Telecommunications in the land of the Thunder Dragon: recent developments in Bhutan PDF

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ARTICLE IN PRESS Telecommunications Policy 28 (2004) 785–800 www.elsevierbusinessandmanagement.com/locate/telpol Telecommunications in the land of the Thunder Dragon: recent developments in Bhutan$ Kezanga, Jason Whalleyb, a Bhutan Communications Authority, Thimphu, Bhutan b Department of Managemen...

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ARTICLE IN PRESS

Telecommunications Policy 28 (2004) 785–800 www.elsevierbusinessandmanagement.com/locate/telpol

Telecommunications in the land of the Thunder Dragon: recent developments in Bhutan$ Kezanga, Jason Whalleyb, b

a Bhutan Communications Authority, Thimphu, Bhutan Department of Management Science, Strathclyde Business School, Graham Hills Building, 40 George Street, Glasgow, G1 1QE, Scotland, UK

Abstract This paper charts the development of telecommunications in Bhutan. Since the introduction of telecommunications services in 1963 Bhutan has faced many challenges as it has sought to roll out a network that covers the whole population and country. A small population, a mountainous geography, a transitional economy and a unique approach to development—Gross National Happiness—present many challenges that need to be overcome if the telecommunications industry is to develop further. Added to this is the decision of Bhutan to join the outside world through membership of the ITU, APT and WTO that has added liberalisation and privatisation to the challenges faced by Bhutan. This paper identifies two broad policy options that Bhutan could adopt—network expansion nationally or investment concentration towards urban areas. The authors conclude that due to the limited resources available to Bhutan these policies are contradictory and will take the telecommunications industry in quite different directions if adopted. r 2004 Elsevier Ltd. All rights reserved. Keywords: Regulation; Liberalisation; Privatisation; Telecommunications policy

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This paper was written whilst Kezang was on secondment from the Bhutan Telecommunications Authority at the University of Strathclyde in 2001 and then updated to reflect developments in the sector since then. The views expressed within the paper are his alone, and not those of the Bhutan Communications Authority. Corresponding author. Tel.: +44 141 548 4546; fax: +44 141 552 6686. E-mail address: [email protected] (J. Whalley). 0308-5961/$ - see front matter r 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.telpol.2004.09.004

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1. Introduction In recent years the telecommunications industry within Bhutan has undergone considerable changes; not only has the industry expanded to become national in scope for the first time but it has also begun to prepare itself for competition as well. The incumbent operator has been corporatised, a regulatory agency established and the desire to move to a competitive market with all that this entails articulated. Given that telecommunication was introduced into Bhutan as recently as 1963 it is arguably the case that the industry has made great progress, especially over the last decade when teledensity levels have rapidly increased. The telecommunications industry, however, has reached a pivotal point in its growth and development. If it is to continue to grow it must address a series of challenges that arise from its harsh mountainous terrain, dispersed population, lack of resources, limited integration with the outside world and unique development philosophy. These conspire to ensure that many of the policies that have been used elsewhere are not appropriate for Bhutan. For example, Gutierrez and Berg (2000) suggest that the openness of the economy is a driver of telecommunications expansion, but the Bhutanese economy has only limited connections to the global economy and this is unlikely to substantially change in the near future due to the development ethos that the country has adopted as well as its size. This is not to say that all of the policies adopted outside Bhutan are inappropriate or uninformative. Gutierrez and Berg (2000) highlight the importance of the regulatory framework and the independence of the regulator in facilitating growth within the telecommunications industry. More broadly, Makhaya and Roberts (2003, p. 42) state that the experiences of developing countries highlight the importance of three related areas: competition, regulation and the social returns from telecommunications. Whilst all three indicate areas where existing policies may have to be reformed or new ones developed, the third is at the heart of the challenges facing the country. This paper identifies and describes a series of challenges that the Bhutanese telecommunications industry faces. The authors’ intention is not to offer a series of definitive answers or solutions to these challenges, but instead to map out the magnitude and nature of the challenges that a country coming late to both telecommunications and the wider world faces. It may be the case that some aspects of these challenges are intractable, whilst other aspects may be successfully addressed through, for example, additional resources. Regardless, it will be several years before Bhutan has fully addressed the challenges that it faces. Consequently, the remainder of this paper is divided into three main sections. In the first section an overview of the development of Bhutan is provided, with the geography and development of the country described. The second section then moves onto discussing the telecommunications industry within Bhutan, covering its history as well as the structure of the industry as it presently stands. The focus then shifts to detailing the two policy options that are available to Bhutan.

2. Bhutan The Kingdom of Bhutan lies in South Asia, in the Eastern Himalayas. It is a landlocked country, and as Fig. 1 shows it is geo-politically located between the Tibetan Autonomous Region

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Fig. 1. Location of Bhutan.

of China to the north and India to the east, south and west. With a total surface area of 46,500 square kilometres (18,000 square miles) it is approximately the size of Switzerland, but with an official population of 700,000 Bhutan has one of the lowest population densities in Asia. However, taking into consideration the most recent estimates of the high annual population growth of 3.1% and the limited availability of land suitable for cultivation, Bhutan may face serious population pressures in the near future. Already the population density, if calculated over cultivable land only, stands at 129 people per square kilometre and this will only increase if the population doubles by 2017 as forecasted (RGoB, 2000). The process of modern development in Bhutan started as recently as 1961, when the late King Jigme Dorji Wangchuck (1952–72) opened up the country to the rest of the world by ending its self-imposed isolation. Until then Bhutan had been geographically and politically isolated. Bhutan is almost entirely mountainous, with land rising from about 160 m above sea level in the south to the high Himalayas in the north that rise to over 7500 m. The country was never colonised, remaining independent first as a theocracy and later as a monarchy. (For a detailed description of the history of Bhutan see, Schicklgruber & Pommaret (1997).) 2.1. The political and administrative system Bhutan’s modern era began at the start of the 20th century when a new administrative system replaced the three centuries old dual system of Shabdrung Ngawang Namgyal. In December 1907 the clergy, State Councillors and representatives of all districts elected the Trongsa Penlop (governor), Ugyen Wangchuk (1907–26), as the first hereditary King. Although Bhutan remains a monarchy, the monarch is no longer head of the government. Instead this now falls to the

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Chairman of the Council of Ministers, which is a 1-year position that rotates among the elected Ministers. The National Assembly, the Royal Advisory Council, the Royal Court of Justice, the Royal Civil Service Commission, the Council of Ministers and the sectoral Ministries are the organisational units that play the most crucial role in governance. The National Assembly has 150 members, of whom 105 are representatives of the people elected for a term of 3 years. The Monk Body elects 10 representatives who serve for only 1 year, whilst the remaining 35 members are representatives of the Government and nominated by the King. Whilst there are no political parties in the National Assembly, the political persuasion can be characterised as being forward looking and progressive rather than conservative. The Royal Advisory Council, consisting of nine members, was established in 1965 to advise the King and Ministers. At the sub-national level, the country is administered through 20 Dzongkhags (districts) and 201 geogs (blocks), which have increasingly become the focus of decentralisation and development efforts.

2.2. Approach to development Bhutan has adopted a very distinctive approach to development, namely, the concept of the maximisation of Gross National Happiness (GNH). This concept was articulated by King Jigme Singye Wangchuck in the late 1980s to indicate that development has more dimensions than those associated with GDP, and should be understood as a process that seeks to maximise happiness rather than just economic growth. GNH places the individual at the centre of all development efforts and recognises that the individual has material, spiritual and emotional needs. The five themes of GNH—human development, governance, balanced and equitable development, culture and heritage, and environmental conservation—serve to direct change in Bhutan. These five main objectives not only make the concept of GNH more tangible, but also embody the guiding principle that has been identified by the Government as being of decisive importance in ensuring the future independence, sovereignty and security of the country. A series of legal and administrative changes have been implemented to improve government efficiency and increase administrative capacity. Several important bills have been passed since the 77th Session of the National Assembly, 1999, including the Bhutan Telecommunications Act 1999. These bills strengthen the legal framework for a market-oriented economy and increase the capacity of the government units to manage development on a sustainable basis. On 11 November 1999, the government released a report aimed at facilitating good governance by enhancing efficiency, transparency and accountability of government administration. Specific recommendations included measures to prevent corruption and abuse of authority (RGoB, 1999). The reorganisation of the government administration was fully implemented by June 2003. The significance of this exercise lies in that the erstwhile Ministry of Communications has been bifurcated into two Ministries: Ministry of Information and Communications, and Ministry of Works and Human Settlement. The Ministry of Communications was responsible for the general infrastructure development of the government, and as such its remit covered roads, housing, surface and air transportation, information and communications.

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2.3. The economy The pattern of economic activity in Bhutan reflects both the natural environment and the selfimposed isolation that characterised the country’s relationship with the world until the start of the 1960s. Until then Bhutan was virtually isolated with an economy based on subsistence agriculture. The isolation ended with the First Five Year plan (1961–66) that focused on the development of basic infrastructures like road, power, telecommunications, transport as well as animal husbandry. Accompanying the end of isolation was the acceptance of foreign aid, which in 1961 took the form of Indian assistance in road construction. Although Bhutan’s economy remains closely linked with India’s, a significant amount of aid has been received from other countries in recent years, leading to a substantial increase in imports. The end of isolation also meant expanding trade relations as well. Bhutan now exports a series of commodities such as cement, gypsum and timber as well as cardamom, handicrafts and precious stones (CIA, 2002). Exports, however, continue to be low, emphasising the need for a continuous inflow of aid. Even though Bhutan has changed much in the intervening years, its economy remains one of the world’s smallest and least developed with more than 79% of the population dependent on agriculture and livestock for their livelihoods. Although agriculture accounted for approximately 38% of GDP in 1998 (UNDP, 2000; World Bank, 2001), more than 90% of the labour force is employed in the sector (CIA, 2002). Agriculture’s share of GDP has been declining due to the emergence of new economic activities such as the sale of hydropower. The electricity sector provided almost 45% of national revenue in 2000–01, and is increasingly fundamental to the country’s economic development. Hydropower projects, along with industrial developments like ferro-alloys, calcium and carbide productions, and cement manufacturing have in turn encouraged the growth of construction activities within the economy. Transportation, telecommunications, finance and manufacturing have all experienced growth in recent years as well. Whilst the economy has enjoyed continued growth in recent years, constraints are clearly evident. Firstly, restrictive controls and uncertain policies in areas like industrial licensing, trade, labour, and finance continue to hamper local and foreign investments. Adding to these problems are the rugged mountains that dominate the terrain and make the building of roads and other infrastructures difficult and expensive. The industrial sector is technologically backward, with most production of the cottage industry type. Furthermore, many of the projects undertaken are funded by foreign aid with the consequence that the economy is, to a certain degree, dependent on the vagaries of foreign aid.

3. The Bhutanese telecommunications industry Telecommunications within Bhutan is a rather recent affair. The Government initiated the first telecommunications network in the country with the assistance of India’s Project Dantak in 1963. The resulting telecommunications infrastructure then consisted of three separate networks that were not interconnected. The first network linked the capital Thimphu in western Bhutan to the commercial hub in the south, Phuntsholing. The second network connected Tongsa, a town in

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central Bhutan with Gelephu, another commercial town in the south. The eastern network connected Tashigang in the east to Samdrup Jongkhar in the south. The next major development of the telecommunications industry was the establishment in 1970 of the Ministry of Communications with two departments; telecommunications and civil wireless (HF radiocommunications). It was not until 1984 that Bhutan’s first link with the outside world was established, with an analogue microwave link from Thimphu to Hasimara (India). At the beginning of the 1990s political and economic interests in the country combined to usher in what has been called the modern era of telecommunications in Bhutan. Telecommunications sector reform was also encouraged by regional and international recognition and support. The then Ministry of Communications, with ITU–UNDP collaborative assistance, initiated the Bhutan Telecommunications Master Plan in 1989. From 1991 onwards the master plan was funded by Japanese grant aid. The modernisation plan was implemented in four phases over a 7-year period with the priority being to provide services to those areas that did not already enjoy basic telecommunication facilities. In addition, the plan was also to integrate the nation state through the establishment of an east–west link between Tashigang and the capital Thimphu. As scheduled, in September 1993, the first phase of the National Telecommunications Development Plan (NTDP) was inaugurated. The east–west microwave link was established so that citizens within Thimphu could call for the first time those in Tashigang. In December 1993 phases two and three of the modernisation plan were completed, thereby ensuring the expansion of the national network to major towns that previously had no service. The progressive expansion of the network into ever more remote and isolated parts of the country was a key factor behind the increase in teledensity from 0.3 lines per 100 inhabitants in 1990 to 2.8 in 2002 (BTA, 2002). During 1995 and 1996, the Government entrusted the then Division of Telecommunications (DoT) with the responsibility of expanding telecommunications services into rural areas. Using existing capacity at the exchanges and the active microwave repeater stations, single channel VHF technology was employed to provide basic telephone services to more than 50 remote Basic Health Units and schools. Phase 4 of the NTDP commenced in 1997 and involved the integration of Western Bhutan into the national network. During this phase, the remaining few districts were connected to the national network for the first time. On completion in June 1998 Bhutan had for the first time a national telecommunications infrastructure that linked together the head offices of all 20 districts. Within this network, digital switches have replaced all of the older manual switches and a dedicated switch in Thimphu serves as the international gateway allowing Bhutan direct international access to over 100 countries. 3.1. Structure The structure of the Bhutanese telecommunications industry is presently undergoing a transformation; from monopoly to managed competition and from integrated regulation and operation to separated regulation and managed competitive operation. As this transformation is taking shape, two distinctive types of actors are emerging: institutions and companies. The most significant institutions are the Policy and Planning Division (PPD) of the Ministry of Information

ARTICLE IN PRESS Kezang, J. Whalley / Telecommunications Policy 28 (2004) 785–800 National Assembly (Legislature)

Council of Ministers (Executive)

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High Court (Judiciary)

Bhutan Communications Authority

Ministry of Information and Communications Policy and legislation

Regulation and licensing

Policy & Planning Division Private CPE Bhutan Telecom (100% state owned)

Private run public calling booths UCOM PAGING (private paging company)

Private networks

Telecommunications market

Fig. 2. Structure of the Bhutanese telecommunications industry.

and Communications and the Bhutan Telecommunications Authority (BTA), now Bhutan Communications Authority (BCA),1 whilst Bhutan Telecom is the pre-eminent supplier of telecommunications services. Bhutan Telecom is 100% state owned. The structure of the Bhutanese telecommunications industry is shown below in Fig. 2. Government policy and plans affecting the telecommunications industry are formulated by the PPD, which also co-ordinates telecommunication policy with those responsible for information technology (IT), media (in particular, broadcasting) and posts. PPD did partially engage in the regulation of the telecoms industry, however, with the passage of the Act by the National Assembly, planning and policy was separated from both the regulation and operation of the industry. Regulation then was passed on to the BTA, which was established in January 2000 ‘‘to regulate and promote the development of the Bhutanese telecommunications sector’’ (BTA, 1999). Other responsibilities of the Authority include:

 Type approval of and setting standards for radio and telecom terminal equipment.  Management of the radiofrequency spectrum.  Regulation of broadcasting services (technical aspects).  Licensing of commercial cable TV operation and service provision. 1

With the establishment of the Ministry of I...