Squeeze goes on WTO as telecom talks resume

By turns pleading and threatening, industry and government advisors from around the globe are seeking to put negotiators on the path to a successful conclusion of World Trade Organization telecommunications talks. Investments of up to $300 billion hinge on a good result

By turns pleading and threatening, industry and government advisors from around the globe are seeking to put negotiators on the path to a successful conclusion of World Trade Organization telecommunications talks.

Massive amounts of private capital are needed to build the telecom infrastructure for networks such as the Internet that form the underpinnings of today's global economy, according to a panel of private sector leaders and representatives from developing countries that convened here at the start of this week. But companies will not invest without an agreement that lays down the rules for a stable, open global market, the panelists said.

"The opening of the markets in telecommunications should produce a springboard for the rest of the revolution to occur, which is the global information revolution," said Bowman Cutter, managing director of investment firm E.M. Warburg, Pincus and Co. Inc. "These talks are of fundamental importance ... to mobilize the world to invest."

Bowman and the other panelists were speaking at a conference sponsored by the Global Information Infrastructure Commission, an international, nongovernmental group of representatives from diverse industries.

The investment required to upgrade global networks and to create infrastructure in developing countries is estimated to be between US$200 billion and $300 billion, Bowman said. Governments can be expected to invest only about 45% of the total capital, while the rest needs to come from private industry, and the capital required from the private sector is well within the range of the current flow of global investments, he said.

"But without success in the WTO negotiations, a stable, clear rule of law will not exist, and there will be no flow of investment," Bowman added.

WTO telecom talks reopened this week after being suspended last April when some countries declined to put offers on the table and negotiators from the most industrialised countries reached an impasse on issues related to national-market access for foreign companies. The new deadline for the talks is February 15.

"Investing in the [telecom] market is complex. In financial terms it is risky," said Don Reed, presdient and group executive at Nynex, a regional U.S carrier.

The critical investment factor is the creation of certainty based on the principles of fair interconnection rates, regulators independent of telecom operators, and the creation of rules regarding universal service and the allocation of scarce resources such as the frequency spectrum, said Reed.

"Failure would be a tragedy, a terrible legacy," he said.

Governments that continue to prop up national monopolies and charge inflated prices for international interconnection rights are doing their homegrown industry a disservice, panelists said.

Due to competitive pressure, within five years telecommunications prices will collapse by between 50% and 80%, according to Denis Gilhooly, vice president of business development at satellite network company Teledesic.

"The fabulous profitability of international telecommunications, I would hazard, is about to unravel," Gilhooly said.

Government protectionism will ultimately backfire, as foreign capital flows to open markets where the cost of doing business is relatively low, panelists said. This presents a particularly thorny problem for developing nations, which fear that by opening their markets they will let big foreign companies put smaller local companies out of business.

"What developing countries need to ask themselves is, 'What does my country need to do about getting on the train and not getting run over by it?'" said Maxwell Wynter, president and CEO of Jamaica Digiport International Ltd., a telecom company in Jamaica's Montego Bay Free Zone.

"What is perhaps in the best interest of our countries and our people is that by working within an international framework we will have a say in how it is constructed," Wynter said.

One of the biggest problems for developing nations is how to deal with private telecom companies that have a monopoly, Wynter said. In Jamaica, the national monopoly has an exclusive license to operate the public switched network until 2014, with first rights of refusal after that date for 25 years.

Ways must be found to work around such arrangments without requiring govenments to unilaterally break their commitments, Wynter said. To reconcile such arrangements with a WTO agreement, interconnection rights with foreign companies can be forged, and opening markets for satellite and radio wave technology can be considered, Wynter said.

Experience in the U.S. after the breakup of AT&T shows that former monopolies may lose market share without losing revenue, as telecom liberalisation opens the way for increasing investments for new technology and business.

"From the time AT&T was opened up, it lost 40% market share but has never missed a quarter of increased revenues during a period which spawned 500 competitors in the long-distance business," said Brian Thompson, chariman and CEO of LCI International, the fourth largest long-distance phone company in the U.S.

The GIIC is a project under the auspices of the Center for Strategic and Internal Studies (CSIS), a nonpartisan, public policy research institution based in Washington D.C.

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