Bad global economy reverses telecom privatization trend

The global financial crisis has prompted more government funding of telecom infrastructure, reversing a 20-year trend toward privatization, according to the second edition of an International Telecommunications Union (ITU) report on the role of information and communications technologies (ICTs) in the global financial crisis, released today in Geneva, Switzerland, at the opening of ITU Telecom World 2009.

The report, "Confronting the Crisis, ICT Stimulus Plans for Economic Growth," follows a February ITU report which noted that the combination of a global credit crunch and the need for upgrading the Internet to keep pace with demand would likely pressure governments to provide alternative funding.

"As public and private service delivery increasingly shifts online, access to broadband is increasingly becoming a public policy problem, if balanced development is to be achieved," the report notes.  "Investments in ICT can play a strong role in generating long-term economic growth, as they offer strong multiplier effects in returns."
The credit crunch hit just as many private operators were preparing to roll out next-generation networks, the report said. Those networks, including fiber-to-the-home deployments, face more expensive and more limited financing and "great uncertainty over the regulatory future and revenue streams associated with NGNs," the report stated.

As a result, social returns on ICT investment will exceed private returns, the report sates, "implying that the private sector activity alone is unlikely to generate socially optimal levels of investment." At the same time, including ICT and broadband networks in a government stimulus plan offers the promise of  "stronger marginal returns on supply and greater productivity gains than other forms of infrastructure (such as transport infrastructure, for example)," the ITU report said. "They represent a long-term investment in national infrastructure and skills base. Further, experience to date suggests that although long-term large-scale public infrastructure investments take longer to plan and execute, infrastructure investments are likely to generate more robust and durable economic growth than other types of stimulus measures (such as tax rebates)," the report said.

There is some risk in government stimulus funding, the ITU report warns. Governments need to refrain from "'picking technologies', 'picking winners' and 'picking communities' and by those choices, tilting the playing field. The report also states that governments can aid the ICT industry in ways other than providing funding, including reforming tax codes to incent private investment and "creating greater regulatory clarity and certainty or resolving spectrum issues by doing things such as accelerating the transition to digital TV."

"There are a number of measures that governments can take to promote an enabling framework for greater investment despite a lack of readily available credit, before (or in addition to) resorting to funding," the report states. "Developing countries with limited resources available for stimulus plans can consider undertaking other measures to promote greater private investment."