

[
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influenced such decisions were ranked by investors in approxi-
mately the following order of concern (highest to lowest):
regulatory consistency, rate of return, quality of local partners,
direct control, country risk, repatriation of profits, currency risk,
the scale of the investment, and insurable risks (Ure, 2004).
Therefore, reform covering FDI, regulatory stability, and capacity
building would help to attract and retain financing.
Beyond providing the legal and practical opportunity to invest,
it is clear that risks and returns drive private financing decisions
in ICI as much as in other sectors. Here the evidence suggests
that, in the right policy and regulatory environments, ICI invest-
ments can make considerable returns in every region of the world.
Taking the example of the International Finance Corporation’s
(IFC) telecommunications portfolio, estimated returns are double
the Corporation’s average (World Bank, 2002).
Private involvement will not be enough to fill the gap
While the private sector can meet a great part of the developing
country’s demand for telecommunications services, it is likely that
the private sector alone, even if supported by strong regulatory
institutions that foster fair competition and a broader investment-
friendly climate, will not meet demand for all information and
communication infrastructure services that are economically effi-
cient or socially acceptable, especially when looking forward to
an evolution from narrowband to broadband networks.
For example, geography is still a key determinant of communi-
cations costs and functionality. Basic reform may also leave gaps
in national backbone networks (typically long-term investments
with significant sunk costs) or in cross-border facilities (transac-
tions costs and timing uncertainties of multi-jurisdictional
investments provide a daunting extra challenge to investors).
Finally, countries where security uncertainty is so high that
investors are deterred from even very profitable ventures may also
face considerable difficulties in attracting sufficient private invest-
ment to meet immediate needs for ICI in support of reconstruction
efforts. Therefore, there is a major role to play from the public
side, taking advantage of policy and regulatory levers, but also by
direct government subsidy of rollout initiatives.
Competitive, well-regulated private
investment remains the key
While much progress has been made in closing telecommunica-
tions supply gaps in developing countries, there is still a long way
to go, both to fill existing supply gaps and also to meet the
growing global demand for telecommunications services. Looking
forward, governments can play a key role in achieving this by
attracting private investment.
The evidence is overwhelming that countries which have intro-
duced private, competitive provision of telecommunications
services under a strong regulatory framework have seen far more
rapid rollout of information and communication infrastructure.
One recent study suggested that low-income countries which
had seen considerable reform towards competition saw a growth
of 1 075 per cent in Internet users over the 1998 to 2000 period,
compared to 405 per cent growth in countries that were lagging
on the basic reform agenda. The same study suggested that fixed
and mobile teledensity was approximately 80 per cent higher in
reformed low-income countries than in non-reformed countries
(Kenny et. al., 2003). The first step for many countries to attract
greater private competitive financing is therefore to complete the
basic reform agenda of opening up to private competitive oper-
ators. Nearly half of the world’s governments still maintain a
monopoly in the international segment, for example (Figure 3,
source: ITU 2004b).
In addition, particularly important in a sector such as telecom-
munications is the ability to attract foreign direct investment
(FDI). In fact, FDI has been the major source of private partici-
pation on telecommunications infrastructure projects to date.
FDI restrictions not only place a maximum limit on potential
foreign private investments (many countries limit foreign partic-
ipation in ICI to less than 50 per cent), they can also deter such
investments altogether. A recent survey of strategic telecommu-
nications investors in Asia asked about the determinants that
encourage or deter private investors, and found that investment
decisions in the sector depend on far more than sector-specific
policies and regulation – not least of which is the broader macro
and institutional environment. Nine specified risk factors that
1992
Wealthy % GDP
0.2
0
0.4
0.6
0.8
1
1.2
1.4
10
0
20
30
40
50
60
70
80
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Developing US$ Billion
Developing % GDP
$ Billion
% GDP
Figure 2: Telecommunications investments in the developing and developed world