Privatization Drives Telecom Growth

Published November 1, 2007

Regulators and policymakers worldwide must embrace telecommunications competition and privatization to stimulate a sound climate for the growth of broadband and next-generation network (NGN) services, according to a new report from the International Telecommunication Union (ITU), a United Nations agency.

Trends in Telecommunication Reform 2007: The Road to Next-Generation Networks, written by a number of contributors and published by the Geneva-based ITU in September, tracks the worldwide evolution of telecom networks from circuit-switched, dial-tone telephony to multiplatform, multiservice networks delivering video, high-speed data, and wireless and Internet Protocol-based voice services.

By the end of 2006 there were nearly four billion mobile and fixed-line subscribers and more than one billion Internet users worldwide, according to the report. Wireless subscribers outnumber landline users by more than 2 to 1–2.68 billion to 1.27 billion, the report states.

“These numbers are even more impressive when updated to include two of the fastest-growing markets: China and India, which in the first quarter of 2007 had reported nearly 200 million more subscribers between them–87 million in China, and about 110 million more in India. Some 61 percent of the world’s mobile subscribers are in developing countries, fuelled by countries like Brazil, China, India and Russia.”

U.S. Leads in Broadband

By the ITU’s measure, the United States still leads the world in total broadband connections with 58 million, followed by China with 51 million and Japan with 26 million. Unlike the Organization for Economic Cooperation and Development (OECD) assessment, in which the United States ranks 15th (see “U.S. Broadband Adoption Rank Triggers Debate,” IT&T News, July 2007), the ITU report ranks broadband leadership by total number of subscribers, not percentage of households.


Wireless penetration rates in developing countries, excluding the least-developed countries, grew from 26 percent in 2005 to nearly 34 percent in 2006, the report said.

While there is still considerable potential for Internet growth in developing countries, where the average level of Internet use in 2006 was only 10 percent, countries such as Argentina, Brazil, India, Mexico, Poland, Russia, and Turkey have joined the ranks of top broadband subscribers.

The report credits much of the expansion of NGN services to privatization and competition, a trend sparked in the mid-1980s by major policy shifts in the United States and United Kingdom. Although privatization initiatives have slowed in the past few years, by the middle of 2007, 123 ITU member countries had a private or privatized national incumbent (see figure, page 19), and several other countries have announced their intention to privatize.

Benefits of Privatization

“The objectives of privatization are to improve efficiency, productivity, and service quality, as well as to raise capital, improve management expertise, and further develop the network,” the report states. “In addition, many countries have found that competition is often more fair when the state avoids being both a market player (as owner or part-owner of the incumbent) and a referee at the same time. Privatization sends the signal that policy decisions and regulations will be fair to all players.”

Alongside privatization, the report notes the steady growth of independent regulatory agencies. The U.S. Federal Communications Commission, independent since its creation in 1934, was an exception worldwide until recently. In most countries, even in the Western democracies, a government ministry handled both telephone operations and regulation. The introduction of competing wireless companies, plus the general trend toward privatization, has led more countries to adopt the independent regulator model.

Currently, agencies unaffiliated with service providers regulate telecom in 148 countries, compared to just 10 in 1990, the ITU reports.

Regulatory Updates Required

The authors commend countries that have maintained a light regulatory hand, which they say creates a much friendlier climate for growth, and they urge policymakers to continue to do so.

“Policymakers recognize the need to abandon regulatory practices designed for an earlier era–such as those based on providing only one service on a dedicated network–that can stifle innovation and investment and lead to arbitrage opportunities,” the report notes. “It makes more sense to embrace new regulatory practices that are pro-growth and pro-end user.”

[replace with original quote] “With a growing range of wireless technologies that offer ever-increasing broadband capabilities, many countries seek to upgrade their regulatory frameworks to match today’s technological developments,” the report continued. “So while wealthier countries test the business case for NGN services like IPTV and mobile TV, developing countries can already exploit today’s technological developments, leapfrogging their way to meet the pent-up demand for communications services–both basic and advanced.”

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.

For more information …

Trends in Telecommunication Reform 2007 is available for 100 CHF ($84) from the ITU at The executive summary and a sample chapter can be found at