INTERNATIONAL TELECOMMUNICATION UNION		

The Limits of National Sovereignty:
Issues for the Governance of International Telecommunications
Dr Pekka Tarjanne, Secretary-General, International Telecommunication Union
A Lecture to the Law School, University of California, Berkeley
28 September 1995

Mr. Chairman,
Distinguished members of the Faculty
Ladies and gentlemen,

It is a great pleasure for me to be here with you today -- at the kind invitation of my old friend, Professor Homer Angelo -- to talk about some of the main challenges facing the global telecommunications community today.
Over the past decade telecommunications has witnessed fundamental change; the underlying framework within which telecommunications has been understood and operated is being reconceived. Mindful of the fact that every beginning must also signal an end, I hope that the telecommunications community will embrace a far-sighted, clearly-structured view of a global future.
In this lecture, I would like to do three things:
•	First, I shall describe the ways in which the telecommunications world is changing and passing from what I will call the ‘ancien régime’ of public service monopoly to the ‘new paradigm’ of private competitive business.  As we shall see, these revolutionary metaphors are entirely appropriate, and in no way overstate the transition currently underway in global telecommunications.

•	Second, I will discuss five of the most important issues these changes are raising for the governance of international telecommunications.

•	Third, I will propose a set of principles which could guide the construction of a new system of governance, and look at a couple of different scenarios for how existing governance structures could be reformed, on the basis of these principles.
These fundamental changes affect us all, and the International Telecommunication Union (ITU) is no exception: it must also evolve if it is to assume a  new  role in a reshaped global information economy. It is for this reason that  I intend  to address questions of national sovereignty and international telecommunications governance primarily by  considering the continuing evolution of the ITU. 

The foundations of governance
In seeking to define goals for  the future, it is often necessary to review the goals of the past. The governance of international telecommunications has its foundations in the agreements between European telegraph administrations over 130 years ago.  Different electromagnetic telegraph systems, codes and tariffs had grown up in western Europe which threatened to stifle development. The 1865 Paris Telegraph Conference resulted in the International Telegraph Convention, which propitiously agreed to use the international Morse code, to connect important cities and to accept and deliver telegrams originating in other countries thus assuring the creation of a common European telegraph network. The ITU can trace its history back to that Paris Conference and, as such, is the world’s oldest international organization of any standing.
Since then, the telecommunications world has experienced a great many changes.  However, until about a decade ago, these changes were evolutionary in nature; the entry into a new telecommunications paradigm has, however, threatened to dissolve the bedrock into a quicksand of conflicting interests. The old telecommunications world had a relatively simple hierarchical star structure, like the networks themselves, which is beginning to wane in influence. At the national level, there were monopoly providers, usually state-owned.  As a consequence, ‘inter-national’ coordination was a matter of agreements between national entities.
Telecommunications was provided or controlled by government institutions, and was understood as relatively discrete and stable end-to-end service. Cables and facilities linking countries were jointly owned and provided. The presumption of national sovereignty over telecommunications demanded an inter-governmental organization with a classic one nation, one vote system. The ITU, grew up to mirror the structure of the telecommunications industry. 
The primary goal of the ITU has always been to oversee and ensure interconnection and interoperability of national systems on a technical and administrative basis through its standards setting activities, recommendations on tariff and accounting rate principles and, increasingly, by supporting telecommunications development.
The achievements of this ancien regime have been considerable. Over the past 130 years or so, the ITU and its Members has helped to forge the global communication system into the biggest machine the world has ever seen. There are now almost 650 million telephone lines worldwide and an even greater number of users. They carry more than 50 billion minutes of international telephone traffic per year. The great challenge for the ITU now is to oil the engines of change, and reconstruct this vast machine.
Thus,  it should be remembered that the 25 advanced industrialized democracies of the OECD still account for 70 per cent of global telephone mainlines, 80 per cent of service revenues and 90 per cent of mobile phone subscribers, even though they are home to just 16 per cent of the world’s population.  More than two-thirds of households around the world still have no telephone.  
In the past decade, however, we have begun to enter a new telecommunications paradigm. The much-discussed convergence of telecommunications broadcasting and computing is now really happening.  Businesses around the world are bringing about fundamental restructuring and dramatic change in the organization of work  both in the developed and developing countries, through the enabling power of these new technologies. Technological change alters the costs and benefits of any market structure and telecommunications is no exception. In an increasingly competitive and global economy, large corporate users have become less and less willing to accept the shortcomings of the traditional 
telecommunications set-up.  Large businesses have become increasingly influential users, and their pressure for more competition in the telecommunications system has not been ignored.
More generally, new technologies and market forces have caused governments around the world 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, has prompted a wave of privatizations and the introduction of competition in traditional state-controlled industries.
In the new telecommunications arena, many of the concepts that have been taken for granted have changed. Even the basic definition of what is ‘international’ is no longer the same. With the need for common technical and operational specifications throughout the network down to the end user, it is no longer merely a matter of  ‘interfacing’ at the borders.  And with telecommunications seen as a tradable commodity in an integrated global economy, it is not surprising that it has contributed to an erosion of sovereignty. 
The world order built up over the past few centuries on the foundation of autonomous nation states is being transformed.  This is due in large part to telecommunications, which 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  - be it the nature of work, relationships with people, media, messages, and patterns of political life.  
How is the ITU responding to the changing telecommunications environment? In December 1992, at an extraordinary Additional Plenipotentiary Conference (APP) in Geneva, the ITU was reorganized for the first time since becoming a part of the United Nations system in 1947.  As a result of this reorganization, the ITU now has three main functions - standardization, regulation and development -  and these functions are largely, although not completely, reflected in the ITU’s current organizational structure.  
Last year, and for the first time, the Kyoto Plenipotentiary Conference adopted a strategic plan for the ITU. It sets an ambitious goal ‘to establish the Union as the international focal point for all matters relating to telecommunications in the global information economy and society of the twenty-first century’.  Achieving this goal will require ITU members to re-think key elements of their current governance structure -- overall, and in each main area of activity.
Key issues for the governance of international telecommunications
With the emergence of  new technologies, and a competitive and global information economy, come new issues and challenges for the ITU.. These challenges are many, including:
•	the ramifications of telecommunications as a traded service,
•	reform of the accounting rate system, 
•	participation of the private sector, and 
•	the relationship of  the ITU to other international organizations. 
Furthermore, there are new issues raised by the advent of global systems and services, and questions surrounding the regulation of content. In this lecture I shall concentrate on what I see as the most pressing and urgent issues. 

Telecommunications as a traded service
What does it mean to say that telecommunications is a traded service?  In the old structure, telecommunications trade usually applied to the imports and exports of telecommunications equipment: exchanges, transmission equipment, terminals and so on.  With the widespread, rapid  expansion of the computing and telecommunications industries, and a more commercial orientation to  telecommunications administrations, has come an 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 a  provider and a facilitator of services trade. Some in the telecommunications community are wary of these developments, believing it may weaken national authority and thus fundamentally transform the telecommunications system.  Those advocating 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 so it is therefore 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 International Value-Added Network (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 so by trade economists than national administrations.
Nevertheless, there are still a number of concomitant aspects  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.
Reform of  the accounting rate system
The international framework for pricing international telecommunication services and sharing revenues between operators allows operators in each country to set charges for international calls it originates; with a fixed price - the accounting rate - being agreed with the operator of the receiving country. In a world of national, state-owned monopolies and ‘inter-national’ telecommunications, the system worked well, with high stability, and ease of administration.  Nevertheless, this traditional system has come under growing pressure in recent years, mainly because the prices charged often exceed the real cost of providing service by substantial margins. Country direct services, international simple resale and callback services offer customers services at prices much closer to costs. Unfortunately, these advances for the consumer are causing a regulatory and administrative headache, creating problems for operators of public international telecommunications services, and for governments of both developed and developing countries.

Pressure will undoubtedly increase as new international services which do not use the pricing and revenue sharing system grow (e.g. the Internet, cellular roaming services). Is the current system for pricing international telecommunication services and sharing revenues still appropriate? If not, what alternative approaches should be considered?  These are among the most important questions facing the ITU and its members today.
Private sector participation
Like the networks themselves, the new telecommunications world is emerging as a highly complex internetwork of heterogeneous players and non-hierarchical architectures.  It is no longer a matter of sole concern to public organizations, since almost every significant organization or enterprise is involved in this internetwork one way or another.  Consequently, the governance of telecommunications in the future will have to embrace both public and private organizations.
Although the ITU was established as an intergovernmental organization, provision was made for private sector participation as early as the ITU’s second conference in Vienna in 1868. Private members were first admitted to the Union in 1871.  Today the ITU has 184 governmental members and about 375 private members, the latter including all the major telecommunications service providers, equipment manufacturers and satellite organizations.  They also include representatives of ‘convergent’ industries such as broadcasting and computing; major user groups; financial and development institutions; and consultancies.
The role of the private sector in the ITU is perhaps the single most important strategic issue which we at the ITU have to face. If we are to remain responsive and relevant to the telecommunications industry, enhanced private sector involvement is vital. The Kyoto Plenipotentiary Conference last year recognized the importance of this and responded in two ways.  First, one resolution formally recognized the rights of the private sector which had been practically applied previously anyway, including the right to be included in the decision making process of ITU study groups.  A second resolution set up a Review Committee to recommend how the rights and obligations of the private sector could be enhanced.
Resolving differences in the rights and obligations of public versus private interests presents difficulties for any intergovernmental organization. Nevertheless, with common sense and goodwill, I believe it would be possible for ITU Member countries to find a way to distinguish between those rights and obligations and allow private sector participation where treaties are not involved.  One possible solution would be to reserve the area of the Radio Regulations for governments, but allow the private sector a full role in the standardization and development areas of the ITU’s activities.
Regulation of global systems
In the past, international satellite systems have been owned, operated and regulated by International Satellite Organizations (ISOs) such as Intelsat and Inmarsat. These organizations acted as capacity wholesalers or “carriers’ carriers”, that is, they sold services to national carriers rather than directly to end users.  Public access to satellite services was therefore licensed and regulated on a national scale.  Commercial relations between national satellite carriers was governed by the international correspondence model originally developed for wireline carriers. As a result, it was possible to reconcile the principle of national sovereignty with the global nature of satellite communications.
However, the new generation of satellite systems and services being planned (e.g. Global Mobile Personal Communications Services provided by big-LEO operators) challenges this regulatory understanding in at least six critical respects:
•	systems will be operated by private companies, which in some cases are multinational consortia, rather than by national public operators;
•	the space segment of these new systems may be licensed by national regulators, rather than by international agreement;
•	these systems aim to provide services directly to end users;
•	service access, nonetheless, might be administered on a country-by-country basis, according to local regulations which govern such matters as competition, interconnection, and the importation and use of terminal equipment;
•	customer billing and revenue sharing will be a very complex operation, given the potentially large number of operators involved in completing a call;
•	end users will expect to use the terminals needed to access these systems anywhere in the world, and, in spite of the formidable complexities mentioned previously, without being subject to local licensing controls and multiple bills in multiple currencies.
This new generation of satellite systems and services promises a treasure of significant benefits  in both developed and developing countries.  However, the complex regulatory issues which will arise may delay their deployment, and add costs which will eventually be borne by consumers. The FCC has already licensed a number of “little LEO” systems to provide mobile data services, some of which have begun operations, as well as three  “big LEO” systems (i.e. mobile voice and data). The question that needs to be addressed for the governance of international telecommunications is whether the development of these kinds of systems would be better enabled by some form of global regulation, and thus what role the ITU should assume.
Regulation of content 
In traditional telecommunications regulation, there tended to be a strict separation between the regulation of carriage and content.  Telecommunication operators were not held responsible for the content of the services carried on their facilities. In fact, as public utilities, they were typically required to provide non-discriminatory access to the carriage services they offered.  Barring exceptional circumstances, operators were usually prohibited from interfering with the content of the messages they carried, and were sometimes restricted from offering content services themselves. Regulation also protected the privacy of communications. Responsibility for illegal or undesirable content services rested with individuals or service providers making use of carriage facilities, not with the operators themselves.
There is a growing sentiment now though that the traditional separation of responsibility for carriage and content has become inappropriate.  Modern international telecommunications can access databases and other content services anywhere in the world. Given the social and cultural diversity of our global community, public authorities in any given country may consider such information illegal or socially undesirable, either for the whole population or for a part of it (e.g. children). Examples of content services that may be considered illegal or undesirable run the whole gamut of crimes against the person or the state - such as libel - or sedition - to activities that, if not always strictly illegal, are considered harmful to certain groups - such as pornography and racism - to services that are considered socially or culturally inappropriate because they flout  the accepted patterns of behaviour in a particular country.

But the desirability of regulating the content of international telecommunication services on the grounds of social harm must be balanced against the desirability of maintaining other principles, such as freedom of speech, access to information and diversity of opinion.  Even if regulation is considered desirable, a number of practical problems arise:
•	It is currently considered impossible to distinguish between bitstreams carrying socially acceptable messages and those carrying illegal or undesirable messages. The notion of ‘bitstream policemen’, even if possible, does not seem desirable.
•	Other technical approaches, e.g. blocking access to certain network addresses, will almost certainly result in higher costs.
•	If operators do agree to bear some responsibility for regulating the content of services they carry, how should this responsibility and the costs involved be divided between corresponding operators and their customers in different countries?
Towards a new governance
We are witnessing the end of the old regime of ‘inter-national’ telecommunications based on national sovereignty and correspondent relations.  As we enter the global information society, the question is: what will replace it?
Marketplace ideology which sees commercial, trade and other general schemes as a replacement for the old regime has much to commend it, and has produced spectacular results in many countries in a very short period of time.  But it has also produced some abuses, and is raising many new questions that require regulatory attention at both domestic and international levels.
In a strict sense, we are unlikely to go beyond the limits of national sovereignty in the near future. However, the global information economy, and society itself, will almost certainly require a new scheme of rights and obligations and new regulatory principles.  After all, such a scheme is needed to support the operation of free and fair markets, to govern business and social relations, both domestically and increasingly internationally.
What might these principles be? There have already been a number of attempts to map out the principles on which the global information should be founded. In proposing, at the ITU World Telecommunication Development Conference in Buenos Aires last year that the nations of the world should cooperate in building what he called  a ‘global information infrastructure’, US Vice-President Al Gore set out the following five principles: encouraging private sector investment; promoting competition; providing open access to the network for all access providers; ensuring universal service; and creating a flexible regulatory environment which stays abreast of rapid technological and market change.
In a similar vein, the G7 Halifax Summit in June 1995 endorsed eight similar principles with the added intentions of promoting equality of opportunity to the citizen, promoting diversity of content, including both cultural and linguistic diversity, and of recognizing the necessity of worldwide cooperation, with particular attention to the involvement of the less developed countries.
One of the key questions raised by these deliberations is the issue of what kind of role the state should play  in ensuring the development of the global information society. In my view, the following principles should guide its action:
	The principle of internationalism.  It is commonplace to acknowledge that the world is shrinking and that the inter-dependence of nations is growing. Policy-makers should thus strive to ensure that national initiatives are harmonized and coordinated at both the regional and international level.  The ITU has traditionally assumed responsibility  for global technical standardization, and for defining interconnection and revenue sharing  principles.  The rise of conflicting industrial policy interests in North America, Europe and Japan has made this responsibility more difficult, but no less important.
	The principle of universalism.  The development of the telephone network has been guided by the desire to achieve universal service.  This implies uniform geographical coverage, service quality and pricing, and service provision offered on a non-discriminatory basis.  It also implies a cross-subsidy between different classes of users, between urban and rural areas, and between business and residential subscribers. It will probably be necessary to develop mechanisms whereby the cost of providing network access to non-commercial or uneconomic users is shared between the different firms competing in the market. Investment in advanced networks in the industrialized nations needs to be reconciled with investment in basic networks in the developing countries.
	The principle of regulatory symmetry.  Historically there have been at least three regulatory traditions in the information industry:  publishing, common carriage and broadcasting.  In some countries, regulations have been designed to create boundaries between industries by placing constraints on cross-ownership and cross-sectoral service provision.  There may justification for retaining certain restrictions, for instance where one firm or a group of firms have a dominant market position which is restricting the development of competition.  But for the most part these regulatory barriers are now largely artificial and can be dismantled.  Thus the barriers which prevent cable TV companies and telephone operators from entering each others’ market should be reviewed, as has been proposed in the United States.  Similarly, regulators should take to ensure that mobile communications companies are able to compete with, as well as interconnect with, fixed-link operators.
	The principle of regulatory independence.  In countries where the regulator is under-resourced or inadequately funded, it is all too easy for the regulator to be captured by narrow sectoral or commercial interests.  This can happen as easily in the industrialized countries as in the developing world, and it can be done by legitimate means  -- by lobbying, by sponsoring favourable studies, by constant recourse to the courts to slow down progress -- as well as by non-legitimate means.  Regulatory capture invariably produces results which militate against the public interest, which are economically sub-optimal, and which can be narrowly protectionist.  In order to avoid this situation, it is important the regulator be properly funded.  Ironically, this probably means that the industry itself, rather than the State, should pay for the regulatory process,.  But this should be done in an open, transparent and shared way, not by hidden transactions or under-the-table dealing.
	The principle of open access.  One of the main reasons why information technology is perceived to be a freedom technology, to borrow the phrase of Ithiel de Sola Pool, is because of its history of open and non-discriminatory access to public networks.  In a democratic and pluralistic society, these values should be cherished.  In the coming era of high capacity networks, it will be possible for multiple service providers to share the same network in much the same way that multiple television channels are provided over the same cable.  In traditional telephone networks, the network and the service have been virtually indivisible.  But technological change is permitting the unbundling of the network from the services it supports.  While the virtually infinite capacity of today's fibre-based networks might make dual network provision uneconomic, it will make multiple service provision by a variety of service providers highly attractive.
I see these five principles -- internationalism, universalism, regulatory symmetry, regulatory independence and open access -- as becoming the cornerstones of a new governance structure for global telecommunications.  At the ITU, we are fortunate that our founders had the foresight to create a single body with specialist interests in both telecommunication and broadcasting.  Consequently,  the current discussion of convergence is not new to the ITU.  But the founders of the Union could never have foreseen the capacities of the modern communication network.  Nor could they have anticipated the emergence of global players and global services which raise new regulatory challenges. Regulators everywhere  should ensure that the door remains open to innovation and market-making,  without slamming it on international cooperation and universality.
But even if we can agree on the principles that should guide us, there is still a need to apply them methodically in an agreed formal governance structure.  In attempting to learn the lessons that experience has taught us I can foresee two alternative scenarios:
In the first, things will continue to evolve incrementally. Markets will continue to be opened up to transnational competition.  Once market competition begins to work effectively, however, many of the transitional regulatory functions needed to regulate the telecommunications sector in its own right  may fade away to be replaced by competition laws and other laws of general application (e.g. laws concerning privacy, intellectual property rights, freedom of expression, etc.). This would see a withering away of telecommunications as a separate domain of policy and regulation, and of political attention.  In this scenario, the ITU would remain primarily as a technical organization, retaining its specialization in areas such as standardization and spectrum management.
Today, there is growing interest in this scenario in many countries, and even among some ITU members.  In many ways, it is attractive.  However, I believe it has at least one critical flaw.  Without the established presence of an effective international body there is a danger that the present disparities between individuals, social groups, countries and regions of the world will widen, leading to a world of information rich and information poor.
The alternative, and I believe preferable, scenario requires a bold act of political will at international level to focus world attention on the central role that telecommunications will play in a truly global information economy. This second scenario offers the prospect of a redefined structure and governance of an ITU fit for the 21st century.
The ITU’s 1998 Plenipotentiary Conference, which will take place in the United States, offers an opportunity for the international community, to build on the reforms that have taken place in the global telecommunications industry over  the past ten years.  More than this, it offers an opportunity to build on the unique achievements of the ITU in the 130 years since it was founded.  Success in building a new bedrock will require our members to resolve difficult questions about the role of the private sector in an intergovernmental organization, as well as to define the role of the ITU in the policy-making and regulation of global systems.  While it is too early to predict the  results of this conference, I am optimistic that members of the ITU will rise to the challenge once again, just as they have done so many times in the past, and that the dawn of the twenty-first century will see the birth of a new governance structure for international telecommunications.