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Privatizing Telecommunucations Systems: Business Opportunities in Developing Countries.

Long Waits for Telephone Services Put Some Countries' Development Efforts on Hold

According to a report published by the International Finance Corporation (IFC), weak telecommunications systems in developing countries are not only an inconvenience for households, but also a serious impediment to economic development.

Getting a telephone installed in a Tunisian household can take five years. In Pakistan, waiting for telephone service can take 10 years. And Ghanaians face waits of up to 30 years.

In many developing countries, even if you have a telephone, there is no guarantee that it will work. And if it does work, it is likely that you will have to dial the number several times before your call is connected.

According to a report published by the International Finance Corporation (IFC), weak telecommunications systems in developing countries are not only an inconvenience for households, but also a serious impediment to economic development. And the impediment is becoming insurmountable in some countries.

"Telecommunications infrastructure is just as essential to a country's economic development as any other type of infrastructure, says Jean-Paul Chapon, a senior engineer in IFC and co-author of the report, "Privatizing Telecommunications Systems: Business Opportunities in Developing Countries".

"If you don't have good roads, farmers can't transport their crops to markets," the IFC engineer says. "If you don't have telephones or other telecommunications services, crop-marketing agencies can't keep up to date on changes in the international commodity markets, and exporters can't arrange shipments of these goods overseas."

The IFC report says that developing countries are "recognizing that a modern telecommunications infrastructure is necessary not only for domestic growth, but also to be able to compete in world markets and attract foreign investment." The report adds that "the rapid advances in information technologies have allowed businesses to access a broad range of information on goods and factor prices, exchange rates and transportation and insurance costs almost simultaneously." But the report warns that "only those countries and businesses equipped with the necessary technologies have been able to take full advantage of the increased availability of information."

"The problem in many countries," Mr. Chapon explains, "is that investments in telecommunications have not been a priority." These investments require huge capital investments and sometimes divert funds from politically attractive spending on food subsidies and big urban hospitals.

"It's a vicious circle," Mr. Chapon says. "Governments that are strapped for cash are not spending enough money on telecommunications services, so these services deteriorate because equipment is not repaired, updated or expanded. And as the services deteriorate, subscribers refuse to pay their bills. And the unpaid bills lead to fewer revenues available for improvements to the telecommunications network".

In Zaire, Mr. Chapon points out, there are only 30,000 telephone lines serving the whole country, and service is limited to two major cities. At any given time, only a fraction of the lines are working. Zaire's situation is commonplace in the developing world, he adds. The demand for service grows, while the quality of service drops, and the waiting list for telephone hook-ups gets longer and longer.

Scarce resources are not the only obstacle to telecommunications development in many countries, Mr. Chapon explains. Inefficient operations in many state-owned telecommunications utilities are also a problem. Many government postal, telephone and telegraph (PTT) monopolies are not profit-oriented so there is no incentive for them to provide high-quality services to businesses and households. And many of the PTTs are bloated bureaucracies that commonly employ many more staff per telephone line than telephone companies in the United States and other developed countries.

There are also a variety of labour laws and restrictions on private and foreign investment that prevent some PTTs from improving services and employing innovative, cost-cutting technologies. A number of countries are looking for ways to either overcome these obstacles, and their efforts often include measures to either privatize or liberalize the telecommunications industry.

Privatization can take several shapes, the IFC report says. Governments can choose to sell all or part of a PTT as a single entity. Or, various operations within the PTT-such as long-distance telephone services - can be parceled off and sold. Liberalization involves opening the door for private-sector competition in certain services, such as in developing a cellular telephone network.

Several countries, such as Chile and Mexico, have already taken steps to privatize or liberalize their telecommunications systems, despite the many obstacles they face. As a result of these efforts, Chile's main telephone company is rapidly expanding its network and is now reporting profits. Mexico is working out the details of its privatization program, and similar measures are under way in Bangladesh, Hungary, Malaysia, Pakistan and Poland.

The argument for privatization, the IFC report says, is that "thus profit mentality of private corporations will force the PTT organization to become more efficient." But the report warns that "simply moving a monopoly from the public into the private sphere will not result in competitive behaviour. Rather, this must be coupled with an appropriate regulatory environment and low enough barriers to entry to permit competition." The report adds that "these conditions are by no means satisfied in most developing countries".

As the economies of the developed and developing worlds become increasingly interrelated, developing countries will be under increased pressure to improve their telecommunications infrastructure, the IFC report concludes. Funding from bilateral and multilateral agencies is likely to be available to support these improvements, but funding alone will not solve problems stemming from inefficiencies in PTTs and a scarcity of technical and managerial resources in some countries. "The private sector is expected to take on a much greater role through privatization of government carriers, but not before stronger regulatory mechanisms are in place."

"Privatizing Telecommunications Systems" Business Opportunities in Developing Countries" is priced at $5.95. Journalists may receive complimentary review copies by writing, on company stationery, to the World Bank, Publications Department, Marketing Unit, Room T-8051, Washington, D.C. 20433.

Jean-Paul Chapon co-authored the report with William Ambrose, a consultant for IFC, and Paul Hennemeyer of IFC's Business Development Department.

1988 Telephone Waiting Lists
 Wait Period
Algeria 8.5
Argentina 21.9
Colombia 4.3
Egypt 27.1
Ghana 30.0
Indonesia 7.8
Jamaica 22.3
Malaysia 0.6
Pakistan 10.0
Philippines 7.1
Poland 12.2
Sri Lanka 8.5
Tanzania 10.9
Thailand 3.6
Tunisia 5.0
Uruguay 2.8
Venezuela 8.1
Zimbabwe 5.3

Source: ITU, Pyramid Research, Inc.
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Publication:Economic Review
Article Type:Book Review
Date:Mar 1, 1991
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