Regulatory governance of telecommunications liberalisation in Taiwan

Available online at www.sciencedirect.com

Utilities Policy 16 (2008) 292e306 www.elsevier.com/locate/jup

Regulatory governance of telecommunications liberalisation in Taiwan* Kuo-Tai Cheng a,*, Bill Hebenton b a

Department of Regional Studies in Humanity and Social Sciences, National Hsin-Chu University of Education, No. 521 Nan-Da Road, Hsin-Chu 300, Taiwan b School of Law, University of Manchester, M13 9PP, UK Received 12 March 2007; received in revised form 9 January 2008; accepted 12 January 2008

Abstract This paper examines the changing role of government and market in regulating the telecommunications sector from since 1996 in Taiwan. It contextualises the theoretical aspects of regulatory governance for institutional design and practices, and reviews the concepts and mechanisms for appraising privatisation and regulatory systems. Using a conceptual framework for researching privatisation and regulation, it describes the process and issues pertinent to telecommunications liberalisation and privatisation in Taiwan, supported by a brief presentation of theoretical points of view as well as practitioners’ views. The paper presents results concerning criteria for appraising privatisation and regulatory governance and considers policy lessons that can be learned from the experiences of the Taiwanese telecommunications sector’s liberalisation. Ó 2008 Elsevier Ltd. All rights reserved. Keywords: Liberalisation; Regulatory governance; Taiwan

1. Introduction Taiwan completed the revision of the Telecommunication Act in early 1996, thereby establishing a legal and regulatory foundation for market liberalisation. The cellular-phone business was opened up in 1997, thus breaking the previous monopoly in the telecommunications market. Following the entry of new competitors into the market, the forces of market competition encouraged new private operators to provide consumers new choices in addition to Chunghwa Telecom Co. (CTC, a Government-owned Telecommunications Enterprise, GOTE). Rigorous competition amongst the public and private industries stimulated rapid growth of mobile phone and other communications services.

* Support from the National Science Council of Taiwan under the project 96-2414-H-134-001. * Corresponding author. E-mail address: [email protected] (K.-T. Cheng).

0957-1787/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.jup.2008.01.003

The objective of this research is to improve understanding of the institutional framework and relationships that form the essential links connecting telecommunications liberalisation and regulatory governance, with particular reference to the institutional environment in Taiwan. This paper examines the changing role of the government and the market in regulating the telecommunications sector since 1996 in Taiwan. It also explores changes in the institutional framework for regulatory governance as a result of the new privatisation policy for government-owned telecommunications enterprise. Lastly, the study considers lessons to be learned from the experiences of the Taiwanese telecommunications sector’s liberalisation policy and regulatory governance. The fieldwork which produced the data for this research was undertaken in Taiwan over a cumulative five-month period between 2002 and 2006; fieldwork involved qualitative interviews with 59 policy stakeholders, most of them government officials or policy-makers from the telecommunications industry and regulatory agency in Taiwan. Five identified governance mechanisms (Clarity of roles; Participation; Independence; Accountability; and transparency) were explored with the interviewees.

K.-T. Cheng, B. Hebenton / Utilities Policy 16 (2008) 292e306

There is no relevant study on regulatory governance in a regulatory agency in Taiwan. Current literature also reflects a lack of knowledge in this area and provides an inadequate integration of the respective regulation and governance concepts.1 Previous published work in Taiwan has focused on traditional regulation or economic regulation; however, regulation and governance are becoming less distinct. Government increasingly uses regulation in order to govern more than redistribute. At the same time in many places and issues, there is a shift from government to governance. These double shifts towards regulation and towards governance reinforce each other. The study reported here research will help clarify and augment the existing literature. By examining the theoretical aspects of regulatory governance for institutional design and practices, I review the concepts and mechanisms for appraising privatisation and regulatory systems. In the next section, I provide the conceptual framework for researching privatisation and regulation. Sections 3 and 4 describe the process and issues pertinent to telecommunications liberalisation and towards privatisation in Taiwan, supported by a brief presentation of theoretical points of view as well as practitioners’ insights via in-depth interviews. Section 5 presents results of the interviews concerning criteria for appraising privatisation and regulatory governance. Section six contains some reflections and the conclusion. The paper shows that the development of regulatory structures is limited by the governance capacity of the Taiwanese government to enforce regulatory rules and monitor contracts. Furthermore, this study asserts that the current impressive results of telecommunications liberalisation in Taiwan may be temporary. It can be argued that essential linkages between privatisation and regulatory governance need to be developed, and that there is a need to recognise that pursuit of governance values can directly enhance the implementation of privatising public utilities and their regulatory reforms. 2. Institutional approach to liberalisation and regulatory governance The contemporary literature identifies four possible approaches. These are economic, social, political and institutional approaches. Table 1 provides a summary of the key features of each, from which we can see that only one of the approaches is sufficiently robust to investigate privatisation and regulatory governance in the telecommunications sector in Taiwan. It is for this reason this study uses the institutional approach. Such an approach also provides advantage in that

1 For some it is a transformation from a ‘‘Keynesian Welfare state’’ to a more ‘‘Hayekian regulatory state’’ (Cook and Minogue, 2002; Majone, 1999; Minogue, 2001, 2002; Moran, 2001, 2002), which is too limited to capture the nature of change in the governance (Levi-Faur, 2006). Much rests on the need to regulate post-privatisation, but this should not be taken as a sign of decline in the importance of the role of the state as a unit of analysis. Therefore, we should explore the impact on the governance of capitalism and modes of regulation (Levi-Faur, 2006, 2007; Levi-Faur and Vigoda-Gadot, 2006).

293

Table 1 Summary of approaches to studying privatisation and regulation Approach

Key features

Economic

Concerns the pricing and incentive system; competition; capture problem; cost-benefit analysis; impact assessment; Focus on ‘‘the public interest’’, such as health, safety, the environment, and labour issues. Legislation; bureaucracy; power; political systems; conflict and bargaining. Rules of game and law; governance capacity and mechanisms; policy actors; institutional design; the regulatory state

Social Political Institutional

it allows the exploration of five inter-related aspects (Clarity of roles; Participation; Independence; Accountability; Transparency) of a regulatory framework which captures the main governance mode of regulation and privatisation in terms of a review of the literature, and these formed the basis of the questionnaire which the author used in the case study. However, a key weakness is that the institutional approach is not clear on how far particular lessons can be generalised for other DCs, especially where privatisation and regulatory policies have been shaped by international agencies and influenced by the economic literature. After the analysis of privatisation policy within the broader context, a study of the Asia Development Bank and associated groups built up a framework based on some criteria of regulatory governance for some network utilities (Asian Development Bank, 1995; Stern and Holder, 1999). Most of these variables have been analysed in the study of governance and regulatory governance conducted by for instance, the World Bank, OECD, ADB, NERA, IMF, and many researchers. However, this study has identified some inter-related aspects of the regulatory framework which capture the main governance mode of regulation and privatisation in terms of a review of the literature and these form the basis of the questionnaire which the author used in the case study. The governance criteria of this study are outlined as the following five inter-related aspects: Clarity of roles; Participation; Independence; Accountability; Transparency. Having identified the needs for privatisation policy and regulatory governance to improve economic performance and to protect the public interest, an institutional framework of privatisation policy and governance mechanisms for regulation is crucial to ensure that objectives are achieved, otherwise there is a risk of ‘‘policy failure’’ or ‘‘regulatory capture’’, because Taiwanese government unwittingly used ‘‘rigorous competition’’ (over-licensing) to undertake its telecommunications liberalisation during 2000e2002 which was the critical turning point for telecommunications policy. Therefore, this paper employs an innovative methodology, namely, an ‘‘institutional approach’’ to studying the case of privatisation and regulatory governance in the telecommunications sector of Taiwan. The institutional approach is the study of institutions, described by Rhodes (1995, p. 55) as ‘‘a subject in search of a rationale’’. It is also ‘‘a subject matter covering the rules, procedures, and formal organisations of government’’

294

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(Rhodes, 1997, p. 68). However, institutions are no longer equated with organisations (Lowndes, 2002, p. 91). Rather an ‘‘institution is understood more broadly to refer to a stable, recurring pattern of behaviour’’ (Goodin, 1996, p. 22). Peters (1999, p. 149) refers to new institutionalism as a broad approach. Studies of policy networks also show that informal mechanisms for policy-making may exist alongside formal mechanisms as a parallel institutional framework (see Lowndes, 1996). In other words, the institutional approach highlights formal constitutions and organisational structures as well as informal conventions that add breadth and depth to an understanding of institutions. Crucially, the approach is concerned not just with the impact of institutions upon individuals, but with the interaction between institutions and individuals (Lowndes, 2002; Peters, 1999). The restructuring of the welfare state via NPM led to renewal of interest in ‘‘the institutional arrangements for the provisions of public services’’ (Hood, 1987, p. 504). The institutional approach seeks to unearth the institutional arrangement through which policy-making takes place. This study focuses on the study of mechanisms for governance. It is evident that a new perspective on privatisation and regulation is emerging. It derives from the desire to open or explore the ‘‘black box’’ of institutions that is assumed in the economic literature that focuses on concepts from the fields of public choice, NIEs, new institutionalism, and the new economics of organisations. Based on the concept of institutions as ‘‘the rules of the game’’, institutions are conceptually the same as regulations, and include formal constraints, notably laws, constitutions and rules, as well as informal constraints such as norms of behaviour, customs and conventions (Parker, 2001). Regulations, as institutions, establish rules for agents; and create structures of incentives and constraints (Ogus, 2001, 2002). In addition, both formal and informal institutions and their enforcement qualities are fundamental, and enforcement depends heavily on informal rules, such as norms, customs, and conventions (North, 1990). The main significance in utilising such an approach is its ‘‘holism’’ (Peters, 1999). It considers privatisation policy as one part of a whole system and can be understood within the context of development only in terms of the whole system. As a result, the research has been constructed in a way that accommodates the historic, social, political, and economic dimensions that comprise the whole system (6 et al., 2002). In this way the paper represents a different view from the universal laws that often define analysis of privatisation and regulation in many studies. Studying privatisation and regulation in isolation can lead to the neglect of many main economic and non-economic factors that affect the dynamic required in a development study. In other words, studying privatisation and regulatory policies without considering the whole system could result in judgements without focusing on all the relevant factors. The main objective of employing this methodology is its ability to ‘‘explain’’ rather than to predict specific results. This requires a continuous reference to observations and events. The holistic methodology forms an integral part of the work of this study. It can be argued

that Williamson’s three-layer schema (Williamson, 1975, 1995) is salient to the discourse of NIEs, particularly in the explanation of governance mechanisms that have influenced the institutional changes and have focused on linking the institutional environment, governance to the individual as applied to the liberalisation process and regulatory governance. Since liberalisation of the telecommunications sector started in 1996, many aspects of liberalisation and regulation are not directly observable and unfortunately these unobservable factors are often the most critical elements of the liberalisation and regulatory events. Therefore, the paper used the qualitative and case study approach to telecommunications liberalisation and regulatory governance of the Taiwanese government to explore the various aspects of the good governance and to rebuild its components. The data for this research were collected on fieldwork in Taiwan. Fifty-nine qualitative interviews (see Table 2) were conducted with key stakeholders that included government officials, politicians, telecommunications experts in academic and in the telecommunications corporations, using more than 30 questions (see Appendix A: English translation of questionnaire). I also used archival and related secondary data sources to trace the emergence of privatisation policy in Taiwan and also to corroborate some assertions from the interviews. 3. Telecommunications reform in Taiwan In the first step toward liberalisation, the ownership of terminal equipment by subscribers was opened up in 1987, thus initiating competition in the terminal equipment market. Later in 1989, the next step was the opening of the market to value-added services so as to provide consumers with a diversity of such telecommunications services. The passage of three telecoms-related laws in 1996 led to the formal separation of the Directorate General of Telecommunications (DGT), which is in charge of telecommunications industry regulation, and the CTC, which is responsible for operating the telecoms business. This separation more firmly established the policy directions for liberalisation, and later further liberalisation steps were taken particularly in services of mobile telecommunications and satellite telecommunications. After 1999, liberalisation continued in various fields of services, such as integrated fixed network telecommunications, Table 2 Interviewees listed by institution Institutions

Code

Total

Government departments

CEPD 2; CLA 1; CNC 3; CPA 1; TCG 1; RDEC 2; FTC 2; EY 3; MOF 1; MOTC 4 DGT 7 CTC 8 SCH 14 (most of them also have a job in the government departments related to privatisation and regulation) CPC 5; TPC 1; HHSI 1 TEL 2; THI 1

20

Regulator CTC Scholars

Other GOEs Other industries

Fifty-nine interviewees in total.

7 8 14

7 3

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international submarine cable leased-circuit, local and longdistance leased-circuit cable, resale business, and the third generation mobile telecommunications (3G). The short-term objective of telecom liberalisation was thus completed (Taiwan Institute of Economic Research, 2004). Therefore, telecommunications liberalisation in Taiwan has faced three major restructuring periods: 1987 to 1994, introduced competition into the telecommunications service market for the first time and was motivated by the desire to join the GATT (WTO). The second period, from 1996 to the 1999/2000, saw the passage of the Three Telecommunications Laws (Lee, 1996). The major restructuring measures of the 1996 Three Telecommunications Laws have led to privatisation of GOTEs and liberalisation of the telecommunications market2 (DGT, 2002b). The third period from 2000 to the present saw the rigourous competition amongst telecommunications industries and the creation of independent regulatory agency: National Communications Commission (NCC). 3.1. The first period of telecommunications reform Between the late 1970s and early 1980s, some attempts to offer a statutory basis for liberalising the telecommunications industry of Taiwan were defeated, in part by strong resistance from the telecommunications labour union, and in part by the less motivated KMT-dominated Legislative Yuan (LY). Nevertheless, as the 1980s progressed, in addition to Taiwan’s opposition parties and local business conglomerates pressing the KMT government for liberalisation, the KMT government bureaucrats began to follow the trend towards restructuring in response to the requirements of WTO (DGT, 1997). Starting in 1987, the procurement of customer premises equipment (CPE) was first liberalised, and regulations governing access to public telecommunications networks were relaxed. This movement gained further momentum in 1989, when the DGT began to liberalise certain segments of valueadded (VAN) services (Lee, 1987). 3.2. The second period of telecommunications reform The 1990s phase of Taiwan’s telecommunications restructuring can be related to events in the late 1980s. Given the variety of pressures and Taiwan’s political democratisation in the late 1980s, the continuing restructuring was a little more chaotic than those previous phases from the 1950s to 1970s. Several interest groups or coalitions began to emerge in this period, putting considerable pressures on the KMT government for service enhancement and sectoral liberalisation and privatisation (Lee, 1987, 1993). Hence, the USA made liberalising the telecommunications sector a key condition for Taiwan’s membership in the WTO and for most of the

2 However, important documents relating to bilateral negotiations with the USA and multilateral negotiations in the WTO are closed.

295

American investment in joint ventures with local capital (McBeath, 1998, p. 202). The telecommunications reform laws of 1996 were strongly influenced by the conclusion of the Uruguay Round in 1993. These bills were submitted to the LY in December 1994 for deliberation, but the controversies surrounding market opening and a boycott by DGT employees resulted in a stalemate. Firstly, the organisational statute of the DGT, the statutory basis for restructuring the DGT, relieved it of its operational responsibilities and assigned it merely a regulatory role. Secondly, the CTC statute authorised the spin-off of this unit from the DGT and its incorporation as a GOTE carrier, while outlining the corporation’s business activities and basic organisational structure. Thirdly, according to Article 12 of the 1996 Telecommunications Law, telecommunications services were divided into two types. Type I services comprised the installation of telecommunications equipment and line facilities, as well as services offered through proprietary circuits and facilities; all other services were categorised as Type II (Tsang, 1998). While private firms would eventually be allowed to enter virtually all segments of the telecommunications market, the extent of regulatory control differs for Type I and Type II service operators. Type II carriers were only required to receive approval from the DGT to start operations. However, to offer Type I services, subject to phased liberalisation, companies were required to acquire special approval and a licence by the MOTC (DGT, 1997, 2002b). Under this regulatory structure, scheduled for privatisation were four mobile communications services, including eight licenses for radio paging, eight for mobile phone, 20 for trunked radio, and 17 for data communication. Due to high paid-in capital requirements and a mandatory performance bond for more than US$400 million, only major enterprises had the wherewithal to participate in the cellular and paging tenders, while smaller local companies were able to compete only in the trunking radio and mobile data tenders.3 In this regard, 53 operation licences for these services were issued to private operations in December 1996. The mobile phone market was the most noticeable and lucrative sector.4 It was estimated by the DGT that the total mobile phone market in Taiwan would be worth some US$7 billion in the year 2004 (DGT, 2001). On the other hand, during this liberalisation thrust, eight licences were awarded to six mobile phone international tenders, four domestic business groups were partnered with the American telecommunications multinationals: the AT&T, GTE, Sprint, and Southwest Bell. The other two were Hong Kong’s Pacific First and Germany’s T-Mobile. There was concern that conglomerates joint-ventured with USA firms had received a disproportionate number of licences (DGT, 2002a).

3 East Asian Executive Reports (5 June 1996). ‘‘Taiwan: Wireless Telecom Tenders’’, vol. 18, no. 6, p. 7. 4 Telecommunications Magazine (September 1997). ‘‘The Integration of the Internet and Telecommunications’’. p. 104.

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In February 1998, Taiwan agreed to participate in the WTO Agreement on Government Procurement, a plurilateral agreement that imposes international transparency norms on government bidding processes. Taiwan’s commitment covers NT$15.4 billion in infrastructure projects, one of the world’s largest markets for government procurement contracts. Amongst key areas of American company interests are telecommunications equipment and services, which was worth US$8.2 billion.5 In regard to telecommunications services, Taiwan agreed to move rapidly towards competitive international rates for interconnection charges by the time CTC was to be privatised in 2001 (DGT, 2000). It would begin by lowering these rates significantly by October 1, 1998. By 2001, its rate would be no higher than rates charged in major DCs. Taiwan also agreed for the first time that USA and other foreign firms could hold a controlling interest (60 per cent) in Taiwan telecom companies (Chang, 1999). On this last count, Taiwan’s concession was far greater than that of other WTO members. To accommodate the USAeTaiwan agreement on WTO accession, the MOTC scheduled to open up the Type I fixed network business in 2001, which is two years earlier than it planned. Eventually, the CTC would be fully privatised by 2001.

3.3. The third period of telecommunications reform A report presented to the national transportation conference ‘‘Telecommunications Liberalisation Policy, Past and Future’’ held in June 2001 by the Ministry of Transportation and Communications gives the resolutions that were reached regarding the planning of policy goals for the next stage of telecommunications liberalisation and proposed four major policy goals for the telecommunications development in Taiwan: establishment of a world-class operating environment to build Taiwan into a telecommunications hub for the Asia-Pacific region; popularisation of telecommunications services and shortening of the digital divide; promotion of full competition in the telecom market and provision of more innovative, higher quality telecommunications services; boosting of industrial development to advance the interests of all the people (Taiwan Institute of Economic Research, 2004). The other important reform in the third period is to set up the first independent agency for communications industry in Taiwan. The NCC is the first independent agency, set up on February 22, 2006 pursuant to the Organisational Standards of Central Administrative Agencies Law, that independently carries out its own functions and operations. In accordance with Article 11 of the National Communications Commission Organisation Act (NCC Organisation Act), the personnel of the NCC are current employees from the Directorate General of Telecommunications (DGT) of the Ministry of Transportation and Communications (MOTC) and the Department of

5

http://www.taiwaninformation.org/plicy/wto/wtofact.html.

Radio and Television Affairs (DRTVA) of the Government Information Office (GIO).6 Based on the legislative spirit of Article 1 of the Communications Basic Law, ‘‘accommodate the convergence of technology, encourage the sound development of communications, safeguard the rights of citizens, protect the interests of consumers and promote cultural diversity’’, and Article 1 of the NCC Organisation Act, ‘‘implement the Constitutional guarantee of free speech; scrupulously maintain the spirit of political parties, the government and the military withdrawing from the media; promote the healthy development of communications; preserve the independence of the media; effectively exercise regulation on communications; ensure fair and effective competition in the communications market; protect the consumer and respect the rights of the disadvantaged; promote the balanced development of pluralism; and increase national competitiveness’’, the NCC’s current goals can be classified into four major categories: (1) promote effective competition in digital convergence, (2) encourage the sound development of communications, (3) safeguard the rights and interests of the people and the consumers, and (4) raise multicultural level and respect for the disadvantaged. Based on the policy goals, the NCC have sketched out an administrative vision which can be summed up as follows: ‘‘Construct a communications environment with digital convergence, fair competition, sound development and excellent content’’. In summary, during the three telecommunications reform periods, telecommunications liberalisation has gradually completed the complex rules and systems. Without doubt, the creation of the NCC is the first and most important step and is also indicative of a macro view of telecommunications liberalisation. Moreover, with the trend of the times and the sense of vocation in digital convergence, the NCC has made the running on overcoming internal and external pressures. We can agree that the future of telecommunications liberalisation in Taiwan should be enhanced by the NCC: the NCC can promote the healthy development of communications, safeguard the professional autonomy of the media, effectively regulate communications, ensure fair and effective competition in the communications marketplace, protect the rights and interests of the consumer and respect the disadvantaged, foster the balanced development of multiculturalism and raise the level of national competitiveness. To do all this, the NCC must actively push ahead with international engagement. However, the independence of NCC has been questioned, and one is unsure whether will it achieve an end precisely opposite to the one intended. 4. Some issues in telecommunications liberalisation Taiwan completed the revision of three Telecommunication Acts in the beginning of 1996, thereby establishing a legal and regulatory foundation for market liberalisation. The cellular-

6

http://www.ncc.gov.tw.

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phone business was liberated in 1997, thereby breaking the previous monopoly in the telecommunications market. Following the entry of new competitors onto the market, new private operators emerged to provide consumers new choices in addition to CTC (hereinafter called CTC) (Government-owned enterprise). Rigorous competition amongst the public and private industries stimulated rapid growth of mobile phone and other communications services. By 2006 Taiwan had a total of 99 companies engaged in Type I telecommunications business and by February 2007, 549 operating Type II businesses (Table 3). Operating revenues in the domestic telecommunications market reached NT$327.1 (US$9.9) billion, accounting for 3.36 per cent of total gross domestic product. In Taiwan, Type I servicesddefined as the installation of telecommunications facilities that offer telecommunications servicesdwould (aside from the mobile service sector) remain a monopoly of the CTC, the corporate successor to the DGT. It follows a ‘‘negative listing’’ approach for this classification and offers that a Type II business is whatever activity is not run by Type I carriers. While private firms were to be allowed to enter virtually all segments of the telecommunications market, the extent of regulatory control differed for Type I and Type II carriers. Type II carriers need only receive approval from the DGT to begin operations. However, to provide Type I services, which were subject to phased liberalisation, companies needed to obtain special approval and a license issued by the MOTC. Under this two-tier regulatory scheme, the provision of Type II services was to be open to free competition while the provision of Type I services would be subject to regulated competition amongst a limited number of providers, a requirement deemed appropriate due to the still existing (though declining) economies of scale enjoyed by the DGT. The domestic telecommunications market in Taiwan had been widely opened up, matching the trend of international telecommunications policy development with principles of WTO Basic Telecommunications Liberalisation Agreement. For the three new fixed network operators who entered the market since July of 2001, their performances in terms of market shares in local phone service and domestic long-distance phone service were not yet apparent in 2003 (Table 4). But the international phone service has made remarkable progress. In September of 2004, there were 60 domestic leased data

Table 3 Growth of telecommunications operators in Taiwan

July 1996 December 1999 December 2002 August 2006

Type I

Type II

1a 36 73 99

67 207 380b 549c

Source: Telecom Database on www.dgt.gov.tw. a As of 1 July 1996, CTC also provided Type I telecommunications service. b General Type II telecommunications operators: 142; Special Type II telecommunications operators: 238. c Data is updated to February 2007.

297

circuit operators, increasing from 28 operators in September of 2003. They competed strenuously and the tariff of leased data circuit dropped significantly. In Taiwan, the bidding system was adapted for 3G licensing. The bidding price for one license per person was US$12.49, which is below the international average of US$22.38 (if UK and Germany, where the bidding was arguably overpriced, are excluded, the average would be US$13.13). The bidding price was considered reasonable in Taiwan. ‘‘Far EasTone’’ started the operation of 3G services in March of 2004. ‘‘Chunghwa’’, ‘‘VIBO telecom’’ and ‘‘Taiwan cellular’’ are also setting up the operation aggressively. It can be said that after the implementation of telecommunications liberalisation in Taiwan, the percentage of telecommunications revenues as part of GDP, though gradually increasing year by year, is still below the universal average. This indicates that the telecommunications market in Taiwan has not yet fully expanded. Moreover, at the entry of private operators onto the market at the end of 1997 the number of mobile phone subscribers in Taiwan was approximately one and a half million, and a further one million applications were waiting for telephone numbers. The number of mobile phone subscribers increased about ‘‘15 times’’, after private mobile phone firms entered the market in 1998. By the end of December 2002 the number had skyrocketed to 23.91 million, bringing the penetration rate to 106.15 per cent, dropping however down to 19.37 million by June 2006 (Table 5). CTC has since lost about 70 per cent of its market share and has been replaced as the cellular phone subscriber industry’s top provider by a private enterprise. Data from the International Telecommunications Union (hereinafter called ITU) shows that by 2002, Taiwan had the number one penetration rate (106.45%) in the cellular market in the world from No. 20 in 1998. Total operating income derived from the mobile phone business amounted to NT$179.4 (US$5.4) billion in 2002, accounting for 54.68 per cent of all revenues in the telecommunications market of Taiwan. Clearly, the mobile penetration rate in Taiwan has climbed from 6.86 to 112.15 mobile phone accounts per 100 capita in the first six years of market competition (Chou and Liu, 2006). In the area of consumer costs, the tariff was greatly reduced following the opening of the telecoms market. The monthly rental fee for cellular phones, for example, dropped from NT$1400 (US$42.4) in 1995 (before the market was opened) to NT$600 (US$18.2) in 1999; and by 2003, there were even operators with a low-priced program that asks only NT$66 (US$2) per month. The communication fee for cellular phones fell from NT$12 (US$0.36) per minute prior in 1995 to NT$6 (US$0.18) in 1999 and, for some operators, NT$3.6 (US$0.11) in 2001 (DGT, 2001). For cellular phone subscribers, for example, the benefits of market opening are already reflected in connection fees, monthly rental fees, tariff, and handset costs (DGT, 2002b). With the liberalisation of the market, the tariff has fallen and mobile phone promotions of all kinds have brought attractive incentives to customers in terms of application services,

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298

Table 4 Subscribers for mobile telecommunication services Data collection date (no. of subscribers)

Mobile phone (unit:1000 subscribers)

Radio paging (unit:1000 subscribers)

Mobile data (unit: subscriber)

Trunked radio (unit: subscriber)

2006.06.30 2006.01.31 2005.12.31 2005.06.30 2005.01.31 2004.12.31 2004.06.30 2004.01.31 2003.12.31 2003.06.30 2003.01.31 2002.12.31 2001.12.31 2000.12.31 1999.12.31 1998.12.31

19,370 19,811 19,876 20,659 21,364 21,528 23,051 25,207 25,090 25,110 24,198 23,905 21,633 17,874 11,541 4727

1080 1093 1095 1115 1332 1336 1395 1409 1415 1511 1602 1598 1756 2813 3873 4261

11,198 11,228 11,232 11,235 11,241 11,232 11,218 11,192 11,212 12,210 12,733 12,747 17,298 22,277 19,883 10,026

1918 1902 1900 2099 2104 2107 2262 2653 2768 2881 3164 3309 3556 2949 2091 444

Digital low-powered cordless phone (unit: subscriber) CTS

CTS

15,010 15,010 977,676 871,381 816,883 787,848 651,094 663,870 633,873 551,469 527,826 520,659 210,662 44,294 66,790 30,988

1,234,420 1,042,666

Third generation mobile telecommunications (unit: subscriber) 2,193,827 1,457,476

Remarks: From August 2001, the figures for digital low-powered cordless phone included CT2 and PHS. Source: http://www.ncc.gov.tw.

monthly rental, and connection fees. Customers have benefited further from discounts on various value-added services. Three private fixed-network companies started to operate in mid2001. All of these new entrants initially focused on the international telephone market, because the network construction is relatively fast and provides a relatively large profit margin. They have grown rapidly, and by 2006, they had already taken over one-third shares of that market (via operating revenue). At the same time, their share of the long-distance and local telephone businesses is expected to grow as their domestic network is completed. Despite the fact that the three fixed-network firms did not enter the market until 2001, the price-reducing effect brought about by market competition has already become very apparent. To take CTC’s international direct calling tariffs as an example, these tariffs plummeted from NT$17 (US$0.52) per minute in 1999 to NT$10 (US$0.3) in 2000 and just NT$5.9 (US$0.18) in mid-2002 (DGT, 2001), proving abundantly that existing operators have had to abandon the fixed-price strategy of their monopoly days and adopt more competitive fees in response to the entry of new operators. The booming situation in the mobile market and continuous maturation of mobile broadband communications technology motivated the MOTC to complete competitive price bidding for five 3G mobile communications licenses involving the release of 170 MHz of wireless frequency bandwidth in

February 2002 and started to operate in 2006. The state issued five licenses to Yuan-Ze Telecom, Taiwan 3G Mobile Network, Taiwan Cellular, CTC, and Asia Pacific Broadband Wireless Communications for a total bidding price that reached NT$48,899 (US$1.48) to NT$15,300 (US$0.46) million more than the government’s announced floor price of NT$33,600 (US$1.02) million. According to an analysis by Merrill Lynch, the average cost for the use of each MHz by Taiwan’s people is US$0.37. This is much lower that than cost per MHz of US$4.90 in England and US$1.16 in Singapore (DGT, 2002a). Although the release of ‘‘more licenses’’ in Taiwan has expanded capacity and reduced costs of consumers in the short term since liberalisation, the state has neglected to strengthen its governance mechanisms for privatisation and regulation. In summary, telecommunications liberalisation policy in Taiwan has introduced a competition mechanism successfully, vitalised the telecommunications industry structure and led to the growth of telecommunications business effectively. This tariff reduction not only provides subscribers with low-priced and high quality telecommunications services but also enables telecommunications’ operators to expand sales and increase efficiencies and ultimately to contribute to the development of overall economy. The 3G companies have entered the market continuously since July of 2003. The development experience for the national Taiwan 3G market (as of June

Table 5 Growth of cellular phone subscribers

Subscribers (unit: 1000) Penetration rate (%)

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

970 4.51

1492 6.86

4727 21.56

11541 52.24

17874 80.24

21633 96.55

23905 106.15

25089 109.2

21528 112.15

19876 78.56

19370 76.88

Notes: New operators began entering the market in January 1998. At the end of April 2002, cellular phone subscribers in Taiwan totalled 22,605,000 for a penetration rate of 100.73% and exceeded one account per person. Compound annual growth rate (CAGR): 74%. Subscriber growth rate: 1502%.

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2006) is full of challenge through market segmentation and price positioning between 3G and 2G. Analytically, it can be argued that Taiwan has introduced competition mechanism successfully. However, it is necessary for the NCC to continue observing and controlling the development in main telephone lines and long-distance call services markets, in order to contribute to the sound development of the entire telecommunications business. 5. Data analysis and reflections Taiwan’s Privatisation Law (The 1991 Privatisation Status and Major Policies) specified powers and functions of each privatisation unit under each Ministry. In 1988, the 122 GOEs in Taiwan accounted for 16 per cent of the total enterprises, with 84 per cent privately owned. Sections 107 to 110 of the ROC Constitution classify GOEs into state, provincial, city, and county (Sheng, 1995). Constitution Section 107 defined the domain of GOEs (Bein, 1985, pp. 15e16). Jurisdiction over the operation of these GOEs is assigned to their own governing ministries (see Fig. 1). Furthermore, in mid-1996, the government set up ‘‘the Steering Committee for Promoting Privatisation of GOEs (hereinafter called SCPPG)’’ to expedite the privatisation programme, but it is currently criticised for lack of effectiveness (Chang, 2001; Parker, 2002). The main functions of GOEs in Taiwan include: promoting economic development; increasing government revenue; stabilising employment; cultivating manpower for economic development; strengthening national defence; and taking over industries that are inappropriately operated by private

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firms (Syu, 1995). Moreover, GOEs also play an instrumental role in adjusting national economic activities: to revive the economic vitality of the nation by increasing the synergistic effects of investment during recession; to stabilising the prices of goods by controlling and reducing prices to their products, such as electricity, petroleum, local phone, fertiliser, steel, etc.(Peng, 1994). This presents difficulties since the relative values of most GOEs are unknown and must be discovered through privatisation and subsequent transactions. In addition, the experiences of popularising broadband in Korea (Jin, 2006) point out significant factors in promoting broadband penetration. Regarding the functions of the NCC, low communications tariffs may be realised by introducing competition policy; however, the effectiveness of the policies is limited in terms of enhancement of digital contents and expansion of market demands. To make the development of digital contents synchronously and well, therefore, there is the need to analyse regulatory governance for telecommunications liberalisation to promote global development in advance to lead market change. 5.1. Clarity of role Three Telecommunications Acts specify powers and functions of the Directorate General of Telecommunications (hereinafter called DGT; the regulator). There is now reasonable clarity between the functions of the DGT and CTC (service provider). The development of public policy is at the core of the Ministry of Transportation and Communications (hereinafter called MOTC)’s responsibilities. The key role of the DGT

Fig. 1. Institutional framework of privatisation programme in Taiwan.

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under the policy direction of the MOTC is to promote the provision, development and regulation of competitive, safe, secure and high quality services for customers in the telecommunications sector. The ‘‘Organisational Statute of the Directorate General of Telecommunications’’ (OSDGT) of three telecommunications acts in 1997 specified powers and functions of DGT. However, the DGT’s regulatory functions must now be read subject to the functions given to the MOTC under the telecommunications act. A key assumption is that the market functions will be fully developed and the consumers’ public interests will be looked after at the same time. However, here ‘‘DGT ignores the responsibility of regulators to look after customer interests; overlapping jurisdictional issues; adequacy of current statutory arrangements in relation to the impartiality and transparency of procedures and decision-making processes of regulators; whether the regulatory authority in each sector should comprise one individual regulator or a regulatory board’’ (FTC02). They also ignore the question of enforcement powers and the range of powers that the DGT requires to facilitate the effective execution of their functions. In the end, results from my interviews (31 out of 59 in total) agreed that there is a clarity of roles of implementing and regulatory agencies in the process of privatisation and regulation (Table 6). 5.2. Participation mechanism Participation concerns the degree to which policy stakeholders are permitted to participate in the privatising and regulatory process, especially within the context of political economy. In the absence of Participation, there is no guarantee that decisions are truly representative of the public interest in terms of an essential service (Chang, 2001). It is also significant that the agencies give reasoned decisions to ensure that there is substantive fairness. There is also the danger that if the formal participation of the firms was allowed, there would be too much opportunity for it to dominate the measures that are introduced, increasing the risk of capture. When the Commission of National Corporations (hereinafter called CNC), MOTC, or other departments encountered problems in implementing privatisation and regulatory policies, the Council for Economic Planning and Development (hereinafter called CEPD) normally asked departments to

report or CEPD would ask all departments to gather together and discuss and sort things out at that meeting. However, this kind of meeting is held infrequently. On the other hand, ‘‘departments did not treat that meeting where implementing agencies can be helped to sort things out seriously; sometimes departments arranged somebody unimportant or who did not have the power to make decisions to represent their interests’’ (SCH02). The stance of CTC employees who opposed the proposal for sale surprised me. I believed that the fears of CTC employees resulted from their lack of understanding of the government’s true spirit of privatisation (MOTC02). However, as CTC02 and CNC01 pointed out, the government did not reveal the relevant information and access to participation, so how can they expect policy stakeholders, especially employees, to understand and support privatisation policy. In the past, the KMT government (the Nationalist) even connected its KMT-owned enterprises (hereinafter called KMTOEs) with some GOEs, and that is why Taiwan has a very complicated political economic context and that is why it is special (SCH03). ‘‘The whole privatisation and regulatory policies just like a ‘big black box’’’ (SCH05). Although government officials believed that they had taken most elements into consideration when they made the sale plan, evidently that the human variabledhow to console the employees of the GOE selected for privatisation was neglected in the planning process. MOTC is a concrete exampledMOTC officials admitted that their efforts in educating and communicating with the CTC’s employees were insufficient prior to publicly announcing the decision of sale (MOTC01 and MOTC02). In Taiwan, privatisation was suggested and promoted initially by interest groups outside the government. That was the main reason why the DPP criticised and wanted KMT to speed privatisation policy. Democratic Progress Party (hereinafter called DPP; the current ruling party) wanted to separate GOEs from KMT’s control (Chen et al., 1991). This is not to say that the government was uninvolved but that, in the case of the subject of this research, the government was a reactor rather than an initiator. Findings of the fieldwork show that interest groups both inside and outside the government had a significant impact on major components of privatisation, for example, which enterprise to privatise, the method of privatisation, how to

Table 6 Results of the analysis of implementing agencies and regulator Criteria institutions

Clarity of roles

Participation

Accountability

Transparency

Independence

Government departments DGT (regulator) CTC Scholars Other GOEs Other industries Results

þ 12,  1 þ6 þ 6,  1 þ 6,  2 þ 1,  1 1 D25

þ 10,  6 þ5 þ 1,  4 þ 2,  9 3 þ2 L2

þ 13,  5 þ7 þ 5,  2 þ 3,  10 þ 4,  1 3 D11

þ 10,  5 þ7 þ 5,  2 þ 1,  6 þ 1,  5 þ 2,  1 D7

þ 6,  þ 5,  þ 2,  þ 2,  4 3 L19

11 2 3 11

Notes: Most interviewees stated they did not study the laws so they could not answer the question properly. Clear is standardised as þ; Ambiguous is standardised as ; Neutral and unknown are not taken into account.

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value the assets to be transferred, to whom these assets would be transferred, the amount of assets to transfer, and the timing of privatisation. The fieldwork also shows that interest groups did have significant impact in the process of privatisation and regulation. They were influential in persuading the government to take action to privatise GOEs. Once the decision was made to privatise CTC, interest groups that emerged were influential and had impact on a number of aspects of the privatisation; for example, timing of the sale, the method of sale, price of stock, and general privatisation policy issues. Decisions made by the government and its agencies were challenged by interest groups, with result that these initial governmental decisions were revised. It could be difficult to determine a reasonable stock price without an assessment of firm assets. If the share price is set too low, the government would have to bear the suspicion of cheaply selling the nation’s key assets. On the other hand, if the price is set too high, the stock might not be attractive to the private firms. So MOTC delegated a foreign company to valuate CTC’s reasonable price. However, it is hard to predict what a reasonable price for CTC stock is. Administrative effectiveness is also not very good because they too focus on the election (political sovereignty) and lead to out of order of the priorities of administrative capacities. In the end, according to my fieldwork, the interviewees were nearly evenly split (20 to 23) on the participatory mechanism. There are 10 interviewees who said ‘‘Yes’’ and 10 interviewees said ‘‘No’’ or ‘‘No opinion’’ out of 20 in governmental departments. However, based on the interviews, frankly, 9 out of 14 scholars and 4 out of 8 CTC staff said that there was no participation in the process of privatisation and regulation (Table 6). 5.3. Independence mechanism The emphasis on independence has been facilitated by the widespread perception that governmental powers are too concentrated, that public policies lack credibility, and that accountability by results is not sufficiently developed in the public sector (Blundell et al., 2000; Majone, 1996). However, a pure self regulation is unusual. Therefore, the independence criterion relates to the degree to which implementing agencies are insulated from other influences, particularly from political pressures and specific interest groups. It concerns: the degree of independence of implementing agencies from the political and governmental process; e.g. whether the regulatory body is a decision-marking body or supervising by the Ministry. In consequence, the critical feature of independence is ‘‘independence from governmental intervention’’. Privatisation involved a multi-stage process from establishing an appropriate administration for privatisation through to completing the sale, in which there is ample scope for one or more interests to disrupt, amend or even reverse the privatisation plans. Members of sectors of privatisation and regulation are appointed by the central government. The Chairperson should be appointed by the central government. Members of implementing sectors of privatisation and regulation may be

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removed by the central government according to the formal administrative procedure. They are financed by the central government grants. They are also under the supervisions of their ‘‘higher’’ Ministry or above. This kind of individual-ministry privatisation model has led to serious delay of privatisation policy and also led to being captured by some interest groups. They are ‘‘fat cats’’ such as favour some specific firms at a ‘‘too’’ low price (SCH07). The privatisation of BSE Engineering illustrates the pitfall of privatisation. Privatised GOE are likely to be captured by business groups. BSE Engineering was captured by Wei-Ching group, a business group specialising in stock sales. While MOEA retained 20 per cent stake, Wei-Ching controlled 46 per cent shares and five seats (out of seven) in the board of directors. In July 1995, the Wei-Ching-controlling board of directors passed a resolution to invest more than NT$10 (US$0.3) billion (80 per cent of shareholders’ stake) in the risky stock market. Chao-Wei Chen, the president of BES (who represented MOEA’s 20 per cent stake) resigned immediately and released a public statement disclosing Wei-Ching’s decision to risk most of the company funds in speculative stock purchase would ruin BSE. Employees of BSE Engineering organised themselves to protest against Wei-Ching’s decision and requested the MOEA’s step-in. Later, MOEA privately negotiated with WeiChing. On 1 September, the board of directors cancelled the controversial decision in stock investment (Taiwan Labour Union, 1999; Chang, 2002). This matter has made the government’s privatisation move more cautiously. Therefore, the problem of serious delay of privatisation policy in Taiwan is partly due to the lack of ‘‘Specific Privatisation Authority’’ (SCH03 and CTC02). In the recent case of local loop, that reveals the DGT still has a limited power and discretion under the supervision of MOTC (SCH04). It also reveals the regulatory capacity of the DGT is too weak. But when government tries to build up some regulatory bodies, bureaucracy will find a way to hold their positions; for example, the conflicting interests between CEPD and Research Development and Evaluation Commission (RDEC) (their values are different). However, there is no one form of ‘‘fully independent regulation’’ and systems of pure self regulation are unusual. In reality there is a complex variety of forms of independent regulation which, whilst not involving a governmental agency, often involve the government in some ways SCH06; SCH12). However, it is the government’s responsibility to invest adequate time and resources in developing robust legal, policy and institutional frameworks. To engage policy actors effectively in policy-making, the government must develop and use appropriate accesses. But without political commitments at the highest levels and commitment throughout the bureaucracy, even the best policies will do little to ensure that the public can have a voice and that their views are heard (OECD, 2002). ‘‘I would try to say, independence might be important in Taiwan’s political economy, but the most important thing is the lack of policy dialogue’’ (SCH02). Based on the fieldwork, implementing and regulatory agencies are influenced by specific interest group or political

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parties (34 out of 59 in total). In the governmental departments, 11 out of 20 stated they were influenced. Furthermore, there are 11 out of 14 scholars agreed that, they were influenced by other interest groups. However, there are 5 out of 7 DGT staff said they were independent from the influence of other’s interest groups (Table 6). 5.4. Accountability mechanism Recent changes in patterns of privatising public utilities, ‘‘sometimes associated with the ‘regulatory state’, have been said to have eroded citizenship and diminished accountability’’ (Stirton and Lodge, 2001, p. 471). In this research, accountability addresses the question of ‘‘accountable to whom’’ (Graham, 1995); what are the implications of the delegation for democratic legitimacy and accountability; and to what extent are institutional mechanisms of accountability ethically desirable or even ethically necessary in the process of privatisation and regulation. We should address two implications in respect of this form of accountability. Firstly, it is important to define the matters for which privatisation and regulatory agencies must be accountable and secondly, it is necessary to identify the appropriate institutions that should be responsible for overseeing privatisation and regulatory activities. In Taiwan, it is a traditionally top-down hierarchical relationship between the implementing and regulatory agencies and the government (Fig. 1), and CEPD is accountable for MOEA, EY, and LY (multiple accountability). Staffs of implementing and regulatory agencies have to stand with its supervisory ministry in front of the Executive Yuan (hereinafter called EY; the Cabinet) sometimes. So, these implementing and regulatory agencies are responsible for the EY. Accountability operates at various levels. At least, there is formal accountability, i.e. the formal legal basis (privatisation and telecommunications laws) within which implementing and regulatory agencies operate. This covers the powers and duties of the regulator, and any legal requirements on the regulatory process as well as appeals opportunities for producers and consumers (SCH11; RDEC01). But, ‘‘it is stupid to define and constrain ‘‘privatisation’’ as governmental ownership under 50 per cent, because the government always reduces its shares about and less half, but it still actually controls companies and tries to avoid democratic accountability in front of the LY. The government’s intention is very obvious.’’ (CTC02). Without high standards on accountability, there can be no trust or confidence in the integrity of implementing and regulatory agencies or indeed in the value of democratic processes in promoting and protecting the public interest. Left unchecked, corruption weakens economies (such as political or regulatory capture), discourages trade and investment, creates huge inequalities and undermines the very foundations of democratic government. The absence of high standards on accountability leads to instability and unpredictability (SCH11). However, the main problem of the accountability mechanism in Taiwan is that political pressures have typically dominated economic and commercial factors (SCH09). In those

circumstances, whatever the relevant law may specify, it is extremely difficult to sustain implementation effectiveness of privatisation and regulation or their independence. There is an accountability mechanism in the process of privatisation and regulation based on the fieldwork (32 out of 59 in total). However, there is little consensus among interviewees from governmental departments, DGT, and CTC and scholars and in other industriesdno doubt because of their different perspectives on accountability. Interviewees in governmental departments, DGT, and CTC said that, there was an accountability mechanism existing in the process of privatisation and regulation, but 10 of 14 scholars and interviewees in other industries questioned the accountability mechanism in the process of privatisation and regulation (Table 6). 5.5. Transparency mechanism International organisations such as the OECD and World Bank have come to treat transparency as a requirement of good governance in developed and developing countries. A transparency mechanism is important in its fullest sense, since a requirement on privatisation and regulatory agencies to explain their decisions and processes should reduce the likelihood of unfairness or incompetence (Stern and Holder, 1999). ‘‘Information’’, therefore, should be the first factor to explore any transparency mechanism, especially the issue of ‘‘information asymmetries’’. It also means that firms can be reasonably confident that the ‘‘rules of the game’’ will not suddenly change, either through a change in the overall legal and regulatory framework, or through a change in the way that regulators behave within this framework (Newbery, 2001). The DGT has to maintain a register of interconnection agreements and such other matters as may be offered for in regulations. These documents are open to any members of the public on payment of prescribed fees, except classified documents. On the other hand, some committees’ members are all anonymous. ‘‘They should publish all the members of committees related to privatisation and regulatory policies. That should be an honour to be a member there. I do not understand why the government always keeps in secret’’ (SCH05). Transparency is an important issue in the process of privatisation and regulation. ‘‘Too many black boxes’’ in the process of privatisation and regulation ruin public trust in the government, even our democratic foundation (SCH07). All decisions are issued in writing and are open to public inspection according to the interviews by CEPD, CNC, and DGT. CEPD publishes the timetable of privatisation every year; DGT publishes events in its annual report to MOTC. However, the ‘‘Universal Service Fund’’ (hereinafter called USF) (MOF01) and privatisation earnings (CNC01) are unpublished. Transparency, as a key element of good governance, includes ensuring openness about policy intentions, formulation and implementation. USF and privatisation earnings are the important policy document of implement and regulator agencies, where policy objectives across the spectrum of economic, social and environmental interests are

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reconciled and implemented in concrete terms. Therefore, transparency in the process of privatisation and regulatory policies is of paramount importance. According to the fieldwork, transparency is quite weak in Taiwan. Firstly, the success of privatisation and regulation should ultimately be judged not by governments, but by the public. As a result, it is the public who are demanding greater transparency and accountability from implementing and regulatory agencies as well as greater public participation in shaping policies that affect their lives (especially network utilities). ‘‘Opportunities for policy dialogue between policy or regulatory actors are of major importance in this shared endeavour’’ (SCH11) that can make the process of decision making more transparent. Active engagement of policy stakeholders can help to ensure that policies are supported or at least understood by the public in ways that also contribute to their effective implementation. The fieldwork results illustrate that the transparency mechanism is the most interesting issue in this research. Twenty-six out of 59 interviewees agree that there is transparency in the process of privatisation and regulation (most of them are interviewees in governmental departments, DGT, and CTC) Interviewees in DGT totally agreed with this view (7 out 7). On the other hand, there are 31 out of 59 interviewees in total that say there is ‘‘no’’ or ‘‘not enough’’ transparency in the process of privatisation and regulation. In the governmental departments, half agreed transparency mechanism existed, half said ‘‘no’’ and ‘‘not enough’’. Furthermore, almost all scholars questioned (12 out of 14, including ‘‘no’’ and ‘‘not enough’’) whether a transparency mechanism existed in the process of Taiwan’s privatisation and regulation. Based on the fieldwork, results suggest that it is necessary to explore the transparency mechanism with other related governance mechanisms such as accountability and independence. In summary, given the spectacular achievements of telecommunications liberalisation, it can be noted that, in particular, telecommunications privatisation brings to the fore, the central issues of competition, and regulation. Furthermore, the fieldwork shows that both how privatisation, competition, and regulation are closely intertwined and how important are the five identified governance mechanisms involved in the complex process of telecommunications reform in Taiwan. First of all, according to the research, the most difficult problems facing the process of privatisation and regulation in Taiwan are either political or economic. The role of the Taiwanese government and its institutions and their relationship with markets should be changed in the privatisation and regulatory process, but the Taiwanese government remains confused in its roles and needs to strengthen its governance capacity. Secondly, the ‘‘revolving door effect’’ continues to happen in Taiwan where staff come into regulatory agencies from the industries they regulate, and allow the prospect of being hired from the agency back to the industry to influence regulatory decision-making. As an example, Premier Yu Shyi-kun has appointed Dr. Hochen Tan, former vice minister of transportation and communications, as chairman of CTC, which is 82

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per cent government-owned. Incumbent chairman, Dr. Mao Chi-kuo, was appointed an advisor to the premier. He has also been tasked with helping Ministers without Portfolio Tsai Ching-yan and Yeh Jiunn-rong in setting up a proposed ‘‘national communication commission’’ (NCC). Thirdly, it is necessary to maintain rigorous competition. In Taiwan, competition had led to sharp price reductions and tariff diversity in a short period, and forced telecommunications industries to introduce more technical changes and innovations into their service provisions. In other words, competition, or a credible threat of competition is essential to force operating enterprises to focus attention on consumers, improve service, accelerate network expansion, reduce costs, and lower prices. Based on the fieldwork results and more general evidence from Taiwan, promoting competition can also widen user choices and accelerate the introduction of new services and facilities. Finally, some issues of regulation must be introduced after telecommunications reform. For instance, the Taiwanese government needs to do more to ensure that information on regulation is readily available to firms wishing to enter a particular service market. Simplification means, amongst other things, reducing duplication of regulation and regulatory authority. Moreover, there is a need to change governance structure towards independence, because lack of progress in developing effective regulatory institutions and processes is recognised by some observers as symptomatic of a lack of government will to regulate the sector. It can be observed that governance structures are changing in the regulatory regime in Taiwan. The separation of regulatory functions from the other duties of government and their transfer to independent statutory bodies (or NCC) involve a delegation of specific powers from the government Minister. 6. Conclusion The experience of telecommunications liberalisation in Taiwan reveals more questions for wider discussion in the context of globalisation. It shows that the absence of an understanding of global telecommunications enterprises left the country with a regulatory system that provides strong incentives for expansion of the telecommunications network but weaker incentives for efficient telecommunications operations (Wint, 1996, p. 69). Moreover, lack of progress in developing effective regulatory institutions and processes is recognised by some observers as symptomatic of a lack of government will to regulate the sector. On the other hand, the impact and cost resulting from the slow start-up of regulation has also been addressed. The findings of this paper reveal that telecommunications liberalisation process in Taiwan was: a definable political process; involving different interest groups, including the government; in pursuit of a variety of interests or stakes; at different levels of involvement; utilising a variety of tactics, alone or combination; of differing intensity; with differing degree of impact on outcomes; in which there is a transfer, from the government to the private sector of any or all of the following; ownership, control over strategy, control over operations.

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In short, telecommunications liberalisation has preceded the development of effective regulation and competition. The development of regulatory structures is limited by the capacity of the Taiwanese government to enforce regulatory rules and monitor contracts. This paper has identified some critical issues for privatisation and regulatory governance in Taiwan’s telecommunications development. I have argued for a close but complicated political-economic interaction affecting telecommunications privatisation in Taiwan. It is argued that privatisation can be seriously affected if the political context is not taken into account alongside the economic. The study certainly shows that the development of regulatory structures is limited by the governance capacity of the Taiwanese government to enforce regulatory rules and monitor contracts. On the other hand, this study asserts that the beneficial results of telecommunications liberalisation in Taiwan is a kind of ‘‘beautiful mistake’’. It is argued that overly fierce competition can result in a ‘‘mad-god like’’ competition in telecommunications; if this mode of competition is introduced without a well-developed regulatory governance, it may lead to regulatory failure. It is asserted that effective regulation is essential for Taiwan’s telecommunications liberalisation as it moves towards the regulatory state. It is also argued that essential linkages between liberalisation and regulatory governance should be explored and developed further in Taiwan, and that pursuit of governance values can directly enhance the implementation of privatising public utilities and their regulatory reform. Finally, some issues of regulation must be introduced after telecommunications reform. These issues are complex, interrelated, and sometimes, in conflict (Wellenius and Stern, 1994, pp. 111e112), but good for the Taiwanese government to bear in mind in undertaking telecommunications reform. Specifically, there is a need to: prevent the incumbent operator from abusing its dominant position to prevent competition; ensure that a private monopoly does not make monopoly profits; continue to promote certain economic and social goals, including universal service; ensure adherence to certain technical standards; ensure that equality of service standards is maintained; monitor licence conditions and ensure that laws and regulations are respected; deal with interconnection problems; regulate tariffs and contribution payments for network development. Of vital importance is the overall need for the Taiwanese government, in introducing regulation, to fully understand how multiple objectives can be pursued through regulatory governance. Failure to do so can frustrate or undermine telecommunications reform. Appendix A. Questionnaire (translated version) General 1. What is the most difficult problem in the process of privatisation in Taiwan in your view? And that includes the internal and external factors of privatisation programme? 2. Have the roles of government or its institutions and their relationship with market mechanism been changing in the privatisation and regulatory process in your view?

3. When CNC, MOTC, or other departments encounter problems of implementing privatisation and regulatory policies, is there a mechanism or policy instrument to help the bureaucrats? Or, what will CEPD do? 4. As a result of changing political sovereignty in 2000, is there any consequent influence or change for privatisation and regulatory policies? Is there any influence on bureaucrats’ attitudes towards privatisation and regulatory policy? Has there been any political commitment or new process in privatisation and regulatory policies? 5. In your view, does privatisation need competition or regulatory policies to enhance it? 6. How does CEPD share learning experiences on privatisation and regulation between or in different implementing departments? 7. Does CEPD or the government have any future plans for privatisation and regulatory policy? Clarity of roles 1. Does the primary legislation set out a clear definition of the privatisation programme and regulation as well as their objectives and roles in the process? 2. Does the legislation establish unambiguously which entity is responsible for privatisation? 3. What are roles in privatisation and regulatory bodies of the Minister, such as an advisory role or a decision-making role? 4. Are there any roles carried out jointly, or any that are ambiguous, between the sectors of privatisation and regulation and those of the relevant Minister(s)? 5. Do the sectors of privatisation and regulation have any responsibility for commercial activities? Independence 1. Have you ever encountered political interference from individuals or political parties in the privatisation and regulatory process? If so, how did you handle it? 2. According to your experience, could you tell me any case of being captured by privatised or private firms (capture theory)? 3. What is the relationship between sectors of privatisation and regulation and the government? 4. How are members of sectors of privatisation and regulation appointed and dismissed? 5. How are sectors of privatisation and regulation financed? 6. Do the sectors of privatisation and regulation have power or discretion to make decisions? 7. What is your view of whether sectors of privatisation and regulation should be independent from or within the government? And why? Participation 1. What other ways are stakeholders (including firms and consumers) involved in the decision-making and processes of privatisation programme and regulation?

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2. Is there a formal or informal mechanism for privatised enterprises to challenge the decisions of governments or CPED? 3. Do enterprises (including privatised enterprises) or other parties comment (or even challenge) decisions through informal channels (such as direct representations to Ministers, or through the media)? Or via what kind of formal mechanism? 4. How easily can the implementing agency’s functions and duties of privatisation and regulatory policies be changed and what is involved? Accountability 1. Do the staff in the implementing agency have any responsibility for the management of privatisation and regulation? If it failed to achieve its objective, what will CEPD do? 2. What is the relationship between the implementing agency and the government? 3. Is there any accountability mechanism existing in the privatisation process? To whom is CEPD accountable (government, the Legislative Yuan, courts)? 4. Does CEPD have to answer questions before the LY? 5. Can bureaucrats be dismissed for failing to fulfil their duties of privatisation and regulatory policies? How will CEPD react? 6. How easily can the functions and duties of privatisation and regulatory sectors be changed and what is involved? Transparency 1. Are major privatisation and regulatory documents and results in the public domain? 2. Does the government publish major decisions (or advice)? Do sectors of privatisation and regulation publish major decisions? 3. Does the government publish the reasoning behind major decisions? Do sectors of privatisation and regulation publish the reasoning behind major decisions? 4. Is there a published timetable of privatisation and regulatory events every year? (such as privatisation fund, information). 5. If decisions or reasons of sectors are not published, are participants told of the reasons for major decisions? References Perry, 6., Leat, D., Seltzer, K., Stoker, G., 2002. Towards Holistic Governance. Palgrave Macmillan, London. Asian Development Bank, 1995. Governance: Sound Development Management. ADB, Manila. Bein, Y.-Y., 1985. Price Determination and Investment on Goods. National Science Research Institution, Taipei. Blundell, J., Robinson, C., Barry, N.P., 2000. Regulation Without the State: The Debate Continues. Institute of Economic Affairs, London. Chang, C.-F., 2001. The Privatisation of State-Owned Enterprises in Taiwan: A Critique of the Economic Myth. Institute of Sociology, Academia Sinica, Taipei. Chang, S.H., October 1999. The Three Telecom Kingdom. Free China Review.

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