Transcript Telecommunications and Trade in Services

Telecommunications and Trade in
Services
Peter Cowhey
Dean
Graduate School of International Relations and Pacific
Studies
University of California, San Diego
[email protected]
And
Jonathan Aronson
Professor
Annenberg School and School of International Relations
U.S.C.
[email protected]
May 2004
Changing mix in the market: 1994
vs. 2001
• Total size grew from $517 billion to $968 billion
• In 1994 data and mobile were 16% and 10% of
revenues. In 2003 they were 18.5% and 33%.
– Measured by traffic volume data about equals voice
but it is priced much more cheaply even after major
declines in price of long distance voice!
• International telecom stays around 8%
Trade Policy should be the Tip of
the Iceberg
Trade Policy
Market restructuring and Policy
Role of Telecom & IT in Economy
• Telecom/IT are vital
drivers of economic
growth
• Competition and
market reform are
best option
• Trade policy can
leverage benefits of
market reform
– Capital markets
– Credibility vs. flexibility
Cost per Mile of Connectivity Infrastructure
Aerial Wireless*
$4,433
Wireless Towers
$11,083
Copper Cable
$22,750
Coaxial Cable
$29,250
Optical Fiber
$40,625
Gas
Electricity
Waterway
$134,583
$232,604
$300,625
$847,917
Roadway
$USD per Mile
Some economic principles
• Large economies of scale and scope do not
justify monopoly
– Privatization is less effective without competition
– Phasing in competition slowly has very mixed record
• It is possible to share network capabilities
efficiently among several operators but this
requires regulatory intervention
• Significant network externalities justify efficient
policies to promote universal service
When do economies of scale arise? (Finley)
•
•
•
Fixed costs – costs that are independent of usage
– Costs of maintaining local telecom loop
– Costs of running airline reservation system
– Costs of maintaining electricity transmission lines
Network economies
→Total costs per unit lowest when only one firm incurs the fixed costs
---Easier to optimise operating costs (relative to usage) in a larger
network than a small one
Policy dilemma
– Introducing competition in one service (long distance calls) may
lead to technical inefficiency
– Having no competition → allocative inefficiency
Evolution of the Network
• Stage One: Rise of Corporate Networks leads to
competition in basic services
– Importance of “private leased circuit” and value-added
service markets. Role of large user
– Backbone long distance vs. local transmission (“last
mile”) network
– Network elements shared with
newcomers=Interconnection regulation
– Trade implications:
• Large users push for value-added and private network rights
• Scrutiny of interconnection regulation
• Competition in services vs. competition in network
infrastructure
Evolution of the Network
• Stage Two: Rise of the Internet
– Computer architecture is “flatter” and more
efficient than old phone networks. Innovation
is faster.
– Puts enormous pressure on traditional price
structures—Voice over the Internet Protocol
– New trade scheduling challenges: Packet
network and voice service liberalization may
imply VoIP commitment (Case of China)
Network Evolution
• Stage Three: The rise of wireless networking
• From satellite to fixed wireless
– Allocation vs. Assignment
– Licensed vs. Unlicensed
• Mobile wireless now leading in developing
countries: 2nd generation dominated by GSM
and CDMA. 3rd generation is different varieties
of CDMA.
– Pricing freedom and competition drive rapid build out
• High speed (up to 2.5 megabits/second) is
coming—could change markets for wired
broadband by introducing new rival
WTO BTA in 1997 Was a Timely
Agreement!
• Facilitates efficient global
networking just as US
and EU agree to change
their domestic markets
• 77 countries with over
85% of revenues
• Liberalize voice, data,
and international services
• Common approach to
regulation
• Foreign investment rights
were critical issue
The Political Economy of BTA
• EU, US and Japan
establish opening of
OECD market, including
FDI
• International services
were a big challenge“
• NICs” want FDI and spur
to economic innovation
• Bilateral trade pacts
clarify obligations and
expand incrementally
• NICs now expanding their
cross-national networks
(e.g., Telmex)
GATS Framework Matters
• Most Favored Nation and National Treatment are core
principles: Non-discrimination
• Dispute resolution system applies to BTA
• Scheduling of service commitments:
– Mode One (cross-border) and three (commercial presence)
include supplying services across borders and using a local
subsidiary. Right of investment crucial.
– Mode Two: Right of consumption abroad important for large
users (e.g. private networks)
– Mode Four: Movement of natural persons
– Commitments are “technology neutral”
– Reservations and “additional commitments”. Examples:
• Phase in periods and limits on number of network suppliers
• Reference Paper
The Reference Paper on
Regulatory Principles
• Behind the borders’ barriers
• Separate regulator with transparent decisionmaking in a timely manner
– Adequate staffing and enforcement powers
• Obligation to take measures to deal with market
power of “major suppliers” (essential facilities)
– Prevent anti-competitive practices, such as anticompetitive cross-subsidies or withhold vital
information from competitors
Regulatory Principles (2)
• Interconnection obligation
– Any technically feasible point in network
– Cost-oriented and non-discriminatory terms
– Timely unbundled elements of network
• Transparent, competitive neutral measures to
achieve universal service are OK—can cover
new services
• Procedures to allocate scarce resources (e.g.
spectrum and rights of way)are transparent,
timely and non-discriminatory
Interconnection and Market Power
• These are transitional measures—e.g.,
broadband
• Interconnection consensus—reference
offer and international benchmarking
• Enforcement powers
• Wireless termination and resale
Rate Rebalancing: The Key to
Many Dynamics
• Traditional pricing under-priced local
services and over-priced long distance
– More efficient supply of universal service
subsidies
• Take-off of mobile services due to ability to
do premium service pricing
• International services and settlement rates
– Market power on monopoly termination
– FCC “Benchmarks”
New International Issues
• Challenges to traditional settlement rates:
US-Mexico dispute shows interconnection
may applly to international services
• “International Charges for Access to
International Services” (ICAIS)—market
power exercised by U.S. carriers
Mobile Networks: Emerging Issues
• Decline of mandatory standards and rise
of more flexible spectrum use
– Is spectrum plan transparent?
– Is licensing technology and service neutral?
• Can licenses be resold on a commercial
basis?
• Is there unlicensed spectrum?
• What are the costs of terminating
international calls on mobile networks?
Exercises
• Domestic analysis
–
–
–
–
Network patterns – use and revenue
Using new technology
Benchmarking your nation
Priorities for reform
• Trade negotiations
– Mock bilateral fact-finding
– Play the role of an EU or US negotiator
– Do fact-finding and negotiation with a foreign investor