EFFECTS OF DEREGULATION OF TELECOMMUNICATION IN NIGERIAN ECONOMY.
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EFFECTS OF DEREGULATION OF TELECOMMUNICATION IN NIGERIAN ECONOMY.
Chapter one
INTRODUCTION
1.0 Background of Study
At the conclusion of the Uruguay Round of Negotiations in 1994, 63 nations had agreed to open up their telecommunications markets. On February 5, 1997, 69 nations signed the Basic Telecommunications Agreement (BTA) under the WTO to gradually open up their telecom markets to foreign investment and competition, while adhering to a standard set of norms and ensuring fair play.
The deal was expected to cut the cost of international calls by up to 80%, and it was a significant breakthrough because the countries participating accounted for 92% of worldwide telecom revenues.
The agreement covers all fundamental telecom services, including phone, data, fax, radio, and satellite-based services. More than forty countries referred to or included in their commitments the reference paper on regulatory principles, which is a framework document for regulating each country’s main carrier and requiring them to provide new entrants access to the established network at non-discriminatory charges.
New participants would initially rely on established networks, but there would be no obstacles to admission. The time scales for implementation varied every country, depending on their level of development.
There is also an annexe on telecommunications and a reference paper that discuss the te1ecom sector. The Annex on telecommunications is especially important for electronic commerce, and it was drafted during the Uruguay Round by negotiators who recognised that, despite Article VIII, telecom service providers were in a unique position to undermine commitments made on time in any service sector where telecommunications were essential to doing business. The Annex protects all consumers of telecommunications services.
Article IV of the GATS aims to expand the participation of developing nations in services. It applies to publicly available fundamental networks and services, regardless of whether they are provided by a monopoly or through competition.
It requires governments to ensure that other members’ suppliers are granted reasonable and non-discriminatory access to and use of public telecom transport networks and services for the supply of services included in its schedule. The purpose of the reference document on telecommunications was to ensure competition in the supply of telecom services.
The Nigerian telecommunications industry was deregulated in 1992 with the promulgation of the Nigerian Communication Commission (NCC) Decree, No. 75 of 1992, which introduced private participation in the provision of telecommunications services in Nigeria, ending the state-owned NITEL’s monopoly and ushering in competition.
Deregulation is intended to improve efficiency in two ways. The first step is to reduce inefficiencies caused by regulation and corporate isolation from actual and potential competition. Second, rent-seeking entities that gain from regulation would see their rents diminish in a more competitive market environment.
While much has been published about industrialised economies’ experiences with deregulation and privatisation of public utilities (Oniki et al., 1992; Imai, 1994; Wellenius and Stern, 1994), few studies have been conducted on the experiences of developing nations, particularly those in Africa.
In general, this study investigates the motive for reform, what transpired after commercialization and deregulation, and changes in the economic environment.
The telecommunications sector is the most rapidly increasing and technologically dynamic sector, and the push to transfer it away from its conventional public utility monopoly position is being exerted all over the world, and it will eventually become irresistible.
1.1 Significance of the Study
Telecommunications infrastructure is at the heart of the information economy. Countries with inadequate telecommunications infrastructure cannot compete effectively in the global economy. Until the early 1980s, the telecommunications industry was seen as the ultimate public utility.
Economies of scale, combined with political sensitivity, resulted in high entry barriers and externalities; nonetheless, beginning in the 1980s, policymakers gradually recognised that telecommunications systems are critical infrastructure for economic growth.
Telecommunications gains strategic relevance for economic growth and development as the economy broadens and becomes increasingly reliant on greatly increased information flows.
Rapid advancements in telecommunications and information technology are cutting prices, providing new services, and altering the U1C cost structure of many businesses.
Telecommunications is one of the world’s most dynamic industry, driven by unremitting technology and market factors. Wellenius and Stern (1994; Saunders et al., 1994).
In response to the need to address persistent shortfalls in telecommunications investments and performance, telecommunications restructuring has taken on a global dimension, with a wave of telecommunication reforms that began in the 1980s in a few highly developed economies quickly spreading to several developing nations.
By 1993, at least 15 developing countries had implemented important changes, with another similar number in the works [Wellenius and Stern, 1994].
The impact of these new policy measures has been significant, but if the new pragmatism in telecommunications policy is to succeed, policy initiatives must be widened and strengthened.
1.2 Statement of Problem
Prior to commercialization, NITEL was a severely inefficient monopoly dealing with a lack of clear policy direction, counterproductive bureaucratic red tape, and a slew of other issues. These issues resulted in sub-optimal performance in all aspects of its business, including inadequate infrastructure and low-quality customer service.
Prior to 1991, access to telephone services was limited to approximately 20% of the population and coverage. As of December 1991, there were approximately 450,000 direct exchange lines, resulting in an average penetration level of about 1 line per 250 residents, as opposed to the international telecoms union recommendation of 1 line per 100 people for developing countries.
There were more than 500,000 waiting applications countrywide, with 7,985 telex subscribers.
These data demonstrate poor capacity utilisation, as installed telephone and telex capacities were above 500,000 and 15,000, respectively. The quality of services was likewise poor, with continual congestion of switching equipment resulting in significant dial tone delays and very low call completion rates.
On average, call completion rates for local, long distance, and inbound international calls were as low as 40, 40, and 45 percent, compared to the projected 60 and 50% for local and international calls (Nwafor, 1997).
Furthermore, an efficient billing system was missing, with around 20% of subscribers not receiving bills and just 7% of amounts invoiced being collected.
These problems culminated in chronic operating losses and minimal returns on investment, as evidenced by its audited records, which revealed recurrent losses.
1.3 Aims and Objectives
The primary goal of the study is to gather quantitative and qualitative evidence on the efficiency and welfare-improving benefits of deregulation in Nigeria’s telecoms sector. The precise study objectives are:
· Analyse the Nigerian telecommunications production structure and predict total factor productivity increase.
· Decompose total factor productivity increase into scale economies and deregulation impacts to estimate efficiency gains.
· Assess regulatory changes in the sector after commercialization.
· Analyse options for developing a viable telecoms sector in Nigeria.
1.4 Statement of Hypothesis
Hypothesis 1.
Ho: Telecommunications deregulation has no major detrimental impact on the industry’s efficiency.
HI: Deregulation of the telecommunications business has a major negative impact on industrial efficiency.
Hypothesis 2.
Ho: The liberalisation of the telecommunications business does not reduce competition.
H1: The liberalisation of the telecommunications business reduces competitiveness.
Hypothesis 3
H0: Deregulation of the telecommunications industry does not lead to customer exploitation.
HI: Deregulation of the telecommunications industry leads to customer exploitation.
1.5 Research Methodology
The data used in this study will be secondary and partially primary. Primary data would be gathered from questionnaires, while secondary data will be published by the Nigerian Communications Commission (NCC), the Ministry of Communications, and unpublished write-ups.
The qualitative data will be analysed using the chi-square technique to determine the acceptability of deregulation in Nigeria’s telecommunications market.
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