ECONOMYNEXT – Sri Lanka’s budget for 2016 has announced plans to form a company, presumably jointly owned by the operators and not the state, to own and operate backbone telecom infrastructure as a regulatory intervention.
EconomyNext spoke to Rohan Samarajiva, a former head of Sri Lanka’s Telecom Regulatory Commission and head of LirneAsia, a regional policy research body, to find out how such a special purpose vehicle (SPV) may work.
Q:The budget has proposed the creation of a special purpose company under the ICTA to own and operate telecom backbone infrastructure. Is this practically possible?
With good lawyers, it is possible to design the appropriate SPV. One would have to engage international valuers to assess the value of the assets being brought into the SPV and assign the shares accordingly. Especially with the government fiber (CEB, etc.) that is supposed to be brought in, this will not be a simple matter. ICTA may be tempted to assign itself a “golden share” or a seat on the board. It would be good if this temptation is resisted.
Best to let the asset-owners work out the final details. But of course there is the danger that Adam Smith talked about: “"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
Given the novelty of the solution, it is advisable to build up gradually. Design the SPV so that it can take in all the assets listed in the Budget Speech, but start with the easiest, the domestic backhaul fiber. Once the asset pooling and common use are smoothly functioning, then add towers and so on. There is little doubt that the current fiber backhaul infrastructure is not efficiently shared. It is not so obvious whether the towers, spectrum (I assume it’s the spectrum used for the microwave links that is being referred to) pose that much of a problem. Technical study groups from the operators can be formed to identify which towers need to be shared and the mechanics of sharing.
Q: Hasn’t this problem been solved in other countries through regulatory measures, like rights of way and so on instead of trying to take assets away? Why not follow best practice?
Much of the fiber backhaul in issue has been built by the partially government-owned SLT under various forms of special government authorization/privileges. But the regulator has not succeeded in compelling SLT to allow others to use its backhaul facilities on a non-discriminatory manner, causing inefficient overbuilding and higher-than-necessary backhaul costs. As long as the TRC is not subject to a radical reform, it is unlikely that it will properly regulate the government-controlled SLT. Therefore, I support a different solution, even if a novel one.
Q: Telecom equipment gets obsolete quickly, how can there be an assurance that investment will come if this company is under a state agency like ICTA?
See my answer above. ICTA should simply facilitate, not direct. The more pertinent issue is whether all the shareholders can agree on new investments. One solution would be to have professional managers who will be able to raise money as needed and also to allow them to accumulate some funds for investment without returning dividends to the owners. A model to look at is what is used in the SEA-ME-WE consortia.
Q: Sri Lanka Telecom has most of the backbone infrastructure. At one time it was a state monopoly with a number of priviledges and many people did not have phones. Now the situation is different. What is the case for creating a common user facility? Did SLT get state privileges recently and was there problems with access in recent years?
SLT always had special treatment. From privatization to 2003 it enjoyed a lucrative exclusivity over incoming and outgoing international calls. More recently, it was the only company issued a special backhaul license. The government turned down concessional credit from the World Bank for backhaul because SLT was unwilling to agree to the open-access terms.
Q: What about spectrum? Hasn’t companies bid in the open market and taken them?
Sri Lanka has not had open transparent spectrum auctions as in other countries. What we’ve had are auction-like assignment processes that generated reasonable revenues for the government while not draining too much money out of the sector. It would be a mistake to try to put into the SPV the 900 and 1800 band frequencies that are used for connecting users to the base stations. The focus should be on the microwave frequencies (always assigned using administrative means, not auctions) that connect the base stations to the exchanges.
Q: A tax has been proposed for towers. Isn’t there insufficient sharing going on?
I am unable to give a good explanation as to why a special tax should be imposed on towers. Locations are frequently shared; towers less frequently. That is because operators seek to keep some spare capacity for additional antenna. Would be good if air-conditioning and power elements are shared more. But unclear how a special tax will encourage this.