Prerequisites for making Sri Lanka a hub: Telecom

Feb 08, 2010 (LBO) – Sri Lanka is to become a “Naval, Aviation, Commercial, Energy and Knowledge hub.” What can telecom contribute to the achievement of this vision? If the five-fold hub is to be realized, telecom connectivity with the world and within the country is vital.

For all five aspects, cheap, plentiful and high quality leased lines are essential. It is difficult to envisage a knowledge hub without allowing all citizens who so wish to harvest the potential of the Internet.

To harvest the potential of the Internet, a metamedium that allows one to retrieve information on a plethora of topics, to publish information, to engage in transactions, including payment, to remotely compute and so on, ubiquitous broadband is the necessary precondition. Today, for the most part, telecom is a consumption good, a way to spend money in return for various utilities.

In the next stage, telecom will become a production good, a way to make or save money. Today it takes money from our pockets; tomorrow, if things are done right, it will put money in our pockets or at least keep more money from leaving the pocket.

To make broadband ubiquitous and the Internet an integral part of all interactions and transactions, we need a new wave of investment in networks and services by the current telecom operators and by new service providers, larger than that which solved the voice connectivity problem. The analogy is to roads. Today we have the equivalent of the network of “A” roads across the country.

They are congested, accident-prone and slow, but they exist. What we need are expressways (limited-entry/limited-exit highways).

 

 

 

 

 

 

 

 

 

The voice-connectivity problem is solved in Sri Lanka. There are somewhere in the range of 14 million connections active for a population of 20 million. Even those who do not have a phone in their own homes can reach one easily. Prices are among the lowest in the world. Quality leaves something to be desired, but is a tractable problem. To get from congested roads (current telecom network) to expressways (ubiquitous broadband), significant investment is required. We got to the present level of narrowband connectivity not because of government investment, but because the government pulled back and allowed the private sector to invest with a modicum of regulatory certainty.

What is needed for the next leap is also just that: a decent regulatory environment in which investors can make business plans that are likely to have some semblance to reality; taxes and levies that do not change from year to year; the basic requirements of adequate and timely spectrum, access to rights of way and tower locations; non-discriminatory and cost-based access to essential facilities such as cable stations; some basic level of regulation of anti-competitive practices. If these things are there, the investments will be made.

With the country likely to achieve six percent growth rates for the next few years without any trouble http://www.lankabusinessonline.com/sri-lanka-bangladesh-population-dividend-of-danger/, the perception is that there is money to be made. Investments will happen. Further, there’s Arab money looking for parking places, Indian money looking for a place to put the first exploratory foot down, Chinese money looking to lessen the dependence on the US and so on.

The government does not need to decide on the services that will be offered or even set the standards except for interacting with government. The decentralized innovation process known as the market will look after all that, as long as there is adequate entry and minimum safeguards against monopolization.

So the picture looks good.

The only problem is that the basic precondition of a decent regulatory environment has been eroded.

The Telecom Regulatory Commission has become the opposite of what it was intended to be. Instead of shielding investors from the arbitrary actions of government, it has become the instrument of arbitrary and capricious action. Vetath niyarath goyam ka nam . . . It has become one of the principal revenue earners for the government:

 

 

 

 

 

 

 

It is shocking that a regulatory agency is generating more revenue for the government than the Port and the Petroleum Corporation. Perhaps it is time to rename the TRC as the Telecom Revenue Commission.

This is money extracted from the industry through spectrum and various regulatory fees that have been doubled and quadrupled over the past few years. This does not include the special taxes levied directly from customers through the telecom operators such as the 10 percent telecom (originally mobile) levy http://www.lankabusinessonline.com/taxes-in-sri-lanka-limiting-the-damage-or-doing-good/, and the money extracted to support the many expenses of the Environment Ministry http://www.lankabusinessonline.com/what-is-best-for-sri-lankas-environment-tax-or-incentives/. Of every rupee spent by a customer on telecom, around 30 cents is extracted by the government http://www.lankabusinessonline.com/should-sri-lanka-have-lower-taxes-or-more-government/.

The TRC is raising revenue, but perhaps it is also doing a decent job regulating? Perhaps we can call it the Telecom Revenue and Regulatory Commission? Unfortunately not. By allowing the President’s Office to impose a sender-keeps-all interconnection regime on the industry and by not taking action to control the explosion of international bypass traffic that resulted from this ill-considered act, the TRC has allowed the generation of large amounts of black money and deprived both legitimate operators and the government of revenue.

From a situation where all operators were making healthy profits, the inaction and bad actions of the TRC have brought the industry to a state where none are making profits, not even Sri Lanka Telecom, which used to make money even when government-owned.

One company losing money for one quarter is that company’s fault; but the blame for all companies losing money over multiple quarters must be laid at the door of the regulatory agency.

In addition, the TRC has become the direct instrument of bringing politics into the industry, as evidenced by the infamous free-of-charge new-year’s day SMS from one presidential candidate that was sent at the behest of the former Director General. This is described as administrative expropriation http://lirneasia.net/2010/01/administrative-expropriation-in-practice-how-regulators-can-ruin-the-investment-climate/, and exactly what regulatory agencies were created to prevent.

The previous Director General was unqualified to head a regulatory agency and he did things that were not authorized under the Act. He should have been removed for those reasons, but was not. He was asked to go for purely political reasons.

The new Director General is going to run the TRC on a part-time basis, in addition to running the government information department. He too does not appear to have any special expertise in telecommunication or in regulation. With the part-time, ex officio Chair being the most over-burdened official in the country, the Secretary to the President, one wonders who is actually going to run the TRC. Or perhaps the thinking is that it is beyond redemption. Is it that the Special Committee to Develop Broadband http://www.dailynews.lk/epaper/art.asp?id=2010/02/03/Pg08_1&pt=p&h= is seen as an adequate substitute.

In these circumstances, it is difficult to envisage how the next wave of investments needed to allow the people of Sri Lanka to harvest the benefits of the Internet economy will materialize. It is difficult to see how the telecom sector can make its essential contribution to making Sri Lanka a five-fold hub unless governance is improved, not just by improving the management of the regulatory agency, but by bringing in a new Act to replace the current obsolete and failed statute. If the government is serious about the telecom sector contributing to the five-fold hub plan, it has to grasp the nettle and fix the dysfunctional telecom regulatory regime.

Thus ends the first attempt to discuss economic reform with governance deemphasized http://www.lankabusinessonline.com/policy-choices-in-sri-lanka-five-years-what-next/. I failed; but will continue to try.

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to the main navigation panel and click on ‘Choices’ category.