What contributed most to the telecom efflorescence of the past two decades?

Posted on November 18, 2012  /  0 Comments

I had treated the claims by the Secretary General of the ITU that the ITU had facilitated the telecom boom with mild amusement. But in the context of the upcoming Dubai WCIT, amusement is not perhaps the best reaction.

Let us begin with the actual claim on the ITU website, more nuanced than that of the Secretary General:

While the ITRs were a compromise at the time, they turn out, in retrospect, to have been instrumental in facilitating continuing privatization and liberalization of telecommunications markets. These trends were further facilitated by agreements made in the Global Agreement on Trade in Services in 1994 (Annex on Telecommunications) and in 1996 (Reference Paper on Basic Telecommunications Services).

The ITRs contained a key provision in Article 9, Special Arrangements. For the first time private operators were explicitly allowed to use leased lines to provide services, including data services. This provision facilitated the expansion of IP-based networks and the services popularly referred to as the Internet.

So the story is that the ITRs were instrumental in encouraging privatization and liberalization. How exactly did a treaty governing the provision of international telecommunication services do this? Did it include language that required Member States to license new entrants in either the fixed or mobile access markets within their territories? Did it specify what could and could not be done in terms of issuance of spectrum, interconnection, or anti-competitive practices? No. The reader can verify for herself by looking up the actual text.

The key Articles are 4 and 6, which set out the technical and financial aspects of supplying international voice telephony services through the collaboration of administrations (as the national monopolies used to be called). I see no references whatsoever to privatization and liberalization. If my readers do, they are welcome to comment.

The most controversial provisions that caused the negotiators in Melbourne to burn the midnight oil were hidden away in Article 9 “Special Arrangements.” The Article stated that “special arrangements may be entered into on telecommunication matters which do not concern Members in general. Subject to national laws, Members may allow administrations* or other organizations or persons to enter into such special mutual arrangements with Members, administrations* or other organizations or persons that are so allowed in another country for the establishment, operation, and use of special telecommunication networks, systems and services, in order to meet specialized international telecommunication needs within and/or between the territories of the Members concerned, and including, as necessary, those financial, technical, or operating conditions to be observed.” This basically said that two willing Member States could agree to authorize International Private Leased Circuits (IPLCs) between their territories that would not be subject to the constraints of the ITRs.

Not bad, but no big deal. This had absolutely no impact on what really drove the reforms which was liberalization of the access networks within the countries. Indeed, many new entrants who gained a toehold within countries were explicitly barred from participation in international telephony. The fact that call-back services and international simple resale etc created pressure on the rapacious international monopolies can be credited to the availability of leased lines. So it is a much more modest contribution that the ITRs can claim.

In contrast, the competition-centric rules embodied in the GATS and the Basic Telecommunications Agreement that came into effect in 1998 contributed to the great success achieved in connecting a majority of the world’s people to voice telephony through investments that were facilitated by the greater certainty provide by GATS safeguards. The commitments for market entry made by countries were significant in terms of providing enforceable assurance for foreign investors. In particular, the Reference Paper on regulatory good practices that many countries committed to provided a framework that provided a means to persuade governments to desist from actions that resulted in the administrative expropriation of investments once they were made. This contrasted with the ITRs, where the liberal provisions were hidden away in Article 9, “Special Arrangements.” The transition to a more competitive environment was gradual with countries making commitments at their own pace and a gentlemen’s agreement made to desist from challenging the accounting-rate system (described in detail below) for a defined period of time which has now expired.

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