Measuring Effectiveness of Telecom Regulation Using Perception Surveys

Measuring Effectiveness of Telecom Regulation Using PerceptionSurveys

Helani Galpaya

, Rohan Samarajiva

,

Abstract

The Telecom Regulatory Environment (TRE) survey presented in this paper is a toolto evaluate the effectiveness of the Telecom Regulatory and Policy Environment of a country. It asks senior stakeholders to assess the effectiveness (efficacy) of theregulatory and policy environment in the telecom sector of a country along sevendimensions. The dimensions are based on the General Agreement for Trade inServices (GATS) regulatory reference paper on telecommunications, with someadditions. Three telecom subsectors of fixed, mobile and broadband are evaluatedseparately. The evaluation is done on a Likert scale of one to five. Thestakeholders are selected to represent in a balanced manner those directly affectedby regulation and policy (such as operators and equipment manufacturers), thoseobserving the sector with broader interest and affected by its overall performance(such as lawyers, consultants, investment analysts) and those representingconsumer interests (such as civil society organizations, other governmentinstitutions). Equal weight is given to each sub-group of stakeholders in order toensure that a range of views are represented in the final score. The results can be used to diagnose the positives and negatives of a country’sregulatory environment. When multiple countries are surveyed, resultingcomparisons can give insight into best or worst practices and act as tool for leaning.For investors who are evaluating investment options in multiple countries, the TREscores can act as a proxy indicator for regulatory risk. The paper surveys the literature on measuring regulatory performance ininfrastructure sectors, describes the TRE methodology and discusses the resultsfrom implementing the survey in 2006 and 2008 in a number of South and SouthEast Asian countries.

1

This research has been funded through a grant from the International Development Research Center (Canada)and the Department for International Development (UK). The authors also acknowledge the contribution of theresearch team that helped refine the methodology, implement TRE surveys and synthesize results in variouscountries. This team (over the years) has included Payal Malik (India), Malathy Knight-John (Sri Lanka), DeundenNikomborirak (Thailand), Divakar Goswami (Indonesia), Chanuka Wattegama (Indonesia), Joseph Wilson (Pakistan),Erwin Alampay (Philippines), Miraj Khaled (Bangladesh), Lorraine Carlos Salazar (Philippines). Importantcontributions made by Divakar Goswami, Sriganesh Lokanathan and Dimuthu Ratnadiwakara in refining andcritiquing the methodology are also gratefully acknowledged.

2

helani@lirneasia.net, COO and Indicator Specialist, LIRNE

asia

3

rohan@lirneasia.net, Chairman and CEO, LIRNE

asia

1.0Introduction: Measuring regulatory effectiveness

Networked infrastructure industries such as electricity, telecommunications andwater have historically been subject to regulatory oversight. Certaincharacteristics of these sectors (such as extensive economies of scale and scope,large sunk costs relative to fixed and variable components, and provision of services deemed essential) have necessitated and justified regulatory action inorder to ensure consumer welfare as well as to encourage private-sectorparticipation. These sectors which were government-owned integrated monopoliesin many countries have undergone significant changes through institutional reformsthat include vertical and horizontal restructuring, privatization and theestablishment of effective regulation. Though experience has varied considerablyacross countries and sectors, as Kessides (2004)

summarizes, for the most partreforms have significantly improved infrastructure performance, as measured byincreased investment (leading to increased coverage), service quality, productivity,cost effectiveness and prices that are more closely aligned with underlying costs. The actions of the regulator after such reforms have taken place are also important. These factors are true in developed as well as developing countries. For example,Fink et al (2002) study of 86 developing countries across Africa, Asia, Middle East,Latin America and the Caribbean show that competition, independent regulationand privatization (and the correct sequencing of these actions) produced the mostpositive effects.Given the importance of regulatory and policy action in the performance of networked infrastructure industries, significant attention is paid to measuring theimpact of such regulation. The literature that analyzes, quantifies and comparesthe impacts of regulation on networked infrastructure industries is thereforesubstantive, with contributions made by the traditional academic disciplines andresearchers within multilateral donor agencies (the latter’s presence in theliterature is not surprising because these institutions are involved in fundingregulatory reform in numerous countries). Later in the paper we will situate the TREin relation to other methods for evaluating regulatory effectiveness by scanning thecurrent literature. But first, we describe the TRE methodology and describes how itis implemented.2.0

The TRE methodology

The TRE provides measure of stakeholder perception of a country’s regulatoryenvironment. The TRE instrument/survey asks informed stakeholders to rate (on aLikert scale of 1 to 5, 1 being highly unsatisfactory, 5 being highly satisfactory) the Telecom Regulatory and Policy Environment in a country along 7 dimensions.

Seven Dimensions:

The seven dimensions are the regulation of the following:market entry, allocation of scarce resources, anti competitive behavior,interconnection, tariff regulation, universal service obligations and quality of service. Five of the seven dimensions are based on the GATS (General Agreementfor the Trade in Services) reference paper on telecommunications, the widestconsensus globally on what constitutes “good regulation” and adopted by over 80countries.

Three telecom sub-sectors:

The three sub-sectors of telecom – mobile, fixed andbroadband – are evaluated separately. In other words, the stakeholders are askedto evaluate the effectiveness of the regulatory environment as applicable to thefixed telephony sector along 7 dimensions, the mobile sector along 7 dimensions,and the broadband sector along seven dimensions. So a total of 21 responses arerequested from each respondent

Three categories of survey respondents

: The respondents to the survey fall into 3different categories:

•

Category 1: those directly involved in the sector such as operators,equipment vendors.

•

Category 2: those indirectly impacted by the sector or those studying andthose observing the sector with broader interest such as consultants andlawyers.

•

Category 3: those who represent the broader public interest such asmedia personnel, other government officials, former regulators and staff,and civil society organizations.Current telecom regulators and telecom policy makers are not surveyed becausethe goal is not to obtain a self-evaluation, but to evaluate how those impacted bythe regulators and policy makers feel.

Number of respondents:

The larger the number of respondents, the less biased thesurvey. However, the goal of the TRE is to measure perception among informedstakeholders, those who have expert, in-depth knowledge about (or first-handexperience in dealing with and navigating) the various aspects of the regulatory andpolicy environment in a given country. Therefore the pool of potential respondentsis limited to the senior level decision makers in various organizations. For examplefor Category 1, questionnaires are only sent to (and responses only accepted from)CxO level employees (e.g. Chief Executive Officers, Chief Regulatory Officers, Chief Marketing Officers, etc) at telecom operators or equipment manufacturers. If ateam of consultants were hired by the regulator, the team leader is the idealpotential respondent in Category 2. While such respondents do provide moreknowledgeable set of responses, they are few in number. But in order to minimizebias within a Category and across the whole, a minimum number of responses havebeen specified, and without meeting this minimum the TRE survey is consideredincomplete. The minimum number of responses per category is 15, resulting in a