Telecommunications in Kazakhstan: Liberalisation is At Hand
Mr. Paul Moffatt, Counsel of EBRD General Counsel department, answers questions from our magazine
In what ways is the Kazakh telecommunications market inferior to those of developed countries?
Kazakhstan has made many positive improvements to its telecoms sector in the recent past, however many challenges remain to develop the sector to the level of international best practice. To develop to international levels, significant investment is necessary to upgrade and expand the national telecom network. The environment for telecoms in Kazakhstan does not currently fully reflect international best practice and is, therefore, not as attractive to investors as it could otherwise be. Accordingly, the most important challenge is to make the sector as attractive to investment as possible, to fuel sector growth and thereby drive general economic growth and national competitiveness. In Kazakhstan, this can be achieved as follows:
Abandon proposed 49% cap on foreign investment in the telecoms sector: The general trend throughout the world, in both developed and transition nations, is a progressive decrease or elimination of such restrictions on foreign investment in the telecoms sector. The main reason for the reduction or elimination is the recognition that telecom is an essential element of the infrastructure of economic and social activities. Allied to this recognition, global experience has shown that free trade in telecom services and unrestricted investment in telecom markets will maximise the development of national telecom and information infrastructure. Means other than foreign investment restrictions have been found to deal with the concerns which previously caused governments to introduce such restrictions (e.g. national security), and it is generally considered today that the benefits of sector development will outweigh any such reasons for introducing or maintaining foreign ownership restrictions. Encouraging maximum investment in telecoms is also particularly important given the government’s desire to enhance the development of non-energy sectors of the Kazakh economy.
Full implementation of legal reforms to the sector: the current draft sector legislation is not fully consistent with international best practice and is taking too long to be approved by parliament.
Establishment of a meaningfully independent telecom regulatory agency: with sufficient powers and resources (both financial and staff) to implement modern regulatory standards, while being sufficiently accountable for its actions.
Full implementation of tariff rebalancing: the current environment of non-cost based and cross-subsidised tariffing impacts significantly upon investment, efficiency and innovation.
Full liberalisation: Competition satisfies unmet demand, provides faster sector development, increased investment, lower prices, more total employment in the sector and fuels national competitiveness. Such liberalisation is fully consistent with EU and WTO norms.
Implementation of a framework for universal service: Access by as much of the population to basic telecommunications services is a crucial political, social and economic issue. Since the present tariff structures in Kazakhstan, whereby profitable international voice services are used to cross-subsidise loss making local voice services will no longer be sustainable in a liberalised market, a new policy approach is required to support access to socially important services. This approach should be aimed at encouraging network roll-out throughout Kazakhstan, where feasible, such that it would enable access to basic telecommunications services at a reasonable price thereby reducing negative impacts on socially or geographically disadvantaged areas.
Please tell us about the positive experiences of other CIS countries in liberalising the telecommunications market.
There has been much improvement in the development of the telecommunications sectors throughout a number of CIS countries. In the telecommunications sector liberalisation of one form or another has taken hold in a number of CIS countries, notably within the mobile sector. The healthy competition present in the mobile markets of some countries underlines the benefits of liberalisation. However, for meaningful liberalisation to take hold and deliver expected benefits a modern regulatory environment for telecommunications must be fully implemented. Within the CIS, the progress achieved in reform of the telecom regulatory structure in the Kyrgyz Republic has been notable. In recognition of these reforms, the country has been the recipient of significant investment, assistance and credit. The telecommunications sector is fully liberalised in accordance with the requirements set by the World Trade Organisation upon accession by the Kyrgyz Republic. This liberalisation has permitted the increasing participation by private operators within the sector, yielding good levels of investment. The Kyrgyz government appears fully committed to timely implementation of all outstanding sector reforms and has requested EBRD assistance with this implementation.
What assistance is being provided by EBRD consultants to Kazakhstan for development of the telecommunications sector?
In addition to being a significant investor in the sector the EBRD has provided considerable technical assistance to the government in recent years. Specifically, the Bank provided input to the revision of sector legislation together with extensive assistance in developing financial models to facilitate the implementation of tariff rebalancing and a universal service mechanism. However, the government has yet to implement many of the recommendations and output of the Bank’s assistance. In addition to the above specific assistance within the telecommunications sector the EBRD will also shortly begin providing comprehensive technical assistance to the Agency for Regulation of Natural Monopolies and Protection of Competition in the execution of their duties across a number of sectors including telecommunications, particularly with respect to tariffing.
Does Kazakhstan have any competitive advantages compared with other countries in the region?
Kazakhstan has a number of competitive advantages compared with other countries in the region. More broadly speaking, Kazakhstan’s macroeconomic stability and potential abundance of natural resources, provides a relatively high foreign investment attraction potential. Kazakhstan’s relatively higher income per capita and relative youth makes it an attractive marketplace, particularly for telecommunications. Additionally, the level of fixed line penetration in Kazakhstan compares favourably with that of other CIS countries and provides a good platform for further sector development. However, for the potential that such competitive advantages present in Kazakhstan to be capitalised upon and to turn the potential for investment into a reality, a positive climate for investment, growth and development must be adopted and entrenched. In the telecommunications sector the elements outlined above must be implemented if Kazakhstan is to meet international standards in telecommunications.
Does the WTO impose any requirements on Kazakh telecommunications operators? If so, how soon will the Kazakh companies have to take on the new obligations?
Accession to the WTO requires member countries to make commitments that are consistent with liberalisation, i.e. allow open access to the Kazakh telecommunications marketplace and commit to the competitive supply of services. To be accepted as a member of the WTO, Kazakhstan will need to make commitments reflecting those principles, incorporate them in Kazakh legislation and be bound by them. The operators most impacted by such requirements will be monopoly and dominant providers of telecommunications services. In Kazakhstan, WTO accession will require the government to make definite and binding commitments to withdraw any exclusivity held by KazakhTelecom. In addition, the government will need to put in place a regulatory regime that ensures that major providers of telecommunications services, such as KazakhTelecom, are required to grant access to the network to competing operators (i.e. interconnection) on a non-discriminatory basis. WTO membership will also require that major suppliers, such as KazakhTelecom, are not allowed to act in an anti-competitive manner ? e.g. cross subsidising below cost services with profitable services; using competitor information with anti-competitive results. Further WTO requirements include an independent telecommunications regulator, transparent, objective and publicly available procedures for licensing and allocation of scarce resources.
Any obligations taken on board by the Kazakh government will take effect in accordance with the timetable for implementation agreed by the government in its negotiation of entry to the WTO.
How will the national economy benefit from liberalization of the telecommunications sector?
The importance of telecommunications to the national economy cannot be understated. It is an essential input for virtually all businesses and is a key driver of all modern economies. International experience, particularly in European Union, Central and Eastern Europe, shows that liberalisation boosts investment, market growth and propels sector development, innovative marketing techniques and entrepreneurial spirit. Markets tend to respond better to consumers’ needs and whenever there is demand markets provide supply ? there are few long waiting lists in competitive markets. This is particularly important for businesses that need advanced telecommunication services in order to grow. Thus general economy, overall employment and manufacturing productivity can benefit from higher investment and innovation in telecommunications generated by liberalisation. Lower prices, innovative new services and increased investment in infrastructure are key inputs across almost all sectors of the economy.
Elsewhere in the world, the emergence of competitors has forced former monopolies to wake up, reduce prices, invest in infrastructure and introduce innovative new services. The most obvious examples of this is the dramatic fall in the cost of long-distance calls in recent years, or how the popularity of mobile phones has grown. Both are direct results of liberalisation. Cheaper, better telecommunications services allow greater economic efficiency and can greatly increase national competitiveness on a regional and global level.
In addition, in today’s society, telecommunications also play an important role in regional development through improving living conditions in remote areas; in social communication through enabling communication among people and access to emergency services; and, in education of young people and improvement of job opportunities, in particular through Internet.
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