Competition Law And Infrastructure Industries

Author:Damien Geradin
Profession:Professor of Law at the University of Liège and Director of the Global Competion Centre

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The absence of an effective competition law regime may create considerable difficulties for "infrastructure industries", industries that generally operate on the basis of a physical infrastructure, such as a network (Newbery 2000). These industries, which include telecommunications networks and services, energy and gas, rail and air transport, and water, are fundamental for economic development, as they provide key inputs to other sectors of the economy. Recent studies (Müller-Jentsch 2001 and 2002b) identified the poor performance of these industries in the MPs as one of the factors delaying economic development and argued that the main factor explaining the poor performance of these industries in the MPs relates to the lack of a competitive market structure. Introducing competition in the telecommunications, energy and transport sectors could substantially contribute to economic development in the MPs. As the economies of the MPs have largely remained stagnant and failed to fully integrate into global markets, reforms are particularly urgent. This section seeks to illustrate that economic development in the MPs will not be achieved without the introduction of competition law regimes. Although introducing competition, as well as setting competition law regimes, is desirable in all infrastructure sectors, this section will draw most of its illustrations from the telecommunications sector. This is where market opening reforms have progressed the most so far and where such reforms have already produced some concrete results.

In all parts of the world, infrastructure industries were traditionally dominated by public or private monopolies. In recent years, however, many nations, including some MPs, engaged in major regulatory reforms seeking to promote competition in network industries markets. There are a number of reasons why several MPs decided to liberalize network industries.

First, in most MPs, the performance of monopoly undertakings is generally not satisfactory (see Table 4.1). For instance, in the telecommunications sector, teledensity and other relevant indicators remain low in most MPs. In 2001, only 6 percent of the Algerian population had access to a fixed telephone line, while 0.5 percent had a mobile line (Goldstein 2003). In addition, a large section of the population remains unserved, as waiting lists for telephone connections are long. In 2000, in Egypt, 1,275,000 persons or businesses were on a waiting list for a fixed telephone line (Goldstein 2003). The productivity of the incumbent telecommunications operator is generally low. For example, the number of lines per employee in Algeria, Egypt, Morocco, and Tunisia respectively ranged between 74 and 117.

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Teledensity-2001 (%)
Country Fixed Lines Mobile Lines Waiting Lists-2000 Number of Lines per Employee-2000
Algeria 6.03 0.5 730000 81
Egypt 10.09 4.24 1 275 000 74
Morocco 4.03 16.13 17 896 107
Tunisia 10.72 3.95 80 731 117
Turkey 27.23 28.82 418 000 254
Sources: ITU (2000), Arab States Telecommunication Indicators and MEDA Telecom Statistical Overview 2000-2002, ENCIP/IDATE.

Second, the globalization of the economy forces companies to be competitive (Reich 1992). This is especially true in export-oriented economies. In order to remain competitive, companies need to develop strategies to lower their costs and among such strategies is to seek for cheaper inputs. This calls for market opening reforms in infrastructure industries. Competition among suppliers is expected to lower the prices of essential inputs, such as telecommunications services and electricity.

Third, liberalization of infrastructure industries may also be triggered by external pressures. A number of MPs, including Cyprus, Egypt, Israel, Jordan, Malta, Tunisia, and Turkey, are members of the WTO, and during the last round of multilateral negotiations committed themselves to progressively open some of their infrastructure markets to competition. 29 As far as Malta, Cyprus, and Turkey are concerned, efforts to open infrastructure sectors to competition were made necessary by the transposition of EC liberalization directives. Donors, such as the World Bank, also encourage MPs to liberalize these markets as part of a package of structural reforms.

Finally, several MPs have come to realize that regulatory reforms in infrastructure industries could provide many benefits. The liberalization of the telecommunications sector in Chile, for instance, is generally cited as an example of a successful opening...

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