The Impact of Privatization on Telecommunications Effeciency in Tanzania: the Case Of

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THE IMPACT OF PRIVATIZATION ON TELECOMMUNICATIONS EFFECIENCY IN TANZANIA: THE CASE OF TANZANIA TELECOMMUNICATION COMPANY LIMITED

JOSEPH R. MRAMBA

A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION OF THE OPEN UNIVERSITY OF TANZANIA

2011

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CERTIFICATION

The undersigned certifies that he has read and hereby recommends for acceptance by the Open University of Tanzania a dissertation titled. “The impact of Privatization on Telecommunications Efficiency in Tanzania: The Case of Tanzania Telecommunications Company Limited (TTCL)in partial fulfillment of the requirements for the Degree of Mastersin Business Administration (Finance) of The Open University of Tanzania.

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Dr. O. K. Mbura

(Supervisor)

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Date

COPYRIGHT

No part of this project report may be produced, stored in any retrieval system, or transmitted in any (electronic, recording photocopying or otherwise) form or by any means; without prior written permission of the author of The Open University of Tanzania (OUT) on that behalf.

DECLARATION

I Joseph R. Mrambado hereby declare to The Open University of Tanzania that, this project paper is my own original work where cited and that has never been seen submitted for a similar higher degree award in any other university.

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Joseph R. Mramba

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Date

DEDICATION

This dissertation is dedicated to my Parent, Mr. R.S. Mramba and my true role model in all aspects. Also, this work is dedicated to my family.

ACKNOWLEDGMENTS

I thank God for His mercy and grace for the time, energy and resources He has provided to me throughout the period of my studies as well as good health. I return the honour and glory to Him for the successful completion of this study programme.

I wish to express my appreciation and gratitude to all who have contributed to the realization of this ambition. First and foremost, my profound gratitude goes to my supervisor Dr. Omary K. Mbura of the University of Dar es Salaam whose instruction, guidance and encouragement facilitated this study. He was always there to attend to my calls and enquiries and provided all the support I needed to submit this dissertation on time and according to the requirements of the school. His invaluable instruction and supervision are highly appreciated.

I also wish to express my sincere appreciation to the Faculty of Business Management Open University of Tanzania leadership and staff;in particular I thank Dr. P. Ngatuni for the courage and assistance he gave me throughout my studies.I also thank my course lecturers and colleagues in the Masters of Business Administration for their consistent and academic advice they accorded me during the program. Lastly but not least, I take this opportunity to thank my family for their love and courage they gave me throughout the entire study period. God bless them with every good gift.

ABSTRACT

This study examined the impact of privatization on efficiency in telecommunication industry, the case being TTCL. Specifically, the study aimed at examining the extent to which technological change, quality of staffing and restructuring leads to TTCL efficiency.This studyused both quantitative and qualitative techniques. The Statistical Package for Social Sciences (SPSS) tool was used in analysing the data. The findings of the study reveal that TTCL evidently is efficiency in terms of technology although there is a competition from other major telephone operators in Tanzania.TTCL is still the sole provider of landline telephone services in Tanzania. It operates on CDMA2000 1X technology with operating frequencyband of 800 MHz and have mandatory to national optic fiber network. Moreover, the findings reveal that in this competitive environment TTCL has managed to deliver an intelligent Network platform such as, prepaid services, a Voice mail System, a Short Message Service Centre, Customer Care and Billing system. All these have allowed best speed mobile data services across the country.The study has also recommended a number of issues for the success of the Company. Implications of the findings is to caution the government and TTCL privatization; on well defined policy which specify conditions of the contract, well set goals of the privatization like network expansion, introduction of new technology, stated number of worker’s and company structure to fulfill the mission.

TABLE OF CONTENTS

CERTIFICATION...... ii

COPYRIGHT...... iii

DECLARATION...... iv

DEDICATION

ACKNOWLEDGMENTS

ABSTRACT

LIST OF TABLES

LIST OF ABBREVIATIONS......

CHAPTER ONE

1.0 INTRODUCTION AND BACKGROUND TO THE STUDY

1.1 Introduction

1.2 Background to the Study

1.3 Statement of the problem

1.4 Objectives of the study

1.4.1 Specific objectives

1.5 Research questions

1.6 Scope of the Study

1.7 Significance of the Study to TTCL and MBA

1.8 Organization of the study

CHAPTER TWO

2.0 LITERATURE REVIEW.

2.1 Introduction

2.2 Definition of key Concepts

2.2.1 Privatization

2.3 Theoretical perspectives

2.3.1 Forms of privatization

2.3.2 The Regulatory Environment

2.3.3 National Telecommunications Policy (NTP)

2.3.4 National Information and Communications Technologies Policy

2.3.5 Efficiency Wage Theory

2.3.6Implementation theory

2.3.7 Performance Improvement Model (PIM)

2.4 Empirical Studies

2.5 Research gap

2.6Conceptual framework

CHAPTER THREE

3.0 RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction

3.2 Research design

3.3 Research approach

3.4 Area of study

3.5 Target population

3.6 Sample size

3.7 Sampling methodologies

3.8 Methods of data collection

3.8.1 Questionnaire

3.8.2 Interview

3.8.3 Documentary review

3.9 Data analysis and presentation

3.10 Validity and reliability

CHAPTER FOUR

4.0 DATA PRESENTATION, ANALYSIS AND DISCUSSION.

4.1 Introduction

4.2 Descriptive results.

4.2.1 Age

4.2.2 Gender

4.2.3 Level of education

4.3 The extent to which technological change leads to TTCL efficiency

4.3.1 CDMA Mobile Services

4.3.2 Prepaid Services

4.3.3 Backbone optical fiber network to customers premises

4.3.4 High Speed Internet Services

4.4 The extent to which quantity of staffing leads to TTCL efficiency

4.4.1. Employing professional employees and retention

4.4.2 Effective customer services

4.5 The extent to which restructuring leads to TTCL efficiency.

4.5.1 Experienced workers retrenchment

4.5.2 Change of Job description and transferring

CHAPTER FIVE...... …………………………………………………….48

5.0 CONCLUSIONS AND RECOMMENDATIONS………………………….

5.1Introduction...... 48

5.2Conclusion...... 48

5.3 Recommendations

5.4 Area for further studies

REFERENCES

APPENDICES...... 54

.LIST OF TABLES

Table 3.1 Number of Respondents...... 27

Table 4.1: Sample size and actual number of respondents...... 33

Table 4.2: Age of Respondents...... 34

Table 4.3: Frequency Distribution by Gender...... 35

Table 4.4: Frequency Distribution of Respondents by Education Level...... 35

Table 4.5: CDMA mobile services...... 36

Table 4.6 Prepaid Services...... 38

Table 4.8: High Speed Internet Services...... 40

Table 4.9: Professional employees retention...... 41

Table 4.10 Effective Customer Services...... 43

Table 4.11 Experienced workers retrenchment...... 45

Table 4.12: Change of Job description and transferring...... 46

LIST OF ABBREVIATIONS

DELs Direct Exchange Lines

EACEast African Community

EAPTC East African Post and Telecommunication Corporation

FDIForeign Direct Investment

GOTGovernment of Tanzania

ITU International Telecommunications Union

MOCTMinistry of Communications and Transport

MSI Mobile Systems International

NTPNational Telecommunications Policy

OECD:Organization for economic cooperation and Development

PABXPrivate Automatic Branch Exchange

PSRC Presidential Parastatal Sector Reform Commission

SOEState owned enterprises

TCCTanzania Communications Commission

TCRA Tanzania Communication Regulatory Authority

TPTC Tanzania Posts and Telecommunications Company

TRP Telecommunication Restructuring Program

TTCLTanzania Telecommunications Company Limited

ZANTEL Zanzibar Telecom Limited

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CHAPTER ONE

1.0 INTRODUCTION AND BACKGROUND TO THESTUDY

1.1 Introduction

This is an introductory chapter. It presents the background information on the topic under study. The chapter also presents the statement of the problem, the objectives and questions of the study, the scope and significance of the study, and the organization of the study.

1.2 Background to the Study

Since the 1980s, the telecommunications sector has been largely shaped by a set of market reforms which have been applied worldwide. These reforms include the liberalization of the telecommunications sector, namely the opening to competition of fixed and cellular segments often coupled with the privatization of the fixed-line traditional operator. These changes were typically accompanied by the creation of regulatory agencies independent from political power in a sector where regulation and competition policy were playing an increasingly important role in the functioning of the market.

Telecom sectors have long been dominated by strong interventionism. The monopolistic telecom provider was typically incorporated into the Government and run as a division of the ministry of Posts, Telegraph and Telecommunications, far from being considered as a stand-alone business enterprise. Long-term capital investment should constitute a large part of the costs of a telecommunication operator. In some jurisdictions, telephone revenues of state-owned operators have historically been treated as part of general government revenues whereas expenditures and investment of the state-owned operators have been included in the general government budget (Noll, 2000).

Moreover, until 1977, telecommunication and postal services in Tanzania was controlled and governed by the defunct East African Post and Telecommunication Corporation (EAPTC) and the East African External Telecommunication Company (EAETC) (Noll and Shirley, 2002). Tanzania Posts and Telecommunications Company (TPTC) was established in 1978 with the aim of taking-over the functions and powers of both EAPTC and EAETC. After the collapse of the East African Community (EAC), TPTC operated under a monopolistic environment as the doors to competitors were closed (Nielinger, 2004). TPTC’s monopolistic environment contributed to its poor performance, inadequate infrastructure and the state of despair. Equally important is the fact that its policies were not clearly defined whilst resources for bringing about change were severely limited. Additionally, the market was regulated to an extent that importation of basic communication equipment such as Private Automatic Branch Exchange (PABX) systems, telephone sets, computers, and the like was restricted and special permits were required if one was to import these basic communication products (Noll and Shirley, 2002).

As part of monopolistic environment, TPTC was solely responsible for providing and regulating telecommunication and postal services. Equally, important was its responsibility on managing radio frequency spectrum, numbering administration, type approval of equipment and geostationary orbit segment for Tanzania (TCC, 2001). TPTC struggled to provide even the most basic services (Mwandosya, 2001). For example, unrealistic as it may sound, waiting time for a telephone was up to 10 years and only 26% of all national phone calls could be completed without failures (TCC, 2001).

For that case, Tanzania Restructuring Program (TRP) was designed as a general construction plan aiming at inducing and supporting the reform process. It was the first comprehensive programme aiming at substantially reforming the telecommunication sector in Tanzania. It may be argued that the programme paved way to a separation of regulative and operative functions, development and implementation of a legal and regulatory framework and the formation of TTCL. Consequently, the operational and regulatory functions of TPTC were restructured. Firstthe Tanzania Communications Act, 1993 which led to the formation of the Tanzania Communications Commission (TCC) as the regulator of the telecommunications and postal sectors was enacted. Second, the Tanzania Posts Corporation Act, 1993 which led to the formation of an autonomous postal corporation the Tanzania Posts Corporation (TPC)was also enacted. Third, the Telecommunications Company Incorporation Act, 1993 which led to the formation of the Tanzania Telecommunications Company Limited (TTCL) was also enacted.

Prior to TTCL’s privatization, the government of Tanzania undertook a US$250 million Telecommunication Restructuring Program (TRP) with assistance from the World Bank and international donors to revamp the telecommunication infrastructure and restructuring of TTCL. TTCL privatization was advertised in the local, regional and international press and the sale process was managed and supervised by the Presidential Parastatal Sector Reform Commission (PSRC), a government body responsible with the privatisation of state owned enterprises.

The advertisement attracted a number of bids and after evaluation the bid was won by a consortium of Celtel International (formerly MSI Cellular) of Netherlands and Detecon of Germany who offered US$120 million for a 35% stake with a commitment to increase the number of Direct Exchange Lines (DELs) from under 162,000 to over 800,100 in a four year period originating from Tanzania mainland through its international gateways (Noll and Shirley, 2002).

The government’s initiatives have undoubtedly, paved way to competitive and better regulated telecommunication industry. However, it may be argued that the initiatives leave a lot more to be desired. On one hand, the pre-conditions for the privatization of TTCL discourages serious potential buyers essentially because of the attachment of the GSM license whilst on the other hand, it attracts operators with interest in the booming and profitable cellular phone operations business.

For example, the consortium of Celtel International BV (formerly Mobile Systems International Investment Holdings BV (MSI)) of the Netherlands and DETECON GmbH of Germany were solely interested in the GSM license and had experience of managing cellular mobile companies rather than traditional telephone network operator like TTCL (Mwandoya, 2001).

1.3 Statement of the problem

Tanzania embarked on a liberalization program of its different sectors including telecommunication industry during the mid 1990’s. The decision to privatize the Tanzania Telecommunications Company Limited (TTCL), a state owned enterprise was based on the goal to improve its quality and quantity of services by way of private investor (Farajian, 2003).

The government in return handed over to the strategic investor both the board and management control of the company in 1994 after the investor had paid US$60 million and a guarantee for the remaining balance after verification of company’s year 2000 financial statement. TTCL was also given exclusivity period for the fixed line and international calls for a period of four years in order to allow for the costs of roll-out of telephone services to historically disadvantaged communities, to provide time for TTCL’s restructuring prior to the introduction of competition and as an incentive to the strategic investor (Chakula, 2004).

Whereas the last two decades have seen a surge in utility privatization, the most dramatic changes have been witnessed in the telecommunications industry. Many countries overhauled their legal and regulatory framework for fast privatization and liberalization (Farajian, 2003). Like elsewhere in the world, Tanzania embarked on a liberalization program of its different sectors including telecommunication industry during the mid 1990’s. Suffice to say that the decision to privatize Tanzania Telecommunications Company Limited (TTCL) was based on the goal to improve its quality and quantity of services by way of strategic investor who will bring in additional technical know-how, managerial skills and necessary capital in narrowing the gap between supply and demand.

According to the PSRC (2000), Tanzania’s motives for privatization are drawn from improving efficiency, increasing capacity utilization, offering new employment opportunities, enhancing production, bringing new skills and technology, opening up foreign markets for products, Increasing government revenues through taxes and dividends and cutting public losses incurred through the parastatal sector. Since limited study have been conducted in this area, it was thought that the critical study should be undertaken to examine whether the designed objectives of privatization were realized. The foregoing notwithstanding, the study evaluated the impact of privatization on telecommunication efficiency focusing at TTCL.

1.4 Objectives of the study

The general objective of the study was to investigate the impact of privatization on efficiency in telecommunication. The study focused at TTCL.

1.4.1 Specific objectives

The study was guided by the following objectives:

(i)To investigate the extent to which technological change lead to TTCL efficiency

(ii)To examine the extent to which quality of staffing lead to TTCL efficiency

(iii) To examine the extent to which restructuring lead to TTCL efficiency

1.5 Research questions

The following questions guided the study:

(i)To what extent do technological changes lead to TTCL efficiency?

(ii)To what extent does quality of staffing lead to TTCL efficiency?

(iii)To what extent does restructuring lead to TTCL efficiency?

1.6 Scope of the Study

This study was limited to the efficiency of telecommunication industry on the impact of privatization. The choice of the topic based on the researcher’s engineering background and the fact that TTCL plays a major role in meeting day-to-day national telecommunication and communication needs. Notably, the study places emphasis in a period between the years 1990-2010 essentially because the selected years are manageable in the research of this nature. Similarly, major changes in the telecommunication industry occurred in 1994 onwards with the privatization of telecommunication industry in the wake of the formation of TCC, TCRA and TTCL.

1.7 Significance of the Study to TTCL and MBA

It is expected that the findings of this study will help to create awareness and understanding to the concept of privatization and its impact on telecommunication sector and how beneficial it is to promote efficiency and productivity. Moreover, it is expected the findings of this study will be beneficial to various learning institutions, especially investments institutions acting as a centre of acquiring knowledge on privatization and its impacts. Further more, is expected that the findings of this study will shed light to the decision makers such as, the government and donors in reviewing the existing policies, laws and regulations components for efficient performance of making reform program more effective in fostering broad-based development.

1.8 Organization of the study

This study is organized in five chapters. Chapter one presents the background information related to the study, it also presents the statement of the problem, objectives of study, justification and organization of the study. Chapter two presents the literature review. The chapter defines key terms, used in the study. It also presents the theoretical and empirical studies related to the impact of privatization on efficiency telecommunication sectors. Chapter three presents the design and methodology used in the study sampling design, sample size as well as validity and reliability. Chapter four presents the findings of the study. It also analysed and discussed the findings. Chapter five summarizes concludes and gives recommendations. It also suggests areas for further study.

CHAPTER TWO

2.0 LITERATURE REVIEW

2. 1 Introduction

This chapter presents the literature related to the topic under study. It first begins by defining key terms used in the study. It hen presents theoretical and empirical studies related to this study. It also resents the conceptual framework.