Pacific Magazine > Magazine > April 27, 2008

Voices

The Digicel Controversy

By Nigel Roberts

For the first time in their lives, many Papua New Guineans are able to use a device that 3 billion people around the world now take for granted—a mobile phone. Betel nut sellers in the Port Moresby can order up fresh supplies when they need them. Government workers in Lae can speak to relatives in their home villages, or to colleagues in the capital. The future is even better: mobile phones can be used to transfer money and get timely information on market prices.

This is all happening because the Government decided to allow competition in telecommunications. This led to badly-needed investment in telecommunications infrastructure and services, and in the eight months since Digicel’s arrival in PNG, coverage has increased from less than 2 percent of the population—until then, the lowest in the Pacific—to about 10 percent today. What’s more, the price of a SIM card has fallen by 80 percent and the cost of a mobile call by more than a third.

Good telecommunications are essential to economic development. Research shows that adding 10 mobile phones per 100 people in a developing country should generate an increase in national wealth of over half a percentage point: and PNG’s Treasury believes that mobile competition has already contributed 0.7 percent to the country’s Gross Domestic Product. In sub-Saharan Africa, US$25 billion (more than a third of all Foreign Domestic Investment in the past ten years) has been directed to the telecoms sector. This massive investment in these countries’ infrastructure has helped businesses thrive, created jobs, increased incomes and provided economic hope to millions of ordinary citizens.

So why all the recent fuss about Digicel and the World Bank? The Op Ed of April 3 entitled “K120 million World Bank subsidy helps Digicel attack Telikom: claim” makes a number of points. Some are of concern—but most should not be.

The gist of the article, summarized on FM100 Talk Back, is that the World Bank through its private sector arm IFC (the International Finance Corporation) is subsidizing Digicel. This, it is argued, gives the Irish giant an unfair advantage, enabling it to undercut Telikom and other former Pacific monopolies—which are forced to compete for commercial finance, and obliged by charter to provide costly services to remote communities. The net result, according to the article: Telikom and other “home grown” Pacific telecos will be damaged or destroyed, and foreign investors will get rich at the expense of Pacific citizens.

Fortunately, the reality is quite different. First of all, IFC’s US$40 million investment in Digicel PNG is strictly commercial: IFC does not provide subsidies. Second, introducing competition benefits PNG’s citizens, as demonstrated by the increase in coverage and the drop in prices (if competition was bad for PNG, why would the Government invite Digicel and others to bid for mobile licenses?) Telikom, like other monopolies in the Pacific and elsewhere, enjoyed a protected market for many years. Competition means it must do better—and we’ve already seen the company respond by cutting prices and improving customer service.

There is a broader Pacific revolution underway. It began in Samoa when the Government opened the market to competition; since 2002, the number of telephone users has increased from 12, 500 to 105,000, and prices have dropped a great deal, particularly for international calls. Agreements to terminate national monopolies have now been brokered, with World Bank advisory assistance, in Fiji and Vanuatu---and we are already seeing the price of SIM cards falling (e.g. from Vt 5,000 in 2006 to Vt 1,000 at the end of 2007).

This is not to deny the risks of competition. There’s a danger that one monopoly gets replaced by another, leaving the new monopolist free to jack up prices and turn excessive profits. A second risk is that new entrants will ignore remote areas where costs are higher and revenues lower. Making telecoms reform work, then, means more than just introducing competition. You need strong national regulation—to establish price formulae that are fair and open to public inspection, to monitor the performance of telecoms operators and to keep the market open to new competition.

You also need ensure that remote areas are not neglected. This isn’t an argument in favor of current arrangements: charter or no charter, the rural areas of PNG and other Pacific countries are not getting proper services now. A good way to combine private sector efficiency with social obligations is to create a rural telecommunications fund: an instrument that provides commercial operators a transparent subsidy for extending coverage to unprofitable areas. Funds of this type now exist in over 20 countries in Africa, Asia and Latin America. The Bank is planning such a fund in PNG—at the Government’s request.

Competition means change, and change is uncomfortable for operators used to the status quo. Competition can also introduce distortions and uncertainties, and governments need to minimize any adverse impact on the general population. Fortunately for PNG, the benefits of competition in telecoms are clear, and the risks manageable. You don’t need to listen to the World Bank to come to this conclusion, though—just ask consumers what they think.

Nigel Roberts is the World Bank's PNG Country Director.