Open, competitive milieu good for consumer welfare


SINCE the inception of Digicel, Papua New Guineans have experienced improved valued-added services at competitive rates.
Pacific Mobile Communications (PMC), a subsidiary of the incumbent monopoly, has had a reality check and has since attempted to improve features of its decrepit service.
Digicel has created a market signal for PMC to slash tariffs closer to marginal costs reflecting the true market value of services to the benefit of consumers.
Telikom PNG’s priority to reap as much profit possible has taken the back seat as better inexpensive and high-tech services are now the priority.
Subscription has increased as Digicel subscribers have subscribed to the network which has expanded to areas previously under served in PNG.
However, total subscription may not have increased drastically across the country as there are many cases of double users.
Some users opt to store a second PMC mobile phone in their drawers in case Digicel’s network defaults due to technical difficulty or unfavourable Government regulation.
Regulatory freedom needs to be in place for the sake of effective competition.
The demography of users proves that the urban market stands to benefit from this form of privatisation.
What do I mean by ‘this form’ of privatisation?
History tells that Papua New Guinea has despised privatisation without considering the alternatives available.
The Government of PNG is infatuated with the World Bank and IMF induced concept of privatisation introduced during the early 1990s as part of their structural adjustment package for clientele countries seeking financial aid.
Divestiture, the first form of privatisation, involves the privatisation of State-owned telecommunications companies and the sale of private entities.
Not so long ago in 2001 and 2004, divestitures schemes for Telikom proposed by the Mekere and Somare governments respectively, intended to promote economic efficiency and raise needed revenues for the government.
However, as in the case with many other Third World countries, the fear of exploitation by foreign multinational corporations and nationalist appeal forced the government to abandon its privatisation plans.
Hence, a divestiture of Telikom PNG is definitely out of the question.
The second alternative for privatisation, which the Government should seriously consider for consumer welfare purposes, is greenfield projects.
This involves operations involving new licences and investments in new companies. The second wave of foreign direct investment (FDI) in the early to mid-1990s involved mobile growth.
There was a rising share of greenfield projects among FDI investments reflecting the rising number of countries opening their telecommunication sector to competition and the shrinking number of assets to be privatised.
But significantly, it was a result of the impact of revolution in mobile technology, which has led to the rapid deployment of mobile telecommunications network.
The introduction of Digicel is a classic example of introducing private sector participation in the economy and thereby, increasing consumer welfare in urban settings.
I am not an advocate for the divestiture of Telikom but I do believe competition is needed to provide a yardstick to measure the value of services offered to the public by the incumbent monopoly.
I believe that freedom of choice is a sacred duty the Government holds for the people’s welfare and is partial to the pillars of the free world democracy.
The third option for privatisation is concessions. The Government needs to bring mobile telecommunication services to the rural sector through a private mobile operator.
Concessions involve a fixed-term management and operation contract with major capital expenditures provided via subsidies to sustain the vast sunk-costs of investment in basic infrastructure and low tariffs.
Concession contracts are very attractive because they limit opportunistic behaviour by the private infrastructure provider and the Government through a competitive bid which can insure that the terms are fair.
The concession contract highlights the obligation of the private firm to the Government and vice versa, and it cannot be changed unilaterally by either party. And if the contract is awarded by an open and competitive tender, consumers can be reasonably assured that the tariffs will be set close to the concessionaire’s expected costs.
Minimising the average tariff is the main reason for the renegotiation of concession contract, hence, the Government needs to have a least subsidy programme to be bided out to interested private bidders.
The subsidy funding can come from official development assistance funds, Government fiscal budget, and other sources. Creating a universal access fund is essential to fund the cost of rural mobile infrastructure and support low tariffs.
I view the expansion of the mobile phone segment of telecommunications as detrimental to the development of Papua New Guinea. Many developing countries of the world are promoting universal access policies by taking advantage of cheap cost-effective technologies available in various sectors.
Mobile telecommunications has been recognised by the World Bank and International Telecommunications Union in Geneva as a tool for access to telecommunication services by each and every citizen in countries throughout the world (eg Bangladeshi Grameen Village Phones).
The Government should consider allowing Digicel to serve local urban consumers with better, inexpensive and cost-effective technology. Having an open and competitive environment is good for consumer welfare, especially urban centres where the market is vibrant.
Regulatory restrictions need to be loosened so that Digicel and other interested competitors can freely enter and compete against Telikom, even in rural settings if feasible.
Telikom, being a conglomerate in the fixed and mobile phone business, still stands to make money from interconnection fees and other sources of access funding.

Stephen Kikala
Tokyo, Japan