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Regions and Countries Regional Cooperation Greater Mekong Subregion Publications Proceedings of Ministerial, Forum, and Working Group Meetings Fourth Meeting of the Subregional Telecommunications Forum (STCF-4)
Fourth Meeting of the Subregional Telecommunications Forum (STCF-4)IntroductionThe Fourth Meeting of the Subregional Telecommunications Forum (the Meeting) was held in Vientiane, Lao People's Democratic Republic (Lao PDR) from 25 to 26 November 1999. The Meeting was hosted by the Government of Lao PDR, with the assistance of the Asian Development Bank (ADB). The countries of the Greater Mekong Subregion (GMS) and the ADB expressed their appreciation to the Government of Lao PDR, in particular, the Ministry of Communications, Transport, Posts, and Construction (MCTPC) for the hospitality, organization, and assistance provided to the Meeting. The objectives of the Meeting were as follows: (i) to maintain the momentum of cooperation in the telecommunications sector in the GMS; (ii) to advance specific subregional initiatives in the telecommunications sector; and (iii) to reinforce as well as focus the subregional consultative process. The Meeting Agenda, which is attached as Appendix 1, included the following: (i) country presentations on ongoing telecommunications development activities; (ii) status of implementation of the STCF Work Plan; (iii) proposed new approach to the development of the GMS telecommunications sector; (iv) panel discussion by private sector representatives; and (v) discussion of work program and next steps. The participants of the Meeting included delegations from the Kingdom of Cambodia, the People's Republic of China (PRC), Lao PDR, Union of Myanmar, Kingdom of Thailand, and Socialist Republic of Viet Nam. Representatives from the Government of Australia and ADB also attended. The list of participants is attached as Appendix 2. The Meeting was chaired by Mr. Math Sounmala, Director General of Cabinet, MCTPC. Mr. Preben Nielsen, Deputy Director, Infrastructure, Energy, and Financial Sectors Department (West) (IWD) of ADB co-chaired the Meeting. Opening SessionMr. Math Sounmala welcomed the participants of the Meeting and expressed his appreciation to the representatives of the GMS countries, ADB, international organizations, and private sector. He emphasized the importance of telecommunications, particularly in services sector. He expressed confidence that the STCF would enhance cooperation among the GMS countries and accelerate the process of economic development in the GMS. He reiterated the importance of private sector participation in telecommunications development. Lao PDR has always recognized the importance of private sector participation in investment, the promotion of competition, and provision of high-quality service to consumers at fair rates. On behalf of the GMS countries, he expressed appreciation to ADB for its contribution to fostering cooperation in the Greater Mekong Subregion. In his Opening Statement, Mr. Preben Nielsen noted the progress made by the STCF so far, and emphasized the importance of the Meeting as a good opportunity to discuss the STCF Work Plan with a view to maximizing the development impact expected from the telecommunications sector. Taking into account the changing role of telecommunications sector as an "enabler" of economic growth, it is high time to reconsider the strategy of telecoms sector development in the whole context of subregional economic development. He stressed the importance of a transparent regulations regime as a precondition for inducing private sector investments in the telecommunications sector, and noted the World Trade Organization (WTO) basic telecommunications agreement which commits 72 WTO member countries to a program of progressive opening of their basic telecommunication markets to competitive entry and increased foreign investment. He proposed a reformulation of the STCF work plan based on the recommendations of the feasibility study of the East Loop Project. The basic idea is to combine the four loops earlier identified into a two-phased project that would expedite the construction of backbone transmission lines in the GMS and enable the six countries to rely on a connected transmission network for promoting economic growth and fostering poverty reduction. ADB will consider financing the construction of backbone transmission lines, with the hope that ADB's involvement would catalyze the necessary private sector investments. Mr. Toru Tatara, Head, GMS Unit, ADB, provided an overview of the GMS Program and its strategic thrusts. Through the active participation and strong commitment of the GMS countries, significant progress has been made in the areas of project implementation, establishment and strengthening of institutional arrangements, and mobilization of financial and technical resources from the donor community and the private sector. In the light of the Asian financial crisis which has also affected the GMS countries, the GMS Program has focused its efforts in making subregional cooperation a catalyst to the process of economic recovery. A medium-term strategy has been endorsed by the GMS Governments that is aimed at consolidating the gains from past achievements, sustaining the momentum of cooperation, and preparing the groundwork for recovery. A key component of this medium-term strategy is the strengthening of national capacities for regional planning and implementation to enhance ownership of the six countries of the GMS Program. The medium-term strategy of the GMS Program is consistent with ADB's strategic thrust in meeting its goals of sustainable economic growth, improved living standards, and poverty reduction. He expressed ADB's willingness to continue playing a catalytic role in the GMS Program. Country Presentations on Ongoing Telecommunications Development ActivitiesThe GMS delegations presented their respective country reports that provided: (i) status of telecommunications sector development; (ii) development of cross-border link projects; (iii) regulatory issues affecting telecommunications development; and (iv) future plans for the development of the telecommunications sector. The Meeting noted that there remains a need to integrate national telecommunications network into a subregional transmission network. The Meeting was informed of key recent developments in the telecommunications sector in the GMS countries according to the outlined mentioned above. The following is summary of telecommunications development in Cambodia as presented by H.E. Koy Kim Sea, Under Secretary of State, Ministry of Posts and Telecommunications: (i) provincial cities cable network is provided by Camintel, a joint venture between the Ministry of Posts and Telecommunications (MPTC); (ii) wireless local loop service is being provided by Shinawatra Computer and Communications Company of Thailand which was licensed to provide the service nationwide; (iii) five cellular mobile operators are operating with about 85,000 subscribers in Phnom Penh and some provinces; (iv) a national terrestrial fiber optic backbone network linking northwestern part of the country bordering Thailand to the southeastern part of the country bordering Viet Nam (Project TC2) is now operational; (v) grant aid from Germany has been confirmed for the development of a fiber optic bearer linking Phnom Penh and Sihanoukville; (vi) there are currently two internet service providers; (vii) there is an ongoing restructuring of MPTC, wherein the operation side will be handled by Cambodia Telecom, a state enterprise with a joint venture partner, while policy and regulatory matters will be under MPTC; (viii) two international gateway operations are expected to be operational by October 2000; and (ix) collection and accounting rates are expected to be rationalized such that the charges would be based on cost plus reasonable profits. The following is a summary of telecommunications developments in the PRC as presented by Mr. Hong Yuzhong, Deputy Director of the Planning and Construction Division, Yunnan Provincial Postal Telecommunications Administrative Bureau: (i) total length of optic fiber cable is 830 thousand km, including 200 thousand km of trunk; (ii) mobile network covers cities at county and township levels; (iii) advanced digital mobile technology, such as B-ISDN and broadband ATM, is widely applied; and (iv) telephone penetration rate is 10.6 percent, with new services, such as electronic mail, video conferencing, and information service, becoming popular. The following is a summary of telecommunications developments in Lao PDR as presented by Mr. Padapphet Sayakhoth, Deputy Director, Lao Telecom Company: (i) Lao Telecom Company, a joint venture between the Government of Lao PDR and the Shinawatra Computer and Communication Company of Thailand, is the sole provider of telecommunications services in Lao PDR; (ii) capacity of public switching telephone network as of October 1999 stood at 45,000 line units with 17 telephone exchanges; (iii) capacity of mobile telephone GSM 900 expanded from 5,000 lines in 1994 to 10,000 lines in 1999; (iv) a license is about to be granted by the Government of Lao PDR to a second mobile telecommunications service provider; (v) current backbone network of 2 GHz and 7 GHz microwave system with a capacity of 34 Mbps 1+1 is fully utilized for telephone service; (vi) international transmission network is via Satellite Earth Station (standard A) and microwave system with capacity of 34 Mbps 1+1 is linked to Thailand; (vii) fiber optic link project (Project TC1) financed by a $9.7 million loan from KfW of Germany is expected to be completed in December 1999; (viii) for year 2000, development plan includes installation of new telephone exchange with a capacity of 15,000 line units, expansion of mobile phone lines to 15,000, expansion of microwave backbone to 34 Mbps 2+1 and extension of spur route 65 hops for five provinces and some districts, and upgrade of internet gateway; and (ix) a regulatory framework is being formulated with the assistance of KfW of Germany aimed at encouraging further foreign aid and investment in the telecommunications sector of Lao PDR. The following is a summary of telecommunications development in Myanmar as presented by U San Tin, Head of Office, Ministry of Communications, Posts, and Telegraphs: (i) there are 531 telephone exchanges, wireless local loop system, radio coverage, and domestic satellite serving the telecommunications needs of the country; (ii) AMPS digital mobile cellular system is available in Yangon and Mandalay; (iii) introduction of GSM cellular mobile telephone system and CDMA mobile telephone system are being planned to be installed in Yangon and Mandalay; (iv) international transmission network is via Satellite Earth Station (standard A); (v) participation in SEA-ME-WE3 international fiber optic submarine cable project is being pursued, with cable landing station and international gateway switch in Yangon to be linked with terrestrial fiber optic transmission system; and (vi) about $62 million of investment is needed for Myanmar section of the West Loop. The following is a summary of telecommunications development in Thailand as presented by Mr. Sutham Malila, Senior Executive Vice President, Telephone Organization of Thailand (TOT): (i) fixed line capacity and number of subscribers as of September 1999 stood at 7.6 million and 5.2 million, respectively; (ii) mobile telephone capacity (470 MHz) of TOT is 142 thousand lines with 28.4 thousand subscribers, while cellular mobile telephone subscribers of mobile concessionaires is 1.1 million lines; (iii) 19 routes of 5,719 km of fiber optic cable, three microwave links, one exchange for international gateway switching, and two stations of INTELSAT were installed between 1998 and 1999; (iv) the portion in Thailand of the China Southeast Asia Cable (CSC) Project will be ready for provisional acceptance by December 1999; (v) the section from the United Kingdom to Thailand and Malaysia of the SEA-ME-WE 3 Project has been in operation since 30 August 1999; (vi) construction of the fiber optic link between the border of Thailand and Cambodia (Project TC3) that forms part of the East Loop has been completed; (vii) the Thai portions of priority subregional telecommunications projects TC1, TC3, TC4, TC7, TC9, and TC10 are in varying stages of implementation; (viii) in accordance with the Master Plan for Telecommunications Development, an independent regulatory body will be established to regulate the telecommunications business and ensure that the promotion of competition will be on a free and fair basis; (ix) planned liberalization of the telecommunications sector includes decline in accounting rate, rate rebalancing, and interconnection charge for usage of TOT network; and (x) establishment of a National Telecommunications Commission and National Broadcasting Commission, and privatization of Communications Authority of Thailand and TOT by the year 2000. The following is a summary of telecommunications development in Viet Nam as presented by Mr. Nguyen Thanh Phuc, Senior Expert, Department of Science, Technology, and International Relations, General Department of Post and Telecommunications: (i) the North-South backbone link has been modernized together with the fiber optic link along the 500 kV power line; (ii) with eight INTELSAT and INTERSPUTNIK earth stations, international telecommunications network has been developed and extended; (iii) the SEA-ME-WE 3 cable landing station in Da Nang with the speed of 10 Gbit/s was inaugurated on 20 July 1999; (iv) the main link of the Vietnamese portion of the CSC project will be commissioned by the end of November 1999; (v) fiber optic transmission link between Ho Chi Minh City and Phnom Penh of 2.5 Gbit/s will be commissioned by the end of 1999; (vi) all districts have been equipped with digital exchanges and transmission systems and 80 percent of villages has telephone links; (vii) mobile communications services has expanded to cover 61 cities and provinces, while national paging system has been put into operation with 46,000 subscribers as of November 1999; (viii) packet switching network has been developed with major nodes in Hanoi, Ho Chi Minh City, Da Nang, Vung Tau, and Haiphong; (ix) policies are being put in place to accede to World Trade Organization commitments; (x) gradual opening up of the telecommunications market initially on value-added services and then on basic services; (xi) planned developments include equipping inter-provincial links with microwave and fiber optic system; implementing signaling system number 7, ISDN and ATM exchanges, CDMA, W-CDMA and GMCPS mobile communications systems; and drafting of Telecommunications Law based on reform of ownership mechanism, reorganization of the market to ensure free and fair competition among players, and protection of customers' interest. Status of Implementation of STCF Work PlanMr. Dong-Soo Pyo, Financial Analyst, Transport and Communications Division, IWD, ADB, summarized the developments in subregional cooperation in the telecommunications sector since the Third GMS Ministerial Conference held in Hanoi in April 1994, including the major outcomes of the first three meetings of the STCF. He concluded by presenting the decision made by the Eighth GMS Ministerial Conference concerning the East Loop Project, feasibility study of which was completed in March 1999. Due largely to the Asian financial crisis, the recommendation to establish a special purpose private company to finance, own, and operate the East Loop was considered not viable. Mr. Horst Ahlfanger and Mr. Friedrich Kraemer, ADB Consultants, presented the findings of the feasibility study of the East Loop Project. Mr. Ahlfanger outlined the key conclusions of the study which include: to install the East Loop as soon and as fast as possible and to put it in operation, even on the technically lowest level and despite any technical problems still to be resolved. The reason for this recommendation is that the economic growth and development of the countries of the region depend to a great extent on the availability and possibility of a free and fast interchange of data and information. The study also showed that the financial internal rate of return of the project is estimated at 18.4 percent. This would be mainly generated by revenues accruing from incremental transit revenues attributable to the project. Under the high traffic demand forecast the FIRR is estimated at 33.1 percent. It was also calculated that operating income after income tax, as a percentage of revenues, is 38.6 percent after the first seven years. An annual return on assets would be in excess of 30 percent. He also presented possible financing options and the consultants' recommendation of a special purpose vehicle to operate the project. The importance of institutional strengthening was emphasized by Mr. Ahlfanger and in the presentation by Mr. Friedrich Kraemer. The latter paper was based on the assumption that resources in the region are inadequate to finance the telecommunications infrastructure that the region needs. Therefore the need is to provide the basic conditions on which private investment can take place. The key requirement is a secure and stable policy environment. Mr. Kraemer had undertaken a policy review in each of the GMS countries and outlined the objectives of each of the proposed policy and institutional measures and the principles on which they were based. In particular he emphasized the importance of each country determining a clear policy to give signals to the private sector that the government wants to give. Mr. Kraemer had depicted, graphically, the relationship between the attraction of private investment and the extent of institutional reform. A more detailed graph suggested steps in reform and a time-frame of about 18 months was suggested. He stressed that once a policy has been laid down all steps can be measured against the policy. Finally it is necessary to enshrine the policy in a law so that the authorities have legal authorities and principles on which to base administrative decisions. The Meeting questioned Mr Kraemer very closely on his presentation and sought to relate the principles outlined to the needs in each of their countries. Proposed New Approach to the Development of the GMS Telecommunications SectorMr. Dong-Soo Pyo, ADB, outlined a proposed revision to the STCF work plan. He noted that the Feasibility Study had identified only one missing link in the Sector Study, that between Vientiane and the Vietnamese border, and had suggested some extensions to the East Loop Project to maximize the benefits of cross border traffic. These extensions made it necessary to revise the basic approach of the project, which had been based on four distinctive loops. He demonstrated a possible regrouping of the original loop-based projects into two phases. Phase One would be substantially based on the original East Loop Project and Phase Two would be based on the West and North Loop Projects and include six projects aimed at improving connectivity. Phase One is aimed for completion in the period 2000-2003 and Phase Two during 2002 and 2005. Mr Pyo also noted that private sector investment, in the region's telecommunications, have not been satisfactory in the recent past and the ADB is willing to strengthen its catalytic role to induce private sector investments. This will include some financing and arranging co-financing. However, he noted that this financing could only be justified if the opaque regulatory regimes in the region are replaced with regulatory systems developed in line with the principles of World Trade Organization Basic Telecommunications Agreement. This agreement required regulatory frameworks to be based on principles which: (i) prevent anti-competitive practices, (ii) provide non-discriminatory and cost-orientated interconnection, (iii) apply universal service obligations in a competitively neutral manner, (iv) make licensing criteria publicly available, (v) establish a separate regulatory body, and (vi) allocate scarce resources in an objective timely transparent and non-discriminatory manner. With such regimes in place the GMS countries should be able to mobilize a huge amount of private sector investments in a gearing ratio of 10:1. Hon. Mr. David Butcher, ADB Consultant, asked delegates to focus again on the objectives of the Sector Study: that the quality and price of telecom services should be uniform across the Subregion and in accordance with international standards. He pointed out that the region is in a very competitive market for investment. That foreign investment is an essential ingredient to increasing wealth and improving telecommunication services. He elaborated on the proposed new approach as it applied to regulatory frameworks and pointed out that the 1997 Asian crisis has shown again that there is a competitive market for investment. To attract necessary investment from high quality investors it is necessary to make domestic market conditions comfortable for potential investors, including a secure transparent, fair, institutional, structure rather than tax breaks or inducements. High quality voice and data telecommunications is also a precondition to the investment needed in other sectors to create jobs and wealth. He also dealt with the WTO Basic Services Agreement in more detail and focused on the impact of each of these in the region. In particular, he noted the impact of each of the WTO principles on the willingness of investors to enter the sector. He pointed out the fundamental experience that when regulation is separated from the enterprise, the Government can focus on its proper role of promoting the national benefit. It ceases to focus on the needs of the enterprise it owns. Even a realistic threat of competition forces all businesses to reassess their competitive advantages. Former telephone monopolies have only one competitive advantage: their coverage, i.e., their network. The inevitable result of competition is for networks to expand. He concluded by drawing attention to the significance of the PRC-US WTO deal which substantially liberalized the PRC market for telecommunications, The Meeting expressed interest in the possibility that ADB take a more proactive role in promoting regulatory reform in the GMS, and that this may allow one Phase, or parts or a Phase qualifying for ADB lending. Mr Pyo was asked to elaborate on the proactive role envisaged and replied that in accordance with past practices, this could be with a mixture of technical assistance grants or loans for major projects. It was further noted that in Thailand, in particular, it has been accepted that there must be competition between the government owned entities and new entrants. With competition between the incumbent and competitor service providers, the interests of the consumers of each country will be promoted. The Meeting agreed to endorse the proposed new approach to the Ninth Ministerial Conference to be held in Manila in January 2000, subject to revisions to be made in the project components of Phases One and Two in the light of information provided by the GMS delegations at the Meeting, and subsequent consultations with the GMS countries before mid-January. The revised composition of priority telecommunications projects for Phases One and Two is attached as Appendix 3. Mr. Preben Nielsen emphasized that the intention is to come up with concrete proposals of projects for Phases One and Two and to be presented for approval by the Ninth Ministerial Conference. Once Ministerial endorsement is obtained, ADB will explore the possibility of financing some of the projects which are not considered commercially viable by the private sector. Panel Discussion by Private Sector RepresentativesPrivate sector representatives made presentations on the general theme of facilitating private sector investment in telecommunications in the GMS. Mr. Tobias Hoschka, Investment Officer, Private Sector Group, ADB outlined the circumstances in which his group can become involved in projects. These included projects funded by the private sector and projects where there is majority control in the private sector. The group will also become involved on the basis of absorbing some of the "country risk" of projects, which, otherwise, would be borne by the private sector. He outlined, by way of example, his Group's involvement in putting together the very successful "Grammenphones" project in Bangladesh. Using the Bangladesh Railway fiber optic network, mobile phones and the small scale loans from Grammen Bank to rural women, a mobile phone service is now available to hundreds of rural areas for the first time. This Bank has a very high repayment rate, in excess of 95 percent. Mr. Sirat Chum, Country Senior Officer for Alcatel, in Lao PDR and Cambodia, spoke about the successful completion of the fibre optic trunk network in Cambodia in 15 months between February 1998 and May 1999. This project was complicated by the need to ensure that the route was clear of mines and other unexploded ordinance, the need to cross the Mekong River, overcome bad road conditions and the need to train and involve the staff of the MPTC. The result of the project, funded by KfW of Germany has been to provide Cambodia with a trunk telephone service using state of the art technology in accordance with MPTC's masterplan. Mr. Wayne Bannon, GMS Director of Motorola-South Asia Pte. Ltd spoke about a number of matters that had been raised by other speakers and which had come up in discussion. He emphasized the need to address the legitimate needs of investors in GMS countries. While international companies are prepared to invest in infrastructure in the region they had to answer to their shareholders. He particularly stressed the fact that from the view of reputable international countries investments need to be a win-win situation. A company with an international reputation to defend is much more likely to be interested in looking after the interests of both parties. Hon. Mr. David Butcher, ADB Consultant, pointed out that all the previous speakers in their own ways had underlined the importance of ensuring the investment climate is one that is friendly to business. This does not mean expensive inducements to invest, but it does mean efficiency in the conduct of basic business needs and one where legitimate interests are safeguarded. The Meeting offered the following comments to the presentations. Mr Hoschka was asked to provide more detail on how countries can take advantage of the Private Sector Group's Services. Sirat Chum and Wayne Bannon were asked about the future of mobile vis-à-vis fixed line phones. Both agreed that in several ways technologies are converging and that ultimately it will be the service that is important not the means of delivery. Concern was expressed at the unequal bargaining strength of developing countries and powerful international companies. It was suggested that the key to resolving this problem is to ensure that the international companies are in a competitive situation. This maximizes the choice available to the GMS countries. Work Program and Next StepsBased on the above-mentioned proposed new phased approach to the development of the subregional telecommunications sector, the Meeting agreed that ADB will continue to provide assistance as a catalyst for private investments. ADB will also facilitate technical assistance from its grant funds to help the six GMS countries in telecommunications policy formulation and establishing/enhancing regulatory frameworks, principally on an individual country basis, but also with due regard to harmonizing rules and regulations for cross-border connections and to make it attractive for private sector investments. The Meeting agreed that the venue and timing of the Fifth Meeting of the STCF will be determined following further consultation with the GMS Governments. AcknowledgementsThe GMS countries and the ADB expressed their sincere thanks and appreciation to the Government of Lao PDR, in particular, the Ministry of Communications, Transport, Posts, and Construction, for the wonderful hospitality, excellent arrangements, and tremendous assistance provided to the Fourth Meeting of the Subregional Telecommunications Forum.
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