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Telecom Regulatory Environment (TRE) assessment

The desired objective of telecom policy reform and regulation is improved sector performance, measured in four dimensions: connectivity, price, quality of service and choice.

Investment is a necessary condition for sector performance.

Risk is the primary determinant in making the investment decision – higher the risk, higher the expected rate of return. At the point of investment, investors consider risks associated with three environments:

  • Macro-level or country
  • Market or commercial, and
  • Regulatory

The macro-level or country risk is defined as factors that may affect the entire economy, such as inflation and foreign exchange risk, as well as overall political stability. Commercial risk is comprised of factors such as demand, effect of substitutable products and services, and performance of competitors. Regulatory risk is a term of art, defined by Spiller and Levy (1994) to refer to risk emanating from government action, including but not limited to the actions of the actual sector-specific regulatory agency with authority over the industry in question.

Risk is partially a matter of objective analysis – an investor can calculate an expected rate of return on a new investment based on factors within his control and assumptions based on factors outside his control. However, risk is, to a great extent, also matter of perception. Macro-level/Country Risk and as Regulator Risk are both difficult to measure objectively. But at a minimum a subjective measure of both Country Risk and Regulatory Risk is a necessity in making the investment.

The scope here is the regulatory environment within which telecom operators and potential new entrant’s function , that is, a subset of the overall Regulatory Risk environment here described as the “Telecom Regulatory Environment” (TRE) that includes only the telecom-specific aspects. This manual presents a tool to measure the TRE in a country.

The TRE tool presented here is a measure of perception that is affected by a number of different factors. For example, the context of the investment (new vs. incremental) and nature of the telecom sub-sector (mobile vs. fixed) will affect the perception of the TRE.

The TRE has many uses: it is a diagnostic instrument for assessing the performance of the laws affecting the telecom sector and the various government entities responsible for implementation. If the scores are low in one aspect against another, it may be that the regulatory performance needs to be improved. If the performance considered satisfactory, it may also be possible that the problem is the communication of the regulatory actions. If the latter conclusion is reached, the appropriate action would be to improve the way the agency communicates its actions. The TRE can also be used as a tool for investors to assess regulatory risk in a country . Particularly for investors facing investment opportunities in the telecom sectors of more than one country, the TRE can provide a ranking of the countries in terms of telecom-specific regulatory risk.

The original TRE instrument was designed to assess regulatory effects on investment (Samarajiva & Dokeniya, 2005). It asked stakeholders to assess the telecom regulatory environment across five dimensions (market entry, allocation of scarce resources, interconnection, regulation of anti-competitive practices and universal service obligation) for the fixed and mobile sectors. The dimensions were adapted from the Reference Paper of the Fourth Protocol of the General Agreement on Trade in Service. A dimension for Tariff Regulation was added. The Reference Paper also refers to the Independence of the Regulator, but this was left out of the dimensions selected because it is seen as a process variable different from the other outcome variables. The initial TRE surveys (the pilots as well as the 2006 implementation across 6 countries) therefore had a total number of 12 items (6 in each sector) that required a response. Learning from the 2006 survey, and in keeping with the changing nature of the telecom sector, new dimensions and new sectors have been added, as we discuss below.

The TRE asks senior level stakeholders to assess the Telecom Regulatory Environment in a country across a number of dimensions.

It makes considerable effort to be parsimonious in the questions because the ideal respondents are senior managers, including CEOs of operators. A lengthy questionnaire runs the risk of it being passed down to others to complete.

The respondents are asked to rate the quality of the regulatory environment for each dimension on a Likert scale ranging from 1 (highly ineffective) to 5 (highly effective). So the respondent has to select a score (1, 2, 3, 4 or 5) and simply circle it (or click, in the case of a web-based survey). Posing questions in this format ensures that responses can be easily analyzed without losing any qualitative information as often occurs when using open ended questions.

The TRE instrument is administered at the same time in eight countries by a team of researchers.

Each instrument is accompanied by a short narrative statement describing each of the dimensions, using language from the Reference Paper as much as possible, and a bland summary of significant telecom policy and regulatory actions taken within the previous 12 months. The survey is accompanied by a cover letter stating that participation would be voluntary and that respondent confidentiality was guaranteed.
Questionnaires are sent to large number respondents from agreed-upon categories. Follow-up emails, phone calls and are made to ensure a high response rate.

While the TRE Scores themselves are the most direct output of a TRE study, more meaningful analysis is done by analyzing the TRE scores in light of actual sector performance indicators for a particular country.

Click on the following links to view the 2008 TRE Assessment results for:

Citation for the above reports should be done as: Author Last Name, First Name Initial, (2008), Report Name, Retrieved Date, URL of document on LIRNEasia website.
For example the Sri Lanka country report can be cited as follows:
Knight-John, M., (2008), Telecom Regulatory and Policy Environment in Sri Lanka: Results and Analysis of the 2008 TRE Survey, retrieved 2 January 2009 from
http://lirneasia.net/wp-content/uploads/2009/07/TRE_India_Final_Nov16.pdf

Citation for the above reports should be done as: Author Last Name, First Name Initial, (2008), Report Name, Retrieved Date, URL of document on LIRNEasia website.

For example the Sri Lanka country report can be cited as follows:

Knight-John, M., (2008), Telecom Regulatory and Policy Environment in Sri Lanka: Results and Analysis of the 2008 TRE Survey, retrieved 2 January 2009 from http://lirneasia.net/wp-content/uploads/2009/07/TRE_SriLanka_Final_2008Nov28.pdf

Click here for the paper describing the detailed methodology, including the 2008 results.

Click here to download the TRE Manual that provides detailed instructions on how to conduct a TRE study.

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