Privatization is undertaken by governments under differing circumstances and for different reasons. These range from the need to raise revenue (to tie over a difficult budgetary situation), to encouraging popular capitalism, or simply for ideological reasons regarding the role of the State in the economy. Privatization followed by liberalization, which is not always necessarily the case ? is another matter, where the main motivation is generally to maximize productive and allocative efficiencies through the introduction of effective competition in a sector. This is based on the premise that private ownership is most efficient in markets where there is effective competition. In fact, in a study carried out by Fink, Mattoo and Rathindran in 2002 (an Assessment of Telecommunications Reform in Developing Countries) they find that?both privatization and competition lead to significant improvements in performance. But a comprehensive reform program involving both policies and the SUPPORT OF AN INDEPENDENT REGULATOR produced the largest gains.? (emphasis is ours).

They also find that the sequence of reform matters, an issue which is of most relevance to us as we remember that privatization and liberalization were in fact well sequenced in the process relating to Mauritius Telecoms although we do not intend to deal with this in the present paper.

In Mauritius, the privatization of the telecoms sector followed some time later by liberalization, i.e a declared policy of introducing competition has been clearly dictated by the strategic nature of the sector for the successful achievement of the country?s ambition of transforming itself into a Cyber island and the need to create jobs in the services sector. The premise on which this is founded is that competition will lead to decrease in costs and prices as well as an increase in the range of services offered to consumers. The additional advantage of lowering transaction costs is an important consequence which is seldom mentioned.

The institutional environment for achieving the above objectives of liberalization is often a choice between the relative roles of general competition policy and a sectoral regulatory framework. In many instances, such as in New Zealand, the government may choose a light-handed regulation of utilities while relying primarily on competition law and the competition authority. In Mauritius, the telecoms sector is excluded from the purview of the Competition Act. There is, therefore, a deliberate decision of the legislator to subject the sector to the attention of a Regulator rather than to an eventual office of Fair Trading as provided for under the Act.

Access to information, necessary

This is why it is of crucial importance that the role of and expectations from the independent regulator be clearly defined and understood by all stakeholders. The classic role of a regulator is associated with the situation of privatization of utilities which were then considered to be ?natural? monopolies. The Regulator?s role in that situation was to make sure that privatization did not simply result in a transfer of an inefficient monopoly from the public sector to private operators. The emphasis was for the Regulator to possess the technical capacity and access to information necessary to undertake its job of ensuring that privatization actually resulted in efficiency, eventually translated into lower prices for consumers.

In the telecommunications sector ? which is our concern here ? technological developments have transformed the nature of the industry. Cellular technology, fibre optics and satellites have transformed telecommunications services into a competitive market. The market for telephone is no longer a market for landline fixed switch services but rather for telecommunications services. Hence the totally different expectation from the Regulator especially in view of the fact that the sector is excluded from the purview of general competition laws.

In the United Kingdom, when the utilities were privatized, Allan Walters, the government Economic Adviser, and Stephen Littlechild, who was commissioned to develop the new regulatory structure took the view that sectoral regulators needed to be put in place in the cases of network-based industries which were until then under monopoly control. The Regulators were then given a specific mandate of ensuring that competition was introduced in those parts of the industry where that was possible and feasible. For the British, the monopoly situation post privatization was transient. There would be a period of competitive transformation during which the incumbent operator would retain significant power. It was expected that, in due course, competition would develop thus eliminating the need for regulation when economy wide competition rules would take over. It would seem that things did not quite work out as predicted and the transient situation proved to be longer then expected by these pioneers of this new type of regulation. The rationale behind the setting-up of a sectoral Regulatory Authority, especially in the initial stages of the opening up of the market, is to monitor the actions of the incumbent operator who retains substantial market power and in the period of competitive transformation, the Regulator?s role is to take necessary action to ensure that new competitions are allowed to join the industry.

?Fair competition?

In a paper about the practice of access pricing in the United Kingdom, Prof. T. M. Valetti of the London School of Economics actually talks about the ?principle to assist entry that had been applied to Mercury for its seven protected years. In the transition stage to competition regulatory policy became one of encouraging asymmetric competition in the local loop?.

Since we draw heavily on the experience of the UK in matters of privatization and regulation it might be worth mentioning that the process as far as the telecoms sector is concerned has been a rather long ? drawn ? out one. It has been marked by three distinct phases which have been characterized as the duopoly period (1984 ? 1991 ? Mercury being the only licensed competitor to British Telecom) the transition to competition (1991 ? 1997) and normalization 1997 ? 2001. About this last phase of normalization Prof. Valetti writes:

?The Director of General of Trade has made it clear that his aim is to pull back from regulation as competition advances, and to make sure that FAIR COMPETION takes place?. (emphasis are ours)

The Regulatory Authority in Mauritius has in very quick succession been drawn into the roles of creating the necessary conditions of entry for new competitors and ?regulating? the subsequent competition which resulted from the almost immediate appearance of a number of competitors.

This again was the result of the sequencing of privatization and liberalization as operated in Mauritius and for which the Authority seems to have been little prepared. Furthermore, in the literature about regulation and the introduction of competition it is generally agreed that a more complex situation exists when the incumbent operator is a relatively efficient one and the Regulator is less well informed about its cost structures ? a good approximation to the situation prevailing in Mauritius.

The fact of the matter remains that the achievement of government?s objectives of cheaper and more efficient telecommunications services in Mauritius hinges on the credibility of declared policies vis-à-vis actual and potential investors in the sector. Credibility has two dimensions. One is convincing agents that current reforms will not be reversed. The other is persuading them that future reforms will be carried out. Recent development in the sector have demonstrated that all stakeholders are acutely aware of this. Action now needs to follow words so that this window of opportunity is not closed prematurely.

Rajiv SERVANSINGH