INTERNATIONAL TELECOMMUNICATION UNION

THE ROLE OF TELECOMMUNICATIONS IN GLOBALIZATION AND REGIONAL INTEGRATION
Dr Pekka Tarjanne
Secretary-General, International Telecommunication Union
Keynote Address, Fourth International Seminar on New Technologies and Telecommunications Services, SEMINT 97, Foz do Iguaçu, Paraná, Brazil, 7 October 1997

Your Excellencies,
Ladies and Gentlemen,
It gives me great pleasure to be with you today to give this Keynote Address to the fourth meeting of SEMINT. SEMINT has rapidly become an important gathering of the telecommunications community for both Brazil and Latin America and I am delighted to be to be able to participate in what, I am sure, will prove to be a most stimulating conference.
One of the main goals of SEMINT 97 is to analyse the globalization process and the influence of telecommunications in the relationships between, and integration of, regional economic blocs. The Global Information Infrastructure and the Global Information Society are also high on the agenda of this meeting.  These topics will form the basis for my remarks today.
Telecommunications in transition
We all know that the telecommunications sector is undergoing a profound transformation throughout the world.  Telecommunications is recognized as a key driver of national development and it is now accepted that a robust communications infrastructure is fundamental to economic development. A modern and efficient telecommunications system is, therefore, a high priority, for both developed and developing economies.
The policy issues and options faced by governments in modernizing their telecommunications sectors are fairly universal, although the relative importance of the issues and the strategies chosen to implement solutions are highly specific to both countries and regions.  Having said that, the telecommunications reforms which we have seen across the world in the past fifteen years typically involve change in the following four directions: commercializing operations; increasing private sector participation; introducing, competition; and developing regulatory frameworks.
We are used to hearing calls for faster and faster change, but the speed and extent of change in telecommunications throughout the world in the past decade has been staggering:
•	In Europe, the majority of the 15 Member countries of the European Union, as well as several others such as Switzerland and Norway, have committed to open their telecommunication markets to competitors by January next year. Some, such as Belgium, Denmark, Germany, Ireland, Greece, Netherlands and Portugal have introduced private sector participation into their main telecommunication operator in the past two years. Other countries did so earlier or plan to do so soon;
•	In the United States, a new Telecommunications Act was passed last year which promises to open previously closed markets in the field of local telecommunication services and video entertainment and to allow firms active in one market to cross over into others;
•	In the Asia-Pacific, market reform has continued apace with developing countries such as India, Indonesia, the Philippines and Thailand opening up their markets to foreign investment;
•	Even in Africa, which has long been the last bastion of telecommunication monopolies, countries such as Ghana, Guinea, Senegal and South Africa are leading the way by attracting strategic partners to invest in their telecommunication sectors;
•	Here in Latin America, Chile has led the way, and was quickly followed by Argentina, Mexico and Venezuela.  In the past few years all the major economies of the region have begun to embrace telecommunications reform. Brazil, the second largest telecommunications system in the developing world with more than 12 million telephone lines in service, is now embarking on major restructuring.  A regulatory agency, Anatel, is being established and a model for privatization of wireline and cellular services on a regional basis is well advanced.
The drivers of change
But what is driving these changes? Primarily it is the twin forces of technological innovation combined with market demand for better, more advanced and cheaper services. Technological advances together with increasing traffic volumes reduces the importance of economies of scale. For example, radio-based technologies are today an attractive alternative to wireline technologies.  They can be deployed quickly and for an investment cost that compares very favourably with wireline technologies in both urban and rural environments.
Two other factors lie behind the trends I have described: first, the changing production and marketing environment of the firm; and, second, the increasing importance of services and services trade in the economy.  Let me deal with the first.
All segments of the economy are becoming more competitive. It is not a phenomenon confined to telecommunications; banking, electronics, pharmaceuticals - all sectors are facing a more competitive environment and are adopting new production and marketing strategies.  Production is becoming decentralized and globalized; look at automobile manufacturing, for instance.  In order to thrive, firms must be flexible enough to respond to the different demands of their global but diverse markets and reduce the time between production and sales.
Telecommunications are vital to this new production and marketing environment.  Continuous communication and interaction between designers, manufacturing units, suppliers, sales teams, distributors and customers are essential.  For large multinational firms, that means having much better control over their networks and the flexibility to use the most appropriate mix of public and private facilities to achieve the right capacity and capabilities when they need them - all, of course, at the right price!
The ability of multinational companies and their global aspirations are hindered not only by restrictions in domestic telecommunication markets but also by differing regulatory regimes.  It is primarily for these reasons that we have seen growing pressure over the past few years for more liberal trade and regulatory regimes around the world.
Telecommunications and trade
The ITU fully supports moves towards freer trade in telecommunications. The ITU estimates that the value of global telecommunications trade in equipment and services exceeded US$ 100 billion during 1996. As I have already noted, because telecommunications plays an important role for other industries; information, and the facilities for accessing, processing, and disseminating it in electronic form, have become a strategic resource as important as land, labour and capital. It is this dual role of telecommunications, as both a traded product and service and as a facilitator of trade in other products and services, which defines its importance. 
The benefits of freer trade and more open markets are clear: lower prices and more choice for consumers, new market opportunities for suppliers and investors, and higher rates of economic growth. One way of measuring the benefits of free trade is to compare the performance of those countries that permit competition and foreign investment with those that do not.  Evidence shows that competitive developing economies are indeed faring better than their non-competitive neighbours. ITU research shows that those emerging economies that have introduced some measure of competition at the national level are now reaping the benefits in terms of higher rates of growth in international traffic.  International traffic in competitive emerging markets has been growing by 12 per cent per year since 1990 compared with just 5 per cent per year in non-competitive markets.  Indeed, growth in emerging economies is much more striking than in developed countries which have introduced competition.  This suggests that the potential benefits of trade liberalization might actually be greater for emerging markets than for developed ones.
There is no doubt that this realization contributed to the success of talks within the World Trade Organization (WTO).  In February this year, the Group on Basic Telecommunications (GBT), under the auspices of the WTO, completed negotiations on the world’s first multilateral deal liberalizing international trade in basic telecommunications services.  The agreement was the culmination of three years of painstaking work and will provide further impetus to the market reforms I have described.
Of course, the GBT deal does not require immediate, total liberalization of all market segments everywhere in the world. Nevertheless 69 countries, accounting for 94 per cent of the global market for telecommunication services, undertook important liberalization obligations under a coherent multilateral framework.  In many cases these commitments represent significant departures that should expand competition beyond previous liberalization programs.  Failure to implement the commitments could result in contentious consultations with trade partners and, if these fail, binding dispute resolution.  Moreover, they cannot easily be withdrawn or modified, and there will be strong pressures to extend their scope in future rounds of trade talks.
Some 61 of the 69 governments which signed the GATS agreement on basic telecommunication services attached to their specific commitments all or part of a Reference Paper on regulatory principles. It outlines a regulatory framework which ensures that service suppliers can compete on equal, non-discriminatory terms once they enter a market for which a commitment has been made. The Reference Paper deals with six principles of competition:
1.	Competitive safeguards to ensure that dominant suppliers do not engage in anti-competitive cross-subsidization, not use information in an anti-competitive manner, and not withhold essential technical and commercial information.
2.	Interconnection to ensure that competing service suppliers can interconnect with the dominant operator under non-discriminatory terms and conditions, at the same cost-oriented and unbundled rates that the dominant operator charges itself at any technically feasible point. Interconnection procedures, agreements and rates should be publicly available and there should be a mechanism to settle disputes arising from interconnection negotiations.
3.	Universal service obligations should be administered in a transparent, non-discriminatory and competitively neutral manner and not be over-burdensome.
4.	Licensing criteria should be transparent. The terms, conditions, and time required to gain a licence should be publicly available. The reasons for the denial of a licence should be made known to the applicant.
5.	Regulators should be independent of any supplier of basic telecommunication services.
6.	The allocation and use of scarce resources should be based on procedures which are objective, timely, transparent, and non-discriminatory.
Impact of the GBT deal
Most of the nations that signed up to the GBT agreement did so because they expect significant gains  These include increased efficiency, availability of a wider range of services and improved quality, greater opportunities for the rapid introduction of new services and technologies, and most importantly lower costs for the end user.  All of this translates into benefits for the economy as a whole.  The GBT is widely expected to boost growth in the global telecommunication market, which the ITU forecasts will exceed one trillion dollars in 1998.
In spite of the likely positive outcomes of the GBT deal, some participants fear that their commitments under the WTO framework will have a downside. These concerns include the possibility of a decline in telecommunication revenue, an infringement of national sovereignty and loss of control over basic telecommunication infrastructure. Some also fear that their own telecommunication operators will not be able to benefit from the market access commitments resulting from the agreement, while at the same time having to face harsh competition domestically. 
It is likely that a commitment to liberalize in the context of the WTO will have an impact on the revenue stream of most incumbent national operators - undoubtedly there will be winners and losers. But the real winners will be telecommunication users.  Telecommunication liberalization around the world, with or without a WTO telecommunication agreement, will place immense pressure on monopoly-determined pricing of telecommunication services and on the international accounting rate system. On the other hand, with the market set to grow, the opportunities to increase revenue will also be great.  I will return to the issue of accounting rates in a moment.
Something similar can be said for the concerns about infringement of national sovereignty. Under the terms of the GATS, participating governments will have to give up future arbitrary and discretionary decisions over areas committed during the negotiations. That is, they will not be able to “backslide” on their market access or regulatory commitments. Governments, however, retain full sovereignty over the extent and scheduling of their commitments. In fact, the GATS is structured to allow for the primacy of governments’ decisions on the pace of liberalization. Participants can commit to different levels of market opening, depending on the stage of development of their telecommunication sector, their current state of sectoral reform, and the government’s assessment of its national interests. Therefore, not all WTO Members are expected to adopt the same level of market access at the same time. 
Similarly, the agreement leaves governments a great deal of latitude with respect to the types of regulatory regimes they will apply. The Reference Paper I mentioned earlier allows governments to design their own licensing policies, procedures and requirements affecting this and other sectors. In fact, even among the most liberalized telecommunication regimes there are and will remain, after basic telecommunication commitments enter into force, substantial differences in the regulatory structures of different countries. Some liberal regimes will apply much more light-handed regulation of telecommunication service providers than others, and the way competitive safeguards are drafted into law or implemented will depend upon each country’s competition regime.
Some have argued that the GBT agreement is really not that significant, that the changes in market conditions were coming about anyway.  Moreover, the spread of de facto competition in international telecommunication services - for instance from call-back, calling cards or other types of call-turnaround - means that no market is truly “closed” any longer.  To some extent this is true, but it misses the real importance of the agreement. 
From a bilateral to a multilateral trade framework
The GBT agreement highlights the fact that telecommunications trade is now a multilateral not a bilateral affair. It represents a significant deepening of the institutional reorganization of telecommunications governance.  At both the national and multilateral levels, governments will have to redefine their policy mechanisms and conceptual frameworks in ways that are more significant than the immediate market access concessions.  Take the issue of accounting rates, for instance.
The system of bilateral, correspondent agreements between operators to establish accounting rates for the joint-provision of service, which has served the telecommunications industry well, is coming under increasing pressure.  That pressure is mainly being applied by operators in those countries which make large net outpayments.  Settlement payments have become unbalanced for a variety of reasons, including the different pace of market liberalization and network modernization, as well as fluctuations in exchange rates.  However, the main reason is due to distortions in traffic flows.  It is understandable that the US government, for instance, should want change since the US settlement payment deficit reached US$5.4 billion in 1996. 
On the other hand, it could be said that US companies are largely responsible for engineering this deficit because of their pioneering use of calling cards, country direct services and callback services. In each of these cases, the traffic looks as if it is originating in the United States whereas it is actually originating in the partner country.  Seen in this perspective, the US deficit in settlement payments is at least to some extent offset by the influx of revenues to callback and other “alternative calling procedure” operators.
The good news is that accounting rates are coming down. Since 1990, average accounting rates have fallen by some 9 per cent per year with particularly dramatic falls in relations between the US and with Western European countries (19 per cent per year). Over the same period, average international telephone charges have fallen by just 3 per cent per year. 
Nevertheless, it is clear that the system must change, primarily because it is inefficient and acts as a brake on price reductions.  More fundamentally, a bilateral system of agreements is no longer appropriate in a world based on many-to-many rather than one-to-one relationships.  In such a world, multilateral agreement is essential.
Reducing accounting rates will go a long way towards reform.  But it is necessary to go further than this and to look for alternatives which provide genuine incentives for price-cutting is likely to be a more fruitful approach.  A number of alternative revenue-division mechanisms already exist - such as call termination charges, facilities-based interconnection payments, and sender keeps all.
The ITU is, of course, working hard for reform.  Our efforts are now focussed on the second World Telecommunication Policy Forum, to be held in March 1998, which will provide a focus for reform.  And you can be sure that we will continue to work with our Members, the FCC, the WTO and others in search of consensus. 
Ladies and gentlemen, as I have acknowledged, the telecommunications sector is undergoing a transition from a global trading system for telecommunication services based on bilateral arrangements to one which is multilateral in nature. The ITU is fully supportive of this process as it can provide great benefits in terms of infrastructure construction and the development of information processing industries.  We intend to do our part in supporting the creation of a multilateral framework for trade in telecommunication services, and open competitive markets.
There are several ways the ITU can help do this.  As the Telecommunications Annex to the GATS agreement recognizes, global standards are essential to the efficient, non-discriminatory operation of global markets, and the ITU has a vital role to play in developing these standards.  The development of global markets will also be facilitated, particularly in the area of satellite services, if there are global allocations of spectrum to particular services.  The whole question of how countries manage spectrum and other scarce communications resources is a very important element of trade liberalization and the prevention of discrimination between domestic and foreign suppliers.  
We are conscious that many of the ITU’s 188 Member States are not members of the World Trade Organization. Developing countries - including those who did not take part in the GBT - need to understand the benefits that trade in telecommunications can bring, and the measures necessary to protect their national interest.  The ITU Development Sector has a role to play in providing this information and in helping governments to use the process of progressive liberalization under the GATS to strengthen telecommunications reforms in their countries. Furthermore, none of the ITU’s 400 or so Sector Members—private network operators, equipment manufacturers and the like—are represented directly in the WTO. Consequently, the ITU can act as a bridge between the WTO and the wider telecommunications community.
We will endeavour to respond positively to requests for assistance from countries in interpreting the significance of the WTO agreement and in implementing the commitments that governments may have made as part of the agreement. In the areas in which ITU has competence, for instance accounting rates, we will continue to push for a framework which is non-discriminatory, cost-based, transparent and consistent with the principle of voluntary multilateralism. 
Global and regional integration
Ladies and gentlemen, I have spent some time describing the forces behind the trend towards globalization.  But there is another tendency, equally potent, which is certain to continue - the trend towards regional integration.  I have already remarked on the fact that while everyone faces similar problems, different countries and regions have different traditions and priorities, and find their own solutions.  But, just as there is a common purpose in nations coming together to establish and work within ‘global’ organizations such as the ITU or the WTO, there is also a need for neighbouring countries to cooperate in regional organizations such as the MercoSur trading bloc, the European Union, NAFTA, ASEAN and so on. 
The European Union, for instance, has been instrumental in bringing about a more liberalized telecommunications market throughout Western Europe, while understanding that some countries may not be able to proceed as rapidly as some others. The EU has also taken a strong lead in representing European interests in global fora such as the ITU and WTO and demonstrates how effective good regional organizations can be.
Sometimes I hear it said that there is a conflict between globalization and regionalization:  on the one hand, globalization is resulting from increased competition and a telecommunications services industry pressing for global interconnection and interoperability; on the other hand, regional integration is characterized more by a traditional spirit of cooperation between countries. And there is no doubt that this tension was evident during the WTO negotiations and in the occasional trade disputes that have broken out.
However, I prefer to view globalization and regionalization as two dimensions of the same desire for integration, as necessary as the integration of individuals in villages and cities and the integration of people of all races and backgrounds into nations.  Telecommunications has an important integrating role to play at all these levels.   And the growth of telecommunications traffic within the regions will surely promote the growth in global trade.
Strengthening regional capabilities, therefore, is a high priority for the ITU.  Following a resolution at the 1994 Kyoto Plenipotentiary Conference, the ITU is developing stronger relations with regional telecommunication organizations (RTOs), such as the Inter-American Telecommunications Commission (CITEL).  We have been greatly encouraged by the response of the RTOs and we anticipate greater coordination and cooperation between the ITU and such regional organizations.  
In working more closely with RTOs, it is also important for the ITU to have a regional presence.  It also assists the ITU in meeting our development objectives in the regions.  Our regional office in Brasilia is one of the most active, and we have signed contracts with governments to assist with regulatory reform in Brazil, Columbia and Ecudaor.  Our programme for capacity building in Latin America, also includes, for instance, the publication of the Americas Blue Book, and the Americas Telecom conference and exhibition.
Building the GII
Ladies and gentlemen, it is now more than three years since US Vice-President Gore proposed, at the ITU World Telecommunication Development Conference in Buenos Aires, that the nations of the world should cooperate in building what he called a “Global Information Infrastructure”, or GII. Since then dozens of national initiatives have been announced around the world, and the GII has been the subject of ministerial meetings and numerous other conferences.  Not surprisingly, different countries and regions place different emphases on what they see as the goals of the GII and how it should be realized.  
In my opinion, there is no magic solution to building the GII and most surely it will evolve out of existing technologies and services, just as communications has always done.  But, if we wish to ensure that the benefits of the GII are available globally, to the poorest countries and people in the world as well as to the richest, as I firmly believe, then clearly a multilateral approach is essential to integrate all the parts into a coherent whole.  That includes making sure that, as the telecommunications industry becomes more competitive, we remember that we need to continue to work together in the spirit of cooperation.