Deregulation: A modern day Trojan horse?

Deregulation: A modern day Trojan horse?

A. Nkindi

The great conceit of the 1990s was that previous experience counted for nothing: “The Internet changes everything.” All the old rules needed to be torn up. But history has a way of taking revenge on those who think the past is irrelevant.

When it first broke into public view, the Internet seemed like an economic as well as a technological miracle. Consumers came to expect that the information and services they found online would be free, while investors believed that the Net would generate billions of dollars in profits. A miracle is exactly what it would have taken to realize both those expectations.

Right after the Internet changed everything, the dot-com boom collapsed in the classic pattern of a stock-market bubble, and many of those who had explained to old-timers why companies with no earnings could be worth billions were shocked to discover that the old rules still applied.

Although the Internet mania helped to set it off, the telecom boom differs in several ways. First, compared with fizzy dot-coms, telecom companies develop tangible assets that are valuable in the information age: fiber-optic networks, routers and other telecom equipment, satellites, wireless systems, and upgraded telephone and cable TV networks capable of providing high-speed Internet connections.

Second, the telecom industry was not only well-established but had long been the very embodiment of stability and guaranteed returns.

Third, and this is a key distinction between the dot-com and telecom booms — governments all over the world, led by the United States, opened up their telecom markets to competition. Public policy was inviting new entrants to jump in. Competition meant that returns were no longer guaranteed, but the simultaneous rise of the Internet and advent of deregulation created an unprecedented opportunity to make money — and, as many discovered, to lose it.

Creating an industry that induces a gold rush of sorts creates an environments were massively parallel systems are built up. Only for companies to realize that there simply isn’t enough business to go around, and begin a race “to gain market share” in a burst of “hypercompetition” and “vicious price wars” that drive down revenues.

Rwanda is hardly at a point of market saturation in the ICT industry but the “Vision 2020” policy aims to make Rwanda an ICT centre of excellence for the region, the continent and in the long run internationally. In this regard, when a point of market saturation is reached, policy makers will be able to pat themselves on the back for having reached the goals they set out to achieve.

To date, Rwanda has two mobile phone operators which is a clear sign that the regulatory body as well as the investment authority conduct a careful sieving process that makes sure that the companies that emerge with the coveted licenses are reputable, of adequate financial standing and their presence in Rwanda will beneficial to the country.

Needless to say that this state of affairs will change in the near future, Rwanda is already accepted as an emerging economy and that status is encouraging local and international investors to try their hand at expanding the industry which at this point is without a doubt a great investment.Competitiveness in the global information economy can only be driven by creating a strong reputation in the electronics, semiconductor, software design and telecommunications sectors. On a worldwide scale, the electronics industry has been growing rapidly in response to the information technology revolution. Even as the PC market has stalled, the market for new electronic end products such as PDAs, mobile phones, DVD players, video games and software applications that make life easier has exploded. Designers and marketers of these products are based in the United States, Europe and Asia, but Rwanda is emerging on the playing field, a much younger player, but a skilled one nonetheless. In light of Rwanda’s “Vision 2020”, the country has set it self up in a manner that companies can find a competitive advantage for manufacturing of electronics and software components. Key initiatives in government policy with regards to local ICT industries hopes to increase foreign direct investment allowances that will spur strong industry competition in both telecommunications products and services, opening the door for growth in the Internet economy.One of the key questions that need to be answered in an open market environment in the telecoms industry is whether players will be allowed to provide their own infrastructure as if the answer is yes, then Rwanda will see massive growth in the industry, but if it is determined to be no, we will likely see a rise in grey market services and the current infrastructure providers – will in effect still control the price of telecoms services.


Fortunately in Rwanda, the key players, MTN Rwandacell and Terracom Communications are indeed providing their own infrastructure, setting up their own networks with their immediate and long term goals in mind which leaves prices at the discretion of the providers. 

The early delays and continuing disappointments especially with regards to internet services should not obscure the big picture: Competition in telecoms is a powerful force, with both positive and destabilizing effects. As in the early stages of the long forgotten telegraph and telephone development, competition accelerated the deployment of new networks and the introduction of new services.

The great benefit of competition is a rapid rollout of new technology. Companies in the long-haul fiber-optic, local-telephone, wireless and other sectors of the industry are undertaking massive capital expenditures to develop and upgrade networks. As a result, telephone companies will offer high-speed access to their subscribers in most areas of the country. With huge investments in spectrum technology, wireless service will dramatically improved and charges will fall.

The flip side of this rush is that network expansion can also lead to huge overcapacity. Companies build networks and use untold amounts of money. It would be a shame to see fiber-optic networks costing billions of dollars remain unused because there is no prospective demand for them, and the companies that built them left with their books in the red.

Telecom regulation originally emerged from the realistic assessment that full-scale network competition is inefficient and unsustainable. Outside the industry, there are always demands for public protection against monopoly power. Inside the industry there should be recognition that a stable regulatory environment offers advantages for long-term recovery of investment as we will not see redundancy in the networks.

As ICT investors come into Rwanda, watch out for intermodal competition — alternative technologies offering the same consumer service. A century ago, only the telegraph offered an alternative to the telephone for instantaneous messages. Today, wire, wireless, cable, direct-broadcasting, satellite and conventional broadcasting compete to some extent with one another internationally. It is important to remember that despite the romantic appeal of competition and the imperfections of regulation, that at the end of the day, old market and business principles still hold a lot of water so that as we become an ICT centre of excellence we do not fall into traps that have already snared many larger economies that at one point were emerging economies as well.

One of the “Vision 2020” key aims is to stimulate competition and create opportunities for innovative companies. Companies that invest generally do so in response to competitive threats and to take advantage of competitive opportunities. The framework facilitates market entry and encourages investment by ensuring a level playing field for new companies, while providing users with basic services at affordable prices.

New entrants and incumbents should respond to competition by investing to extend and upgrade fixed and wireless network infrastructure in order to cut costs and provide innovative services.

In conclusion, competition drives investment. The Rwandese regulatory framework has the flexibility to handle new and volatile markets, and has the tools for regulators to take account of the need for risky investments to generate an adequate return on capital when mandating pro-competitive access obligations.

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