INTERNATIONAL TELECOMMUNICATION UNION A NEW ERA IN TELECOMMUNICATIONS AND INFORMATION Uniting Mankind Through Telecommunications Dr. Pekka Tarjanne, Secretary-General, International Telecommunication Union Telecommunications Summit on Human Resources Development: Uniting Mankind Through Telecommunications, 4th September 1995, Bandung, Republic of Indonesia Mr. Chairman, Honourable Ministers, Distinguished Delegates, Ladies and Gentleman, It is a great pleasure and an honour for me to address this distinguished conference, and to participate in the events marking the 50th anniversary of the Republic of Indonesia. ‘Uniting Mankind Through Telecommunications’, the theme of this summit, is a worthy goal, and one which I and the International Telecommunication Union (ITU) wholeheartedly support. I am delighted that this summit is being held in Indonesia, not only because of the natural beauty of Indonesia and the hospitality of its people, but also because of the example it sets in what can be achieved if there is common commitment - between the State, the banks and private firms - to improving the level of telecommunication networks and services. Indonesia has recognized that successful national development and telecommunications are linked and that if it is to attain its ambitious goal of status as a Newly Industrializing Country (NIC), telecommunications must play a pivotal role in releasing the enormous potential of its large and diverse population. Over the past thirty years, the ITU has been pleased to play a part -- a small part perhaps, but hopefully important nonetheless -- in Indonesia’s telecommunications success story. Although the ITU is an old organization, this year celebrating the 130th anniversary of its founding, development is still a relatively young activity, and one that hopefully still has a lot of growing to do. In this respect, there is much to be learned from the long and successful collaboration that has taken place between the ITU and Indonesia. This collaboration has produced many notable results, particularly in the area of human resources management and development. We at the ITU are particularly proud of the role we have played supporting the establishment and development of the Bandung training centre, and in many ways our most successful. The Republic of Indonesia has made great strides since former President Sukarno’s proclamation of independence. Like many developing countries, its post-war pattern of industrialization has generally been based on promotion, via a strategy of import substitution, of a modern sector using advanced technologies imported from the industrialized countries. But such a strategy is highly capital intensive and has difficulty in absorbing the vast majority of people in the traditional sector and in small and family- owned businesses. Moreover, globalization, the emergence of innovation as the key to competitiveness, and the growing knowledge-intensity of production has eroded the ability of developing countries to sustain comparative advantage based on the existence of location-specific raw materials or cheap labour. The development of human capital is now recognized as being as important as the accumulation of physical capital. New approaches to development put people at the centre and demand innovative approaches, both in terms of developing appropriate technologies, as well as new investment strategies. Fifty years on, the world is experiencing a new shock wave. Telecommunications has made it possible to develop global markets for goods, services, money and information. The rise of the global information economy in turn is transforming human life, nationally, regionally, locally, and within the family. Today, everything is changing because of telecommunications - the nature of work, relationships with people, media, messages, and patterns of political life. The talk is of information superhighways and global information infrastructures, with the potential to improve the ‘human capital’ - the health, education and skills of everyone. This summit provides a unique opportunity to focus attention on the potential of telecommunications to promote economic, social and cultural development, as well as on the important role played by human resource management and development, particularly within telecommunications operators, in supporting the achievement of these objectives Closing the gap - lessons from the Asia-Pacific But before we get carried away with talk of global information infrastructures we should remember that the development gap is still very much in evidence. For instance, the 24 advanced industrialized democracies of the OECD 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. Nevertheless, the telecommunications development gap is narrowing, albeit at a much slower rate than had been hoped. Furthermore, new technologies - - such as digital switching, fibre optics, mobile communications, both terrestrial and satellite, and radio-based network access -- are making the installation of a high performance telecommunication network much quicker, much easier and, in relative terms, much cheaper than ever before. But it is important that we employ these new technologies to close the telecommunications development gap not to widen it. The Asia-Pacific region has probably gone further than any other in narrowing the telecommunications gap and consequently has much to teach us in extending this experience to other developing regions of the world. Perhaps this is best illustrated by the four economies commonly referred to as the "dragons", namely Hongkong, the Republic of Korea, Singapore and Taiwan-China. Their rapid economic and telecommunications growth has made them statistically indistinguishable from the three OECD Member countries of the region, Australia, Japan and New Zealand. There are already more lines per capita in Hongkong than in Japan while the other three dragons are not far behind. Indeed by the year 2000, based on current growth rates, the average teledensity among the dragons will surpass that of the OECD Asia-Pacific countries. In the process of catching up, these four dragons have installed the latest technology and they now have telecommunication networks which are among the most advanced in the world. Though the other Asia-Pacific emerging economies still have far to go, they too are making giant strides in developing their telecommunication networks. They are growing faster than the more developed Asia-Pacific economies and, more strikingly, their growth rate is accelerating. China stands out. Its network grew an astounding 51 per cent from 1992 to 1993 when it added over 5 million telephone lines. While other developing Asian- Pacific networks are not expanding at China’s spectacular rate, they are nevertheless among the world’s fastest growing. One of the highest growth areas is Southeast Asia. Indonesia and Thailand have sustained 15 per cent per year compound growth rates in main lines over the past 10 years while Malaysia has seen its teledensity triple from 5 to 15. The Philippines is making up for a decade of stagnation with recent annual growth in excess of 20 per cent. What is encouraging for the other Asian economies is that the transition from a low to a high teledensity (main telephone lines per inhabitant) is becoming quicker over time. The OECD countries of the regions took between 10-35 years to move from a teledensity of 10 to 30, the four dragons did so in six to ten years, while countries like Indonesia and Malaysia seem set to complete the transition even faster. The evidence shows that: * The telecommunications gap between the developed and the developing economies can be closed given the right pre-conditions for growth. * The transition phase between low and high teledensity economies is becoming quicker and easier over time. Why is the growth process speeding up? There would seem to be a number of possible reasons: * Technological change, and in particular the introduction of digital switching, has made rapid development of capacity much easier. The dynamic Asian economies have been able to jump straight from manually- operated to digital exchanges, thus by-passing the semi-automatic stage of network development. In Indonesia, Hongkong, and Malaysia, for instance, exchange line digitization is above 75 per cent; * The dynamic Asian economies already had an industrial structure that depended heavily upon telecommunications-intensive activities such as consumer electronic manufacturing or services whereas the OECD Member countries were still largely agricultural, resource-based economies when they started the transition; * There is a learning curve whereby the "lessons" of a successful investment strategy in one country can be applied in others, given the right economic preconditions and policy framework. There is also strong consumer demand for some new technologies such as mobile phones or fax terminals and this demand has been spurred by advertising and by tourism. Competition and regulation The fastest growing parts of the telecommunications market -- mobile communications, transatlantic and transpacific traffic, data communications, private networks -- are generally those areas in which there is competition. On the other hand the slowest growing parts of the market -- fixed-link subscribers in the local loop, local calls, telex services -- are those areas in which competition has been limited and where monopoly service provision is still the norm. While it is possible to achieve growth under monopoly conditions, this is not necessarily the quickest or most efficient route. The adoption of network development strategies based on market competition has been shown to work well for mobile communications and this model might now be applied more widely in the fixed-link network. PTOs 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, but 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. The traditional model of telecommunications industry regulation has been one of managing the demand to fit the available supply. This has been done through waiting lists, through high peak rate call charges and through volume-based usage charges. But with prices moving towards costs and costs tending towards zero, this model is no longer appropriate. But the regulator still has an important role in allocating other scarce resources, notably the frequency spectrum and the numbering plan. The demands on each will grow significantly during the next decade as many parallel networks, for mobile, satellite and cable distribution, are developed. This is an area where the experience of the ITU in international coordination is unparalleled. Many of the problems of scarce resource allocation demand a global solution rather than merely a national or regional solution. Restructuring through partnership We need to find innovative ways to address the mismatch between supply and demand which has created the large gap between developed and developing country networks. In a growing number of countries where private sector funds have been attracted or where competition has been encouraged, the market will find the best solution to this problem. But many other developing countries require assistance in understanding, planning and implementing a reform process. In some cases, even though the operator may be keen to reform, it may be unable to do so because government does not wish to go down this route. The ITU needs to work with other multilateral development to raise the level of awareness of the need for reform and investment in the telecommunication sector. The ITU can also encourage the development agencies themselves to become more involved in telecommunication sector reform, especially in those countries that, for reasons of risk or indebtedness, have little immediate possibility of attracting private sector investment or introducing competition. Many developing countries have been cautious to allow private sector participation. Nevertheless, a growing number of developing countries, such as Indonesia and Thailand, have embraced private sector participation in their telecommunication infrastructures as a way to speed network development, generally with positive results. These schemes have ranged from sub-contracting of network installation (eg, through Build-Operate- Transfer) to the licensing of value-added and cellular radio services to new market entrants and, in some cases, to the privatization of the PTO. The Indonesian government’s ambitious programme to restructure the telecommunications sector began with the privatization of the domestic satellite, Palapa, and will see another big step with the planned privatization of PT Telekom later this year. Of particular significance is the decision to permit foreign direct investment for the first time. The Indonesian government has recently awarded concessions to five international consortia (Kerja Sama Operators or KSO) to build and operate regional telephone networks. Each of the international carrier groups, which include US West, NTT/Telstra, France Telecom, Telekom Malaysia and Singapore Telecom, is allied with local partners. The concessions are for 15 years, after which the networks will be turned over to PT Telekom Indonesia. Through such innovative approaches, Indonesia plans to add 5 million telephone lines by 1998 bringing teledensity up to 3.2%, a level commensurate with the ITU’s inter-country GNP per capita comparisons.. Partnerships, of course, will only succeed if all participants benefit. Private partners in these regional concessions will gain through sharing installation fees and fixed monthly rentals as well as a share of outgoing domestic and international call revenues. While the government and PT Telekom will benefit financially through licence fees and interconnection payments, perhaps of greater importance is the skills and technology that will be transferred. While Indonesia has a strong sense of nationalism, it is not isolationist. As a leading member of ASEAN it is keen to enhance cooperation and economic growth within the region. The designation of areas as ‘growth triangles’ is indicative of this. The agreement, for example, between Indonesia, Thailand and Malaysia offering a tourist triangle with the respective national airlines sharing part of the package, is sure to generate additional telecommunications traffic within the region. Furthermore, as a leading member and Chair of the Non-Aligned Movement and with its growing linkages to the world economy, Indonesia has also recognized that it has an important role to play in the development of other countries in Asia and Africa. The tripartite approach it is advocating, whereby Indonesian know- how is transferred to less developed countries, with the financial support of the advanced economies, is a pragmatic development of the South-South concept. The ITU too has been exploring new and innovative ways to trigger capital flows for the creation and expansion of telecommunications in the developing world. Launched in January this year, WorldTel is designed to narrow North-South gaps in telecommunications and IT infrastructure by providing direct equity investment raised from private financial investors and coordinating project finance from other sources. WorldTel is defined as a private sector driven multinational funding and development organization and will act both as a value-added venture capitalist and as developmental operator. Being a venture capitalist means providing more than purely finance: it implies being a long-term partner. The role of developmental operator would provide client countries with direct operational support as a joint venture partner in, for example, Build, Operate and Transfer schemes like those emerging in Indonesia. Of course, WorldTel is intended to complement, not compete with, existing efforts. Because the telecommunications sector is so profitable, even in the low income countries, there should be little problem in attracting private sector investment providing the regulatory and financial environment is secure and transparent. A majority of the top 40 public telecommunication operators worldwide with revenues greater than US$1.5 billion are now privately owned. But the majority of the next 40 are still state-owned. Over the next decade this situation will change quite considerably. But privatization is a long-term, on-going process rather than a one-off opportunity for governments to realize some of their assets. Furthermore, the privatization of a monopoly, in the absence of competition or a strong regulatory framework, is a very unwise route to take. Here again the ITU has a vital role to play by providing a forum for information exchange and policy discussion, and through its programme of technical cooperation. I should also like to mention here some of the activities performed by the ITU within the framework of the Buenos Aires Action Plan for World-wide Telecommunication Development, which was adopted by the first World Telecommunications Conference in March 1994. The Action Plan mandates the ITU to study both telecommunications development strategies and policies, and the means to be implemented by developing countries for applying new technologies. In line with this, the Telecommunication Development Bureau (BDT) is focusing on 12 programme areas over the next four years, including policies strategies and financing, and human resources development. The HRD Programme 2, for instance, recognizes that regulatory bodies and telecommunications entities in developing countries are often lacking staff with the competencies required to cope in the changing telecommunication environment and with the rapidly changing technology, particularly in all areas of management. The Buenos Aires Action Plan HRD programme focuses on assisting telecommunications entities re-engineer all aspects of their operations. In the new world of telecommunications, HRM is one of the key factors underlying a successful transformation towards a market-driven, customer-oriented competitive business environment. While much can be done at the national and regional level, narrowing the telecommunications development gap requires a global approach which recognizes the inter-dependent nature of the modern world. Many of the problems that face telecommunication policy-makers today are fundamentally global, rather than national or regional in nature. Let me take three examples: * By the end of this decade, we could see the development of global mobile satellite services offering personal communication services to hand held receivers anywhere in the world. The promise of this technology is that it makes any locality potentially accessible to the global telecommunication network. But at the same time it raises issues of global coordination, cooperation and competition that have not previously been faced. * A second major policy issue is the reform of the accounting rate process. Accounting rate payments provide an important source of income to some of the developing countries but they also tend to keep telephone charges to end users high, and they can act as a disincentive to economic efficiency. The challenge here is to reform the system while still maintaining the vital flow of investment funds to assist with network development. * Thirdly, the liberalization of international trade in services, the rise of foreign direct investment and the creation of inter-firm alliances have created a new set of global players in the international telecommunications market with revenues that are greater than those of many of the smaller nation states. We need to ensure that global corporations continue to work for the benefit of their customers as well as their shareholders? Globalization brings a new set of challenges to private industry and national governments. It also challenges the system of intergovernmental regulation which has evolved for international telecommunications and radiocommunications. The ITU, which is founded on the principles of national sovereignty and universality, provides an appropriate forum for the discussion of these issues. Unity in diversity Across the world, the telecommunications industry is prosperous, profitable and fast-growing. The supply side of the industry has benefited over the past decade from technological change and from sector restructuring, notably where private sector participation has been introduced. But not all of these benefits have been passed on to the user. Furthermore, where benefits have been passed on, they have been unequally shared between users. The large, commercial, sophisticated user has benefited much more than the residential user. More emphasis needs to be placed on spreading the benefits of technology to the whole population. As I have stressed before, the wealth of a country is inextricably linked to its human capital. The new model of telecommunications development based on entrepreneurship, competition and private sector participation is being increasingly accepted. But, as noted earlier, not all countries are yet ready to adopt this new model. ‘Unity in diversity’, one of the five principles on which Indonesia was founded, is a maxim which could have been written for the ITU and the telecommunications world. Like Indonesia, each country must find the path to modernization which fits most appropriately with its national characteristics, while recognizing that we live in an increasingly interdependent and global society. *** A New Era in Telecommunications 6 A New Era in Telecommunications