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Published: July 10, 2007

 
 

Network Effects: The Virtues of Telecom Regulation

Few areas could benefit more from liberalized telecom regulation than the so-called MENA region — the Middle East and North Africa. The region’s telecom development lags other parts of the world in several critical areas: Foreign direct investment in telecom amounted to just 0.07 percent of regional GDP, compared with 0.47 percent for Latin American and the Caribbean, according to the World Bank. Furthermore, telecom revenues contribute just 2.1 percent to the region’s GDP, compared with 3.5 percent for the world as a whole. And just 0.8 percent of the population is signed up for broadband, compared to 4.2 percent worldwide.

There are a few small indications that telecom liberalization will soon have an impact on the MENA region. In Jordan, for example, where the telecom market is now fully open to competition, mobile penetration has grown from 2.5 percent of households in 1999 (when the cell phone market was still a monopoly); to 23 percent in 2002 (when it was a duopoly); to 60 percent in 2006, as a fourth operator entered the fray. Not surprisingly, Jordan’s GDP growth topped 6 percent last year. And in Morocco, mobile phones are used by 40 percent of the population now, compared with only 1.3 percent in 1999, because of reforms such as the creation of an independent regulator, the opening of certain market segments, and the privatization of the incumbent telecom operator. Partly due to this trend, Morocco’s GDP was up 7.3 percent in 2006.

Eventually, intelligent liberalization of telecom regulation would benefit every country throughout the MENA region, promoting competition, improving technology, and lowering costs. Better yet, consistent regulatory policy throughout the region would boost its overall economic development, thanks to the virtuous “network effects” of telecom as it reaches beyond each country’s national borders.

Author Profiles:


Bahjat El-Darwiche (el-darwiche_bahjat@bah.com) is a principal with Booz Allen Hamilton based in Beirut. He focuses on telecom sector liberalization and growth strategy development, policy making and regulatory management, corporate management, corporate venturing, and corporate restructuring in the Middle East.
Chady Smayra (smayra_chady@bah.com) is an associate with Booz Allen based in the firm’s Riyadh and Beirut offices. He focuses on strategy development and due diligence assignments in the context of sector development strategies, market liberalization, regulatory reform, and business development in the telecommunications sector in the Middle East. 
 
 
 
 
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Resources

  1. Bahjat El-Darwiche, Fady Elias, Karim Sabbagh and Chady Smayra, “Towards More Effective Regulation: Unlocking the Value of Telecom Markets in the MENA Region,” Booz Allen Hamilton white paper, March 2007: The article on which this Leading Idea was based takes a closer look at the effect of regulatory liberalization on the economies of the Middle East and North Africa. PDF download.
  2. Carsten Fink, Aaditya Mattoo, and Randeep Rathindran, “An Assessment of Telecommunications Reform in Developing Countries,” World Bank Policy Research Working Paper No. 2909, October 2002: An analysis of regulatory reform in the telecom industry on a worldwide scale; a bit old, but still very useful. PDF download.
  3. “MENA 2007 Economic Developments and Prospects: Job Creation in an Era of High Growth” (World Bank, July 2007): An in-depth look at the economy of the MENA region, with particular attention paid to job creation. Click here.
  4. Christiaan Poortman, “Speech to World Economic Forum on Infrastructure Challenges,” May 20, 2005: A useful overview of infrastructure needs and economic development in the MENA region. Click here.
 
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