Welfare gains from utility reforms in Egyptian telecommunications

- In Egyptian telecommunication reforms have complemented and reinforced each other. The causal chain of reform is not broken.
- Reforms to date have created contestable markets characterized by free entry and exit triggering both competitive and efficiency pressures.
- Welfare gains have accrued to consumers, producers (competitors) and the state alike.
- NTRA, the sector's regulator, has done a reasonable job in managing the reform.
- Nevertheless, regulatory capture is present, particularly as NTRA sympathizes with the national incumbent, Telecom Egypt.

Utility sector reform spread across the developing world in the 1980s and 1990s. In Egypt, as in many cases, the pace and nature of reform has been challenged by a state-owned national incumbent. However, in the Egyptian telecommunications sector, rapid growth in the cellular market has overtaken the archaic fixed-line system. Hence, the national monopoly provider, Telecom Egypt (TE), has been stripped of its market power as the market diversified. The implemented public sector reform and privatization placed efficiency pressures on TE resulting in improved outcomes for a range of stakeholders, consumers, workers, and the government, including reduced prices, increased access, and improved service quality. This experience offers lessons for policy makers and researchers about liberalization in the face of entrenched state interests. However, there are nuances in the findings relating to market type, that is, fixed-line versus cellular, residential versus non-residential, and national versus international. Despite attempted improvements, direct competition in its retail market has led to deterioration in TE's financial performance, although this has been partially offset by its monopoly supply of an essential input and a degree of protection provided by the regulator sympathetic to TE. The evidence from this case study supports the concept of a staggered introduction of competition. However, protecting inefficient market insiders, be it firms or workers, is always at the expense of potentially more efficient outsiders.