A World Bank/International Finance Corp report says international telephone traffic has been expanding at about 16% per year for the last decade – about four times the pace of the world economy, hears the South China Morning Post. However, much of this growth has been concentrated in the more developed countries, while the less developed countries have been left behind. According to the World Bank, countries outside the Organisation of Economic Co-operation & Development, which account for 85% of the global population, have under 30% of all telephone lines and suffer an acute shortage of telephone connections. Observers are particularly concerned about the state of telecommunications infrastructure in Asia’s Low Income Countries, in terms of the cost of building networks in these countries and of possible sources of necessary capital. A World Bank paper finds that more than 2,500m people in Asia’s low income countries have access to little more than 25m telephone lines. The Asian low income countries, defined as countries that can show per capita income of $600 or less, include China, India, Indonesia, Brunei, Nepal, Vietnam, Cambodia, Sri Lanka and Pakistan.

Waiting time

In countries such as Sri Lanka, the Philippines and Cambodia, the waiting time is 10 years and more to obtain a telephone line. The shortfall is equally acute in India. According to Finolex, an Indian telecommunications cable operator, the country has a telephone density of eight telephones per 1,000 people, compared to a world average of 100 phones per 1,000 people. Finolex reports that there are 8m lines and a waiting list of more than 3m. Many of these countries are stepping up the pace of change as they recognise that their ability to upgrade their telecommunications industry will determine their economic prospects in the next century. China, for example, has set a target of installing 4m to 5m new telephone lines annually this year and next to 1995, and at least 8m lines per annum thereafter, to more than triple its present base of 17.5m lines by the year 2000. Similarly, Indonesia says it aims to double its base of telephone lines to more than 2.5m by 1995 and add another five million lines by 2000. In Thailand, exchange lines in service increased by 22% in 1993, more than double the country’s gross domestic product growth, finds Morgan Stanley in a report on the nation. The rush among these countries to catch up has led to the joint question of how much money is required by these emerging nations to catch up, and where the money will come from. This question centres on the debate between the merits of deregulation and competition versus the merits of a monopolistic national telecommunications authority. Most Asia-Pacific countries have opted for liberalising the sector. As to the costs, Salomon Brothers vice-president Andrew Harrington estimates that $200,000m would be required to install 100m lines in the Asia-Pacific region in the next 10 years.

By Emma Woollacott

If these funds were to materialise, about half the capital for the 1990s would have to come from private sources, says Harrington. However, he added that competition for funds is hotting up, because supply in capital is growing less quickly than demand. Norman Nicholls, technical advisor to the International Finance Corp, suggests the best way for governments to attract foreign capital is to provide equity participation in telecommunications projects. The simplest and cleanest thing to do is to invite the investor to come in and share the profits, said Nicholls. His view is that equity participation, as opposed to simply providing loans, would give an investor added incentive to ensure the scheme worked well. Moreover, Nicholls says any country that ran its telecommunications system well and achieved a certain level of network penetration would have no need for any borrowing. One of the things that is sad from the World Bank’s point of view is that we go to countries where it is obvious that if a telephone company were well-run they would not need to borrow any money. Yet th

ey are taking concessionary loans to buy equipment that is not appropriate, borrowing money from the World Bank that they do not need, he added. Ending monopolies is the preferred path of most Asia-Pacific countries. The Indian government has stated that basic telephone services across the country will be opened to private sector franchises. Similarly, in Singapore, Singapore Telecom has given notice that by 1997 it will have competition from BellSouth Corp and others in the mobile telephone and data services markets. Retail investors are also finding that with the trend towards competition and deregulation, there are now more investment opportunities in the industry. According to Harrington, in 1990 there were four listed telecommunications companies in the region, while he estimates that by the end of this year the number could reach 60. However, there are dangers to both the countries in question and potential suppliers. According to a spokesman for Koteen and Naftalin, a US legal firm with a particular interest in Asian telecommunications, the urgency of providing communications services in Asia to hundreds of millions of people, together with the potential profits to the private sector, have often meant contracts are being signed and investment committed before governments have enacted appropriate legislation or adopted necessary regulations. According to the spokesman, speaking at a round table forum organised by Economist Conferences in Hong Kong earlier this year, there are two basic models for countries to allow for, and encourage, private sector participation in the telecommunications sector. The first is the so-called ‘top-down’ approach, focuses on the eventual privatisation of state telecommunications companies.

Bottom-up model

Typically, the operational and policy roles of the telecommunication body are separated, with shares eventually offered in the operational side of the telecommunication company to allow for private participation, either as a complete asset sell-off, or part sell-off. The ‘bottom-up’ model seeks to mobilise private capital by creating opportunities for new players to enter the market. This can be achieved by issuing new competitive franchises for independent telephone companies, or the franchising of un-served or under-served areas of the market, or allowing joint ventures between local and foreign companies for new facilities, such as satellite, mobile or data networks. The World Bank and the International Telecommunications Union have concluded both mechanisms have a role to play. If Asian countries want to attract foreign capital, the consensus in the developed world is that countries that cannot guarantee resonable returns on investment, however this is achieved, will find themselves without either private or institutional backers.