom Annual Reports (2001 – 2008):
http://www.moldtelecom.md/ro/companie/rapoarte/
MoldTelecom and The Problem of Prices Rebalancing
National Agency for Protection of Competition in Moldova website:
http://www.anpc.md/index_en.php
National Regulatory Agency for Electronic Communications and Information Technology of the
Republic of Moldova website: http://en.anrceti.md/front
Radio Free Europe in Moldova website:
http://www.europalibera.org/content/article/2326507.html
Moldova.org website:
http://economie.moldova.org/news/change-of-moldtelecom-tariffs-on-fixed-location-communications-
services-is-justified-216922-eng.html
IMEDIA website:
http://www.imedia.md/libview.php?l=en&idc=242&id=1813&parent=0
Government website:
http://www.gov.md/lib.php?l=en&idc=425
Ministry of Economics website:
http://www.mec.gov.md/organigrama