Govts urged to reduce telecom ownership

DUBAI — Urging governments in the MENA region to consider further reducing their ownership of telecom operators, a global strategy and technology consulting firm, said regulators should be empowered to act independently.

By Issac John (Deputy Business Editor)

Published: Sat 12 May 2007, 9:01 AM

Last updated: Sat 4 Apr 2015, 11:00 PM

"Regional governments could consider further reducing their ownership of incumbents to promote telecom sector investments. Lower ownership does not prevent the government from guiding the sector towards a healthy development path," said Fady Elias, a Booz Allen associate.

Although MENA countries began the liberalisation of their telecommunications markets in the last decade, most have yet to reduce government ownership levels, he pointed out.

"To fulfil their legal mandate more effectively, governments typically empower regulators to achieve structural and financial independence. To achieve this end, government does not only issue a policy decision to create an independent regulatory agency, but also empower the agency to act independently and effectively," Elias pointed out.

The MENA region has achieved sensible progress; however, regulators in the region could further advance their political and financial independence.

Another key action that the government could take towards setting a favourable environment for telecom sector development is to identify an appropriate level of financial obligations to impose on operators," adds Elias. Some degree of financial obligations is necessary, for example in the form of corporate taxes; contributions raised can be used to finance regulatory oversight activities, research programmes, and Universal Service Funds.

"The key is that financial obligations must be robust enough to fully finance these activities, but modest enough to promote the sector attractiveness and increase reinvestment. Indeed, the general trend worldwide is towards imposing lower financial obligations on telecom operators; nonetheless, many MENA countries continue to impose higher financial obligations on corporations than do many of their contemporaries," he said.

Dubai-based Booz Allen vice-president Karim Sabbagh said a lack of effective regulatory management in MENA countries and its effect on the risk calculations of potential investors may raise major roadblocks to new investment in the region.

As private participation in infrastructure in the region is increasing, the absence of effective regulatory management in the region's countries may raise major challenges to new investment, he said.

He said private participation in infrastructure development jumped from around $1.6 billion in 2002 to $6.7 billion in 2005. "Encouraging this trend towards private participation and market liberalisation will require careful action on the part of the three main players in the telecom sector-governments, regulators, and operators," he said in a a recent study.

"Ultimately, as stakeholders work together to institutionalise effective regulatory frameworks and practices, the environment will be ripe for increased investment, innovation, and higher adoption and usage rates. The end result will be a higher contribution to the MENA region's overall economic and social development," he said in the study titled "Towards more effective regulation — Unlocking the value of telecom markets in the MENA region."

"Significant potential now exists for fully developing the region's telecom sector, unleashing its full market value and, accordingly, increasing the sector's overall contribution to the regional economy," Sabbagh said.

In 2006, real GDP growth in the MENA region surpassed that of the rest of the world by nearly two per cent. "And from 2000 to 2005, average population growth rates in MENA countries consistently exceeded those of the rest of the world. Additionally, low penetration rates are observed throughout the MENA region (especially for internet and broadband), which again, translate into significant room for growth," he said.

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