Wireless

Strategically Liberalizing the Telecommunications Market

Brian J.W. Regli

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000149265
• Edition: 1
• Topic: Sprachen & Linguistik
• Subtopic: Kommunikationswissenschaften

The revolution of wireless communications has only just begun to transform the telecommunications industry worldwide. This book offers insight into the possible options for corporate strategists and government policymakers as they look to harness the expansion of wireless communications to meet the goals of sustainable telecommunications development. Using a multidisciplinary approach which combines policy research, legal analysis, business economics, and models of sustainability from the environmental sciences, the book compares the development of wireless communications in four countries: the United States, the United Kingdom, Russia, and Brazil. The comparative analysis points to common themes and opportunities, including:
* breaking down the barriers between wireless and wireline access by changing the regulatory design which constrains service providers;
* targeting the development potential of wireless access through the utilization of new technologies and service models; and
* using wireless access as the basis for full facilities-based competition in both developing and developed world markets. No other book today offers this broad a context for a discussion of wireless communications and its potential impact on the evolution of the telecommunications industry.

Competition and Development in the Telecommunications Sector

It’s a jungle out there.

It used to be a pretty well kept garden, perhaps overgrown a bit with weeds in some corners and underfertilized in others, but at least there was a sense that things were under control in the telecommunications sector. Governments owned the networks, provided the services, and kept the system running most of the time in the developed world, some of the time in poorer countries. Competition did not exist, infrastructure development was tied to public sector budget priorities or regulations, and the telecommunications sector provided the best investments for widows and orphans that Wall Street had to offer.

But today’s global telecommunications sector looks more and more like a jungle each day.¹ The organizational boundaries of the telecommunications sector shift on a daily basis. From internal reorganizations to external alliances and mergers, a pattern of evolution has been set in motion by the policies of privatization and liberalization worldwide. The species and creatures of this jungle are mutating and now provide new kinds of “features” and “service offerings.” The “biodiversity” of the telecommunications jungle is rapidly evolving as well, moving quickly away from the undifferentiated substance of plain old telephone service. In fact, there are almost as many theories about how to use the rich natural resources of this competitive jungle as there are new technologies, companies, and government regulators emerging on the scene.

That dynamic of change has irrevocably altered the path of telecommunications development and requires a reexamination of the sustainability of telecommunications infrastructures in this new environment. In this regard, the analogy to the sustainability of the jungle is apt and timely. The rainforest, much like a telecommunications network, is a resource. People draw on that resource for the purposes of development. Given the right conditions, the ecosystem can thrive and provide riches for those who protect the forest’s sustainability. But what are the right conditions for this rainforest known as the telecommunications sector?

To take our cues from the language of sustainable development pioneered by the environmental economists and policymakers, what we are looking for is a process for leveraging existing resources while simultaneously protecting them for future use. The art is balance. We need to give back to the forest what we take out, or eventually the forest will no longer exist. In many ways, sustainable development for the telecommunications sector means the same thing as for a tree in a tropical rainforest: Given a sufficient amount of sunlight and water (investment), the appropriate soil (regulation), and a community to feed from and compete with (the market), the trees and various inhabitants of the jungle (telecommunications companies) should grow and thrive.

But then humans come along and mess it all up. Slash and burn policies take away from the viability of institutions. New technologies are put on the shelf by companies who profit from existing technologies. Regulators, afraid of losing their jobs to the give and take of market competition, fence off territory and restrict activity. Thinking globally and acting locally takes on a whole new meaning as public and private sector institutions pull resources from the vast ecosystem that is beginning to thrive in our midst.

This book was written to try to make sense of the various strategies that connect the development of the telecommunications sector to successful corporate strategy and good public policy. Many commentators from academic, corporate and public sector circles have drawn connections between advanced telecommunications technology and the potential for economic growth, political participation, and social development. Increased competition has shifted some of the arguments made to guide government regulation and corporate investment policy, but the themes have largely remained the same. All around the world, corporate and public sector managers are still searching for the right combination of competition and development appropriate to the needs of today’s customers and tomorrow’s global information society.

Interestingly enough, one of the newer creatures in this jungle may be able to fight off the predators that roam largely unchecked through the underbrush—and provide a foundation for sustainability. Wireless communications, such as cellular, satellite, and wireless local loop technologies, have been developed to provide personal access to the telecommunications infrastructure. Of all the creatures of the modern telecommunications jungle, wireless communications has shown the energy to be a change agent for telecommunications providers and the potential to serve as a focal point for investment in the “public good” of service provision.

Yet wireless access has remained largely an appendage to the existing wireline telecommunications network. Dominant providers have been compelled by regulators to separate out wireless services from wireline, ensuring that providers cannot cross-subsidize, but denying them the opportunity to provide the seamless communications access customers want. High-cost applications are being used to sustain revenue streams, while lower-cost applications remain largely on the drawing board or relegated to smaller markets or test beds. That is no way to promote the evolution to competition and diversity in global telecommunications.

This book suggests one potential alternative to the present evolutionary course for wireless access, a policy called strategic liberalization. Strategic liberalization is defined as the implementation of specific policy measures to increase competition in the market for wireless access services, such as cellular, wireless local loop, and satellite communications. It argues that a strategic focus on wireless communications will provide a sustainable foundation for the continued growth of the telecommunications sector and the successful introduction of new products and services in an environment of facilities-based competition.

But why should public and private sector managers place a strategic focus on wireless communications, as opposed to the variety of other possible access technologies and service offerings that may be made available in an increasingly competitive market? Why should regulators think of wireless communications as more than just an ancillary service to the traditional wireline network, and understand its potential as a cornerstone for telecommunications development? Those are just the opening questions in this comparative analysis of infrastructure development strategies and discussion of the potential role for new wireless telecommunications technologies throughout the world.

Telecommunications Development: Corporate and Government Institutions

May you live in interesting times, the old Chinese curse goes. For corporate managers and government policymakers throughout the world, our interesting times might certainly be seen more as a curse than as a boon. The institutions that have been constructed to provide telecommunications and information services to the people of the world are under increasing pressure. The pressure from customers is evident in both the developing and developed world: Improve the quality of existing services, lower the cost, and make advanced services more accessible to everyone. At the same time, new technologies are quickly making parts of the traditional telecommunications network obsolete. The development and introduction of new services requires a further institutional transformation for the world’s private and public telecommunications providers. So there are forces driving the transformation of public and private institutions in the sector, affecting both the nature of demand for telecommunications and information services and the means by which these services are supplied.

It has not always been this way. Since the inception of public telephone and telegraph service in the middle of the 19th century, the primary models for the development of national and global telecommunications networks have been dictated by economies of scale and national interests. Centralization and monopoly have been the key, resolving the problems of both supply and demand in a neat, tightly regulated package. But we live in a world that can no longer sustain that paradigm of development, and the well rehearsed debate about the importance of economic intervention by government and the value of free-market policies offers limited direction in these interesting times.

That is because the institutional foundation of corporate service providers and government regulators has shifted dramatically in the past few decades. In turn, the grounds for collective action between public and private sector institutions has also shifted. There is a need to take a step back and redefine how we understand the institutions responsible for telecommunications development and the grounds on which a common framework for telecommunications development can be set.

The Transformation of Corporate Institutions in the Telecommunications Sector

To put it simply, corporate institutions used to be public utilities, either owned by governments directly in single shareholder arrangements or highly regulated and closely watched. The justifications for this approach were based on assessments of the economies of scope and managerial needs of telecommunications providers; high fixed costs made new entry difficult, and the duplication of infrastructure was considered a wasteful investment. Institutional structures were based on those assessments, and highly bureaucratized, highly centralized models for telecommunications development were born.

But the technological foundation for providing telecommunications services has been altered by the development of digital switching, transmission technology, computerization, and a host of related innovations. New providers found that the barriers for entry were not as high as once thought. Customers demanded new kinds of services, new kinds of connections and new capabilities that the old copper telephone network could not really support.

The result has been the uneven adaptation of telecommunications providers throughout the world. On one hand, they remain closely tied to their heritage as the main driver of telecommunications investment and as the institution responsible for providing service to as many people as possible at a price palatable to the political institutions. On the other hand, providers are attempting to carve out a vision of themselves as competitive and agile, able to respond to customer demands, new technologies, and marketplace changes. Anyone working in the telecommunications industry around the world can tell you that they are not quite there yet, but the rhetoric will have to meet the reality as competition presses for more institutional changes.

The Transformation of Government Institutions

Government institutions once had the comfortable position of oversight alone, playing the roles of customer advocate, business economist, financial analyst, social theorist, and infrastructure planner all at the same time. In some cases, such as in the European countries, the government institutions responsible for managing and regulating the telecommunications infrastructure were highly centralized. In the United States, competing local and state jurisdictions mingled with what was a wholly American solution to the need for a strong private sector and a highly regulated market: the creation of AT&T. In developing countries, governments often spent a great deal of time trying to figure out how to drain money from telecommunications revenues to meet social needs.

Now the demands on government institutions are more varied. Government institutions are now being called on to act as investment bankers to provide financing, as arbiters in disputes between competitive adversaries, as repositories of knowledge and capabilities, and as identifiers of new technological developments. But there are few, if any, models for this kind of proactive governmental institution, and there are many voices calling for the outright abolition of regulatory agencies and government institutions involved in the telecommunications sector. In theory, a highly competitive market should require less regulation, not more. But because there are jobs at stake among professional regulators and government bureaucrats, there will be an increasingly apparent effort to define roles where government institutions can play a credible and active role in telecommunications development.

The Grounds for Common Action

Common action among government and corporate institutions defines the ability of nations to actively determine their progress toward social goals and objectives, such as economic growth, and modernization. A combination of legal structures, bureaucratic arrangements, and social compacts guide institutional interaction which, in turn, affects how resources are allocated and goals are set. The effort to use corporate and public policy to jointly fuel economic and political development depends on institutional structures and arrangements.

The framework shared over the past century was one that had relatively straightforward accountabilities. The political goals were increased penetration and access for citizens; the corporate goals were modified accordingly, often to the detriment of profitability. But that arrangement is no longer sustainable, because governments are aware that the mandates of the past are not relevant to the market of the future, and corporations know that sustainability in a competitive environment is far different from treading water in a highly protected market.

The problem is that, in an environment where change is constant and no one is quite sure what the purpose of these institutions is going to be, establishing a ground for common action is extraordinarily difficult. Changes in technological, economic, and social facts open new opportunities to improve how a community allocates resources and sets goals, and our global society should be looking to identify the opportunities and take advantage of them.

That is not to say there has been no collective response to these opportunities. In fact, the response has been dramatic, not incremental, even though the results have been uneven and more questions have been raised than have been answered. The response can be summed up in two words: privatization and liberalization.

Privatization and Liberalization: The Response to Change

The common agenda that has been defined and enacted over the past 15 years in the global telecommunications sector has been the privatization of state-owned and operated assets and the opening of markets through liberalization. The reasoning for why this agenda has been accepted and implemented throughout the world as a strategy for telecommunications development probably comes down to a simple equation. New telecommunications technology requires money, and privatization brings in money. So, especially for developing countries hungry for capital and investment, privatization is an agenda to which both corporate and government institutions can agree.

But the values of liberalization are not as clearly defined and are, as one may expect, much more a point of contention. Because there are so many corporate institutions around that want to play the game and build telecommunications infrastructures, the market should allow them to flourish—within manageable bounds, of course, to ensure that certain social needs are met. But what is the criterion for the common management of telecommunications development in a competitive environment? Until those values are defined and agreed upon by corporate and government institutions, the debate will remain and the contention will hinder our ability to connect telecommunications development with economic growth, social modernization, and political participation.

It is at this point that we enter the debate in earnest and begin to sketch out the possible responses to the challenges of institutional transformation. It is important to begin, then, with a discussion of the values that underlie the strategies of privatization and liberalization that have been at the foundation of recent telecommunications development programs. From there, various kinds of liberalization schemes can be examined and compared, thereby launching the broader discussion of strategic liberalization as a policy proposition and as the basis for corporate strategy.

Ownership

Even though public and private-sector institutions are very different, there are a number of similarities when it comes to the problems and techniques of management. A politician, as a representative of the people, chooses to use the authority available to change policy on a given issue. A corporate chief chooses to implement one plan over another, and alters the balance sheet and the kinds of products and services available to the community the corporation serves. Both of them are working to control resources in a fashion that serves either their interests or the interest of the community as a whole.

Nevertheless, it is the different ownership structure of private and public institutions that determines many of the differences between the two. Ownership determines the purpose of management by articulating the business goals of the company. In turn, those goals shape the character of the job functions and the measurements for success and failure. In the case of economic institutions, such as a company that provides telecommunications services, one can reasonably speak of a continuum of ownership options available: total ownership by the state, to total ownership by the private sector. There are various alternative arrangements that exist along that continuum, and many economies in transition have decidedly complex arrangements whereby ownership between government and the private sector is shared.

The main difference between the two extreme cases is the management goals. The goal of any privately held corporation is ostensibly to maximize the value of shareholder investment (O’Reilly, Hirsh, Defliese and Jaenicke, 1993). It is the shareholders who determine the management by appointing directors, who then appoint executive officers to carry out the management directives. Publicly held companies are often in the position of having their goals set for them by the politicians. Returns on investment are tightly regulated, competition is simulated through certain kinds of incentives and disincentives to invest, investment requirements are mandated, and personnel is often assigned by the political d...