Regulatory Issues and Privatization

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Session IV Regulatory Issues and Privatization
Dr. John Ure Director Telecommunications
Research Project University of Hong Kong
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Privatization by Transfer

• 100 per cent transfer of SOTE by SIP using IPO
• Partial privatization IPO in tranches
• Privatization by auction in placement
• Vouchers, certificates, employee or management
  buyouts
• Liquidation

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Privatization by Entry

• Joint ventures
• Build Transfer (BT)
• Build Operate Transfer (BOT)
• Build Transfer Operate (BTO)
• Outsourcing
• New Entry

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Reasons for Privatization

• Economic are these the drivers?
• Improve state finances
• Reduce costs of administration
• Promote local capital market
• Improve output and quality performance
• Promote NII and ICTs
• Facilitate trade and investment
• Meet treaty obligations (WTO, AFTA, etc)

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Reasons for Privatization

• Political are these the drivers?
• Response to user complaints
• Pressure from trading partners
• Response to private sector lobbying
• Promote important local constituencies and ethnic
  groups
• Free market ideology

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Loaded Issues

• Tariff Rebalancing
• (1) step-by-step? (2) Lack will skew competition
  policy
• Job Loss
• (1) Job gain from competition? (2) Compensation
  mechanisms
• Social Obligation
• (1) PTT failed (2) Solutions USF auctions
  regional allocations etc.
• National Sovereignty Security
• (1) diversity of networks (2) security issue
  easily overdone? (3) national industry standards
  undermines or undermined by post-privatization
  competition?

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Aims of Privatization

• To appeal to stakeholders, especially
  constituents
• Winners
• ICT Ministries
• Private sector investors
• Business users/ middle class consumers
• Skilled and younger workers
• Losers
• Other Ministries
• Tied-in contract suppliers
• Consumers making only local calls
• Less skilled and older workers

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Results of Privatization

• General findings of econometric studies
• Usually performance improvement, but not always
• Often abnormal profits following IPOs periods
  of exclusivity!
• Telecoms Productivity, Output and Employment
• Output generally increases and employment in SOTE
  falls, but rises among competitors
• Telecoms Prices
• Very difficult to make meaningful cross-country
  comparisons
• Heavy handed regulation usually inhibits price
  reductions
• Investment
• No clear evidence one way or the other, but again
  heavy hand regulation seems to be a deterrent

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Results of Privatization

• Competition and Regulation
• Privatization probably less effective in raising
  output, labour productivity and profitability
  than competition
• Exponent growth in demand swamps the results?
• Regulation
• Almost impossible to isolate regulation from
  other factors
• Heavy handed regulation can be counter-productive
  vs. incentive regulation
• Market structure post-privatization influenced by
  regulation as well as by other factors such as
  the general economic climate

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Lessons and Guidelines

• Clear aims
• Commitment and Leadership
• Corporate Structure, Governance and Reforms
• Privatization Targets
• Government, Management and Labour
• Regulatory Structure
• Tariff Rebalancing
• Interconnection
• Competition
• Convergence
• Licensing
• The IPO
• Restrictions
• Debt

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Thank YouDr. John UreDirectorTelecommunicatio
ns Research ProjectUniversity of Hong
Konghttp//www.trp.hku.hk