The European Union represents the highest degree of regional integration in the world today. Especially in the context of the global economic crisis, others are now trying to see how they can emulate the EU. At talks in April, ASEAN invited six major economies – Australia, China, India, Japan, Korea and New Zealand – to join it in creating a massive free-trade area. India was the sole invitee from Southasia. It already has a mesh of ‘free trade’ agreements with Singapore, Korea and one in the moves with Japan, with an overarching agreement with ASEAN in process as well. At the moment, it appears that the dreams of Southasian integration are being ground to dust by the moves of the region’s pivotal economy.
Economic integration is not achieved by pious declarations. Rather, it is achieved through the actions of economic agents who produce and trade goods and services. Governments do have a role to play, but it is an enabling one. They must remove the artificial barriers that hinder the activities of economic agents within the region to be integrated. Among the most obvious barriers in this instance are tariffs on goods. Less obvious, but perhaps more important, are barriers to seamless transport and communication.
If vehicles carrying goods cannot move across borders with minimum delay and fees, trade across those borders will inevitably be stifled. Along the same lines, let us look at the particular example of telecommunications, which are vital to commercial relations and trade in services. If leased-line telecom prices among the countries within the region are not lower than leased-line prices to destinations outside the region, it is unlikely that trade in services within the region will grow and modern commerce will flourish. If businesspersons cannot easily travel among countries within the region, the governments cannot be serious about integration.
Likewise, unless telephone calls within the region are cheaper than calls to locations outside, it is reasonable to dismiss declarations on economic integration as little more than hot air. In this way, unless the rapacious charges on roaming are reduced, at least to citizens of the countries that are being integrated, one can presume that SAARC will remain a dead letter. Quite simply, the costs of doing business within the region, including transport and communication costs, must be brought down to levels below the costs of doing business outside the region. When this is done, the economic actors will complete the job. They will travel, they will trade, and they will invest.
Why integrate regionally? It is common wisdom that producing to one’s strengths and trading is superior to trying to produce everything. China was once the paragon of self-sufficiency – and poor. It started producing to its strengths and trading, and now it is rich. One should trade with whosoever gives the best price. There is no point in trading within one’s own region merely on principle. But many developing economies are too small to exploit economies of scale, the potential income to be made from selling large volumes of a product at only a tiny per-piece profit. Regional integration, which includes investment as well as trade in goods and services, allows these economies to be realised. Regional integration should not be seen as a substitute for international trade, but rather as a supplement. In the present circumstances, however, in which developed-market economies around the world are in recession, there is added merit in regional trade – as is evident in the recent ASEAN move.
In August 2008, SAARC leaders met in Colombo for one of their summits. There, they adopted a declaration that said, among other things, that intra-SAARC telecom charges must be lowered to levels below those of calls to destinations outside the region. They also agreed that roaming charges should, likewise, be lowered. Nine months have now passed, with few results other than Lanka Bell and Dialog, both in Sri Lanka, lowering their call charges to India. These moves were both on the companies’ own volition, however, and no thanks whatsoever to the regulator. Additionally, while these are both, of course, good first steps, they are far short of a comprehensive solution.
Two months later, in October, the region’s telecom regulators met under the collective chairmanship of the Telecom Regulatory Authority of India. There, they requested, and were provided, data on intra-SAARC international call rates and roaming charges. What actions they initiated are still unknown, but the results are certainly not visible to the naked eye. For instance, from Pakistan it is still cheaper to call the US than to call any other SAARC country. From the Maldives, it is less expensive to call Singapore than any regional neighbour. Nepal is still the only country with across-the-board lower intra-SAARC rates, but the sad fact is that its overall international rates are far too high in the first place (see map). Following practices endorsed by the Organisation for Economic Cooperation and Development (the OECD, made up of 30 countries with similar political and economic views), the rates are given for the most popular packages of the largest operators in the respective countries. It is possible that lower prices may exist for specific services, but the premise is that the selected prices affect the most users.
Admittedly, excessive roaming charges affect fewer people. At the same time, though, those it most affects are those who knit regions together: businesspeople, civil-society leaders, government officials. Roaming is today’s equivalent of so-called international termination, a nasty practice wherein operators gouge each other’s customers after befuddling them through opaque pricing practices. For many years, monopoly telecom operators charged high termination charges for calls intended for their customers, each agreeing to this practice because it was someone else’s customers who were being gouged. Thankfully, this practice is now in decline, except in a few countries. Comparisons with international rates show how excessive intra-SAARC roaming rates are. A Maldivian pays USD 2.62 a minute to receive a call while roaming in India, compared to the USD 0.30 she would pay to call India from the Maldives.An Afghan in Sri Lanka who makes the mistake of using his phone to call someone else in Sri Lanka will pay USD 2.88 a minute, compared to the USD 0.43 it would cost to call from far-away Afghanistan!
In Europe, roaming has attracted regulatory attention and prices have been forced down. Here in Southasia, the policymakers and regulators talk, but with no results. In the face of regulatory failure, one has little alternative but to move to Plan B: to see whether the policy objectives stated by the region’s heads of state can be achieved by ‘operator work-arounds’. In this, the example of East Africa is useful. In 2006, Zain Africa, which operates in 16 African countries, took a step that led to the abolition of roaming charges. It also made a significant contribution to the economic integration of the East African region.
Zain held licenses in all member states of the East African community, as well as others ranging from Bahrain in the east to both Congos in the west. The company was under competitive pressure from well-resourced operators such as MTN, the South African telecom giant. In order to defend its market share, particularly among high-end users who tend to travel internationally, Zain’s managers came up with the idea of eliminating roaming charges within the East African region, as long as the customers stayed on Zain networks. Users would be charged whatever Zain charged its customers in the country in which they were travelling. Furthermore, if they were on prepaid plans, users could use calling cards from either the home country or the host country; if post-paid, the billing would be in the home country. In one simple stroke, the opacity of roaming prices was eliminated.
Understandably, the offering was extremely popular, and use went up rapidly. Seeing a competitive threat, other carriers, including MTN, entered into a consortium within which one could roam on the same basis as on Zain. Without direct government action – other than enabling policies such as the abolition of international gateway monopolies (if only one operator is permitted to terminate international calls, it is difficult to lower roaming charges because roaming necessarily involves the use of international calls) and the kind of fuss that has accompanied the regulation of roaming charges within Europe, where mobile operators are challenging the European Commission actions in court – roaming was abolished in East Africa. The international and domestic rates in East Africa are still too high relative to what Southasian operators offer; but, at least for international travellers, communication is now transparent and seamless.
Why can this not be done in Southasia? Certain infrastructure is already in place. The Norway-based telecom Telenor, for instance, currently has a presence in three of the major markets in the SAARC region: it is dominant in Bangladesh, significant in Pakistan and becoming established in India. Meanwhile, Airtel, based in Delhi, is in India and Sri Lanka; Orascom (Egyptian) is in Bangladesh and Pakistan; and TMI (Malaysian) is in Bangladesh, Pakistan, India and Sri Lanka.
What if these corporations were to simply allow their customers to roam at normal rates within their own networks? This would need no highbrow pronouncements, but just simple intra-company arrangements followed by publicity. Under such circumstances, we might see Mobitel in Sri Lanka take the lead in establishing a consortium with BSNL in India and Dhiraagu in the Maldives, in order to offer a similar facility to their roaming customers. Lanka Bell and Reliance could team up based on their existing cable collaboration. The consortia would grow, and roaming rates would quickly fall from their current unreasonable highs. Unless the competitive response kicks in early, the first mover may even gain some new business.
Unlike in East Africa, no single operator holds licenses in all eight SAARC member states. Therefore, there will be no neat comprehensive solution in Southasia on the prototype offered by Zain. But travel patterns in this region are quite heterogeneous, in any case: there is more Pakistan-Bangladesh travel than to other countries, while travel between the Maldives, Sri Lanka and India dwarfs travel between the first two and other SAARC countries. A patchwork solution is thus better than none, and the gaps can certainly be filled in later. Whatever were to happen, the end objective of regional integration would be served. Further, a significant fillip would be given to SAARC becoming a real economic community – before India secedes to join the ASEAN-centred system, and leaves the rest eating dust as yet another bus leaves the station.
~ Rohan Samarajiva is executive director of LIRNEasia, a regional ICT policy-and-regulation think tank in Colombo. He has served as director-general of telecommunications of Sri Lanka.