Regulatory Environment:
Creating Stable and Expanding Markets

Remarks by Yong Ying-I
CEO, Infocomm Development Authority (IDA)

Bangalore, March 13, 2001

In the past year, many Asian countries have been applauded for the way they
have embraced the New Economy. The growth of IT companies and talent in India, the new wave of entrepreneurship and break-up of chaebols in Korea, as well as innovation and the pioneering of the wireless Internet in Japan have been particularly notable. We have also seen traditional brick and mortar companies begin to explore how the Internet can revitalise their businesses and create new engines of growth. Despite the slowdown in the US economy and the consolidation of technology companies, the Asian upside potential remains strong. Five of the top 10 Internet markets in the world are in the Asia-Pacific region. 10 years from now, 2 out of 3 new fixed line user will be Asian and half of the world's 2.2 billion mobile users will be in the Asia-Pacific region.

In order for Asia to tap on this huge potential and to ensure continued growth and success in the New Economy, deregulation, privatisation and market liberalisation will be particularly important. This is because market forces help to foster innovation, development and sustainable competition. At the same time, privatisation will increase the efficiency of companies by allowing them more flexibility in their operations and management, and will enable them to adapt more quickly to environmental changes. Privatisation must be seen as a first step towards liberalisation, which will lead to an influx of new players, investments, expertise and cutting edge technologies.

In the past decades, many Asian economies have liberalised their manufacturing sectors, but their services sectors remained closed or at least semi-closed. They key services sectors include telecom, and legal and financial services. These hamper the flow of people and capital to work on the best ideas, be it from outside the country, or in terms of mobility between companies already in the market. But fixing these problems has been tough for many Asian countries, which have to balance all sorts of political and social imperatives. So it is heartening to see that some countries have started along the path of telecoms liberalisation. In India, you have opened your domestic long-distance to unrestricted entry and the government has also announced plans to privatise and end the exclusivity of your international carrier VNSL (Videsh Sanchar Nigam) earlier than planned. Meanwhile, Taiwan also liberalised their fixed network market and broke with 50 years of monopoly of Chung-Hwa Telecom by granting 3 licences to new fixed network operators last year.

On our part, Singapore has been pushing open our financial and legal services sectors to global competition. We have steadily privatised our state-owned monopolies in the telecom sector and now in utilities and port services. Our regulations have been updated to ensure that new entrants can start up businesses quickly. Since market liberalisation, more than 200 new telecom licences have been awarded. Approximately 2,500 jobs are expected to be created, and over S$3 billion worth of investments brought in over the next three years. The benefits of competition and choice to consumers are obvious : IDD rates have fallen by an average of 60% since liberalisation. If we include innovative services like Voice over Internet Protocol or Callback services that have been introduced since liberalisation, then the cost of international calls have dropped by more than 80%!

But privatisation and market liberalisation does not mean that there are no more rules. Industries like telecom, broadcasting and financial services are regulated worldwide because the nature of these industries is such that regulations are necessary for their smooth functioning. However, Governments must reassess its role and the focus of its policy development in the liberalised environment. The role and the focus of the regulator is evolving to one that involves more dispute mediation, facilitating competition, industry promotion and technology development. The changing industry landscape from a monopoly situation to a multi-network, multi-operator competitive environment means that greater resources must be channelled towards strengthening the regulatory frameworks to ensure a level playing field and the development of fair, effective and sustainable competition.

The key safeguards that must be put in place include setting price-control frameworks, quality of service standards, universal service obligations and rules for interconnection and access. This is to ensure that the benefits of competition will be fully enjoyed by both consumers and businesses. In Singapore, following the liberalisation of our telecom sector, we released the Telecom Code of Competition to ensure fair competition in a competitive environment and to safeguard consumer welfare.

At the same time, governments must also be aware of the social ramifications of privatisation. The social impact of these rapid changes is not trivial. The digital divide is real and the problems of providing universal access are escalating. In fact, more often than not, governments will need to put in place new regulatory frameworks and safeguards to ensure that social objectives continue to be met. As an example, in large countries, privatised telecom operators may jack up prices in sparsely populated, rural areas or may choose only to build up networks in high-margin commercial areas.

Government may have to face the tough reality that in a competitive environment, previously protected monopolies which used to fulfil many social objectives may not be able to continue to do so in the same way. For example, it may not be realistic to expect companies to fully shoulder the social and financial burden of providing widespread access in rural areas. So governments may have step in to pay for public infrastructure so as to ensure affordable universal access to citizens, or they will have to consider other options like tax incentives to a competitor for setting up a second network.

I would argue that a multi-pronged approach is needed to tackle those challenges effectively. First, tariffs may need to be rebalanced to ensure that the cost of providing domestic telecommunication services is accurately reflected. Second, costs of network deployment may be further controlled through effective infrastructure competition and efficient infrastructure deployment. Third, governments need to assess, based on their respective objectives and circumstances, various economic models to determine who should bear the cost of providing universal access. This could be borne by the dominant operator or may be shared by all operators through a fund.

The nature of economic regulations imposed on an industry can determine whether competition is encouraged or incumbents protected, whether new businesses can start up quickly or face lengthy bureaucratic processes, and to what extent social objectives can be met. We have to recognise that different markets are in different stages of development. There is no "one-size-fits-all" solution, and the regulatory framework must be relevant to the stage of development and local circumstances. So I want to say here that I am not advocating the "Singapore solution" to the audience here today. What I think we must all recognise, however, is that protecting our local industries forever is not the answer. The nub of the problem is that survival in the New Economy depends on innovation and on world-class business strategies. Companies will only develop and prosper if they are exposed to the Darwinian challenges that competition brings. Competition is one of the best ways to strengthen domestic companies by forcing them to adopt best practices, adhere to global quality standards, and build up capable management teams. The fact that these companies work in a competitive commercial environment also helps to build confidence among investors. If they are protected, it is almost inevitable that the country offering that protection to their companies will fall behind.

May I close by saying that the regulatory environment in the telecoms sector has implications that spread beyond this sector alone. Telecoms is the infrastructure that powers the other components of the infocomm industry. Hence, deregulation and competition in the infrastructure layer will form the foundation for the growth and development of strong companies along the entire value chain from applications and services development to content creation. I have the challenging, but I also believe, a fortunate, role as both regulator and developer of this larger vibrant ecosystem. I have been very excited by the dramatic growth in Asia which rapid deregulation and privatisation have contributed to. I look forward to the exchange of views with you on how we can create a stable and expanding market in Asia.