This is reflected, for instance, in higher efficiency and lower prices. In Uganda, for example, competition between Uganda Telecom (State owned, but partially privatized), Celtel (the Netherlands) and MTN (South Africa), has been intense (Econ One Research, 2002; Farlam, 2005).
This had led to price reductions and a rapid increase in mobile penetration: from two subscribers per 1,000 inhabitants in 1998 to 31 per 1,000 in 2003. In 2006 the Government lifted a moratorium on new licences, and competition is intensified. Consumers may benefit more, e.g. because of the entry of Reliance Communications (India) which has considerable experience in serving low income customers in India.
On the other hand, experience in parts of the developing world demonstrates that the entry of TNCs into a country's telecommunications industry may be associated with significant market power. Two companies, Telefonica (Spain) and Telmex (Mexico) (with its sister firm America Mobile), have established strong positions in some key markets in Latin America (Mariscal and Rivera, 2005).
In Indonesia, the strong market position of ST Telemedia (a subsidiary of Temasek Holdings, Singapore) led to an antitrust suit against the company in 2007, leading it to sell its stake in the Jakarta based PT Indosat. Market dominance by TNCs can occur especially in small sized developing countries, due to the small size of their telecommunications markets. Thus, even in telecommunications, host country governments cannot assume that competition will occur automatically as a consequence of TNC entry; they need to play a proactive role in introducing and safeguarding competition by developing appropriate policies and regulations (chapter V).
Some studies show that privatization in telecommunications, including that involving TNC entry, can contribute significantly to enhancing the industrial performance of telecommunications, as measured by output growth, network expansion and productivity improvements (Ramamurti, 1996; Petrazzini and Clark, 1996; Ros, 1999; Li and Xu, 2002).
A number of studies have examined the relationship between privatization, regulation and competition. They have demonstrated the complementarities between privatization and competition, in that competition increases the gains from privatization and vice versa (Newbery, 1997; Ros, 1999; Wallsten, 2000a). In particular, the modalities of privatization and TNC entry related to different degrees of competition can influence the extent of performance improvements (Li and Xu, 2002).
In the electricity industry, the extent to which competition can be injected into services provision varies, depending on the segment of the value chain – generation, transmission or distribution (table III.2). In Asian countries such as China, Indonesia and the Philippines, TNC participation has been steered to investment in electricity generation through greenfield investments. The establishment of foreign invested power plants has enhanced competition and helped improve efficiency to meet the rapidly growing demand for electricity (Bacon, 1999; Nikomborirak and Mannachotphong, 2007).
In contrast, in Latin American countries such as Argentina, Bolivia and Peru, TNCs have participated in all three segments of the electricity industry in the privatization process, which was initiated with the specific objective of reducing system losses in electricity distribution (Bacon and Besant Jones, 2001; Besant Jones, 2007). In these countries, initial performance improvements were significant (table IV.3), but they did not always translate into price reductions and wider access to services (section B.3).
In other industries as well, governments need to be diligent in maintaining competition to the extent possible. For example, in Chile, a competitive electricity generation market was established during the privatizations of the 1980s. However, the Chilean Government did not place sufficient safeguards on the anti competitive potential of a cross ownership of assets in different segments of the electricity industry. After privatization, a foreign affiliate (Enersis) gained control of the three segments of one of the country's two major electricity systems32 (Lalor and Carcia, 1996).