Recovering After The Fall

Yesterday I was thinking about the repercussion of the Financial Crisis to he Pacific Island Countries (PIC); particularly Fiji.

How will we recover from such recession? There are theories being created about such situation as this. Predominantly, the father of Economic freedom Dr. Milton Friedman's string theory explained significant areas that we can cling on to and hope for the very best.

String expanded on a board; the more the string being pulled, the faster it will snap back to its normal position. While "snap back" is still a debatable issue, where actually it will snap back and how fast it will be is just not that easy to us PIC. The string represent the demand side of the economy which incorporates the household spending, firms, foreigners, and the government, the board in which the string being taut is the supply side.

The resources are fully employed by high consumption. This has a direct influence on the labor force, capital accumulation and technology advances.

In times of recession as this, this labor force and capital are being idle but will resume to full employment again when spending from the demand side picks up according to Dr. Friedman. But for the PIC, capital could be re-shifted to other parts of the world due to a high number of FDI; laborforce might look to the other side of the fence particularly to Australia and New Zealand. Well the question is weather we can get back to that position or not?

Basic Economics

Basic Economics
Basic Economic Questions & Economic Systems
Three Basic Economic Questions
Because of scarcity, every society or economic system must ask themselves three basic questions:
􀀀 What to produce?
􀀀 How to produce?
􀀀 For whom to produce?
Economic Systems
􀀀 The way a country answers questions about the use and distribution of its resources may be influenced
by its:
􀀀 History
􀀀 Culture
􀀀 Geography
􀀀 Political Situation
􀀀 Numerous other factors
Economic Systems versus Government Systems
Economic Systems and a System of Government are different.
􀀀 Economic System
􀀀 Describes a way of producing goods and services and providing a means for people to receive those
goods and services.
􀀀 Government System
􀀀 System of political institutions, laws, and customs that a society uses to determine its code of
conduct.
Traditional Economy
􀀀 An economy in which people do things the way they have always been done.
􀀀 “If your father is a farmer, you are a farmer.”
􀀀 The same methods of production are used.
􀀀 Little or no change from year to year.
􀀀 Methods based on habit, custom, and religious belief.
􀀀 Roles are narrowly defined.
􀀀 Advantage
􀀀 Everyone has a role in it.
􀀀 Disadvantage
􀀀 It discourages new ideas and ways of doing things.
􀀀 Places you can find this type of economic system:
􀀀 Societies in the rain forests of Latin America
􀀀 Parts of Africa
􀀀 Middle East
Command Economy
􀀀 An economic system influenced by the commands, or directives, of a central authority consisting of one
person, or a small group who controls others in the society.
􀀀 The members of the society carry out the demands.
􀀀 Two types of command economy in the world today: Strong & Moderate
􀀀 Strong
􀀀 Countries: North Korea and Cuba
􀀀 Common ownership, the government owns and controls factories, equipment, and land.
􀀀 The leaders of the country answer the three basic economic questions.
􀀀 Political Structure is called Communism.
􀀀 Advantages - in theory, the economy can make a dramatic change in a short time.
􀀀 Disadvantages - consumer goods and services are low on the list of priorities; very few of the
citizens’ wants are met .
􀀀 Moderate
􀀀 Government ownership of major industries like the railroads, steel industry and iron industry.
􀀀 Provision of opportunities for private ownership.
􀀀 Political structure is called Socialism.
􀀀 Countries include: Sweden and France
Market Economy
􀀀 A system in which the basic economic decisions are based on the actions of buyers and sellers; the
market produces goods and services people are willing to buy and that will bring a profit to the sellers
and producers.
􀀀 Countries: United States & Japan
􀀀 Commonly referred to as capitalism.
􀀀 Economic questions are answered by buyers & sellers.
􀀀 Price plays an important role.
􀀀 Regulation by government is minimal.
Market Economy
􀀀 Advantages
􀀀 It can adjust to change over time as consumer wants and needs change.
􀀀 Freedom for everyone to be involved.
􀀀 Disadvantages
􀀀 It rewards only citizens who are productive in the economy.
􀀀 Wealth of economy is not evenly distributed.
􀀀 “You need money to make money.”
􀀀 Market economies may vary with a difference in the amount of government control.
Mixed Economy
􀀀 An economic system that is made up of parts of several other economic systems.
􀀀 No country has an economy based totally as any of the aforementioned.

Regulatory designs

IN November, 2008, I wrote in this column about the non-existence of the Telecom Authority of Fiji and its consequences on the development of the telecommunication industry in Fiji, especially the regulatory mechanism. In December 2007, we saw the signing of the Master Raddison Telecom Accord in which the World Bank played a supervisory role.

Apart from the announcement of the Board of Directors and the advertising of the chief executive position of the TAF, there hasn't been any other development so far.

Recently, the economic theory of competition surfaced in the area of prices, specifically in the mobile call charges, and as usual the consumers benefit. Despite the decrease, there are still uncertainties in the industry

The World Bank was very prominent in promoting the deregulation of public utilities and facilitating regulatory mechanism from the early '90s. They had substantially researched and reported on industrial organisation throughout every region. This has led them to Fiji; another research area prospect.

The regulatory mechanism

My concern is the manner in which the state has managed the regulatory approach of this deregulation exercise. I strongly believe the State does not fully appreciate the essence of regulatory mechanism in the deregulation process of such a public utility. On the same token the World Bank has taken advantage of our ignorance and assumes that a generic model of regulatory will work in Fiji without even considering the uniqueness of our market and its operating environment.

There are a few options we could have considered. First, we enter into a transitional mode. We could have appointed a panel of experts to act as regulators in the transition time of a period of five years or so. While this idea was first introduced by the World Bank themselves, I had wondered why we did not take time to think this option through and analyse whether it would have been advantageous for us. This expert panel be given the role of facilitating the regulatory mechanism and all the aspects involved.

These are specialised areas such as tariff reviews, the economics of interconnections, spectrum management, number portability, economics of technology, business continuity plan for telecom operators and also attending to disputes, monitoring and compliance.

Secondly, is to outsource the regulatory authority to a regional regulatory regime. While there is none at the moment, I believe this is an opportune time to discuss this at the regional level as well. Dr T.K Jayaraman of the University of the South Pacific at one time brought up the idea of one currency for the Pacific. While this can be seen as too radical for some, regionalism could start from a regional regulatory regime as a lot of the Pacific Island Countries are facing similar experiences in their telecommunication industry.

The institutional factor

As we embarked on the creation of TAF, I wonder whether we had taken time to analyse the effectiveness of such institution during fine weather and during the storm. According to research, about 200 regulatory bodies have been established in some 130 countries to regulate services such as telecommunications, water, and electricity in the past decade. How well do they perform is still a debatable issue today.

The predominant factor in setting up a regulator is its independence. Some have argued that the fundamental challenge in regulatory design today is to find governance mechanisms that restrain regulatory discretion over substantive issues. Such governance issues are common to us as well, seeing the internal disagreement in the review of telecommunication price order control is a classical example.

There is always a close relationship between developing countries and political expediency.

While this might be a very general statement, research found that regulatory bodies in such economies are very fragile and face constant pressure with government exerting pressure on regulators to modify policies to their liking with an element of political responsibility as well.

From the outset, the TAF may have faced such external pressure even before it was created.

If we are thinking that mere deregulation will advance the telecommunication industry then we will be one of those that will be used as a case study of failures as far as regulatory framework is a concern.

Finally, the idea of outsourcing our regulatory framework does not take care of the independence issue but areas such as costs and other constraints such as lack of skills and intuitional incapability. In a transitional time as this, we don't necessarily need a fully fledged TAF, however, a panel of experts or a regional regulatory regime would suffice.

For institutional factors, we need to foresee the viability or the vulnerability of such an institution.

The regulatory success depends entirely on its compatibility to individual an country's regulatory commitment and governance mechanism.

I think the challenge is that we need to design a model that is legitimate, competent, and independent with capable staff to manage critical areas that are part of the regulatory process. But the good news is that we are not the only one that have regulated our telecommunication or public utilities, there are many case studies out there we can learn from. Once we are successful in the telecommunication industry, we will be able to replicate some aspects of this model in the water and electricity sector.

* Lekima Nalaukai is the Assistant Manager Business Development for Fiji International Telecommunication Ltd.

* The views expressed here are exclusively those of the author and are published by this newspaper on that sole understanding.

* His views may not reflect those of his employers.

A game with no referee

Fiji is a very unique place on earth. Some people say that it is because of our culture, some say because of our climate and others have different perspectives of our surroundings. Whatever the stories may be, our uniqueness is also evident in our very own telecommunication industry.

The pace and pattern of telecommunication revolution had clearly displayed the inability of relevant social infrastructures, and the lack of conceptuality among the individual players to adapt to the increasing demand of end users.

The chronology of changes that led to the deregulation of the telecommunication industry started more than a decade back, was recently revived in the past 24 months; and this has overflowed into the public and players are vigorously continuing to fight for that "level playing field".

The "level playing field" as quoted from the chief executive of Fiji International Telecommunication (FINTEL) in my view is no longer an issue now. The understanding is that within a "level playing field", all players are to follow the regulatory issues; the regulator will ensure that existing players are given equal opportunities to compete.

The telecommunication industry has been deregulated, however, 10 months later; there is still no sign of a regulator which should be the referee in this "level playing field".

The game has started and the players have their own definitions and interpretations of the Telecom Promulgation with the referee the Telecom Authority of Fiji (TAF) yet to be set up and the "linesman", the Commerce Commission closing its door for sometime.

For those that have played contact sports or those who paid registration fees to enter into a sports competition will agree that this situation is a very hostile one. No referee and no linesman.

Regulatory situation

The telecommunication industry in Fiji was operating under the monopolistic situation whereby the incumbent enjoyed government protection in the wireless and the fixed line sector. Internet Service Providers (ISP) were also restricted and Connect was the first to be given the licence to provide internet. Although there was the odd case of illegal bypass, which results in revenue leakage, telecommunication in Fiji largely operated in a monopolistic market.

The situation before was simple and also specified.

There was no entry of new operators and the government regulated the prices and operation. The government concentrated on one player and monitoring was not comprehensive as in a deregulated or highly competitive market. The customer concerns and complaints were mainly handled by 'watchdogs' such as the Consumer Council and maybe the Fair Trading Act, and prices were set by the Commerce Commission.

This is something that the public at large don't agree with in many cases and have often called on the government to open up the regulated industries for better choices and quality services.

Whether that situation is good or bad, it depends so much on how the individual understands the concept of competition as a whole, not only the price but the integrating of economic concepts and technology specifications as well. The telecommunication industry is so unique in its own form because one needs to understand the infrastructural setups and at the same time have full appreciation of the economic concepts.

Rule of the game

Fiji is not the only government that has de-regulated its telecommunication industry or deregulated any industry for that matter. The US deregulated their long distance call in 1970 and significant lessons can be drawn from three decades of operation. Being late starters maybe problematic to some; but for our case we have the advantages as we have a lot to learn from the governments that have done this.

Since the 18th century, operators and regulators have being sharing ideas on how this industry can be better managed and we have seen in history the failures and successes globally. We now have no reason to fail in adapting to this changes unless somebody is not doing their work.

The message is clear, customers want a better or a wider choice, new operators promising more and better services. The unclear aspect is who will oversee the administration of a deregulation including the pre-deregulation and post-deregulation periods. There are infrastructures and institutions that need to be in place before the market is opened for competition.

Institutions and social infrastructures need not only be heard but be seen as well before we allow for the competition to come in. The Minister for Telecommunication said in February 2008 that licensing will be left to TAF to organise when he was asked who will be giving the licence to mobile operators. Eight months later and the first month into the operation of the new mobile operator the TAF is yet to be seen.

TAF is the most fundamental and significant stakeholder that needs to exist to administer the new de-regulated telecommunication industry. After months of a deregulated market and a month into the operation of the new mobile operator; the industry as a whole has started to feel the competition will soon slip into a natural monopoly again if the government just thinks about the $10 million licence fee and forgets the necessary things needed to influence the environment to be conducive to competition.

Historically, deregulation of the telecom industries has led to rapid development of new technology, lowering of prices, the availability of advanced infrastructure and communications devices and the provision of much needed universal services. The ability of individual operators to innovate and increase investments is the expected positive externality in the new competitive market. This was clearly articulated in 1997 when the World Trade Organisation led the discussion of improved service provision of Telecoms by encouraging a competitive market structure.

Chaos will develop in our situation due to the non-appearance of the referee and I am not only speculating but I have reason to believe that the telecom operators in Fiji will go through a tough time if the TAF does not only show up soon but shows up prepared for issues that are already pending.

The director for the Consumer Council had already voiced her concern about customers being not sure where to turn to when they become a victim of unplanned, excessive marketing campaign of the three mobile operators causing congestion in their networks. On the other hand, the fixed line operator is starting to provide their so called "cordless fone" which is technically mobile in nature.

TAF should also come in and iron out the differences in definitions, in operations and interpretations, of which the existing operators have their own versions.

The telecom industry is such that we cannot afford to solve the current confusions on the technical aspect alone. The issues of spectrum management, number portability, the unbundling of the local loop, the economics of interconnection and the long distance switching are areas that need specific attention and should be addressed comprehensively. This will also lead to regulatory flexibility and market and technological development.

Specific areas that need comprehensive analysis include the technical and the economic concepts of the industry.

As the market opens up, a new challenge that we need to consider is if new mobile players that will enter in future, would just re-sell or would they invest and eventually build infrastructure.

The inclusion of Mobile Virtual Network Operators (MVNO) in the wireless market segment can not be considered as a deregulated wireless market. Whether they will fundamentally assist and improve the welfare of the people or do simply exist in the pre-text of increasing the players, but are using the same congested network.

While competition is good; these are the areas that we need to start discussing, especially the operators to rally to government to start the TAF as soon as possible if they are really caring for their customers.

Otherwise, they are just taking advantage of such situations and intuitional loopholes, causing the new entries and the consumers to suffer.