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privatisation issues and mechanisms
This
page highlights the privatisation and deregulation of telecommunication
network operators.
It covers -
introduction
Between 1984 and 1999 around US$244 billion of state-owned
telecommunication systems were privatised, with a transfer
of assets and service functions from the public to the private
sector in what has been characterised as "the sale of
the century" and as the major regulatory development
since the belle epoque.
That sale often saw ownership move outside a nation's borders.
It occurred across the globe - 90 of the then 189 members
of the ITU wholly or partly privatised
their networks. It was often accompanied by measures to increase
competition in service provision, although the new owners
of what in most cases were monopolies generally continue to
dominate national markets (and may indeed now dominate regional
markets). In Australia and elsewhere it has been controversial,
with disagreement about processes, outcomes and forgone opportunities.
The literature on privatisation per se - and more
particularly on telecoms privatisation as the embodiment of
economic orthodoxy - is large, often hermetic and sometimes
polemical. Points of entry are Privatization & Competition
in Telecommunications (Westport: Praeger 1997) edited
by Daniel Ryan, Privatization, Restructuring, and Regulation
of Network Utilities (Cambridge: MIT Press 2001) by David
Newbery, Competition in Telecommunications (Cambridge:
MIT Press 2000) by Jean-Jacques Laffont & Jean Tirole,
the 2000 paper
The Gains from Privatisation in Transition Economies:
Is a 'Change of Ownership' Enough? by Jeffrey Sachs,
Clifford Zinnes & Yair Eilat and Welfare consequences
of selling public enterprises: An empirical analysis
(Washington: World Bank 1994) by Ingo Vogelsang, L Jones &
P Tandon.
rationales and controversies
Network privatisation has been both a market and political
phenomenon. The two are inextricably entwined but it is difficulty
to escape the sense that selling networks has often been driven
by an ideology rather than primarily by macroeconomic arguments
or an imperative to "sell the family silver" to
fund new initiatives or appease foreign investors.
At an international level it has also been driven by an intellectual
hegemony and by what critics have grizzled is the neo-liberal
or new world economic order, with emerging economies being
benchmarked on whether they were quicker than their peers
in selling, deregulating and thereby "fully entering
the global economy".
It has reflected perceptions that telecommunications are central
to local and national economic competitiveness (and more broadly
to a strengthening of civil society). It has also reflected
recognition, albeit a recognition sometimes unstated by governments,
that phone systems are usually more attractive assets than
other government enterprises and often the only readily saleable
enterprise after a nation has disposed of printing works,
factories, and even bakeries or retailers accumulated over
the past century.
Specific rationales have varied from nation to nation, reflecting
both the shape of the networks and political circumstances.
Arguments have encompassed -
- reduction
or even elimination of local or overseas debts, with sale
to an offshore investor or investors sending a strong signal
about the nation's suitability for foreign direct investment
(FDI) or for a soft loan from a major power
- access
by the telco to capital and - just as importantly - expertise
as the basis for improved service and satisfaction of unmet
demand
- privatisation
as a corollary for the establishment of effective competition
and thereby broader benefits, given perceptions that governments
cannot evenhandedly regulate markets in which they own the
dominant enterprise
- "unlocking
wealth" for government, with funds from a 'privatisation
bonus' available for spending on schools, hospitals, the
war on terror or subsidies to the network operator for infrastructure
development and support of the economically (or merely geographically)
disadvantaged
- most
dubiously, enhancement of an 'investment culture' (an echo
of Disraeli's property-owning democracy), with ordinary
citizens buying and enjoying dividends from a stake - however
small - in "the big end of town".
Privatisation in the telecommunications sector has generally
been preceded and followed by staff reductions - usually with
an associated weakening of trade unions, which often did not
have a strong tradition of militancy - and inhouse equipment
manufacturing operations. Selling or shuttering manufacturing
arms reflected the costliness of independently taking equipment
from concept to implementation (particularly where the domestic
market is small and where the product is neither cheaper nor
more efficient than offerings from the handful of global suppliers
such as Siemens and Nortel) and wariness about the autarkic
approach that has resulted in devices such as the volkscomputer.
Privatisation reflected the availability of domestic and foreign
investment from individuals, investment funds and other telco
system operators. The cascade of privatisation and acquisitions
in Europe and South America, for example, saw US and European
operators buy their privatised peers in Europe and then move
into (and out of) Latin America and Oceania.
It also reflected perceptions, heighted during the last years
of the telco bubble, that traffic would continue to increase
at a very high rate, that dominant telcos would be able to
leverage their infrastructure to provide lucrative value-added
services and that costs would decline through use of information
technology.
In practice many of the expectations have been disappointed
and there is ongoing disagreement about measuring the macroeconomic
effects of telco privatisations. Does it result in improved
service and broader coverage? The answer appears to be largely
yes. Has it resulted in ongoing systemic benefits for the
economy as a whole? Would other mechanisms have generated
similar results? Economists are uncertain.
Competition policymaking in Australia and elsewhere has arguably
been distorted by the perceived need to "look after mum
and dad investors", even though most privatised network
operators are fully owned by their peers (eg Telefónica's
holdings across Latin America) or have a share registry dominated
by a handful of investment funds.
Privatisation embodies a broader cultural and political environment.
Sale of state assets in some Latin American, Central Asian
and African republics has thus enriched 'crony capitalists'
- who have subsequently shipped much of the revenue to more
stable domiciles - or the local kleptocracy. Is state ownership
a prerequisite for rollout of the "futureproof broadband"
infrastructure to all citizens? Some observers merely question
simplistic characterisations of digital
divides and assumptions that broadband necessarily = growth
or note against mechanisms that would "privatise the
profits and re-nationalise the losses".
mechanisms
Privatisations of state-owned telecommunication operators
has typically taken one or more of the following forms, with
variation reflecting factors such as the extent of support
within a nation, the perceived value (or indebtedness) of
the operator and interest by potential purchasers (generally
other operators). -
- voucher
scheme - all citizens (or customers) receive a stake in
the operator, either for free or for a nominal payment.
That stake is generally less than 40%, often followed by
acquisition of a controlling stake by another operator (eg
the case of SPT in the Czech Republic)
- management
or employee buyout, often through a US-style Employee Stock
Ownership Program (ESOP) underpinned by substantial international
risk capital
- public
sale of shares - difficult in developing economies with
weak capital markets but attractive for some regimes as
'keeping control at home' or merely rewarding well-placed
insiders
- private
sale of some or all shares, often through an auction to
reduce problems with corruption (eg concerns in Mexico regarding
the sale of Telmex to friends of the ruling party at an
allegedly steep discount and in much of the former soviet
bloc to former apparatchiks)
- sale
of some components/assets of an operator, often with investment-hungry
but higher-revenue mobile arms being spun off to an operator
from across the border
- leasing
management of the operator in a quasi-privatisation scheme
that was favoured in the 1920s and 30s and is a precursor
of modern BOOT (build-own-operate-transfer) schemes for
highways and similar infrastructure.
landmarks
Salient privatisations are identified in three supplementary
pages -
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