Defined by technology and regulation, each infrastructure industry includes potentially competitive and non competitive segments (table III.2). Non competitive areas include transmission and distribution networks, such as transmission lines in electricity; cables and switching centres in fixed line telecommunications; tracks, signals and stations in railways; landing strips at airports; and pipes and sewers in water supply.
Such networks, positioned
between upstream production and downstream
supply, are very capital intensive and involve large
sunk costs and assets that are of minimal use for
other purposes. Once built, they are location bound
and cannot be moved to other sites. These features
mean that such activities retain the characteristics of
natural monopolies. Other upstream and downstream
segments, on the other hand, offer greater potential
for competition. In electricity, telecommunications
and transportation, technological progress has helped
to reduce scale requirements and costs, and enabled
the introduction of new sources of competition to
some extent.
Box III.1. Main features of electricity infrastructure.
There are three segments to the electricity industry: generation, transmission and distribution. Together, they
form an important part of the backbone of a modern economy. Without adequate investment and a reliable supply
of electricity, an economy is unable to function efficiently, economic growth targets are difficult to achieve, outages
and blackouts are common, and it is difficult to attract FDI to help create employment and advance industrial
development. The provision of electricity has a public good element in that it helps reduce poverty, and improves
quality of life.
The electricity industry is technology and innovation intensive. Technological change, especially in
electricity generation, is affected by social considerations, such as national and international concerns over climate
change and environmental conservation. The use of environmentally friendly and clean technology, (e.g. hydropower
plants) and renewable energy (e.g. wind and wave power) are expected to see continued growth.
In some segments of the electricity industry, economic and technical characteristics make it possible to
introduce competition; in other segments they do not. For example, electricity generation, if separated (unbundled)
from transmission and distribution, can involve a number of independent and competing providers, and hence can
be structured as a competitive business.
Transmission networks, in contrast, are a classic natural monopoly, as it is
not economical to build parallel networks to transmit the same energy, which is why most countries have only a
single entity owning and operating them.a At the end of the supply chain, electricity distribution can also be made
competitive, although that may be constrained by the fact that distribution requires a physical network, which is a
natural monopoly. Therefore, while wholesale distribution can usually be a competitive business, retail services can
be made so only if regulations allow companies not affiliated with the transmission company access to a network's
"final mile", which connects electrical substations with businesses and residences.
Source: UNCTAD.
An especially large country might have multiple transmission operators, but even in this case each operator will have a monopoly
within its own (typically large) geographic region.
Box III.2. Main features of telecommunications infrastructure.
Within telecommunications infrastructure, fixed line telephony, mobile telephony, and transmission of digital data
are the most important segments. They differ from each other in terms of their technology, how services are delivered,
and in some of the specific services they offer to consumers. Investment in telecommunications infrastructure
networks help firms in other industries improve and expand their production capacities (Madden, 2008). Given the
growing role of telecommunications in development, access for all persons and societies to good telecommunication
infrastructures is increasingly regarded as important.
Telecommunications can be considered a public good in the
sense that every member of society can benefit from them, and they can be used by additional consumers without
generally risking depletion, although they are not provided free and users contribute to their cost.
Since all telecommunications are based on networks, it is important that different modes and technologies
of communication are able to connect to each other. In this respect, there has been significant progress, although
newer segments such as mobile telephony are less dependent on physical infrastructure than traditional fixed line
telephony, which requires greater investment for wired installations.
Technological change has led to increased competition and contestability in the industry, especially because
of the rise of mobile telephony. Technological progress has reduced the cost of physical infrastructure, allowed
the establishment of parallel mobile telecommunications networks and eliminated dependence on monopolies that
control fixed lines. As a result, a large number of new, competing enterprises have emerged. Established firms have
had to respond to this challenge by innovating quickly, and by moving into new segments. Introducing competition
has been easier in mobile and Internet telecommunications than in traditional fixed line telephony (ITU, 2007b).
The sector continues to innovate rapidly, with implications for services. For example, digitization allows
any type of information to be transmitted over one network: voice, data and video. This is pushing the transition
to so called next generation networks, which are essentially built around Internet protocol (IP) technology and are
accelerating the convergence between fixed line and mobile telephony.
Source: UNCTAD.