Telecommunications is recognized as being the critical element for economic diversification and it was agreed that there was need for competition in the sector.

Trade trends indicate that the region needed to diversify its economy from its heavy dependence on agricultural production and place greater emphasis on the services sector. The traditional agricultural exports are in decline, World Trade Organization (WTO) pressures are growing, the tourism sector is showing signs of maturity and would see improvements in cost competitiveness with competitive long distance communications costs if telecommunications costs were to be reduced.

Governments recognized that lack of competition in the sector leads to higher costs that resulted in the following: Larger manufacturing exporters in the region report that telecommunications costs was a serious drain on their price competitiveness. The ability to receive information and interface with clients at reasonable rates would be increasingly important for small?scale manufacturers as well, for whom custom work would be the area in which they were most likely to be able to compete internationally.

In a review of the services and analysis for its development, three areas were identified as being critical for the success of the promising informatics sector.

The areas identified were:

• High cost of access to telecommunications services
• Lack of trained personnel in the sector
• Lack of physical infrastructure

In order to take advantage of the information technology sub-sector, including the use of the Internet as a medium to serve the general population, countries of the region would have to make changes in the current monopoly environment. Several countries have tried to participate in the various competing lines of business but have met with mixed success because of the uneven playing field that exist in the sector.

In this current noncompetitive environment prices charged by the incumbent monopoly for critical bandwidth and data intensive telecommunications services are high compared to those countries that have a competitive telecommunications sector.

Also recognized by the governments was the inadequacy of the telecommunications regulatory framework. Both the legal and institutional aspects of the telecommunications framework in the OECS countries have critical deficiencies.

The current framework is characterized by:

• Minimal regulatory powers held by the governments;
• Vague, ambiguous and outdated telecommunications legislation and licenses and agreements;
• Joint venture arrangements in Grenada, Commonwealth of Dominica and St. Kitts and Nevis that confuse the regulator and operator; and
• Low returns to governments, in terms of royalties, license fees, dividend payments with joint venture arrangements, use of radio spectrum, customs duties and taxes, and the use of government property.

In some OECS countries, the telecommunications provider enjoys a number of key regulatory powers that in a liberalized environment would typically be invested in a regulator (e.g. power interconnection, provision of leased lines, or numbering). These OECS countries do not have independent regulators and lack technical capacity for proper regulation.

Most of the OECS countries had not established procedures for reviewing and processing requests for spectrum allocation. This could lead to delays in the timely processing of applications and conflicts among spectrum users. With spectrum allocation plans in place, clear procedures and guidelines would be developed to reallocate frequencies, hence such problems will be averted.

In addition to OECS-specific weaknesses that need to be addressed, the OECS countries face a number of challenges in the telecommunications sector associated with modern telecommunications network development and organization, common to many countries including:

• Creating regulatory frameworks favourable for development and investment in accordance with the WTO Basic Agreement on Telecommunication;
• Facilitating and managing the demand for increased bandwidth and data speeds needed to use the Internet's World Wide Web;
• Knowing about and adapting to the international standards regarding pricing, valuation, use of radio spectrum as well as long range spectrum planning;
• Responding to changes within the international accounting rate regime;
• Competing with countries that have reduced international rates by re-balancing tariffs;
• Adopting cost based pricing and introducing competition through additional national operators; and
• Adapting to the continuous technological advancement of telecommunications networks and systems.

The special challenge for the OECS was to address all these issues with far more limited financial and human resources than most countries, due to their extremely small scale. The total population of the five OECS countries participating in the project is about 500,000.

In view of the above, the OECS Governments recognized that supporting the development of private sector competitiveness and diversification was the way through the banana crisis. To this end, the OECS Governments are eager to alleviate telecommunications sector constraints on competitiveness.

The participating countries intend to reform the sector with a program that includes regulatory policy and tariff reform, revision of telecommunications concessions within the region and putting in place modem, telecommunications legislation. The governments now desire to take advantage of the liberalization of the global telecommunications market through the introduction of competition in the sector supported by minimal, fair and transparent regulation.

There is an agreement among the Heads of Government of the five participating OECS countries to establish a harmonized regulatory framework and a competent regulatory authority tailored to a newly liberalized environment. Further, the Heads of Government have dictated that the OECS Secretariat through the OECS Telecommunications Reform Project, shall coordinate regional sector reform efforts, including the review of existing legislation, licenses and agreement, overseeing appropriate cost studies.

A regional approach is particularly important in the view of the common issues faced by the OECS countries. The proposed Regional Telecommunications Authority, for example could be particularly useful in:

• The design of transparent, objective and investor friendly license award procedures that would be implemented at a national level for the award of major licenses;
• Allocation of numbers if the numbering plan;
• Allocation and assignment of radio spectrum ; and
• Acting as a forum for coordination of OECS governments' policy for the region.

The Heads of Government of the five OECS countries participating in the Project agreed that in order to address the above issues, there was need to allow some competition in the sector and to reform the sector. Out of this end the OECS Telecommunications Sector Reform Project was conceived. A loan of US$6 million was negotiated with the World Bank, complemented with a US$4 million counterpart funding by the participating countries.

In an effort to guarantee the success of the Project, the Heads of Government of the OECS countries took several relevant decisions. The five countries participating in the Project, (Commonwealth of Dominica, Grenada, St. Lucia, St. Kitts-Nevis, and St. Vincent & the Grenadines), have signed to an agreement for Telecommunications Authority. The Heads of Government at their 31st Authority meeting held in October 1998 agreed to joint negotiations with Cable and Wireless to discuss a new paradigm in the telecommunications sector.

Finally it was agreed that cooperation would be actively sought with all other Caribbean and non-Caribbean countries who have similar situations.

The OECS Telecommunications Sector reform project became effective on October 10th 1998, with its offices located in Castries St. Lucia.

Prepared by: Allison Joseph, OECS Telecommunications Reform Project