Politicians strangle telecoms
But even in countries with far more liberal laws, the telecoms industry is far from perfect, says research house Strand Consult.
Strand has issued a report damning European politicians for having “an incredible lack of vision about the mobile future”.
The cellphone industry in Europe is large, innovative and has created an enormous amount of jobs and wealth.
But politicians – with the overall responsibility for its future success – are damaging it due to a lack of vision and understanding.
The GSM technology that dominates the global cellular telephony market was developed in Europe, and the first players increased competition by competing on pricing and coverage.
Lower handset prices, subsidized handsets, aggressive marketing and introduction of prepaid products led to an explosion in market penetration.
Politicians then licensed third and fourth operators to increase competition and bring down prices further. But they forgot that a third operator has the same set-up costs as the first, which has already cornered the customers.
“They forgot to analyse whether it would be possible for many of the newest operators to create a profitable business,” says Strand. “In countries such as Denmark, Holland, Austria, Iceland and Finland it turned out many new players had a difficult time in creating a profitable business.”
In Denmark with a population of 5,5 million, France Telecom and TeliaSonera both lost more than 1 billion Euros on their investments, and Orange pulled out in 2004 as it realized it could never be profitable there. Many third, fourth and fifth operators have to be satisfied with lower profits.
That rings true in SA too, where the third operator, Cell C, is yet to announce a net profit after almost five years in operation. Perhaps, sensibly, the communications department seems to have quietly shelved plans for a feasibility study on whether SA can support a fourth network.
Also sensibly, SA avoided the fiasco of third-generation (3G) spectrum auctions, which Strand said was a hugely damaging political move.
In SA government offered all players a 3G license for R6m.
European countries sold their 3G licenses for a total of 110 bn Euros before any investment was made in networks, handsets or services. The 3G system was seen as a surefire way to persuade consumers to spend more on fancy services. Politicians saw an opportunity immediately to grab a slice of the billions the networks anticipated, encouraging companies to bid staggering amounts that may never be justified.
Politicians with no knowledge of the industry and the value it has created think cellular operators have unlimited resources, and want more competition and lower prices, Strand says.
In many countries people can use a cellphone to pay for parking, do their banking, check in at an airport, read e-mail or access information from their company database. The industry is becoming the backbone of the future society, Strand says, yet politicians focus only on winning the cheapest possible prices for consumers by imposing additional penalties and taxes on the industry.
In countries such as China, Japan, India, Korea and the US, politicians understand the industry needs support for its workers, research, innovation and the growth in value that it has already given and could continue to give.
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