37537 noTE NO. 1 – APRIL 2006 GRIDLINES Sharing knowledge, experiences, and innovations in public-private partnerships in infrastructure Public Disclosure Authorized Transforming telecoms in Expanding affordable access by introducing competition

Bhavna Bhatia and Neeraj Gupta

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 system was A small, fragmented, and dilapidated. The five major modern one putting Afghans in touch with cities had a mere 57,000 lines. The capital city, one another and with the global economy— , had fixed analogue, fixed digital, and wire- all in just a few years. After the war in 2002

Public Disclosure Authorized less digital networks—but none was connected to there were only 2 telephones for every 1,000 another. Even the government had difficulties in Afghans, and communicating between prov- communicating: poor communications links with inces was almost impossible, even for the 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- Recognizing that telecommunications would be crit- ment. Recognizing that telecommunications ical to rebuilding the country, the government made would be crucial to rebuilding the country, the developing the sector a high priority. It took early government acted quickly to promote private steps to promote private entry, focusing on getting entry—and mobile operators responded. This the policy and regulatory framework right. Its efforts experience demonstrates that even in a poor, appear to have paid off.

Public Disclosure Authorized war-torn environment the right policy and regulatory framework can lead to rapid roll- Converting policy into action out of competitive services. The government moved quickly to approve a Tele- communications and 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). 00)!&!PPROVED,OGO5SAGE 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 ,OGO "LACK A brick seller relies on the country’s wireless extremely limited institutional capacity and under-

Public Disclosure Authorized network and the local public calling office to standing of technical, commercial, and regulatory

trackPUBLIC-PRIVATE his INFRASTRUCTUREshipments. ADVISORY A mechanic FACILITY in one of the issues in telecommunications. Donors and other 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. ,OGO  COLORUSAGE0-3

Helping to eliminate poverty and achieve sustainable development

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY through public-private partnerships in infrastructure

,OGO 2EVERSED

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY

&OBIDDEN,OGO5SAGE

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY 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 plan. It also established regulatory procedures and • Corporatize the telecommunications network and processes, including stakeholder consultation on operations of the Ministry of Communications. 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, the Afghanistan Telecommunications Regulatory • Encourage the use of Internet, information, and Authority (ATRA), by merging the Telecom- communications technologies. 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 investments to rehabilitate the satellite earth station Rapid gains through private entry in Kabul and expand and improve transmission The government identified telecommunications as The right 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 progress made in just the three years from 2003 the first private GSM operator, Afghan Wireless framework to 2005. Communication Company (majority-owned by can enable the U.S.-based Telephone Systems International), With public investment and technical capacity in had already launched operations in the country. rapid rollout 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 tial for expanding access and improving service the equity in the joint venture. services even delivery—and also for demonstrating the potential in a poor, for private sector–led 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 GSM license through a competitive process in environment private investment in telecommunications would July 2003. The winning bidder was the Telecom depend on a strong institutional and regulatory envi- 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 2002–05 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 rehabilitation of the satellite earth station in Arab Emirates). These two new licensees have yet Kabul and improvements in transmission links number of to commence operations. 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), connection licenses in May 2005, with the aim of speeding the 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- building and technical assistance for the regula- seventeenfold ties for local firms across the country. 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 Facility (PPIAF) supported development of as 50–60 percent of the country’s population. the initial regulatory framework and regulatory Services are provided in 23 provinces and 40 capacity building in the Telecommunications cities, and plans call for extending coverage to Regulatory Board through a technical assis- 50 cities in the short term. The two GSM service providers now in operation provide roaming facili- tance grant of US$468,800. ties with access to 175 networks in 74 countries • The International Union worldwide. supported the preparation of early drafts of the telecommunications law and the management of The number of mobile subscribers has surpassed spectrum. 1 million, reflecting growth of more than 100 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 

to minimize regulatory risks perceived by potential figure 1 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 250 basic systems and processes, including stakeholder 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-

Connections per 1000 people 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 (2005–09), and press reports. program on track.

Even with the remarkable progress in telecom- Communications have been increasing at a munications, big gaps remain. In a World Bank phenomenal rate, growing by an average of almost Investment Climate Survey in December 2005, 200 percent a year in 2002–05 to reach US$66.3 60 percent of businesses in Afghanistan rated the million. 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- References making in implementing key policy reforms. Afghanistan, Ministry of Communications. 2003. Telecommunications • Pro-competitive reform agenda. A clearly and Internet Policy. Kabul. articulated agenda for pro-competitive ———. 2005. Five-Year Development Plan (2005–09). Kabul. reform, backed by strategic govern- ———. 2005. Telecommunications Services Establishment Act Kabul. Gridlines 00)!&!PPROVED,OGO5SAGE 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,,OGO "LACK service quality, President of Islamic Transitional State of Afghanistan. 2004. the world. Past notes can be found at www. Afghan Telecom Decree. Kabul. April. and tariffs. 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 tory reforms and capacity World Bank, Emergency Communications Development Project facility. Through technical assistance and (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 ,OGO  COLORUSAGE0-3 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,thePPIAF, the World World Bank,Bank, Phone (+1) 202 458 5588 FAX (+1) 202 522 7466 or any other affiliated organization. PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY general EMAIL [email protected] web www.ppiaf.org

,OGO 2EVERSED

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY

&OBIDDEN,OGO5SAGE

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY