Commentary: What does telecom deregulation mean for Asia?

Telecom services have generally been viewed as strategic services, either government-owned or government-controlled, and guarded jealously to prevent it from falling into the "wrong" hands.

The telecom industry itself is also typically seen as a natural monopoly, often an economic entity with inefficient production.

Both views suggest either government ownership or government control. The reality is, however, somewhere in between.

In the first instance, telecommunication services represent one of the most important infrastructures in a country, if not the most important. The Orwellian Big Brother service provider can "listen in" on any and all conversations across the market--conversations that could well have strategic implications for the country. In such a scenario, handing over the control of such services to foreigners would seem foolhardy.

In the second paradigm, the basic telephony service is akin to a natural monopoly. The incumbents possess the local loop, and with it, a huge customer base. They typically have huge cash reserves to tide over bad times, can take over smaller operations and build truly world-class next-generation networks.

Some people believe that government ownership could manage these monopolies more efficiently. However, governments have typically operated these monopolies as "cash cows". An example is using high long-distance rates to subsidize either the local telephony or postal operations. Even regulating the market did not lead to efficient provision of services.

Increasingly deregulation seems to be the only option to make these monopolies function efficiently.

Deregulation: Crippling the monopoly?
The trend towards deregulation in the telecom industry is a recent one. However, it is not as straightforward as it seems.

Firstly, the deregulation does not necessarily have to include foreigners. Secondly, the foreign stake can always be limited by regulation. Thirdly, even with significant foreign ownership, the service provider can still be under certain obligations to keep strategic considerations in mind.

Countries primarily in North America and Western Europe have had a taste of deregulation since the mid-1980s. A decade later, it has traveled across to Asia and other regions in the world.

The point to note is that deregulation is not the same as an absence of regulation; it merely means that regulatory control has been reduced significantly.

If we take a closer look at the deregulated market place, we will find that deregulation has not actually increased significantly the number of carriers there. It has, instead, brought to life a number of derivative service providers.

At the last count, there were more than 600 players in the US market offering domestic long-distance services.

There exist, for example, more than a hundred Internet Service Providers (ISPs) in India, even though the government-owned Bharat Sanchar Nigam Ltd (BSNL), a domestic telephony operator, remains practically the only Postal, Telegraph and Telephone player(PTT) in the country.

The case is similar with Davnet, which offers Voice over Internet Protocol (VoIP) solutions to wired buildings in Australia. The company has redefined niches in the telecommunication sector and has successfully tapped these pools.

In China, the provision of Internet telephony services by new players such as China Unicom and China Netcom galvanized the incumbent China Telecom, stealing a march over them in service coverage and tariff decline.

In Singapore, the proliferation of international VoIP services has forced the incumbent Singapore Telecommunications Ltd (SingTel) to offer its own competitive services.

The South Korean market is characterized by about 80 broadband access players, with Hanaro Telecom giving the incumbent Korea Telecom a run for its money.

Deregulation has thus led to the emergence of numerous niche and focused players, mostly in the "value-added" services. And it is because of this that the incumbents are forced to offer new services and adopt new technologies quickly.

Without deregulation, they may not have the incentive to adopt newer technologies. The presence of small and dynamic players in the market drives both the adoption of new services by the end user and jolts the incumbents out of complacency.

And that is the success of deregulation.

Nitin Bhat is industry manager at Frost & Sullivan.