Telco treaty likely to repay user patience

Just like the benefits of local telecommunications reform, the fruits of the recent international agreement on telecommunications may take some time to arrive. But the agreement is, explains Computerworld's telecoms specialist Rob Hosking, good news for users.

The recent international agreement on telecommunications spells good news for users — eventually.

Just as the benefits of telecommunications reform locally have taken years to flow through to the market, the impact is likely to be long coming.

But that’s not to belittle the importance of the agreement. It commits participating countries to open up markets to more competition and allow foreign companies to buy a significant stake in domestic communications companies.

Those signatories, who between them generate about 97% of the world’s telecom revenues, are allowing full or — in the case of a few hold-outs such as Canada, India and Japan — significant foreign ownership of their telcos.

It also establishes a dispute resolution process and a set of international rules to ensure fair competition. While this sounds suspiciously like one of those paving stones on the way to hell, it’s a good intention that’s probably worth trying.

The International Tele-communications Union estimates that as a result of the World Trade Organisation (WTO) agreement global revenues for the telecom market will increase to about $1.8 trillion by the year 2000 — which seems a little optimistic given that the current value of the market worldwide is estimated at being only about $9.4 billion, and that the agreement doesn’t take effect until January 1998.

Nonetheless, there’s no doubt that increased investment in telecommunications will be an important flow-on from the accord.

There have been signs over the past year of a slight wariness emerging among investors, particularly in the Asian region. This could potentially have caused problems for New Zealand’s rapidly expanding electronics industry, which has been making a considerable reputation for itself in the region. The agreement is likely to open up new opportunities as investment activity increases.

And there’s no doubt that the infrastructure around the world needs the added investment as the demand on the networks continues to grow exponentially.

There’s still the need for massive investment — between $320 billion and $480 billion, according to one assessment — to build stable platforms for networks such as the Internet, but companies are not going to invest without some good solid ground rules. That’s what this agreement looks like providing.

The main downside for investors is the upside for users. All this means more competition, which will drive prices down. Investors who have seen the telecommunications market as a sure thing are going to have to look again.

By early next century telecommunications prices will have dropped by more than half, says Denis Gilhooly, vice-president of business development at US-based satellite network company Teledesic.

“The fabulous profitability of international telecommunications, I would hazard, is about to unravel,” Gilhooly told a Global Information Infrastructure Commission forum in New York last month.

However, telcos in countries that have gone through the deregulation process — Telecom New Zealand is a good example — have not necessarily seen revenues drop with their market share. This is far from being a zero sum game.

Most importantly though, users are going to see prices tumble. These users will include the financial institutions now daily transferring $3.5 trillion dollars or more electronically, companies conducting business, educational and research institutions exchanging data and information, and individuals phoning their families and friends or sending email.

Hosking is Computerworld’s telecommunications specialist. He can be contacted by email at rob_hosking@idg.co.nz

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