The Macro-Economic Implications of Micro-Economic Market Failures in Telecommunications – the Case of Sa.
THE MACRO-ECONOMIC IMPLICATIONS OF MICRO-ECONOMIC MARKET FAILURES IN TELECOMMUNICATIONS – THE CASE OF SA.
Nicola Theron ECONEX www.econex.co.za Department of Economics University of Stellenbosch nmb@sun.ac.za
1. INTRODUCTION This paper will examine the micro-economic market failures and the rationale for regulation in the South African telecommunications sector. The role of telecommunications in economic growth will be emphasized by analysing the effect that the micro-economic market failures can have on economic growth rates. Section 2 will highlight the role of telecommunications in economic growth, by looking at fixed line and mobile penetration rates in South Africa and selected African countries. Section 3 will deal with regulation and specifically with the relevant concepts in the SA Competition Act (no. 89 of 1998). Concepts such as market power and dominance will be discussed. Section 4 defines the relevant fixed line market, and also analyses the potential abusive behaviour, by specifically looking at the case of ADSL and also the current VANS complaint before the Competition Tribunal. Section 5 analyses the effect of these anti-competitive acts on competition. The second part of the paper focus on the mobile sector. Section 6 gives an overview of the SA mobile market, by looking at market shares, concentration indices, etc. Finally it is argued in section 6 that mobile prices have converged over time and that there might be a case for joint dominance between Vodacom and MTN in this market. Section 7 concludes.
2. ROLE OF TELECOMMUNICATIONS IN ECONOMIC GROWTH
High telecommunication prices have a negative effect on economic activity. The telecoms sector directly contributes approximately 4% of SA’s GDP. Indirectly, telecommunications are used as an input by the remaining 96% of the economy and so, if telecoms costs are high, this acts as a tax on production across the economy.
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Figure 1 – Percentage contribution of Communication to GDP
Nicola Theron ECONEX www.econex.co.za Department of Economics University of Stellenbosch nmb@sun.ac.za
1. INTRODUCTION This paper will examine the micro-economic market failures and the rationale for regulation in the South African telecommunications sector. The role of telecommunications in economic growth will be emphasized by analysing the effect that the micro-economic market failures can have on economic growth rates. Section 2 will highlight the role of telecommunications in economic growth, by looking at fixed line and mobile penetration rates in South Africa and selected African countries. Section 3 will deal with regulation and specifically with the relevant concepts in the SA Competition Act (no. 89 of 1998). Concepts such as market power and dominance will be discussed. Section 4 defines the relevant fixed line market, and also analyses the potential abusive behaviour, by specifically looking at the case of ADSL and also the current VANS complaint before the Competition Tribunal. Section 5 analyses the effect of these anti-competitive acts on competition. The second part of the paper focus on the mobile sector. Section 6 gives an overview of the SA mobile market, by looking at market shares, concentration indices, etc. Finally it is argued in section 6 that mobile prices have converged over time and that there might be a case for joint dominance between Vodacom and MTN in this market. Section 7 concludes.
2. ROLE OF TELECOMMUNICATIONS IN ECONOMIC GROWTH
High telecommunication prices have a negative effect on economic activity. The telecoms sector directly contributes approximately 4% of SA’s GDP. Indirectly, telecommunications are used as an input by the remaining 96% of the economy and so, if telecoms costs are high, this acts as a tax on production across the economy.
1
Figure 1 – Percentage contribution of Communication to GDP
Bibliography: • • • • • EU (2002)