Apr 07, 2009 (LBO) – In 2006, Zain Africa took a step that led to the abolition of roaming charges and made a significant contribution to economic integration of the East African region. They did more for making the East African Community real than several meetings of government leaders and officials combined.
Integration in practice
Economic integration is not achieved by pious declarations. It is achieved by actions of economic agents who produce goods and services and trade them. Governments have a role to play, but it is an enabling role. They must remove the artificial barriers that hinder the activities of economic agents within the region to be integrated. Among of the most obvious barriers are tariffs on goods.
Less obvious, but perhaps more important are barriers to seamless transport and communication.
If vehicles carrying goods cannot move across borders with minimum delays and fees, trade across those borders will be stifled. If leased-line prices among the countries within the region to be integrated are not lower in relation to leased-line prices to destinations outside the region, it is unlikely that trade in services within the region will grow.
If business persons cannot easily travel among countries within the region, the governments cannot be serious about integration. Unless telephone calls within the region are cheaper than calls to locations outside the region, it is reasonable to dismiss declarations on economic integration as hot air. Unless rapacious roaming charges are reduced, at least to citizens of countries that are being integrated, one can assume that there is a failure of political will.
In short, the costs of doing business within the region including transport and communication costs must be brought down to levels below the costs of doing business outside the region. When this is done, the economic actors will complete the job. They will travel, they will trade, and they will invest. That is how economic integration happens. Not by reading out sonorous declarations.
One may ask “why integrate regionally?” It is common wisdom that producing to one’s strengths and trading is superior to trying to produce everything. China was once the paragon of self sufficiency, and poor. It started producing to its strengths and trading. Now it is rich.
One should trade with whoever gives the best price. No point in trading within one’s own region on principle. But many developing economies are too small to exploit economies of scale. Regional integration, which includes investment as well as trade in goods and services, allows these economies to be realized. Regional integration should not come as a substitute for international trade, but as a supplement. However, in the present circumstances where the developed-market economies are in recession, there is added merit in regional trade.
Words, not deeds
In August 2008, the leaders of the SAARC countries met in Colombo and adopted a declaration that said among other things that intra-SAARC telecom charges must be lowered to levels below those of calls to destinations outside the region. They also agreed that roaming charges should be lowered.
More than six months have passed, with little results other than Lanka Bell and Dialog in Sri Lanka lowering their call charges to India. On their own volition and no thanks to the regulator. Good first steps, but far short of a comprehensive solution. In October 2008, the region’s telecom regulators met under the Chairmanship of the Indian regulator.
They were provided with data on intra-SAARC international call rates and roaming charges. What actions they initiated are not known, but the results are not visible to the naked eye.
It is still cheaper to call the US from Pakistan than any country in the SAARC. It is still cheaper to call Singapore from the Maldives than any of its regional neighbors. And roaming is still rapacious (for detailed information on rates to all countries, see full tables, including explanatory and qualifying notes, at: http://lirneasia.net/wp-content/uploads/2009/03/international-voice-prices-feb-2009-v2.pdf. Following OECD practice, the rates are given for the most popular packages of the largest operators in the respective countries.
It is possible that lower prices may exist for specific services, but the premise is that the selected prices affect the most users.
In the face of imperceptible implementation by regulators, one is tempted to move to Plan B: see whether the stated policy objectives of the Heads of State can be achieved by operators, working around somnolent regulators. That is where the East African case comes in.
East Africa leads the way
Zain held licenses in several East African countries (as well as others ranging from Bahrain in the East to both the Congos in the West). They were under competitive pressure from well-resourced operators such as MTN. In order to hold their market share and grow their share of high-users who tend to travel internationally, they came up with the idea of eliminating roaming charges within the East African region, as long as the customers kept using Zain networks.
They would be charged whatever Zain charged its customers in the country they were traveling in, and they could, if on prepaid plans, using cards from the home country or the host country. If postpaid, the billing would be in the home country. The opacity of roaming prices was eliminated in one stroke.
Seeing a competitive threat, the other carriers such as Safaricom and MTN, now entered into a consortium within which one could roam on the same basis as on Zain.
Without direct government action, other than enabling policies such as the abolition of international gateway monopolies, and the kind of fuss that has accompanied the regulation of roaming charges within Europe, roaming has been abolished in East Africa.
Why not in South Asia?
Why can this not be done in South Asia? Telenor has a presence in three of the major markets in the SAARC region: dominant in Bangladesh; significant in Pakistan and getting established in India. Airtel is in India and Sri Lanka. What if they simply allow their customers to roam at normal rates within their networks?
Then we might see Mobitel in Sri Lanka take the lead in establishing a consortium with BSNL in India and Dhiraagu in the Maldives to offer a similar facility to its roaming customers. The consortia would grow, and roaming rates would come down from their present rapacious highs. Unless the competitive response kicks in early, the first mover may even gain some new business.
Whatever happens, the end objective of regional integration will be served. And at the next SAARC Summit, the leaders of the region’s governments can take credit for having implemented at least one of the items of the Colombo Declaration.