A Measure of How Far Telecom Has Come

Given the title and subhead of this blog, here’s something that fits right in. In Trends in Telecommunication Reform 2007: The Road to Next-Generation Networks, The International Telecommunication Union reports that since 1990, 123 ITU member countries had a private or privatized national incumbent, and several other countries have announced their intention to privatize. Count this as one of the legacies of the late Milton Friedman. Just 25 years ago, the conventional wisdom was that telephone service was a natural monopoly. Even in Western European democracies, governments ran the phone company. In the U.S., AT&T operated for profit, but it operations were heavily regulated and its monopoly was largely preserved by policy. Long distance competition was just opening up back in 1980, when I was a cub reporter, but competition with a local telephone incumbent was still unimaginable. The graph below, taken from the report, shows the percentage of ITU countries that have competition for various services. ITU2 Competition graph.gif The gradual introduction of long distance and wireless competition in the U.S., coming at a time when Friedman’s free market ideas were being sparked worldwide via the Reagan and Thatcher policies, showed the world the innovation and growth that could occur when government steps aside. Ironically, the latest political fad has been to re-nationalize: witness Hugo Chavez, current darling of the progressive set, whose government took over Venezuela’s CANTV after more than a decade of success in private hands. Guess it will be back to the days of five-year waits for phone lines. For its part, the ITU report credits much of the expansion of next generation telecom services to privatization and competition. “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.” The entire report is available for SF 100 ($84). The executive summary and a sample chapter can be found here.