37537 noTE no. 1 ­ APRIL 2006GRIDLINES Sharing knowledge, experiences, and innovations in public-private partnerships in infrastructure Transforming telecoms in Afghanistan Expanding affordable access by introducing competition Bhavna Bhatia and Neeraj Gupta A fghanistan has transformed its tele- None of these things would have been possi- communications from a fragmented ble just a few years ago. After the war in 2002 system serving few people to a Afghanistan's telecommunications system was modern one putting Afghans in touch with small, fragmented, and dilapidated. The five major one another and with the global economy-- cities had a mere 57,000 lines. The capital city, all in just a few years. After the war in 2002 Kabul, had fixed analogue, fixed digital, and wire- there were only 2 telephones for every 1,000 less digital networks--but none was connected to Afghans, and communicating between prov- another. Even the government had difficulties in inces was almost impossible, even for the communicating: poor communications links with the provinces meant that central ministries had to government. Today there are more than a transmit most information by paper or in face-to- million mobile subscribers with national and face meetings. global access. The credit goes to the govern- ment. Recognizing that telecommunications Recognizing that telecommunications would be crit- would be crucial to rebuilding the country, the ical to rebuilding the country, the government made government acted quickly to promote private developing the sector a high priority. It took early entry--and mobile operators responded. This steps to promote private entry, focusing on getting the policy and regulatory framework right. Its efforts experience demonstrates that even in a poor, appear to have paid off. war-torn environment the right policy and regulatory framework can lead to rapid roll- Converting policy into action out of competitive wireless services. The government moved quickly to approve a Tele- communications and Internet Policy in 2003. Aimed Today in Afghanistan people are using telecom- at modernizing and rapidly expanding telecommu- munications to offer new services and to do nications networks and providing universal access to business in new ways that boost income and a range of affordable services across the country, the productivity. A female journalist in Kabul hosts policy centered on legal, institutional, and regula- a phone-in radio program, fielding calls from tory reforms to accelerate the sector's development. women all over the country seeking counsel- It strongly endorsed private sector participation and ing. A carpet merchant in Kabul uses his mobile transparent, market-based competition (box 1). phone to coordinate the delivery of carpets But implementing the policy did not prove to be produced in remote corners of the country. easy. A key challenge for the government was its A brick seller relies on the country's wireless extremely limited institutional capacity and under- network and the local public calling office to standing of technical, commercial, and regulatory track his shipments. A mechanic in one of the issues in telecommunications. Donors and other PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY poorest parts of Kabul comes to the aid of driv- ers in distress, summoned by calls on his new Bhavna Bhatia is the regional program leader, and Neeraj mobile phone. Gupta the program officer, for PPIAF in South Asia. Helping to eliminate poverty and achieve sustainable development through public-private partnerships in infrastructure PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY interim regulatory unit, the Telecommunications box 1 Regulatory Board (TRB), within the Ministry of Key policy objecTives Communications. The regulatory board undertook The government's Telecommunications and Internet several important initiatives, including awarding Policy, adopted in 2003, set out key objectives for licenses to new mobile and local fixed service promoting the sector's development: providers through a competitive process, facilitat- · Create a legal and regulatory environment that ing interconnection agreements between service nurtures and accelerates industry growth. providers, and establishing a national numbering · Corporatize the telecommunications network and plan. It also established regulatory procedures and operations of the Ministry of Communications. processes, including stakeholder consultation on all important regulatory decisions. · Engage private investors as much as possible. · Establish a level playing field to support In 2005 the president approved a telecommunica- competition. tions law establishing an independent regulator, · Encourage the use of Internet, information, and the Afghanistan Telecommunications Regulatory communications technologies. Authority (ATRA), by merging the Telecom- munications Regulatory Board and the State · Create a national development fund to meet the Radio Inspection Department of the Ministry of universal service obligation. Communications. The new entity now has full Source: Afghanistan, Ministry of Communications. responsibility for all regulatory functions in the telecommunications sector. The government also approved a decree to transfer the Ministry of agencies responded with support for government Communication's network and operations to a initiatives aimed at improving the sector (box 2). corporatized public company, Afghan Telecom, To help tackle the immediate need of recon- now responsible for providing basic telecommuni- structing the telecommunications network, the cations services across the country. Afghanistan Reconstruction Trust Fund financed investmentstorehabilitatethesatelliteearthstation Rapid gains through private entry The right in Kabul and expand and improve transmission The government identified telecommunications as links to neighboring countries. This early support, one of the two lead sectors (the other being hotels) policy and along with the government's strong commit- for attracting private and foreign investment. Inves- regulatory ment to reform, became critical to the substantial tors showed considerable interest. By April 2002 framework progress made in just the three years from 2003 the first private GSM operator, Afghan Wireless to 2005. Communication Company (majority-owned by can enable the U.S.-based Telephone Systems International), With public investment and technical capacity in rapid rollout had already launched operations in the country. limited supply, the government recognized that The government signed a 15-year contract with of competitive participation by the private sector would be essen- the company and also contributed 20 percent of services even tial for expanding access and improving service the equity in the joint venture. delivery--and also for demonstrating the potential in a poor, for private sector­led development across the econ- The government introduced competition in wire- war-torn omy. The government also recognized, very early less mobile service quickly, awarding a second on, that Afghanistan's ability to attract successful environment GSM license through a competitive process in private investment in telecommunications would July 2003. The winning bidder was the Telecom dependonastronginstitutionalandregulatoryenvi- Development Company Afghanistan--known as ronment--and it moved rapidly to convert policy Roshan--a consortium of the Aga Khan Fund for into action. Economic Development, Monaco Telecom Inter- national, and the U.S.-based MCT Corporation. The government took early steps to develop the regulatory framework necessary to mitigate regu- Pursuing its policy objective of expanding compe- latory risks perceived by potential investors--an tition in the GSM market by January 2006, the effort that proved to be a key factor in promot- government initiated international competi- ing private sector entry and competition in tive bidding for two more GSM licenses in May telecommunications. In May 2003 it created an 2005. Seven bidders expressed interest, and five Transforming telecoms in Afghanistan submitted proposals. In September 2005 one license was awarded to a consortium formed by box 2 Investcom (a Lebanese company incorporated How donoRs suppoRTed THe under the laws of Dubai) and Alokozai FZE (a Telecom secToR in 2002­05 company based in the United Arab Emirates).The · The Afghanistan Reconstruction Trust Fund, In just three other license is being signed with Watan Telecom administered by the World Bank, supported (Afghanistan) in consortium with Etisalat (United years the Arab Emirates). These two new licensees have yet rehabilitation of the satellite earth station in number of to commence operations. Kabul and improvements in transmission links and the billing system. Afghans with The government also launched international · The world bank, through the Emergency a telephone competitive tenders for local fixed service provider Communications Development Project (ECDP), licenses in May 2005, with the aim of speeding the connection supported the establishment of an emergency rollout of services to small towns and rural areas. Government Communications Network; capacity grew This is expected to provide investment opportuni- seventeenfold ties for local firms across the country. building and technical assistance for the regula- tor; establishment of a spectrum management and prices These initiatives have led to rapid gains, improv- and monitoring system; technical assistance for ing services for citizens and supporting trade, the corporatization of Afghan Telecom and insti- for mobile banking, and the government's own operations. tutional capacity building of its staff; and postal service fell by Driven by a competitive market and private sector reforms. 70 percent investment of more than US$300 million, the · The public-private infrastructure Advisory coverage of mobile services has grown to as much as 50­60 percent of the country's population. Facility (ppiAF) supported development of Services are provided in 23 provinces and 40 the initial regulatory framework and regulatory cities, and plans call for extending coverage to capacity building in the Telecommunications 50 cities in the short term. The two GSM service Regulatory Board through a technical assis- providers now in operation provide roaming facili- tance grant of US$468,800. ties with access to 175 networks in 74 countries · The international Telecommunication union worldwide. supported the preparation of early drafts of the telecommunications law and the management of The number of mobile subscribers has surpassed 1 million, reflecting growth of more than 100 spectrum. percent a year since 2002. Fixed and mobile · The u.s. Agency for international develpment connections together increased from a mere 2 supported capacity building in engineering, per 1,000 people in 2002 to 35 in 2005, rank- formulation of sector policy, and preparation of a ing Afghanistan ahead of many other low-income corporatization strategy and Internet policy. countries--and the Ministry of Communications · The Asian development bank provided invest- aims to raise this number to 200 by 2009 (figure ment support for digital fixed switch lines in Kabul. 1). Prices for mobile service dropped by about 70 percent between September 2003 and March Source: Afghanistan, Ministry of Communications. 2005. Afghan Telecom is well on its way to establishing hope is that this number will surpass 600,000 by a presence in all 34 of the country's provinces June 2007. and its more than 100 districts through two networks. The Government Communications The Ministry of Communications has set up "tele- Network connects ministries, including through kiosks" in nine post offices in Kabul, offering basic videoconferencing facilities, and the District computer training and Internet and email service to Communications Network connects all provinces. customers. There are plans to open similar facilities These satellite-based networks offer voice, data, elsewhere in the country soon. Nor are these gains and video connectivity to anywhere in the world. the only benefits for the country. Estimates suggest Through its fixed wireless-based system (CDMA), that the telecommunications sector today directly Afghan Telecom now provides services to more or indirectly employs as many as 20,000 people in than 65,000 customers in 11 major cities, and the Afghanistan. And the revenues of the Ministry of FiguRe 1 to minimize regulatory risks perceived by potential Broadening access to telecom investors. Particularly effective was setting up an services in Afghanistan interim regulatory board with dedicated staff to Fixed and mobile connections per 1,000 people work on critical regulatory issues and establish elpoep 250 basic systems and processes, including stakeholder 0001repsnoitcennoC 200 consultation on key regulatory decisions. In paral- 150 lel, the government moved quickly to pass the 100 telecommunications law, which established an 50 independent regulatory authority while recogniz- 0 ing policymaking as a key role of the government. 2002 2003 2004 2005 2007 2009 · Transparent bidding process. The transparent, Source: Afghanistan, Ministry of Communications, competitive bidding process, ensuring timely and "Penetration" (www.moc.gov.af/Documents/Statistics/ succesful award of licenses, has been the most Telephone%20Penetration.pdf), Five-Year Development important factor in keeping the sector reform Plan (2005­09), and press reports. program on track. Communications have been increasing at a Even with the remarkable progress in telecom- phenomenal rate, growing by an average of almost munications, big gaps remain. In a World Bank 200 percent a year in 2002­05 to reach US$66.3 Investment Climate Survey in December 2005, million. 60 percent of businesses in Afghanistan rated the quality and coverage of telecommunications as a The keys to success serious problem, ranking it behind only access to The experience in Afghanistan shows that wire- land, water, and electricity. less communications can play a critical role as By 2010 the government aims to ensure that more the primary telecommunications infrastructure than 80 percent of Afghans have access to tele- in a postconflict country. It also provides valu- communications services and that the sector can able lessons about how the right policy and contribute more than US$100 million a year in regulatory framework can enable rapid rollout public revenues. That will require continued efforts of competitive private wireless services even to strengthen institutional and regulatory capacity. in a poor, war-torn environment. What have Some issues are particular priorities: privatizing been the key factors in Afghanistan's success Afghan Telecom and introducing competition in in developing its telecommunications sector? basic services, putting the Telecommunications · Strong government commitment. The govern- Development Fund to work in rolling out services ment moved rapidly from policy to action, in rural areas, and developing secondary regula- demonstrating its commitment to developing tions for interconnection and spectrum policy. telecommunications through quick decision- making in implementing key policy reforms. References Afghanistan, Ministry of Communications. 2003. Telecommunications · Pro-competitive reform agenda. A clearly and Internet Policy. Kabul. GRIDLINES articulated agenda for pro-competitive ------. 2005. Five-Year Development Plan (2005­09). Kabul. reform, backed by strategic govern- ------. 2005. Telecommunications Services Establishment Act Kabul. Gridlines share emerging knowledge ment investments supported by ------. Media briefings and other background material. on PPP and give an overview of a wide donors, has led to rapid improve- www.moc.gov.af and www.trb.gov.af. selection of projects from various regions of ments in access, service quality, President of Islamic Transitional State of Afghanistan. 2004. the world. Past notes can be found at www. and tariffs. Afghan Telecom Decree. Kabul. April. ppiaf.org/gridlines. Gridlines are a publication World Bank. Various years. Aide-mémoire. Telecommunications of PPIAF (Public-Private Infrastructure Advisory · Early focus on regula- and Informatics, Policy Division, Washington, D.C. Facility), a multidonor technical assistance PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY World Bank, Emergency Communications Development Project facility. Through technical assistance and tory reforms and capacity (ECDP). 2003. Project Information Document. Telecommunications knowledge dissemination PPIAF supports the efforts building. Quick attention and Informatics, Policy Division, Washington, D.C. of policymakers, nongovernmental organizations, to regulatory issues helped research institutions, and others in designing and implementing strategies to tap the full potential of private involvement in infrastructure. The views are those of the authors and do not necessarily reflect c/o The World Bank, 1818 H St., N.W., Washington, DC 20433, USA the views or the policy of PPIAF,the World Bank, the World Bank, pHone (+1) 202 458 5588 FAx(+1) 202 522 7466 or any other affiliated organization. PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY geneRAl emAilppiaf@ppiaf.org web www.ppiaf.org