TELECOMMUNICATIONS VISIONS OF THE FUTURE - A WTAC PERSPECTIVE 1. THE CHANGING TELECOMMUNICATIONS ENVIRONMENT In considering the strategic future of the telecommunications industry, the one fact on which everyone agrees is that there are fundamental and global changes occurring which will radically affect: - economic development - social development - the environment. The objective is to find the most appropriate industry and ITU strategic directions which will optimize the benefits of these changes to all member countries and industry participants. The first question which might be asked is why a "new" vision is necessary at all. To answer that we should look at telecommunications as it existed for the first 80 years of this century. In that period, telecommunications was substantially a single product business (voice telephony), and all nations and industry members could share a simple vision or mission. This was to achieve universal penetration of the automatic telephone service into every business and home, and to achieve real connectivity inter-city and inter-country. Standardization was obviously of primary importance to achieve this aim and there were strong national and supply industry incentives to participate cooperatively in setting international standards. Importantly, also, there was no perceived commercial gain for individual system standards as there was in the computer industry. Technology innovation cycles were also lengthy so that speed of standard setting was not a major inhibitor to progress. The networks to achieve the realization of this vision were, without exception, being constructed by large autocratic telephone operating companies who also determined, with the supply industry, the standards to be used. The ITU, particularly in its standardization role, was able to operate in a completely congruent manner to this vision. As part of this regime, the concept of universal service was generally accepted as a basic premise and cross-subsidization to achieve this was accepted practice. The concept of cost-based pricing did not attract any significant attention and, in general, operating companies did not have management accounting systems which would support detailed service revenue/cost analysis. In the interests of achieving universal service, however, capital investments with negative NPV or very long payback periods, were accepted as part of the monopoly mandate. While the mission to achieve widespread plain ordinary telephone service (POTS) was universally held, the outcomes between countries were far from uniform. A handful of developed countries have achieved the goal of having an automatic telephone service in every business and in almost every home. The bulk of countries, however, are far from this goal with residential services, in particular, failing to meet actual or potential demand. A wide gap exists therefore between the developed telecommunications countries and the under-developed ones, and this gap is further accentuated when one takes into account that skills levels and indigenous capabilities to supply telecommunications goods and services correlate closely with development status. In summary then the POTS era led to a common national vision of universal service under monopolistic conditions, but the outcomes were far from even. Suppliers and operators generally had well distinguished roles and operators were overwhelmingly domestic in their scope of operations. This scenario has changed in very fundamental ways in the 1980's and beyond. 2. THE POST-POTS ERA Coinciding approximately with the beginning of the 1980's, the certainties of the POTS driven telecommunications era commenced a process of change. The nature and impact of these changes are not yet resolved, but it is clear that the major trendlines are significant and that these trends will affect all nations. Undoubtedly the initial catalyst for change was the technology movement which was influenced by digitization, software control, component miniaturization and sharply decreasing switching and transmission unit costs. Particularly in those countries with mature basic telecommunications infrastructures and high service penetration, this opened the way to an explosion in products and services in the voice, data, text, image, and video fields. Mobile services, intelligent network services, broadband services, and business application value-added services have all been part of this innovation period. The use of radio techniques to provide customer access to networks has also been of increasing significance. Telecommunications itself has been progressively less stand-alone as an industry under the impact of technological change. Both the computer industry and the broadcasting industry have overlapped and converged with the telecommunications industry as each came to share synergistic technologies and to recognize mutual dependencies. A by-product of this convergence was the welding of ethos and standards from one field into the other. The computer industry, for example, has not shared the dedication to interconnectivity which has been a cornerstone of telecommunications. The convergence of computing and communications has raised the awareness of the need for open systems capability. Coincident with the change in technological opportunity, and driven by it, has been the change in customer attitudes and behaviour. Business users, in particular, have been quick to realize the strategic significance of telecommunications to their business competitiveness and this has fuelled the pressures for both deregulation of the industry and for a move to cost-based pricing. This has been facilitated by a turn toward market-oriented political ideals in many countries. Two other basic influences have contributed to the changes occurring in telecommunications industry policy despite the peculiarities of this sector. First has been the increase in general regulatory processes such as those associated with consumer protection or with anti-competitive practices. Second has been the evolution of general trade policies, which although originally designed to address the trade in goods, have progressively been applied to the service sector. The equipment supply industry has not been immune from these changes. Industry rationalization has increased with shortened innovation cycles, increased product development costs (particularly in software), and global market penetration. In this environment, the issue of standardization takes on new dimensions. Firstly, the standard setting process needs to be attuned to commercial innovation cycles and to customer needs. The industry now has the ability to bring new technology to the marketplace more quickly than the existing processes can set and agree standards. The temptation therefore is to bypass the standards process and to establish defacto standards by presence in the market place. This can be accentuated by the commercial advantage which is obtained if a defacto standard becomes widely accepted. The growth of regional standards bodies recognizes both of these issues since they aim to both speed up decision-making and to achieve particular regional advantage. However, from the viewpoint of global interconnectivity, the rise of regional bodies could potentially present a problem. The need for the ITU to both understand and appropriately respond to this situation is obvious. The drive towards deregulation of the industry has been a global trend which has had its most dramatic impact in the highly developed telecommunications nations, but which is influencing all countries. Overall, the deregulation has proceeded from the introduction of competition in customer premise equipment to value-added services and ultimately to the provision of basic carrier services and network (transmission and switching) facilities. The progression down this path is not uniform between countries but the movement seems inevitable and most carriers assume that any monopoly powers will be eroded. The strategic assumption is that they will face, sooner or later, a completely deregulated and competitive environment. In response to this, it is now evident that many PTT's will progress from being state-owned departments to state-owned corporations, and may eventually become private corporations. Almost inevitably, the companies competing with the incumbent carrier will have, at least as a major component, representation of carriers from another domestic market who can bring their operating experience to bear in the new market. A major feature of deregulation therefore is the transition of industrialized country carriers from an almost totally domestic orientation to a multi-domestic role or even global role. This trend is particularly encouraged in carriers who operate in a domestic market which has near saturation of basic service. The imperative of business growth is a strong motivation for offshore expansion. Incumbent carrier management will respond in a predictable way to the introduction of competition. Whereas the POTS era encouraged a mandate of universal service provision, cross-subsidies, technical priorities, and minimal marketing innovation, there will now be a changed set of priorities. The need to protect revenue makes marketing the key imperative and automatically the "subscriber" thinking shifts to that of customer segmentation. Owners bring new or much-increased demands for commercially acceptable returns on investment, with the effect that productivity and world's bast practice become key-drivers and pressure mounts for cost-based tariffing to remove internal cross-subsidies. These movements can have both positive and negative impacts on the outcomes for a country since they are changing the trade-offs which had been made between stakeholders' benefits. On the one hand, the drive for efficiency and commercial success will have positive macro and micro economic benefit, but on the other hand the social equity benefits may be reduced. The commercial imperatives of a competitive environment can cause inequalities of outcome both within a country and between countries. However, to a large extent the precise outcome will depend on how governments manage the process of liberalizing telecommunications. Within a country, the competitive environment will tend to produce "islands" of high telecommunication capability where profitable customer segments exist with "deserts" of low telecommunications capability where profitable returns cannot be achieved. With the removal or severe reduction in internal cross-subsidies, the ongoing dilemma is now to find the necessary investment capital for such "desert" areas in order that they can ultimately enjoy the economic growth which requires as a pre-requisite, a sophisticated telecommunications platform. Although this is a problem which must be primarily addressed and resolved at the national level, the uneven development of telecommunications has international implications since it may constrain not only the growth of the global telecommunications industry, but of economic development more generally. The inequalities are even more marked between countries. The industrialized countries have the advantage of universal networks which were developed over a long period of time and under monopoly regimes. Adding advanced facilities onto this base is a much more marginal cost than it is in a greenfields environment. These same advanced countries hold the majority of both operating and innovation skills in telecommunications and so are in the strongest position to benefit from the global expansion in information technology. By comparison, the developing countries are in a catch up position in which the lack of investment capital (and sometimes national priority) means inadequate telecommunications. Lack of facilities inhibits economic growth which continues the shortage of capital - a vicious cycle. Access to telecommunications becomes a key imperative and increasingly there is a movement towards private investment to achieve this with imported systems and skills. In the short term, access to modern telecommunications facilities, particularly for the business community, must take priority, but the developing countries are left with a number of critical long term issues: (i) How to ensure that telecommunications development proceeds with the business and social mix which they determine to be appropriate in their country, and that their consequent investment strategies cover unprofitable (e.g. rural) areas as well as profitable areas. (ii) How to ensure that local skills and industry capabilities are built up so that the developing country can retain the benefits of information technology within its own economy, while providing an equitable return to investors. In the longer term, technological innovation, particularly in radiocommunications, may dramatically reduce the cost of investment in basic telecommunications infrastructure, enabling developing countries to "leapfrog" older technologies in their telecommunications development. However, as is the case with current generations of technology, the challenge will be to ensure an equitable distribution of benefits. In terms of the ITU and this forum, the question which can be posed is what is the role of the ITU and all its members to be real participants in and beneficiaries of the telecommunications industry of the future and how to avoid the developing countries being locked into an ongoing economic dependency. A global approach to telecommunications development is necessary therefore in the interests of both the developed and developing countries. 3. KEY ISSUES The preceding sections are intended to set the scene for consideration by WTAC members of the principles which should guide their advice to the Secretary-General and perhaps to a wider audience. Overall there would appear to be consensus on the key issues which need to be addressed from the global development of the industry. (a) The widening North-South Gap There is a growing awareness that there is a widening gap between the information rich and the information poor, i.e. between the developed, industrialized, high telecommunications penetration countries and the developing, low telecommunications availability countries. As this wide gap is detrimental not only to the underdeveloped areas, but also to the developed countries, new and innovative ways need to be found by all members of the ITU and their governments to hasten the growth of the telecommunications capacity and capability in underdeveloped areas of the world. In seeking to achieve this aim it is evident that no benefit is gained by slowing down the "North" but all measures must be sought to speed up development of the "South". Three critical factors have been recurring in members' consideration of how to speed up development. (i) Recognition by governments of the priority which needs to be assigned to this issue. (ii) Access to capital funding for development, including new sources of private capital as well as traditional sources of public and intergovernmental funding. (iii) The concurrent development of indigenous technical and commercial skills to ensure that ongoing advantage can be taken of infrastructure investments. To address this widening gap between North and South collective concern and commitment at the global level will be required. A major challenge here is that individual governments are not likely to be in a position to have a considered global vision. National sovereignty will remain an inhibitor to achieving a global plan and in general there will tend to be a vacuum in global policy setting. The industry members themselves have the opportunity to take a lead in guiding such global policy, with the ITU as a facilitating structure. It will only be possible to develop a common vision of this kind if governments and the business community recognize and respect the imperatives that drive each party. Telecommunications is a fundamental social infrastructure - perhaps the most important infrastructure of the information age. As such, it is an essential public concern and cannot be divorced from basic issues of social equity, or from government regulation. Even the countries that have gone furthest in the liberalization of telecommunications have not abandoned these principles. But telecommunications is also becoming a business opportunity on a global basis. As such, it must compete with other investment opportunities in offering attractive rates of return in relation to risk, and a stable investment climate. Countries that wish to consider private ownership and investment as a telecommunications development strategy must factor these considerations into their social calculus. The members of WTAC recognize these realities and respect the imperatives that drive government and the business community . They share a common vision - a vision of a seamless, global telecommunication network serving the needs of developed and developing countries alike, a key infrastructure of economic and social development in the twenty- first century. In considering practical means for implementing this vision, they are prepared to develop and present to global decision-makers a range of innovative proposals for concrete action. b) Human Resource Development The development of skills in telecommunications is as important in considering the national impact of this industry as is the availability of capital. It is recognized that the ITU has taken steps to address the skills and training question in line with its development mandate, but there is a clear message that more needs to be done. This is a complex issue, involving not just direct skills training, but also a range of matters such as: - conditions for technology transfer, taking account of commercial and other considerations; - the appropriate balance between the interests of creators and consumers in the treatment of intellectual property rights; - the range of skills and experience, both technical, financial, managerial and commercial, necessary to guide and implement a national network development; - a thorough understanding of privatization as a means of allocating capital and competition as a means of bringing greater efficiency; - educating not just those directly involved in telecommunications but also those who make decisions on policy, priorities, and funding for the industry; - holding skilled people in developing countries when better paid alternative employment is available in developed countries. To address this issue, a large measure of international cooperation and goodwill will be necessary. An enhanced role for the ITU could be considered. c) Standardization The main matters to be addressed here are: - maintaining a global perspective; - speeding up processes to match the rate of technological change; - cooperating with regional standards bodies whilst preserving an ITU global position; - maintaining network connectivity without unduly constraining technical innovation; - determining the scope of standardization; should this be purely technical or should it continue to extend to other issues such as international accounting rates, quality of service, etc. d) Raising Telecom Awareness In order to give higher priority to telecommunications infrastructure in overall national development and planning processes, it is important to raise the level of awareness that telecommunications is an engine for economic and social growth at the highest level in many governments, especially in developing countries and countries of the Commonwealth of Independent States. The direct and indirect benefits of telecommunications related to environment, education, transport, health, banking, business, rural development, etc. need to be highlighted in various public forums to create visibility, concern and commitments among key decision-makers world over. In order to stimulate this awareness, WTAC members are prepared to brief Heads of State and other world leaders on their vision, and on the role which telecommunications can play in economic and social development. e) Role of the ITU The radical changes which are occurring in the telecommunications world - in both an economic and social context - have effectively made obsolete the institutional basis on which policy and regulation were created in the past at both the national and international level. The experience of the past decade has shown that, although the agents of change (globalization, competition, deregulation) will deliver benefits through the efficient allocation of resources and the stimulation of growth, they will not of themselves deliver all the benefits which have been expected from telecommunications in the past, and should continue to be expected in the future. It therefore follows that there is an urgent need to create new forms of partnership between industry and governments, designed to ensure that all parties have access to the benefits of telecommunications across the globe, and that these benefits are shared according to the principles established by national governments, both within their own countries and through international agreements and agencies. The role of the ITU in facilitating or participating in such partnerships needs to be studied. The ITU may, for example, support member countries in formulating telecommunication policies; facilitate the transfer of technical and economic know-how to implement and manage telecommunication operations; stimulate contacts between experienced network operators and developing countries; and support contacts between private and public investors from developed countries with telecommunications entities in developing countries. 4. GUIDING PRINCIPLES From the considerations outlined above, the following list of topics provides a framework for WTAC discussion. GENERAL CONSIDERATIONS As opposed to other national, regional or international entities that are involved in telecommunications policy making, the unique and particular attribute of ITU's vision resides in the universal service concept. It is the opinion of WTAC that the ITU should adhere to this concept. This entails that the ITU has three subsequent missions: - the allocation of radio frequency spectrum and the development of international radio regulations; - the promotion of a minimum set of international standards allowing interconnectivity of basic networks and services; - the promotion of telecommunications development in order to reduce the gap between developed and developing or developing countries. It has been the experience of the ITU that the level of development of telecommunications in a country depends, inter alia, on the GNP per capita. ITU research has also demonstrated that investment in telecommunications leads to economic growth and facilitates social development. This being said, it has also been the experience of the ITU that there is no single model which is equally applicable to all countries. Similar results can be achieved under different regulatory (regulated, deregulated) and legal (public, private) regimes. While it is up to each country to choose the development approach which best suits its needs and circumstances, experience has shown that the following conditions are most conducive to optimal development: - whatever regime is chosen, it should be stable over a long enough period of time to match the basic characteristics of the telecommunications infrastructure business, which require heavy capital investments and long pay-back periods; - resources generated by the operation of telecommunications services should be retained and reinvested in the operating company to the extent possible, after paying appropriate dividends to investors; - international standards should be adopted in order to ensure global connectivity; if these do not exist, well-recognized regional standards should be adopted. TECHNOLOGY - Technological change should not be inhibited and new service access to markets should be facilitated in as short a timeframe as possible. - New technologies for network access, especially those directed at economic solutions for providing service to low density areas, should be encouraged. SPECTRUM MANAGEMENT - That the increasing importance of "wireless" communications demands an increasing attention to spectrum management and the pivotal ITU role. This attention should extend to both the encouragement of new services and the interests of the underdeveloped countries. STANDARDS - International standards should be globalized to the maximum extent with priority given to global network interconnectivity. - That in the case of public mobile communications in particular, a unified system standard allowing universal usage is desirable. - International standardization should be maintained and enhanced as the norm, but the elements standardized should be the minimum possible to avoid inhibiting future network options, technology development, and market-led innovation. - All industry participants (operators, suppliers, users, public and private sector) should have equal opportunity to contribute to standards setting. - Processes should be continually adapted to speed up the setting of standards. - Cooperation and coordination between the ITU and regional standards organizations should be maximized with the ITU accepted as having an over-arching global responsibility. ECONOMIC DEVELOPMENT - That governments be better informed and advised that an accessible telecommunications capability is a pre-requisite for national economic growth, with impact at both the macro and micro economic level. - That the ITU and other influential international agencies such as the World Bank and the Regional Development Banks actively promote the dissemination of information to the highest levels of governments, on the significance of telecommunications infrastructure investment. - That, consistent with the objective of long term economic growth, the ITU should maintain and promote the objective of universal service. SOCIAL DEVELOPMENT - That the ability to freely and easily communicate through widely accessible telecommunications is fundamental to an orderly and mature social structure. - That in seeking social development as well as economic development, more emphasis needs to be placed on social benefit applications such as the use of telecommunications for education or medical services. Such application developments would be encouraged by establishment of a contact forum for operators, users, and industry. ENVIRONMENT - That telecommunications can provide alternatives to many processes which currently endanger the world environment and greater emphasis should be placed on developing these alternatives. - That active encouragement should be given to new technologies and applications that lead to economies in energy consumption and to reduced environmental pollution. REGULATORY - That the trend for deregulation from monopoly service providers to a competitive regime with multiple providers is worldwide and in the interests of national economic development should not be opposed. - Although there will be a progressive change of PTT's status to corporatisation and privatization, the optimum timing of these steps will differ from individual country circumstances. - That, in a competitive environment, regulation should embody the principle of fair and equitable access to networks in order to facilitate possible new cost-effective business structures. - That the national regulatory process should be controlled and monitored by an independent body, separate from the industry participants and government. - That at the international or global level, without derogating from the sovereign rights of national governments, there is clearly a need for treaty-based policy making and regulation which requires disciplined international cooperation if it is to be effective. The role of the ITU in facilitating this should be examined. TARIFFS - That the trend to cost-based tariffs for both national and international services should be encouraged in order to achieve efficient resource allocation (both capital and labour). - That the shift to cost-based tariffing (and removal of internal cross-subsidies) be accompanied by recognition of the need for policies and non-distorting mechanisms to encourage investment in rural and other "unprofitable" sectors. - That as an objective, tariffs should be progressively moved to minimize the impact of distance and to accelerate the affordable use of services, including broadband services FINANCING - That governments should be informed to better understand the economic and social benefits arising from investment in telecommunications, and should raise the priorities of this investment accordingly. - That financing of telecommunications investment should use all available sources: i) direct control of telecommunications revenue/profit for reimbursement into network and service enhancement; ii) increased profit for reinvestment by efficiency/productivity improvement and by new service introduction; iii) borrowings through normal commercial channels or agencies such as the World Bank; iv) private equity funds through full or partial privatization. - Recognizing the magnitude of the capital needs of the under- developed countries, and that disparities in capability and capacity is detrimental to both developing and developed countries, that processes be established to seek innovative and substantial solutions to the challenge of providing targetted investment to specific geographic areas (e.g. to establish connections between countries, as well as within them. HUMAN RESOURCE DEVELOPMENT - That it be recognized that the development of technical and commercial skills is as important for a country's development of telecommunications as is the availability of capital funding. - That the active cooperation of all ITU member nations will be necessary to speed up the telecommunications development in under-developed areas. New approaches to achieve this cooperation need to be sought. 5. CONCLUSION It can be stated as fact that no other technology in the last 300 years has had the impact that telecommunications and information technologies will have on the way we live at home and the way we work at our offices, banks, hospitals, government, manufacturing plants, universities etc. Telecommunications bring about openness, accessibility, connectivity and networking. It affects our thought process, interpersonal relationships, education, institutions, communities, environment and international relations. WTAC considers that each country has the right to enjoy the long- term benefits of telecommunications as an important generator of development within other sectors of its economy. The telecommunications sector is an important economic activity in its own right. While recognizing the need for foreign investment on a non-protectionist and non-discriminatory basis, local skills development, industry ownership and control should be encouraged to allow in-country wealth creation to the maximum appropriate degree. WTAC views the changing environment as a challenge and an opportunity for the ITU, its members as well as for users, operators and manufacturers, to address the key challenges identified in this paper with a view to making their contribution to a dynamic and universal development of better telecommunications. ________________ 22.1.93 A more comprehensive study is needed to investigate the telecommunications demand structure of these 'desert' areas, as well as the implications of technological advancements. Although previous generations of technology may have been uneconomical in these areas, new technologies such as radio in the local loop and VSATs may be economical. It should also be noted that the speed of technology diffusion in developing countries varies greatly. It depends on such factors as the investment climate, interest rates, profitability comparisons between new capital goods and existing ones, the performance of technology in other countries, the efficiency of existing infrastructure, the political agenda, and funding priorities. A WTAC working group is currently examining one such proposal, to establish a shareholder-based international telecommunications investment bank (WORLDTEL).