LAWRENCE J. SPIWAKPRESIDENT

PHOENIX CENTER FOR ADVANCED LEGAL & ECONOMIC PUBLIC POLICY STUDIES

www.phoenix-center.org

Enhancing Competitiveness in West Africa: What Companies and

Governments Can Do to Foster Regional Market Development

PHOENIXPHOENIXCENTER

Understanding the Basic Economics of the Telecoms

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Undisputed that a healthy ICT Sector is key to economic development. However, we must deal with the fundamental and universal truth:

Telecoms is a HARD Business. Entry is extremely expensive and requires firms to invest huge fixed and

sunk costs (plant and non-plant costs) and achieve scale economies. Given huge fixed and sunk costs and necessity of scale economies, the market

will be highly concentrated — “Fewness” will be the rule. However, “few” firms is still infinitely superior to monopoly – which is

bad – and can still produce significant consumer welfare benefits (price and non-price competition, progress, employment, etc.). Duvall & Ford, Changing Industry Structure: The Economics of Entry and Price

Competition, PHOENIX CENTER POLICY PAPER NO. 10 (April 2001). http://www.phoenix-center.org/pcpp/PCPP10Final.pdf

Ford, Koutsky & Spiwak, Competition After Unbundling: Entry, Industry Structure and Convergence, PHOENIX CENTER POLICY PAPER NO. 21 (July 2005). http://www.phoenix-center.org/pcpp/PCPP21Final.pdf

So What Does this Mean From a Policy Perspective?

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Where possible, we need to “rig the game” for entry… Good policy should remove entry barriers, not raise entry costs…

Make sure conditions are right so that firms invest and compete, rather than engage in strategic anticompetitive conduct or, worse yet, exit the market.

Examples: Avoid “commoditization” of products and services (“net neutrality”) – Instead,

allow for both price and non-price competition (product differentiation). Don’t dictate what firms can sell over their networks – limits profits; limits

investment. Don’t restrict how firms can manage congestion on their networks (negative

externalities). Beware of regulation creating the incentive for sabotage (e.g., “blocking”). Don’t let firm’s raise rival’s costs (e.g., build-out requirements for new entrants;

above-cost settlement rates/termination rates). Don’t create distortions in the market via an inefficient Universal Service System

(e.g., U.S. “identical support” rule with multiple firms).

Regional Opportunities: Supply Side

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Lots of things individual regulators can and should do to facilitate entry for their respective countries. Every country has its own geographic and demographic situation, so

a “one size fits all” policy may be less than optimal for some issues. However, regional cooperation should also be encouraged. Business is one of scale and scope, so regional cooperation can

help reduce transaction costs and facilitate entry across common economic trading area.

Examples: Harmonized Regulatory and Taxation Regimes

Prevents arbitrage Lowers transaction costs

Coordinated Spectrum Policies Regional Efforts to Facilitate Construction of Undersea Cables

Case Study: International Cable Landing

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No better example of regional cooperation than the facilitation of the construction of a new inter-continental undersea cable: Essential input – Gateway to the Internet Very little capacity serving West Africa now, resulting in high costs and low

demand for broadband. Process generally should be ministerial and pro forma (particularly in a

competitive market) for both consortia cables and private cables. If there is no meaningful competition in the landing country, then the

independent regulator must take steps that local dominant firm(s) do not exercise market power (i.e., raise prices and restrict output). E.g., backhaul, interconnection, access to IRU capacity at cost-based rates, etc.

When politics enter the picture, projects get delayed and consumers suffer.

See, e.g., FCC’s resolution of the 1999 dispute between Global Crossing and the Japan/US Cable Consortium. For further reading, see M. Naftel and L. Spiwak, THE TELECOMS TRADE WAR:

THE UNITED STATES, THE EUROPEAN UNION AND THE WTO (Hart Publishing 2001), Chapter 17.

Regional Opportunities: Demand Side

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While many people tend to focus on supply-side of the equation, it turns out that demand-side factors also play a key role in broadband adoption.

Factors such as income, income inequality, education, population age, population density, immigration, etc. all play a huge role in acceleration of broadband adoption. See, e.g.,

Ford, Koutsky & Spiwak, The Broadband Efficiency Index: What Really Drives Broadband Adoption Across the OECD? PHOENIX CENTER POLICY PAPER NO. 33 (May 2008). http://www.phoenix-center.org/pcpp/PCPP33Final.pdf

Ford, Koutsky & Spiwak, The Demographic and Economic Drivers of Broadband Adoption in the United States, PHOENIX CENTER POLICY PAPER NO. 31 (November 2007). http://www.phoenix-center.org/pcpp/PCPP31Final.pdf

Ford, Koutsky & Spiwak, The Broadband Performance Index: A Policy-Relevant Method of Comparing Broadband Adoption Among Countries, PHOENIX CENTER POLICY PAPER NO. 29 (July 2007). http://www.phoenix-center.org/pcpp/PCPP29Final.pdf

What this means: Traditional cross-border cooperation (free trade, regional economic development programs, immigration reform, etc.) remains crucial.

Other avenues should also be explored: e.g., Regional One Laptop Per Child program.

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