Regulation & investment: Sri Lanka case study

Rohan Samarajiva & Sabina FernandoSamarajiva@lirne.net; fernando@lirne.net 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

3

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

14

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

23

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