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Economic Freedom & Consumer Rights: Lessons from Sri Lankan Experience

Rohan SamarajivaSeminar on Economic Freedom in South Asia:

A springboard for socio-economic developmentColombo, 16 October 2008

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Agenda

What economic freedom has achieved in the telecom industry

Lessons for other infrastructure sectors/countries . . .

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Surprising facts about Sri Lanka from H’hold Income & Expenditure Survey, 2006

Homes with mains electricity 79.9%

Homes with fixed/mobile/both 46.5%

Safe source of drinking water 85%

Cooking with LPG 17.1%

Household non-shared toilet 89.1%

Almost half, should be higher now

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Household Access, 1981-02 (Consumer Finance Survey adjusted)

0

10

20

30

40

50

60

70

80

1981/82 1986/87 1991/92 1996/97 2001/02

Perc

enta

ge

Ow n w ell/piped w ater

Electricity

LP Gas for cooking

Radio

TV

Telephone (f ixed/mobile)

Motorized transport

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Supported by TRC data; high growth occurs in period not covered by Central Bank data (2002-)

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Fixed Mobile

Source: Telecom Regulatory Commission of Sri Lanka

Fixed and mobile telephone growth in Sri Lanka, 1992-2007

8 million mobiles + close to 3 million “fixed”

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72% of Sri Lanka BOP households will have access in 2008 (projected) higher for country as a whole

36%

19%

41%

62%

77%

70%

50%

72%78%

86%

0

25

50

75

100

125

150

Pakistan India Sri Lanka Philippines Thailand

Con

nect

ion

s at

BO

P (

mill

ions

)

0%

20%

40%

60%

80%

100%

% o

f ho

useh

olds

at

BO

P w

ith a

tel

epho

ne

Already own something Don't own but plan to buy

Current ownership at BOP (%) Penetration at BOP by mid 2008

Source: LIRNEasia

Unless the government succeeds in slowing down growth

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Some of the lowest prices in the world, based on comparing basket of services (Feb 2008; low-user basket)

Average monthly prepaid mobile cost for a Low User

Average monthly prepaid mobile charge for a low user

8.33

5.25

2.46

3.343.72

5.46

3.83

5.48

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Afghanistan Nepal Bangladesh Pakistan India Bhutan Sri Lanka Maldives

US

$

SMS

Usage

Rental

Connection

Nokia TCO study says Sri Lanka is lowest out of 77 emerging economies

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Pretty good performance

Half the population connected for sure; possibly 70% households with some kind of phone access Calling opportunities in 1992 = 100,000; now = 12,000,000

Some of lowest prices in the world; only industry with decreasing prices when everything is increasing in price

Quality of service not the greatest, but Choice is relatively good One of the biggest contributors to the Treasury One of the drivers of economic growth

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Other benefits to consumers

Disappearance of petty bribes needed for connections and maintenance

Consumer orientation among operators with service being brought to consumers electronically and otherwise

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Compared to . . . .

2001 data is latest; slower or faster today?

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Time-line of policy/regulatory actions that led to good performance

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Fixed Mobile

Fixed licensesissued

Incumbent partiallyprivatized; management contract given

Regulatory agency strengthened

4th mobileoperator enters market

Rate rebalancingbegins

Fixed-fixedinterconnection

Fixed-mobileinterconnection

Internationalmonopolyended

Government ownershipof incumbentreduced <50%through IPO. Fixed incumbent allowed to manage and fully own mobile operator

GSM 1800frequenciesrefarmed/auctioned

CDMA 800frequenciesrefarmed/assigned

5th mobileoperatorlicensed

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Right actions conducive to economic freedom Allowing market entry

Clean entry > dirty entry > no entry Market entry without spectrum is meaningless

Refarming and assigning as needed Adequate capital essential

Even the acquisition of a mobile operator by the fixed incumbent with potential for anti-competitive behavior helped drive the industry by creating a disruptive competitor

Enough space for companies to develop new business model (no “command-and-control” regulation)

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Lessons for other sectors/ other countries

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The guiding principle

Competition wherever possible; regulation where necessaryWhat is possible and what is necessary

will change depending on sector, country and time

Reform is not one-size-fits-all But that does not mean that the principle is

not of general applicability

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Good government

Is needed for effective provision of infrastructure services Where the best that can be achieved are

workable marketsGood government is unlikely when

government is doing too many conflicting things Supplying services Regulating Making profit Serving those not served by the market

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The solution includes

Separating the functions Do a few things well, not many things badly

Ensuring enough information comes out for regulation to be effective

Aligning incentives for efficiency and lawful behavior

Creating the conditions for as much participation as possible in infrastructure industries = maximizing economic freedom

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For more informationwww.lirneasia.netColumn: 

http://www.lbo.lk/showsubcategory.php?cc=24&t=s&nm=Choices (www.lbo.lk, choices)