WTO Public Forum - How Can the WTO Help Harness Globalization?

Session 3: Economic Growth – European Services Forum

Geneva, 4 – 5 October 2007

The Benefits of Liberalisation and Competition in Telecommunication Services

Tilmann Kupfer

Head of EU Public Affairs

BT, Brussels

Ladies and Gentlemen,

Thank you very much for the possibility to be with you today and to participate on this panel. This is a very exciting event with many important topics and I look forward also to the other debates today and tomorrow.

Let me start with who I represent. I work for British Telecom. However today we prefer to say just “BT”, as we do not want to emphasise the “British” element that much anymore. Today BT is a global operator, which hardly resembles the old telco of the past. Our business models have changed dramatically, we are offering new ICT solutions, and we are integrating plane telecoms services with voice over IP, data processing, video conferencing, mobile and satellite services and so forth. Our work force has become more and more diverse. Our CEO is Dutch; our international business is lead by a French man. We have colleagues from all over the world. Myself I come from Germany and I am based in Belgium. Europe has become our home market, and we are active in170 countries around the world, with special focus in North America and Asia Pacific and recently also in Latin America. In 169 countries we are a new market entrant, which means we compete with the local former monopoly operators. The share of BT’s global business activities amounts to more than 35 % percent today and it continues to grow. On the other hand the share of our revenues in the traditional residential customer market in the UK is declining as a result of tough competition.

My other hat is the one of the Chairman of the External Trade Issues Working Group of ETNO. ETNO is the European Telecommunications Network Operators’ Association, which represents 41 operators in 34 European countries. Collectively the 41 companies employ one million people throughout Europe. Of course not all it member companies are active globally. The ones who are very active outside Europe are for instance Deutsche Telekom, France Telecom, Telefonica, Telenor, Telecom Italia, Portugal Telecom, and TeliaSonera – and BT.

The reason why I am telling you all this is to demonstrate the genuine strong interest of major European Telecommunication operators in a successful conclusion of the current WTO negotiations - with more open markets and more liberalisation of trade in services. This is not only in the interest of our own sector, but also for the benefit of our customers, whether these are business customers (mostly multi-site corporations), institutional customers (like the European Commission or the Red Cross) or residential customers.

My job today is to make the case why further global liberalisation in Telecommunication Services contributes to economic growth and sustainable economic development.

In brief, telecommunications services enable the 21st century’s economies to function. They play the role, which rail networks played in the 19^th and early 20^th Century. They are the backbone of our knowledge based economies; they run the Internet and electronic commerce. There is hardly any modern business process which does not rely on telecommunications. And there is no doubt about the important role Information and Communication Technologies and services play for social and economic development. This has been stated in numerous reports, studies and conferences since the mid-1990s. One of the more recent occasions was at the World Information Society Summit in Tunis in 2005, where amongst others it was highlighted how ICT can help to achieve the Millennium Development Goals, how they can contribute to economic growth, productivity, and sustainable development and how ICT creates jobs. At the service of development they should “address the national and local development priorities, thereby further improving the socio-economic development of all human beings.”

The best environment to achieve all these objectives is a competitive one, where the old monopoly structures are broken up. With such views in mind, 10 years ago, WTO Member States already signed-up to the Telecoms Agreement under the GATS

Since January 1998 this agreement is in force. In the meantime, the International Telecommunications Union, (which is situated just around the corner) has estimated that the market for telecommunications services has doubled from 600 billion USD to more then 1200 billion USD – and this despite the dot.com crash, which happened in between.

Today, almost 90 countries adopted the WTO Telecoms Agreement. The current Doha Round has put the existing Telecoms Agreement under a review. The objective is to improve the 1998 schedules of Commitments, i.e.:

• To shorten transition periods which many less developed countries and emerging economies have requested;
• To make sure that more countries accept key regulatory principles;
• To achieve a phasing out of foreign ownership restrictions so that it becomes easier to invest in new markets,
• To cover more sectors of telecommunications services etc.;
• And of course to address failures in applying the current Commitments in an appropriately manner.

The market access commitments made in the agreement cover not only cross-border supply of telecommunications. They cover also services provided through the establishment of foreign firms in the respective countries. They include the ability to invest in and to own and operate independent telecom network infrastructure.

Examples of the services covered by the agreement include voice telephony, data transmission, telex, telegraph, facsimile, private leased circuit services (i.e. the sale or lease of transmission capacity), fixed and mobile satellite systems and services, cellular telephony, mobile data services, paging, and personal communications systems. The list already shows how quickly technologies have changed since. Some of these services are hardly used anymore…Who in the room still uses telex, telegraph, pagers….? Maybe a fax sometimes?

In addition to this agreement, the broad majority of signatories signed-up also to an Annex, which is called the Reference Paper on Regulatory Principles. This paper was quite a novum. In order to open-up markets which are dominated by former monopoly operators you need certain rules that ensure that new market entrants receive fair treatment and are not squeezed out of the market by abusive behaviour of the dominant player. In general this is the former monopoly – who in most cases is still government owned.

• In order to successfully operate in another market new entrants (whether foreign or national ones) need access to the incumbent operator’s networks – otherwise they would not be able to reach their customers.
  • High prices for international bandwidth generally stem from lack of competition and monopoly control of facilities such as submarine cable landing station. In international telecoms and Internet traffic access to landing sea cable plays an important role. Without fair access to this kind of bottleneck, prices will remain high for international calls and access to the Internet backbone is hampered. Countries with limited access to such bandwidth suffer a competitive disadvantage (UNCTAD Report 2006). Just think about slow Internet access….
  • India this year and Singapore in 2002 now have opened access to such cable landing stations.

• Competitors need fair and transparent licensing conditions as in many cases licenses are required to set-up an operation.
• There has to be an independent regulatory body, which ensures in an impartial manner that all market players are treated equally in a non-discriminatory way and that the incumbent operator does not abuse its dominant market position. Such bodies have to be independent from government influence. This is not easy to achieve - even in many EU Member States.
• Anti-competitive behaviours have to be avoided through strict rules,
• Universal service obligations have to be applied in a transparent, non-discriminatory and competitively neutral manner,
• Similar principles have to apply for the allocation of scarce resources like spectrum for mobile telephony.

To sum up: the Reference Paper enshrines many principles which one expects from good governance: transparency, non-discrimination and equal treatment. It lays down many principles which can be found also in competition law.

This all demonstrates that liberalisation in telecommunications and opening up of global markets means everything else than deregulation.

On the contrary: Telecoms regulation is highly sophisticated and complex. It only can function well in an environment of good law making, which is transparent and free of discrimination and corruption. The Rule of Law is a prerequisite for them to function!

Of course not only in telecoms, but also in telecoms we need a basic framework of rules that create a level playing field and gives clarity to all - from consumers and communities to governments and business. This means that we have to promote a psychology: that law matters and that observance of the law is central to the functioning of a democracy and the operation of a “free market”.

The principles of Rule of Law are not subject of the Trade in Services negotiations per se. But if the Commitments made in the WTO context are actually to be implemented and enforced in the right way, the Rule of Law is going to be promoted indirectly too. And who can imagine a real sustainable social and economic environment without a sound legal system in place?

But let’s put these more philosophic considerations aside. Let’s focus on the concrete benefits, which further liberalisation in telecoms services can bring to all of us.

In almost all regions of the world, those countries with WTO commitments in telecoms have seen a more rapid rate of growth telecommunications revenue than those without such commitments.

Fixed-telephony line penetration rates tend to be higher in countries with commitments. For instance in low-income countries in East Asia and the Pacific region the figure was 4.5% in 2002 compared to 2% in similar countries without commitments in those regions. For low income countries in Europe and Central Asia the rates were 12% compared to 8%.

The number of Mobile phone subscribers has grown dramatically and is surpassing fixed telephony. Since 2002 we have more mobile subscribers than fixed. It is growing by 45% each year. In Least Developed Countries the average growth rate has reached even 72%. In 2004, already 28% of the global population had a mobile phone. According to the ITU this is due to rapid network deployment, prepaid services (which are important particularly for low income groups) a highly competitive environment, and a constant drop in prices. SMS has become an important factor in rural areas of less developed countries where they can help to collect data on better crop prices for farmers (example FoodNet in Uganda).

ICT connects rural areas, safes travel and saves time. Through tele-working and videoconferencing it can reduce even carbon emission and traffic congestion (think not just about London, but also Mega cities like Mexico City, Sao Paolo or Lagos), it helps to access medical information, educational material etc. where such information and knowledge was not available before.

And remember, not only Europe and the US have to compete with China, also India, Brazil, Mexico and others have to….

Everywhere, the opening of telecom services to international competition has expanded the market, brought communication services to middle and lower income people, and lowered prices. According to an OECD working paper of 2004, countries with a liberalised telecoms environment tend to grow 1% faster in average than those with no liberalisation. For developing countries the rate is even 2% vis-à-vis developing countries with no liberalisation at all. And developing countries with some degree of liberalisation grow at least 0.32% faster than their counterparts.

In Jordan, liberalisation in telecoms led to a 42% increase in employment in that industry. For every job created in Egypt’s mobile phone industry another 8 jobs have been created (according to a study by ZAIN, which is a Middle Eastern mobile company).

In India competition helped to reduce costs for local calls by 60% and for long-distance even by 92%. Today, there are 80 million mobile phone users in India compared to only 3 million in 2001.

But we should not only talk abut the benefits for end customers... More competition in ICT helps business users – whether these are major international corporations or local businesses. The availability of good ICT infrastructure attracts more investment, and improves business processes:

• Competition means lower prices, innovation. It forces incumbent players to become more efficient, which leads to lower costs for consumers.
• International bandwidth pricing is a big cost component in call centres.
• Lower communications costs make international companies more likely to invest in a country (it is not just about manpower costs).
• Large companies (but also world-wide operating institutions) require global end-to-end services with consistent services and quality. This only possible with global carriers.
• Quality communications infrastructure are an important part of the decision to invest in a particular country.
• There is a direct and an indirect impact on employment.

Finally, I also would like to note that foreign-ownership restrictions very often just lead to more wealth for those who are already the most advantaged in a society (i.e. JV's often have to be concluded with existing large wealthy companies). There is no obvious flow-down to the less advantaged parts of a population, which could justify such restrictions.

The ITU in its mid-term review for the decade 2001-2010 on ICT and Telecommunications in Least Developed Countries states that “Countries have to put faith in effective, transparent and predictable regulatory regimes” This includes independent regulators. New technologies, privatization and competition are the vehicles to be used to drive changes.

Well, the WTO Commitments certainly promote all these elements.

Thank you very much!

Tillmann Kupfer worked in Erika Mann's office in 1994. He was her first assistant in the European Parliament. He is Head of EU Public Affairs at British Telecom (BT) in Brussels