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Evaluating Telecommunication Privatization and Liberalization


J.P. Singh Department of Political Science The University of Mississippi University, MS 38677 Ph: 601/232-5415 Fax: 601/234-2010 e-mail: Paper prepared for presentation at the conference on "Has Privatization Worked? The International Experience," Columbia Institute of Tele-Information, Columbia University, New York, June 12, 1998




Has the privatization (and market competition) model led to leveling of the supply-side playing field, and is the model demand driven as expected? An evolutionary property rights framework is favored over quantitative "outcome" indicators which provide a partial and inconclusive picture. The paper offers three conclusions: (a) services remain beholden to pressures from large user groups and governmental prerogatives in most countries, (b) introducing market competition is slow and messy and difficult to manage, and (c) while the "East Asia Model" continues to break down, the liberal alternative poses serious problems as well. Above all, without adequate property rights and enforcement mechanisms in place, it is unrealistic to expect markets to work efficiently.

"The liberal argument is in favor of making the best possible use of the forces of competition as a means of co-ordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other. It does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required and neither the existing nor the past legal rules are free from grave defects."

F.A. Hayek 1

The Road to serfdom

This paper evaluates the effects of privatization and market liberalization in telecommunication in terms of the efficiency of property rights created and enforced. The lesson is simple: property rights, and markets thereof, are only as effective as a particular country's political-economic environment allow them to be.

Telecommunications privatizations and market competition, the newly created property rights (hereafter referred to as 'restructuring'), as opposed to level the playing field from the supply side and meet user needs from the demand side. It is believed that the incumbent PTTs had earlier choked supply and had very few means of calculating various sources of demand, let alone becoming demand driven. This paper describes the current demand and supply of telecommunications in the restructured marketplaces in India and four Far Eastern economies. 2 Both demand and supply are evaluated in terms of the efficiency of property rights created.

The paper is divided into four sections. Instead of evaluating restructurings with a few "outcome" indicators only, a political economy framework suited toward examining the causes behind these outcomes, the evolution of efficient property rights, is also proposed. Second, the paper outlines the way property rights are evolving in each country with respect to demand and supply factors. This is necessary to evaluate the path dependancy of any country's economic growth. Finally, the paper analyses the newly created property rights to conclude that (a) service provision remains beholden (and often limited) to pressures from large user groups and governmental prerogatives in most countries, (b) market competition is either slow to emerge or messy where present, and difficult to manage, and (c) while the dirigiste top-down "East Asia Model" continues to break down, the liberal alternative of bottom-up pressures and service provision poses serious problems in terms of its evolution. On one end of the liberal spectrum is India, with its messy and nepotistic liberalization program, and on the other end is Singapore, which is both enthused and frightened by liberalization prospects as they challenge its political structure.


Telecommunication restructurings are best evaluated via criteria rooted in dynamic institutional contexts. Both privatization and market liberalization as property rights are leading to creation of new institutions, often in macro political-economic environments undergoing radical change themselves. North tells us that neoclassical economic theory can only tell us of resource allocations in a given moment of time but fails when evaluating dynamic change. 3 It is hard, in fact, to evaluate the outcomes of restructurings without a reference to institutional contexts and property rights. First, it is hard to attribute change to restructurings without comparing countries trough time in terms of service provision and supply-side efficiencies before restructuring took place. A comparison with countries in which restructurings have not taken place is also necessary. Second, restructurings being a fairly new phenomena, indicators of outcomes are hard to come by in the developing world. The effects in terms of telecommunication service prices and the quantity and quality of service may not be available. Instead, property rights (which are supposed to generate these effects) are usually in place. A focus on property rights can then not only help us provide a conceptually rigorous way of measuring the effects of restructuring, but by their very nature, they also point out the likely causes of the particular effects. Third, given the varying levels of restructurings in different sub-sectors (see Tables 1 & 2), capturing precise effects of restructuring in sector-wide quantitative studies, which are usually carried out in this regard, remains a dubious proposition. Finally, given the non-comparable starting points for restructuring efforts, differences in levels of development and other cross-national variations, quantitative indicators may be too pithy to tell the precise story. For example, it is well known that countries with low teledensities can achieve much higher growth rates than those with high teledensities.


While quantitative indicators tell a partial and/or inconclusive story, their analysis is nonetheless important to point out a few broad trends. They are able to show us growth rates and cost efficiencies. With care, they can also show us which user group demands are being met. However, without embedding these indicators in an institutional environment, we are unable to offer comparisons between pre and post restructuring scenarios and unable to account for why some demands are met more than others. Growth rates in telecommunications in most countries, since telecommunications was made a priority in the 1980s, have been quite high compared to previous eras. Going by these growth rates alone would make us pronounce restructuring exercises to be a success story the world over.

All in all, sector-wide telecommunication indicators (see Tables 3 & 4) paint inconclusive results about telecommunication restructuring: for every success, there's a puzzle or contradictory evidence which follows. The clear success story seems to be cellular with its rapid diffusion but here again, China's "success" makes one wonder if market liberalization is the likely cause of this success. Turning now to terrestrial telephony, let us first take the case of the two NICs, South Korea and Singapore which have eliminated their waiting lists, boast very high teledensities and falling costs for services. Korea, which has had some form of competition (among government carriers) since the mid-1980s (see Table 2) can be seen to have the most efficient sector, too, as measured by the low ratio of employees per 1000 mainlines. Singapore's costs efficiencies can be observed in the increasing revenues per main line. However, most of the increases in teledensity, the entire elimination of waiting lists, and many of the cost efficiencies came about under state auspices. Privatization and liberalization being relatively new in these countries, it is not clear the degree to which the infrastructural growth and efficiency indicators can be attributed to them.


While Malaysia and India are not comparable in terms of their levels of development, they offer interesting parallels in terms of their restructuring experience. Their mainline growth rates during 1990-95 are clearly high during the time period when, in Malaysia's case, privatization and market competition are in place or, in India's case, there are sufficiently high competitive pressures on the monopoly basic service provider while the rest of the market is being liberalized. Both show drops in telecommunication workers per 1000 lines. Beyond this, the efficacy of restructuring in these countries is called to question on the following grounds: waiting lists begin to increase during the restructuring period, revenue efficiencies are low for Malaysia and negative for India, and finally, price declines for Malaysia are the lowest among the countries examined while prices actually increase for India.

It is at this point that a contrast with China offers a sobering picture for all four cases. It offers the highest growth rates and that, too, under state auspices. Second, its revenue and price efficiency indicators do well inspite of the high levels of employment (which is an important social objective in China). In fact, China does better than South Korea and Singapore in many of the indicators. The contrast with India is particularly telling. Both are at similar levels of development and both started off with similar teledensities in 1980 but China is now far ahead. Finally, like Korea in the 1980s, China now has government sanctioned and led competitive providers. If anything, it would then seem that government bodies competing with each other maximize welfare better that private ones! This would even be supported by the evidence of government owned MTNL (with its high rates of growth) in Mumbai and Delhi which sees India's DoT as its competitor.

In sum, while growth seems to be the order of the day in the cases examined, it is not clear if the variation is due to or inspite of restructuring efforts. Second, it seems that growth rates are particularly high (and, as shown later, restructurings more streamlined) in catalytic states such as Singapore, South Korea and China. 4 Malaysia is an exception among the catalytic states in that while its growth rates are high, the 1990-95 period (when the market was privatized and liberalized) presents lower growth rates and higher waiting lists in terrestrial mainlines than the prior period. It also was a period marked by a messy liberalization program. The same effects can be observed in India leading one to conjecture if restructurings in the developing world are always prone to pluralistic pressures.

Outcomes posited by quantitative indicators are misleading only if we refuse to check them against the relative efficiency of particular property rights and the institutional environment in which they are embedded. The property rights and institutional environments are important for explaining the variations and inconsistencies told by the quantitative indicators. As noted at the beginning, telecommunication privatization and market competition were to decrease supply-side inefficiencies and make the telecommunication sector more demand driven. These outcomes are clearly contingent upon the particular forms property rights take. However, the property rights literature is not of much help here. It mostly concentrates on how particular forms of property rights come about and not on their relative efficiency. Usually private property rights, which are not partial to particular groups in society, are taken to be sufficient in terms of their inefficiency. 5 Such broad criteria may not help with our evaluation task here, therefore, the essential features of efficient property rights in terms of policies, regulations and market structure of telecommunications sectors are noted below. 6 This list is not exhaustive but mentions most of the commonly mentioned issues in the emerging restructured environments.

A. Policy: For property rights to be demand driven, civil society, as well as private businesses, must be involved or included in policy/law formation, the state's internal prerogatives must be lessened and checks placed on executive and/or legislative discretion. A competitive party system and political institutions (including a capable bureaucracy) designed to deal with pluralism are usually most effective in designing efficient policies.

B. Regulation: A truly autonomous agency can help with efficient enforcement but many other things matter as well. Regulations must be transparent and safeguards against regulatory indiscretion and incumbent power built in. The presence of an independent judiciary and legislative/executive checks on regulatory authority are also useful.

C. Market Structure/industry performance: Property must be private, competition allowed. Given the scope for positive externalities in telecommunication, rules governing network architecture, pricing and interconnection must be transparent (some of these things may very well be regulatory issues).

The next section highlights the progress made by each of this paper's cases in terms of these criteria. In doing so, it touches upon the demand and supply of property rights. It also resolves the apparent paradox of high growth rates in many of the East Asian societies under state auspices.


Three basic observations taken from institutional economics provide the backdrop for evaluating privatization and market liberalization vis-a-vis demand and supply. The first proposition is that creation and enforcement of efficient property rights are path dependent, which is the "key to an analytical understanding of long-run economic change." 7 Thus, a brief foray into the restructuring 'history' of each country examined is necessary to evaluate the current shape of property rights. The second proposition concerns the encompassing interest of even autocrats to provide public goods either for regime legitimacy or for maximizing their revenues and taxes. Therefore, even special interest driven states can act in a responsible fashion, though Olson notes that this encompassing interest in providing such public goods can seldom be sustained beyond a generation. 8 The third proposition concerns the ability of some user groups to do better than others because of their ability to overcome their collective action problems and in gaining access to the state. 9 All three propositions are rooted in the historical and institutional environment to which the rest of this section is devoted in terms of the cases examined.


The emerging property rights in South Korea are heavily influenced (and biased toward) powerful business conglomerates ( chaebols) and shaped by a powerful state. But universal service became a political priority for regime survival in the 1980s. While tempting to attribute South Korea's superior infrastructure (see Table 3) expansion to privatization and liberalized marketplace, the expansion which took place in the 1980s is momentous.

The powerful South Korean state, whose build up of administrative capacity can be traced to the beginnings of the Yi dynasty in 1392, has played a catalytic role in the telecommunication infrastructure. The centralization and increasing authoritarianism of the state is particularly important in the case of President Park Chung Hee (1961-1979) whose assassination was a direct result of widespread dissatisfaction with elite domination and the post-assassination period was marked by serious civil unrest. In the 1980s, the South Korean state, therefore, became more conscious of providing services (including telecommunications) to its growing ranks of middle income consumers. While the corporatization of Korea Telecom Authority (KTA) and the creation of Dacom and Korea Mobile Telecom Corporation (KMTC) were also due to pressures from domestic business, it is nonetheless important to view the elimination of waiting lists by 1987 (which exceeded five million in 1982) in light of the political legitimacy of the state.

Domestic business demands, especially those coming from its top 30 chaebol which produce 15 percent of the GNP, have mattered the most in terms of restructuring. Other significant pressures come from the top 108 corporations (less than one percent of the total exporters) who account for two-thirds of the exports and from the country's well-developed electronics industry. Of late, the pressures from foreign providers, equipment manufacturers and MNCs have also been particularly intense.

Korea is thus caught among many pressures for restructuring purposes, the state hedging between pressures from its chaebol , international pressures and those of its increasingly affluent consumers. Another element making the state cautious is pressure from Korean workers. In fact, plans to privatize the main telephone carrier, Korea Telecom or KT, in 1995 were met with strikes by the workers (KT has almost 60,000 workers). President Kim Young Sam described it as equivalent to "an attempt to overthrow the state," itself indicative of how seriously the state views these pressures. 10

Thus, while the 1980s were marked by a steady and streamlined expansion of telecommunication services, the Korean state has found itself in an increasingly unenviable position in the 1990s with its liberalization and privatization program. Charges of nepotism for awarding telecommunications licenses (especially in cellular) to influential chaebol by the previous administrations are now under intense public and judicial scrutiny in South Korea. The privatization of KT (and Dacom) has been held up at times by worker protests and at others by the unwillingness of the government to make the firms' affairs public.

It is undeniable that South Korea now offers a glimpse into a steadily privatized and liberalized marketplace. However, the catalytic state which held everything together continues to come apart. It is not clear that administrative bodies which would be more responsive to industry and consumers, rather than their own prerogatives only, have come about as yet. While elaborate rules for liberalization are in place, the ministry of information and communication, often impervious to public scrutiny, implements these rules. 11 The state is showing strains in trying to reconcile the domestic business, international business and wider societal pressures for sophisticated services and introduction of competition and privatization. Korean workers also resist restructuring efforts.

Korean property rights, shaped decisively by the state, are surely dividing common property in telecommunications among private hands, but in the Korean scheme of things, domestic investors come first, foreign ones second, medium and small scale businesses after that, followed by the middle income groups in the country. Policy and regulatory functions are controlled (often opaquely) by the Ministry of Information and Communication (MIC). Korea has an ambitious program in place for bringing about a universal 'information society' and has allowed in privatization and competition. But the effectiveness of these new property rights and future outcomes is dependent upon the birth of an institutional structure which can safeguard against policy, regulatory and industry excesses. The alternative, a re-birth of the erstwhile authoritative or catalytic state, seems increasingly unlikely.


Singapore's telecommunication restructuring is streamlined and shaped by the powerful Singaporean state, which plays a key role in shaping societal preferences and intervenes directly in the economy. The role played by the state is so central to Singapore's economy that it is possible to discount the demands that the state faces. The role of the state, however, provides the macro backdrop against which the preference given to MNCs and the current international strategy of Singapore Telecom need to be traced. Nonetheless, the state makes sure that all of its population receives telecommunication services, in turn ensuring the legitimacy of the state. Singaporean property rights in telecommunications have only recently moved beyond positing telecommunications as a public good.

Singapore's telecommunications has gone through three restructuring phases. In the first phase lasting until the late-1970s, telecommunications responded to business and societal needs via an expansion of its infrastructure. This phase was characterized by service enhancement and reduction of waiting lists for telephone connections. State legitimacy in Singapore rests ultimately in being able to deliver a high standard of living to its citizens. The two groups at the micro level which matter to the state in terms of telecommunications include the Singapore society and international business groups. The latter are often the only actors emphasized in examination of Singapore's telecommunications but it is important to remember that Singapore's waiting list for telephones of two years in 1972 (which included society at large) was brought down to less than two weeks in 1979. By 1980, Singapore had the highest teledensity in the developing world (while now its penetration rates are comparable to those of any in the developed world). Similarly, in the 1980s, the benefits of ISDN or broadband networks in Singapore, when provided were universal. This belies the frequently made assumption that the only groups which matter to the state in Singapore are MNCs.

During the second phase, the 1980s, telecommunications became part of the state's pro-active strategy to carve out a competitive advantage for the city-state. Services such as banking, financial services and tourism were emphasized and a new drive was launched to attract MNCs. (There are over 650 MNCs in Singapore, many of them with regional headquarters.) These MNCs played a key role in shaping Singapore's international competitiveness. The National Information Technology Plan (NITP) was started in 1986 with the aim of making Singapore an information society. By the time of NITP announcement in 1986, an "information communication infrastructure" was recognized as vital for Singapore's information society strategy. Earlier plans were given a renewed thrust and easily implemented given the coordination among ministries of finance, trade and industry, communications and the powerful Economic Development Board. By 1989, Singapore could boast of 100 percent ISDN. Cellular service was introduced in 1982 and by 1991 the city had 50,000 mobile telephones. Data network facilities were extended to Singapore's bureaucracy and commercial facilities. Private networks emerged for important services and industries.

The third phase of Singapore's telecommunication strategy starting in late 1980s may be identified as taking on of the international role identified above and partial liberalization of state monopoly in telecommunications. Presenting Singapore Telecom as a corporate and commercial entity was necessitated by this role. Only partial privatization was necessary to send the right signal to international markets. A carefully orchestrated privatization of around 11 percent of the stock (down from the initial announcement of 20-25 percent) took place in 1993. The trade media dubbed it as "the most prestigious international equity deal of the year." 12 Only about two percent of the stock was allowed to be held by foreigners. 25 percent of the stock will be sold by 2002. Local and International telephony will also have competition by 2000 with a foreign investment component of 49 percent in the new provider (which include BT &NTT).

Singapore's comprehensive program in telecommunications has been shaped by a catalytic state which only has to respond directly to a few cohesive external pressures. While MNCs have direct access to the state and societal pressures are more indirect, the state does respond to both in providing basic services and can remain sufficiently autonomous in doing so. In boasting of its present and future communication services, Singapore increasingly speaks of itself as "an intelligent island." 100 percent fiber optic network is expected to be available by 2005. But as with large users elsewhere, 30 percent of the users account for nearly three-fourths of all telecommunication traffic while only about 2 percent of the traffic comes from the bottom 30 percent users. 13 It is also undeniable that foreign firms operating in Singapore are slated to receive the best of telecommunications services, with all other user groups coming second in terms of priority. The exception might be the recently launched interactive services program, Singapore One, leading to convergence between cable and phone networks, which is aimed at all business, government and residential consumers. It may be added that even with a MNC oriented coalition in Singapore, the state's working is made easy by the fact that it faces no opposing pressures (political opposition is itself quite weak and marginalized). Furthermore, it has "contained" the heterogenous population pressures quite well as is evident from the greater than 100 mainlines available per 100 households.

But as Singapore moves toward providing the latest generation of interactive services, it poses a problem for the state, which has traditionally regulated information flows in the country. One scholar notes the "irony" that "there is an inherent conflict between the democratization of information creation and access and the government's long-standing determination to control closely the information citizens receive." 14 The state's ability to implement its strategy is predicated on its strict control of the society and, in the context of telecommunications, information flows. The Guardian noted in 1994 that "[O]ne irony is that the information revolution that Singapore is pioneering may become the Trojan horse that upsets the political and cultural repression of the regime." 15


Malaysia represents the case of a strong state more or less pushing through its telecommunications restructurings with its administrative clout but nonetheless having to satisfy disparate constituencies in all phases of its telecommunication restructuring. Demand pressures on the Malaysian state come from its socio-economic cleavages which include Malaysia's multi-ethnic society, rural-urban divisions and, to some extent, federalism and/or regional breakdowns. Malaysian pluralism often makes telecommunications restructurings difficult, and at times, biased in favor of politically powerful groups. These divisions make it hard for the Malaysian state to implement emerging property rights effectively.

The post-corporatization period (see table 2) is marked not only by the partial privatization of STM but also the liberalization of the Malaysian telecommunication market as a whole. 25 percent of Telekom Malaysia's stock was privatized, and while the corporation still has problems meeting waiting list demands, it had become a profitable entity by 1993. Most of the opposition to restructuring the dominant provider diminished by the time of privatization, and most of the energies of user and other interest groups in the 1990s were focused on the liberalizing market structure. 16

The market liberalization exercise was marked both by trying to satisfy the potential providers of telecommunications (and favoring the native Malay bumiputeras who dominate state policy) while also trying to appease the various user groups. The biggest challenge was meeting the service demands of rural users for whom provision costs are high while marginal revenues low. Rural users are important for the Malaysian state, as the rural population accounts for 46 percent of the total in contrast to an average of 27 percent for upper middle income countries. 17 Also, bumiputeras are concentrated in rural areas. Thus, Malaysia's official policy, in its rhetoric at least, displays a rural bias even though it is not always borne out by numbers. For example, rural teledensity was 3.8 in 1994 against a national total of 14.9. 18 On the other hand, while Kuala Lumpur accounts for less than one-sixth of the total mainlines in the country, it attests to the diffusion of telephones in the country as a whole. Most significantly, over 60 percent of households in Malaysia have access to a mainline. Even if exaggerated, this number shows the importance to the Malaysian state of building its legitimacy widely.

Overall, in spite of service enhancement, Malaysia's waiting list for telephones which decreased in the 1980s, increased again in the 1990s, from 82,000 in 1990 to 122,000 in 1995 (Table 3). Finally, Telekom Malaysia, as could be expected from a dominant incumbent provider, indulged in a number of practices which made matters difficult for new entrants. Interconnection with Telekom's network and high charges were a major problem.

The liberalization of the cellular industry, in particular, is illustrative in terms of Malaysian property rights. The government sought to leapfrog the technological frontier and assured rural areas that cost effective cellular service would soon be available to them. The next step was to license cellular service providers which would then compete with Telekom's own cellular service provider ATUR (introduced in 1985). The first provider to be commissioned was Celcom (a bumiputera concern) in 1989, which by 1995 controlled 75 percent of the cellular market. But by 1995, seven licenses had been issued for mobile telephony alone, leading many observers to term it a case of "privatization run amok." 19 The case extended beyond cellular. TRI (the holding company for Celcom) geared itself for providing international service (a Telekom Malaysia monopoly) to its customers. Binariang, another cellular provider (with a 20 percent share by US West) was to provide domestic and international services, too. In addition, Time Communications was licensed to lay out a 1000 kilometer fibre optic network for local service and hoped to provide international services. All in all there were eight providers for cellular, fixed line and satellite based services. The government had also licensed 32 paging providers. "The stampede for licenses seems to have overwhelmed the government. Having dispensed permits freely, in some cases to political favorites, ministers appear to have realized belatedly how big a problem they had created for themselves." 20 Another former official admitted: "Licensing appears to be a political process to please all masters." 21

By mid-1995, Mahathir Mohammed personally intervened in the overcrowded telecommunications market declaring that the government would like to see mergers or consortia develop. The Malaysian state continues to play a strong and effective role in its society but it faces pluralistic pressures and the difficulty with arbitrating those pressures given its current institutional constraints. The Malaysian state has always played a tightrope act among its various ethnic groups and federal provinces. Beginning in July 1997, the Malaysian state's legitimacy (built on economic foundations since the 1969 riots and subsequent policies) faced a strong challenge from the currency devaluation and financial crisis.


Although Chinese infrastructure is impressive, the Chinese state is also primarily driven by awarding of favors ( guanxi ) to groups with the most access to state decision-making. These personalistic favors and defining telecommunications as a public goods shape the emerging property rights in telecommunications.

China might at first seem to be an odd choice for a special-interest dominated state for telecommunications, because the state seems so insular. However, its highly authoritarian and centralized decision-making procedures reveal the influence of powerful groups, which account for everything from awarding of lucrative economic contracts to widespread corruption within the government. In telecommunications, the challenge to the telecommunications monopoly, the Ministry of Posts and Telecommunications (MPT), has come from other powerful ministries within the government and politically powerful groups of domestic and international large users. In China's centralized context, where channels to the elite decision-making are limited, the challenge to MPT coalesced around the two newly formed inter-ministerial service providers known as Liantong and Jitong. Liantong is more powerful, with its shareholders coming from the influential electronics, railways and power ministries, and is poised to become China's second carrier. Jitong is owned by 26 state institutions and will provide a variety of specialized services. The ministry of radio, film and television may also provide telephony. Provincial administrations are also being given more power to provide telecommunication services. While not providing services, MNCs led by Alcatel, AT&T and Motorola are selling a lot of equipment to a country which has one of the most ambitious service enhancement program in the world.

While decision-making is not as transparent as in other developing countries, two things nonetheless stand out in China's context. First, a coalition for restructuring telecommunications with access to state's decision-making exists. "The reform coalition consists of a powerful group which includes the major manufacturing and user ministries, large national users, local governments and interest groups and international equipment suppliers and service operators." 22 The insulated nature of Chinese politics accounts for the narrowness as well as the existence of a "reform coalition" among its privileged groups. (A small number of privileged groups would find it easy to form a coalition.) Second, restructuring has, in turn, mostly benefitted the coalition partners. This is evident from the networks available to powerful ministries, equipment deals for MNCs, and availability of advanced services for users in export-oriented areas such as Guangdong and Fujian.

Chinese restructuring continues the devolution of power to provincial bodies and alternative providers. Privatization of a few telephony services may also be allowed as witnessed in the first sale of cellular licenses last year. Apart from the networks built by large users, provincial autonomy in building networks is important. It accounts for the accelerated deployment of services along the eastern and coastal areas. Many of the provinces even took the lead in collaborating with foreign providers such as with Cable and Wireless in Shenzen starting in 1984. In the mid-1990s, AT&T and Singapore Telecom planned on building business user and fixed line networks in Shanghai. The seemingly centrifugal nature of the network is in fact not quite so, given its hierarchical structure and the ultimate controls through Beijing's elite central decision-making bodies like the State Council. Furthermore, the ministries of posts and telecommunications, electronics industry, and radio, film and television have been combined under the umbrella ministry of information industry. Foreign providers have actually been kept quite disciplined by Beijing and even the steps announced by the 1997 CCP plenary excluded most of telecommunications from the list of sectors to be deregulated and privatized.

The tightly controlled telecommunication restructuring in China, however, may become difficult in the future as its political system adjusts to the post-Deng and post Hong Kong eras, along with successive international pressures (such as China's pending application for membership with the WTO) and those generated internally. China has by far the most ambitious service enhancement program in the world, with projected teledensity of 19.27 in the year 2000, a six fold increase from 3.35 in 1995 (which was itself a nearly six-fold increase from the teledensity in 1990) (table 3). Whether or not China can reach its targets in the year 2000 or beyond depends on how well it controls its political pressures. The neat ordering of its "reform coalition" can break down with China's inability to control its provincial or reformist pressures and as international manufacturers and providers get aggressive. Summing China's development experience with special reference to telecommunication, Milton Mueller notes that China's "development is thus driven by a jarring dialectical tension between economic freedom and political authoritarianism, between decentralization and centralization, between capitalist practice and socialist ideology." 23


Indian telecommunication liberalization in the 1990s is driven by a state which has seen its capacity and consensus fritter away over the last fifty years under the weight of pluralistic pressures and personalistic rule (such as under the so-called Nehru-Gandhi dynasty). Under the present BJP government, biased toward domestic business and the concept of swadeshi (indigenization), liberalization is likely to reflect domestic rather than international influences.

Indian reform efforts in the 1980s were halting and nepotistic even though demands from businesses, urban residential users and government administrations continued to grow. India was pushed toward further telecommunications liberalization after a severe fiscal and balance of payments crisis in 1991 which weakened the status quo constituencies in the country and empowered many businesses to demand liberalization. Specialized services, including cellular, were liberalized between 1991-94 and basic telephone service was liberalized after the announcement of the national telecommunications policy in 1994. The 1994 policy announced ambitious goals for provision of telephones (20 million lines by 2000) and also liberalized the telecommunications sector further. The state owned monopoly, the Department of Telecommunications (DoT), could not be corporatized or privatized due to resistance from its 480,000 workers (tacitly supported by 18 million employees in other state owned enterprises). DoT will now compete with a private player in each of the 21 regions (known as Telecom Circles) announced by the state.

Each stage of the liberalization process in India has been marked by awarding of contracts and licenses to those with most access to the state's decision-making processes along with many court battles and scandals. Unlike China, a liberalization "coalition" has not emerged, given its more democratic environment and plurality of actors. The many things going on simultaneously in the Indian telecommunications landscape reveal the many influences at work on the Indian state. The most powerful liberalization coalition includes international and domestic businesses supported by foreign governments and international organizations. Urban users have exerted pressures through the media and other agencies but so far they are not formally part of the business coalition. The opposing coalition includes trade unions and politicians (who may be supported by domestic businesses continuing to benefit from the past or extant inward-oriented policies and with a stake in keeping MNCs out of the market). The Indian state's juggling between these interest groups (including constituencies within the state owned monopoly) is producing one of the most complex liberalization programs ever undertaken. While many groups with high demands for services (large businesses, exporters, urban users) continue to be denied services, the state must also hedge between providing services to these groups and rural areas where more than two-thirds of Indian voters live but where the teledensity is only 0.4. Most importantly, four years after the terrestrial and cellular liberalization program were announced and two years after the licenses were awarded tp potential providers, very few actual operations had begun because of political hurdles, mostly erected by the incumbent department of telecommunications.

India offers the interesting case of a state facing pluralistic pressures which has liberalized its marketplace, but safeguards and checks against unrestrained authority are few. Political institutions have long succumbed to the party in power, usually driven by special interests, and only recently have opposition parties started playing a significant role. The creation and sustenance of the regulatory authority, the Telecommunication Regulatory Authority of India (TRAI), has been marred by opposition from the DoT, which was loathe to give up its authority. From 1994-97, the government hedged on TRAI creation and even after it came into being, its decisions were publicly challenged and not implemented by the DoT. The high license fees and interconnection charges which came about under DoT auspices stalled the progress of private providers in both terrestrial and cellular telephony. The recently formed BJP government has moved toward strengthening TRAI and the minister of communications has explicitly told DoT to comply with its decisions but whether such sternness will be seen as credible by the DoT remains to be seen.


The details presented above about property rights formation provide useful bases for comparing their effects in the five countries. The supply factors show that both the top-down East Asia model (however well it performed in the past) and the pluralistic demand driven model (as in Malaysia and India) are fraught with short-run problems in accommodating political pressures and continuing restructuring. On the demand side, well organized and influential user groups do well, unless universal service also becomes a prerogative for the government for regime legitimacy reasons.

The supply side focuses on the special interest driven nature of most Asian states. However, in the case of three of the East Asian states examined (South Korea, China and Singapore), the state was strong enough to contain all pressures and (in South Korea and Singapore) to build its legitimacy through universal service provision. The impressive growth of the infrastructure until the early 1990s is a testimony to the effectiveness of this model. It seems that private property rights are not necessary for infrastructural expansion in the 'East Asia model.' But, such a model was a historical circumstance and it continues to break down as successive pressures badger away at the monolithic states in these countries. As economic and political liberalism make an entrance in East Asia, it is hard to predict if its current institutions will be able to enforce the property rights as effectively as they have done in the past. Singapore so far has done a better job of containing these pressures than South Korea. The property rights in the latter are not only biased toward the chaebol but their implementation is continually challenged by workers and the civil society in general, which is at odds with the elite underpinnings of the state. Singapore state's continuing catalytic role can be seen in the recent streamlined auction for a local and long distance provider ending Singapore Telecom's monopoly in the year 2000. However, whether the state can remain so monolithic in its task as its boundaries become increasingly seamless with information technologies is a moot point.

In the case of India and Malaysia, where the states, while being special interest driven, cannot contain pluralistic pressures, privatization and liberalization measures become messy.

Malaysia represents the special case of a semi-catalytic state becoming quite dysfunctional. Its corporatization, privatization and liberalization program can be viewed as success stories (in as much as the transitions were relatively smooth and opposition contained). But by the mid-1990s the evolving property rights had resulted in nepotism and negative externalities from a crowded marketplace. Legislative and regulatory safeguards were also not forthcoming. The mess of liberalization and privatization in India from the supply side also point to the danger of bringing in market competition before political checks and balances and a regulatory framework are in place. With state capacity in Malaysia, Mahathir's government was at least able to start streamlining the restructuring process in 1995 but the Indian scenario, which features a weak and inept state, continues to suffer from an anarchic liberalization program. The formation of a semi-autonomous regulatory authority and the mergence of competitive politics in India may change the course of institutional evolution but it is too early to tell if that would be the case.

The supply side lesson is clear: efficient property rights take a long time to evolve and to be implemented and enforced. For economic growth, efficient property rights must include criteria of impartiality, inclusiveness, transparency and enforceability. This is a tall order which cannot be fulfilled even by sophisticated pluralistic systems like the United States, best suited for creating and enforcing private property rights. It would be unrealistic to expect Asian states to evolve and implement such property rights in a decade or so. North sums up the issue well: "When there is radical change in the formal rules that makes them inconsistent with the existing informal constraints, there is an unresolved tension between them that will lead to long-run political instability." 24

Turning now to the demand side, collective action (or alliance formation) is easier for privileged groups in society with small numbers and difficult for larger groups with fewer resources. It is for this reason that most influential restructuring coalitions in Asian countries have an elite nature, usually including influential business users, equipment manufacturers, international organizations like the World Bank and WTO, and foreign governments. But while it may be difficult for other groups to form coalitions, other entrenched coalitions (often representative of erstwhile economic strategies), opposed to restructuring, may exist. Not only is restructuring partly a result of the interplay among these coalitional interests, but the problem gets even more complicated when there is not one or two but several coalitions. Only countries like China have the ability to showcase a cohesive coalition in favor of infrastructural expansion.

With multiple coalitions, restructurings may be slow and piecemeal, but there is also a positive side to the story. Articulated coalitional demands, especially plural ones, are forms of restraints on political systems. In as much as political systems now begin to respond to wider demand pressures, they are moving away from exclusive considerations rooted in the supply driven PTT model, even when the change is slow and piecemeal (as in India). Second, these coalitions are often part of other nation-wide processes and might in the long-run turn out to be not so elitist at all.

Table 5 summarizes the position of the various user groups in getting their demands met in the five countries examined. A letter and a number in each of the cells summarize whether these groups will get any services in the first place (the number) and whether they get these services in response to their pressures, state interest in maintaining legitimacy or both (the letter). The schema used in the table is somewhat arbitrary and static but they are based on detailed observation and analysis of infrastructural provision in each of these countries. They also provide the broad etchings of the likely beneficiaries and losers from the telecommunications restructurings underway in the five countries examined. A rating of C3 or C4, which show that the state is not only responding to demands but considers meeting these demands to be important part of constructing legitimacy, are still hard to find in the developing world. On the other hand, in as much as a dysfunctional state such as India can move from A1 or A2 to being A3, telecommunication restructuring becomes demand driven. The high service provision ratings given to user groups listed from columns 4-7 also reflect the privileged position of these groups in terms of their access to the state and their ability to form coalitions. Similarly, urban users tend to do better than rural user groups because of the former's ability to influence the state.

In sum, the scenarios focusing on the effectiveness of privatization and liberalization need to account for the role politics plays in these efforts. Efficient property rights can only be expected in rare circumstances when the polity has a highly developed civil society and existing institutions produce restraint. Of special importance here is the symbiotic relationship between property rights and the institutions of their enforcement. This paper shows that in terms of supply, sequencing and the fit between domestic institutions and the degree of privatization and liberalization are important. From the demand side, well-organized large user groups are clear winners from restructurings but universal service in countries like South Korea and Singapore resulted from state prerogatives. To make the beneficiaries of restructurings less dependent on powerful user groups or the state's internal prerogatives, we need an appreciation of the internal mechanisms of states and their interaction with civil society to understand how societal preferences are articulated and arbitrated to shape property rights.






M: Monopoly

P: Partial competition

C: Competitive

Adapted from Gary Clyde Hufbauer and Erika Wada, eds, Unfinished Business: telecommunications after the Uruguay Round , Institute for International Economics, Washington, DC, 1997, p. 159.

  • Author's categorizations.





  • Privatization begins 1990, with sale of 11 percent of stock (initial announcement was for 20-25 percent). Only 2 percent sold to foreigners. 25 percent to be sold by 2002.
  • Singapore Telecom has monopoly on basic services until 2000
  • cellular and paging privatized in 1997
  • Singapore Telecom had 16 ventures in 15 countries by 1995
  • Market opening to foreigners promised by 2000 under the WTO Telecom accord


  • Korea Telecom privatization began 1991 with sale of 20 percent of stock. It was corporatized in 1982 as Korea Telecom Authority. Remaining 80 percent sale stalled by economic crisis.
  • DACOM created in 1982 (then 33 percent owned by KTA until 1991) To compete with KTA 100 percent privatized in 1994, started competing in long distance in 1995
  • KT and DACOM compete in international and long-distance service
  • KMTC (Korea Mobile Telecom Corporation) started in 1984 began privatizing 1989 and 100 percent privatized by 1994.
  • Market access to foreigners allowed in all areas by 1998 under the WTO telecom accord.


  • Dominant carrier (Telekom Malaysia) privatization begun 1990 with sale of 25 percent stock. It became profitable by 1993. Earlier corporatized in 1986 as Syarikat Telekom Malaysia.
  • Private cellular providers began to be commissioned 1989. Celcom controlled 75 percent of the market by 1995. Eight providers in cellular, fixed line and satellite based services by 1995 and 32 in paging existed by 1995.
  • Market access and foreign investment (limited to 30 percent) provided to be provided to foreigners under the WTO Telecom Accord


  • Privatization of specialized services began 1995. Foreign firms involved in building infrastructure.
  • Competitive provision of services by two other government owned providers (Liantong since 1992 and Jitong since 1994)


  • 1994 telecom policy divided country into 21 circles allowing a private firm to compete with DoT in each circle for local and intra-circle toll. Licenses given in 1996-1997 but most efforts stalled by licensing and interconnection disputes. Similar structure and problems in cellular
  • Value added services liberalized since 1992.
  • MTNL, a para-statal corporation, provides services for Delhi and Mumbai (Bombay)





(per 100 population)

1980 0.33


0.35 2.95 21.68 7.34
1985 0.39 ? 6.11 30.96 16.1
1990 0.60 0.60 8.97 39.96 30.97
1995 1.29 3.35 16.56 47.85 41.47


2.78 19.27 31.83 64.58 55.44
Compound Annual Gr. Rates 1985-90 9.0 ? 7.98 4.7 13.97
1990-95 16.5 40.9 13.0 4.2 6.0


1980 594


164 133 4 604
1985 839 274 183 0.05 280
1990 1961 689 82 0.07 0.7
1995 2227 1620 122 0.02 0


(residential main lines as percent of total

1980 -- -- 58 73.9 62.8
1985 -- -- 68 73 78
1990 -- 28 72 67 82
1995 -- 71 72 61 79
CELLULAR MOBILE SUBSCRIBERS (per 100 population) 1990 0 0.0016 0.5 2.0 0.19
1995 0.008 0.3 5.1 10.6 3.69
  1. 0.05**
0.9 10.4 18.2 12.3

  1. (projected)
0.25** 2.6 16.9 33.6 22.9


International Telecommunication Union, World Telecommunications Indicators , various years

  • The Economist , June 4, 1998, p. 56.
  • data collected from Department of Telecommunications, New Delhi, India

(CAGR calculations are those of the author)






1985 97 148 31 16 7
1990 74 74 18 10 4
1995 35 12 9 4 3
TELECOM REVENUES PER WORKER (CAGR) 1985-90 8.4 3.1 0 15.4 5.8
1990-95 -8.5 1.3 0.9 12.1 4.2
  1. -23
-5 -31 -26
  1. -23
13 -39 -21


International Telecommunication Union, World Telecommunications Indicators , various years.

  • Gary Clyde Hufbauer and Erika Wada, eds, Unfinished Business: Telecommunications after the Uruguay Round , Institute for International Economics, Washington, DC, 1998, p. 185.

All calculations, except in the last two rows, those of the author.





Urban Resident.


Rural Users


Social delivery systems*


Small-medium business


Large business users


Govt. Admn.





B3 -- B2 C3 C4 C4 C4
S. Korea C3 B3 B2 C3 C4 C4 C4
Malaysia C3 B3 B2 C2 C3 C3 C3
China B/D2 B/D2 D1 B2 B3 B2 B3
India A2 B2 D1 A2 A2 A3 A2

  • social delivery systems include education, healthcare and emergency services. The delivery of these services via telecommunications is still in its infancy (even in developed countries) except for emergency services.


Pressures from users listed in columns 1,2,3 are usually quite weak, reflected in limited services available to these groups relative to other groups.

Strong coalitional pressures come from users listed in columns 4,5,6,7.



A: state provides services in response predominantly to direct pressures

B: state provides services in response predominantly to indirect pressures (legitimacy consolidation)

C: state provides services in response to both direct and indirect pressures.

D: state does not respond to pressures (even where they do exist)


  1. none or very scarce services

  1. limited amount of service availability

  1. service meets demand

  1. abundance of services (beyond demand), often reflecting dirigiste state supply


1 F.A. Hayek, The Road to serfdom , The University of Chicago Press, Chicago, 1944/1994.

2 Variation in institutional environment and levels of development serve as the basis for the choice of cases, the former for understanding if these variations cause differences in outcomes, and the latter to control differences in outcome resulting from levels of development in a country.

3 Douglass C. North, Institutions, Institutional Change and Economic Performance , Cambridge University Press, Cambridge, 1990.

4 Catalytic states possess a great deal of administrative capacity and other resources, can stay sufficiently autonomous in their decision-making and historically may inherit a pro-development agenda. See, J.P. Singh, Behind 'The Missing Link': Telecommunications Restructuring in Developing Countries , SUNY Press, Albany, forthcoming.

5 Douglass C. North, Structure and Change in Economic History , W.W. Norton, New York, 1981.

6 Some of these are derived from Brian Levy and Pablo T. Spiller, Regulations, Institutions, and Commitment: comparative studies of telecommunications, Cambridge University Press, Cambridge, 1996.

7 North, op.cit, 1990, p. 112.

8 Mancur Olson, "Dictatorship, Democracy, and Development," American Political Science Review , 87, 1993.

9 Mancur Olson, The rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities , Yale University Press, New Haven, 1982.

10 Quoted in The Economist , June 10th 1995, p. 35.

11 In this light the 1997-98 financial crisis, which has brought to fore the vast cover-ups and secrecy involved in the Korean marketplace transactions, might be indicative of other practices in the economy.

12 Euromoney (April 1993).

13 Robert R. Bruce and Jeffrey P. Cunard, "Restructuring the Telecommunications Sector in Asia: An Overview of Approaches and Options," in Bjorn Wellenius and Peter A. Stern, eds. Implementing Reforms in the Telecommunications Sector: Lessons form Experience . Washington, DC: The World Bank, 1994, p. 207.

14 Rajendra S. Sisodia, "Singapore Invests in the Nation-Corporation," Harvard Business Review, May-June 1992, p. 48.

15 The Guardian (December 12, 1994).

16 This does not mean that privatization went smoothly. The country's ethnic Indian Minister for Energy, Telecommunications and Posts who headed the Telekom Malaysia's privatization effort came under investigation in 1992 for offering 9 million shares to three companies owned by other ethnic Indians. Far Eastern Economic Review (July 16, 1992), p. 56.

17 The World Bank, World Development Report 1997 , p. 231.

18 Telekom Malaysia Berhad, Operational Review , 1995, pp. 34-36

19 Far Eastern Economic Review (June 15, 1995), p. 64.

20 Far Eastern Economic Review (June 15, 1995), p. 65.

21 Interview.

22 Zixian Tan, "Challenges to the MPT's Monopoly," Telecommunications Policy 18, April 1994, p. 180.

23 Milton Mueller, "China: still the enigmatic giant," Telecommunications Policy 18, p. 171. The Mueller essay serves as the introduction to Telecommunication Policy's special issue on China.

24 North, op cit, 1990, p. 140.


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