Competition and Regulation in the Telecommunications Industry in ...

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Competition and Regulation in Telecommunicationscallback services have sprung up in countries like the USA whereby a customer fromSouth Africa places a call ‘as if’ they were in the USA through the callback operatorcalling them and connecting them to the number they wanted to call. Finally, inmobile telephony one can arrange international roaming agreements for mobilephone users to capture their consumption. Any calls that they make abroad will berouted back through the domestic network, allowing the domestic mobile networkprovider to capture some of the charges on that call.However, for basic voice products in the local access market, the competition mustcome from domestically situated firms. As such, provisions around foreign ownershiplimits will serve to restrict competition.1.3 Role in the economyCommunications services play a key role in any economy – from being an importantintermediate input to business, an enabling medium for a range of content providers,a significant item in household expenditure, and finally a source of demand fornumerous manufacturing and service industries. What follows is a discussion of therole in the broader economy of communications services as a package of bothnetwork and service providers. This component is severely limited by the statisticaldata. This is particularly problematic in a dynamic industry as dated statistics tend tobe widely off the mark. With telecommunications statistics, it is likely that datedstatistics will underestimate the role of the sector in the economy.1.3.1 Role as Intermediate InputThe role of communications as an intermediate to business can be seen to have 2dimensions – a) as a cost item required to operate a business, b) as a strategic andcompetitive tool.As a cost item, communications does not appear that significant for most parts of theSouth African economy judging from the statistics in table 1.3 below. It representsonly 0.1% of total costs in agriculture and mining, 0.4% in manufacturing industriesand 4.4% in service industries. However, these figures definitely underestimate thecost importance of communications for two important reasons. First, the data networkcosts are accounted for under the section titled business services, along with otherbusiness service items. Second, the latest input-output data available for SouthAfrica is 1997, which was based on the 1993 table which was based on the 1988table. In each case, a new input-output table is created by adjusting the old one withnew national accounts data.As a strategic competitive tool, communications are becoming more and more vital tobusinesses globally. Increased globalisation has resulted in the requirement tocommunicate and transmit vast amounts of data to suppliers, industry customers andaffiliates internationally on a timely basis. The rise of electronic commerce, has nowestablished a need in many industries to use communications networks to deal withthe final demand of the household consumer too. In both cases, the need is for highspeed, high quality communications services that are geared to the specific needs ofthe firm and which are available at a cost that does not make it prohibitive tocommunicate or put them at a competitive disadvantage to firms in other countries.What matters most for an economy is the availability of world-class communicationservices at a reasonably competitive price, even if they are not the cheapest.12
Competition and Regulation in TelecommunicationsTable 1.3: Direct forward linkages - Telecommnuications share of intermediate input costs forsectors of the economy (1997) – percentage of total intermediate input costsSector% of intermediatecostsPrimary 0.2Manufacturing 0.4Natural resourceintensive0.3Labour intensive 0.5Scale intensive 0.3Knowledge intensive 0.6Other 0.7Services 4.4Producer services 7.2Consumer services 3.4Infrastructural services 0.7Community/socialservices11.8Source: Wefa SAM (1997)1.3.2 Demand for Intermediate InputsGrowth of the communications industry has some important trickle-down effects forcertain parts of the economy and results in output and employment creation in thesesectors. There are two sources of such demand – investment demand and ongoingoperations demand.Investment demand includes capital goods required by the industry to increase itssize of operations. Table 1.4 shows the capital structure of the fixed line providerTelkom and an Internet service provider M-Web. For the network provider, it is clearthat high tech capital goods (telecoms network equipment and data processingequipment) dominate the inputs (82%) resulting in few trickle-down effects for mostdeveloping countries that don’t have these industries. The service provider has asimilar structure of assets with most in network, computing and software equipment.Table 1.4: Structure of capital requirements for a fixed line network provider and an Internetservice provider (2000)Item Network Provider Internet Provider(M—Web)Telecoms network equipment 72.5 48.2Data processing equipment 9.5 16.4Software and licences - 25.8Other equipment, vehicles, furniture 5.9 9.6Land & buildings 5.5 -Working Capital 6.6 -Total 100.0 100.0Source: Telkom Annual Report 2000, M-Web Annual Report 2000However, there are larger multipliers for ongoing operations. Table 1.5 belowpresents the first-round direct and indirect output multiplier effects of a R1 increase innetwork provision 1 . The multiplier effects are negligible for the primary sectors but1 Data limitations prevent putting together a multiplier analysis for service providers.13
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