INTERNATIONAL TELECOMMUNICATION 
UNION
 



TRADE IN TELECOMMUNICATIONS
TOWARDS A NEW WORLD OF TELECOMMUNICATIONS DEVELOPMENT

Keynote address by
Dr. Pekka Tarjanne, Secretary-General, International 
Telecommunication Union

Tenth Anniversary and Eleventh Annual Conference and Trade 
Exhibition
Caribbean Association of National Telecommunications 
Organizations (CANTO)
5th June 1995, Nassau, the Bahamas


Mr Chairman,
Honourable Minister,
Distinguished Delegates,
Ladies and Gentleman,

It is a great honour for me to have been asked to give the 
Keynote Address to the Tenth Anniversary of  CANTO’s annual 
conference, and to speak to this distinguished audience about 
such an important theme as telecommunications, trade and 
development. In preparing this speech, I was reminded of 
another ‘anniversary’.  A little over 500 years ago, 
Christopher Columbus’ discovery of the New World, reputedly not 
far from the site of this conference, opened up a new era of 
trade between Europe, the Americas and ultimately the rest of 
the world.  The impact on the peoples of the Old World and the 
New World was immense, and not all to the good.  Vast sources 
of new wealth were discovered; new forms of economic, social 
and political organization were invented; and new ideas and new 
forms of cultural expression were created.  At the same time, a 
high price was paid.  Cultures were destroyed; people were 
annihilated, dislocated and cast into slavery; and ancient 
wisdom was lost.
Today, the world is on the brink of an equally profound and 
challenging transformation.  The world order built up over the 
past few centuries on the foundation of autonomous nation 
states is being transformed, in all its dimensions.  In large 
part this is due to telecommunications.  Telecommunications has 
made it possible to develop global markets for goods, services, 
money and information.  The rise of the global information 
economy has in turn transformed human life, nationally, 
regionally, locally, and within the family.  Today, everything 
is changing because of telecommunications - be it the nature of 
work, relationships with people, media, messages, and patterns 
of political life. 
As was the case 500 years ago, there are many beneficial 
aspects to these changes. New wealth with the potential to be 
shared among the many; new forms of economic, social, and 
political organization; and new ideas and new forms of cultural 
expression.  But there are reasons for concern as well.  The 
global information economy must not fall into the traps of the 
‘Colonial’ era.  It is incumbent upon us all to prevent the new 
media from: destroying traditional cultures by preserving 
diversity; enslaving the weakest members of our society by 
narrowing the gap between the information ‘haves’ and ‘have 
nots’
The tenth anniversary of this conference prompted me to 
question whether things have really changed in the past ten 
years, or whether the information revolution we hear so much 
about is merely an illusion.  Of course, everyone talks about a 
rapidly changing world, but are our lives any different?  It 
would not surprise me to learn that the keynote speaker at your 
first conference spoke about the changing nature of  
telecommunications, an increasingly interdependent world 
market, and deregulation.  They may even have spoken of the 
growing emphasis of the role of services in the economy and the 
implications of transborder data flows.  If we substitute the 
latest buzzwords, it is sometimes easy to think that things 
haven’t changed that much.
But, I urge you to look beyond the buzzwords, and think again.  
Make no mistake - a revolution is taking place before our very 
eyes.  It is, of course, a complex, multi-faceted and dynamic 
revolution rather than a single momentous event.  Yes, it has 
to do with technology. Yes, it has to do with market forces.  
But, perhaps, most important of all, it has to do with 
attitudes.
Ten years ago we may have talked about the impacts of new 
technology - now we are really experiencing them.  The 
convergence of telecommunications and computing which was just 
being talked about then is now really affecting almost everyone 
in their daily lives.  As for businesses around the world, 
these new technologies are bringing about fundamental 
restructuring and dramatic change in the organization of work 
in both the developed and developing countries. 
A decade ago, new technologies and market forces were causing 
governments in the USA, UK, Japan to rethink the role of the 
state. The need to control public spending, and the seeming 
inability of state-controlled industries to innovate and 
respond to the needs of the marketplace prompted a wave of 
privatization and the introduction of competition in 
traditional state-controlled industries.  Now, those forces are 
apparent throughout the world.
The revolution in attitudes, is to my mind, the most 
fundamental of all, and it can best be characterized by the 
term ‘empowerment’.  Communication and information have enabled 
peoples around the world to compare and contrast their 
situations as never before. People expect more and more and it 
is becoming harder to deny them.  Who would have foreseen the 
abrupt collapse of the Berlin Wall ten years ago?  Similarly, 
customers, domestic or business, now expect suppliers of goods 
and services to respond to their needs.  And if customers are 
unable to get what they want, they want other providers to be 
allowed to supply them instead. 
The revolution in technology, markets and attitudes, fueled by 
greater awareness brought about by communication, is rapidly 
bringing into reality the global economy which has been talked 
about for so long. 
Globalization
Globalization is a term which is often used but rarely defined. 
At its most simple level, globalization means that activities 
which were once carried out locally are now undertaken at a 
global level. Thus the drivers of globalization are those 
factors which facilitate this process such as international 
trade, tourism, air travel and international 
telecommunications. Of these globalization drivers, it is the 
latter which has shown the most consistent growth over the past 
decade. There are now some 640 million telephone lines 
worldwide and an even greater number of users. They carry some 
47 billion minutes of international telephone traffic per year. 
The international telecommunications network is more than one 
hundred years old, but it is still growing at an astonishing 
rate.  During 1993, two regions -- Asia-Pacific and Latin 
America -- both sustained a network growth rate of more than 10 
per cent.   These two regions have embraced the new trends in 
telecommunications towards market liberalization, competition 
and private sector participation in the 1990s at a much faster 
rate than North America and Western Europe did in the 1980s.  
It is from these regions that the innovations which are shaping 
the evolution of the industry have come, such as infrastructure 
franchises, spectrum auctions or employee ownership of 
operators. It is these regions that are providing the engine of 
global economic growth in which telecommunications is playing a 
major part.
As part of this transformation process, the nature of 
telecommunications is also changing.  For a century and a half, 
telecommunications services were primarily provided on a 
national basis; international telecommunications were provided 
through correspondent relations between national entities; and 
the different segments of what we now call ‘the information 
industries’ were distinct.  As the world around it changes, so 
is the ‘old world’ of telecommunications, and new pressures are 
being experienced by the traditional suppliers of 
telecommunications.
New pressures
While Public Telecommunications Operators across the world find 
themselves at different stages of development, both in terms of 
the range of services they are able to offer and the percentage 
of the population served which is able to access those 
services, all face similar pressures and ultimately the same 
dilemma:
*	First, PTOs face growing pressures from regulators and 
competitors to bring their tariff structures closer into line 
with the actual costs of providing the service. The trend 
towards rebalancing tariffs and eliminating cross-subsidies 
between profitable and loss-making services which is evident in 
the OECD countries is certain to continue and be repeated 
throughout the world.
*	Second, the long-term marginal unit costs of 
telecommunications switching and transmission are tending 
towards zero as new capacity becomes available and as new 
techniques enable higher functionality to be squeezed out of 
existing capacity.
With prices moving towards costs and costs tending towards 
zero, the PTOs face a major dilemma: where will their future 
revenue streams come from?
In the past, it has been possible to regulate supply and demand 
so that the prices of the products and services on offer remain 
at a level which is sufficient to sustain profits.  In 
industries with a relatively small number of players and high 
barriers to entry, e.g. the car industry,  it is possible to do 
this by closing older or inefficient factories and by offering 
new products with a higher value-added. Traditionally it was 
possible to do this in the telecommunications industry too.  
But now supply-side management techniques are breaking down:
 	Many countries are abandoning monopolistic supply structures 
and are licensing new infrastructure providers. Such new 
market entrants have little interest in amortizing existing 
network capacity given that new network capacity can be 
constructed, owned and operated at a fraction of the price 
charged by the PTOs.
 	Even where infrastructure monopolies still prevail, service 
monopolies are breaking down, especially in the area of 
capacity resale. The growth of the Internet and the spread 
of callback services provide evidence for this. Where a 
monopolistic operator in one country charges too high a 
price for network capacity, it is often possible to bypass 
that country by hubbing traffic via a third country.
 	As regulatory barriers to entry fall, so too do technical 
and financial barriers. It is possible to set up in business 
as a callback service provider with the purchase of a 
computer workstation, some routing software and the rental 
of a few lines. Such new market entrants exploit the fact 
that most PTOs still have tariff structures which are far 
from being cost-based.
 	International transmission capacity -- both via satellite 
and via cable -- has traditionally been supplied by 
consortia of operators who have given themselves a double 
mark-up, firstly as capacity owners and secondly as capacity 
purchasers and providers. This double mark-up system has 
maintained capacity prices at a relatively high level to 
end-users. But now providers of international capacity are 
increasingly becoming direct sellers of capacity. It remains 
to be seen whether traditional practices of leaving capacity 
unutilised (so-called dark fibre or back-up satellite 
transponders) will continue once infrastructure providers 
begin to cut out service providers and sell direct to end-
users.
The declining ability of operators to manage supply is 
coinciding with slower than expected growth in demand, at least 
for basic telecommunications services which still provide more 
than 80 per cent of the revenues of the main PTOs. Evidence for 
this can be seen in the slowing down of the rate of growth of 
international telephone traffic which, after averaging more 
than 15 per cent per year growth throughout the 1980s, has now 
declined every year since 1990. Of course, growth in traffic as 
a whole is not slowing down.  Rather, the percentage of it 
travelling over the public switched network is falling as 
traffic is diverted onto private networks or onto the Internet 
where tariff structures are less daunting to major traffic 
generators. 
The problem of slower growth is a characteristic primarily of 
the developed countries and has not yet afflicted the 
developing world. But consider the plight of the US telcos. 
Since 1989, US telecommunication revenue has remained 
relatively constant in real terms and the average level of 
spending per subscriber has fallen by more than 4 per cent per 
year.
The rise of the information economy
If demand for the carriage of basic telecommunication services 
is now slowing down, where are the new demand drivers for the 
information age? There is a clue in the fact that, while 
spending on telecommunication services has been declining, 
spending on cable TV services continues to grow. The main 
reason for the success of the cable TV industry seems to be the 
fact that they are selling "content" rather than "carriage". 
The PTOs are also, for the most part, missing out on the major 
growth phenomenon of the 1990s, namely Internet-based 
information services. The Internet today has something between 
20 and 30 million users and has averaged growth rates over the 
last decade of more than 100 per cent per year. No less 
impressive has been the growth in traffic of WorldWideWeb (WWW) 
services, which began at  the European Centre for Nuclear 
Research (CERN) in Geneva as recently as 1992. The Internet 
Society forecasts that by the end of 1996, WWW traffic will 
exceed global telephone traffic worldwide, at least in terms of 
volume of data transmitted. It is not often that an innovation 
doubles the size of a mature market within the space of five 
years, and it is curious that the traditional PTOs have done so 
little to promote it. 
The development of the WWW is part of a bigger success story, 
namely the rise of the information economy. The information 
sector, broadly defined, has out-performed growth in the rest 
of the economy as measured in terms of  GDP growth. It also 
appears to have been relatively immune from economic cycles. In 
1991, when world-wide economic growth contracted 3 per cent, 
the information-communication sector grew 6 per cent. The share 
of this sector in the world economy rose from 5 per cent in 
1990 to 5.6 per cent in 1993. While the information-
communication sector is an important industry in its own right, 
of far more significance is the use and production of 
information by non-information companies. One estimate puts 
this at about 45 per cent of the US economy.
Thus, the changing world of telecommunications and the 
pressures on public telecommunications operators are bringing 
about two major trends. First, the creation of an information 
economy in which different media are competing to serve the 
interests of their major clients, be they businesses or 
residential subscribers.  Second, at the same time the 
globalization of  economic activities is causing the creation 
of regional and international trade agreements, in which 
telecommunications is increasingly being seen as a traded 
service.
Telecommunications as a traded service
What does it mean to say that telecommunications is a traded 
service?  
In the ‘old world’, telecommunications trade was a term usually 
applied to the imports and exports of telecommunications 
equipment: exchanges, transmission equipment, terminals and the 
like.  In the ‘new world’ trade principles will apply to a much 
wider range of activities including foreign investment in 
telecommunications operations; interconnection of private lines 
with public networks; use of mobile terminals when "roaming" in 
other countries; the provision of consulting services; and, the 
direct provision of telecommunications services from the 
territory of another country.  
With the rapid and widespread expansion of computing and 
telecommunications, and a more commercial orientation of 
telecommunications administrations and other operating 
companies has come increasing demand from business associations 
and developed countries that telecommunications be considered 
as a fully traded sector.  Trade economists have argued that 
telecommunications has a vital dual role as both provider and 
facilitator of services trade. Some in the telecommunications 
community are wary of these developments as they believe they 
may weaken sovereignty authority and change the paradigm of co-
operation on which the international telecommunications system 
is based.  Proponents of bringing telecommunications under a 
trade regime, however, contend that this is simply a reflection 
of reality.  Telecommunications is the backbone of world trade 
- in goods and services - and it is argued that this must be 
recognized in international economic relations.
Telecommunications services trade is a main feature of the 
European Union’s single telecommunications market programme, a 
prominent section of the North-American Free Trade Agreement 
(NAFTA), and the subject of a number of bilateral IVAN 
agreements.  The Uruguay Round trade in services negotiations 
also directed considerable attention to the telecommunications 
sector.  The result has been to further validate the concept of 
telecommunications as a fully traded sector. Now the 
tradability of telecommunications services is widely accepted, 
although perhaps more by trade economists than national 
administrations.
Nevertheless, there are still a number of dimensions which have 
yet to be fully explored.  For example, under the General 
Agreement on Trade in Services (GATS) which was part of the 
Final Acts of the GATT Uruguay Round, emphasis was placed on 
the role telecommunications plays in facilitating trade in 
other services, such as financial services or travel.  In the 
negotiations currently underway in the new World Trade 
Organization (WTO) on the other hand, the focus is on trade in 
basic telecommunications service itself.
But whatever the particular emphasis, these and other related 
developments all point in the same general direction. Instead 
of seeing international telecommunications principally as a 
public service to be provided by national entities on the basis 
of agreements between sovereign governments, in this ‘new 
world’ telecommunications is increasingly seen as a commercial 
service which may be provided on a competitive basis by 
domestic or foreign suppliers, whether public or private, under 
conditions established by the host government.
Opportunities
This new world of telecommunications challenges the ITU and its 
Members to adjust their time-honoured practices to fit the 
needs of the emerging global information society.  If we are 
prepared to rethink traditional strategies for global 
telecommunications development, this new world of 
telecommunications presents tantalizing opportunities, 
particularly for developing countries.  Those opportunities 
include increased inward investment, economic growth and 
employment creation as well as widening access to 
telecommunications service amongst the population. 
The link between the development of telecommunications and the 
development of the broader economy is well-established. It can 
be seen, for instance, in the correlation between teledensity 
and wealth. There is also a correlation between the level of 
international traffic and wealth, though this is not nearly so 
strong as for teledensity.
What the relationship between traffic and wealth implies is 
that, the wealthier a person or country the more likely they 
are to make international telephone calls.  For the majority of 
countries, the general rule holds that, an increase of GDP per 
capita of US$ 1'000 will generate around six minutes of extra 
traffic per inhabitant per year. This may not seem much, but 
for a country of 50 million which charges around US$ 1.50 per 
minute for international calls, this would imply an extra 
US$ 467 million revenue for the PTO.
The extra revenue generated by international calls should, in 
turn, add to the level of wealth in the country, thus 
generating a positive feedback cycle. The multiplier effect 
also works in less direct ways: for instance, international 
traffic implies the flow of information upon which an 
increasing share of economic activities are built. In some 
cases, the actual traffic may itself be a form of "wealth" (for 
instance, the sale of value-added network services via 
telephone lines, or  automatic funds transfer in banking 
networks such as the SWIFT network), though more often than not 
this type of traffic would travel over secure, private networks 
and therefore would not show up in official statistics for 
public telephone traffic.  An example of this type of traffic 
within the Caribbean is the bookings and reservations system of 
American Airlines which is located offshore to make use of 
lower labour costs in the Caribbean.
As noted earlier, it is clear that the causal relationship 
between trade and traffic operates in both directions: traffic 
generates economic development and economic growth generates 
extra traffic.  For this reason, it would be simplistic to 
assert that stimulating traffic growth is an answer to problems 
of stagnant economies.  Nevertheless, it is clear that the 
provision of new capacity in international telecommunications 
is associated with the development of closer economic links.  
So it seems that, even though telecommunication may not be a 
sufficient condition in itself for stimulating growth, it is 
certainly a necessary precondition.  
For the countries of the Caribbean, this message is doubly 
applicable because island economies have always been dependent 
on communications with the outside world, both the transport of 
goods and people and the transport of information.  However, in 
establishing these links between countries, it is important 
that they do not become the basis of relationships of economic 
dependency.  For this reason, communications facilities 
established between the countries of the region must be 
developed at a similar rate to those developed between the 
region and the economic superpowers.  In that way, 
telecommunications can assist us to achieve sustainable and 
balanced economic development.
Threats
While the new world of telecommunications offers opportunities, 
it also brings significant threats.  Here I am particularly 
thinking of the threat to the system of international 
accounting rates and settlement payments. Normally, the benefit 
gained by a national economy from imports is relatively 
indirect and marginal.  However, in the case of 
telecommunications services, imports (that is, incoming 
international calls) can have a more direct beneficial effect 
because of the system of international accounting rates and 
settlement payments.  Thus the country exporting the call pays 
a percentage of the revenue to the receiving country to pay for 
the cost of terminating the call.
Clearly the issue of settlement payments between developed and 
developing countries needs to be handled with caution. For many 
developing countries, settlement payments form a major source 
of telecommunications income which is essential for the task of 
network development.  The current approach being adopted within 
the international community -- a phased reduction of accounting 
rates -- will do little to benefit the developing countries. It 
may have the effect of boosting traffic growth, if the reduced 
accounting rates are translated into lower international 
tariffs, but it is unlikely to channel a higher percentage of 
total settlement payments towards the developing countries.  
At present, those areas of the world with the greatest need 
gain the least from the accounting rate process.  The whole 
continent of Africa, for instance, gains just US$ 130 million, 
less than 4 per cent of the payout from the United States and 
much less than is received by advanced countries such as 
Germany or Canada.  An alternative approach which would 
probably bring greater benefits to developing countries would 
be to move away from  the current system of bilateral 
symmetrical accounting rates in favour of an asymmetrical 
system of call termination fees whereby each country can choose 
independently what it charges incoming calls for the use of its 
network. This system of interconnection payments would make 
specific recognition of the difference in cost in providing 
networks in developing countries compared with developed 
countries.
If this  suggestion, is too radical, it is also possible that 
improvements could be made within the existing system.  The 
1994 ITU Plenipotentiary Conference, held in Kyoto, went some 
way towards reconciling the clamour for cost-based accounting 
rates with the proposal, voiced in the Missing Link, that some 
revenue from calls between developed and developing countries 
could be used to boost telecommunications infrastructure 
development in the developing countries.  Resolution 22 
acknowledged that accounting rates can be apportioned 
bilaterally on a different basis to a 50/50 split where the 
division favours the developing country, and that these extra 
revenues can be used for telecommunications improvement.
The need for safeguards
The progressive opening up of world markets for 
telecommunications services through the dismantling of barriers 
and the introduction of competition is vital. It should result 
in many economic gains through expanded trade in services of 
all types.  Moreover, there are considerable dangers inherent 
in a return to a more mercantilist - or colonial - attitude.  
It is nevertheless conceivable that a stagnating industrial 
economies with declining competitiveness, balance of payments 
problems, budget deficits and political pressures might lead to 
greater protectionism and increased government intervention in 
domestic markets.
The completion of the Uruguay Round Final Act and the 
establishment of the world Trade Organization is a significant 
step away from the colonial era of the past towards the global 
era of the future.  It is sometimes suggested that these 
developments will diminish the role of the ITU and make it less 
relevant.  I disagree.  It is clear to me that  in the context 
of this new multilateral trade regime, the ITU has a 
fundamental role to play because of the importance of 
international standards for global compatibility and 
interoperability of telecommunications networks and services.  
I believe the ITU’s role as a forum for agreeing on technical 
standards for defining principles on interconnection and 
revenue sharing and for ensuring universal access and universal 
service will be enhanced in the new global information economy.  
Without universal standards and universal access, there cannot 
be a truly global information economy.
As I have tried to show, for many reasons, the paradigm on 
which international telecommunications is based is shifting 
away from the traditional jointly-provided services towards a 
paradigm based on trade principles. This is a reality which the 
ITU and its Members cannot ignore.  Our challenge - as it has 
been for 130 years - is to adapt the ITU to the changing 
telecommunications environment.  We must find innovative ways 
to apply the universal principles at the heart of our 
organization, and exploit our competitive advantages. The work 
of the ITU is to provide the opportunity for those agreements 
to be made in a multilateral framework.   To this end we must 
work closely with the new World Trade Organization.
The ITU is founded on the principle of national sovereignty, 
and the practice of decision-making by One Member One Vote 
which has stood the test of time. It may seem odd that a small 
island such as the Bahamas has the same rights as continent-
sized nations such as the USA or Russia. But that is another 
aspect of the global nature of ITU of which we are justly 
proud; namely that individual nations come to the table as 
equals. And perhaps this is the key to understanding the 
globalization of markets: it is not a case of one nation or 
region invading, colonizing, infiltrating or dominating another 
-- rather it is a mutual agreement to trade and to grant market 
access on the understanding that such action will be mutually 
beneficial.
Trade in telecommunications		8

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