Free up IDD services, global body urges

GSM Association calls for more countries to liberalize their international gateway markets, citing a new study that revealed economic benefits in doing so.
Written by Aaron Tan, Contributor

Monopolies still exist in the market for international gateway services, despite economic and social benefits of having competition in this sector, according to a new GSM Association (GSMA) study.

The report revealed that there is a monopoly supplier of international gateway or IDD (international direct dialling) services, which connect domestic callers to international numbers, in more than 70 countries.

The GSMA study estimated that competition in the international gateway market can reduce call prices by up to 90 percent and double call volumes.

For example, after Kenyan mobile operator Safaricom received an international gateway license last year, it was able to cut international call prices by 70 percent. Similarly, the price of international calls from Nigeria has fallen by more than 90 percent since market liberalization.

Consumers also enjoy cheaper and more reliable services after the introduction of competition, according to the study. The local economy, too, benefits from increased investment, job creation and export-led growth. In contrast, monopolies hold markets back.

Citing a 2003 World Bank report, the GSMA noted that a 1 percent improvement in performance of a country's telecommunication sector can increase the ratio of manufactured exports to GDP (Gross Domestic Product) by 0.37 percent, and raise foreign direct investment by 0.75 percent.

But, in Bangladesh, where an international gateway monopoly is maintained, telecoms investment as a percentage of GDP is 70 percent lower, with call prices in the country two to three times higher than the average figure among developing nations, the study noted. For Bangladeshi businesses competing in the global market, the cost of communicating is substantially higher, putting them at a competitive disadvantage, the GSMA said.

"Since countries first began to introduce competition into the international gateways market more than 20 years ago, the trend has gathered pace and the benefits to consumers, business and governments in an increasingly global economy, are now beyond doubt," Tom Phillips, chief government and regulatory affairs officer, said in a statement last week.

"But this study shows that as many as 70 countries have yet to recognize the importance of competition in this vital gateway to international markets," Phillips said. "In a mobile-centric world, and particularly in developing economies, monopolies throttle development and add significant costs."

The study found that the old arguments such as protecting international call revenues, used to sustain international gateway monopolies are no longer valid. This is because new technologies, including VoIP (voice over Internet protocol), can bypass the monopoly and can account for up to 60 percent of international call volumes.

In fact, VoIP calls amounted to more than one-third of the US$98 billion spent on international calling in China, India, Japan and other Asian countries in 2004, the study noted.

Specifically in Bangladesh, international calls comprise 40 percent of the total revenue for the country's monopoly operator, the Bangladesh Telegraph and Telephone Board (BTTB). However, its revenues have been falling due to the use of illegal Internet telephony, according to GSMA.

Phillips said: "The incumbent international gateway monopoly business model is past its sell-by date; governments should liberalize this market immediately and all stakeholders will benefit."

To reap the full benefits of liberalization, the GSMA called for countries to impose low international gateway license and royalty fees to encourage new market entrants.

For instance, India--despite its large market size--had difficulty attracting international gateway service providers when license fees were initially set at approximately US$2 million, with an ongoing royalty of 11 percent. License fees were subsequently reduced to approximately US$500,000 with an ongoing 5 percent royalty. Sri Lanka, by contrast, charged US$30,000 for its international gateway licenses and attracted new investors, according to the GSMA.

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