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Sovereignty and National Security

- November 23, 2009 - 1 Comment

Sovereignty and national security have always been key concerns for national governments. The need for self reliance and the avoidance of reliance on external parties are natural instincts for countries. In the early days, many developing economies adopted a policy of import substitution to avoid a dependence on foreign goods by creating domestic companies that can meet internal demands. Such initiatives also created jobs within the country to keep unemployment low. While these concerns and fears are legitimate and genuine, in today’s global economy, it does not make sense for every country to produce everything it needs, nor to have domestic companies run every industry.

For example, while steel is important for nation building, steel production is not something that very country can do or need to do. Instead, they buy what they need from whomever offers them the best value for money. Air travel is essential to international commerce, but not every country can produce their own aircrafts. Today’s main producers are Boeing and Airbus, and most airlines buy aircrafts from them. Extensive reliance on purchasing aircrafts from Boeing and Airbus has not limited the competitiveness and distinctive service level offered by globally successful airlines such as Singapore Airlines and Cathay Pacific. In the same breath, although many countries started with national carriers, not many have survived today, e.g. Swissair collapsed and the successor national airline Swiss was bought over by the German Lufthansa. Domestic production does not appear to be not a criteria for success.

What about the ICT sector?

The starting point should be the recognition that from time to time, we buy what we need, be it goods or services, and a country does not need to produce and operate everything itself on the grounds of national security. It can be more expensive to produce a product, service or solution ourselves, compared to buying it from a source that has the economy of scale and the relevant expertise. There are perhaps a handful of areas that each country has to do itself (e.g. building up the armed forces and military) –- but it should be quite clear what are some of these truly national defense type of scenario versus a commercial/economic scenario.

Specific to the telecom sector, when T-mobile first entered the US market, there were similar sentiments and concerns about whether a German company should be allowed to operate a network in the United States, especially after World War 2. However, after so many years, in the US market today, many people forget that T-mobile is a German subsidiary, and in fact in a recent consumer magazine report, it was ranked as having the best customer service among the mobile operators. Some of their customers even take it as a matter of pride that they are a T-mobile subscriber.

In recent memory, when a sovereign wealth fund through its investment acquired control of a mobile operator in another country, there were concerns raised about the former’s host government’s ability to intercept communications in the latter’s country. The reality is that if there are truly sensitive communications, e.g. military communication, where concerns of espionage and interception are real, there is always the option of using a domestic operator (and even in that situation, is one really sure that the domestic operator isn’t doing something it is not supposed to?), or even for the military to build its own private secure network as some have done. Security technology today such as encryption is so powerful and easy to use that even if the intent to intercept was present, it would be almost impossible to do so –- it is a balance of whether the cost of trying to break into that secure communication channel is worth the value that would be gained out of learning the content. Commercial foreign entities that own and operate the networks are typically separate and run distinctly from the government of the country they are from, and it is extremely unlikely for a commercial entity to spy on communications on behalf of its government – think of the commercial fallout that would happen to the commercial entity if that fact that they were spying for their governments were to ever come out. That company will probably lose all its customers the next day — hardly an acceptable risk.

A desirable environment is one that has multiple players that effectively compete against each other, and allow a consumer to choose and acquire what he needs from the player that best meets his needs and is value for money. The players differentiate and distinguish themselves to attract their customer base. Arguments of national security and sovereignty invoke an emotional defensive response that is difficult to argue against and one may even be labeled as unpatriotic in the same breath. However, such emotional arguments often show themselves to be without a strong foundation upon deeper scrutiny. True concerns about unauthorized interceptions can be quite readily addressed through technological or physical measures. The presence of a foreign operator in a country with other domestic operators brings about competitive forces that can bring prices down to a level that is more affordable for the people. The successful telecom markets we see around the world today do not have prohibitions against foreign participation. By artificially keeping foreign competition out, the domestic operators can afford to be complacent and charge higher prices, since there is no pressure on them to optimize, and no incentive to innovate or to upgrade their infrastructure and services.

In topical issues lately such as spectrum auctions, when foreign operators bid for spectrum, they have to bid at a price that makes commercial sense, so that they can run a business and generate profits. They will not bid at a price so high that they cannot obtain a decent return from the investment. They are not going to bid just to be able to intercept traffic or to hoard spectrum so that other operators cannot use the spectrum – it does not make commercial sense to do so. They will face penalties when they do not meet rollout commitments after acquiring the spectrum. A properly conducted spectrum auction will more likely see the successful bidder put in place a network that will ultimately benefit the consumer, as compared to assigning the spectrum to a domestic player to operate by default, who may take his time with the rollout and charge as high a price as the market can bear rather than a cost-effective price.

Similarly, it is counter-intuitive to restrict telecom operators to purchase and use equipment for network rollout from only domestic technology providers, whether through procurement preferences or mandating domestic standards that differ from international norms. While a handful of domestic markets may benefit from such a mandate, in the long term, the country suffers in not being able to leverage off state-of-the-art technology available from the international community that benefit from economies of scale. The pace of rollout and innovation will be limited to what the handful of domestic companies can deliver, possibly at a higher cost than global providers. Ultimately, the country will fall behind others.

The ideal end result we want to see is a group of operators who can build and run the network as efficiently as possible and have the continued incentive to innovate, be it domestic or foreign. If a foreign player and do the same task more efficiently, why would we want a less efficient player to charge consumers more and offer less?


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  1. Yes I completely agree witht he author. Self reliance & Import substitution used to be the way to protect the national interest in the international trade before the WTO regime. Still now every country would like to go to this extent despite knowing the the globalization has many advantages & you can't stop the event happening around the globe. But the political boundaries are something different & are the more serious sentimental issue. But considering the convergence of technologies, globalized way of communication & businesses, it will be a great challenge to see how we manage the military & security related issues. Bulk SMS"