Regulation & investment: Sri Lanka case study
Rohan Samarajiva & Sabina [email protected]; [email protected] September 17, 2004, Mount Lavinia
2
Agenda Thumbnail of Sri Lanka telecom sector
Duration of reforms & data availability make Sri Lanka a good case
Overall pattern of investments in network Relation to worldwide trends
Fixed sector: telecom regulatory environment and investment 1993-2002
Mobile sector: telecom regulatory environment and investment 1993-2002
Conclusions
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Mileposts in telecom reform 1980: bifurcation of posts & telecom 1989: first mobile license 1991: new law; Office of Director General of
Telecom; corporatization of incumbent 1996-97: two fixed operators licensed;
regulator strengthened 1997: Partial privatization & ceding of
management of incumbent to NTT 2002-03: End of international “exclusivity”
& licensing of 30+ int’l operators
4
Market structure at end 2002 3 fixed operators (incumbent 86% market
share) 4 mobile operators (largest =54% market
share) 5 facilities based data operators 20+ non-facilities based data ops 30+ external gateway operators 1 trunk mobile operator 1 specialized infrastructure provider
5
Incumbent fixed, entrant fixed & mobile growth, 1993-2002
0
200,000
400,000
600,000
800,000
1,000,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Incumbent Fixed Entrants Mobile
6
Sri Lanka telecom growth 96-03Sri Lanka Telecom Growth, 1996-2003
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1996 1997 1998 1999 2000 2001 2002 2003
FixedMobile
Total
7
Growth, demand, etc. Fixed lines 20.9% CAGR (1997-2002)
7th highest Mobile connections 52% CAGR (97-02) 380,000 waiters in 2004 (43% of total
fixed subscribers--890,000)
8
Population, GDP & fixed telephony shares by province
9
Unwired Sri Lanka
10
Telecom Investment In Sri Lanka (USD mn)
0.0
50.0100.0
150.0
200.0
250.0300.0
350.0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Inve
stm
ents
(USD
mill
ion)
Incumbent (Govt. on-lending) Incumbent (internal) Fixed Entrants Mobile
11
Telecom Investment in Developing Countries (USD bn)
0
10
20
30
40
50
60
70
1993 1994 1995 1996 1997 1998 1999 2000 2001
Inve
stm
ents
(USD
bill
ion)
12
Risk affecting investment Macro-level or country Regulatory, and Commercial
Focus here on subset of regulatory risk, described as “telecom regulatory environment” Areas affected by actions of telecom
regulatory entities
13
TRE assessment Done as a pilot, with panel by Fernando et
al. in September 2004 Expert assessment done for earlier version
Overall shape of the panel and expert assessments not very different, but panel is harsher in judgment; expert is a little more volatile but generous
1993-96 TRE not done Because decisions not affected by regulatory
environment when government is sole supplier
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Fixed sector TRE over timeFixed TRE (Panel) 1993-2002
00.5
11.5
22.5
33.5
Mar
ket e
ntry
Scar
cere
sour
ces
Inte
rcon
nect
ion Ta
riffs
Anti-
com
petit
ive
Com
posi
te
1993-96
1997-99
2000-02
15
Fixed sector TRE over timeFixed TRE (expert), 1993-2002
0123456
1993-96
1997-99
2000-02
16
Sources of incumbent investment
0.0050.00
100.00150.00200.00250.00
Inve
stm
ents
(USD
mill
ion)
Incumbent (Govt. on-lending) Incumbent (internal)
17
Incumbent & fixed entrant investments, 1996-2002
18
Cumulative fixed investment & connections, 1993-2002
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
1993 1994 1995 1996 1997 1998 1999 2000 2001 20020
200
400
600
800
1000
1200
Fixed Subscribers Fixed Investments
19
Mobile sector TRE Again, overall shapes are similar, but
panel is harsh compared to expert Agreement that interconnection is
where TRE is worst, except for the expert who gives high marks for mobile interconnection in 1997-99
20
Mobile sector TRE over timeMobile TRE (Panel) 1993-2002
00.5
11.5
22.5
33.5
Mar
ket e
ntry
Scar
cere
sour
ces
Inte
rcon
nect
ion Ta
riffs
Anti-
com
petit
ive
Com
posi
te
1993-96
1997-99
2000-02
21
Mobile sector TRE over timeMobile TRE (Expert) 1993-2002
012345
Mar
ket e
ntry
Scar
cere
sour
ces
Inte
rcon
nect
ion Ta
riffs
Anti-
com
petit
ive
Com
posi
te
1993-96
1997-99
2000-02
22
Mobile investments 1993-2002 (3 operators only)
0.0
10.0
20.0
30.0
40.0
50.0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Inve
stm
ents
(USD
mill
ions
)
Dialog Mobitel Celltel
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Cumulative mobile investments & connections, 1993-2002
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 20020.0
50.0
100.0
150.0
200.0
250.0
300.0
Mobile Subscribers Mobile Investments
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Overall patterns, fixed Highest investments around entry of 2 new
operators Incumbent investments decline sharply
since 1999 peak Tapering off of govt on-lending Massive bypass; vindictiveness No investment brought in by NTT Interconnection determination appealed; legal
uncertainty Questionable MOU increases revenues but does
not induce investment
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Overall patterns, mobile Fluctuations driven primarily by standards-
related investments and new entry ETACS and AMPS GSM
Private investment (primarily mobile) overtakes incumbent investments in 2001
Massive investment commitments (USD 300m) announced in past 12 months, primarily by mobiles Allowed to carry international traffic March 2003 1800 MHz auction in 2003 April
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Concluding comments TRE methodology has significant
potential Contrast of fixed and mobile TREs and
investment patterns suggest a causal relation
Of course affected by macro factors: airport attack in 2001 and ceasefire from 2002 Feb had major effects