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The disappearance of the dinosaurs PTT

Telecommunications are the most important physical infrastructure of the modern world. It is more important than roads because it can replace them. It is more important than office buildings because it allows the formation of virtual offices. It is more crucial than legal and institutional systems because it transcends national borders and undermines and subverts fossilized political structures.

Telecommunications eliminate distance and allow the transfer of voice and other forms of information (data) at practically the speed of light. It is the basis for the industries of the future and the industries of the future: industries of information, knowledge and intelligent data processing.

Telecommunications today is not limited to terminals, telephone lines and telephone equipment. It incorporates computers and other media technologies. All of these are an integral part of the new age of telecommunications.

Telecommunications were partly responsible for the geopolitical changes of the sea in the last decade. Just remember the role of satellite phones in media coverage of the televised Gulf War – or the anti-Ceaucesco revolution in Romania.

These are precisely the reasons why regimes around the world, in other words politicians, strove to maintain absolute control of PTT services in their countries and block domestic and foreign competition. National telecom service providers and carriers became monopolistic behemoths, operating highly inefficiently, charging exorbitant prices, employing too many people on unreasonably high wages, and serving to boost the political fortunes of ministers and the like.

But all this is changing. The new set of World Trade Organization (WTO) agreements will force governments around the world to privatize their telecom giants and deregulate this industry. The deadline is 2003 with some exceptions (Latvia has until 2013 to do this). There is a new understanding that telecommunications is too important an industry to be left to politicians, or faulty management by state bodies.

Some models of privatization have evolved over the last 20 years or so.

In more developed countries (the West, Southeast Asia), some countries have chosen to introduce free competition for all. This involves the sale of part or all of the state-owned telecommunications provider to shareholders through stock exchanges. A small part is also usually allocated to the workers and management of the company at favorable prices. At the same time, the industry is being liberalized and licensing requirements are being phased out.

Initially, in this model, only certain services are open to competition, mainly the international calls segment and mobile and wireless telephony (including paging).

But ultimately, all types of services are open to competition, both domestic and foreign.

The most extreme example is Finland, where competition is completely free, no license is required, and 52 companies compete for the hearts (and pockets) of customers. All of them are authorized to offer any type of telecommunications service imaginable.

Yet the same situation is developing in Israel, Britain, Australia, Hong Kong and, with the 1996 Telecommunications Act, in the United States. This 1996 Law allows providers and operators of international telephone calls and local telephone calls (until now separated by regulation) to enter markets and compete with each other. The result was a huge spate of mergers and acquisitions as companies rushed to offer combined international and local services.

The second alternative is to break down the national operators into functional units, one dedicated to international calls and the other to local traffic. NTT in Japan is undergoing this surgical restructuring now. As a result of this rupture, competition is allowed in certain services (again, mainly international calls and GSM and mobile telephony).

The other, less efficient option is to sell minority stakes in the national carrier to investors (domestic or foreign), or through the stock exchanges, while preserving the monopoly of the state supplier. This was the case in Israel, until recently, and it is the case in Greece. In Israel, when British Cables and Wireless attempted to gain control of Bezeq (the Israeli telephone service provider), it was met with staunch opposition from the Israeli government, replete with threats of legal action.

Still, the benefits of privatization are enormous.

Prices go down. That is the most obvious and immediately visible effect. Prices charged for international phone calls in Israel fell by 80% in real terms with the introduction of two additional competitors. In Britain, prices fell by 25%.

There is a jump in the quality of service: wait times for new installations, second and third phone numbers, commercial dedicated lines, maintenance, troubleshooting, times between failures, troubleshooting, service lines, meter reading, accounts detailed and assigned, etc. . The average wait for a new phone has been reduced in Israel and Hungary, to take two notable examples, from months to days.

Naturally, overall economic efficiency is improved by cost savings and a more productive allocation of time previously spent dealing with bureaucratic problems.

Last but not least, there is the marked improvement in technology, its updating and the introduction of novel and low-cost alternatives.

In less developed and developing countries, privatization has been achieved mainly through the introduction of foreign strategic partners, usually other telecommunications companies from more developed countries. This requires the temporary preservation of monopolies. No profit-seeking foreign investor will invest in infrastructure and let future competitors reap the benefits. An investor wants to be sure that he will continue to dominate the market and overcharge clients for a given period of time. Foreign investors like monopoly situations because in this way they have a captive market and thus can force their clients to defray their development costs through excessive charges. However, this can be seen as the cost of modernization and integration into regional and global telecommunications alliances. Once competition is allowed, everyone (especially customers) will reap the benefits of modern information highways.

In my opinion, this thinking is wrong. The direct and indirect damages incurred by monopolies are immeasurable. Monopolies must be dismantled, and the sooner the better. The transfer of part of a monopoly from domestic to foreign hands does not alter its economically cancerous nature. Monopolies are guilty of investments above or below the optimal level, of overcharging customers, of distorting the allocation of economic resources, of manipulating the market, of corruption and other criminal activities, of providing poor service, of selecting the wrong technologies. Only the threat of competition, real and fierce, can change all that. Still, long after competition is introduced, monopolies seem to continue to control their markets. British Telecom still controls 72% of its markets, despite more than a decade of competition.

Despite these considerations, and because of rampant corruption and cronyism, the Czech Republic, Hungary, Yugoslavia-Serbia, Estonia, Latvia, and Russia all chose this path. Bulgaria and Romania will follow next year and it seems that Macedonia could do the same, more because of the lack of choice of alternatives than because of a careful selection of them.

The other way is by selling shares to investors on the local and foreign stock exchanges. Poland has adopted this path after years of floundering. It will sell shares of its operators early next year. This, however, is not an available solution for small countries with an underdeveloped stock market and low liquidity. It would be absurd to float the local PTT on the Macedonian Stock Exchange. Even attracting domestic capital in sufficient quantity would be unthinkable.

Some countries avoid privatization altogether. They see the privatization fix as a fad, or a fad (which, in its most extreme forms, it is). They declare that the telecommunications sector is a matter of national strategic importance (again, to a very limited degree, it is). Slovakia introduced a law in 1995 to actively prohibit the privatization of its PTT.

But experience refutes the Slovak position. It is true that privatization has unpleasant side effects: for example, thousands of redundant workers are laid off and unemployment increases. Another result, nicely felt by every potential voter, is the radical increase in the price of local phone calls that used to be subsidized by the extravagant charges imposed on international calls. Once cross-subsidies cease and more realistic prices are introduced, prices skyrocket.

But the price of all other services falls just as sharply and there is a dramatic improvement in the quality and speed of services provided.

The technological aspect should not be neglected either.

The current infrastructure is insufficient in all the countries of Central and Eastern Europe. It is partially incompatible with the standards and networks of the European Union. Existing backbone networks will, of course, continue to be used, but will gradually be replaced by fiber optics and digital switches.

Technologies such as cable TV and broadcast networks, satellites and, above all, wireless and GSM networks will serve to close the gaps and deficiencies in capacity and compatibility. They will also reduce the dependency of new market entrants on infrastructure and services provided by local PTTs, and this is good news.