World Telecommunication Day 1998

May 4, 1998

Impact of WTO Pact Depends On Implementation

It aims to free trade in telecoms services.

Telecommunications is already one of the world's largest industries, despite the fact that half the world's population lacks easy access to a telephone. By 1998, it will be worth more than $1 trillion in worldwide service revenues and equipment sales. Its arrival at the top table of global industries was confirmed in February 1997, when the World Trade Organization (successor to GATT, the General Agreement on Tariffs and Trade) negotiations on basic telecoms were concluded successfully.

In an unprecedented deal, 69 countries promised to open up progressively their telecoms markets to foreign investment and competition and agreed to abide by a common set of rules to ensure fair play. The agreement came into play on Feb. 5.

Cheaper phone calls

It is hard to overstate the significance of the pact, which is a component of the General Agreement on Trade in Services (GATS) of the WTO. When it was agreed in principle, Charlene Barshefsky, then acting U.S. trade representative, said it was ''one of the most important trade agreements for the 21st century'' and claimed that it could reduce the cost of international calls by as much as 80 percent.

The telecoms deal was hailed as a major breakthrough because the countries involved account for about 92 percent of global telecoms revenues. It covers all basic telecoms services, including voice, data, fax, and radio and satellite-based services.

In the past, most countries have clung to their international operator monopolies, shunning competitors, because of their value as cash cows. Many governments were nervous about ceding control of such a strategic industry through privatization, and deregulation is often a political hot potato. Civil service employees usually object to being turned into private sector workers with fewer rights, and the opening up of competition invariably leads to job losses as telcos strive to increase productivity and lower costs. In addition, in some countries local calls are subsidized by more expensive long-distance calls.

There are convincing reasons for liberalizing telecoms. An ITU report on trade in telecommunications last year noted that in emerging markets, international traffic per subscriber grew by 11.7 percent per year from 1990 to 1995 where competition was allowed, compared with just 5.2 percent per year where there was a monopoly. The same effect, to a lesser extent, was found in developed markets.

But the true impact of the agreement will depend on its implementation. It is, inevitably, a complex deal with many parties involved, each of whose economies, telecoms infrastructures and liberalization processes are at different stages.

Stephen Young, principal consultant with London-based consultancy Ovum, says, ''It's like peeling an onion; there are many different layers, which, in varying combinations, apply to different countries or blocs of countries.''

More than 40 countries made reference to or included in their commitments the Reference Paper on Regulatory Principles, a framework document for regulating the dominant carrier in each country, obliging them to give new entrants access to the established network at nondiscriminatory prices. All new carriers rely on the established network, at least at the beginning. The paper also contained many broader principles, such as removing barriers to entry for new carriers.

Time scales for implementation as well as the degree and scope of competition to be instated vary, too.

Many of the countries involved had already committed to opening up their markets; for example, most members of the European Union opened up their markets completely to competition on Jan. 1, while the United States started deregulation in the early 1980s. Some Asian countries agreed to open up their markets as late as 2010. Naturally, over such a long time span, much can happen. What will guarantee that the agreement will be carried out?

Lee Tuthill, a counselor at the Trade in Services Division of the WTO, explains, ''If a country wishes to change its commitments - which for many countries go back to GATT - then they have to notify the WTO and give all the other parties the opportunity to renegotiate with them individually, and that could well involve all sorts of other areas of trade, not just telecoms.''

A number of countries that participated in the GATT rounds and even the WTO talks, for a variety of reasons, were not able to commit themselves in February 1997. Since then, Cyprus, Barbados and Suriname have committed themselves to the terms of the agreement, bringing the total number of countries to 72. Ms. Tuthill says at least half a dozen more are in negotiations to join. And some 30 more countries that were not involved in the original GATT/WTO talks are keen to join the negotiations on services, including telecoms.

''Lots of people think I should be moving on now because my telecoms job is done, but it's not like that,'' says Ms. Tuthill. ''No multinational agreement prior to this has ever had people volunteering to make commitments after the deal has been struck. Normally would-be signatories like to have the opportunity to trade everything against everything else during negotiating rounds.''

Despite expressing some reservations, such as the fact that Russia and China are not yet signatories to the agreement, Ovum's Stephen Young concludes, ''WTO is the closest thing we've got to global regulation for trade in telecoms, and it has real power. Its impact will be lasting.''

The greatest potential sticking point is that the issue of reforming the accounting rate system, under which revenues from international calls are shared, was deliberately left out of the WTO pact until 2000, pending the outcome of work by the International Telecommunication Union. And although the apparent log jam is showing definite signs of breaking up, there is still potential for it to form at least a significant temporary block.

Annie Turner

Click here to go to the ITU's Web site for more information on the implications of the WTO agreement on trade in basic telecommunications.