THE EFFECTS OF DEREGULATION OF TELECOMMUNICATION IN NIGERIAN ECONOMY (A CASE STUDY OF TELECOMMUNICATION IN BOTH NIGERIA AND SOME WEST AFRICA COUNTRIES).

CHAPTER ONE

INTRODUCTION

1.0    BACKGROUND OF STUDY

At the end of the Uruguay Round of Negotiation in 1994, 63 countries had made commitments to open up their telecommunications markets. On February 5 1997, an agreement was signed by 69 countries (the Basic Telecommunications Agreement, BTA), under the WTO to progressively open up their te1ecom markets to foreign investment and competition and to abide by a common set of rules and to ensure fair play. The agreement was supposed to have reduced the cost of international calls by as much as 80% and was a major break-through because the countries involved accounted for 92% of the global telecom revenues. The areas covered under the agreement include all basic telecom services including voice, data, fax, radio and satellite - based services. More than forty countries made reference to or included in their commitments, the reference paper on regulatory principles, a framework document for regulating the dominant carrier in each country, obliging them to give new entrants access to the established network at non-discriminatory prices. While new entrants would rely on established networks initially, there would be no barriers to entry. Time scales for implementation were different from different countries depending on how developed they were.

In addition, there is an annex on telecommunications and a references paper that talk about the te1ecom sector. The Annex on telecommunication is of particular significance for electronic commerce and was drafted during the Uruguay Round by negotiators realizing that, despite Article VIII, telecom service providers were In a unique position in having the potential to undermine commitments undertaken In schedule In any service sector in which telecommunications were essential to doing business. The Annex defends all users of telecommunications services.

Article IV of the GATS seeks to increase participation by developing countries in services. It is applicable to publicly available basic networks and services regardless of whether these arc supplied" by a monopoly or through competition. It requires governments to ensure that other members' suppliers are afforded reasonable and non discriminatory access to and use of public telecom transport networks and services for the supply of services include in it's schedule The reference paper on telecommunication is was to ensure competition in the supply of telecom services.

The telecommunications industry in Nigeria witnessed the deregulation of telecommunications services in 1992 through the promulgation of Nigerian Communication Commission (NCC) Decree, No. 75 of 1992, introducing private participation in the provision of telecommunications services in Nigeria, thus ending the state-owned NITEL's monopoly of the sector and ushering in competition.

Deregulation is expected to enhance efficiency in two ways. First is through the curtailment of the inefficiency that arises as a result of regulation and isolation of firms from actual and potential competition. Secondly, rents accruing to rent-seeking groups benefiting from regulation would be dissipated by a more competitive market environment. While much has been written about the experience of developed economies with deregulation and privatization of public utilities (Oniki et al, 1992; Imai, 1994; Wellenius and Stern, 1994), there have been few studies on the experience of developing countries especially those in Africa.

In the main, this study examines the impetus for reform, what happened in the wake of commercialization and deregulation, and the changes in the economic environment.  The telecommunication sector is the most rapidly growing and technologically dynamic sector and the pressure to move t he sector out or it's traditional public utility monopoly status is being exerted all over the world and is ultimately irresistible.

1.1     SIGNIFICANCE OF THE STUDY

Telecommunications infrastructure lies at the heart of the information economy. Countries lacking modern telecommunications infrastructure cannot compete effectively in the global economy. Until the early 1980s, the telecommunications sector was viewed as the quintessential public utility. Economies of scale, combined with political sensitivity, created large entry barriers and externalities, beginning from the 1980s, however, policy makers gradually began to recognize that telecommunications systems are as essential infrastructure for economic development. As the economy broadens and becomes critically dependent on vastly expanded flows of information, telecommunications acquires strategic importance for economic growth and development. Rapid innovations in telecommunications and information technology arc lowering costs, creating new services and changing U1C cost structure of many industries. Driven by unrelenting technological and market forces, telecommunications has become one of the world's most dynamic sectors Wellenius and Stern, 1994; Saunders et al, 1994).

In response to the need to overcome persistent shortfall in telecommunications investments and performance, telecommunications restructuring has assumed a global dimension and the wave of telecommunication reforms that began in the 1980s in a few highly developed economies quickly spread to several developing countries. By 1993, major reforms had been undertaken in at least 15 developing counties and a comparable number were In preparation [Wellenius and Stern, 1994). The impact of these new policy initiatives has been profound, hut if the new pragmatism in telecommunications policy is to succeed, policy initiatives will need to be broadened and deepened.

1.2    STATEMENT OF PROBLEM

Prior to commercialization, NITEL operated as a very inefficient. monopoly grappling with lack of clear policy direction, counter productive bureaucratic red tape and a myriad of other problems. These problems led to sub-­optimal performance in all spheres of its 'operations, from inadequate infrastructure to very low quality customers services, Up to 1991, access to telephone services was limited to about 20% of the population and area of coverage.  As at December 1991, there were about 450,000 direct exchange lines giving an average penetration level of about 1 line per 250 inhabitants as against international telecommunications union recommendation of 1 line per 100 persons for developing nations. There were over 500,000 waiting applicants nationwide, while telex subscriber figures stood at 7,985.

These figures reflects poor capacity utilization since installed telephone and telex capacities were over 500,000 and 15,000 respectively. The quality of services was also poor and constant congestion of switching equipment led to long dial tone delays and very low call completion rates. On average, the call completion rates for local, long distance and incoming international calls were as low as 40, 40 and 45 respectively, as against the expected 60 and 50% for local and international calls (Nwafor, 1997).

Furthermore, an efficient billing system was lacking and in fact it was suspected that about 20%) of subscribes did not receive bills, while only 7% of amounts generated were being collected. These factors culminated in consistent. operating losses and low returns on investment as showed in it's audited accounts, which recorded persistent losses.

1.3     AIMS AND OBJECTIVES

The main objective of the study IS to ascertain the quantitative and qualitative evidence concerning the efficiency and welfare improving effects of deregulation of the telecommunications sector in Nigeria. the specific objectives of the study are:

• To analyse the production structure of Nigerian telecommunications and estimate the total factor productivity growth.

• To decompose total factor productivity growth into scale economies and deregulation effects with a view to estimating efficiency gains due to deregulation.

• To assess the regulatory changes in the sector in the wake of commercialization.

• To analyse the options for evolving a viable telecommunications sector in Nigeria.

1.4     STATEMENT OF HYPOTHESIS

HYPOTHESIS 1

Ho:   The deregulation of the telecommunication industry does not significantly influence the efficiency of the industry negatively.

HI:    The deregulation of the telecommunication industry does significantly influence the efficiency of the industry negatively.

HYPOTHESIS 2

Ho:      The deregulation of telecommunication industry does not discourage competition.

H1:    The deregulation of telecommunication industry docs discourage competition.

HYPOTHESIS 3

H0:     The deregulation of telecommunication industry does not result to exploitation of consumers.

HI:    The deregulation of telecommunication industry does results to exploitation of consumers.