Talk Is Cheap

While diplomats bicker over telecom trade rules, new technologies are shattering protectionist barriers.

Cynthia Beltz from the August/September 1996 issue

(Page 2 of 2)

Converging technologies are blurring the boundaries between regulated and unregulated industries, allowing competition between firms that previously did not compete. In the past, there were separate networks for different types of traffic (voice, data, video). But with the digital revolution and deregulation in the United States, integrated service networks are emerging that include voice as one component in a bundle of applications. Regardless of what happens in Geneva, both foreign- and American- owned telephone companies are therefore being forced to compete against cable, satellite, and computer companies. New technologies have also cut the price of admission and encouraged a new generation of start-ups to enter the converging information and communications sector.

The Internet promises to be the most disruptive new technology. It is rapidly eliminating the importance of distance between nations, closing the gap between computer and voice communication, and giving corporations a cheaper alternative for traditional telecommunications services. In contrast to the telephone industry, it has not been protected or burdened with regulators trying to manage its growth. It has instead grown in response to user demands, with an exploding base of more than 50 million worldwide.

U.S. negotiators couldn't have asked for a better partner in the cause of opening markets. The Internet will hit exactly those markets, such as international telecommunications services, where profit margins have been kept artificially high by the lack of competition. On transatlantic connections 50 percent of the traffic is for fax messages, which are digital and therefore suited for Internet transmission. CallWare Technologies, a Salt Lake City company, is already selling software that makes international voice mail a local call. Internet-based call-back schemes are also starting to emerge. CallWare is working on a plan that would allow traveling managers connected to a U.S. computer via the Internet to command the computer to call another U.S. number over the phone line and then transfer that phone call to wherever they are located, thereby bypassing the high rates charged on outbound voice calls by monopolies in Asia and Europe.

Companies such as Digiphone and the Israeli firm VocalTec are pushing the Internet frontier beyond e-mail to include real-time, two-way voice conversations. The quality of the voice calls over the Internet is still inferior to those placed through traditional phone lines, but the technology and underlying infrastructure are rapidly improving. With Netscape and Microsoft racing against each other to add real-time voice capabilities to their Internet products, voice service may become a standard feature of software packages for surfing the Internet as early as 1997.

Internet phones are just the beginning. More and more companies are converting telephone traffic to digital data and sending it through private networks to cut telecommunications costs. Universities like Cornell are considering whether to replace their telephone systems with much cheaper systems that deliver multimedia over data networks. Sun Microsystems has announced plans to abandon the expensive global network that it leases from phone companies such as MCI and Sprint, instead connecting its scattered offices through the Internet.

The networking revolution is not limited to the United States. One of the most significant developments in Europe during the past year has been the growing importance of alternatives to the public telecommunications network. Hermes Europe Railtel, a consortium of railway companies financed by George Soros, is investing a reported $1.2 billion in a trans-European network that will allow it to sell its excess capacity to phone companies, corporations, and phone start-ups. It will be the first major network that doesn't rely on patching together leased fiber from telecommunication monopolies. Utilities such as RWE, Veba, and Viag also offer private corporate services on their backbone systems.

With competition for corporate users on the rise, monopolies may lose 40 percent of their market and 70 percent of their profits. Leased line prices for data and long-distance services are already falling and may drop as much as 10 percent a year as competition increases. A recent survey of 120 major corporations by IBM and The Economist Intelligence Unit found that the increasing availability of service alternatives is expected to hold down telecommunications costs even as the demand for voice and data traffic dramatically increases.

Foreign firms are expanding the base of competition and upgrading the information infrastructure in Europe and Asia. Cable and Wireless, a British firm, and Global One (Sprint, Deutsche Telekom, and France Telecom) are investing millions to develop Internet services in Europe and Asia. UUNET, one of the largest U.S. Internet access providers, plans to buy communication links in Europe from Hermes Europe Railtel BV. It has a 40 percent equity stake in EUnet Germany, the largest Internet access provider in that country, and in 1995 it purchased Unipalm PLC, the leading Internet provider in Europe. Other firms such as IBM are designing and operating private networks around the world. The IBM Global Network is one of the largest Internet service providers in the world, offering high-speed line connections with more than 600 dial-up points in 50 countries. With network costs becoming less sensitive to distance and a growing web of global alliances creating new forms of market access, geographic boundaries and corporate nationalities are becoming less relevant.

While negotiators have been arguing over the official rules of market access in Geneva, telecom operators in the OECD economies have been making some of their own as they rush around the globe gathering partners and stitching together a network to supply the information and communication needs of multinational corporations. This supercarrier race has been marked more by competition among U.S. long-distance providers than competition between U.S. and foreign-owned firms. MCI has joined with British Telecom to form the Concert venture. Sprint has the Global One venture, while AT&T has a loose network of alliances with local carriers through World Partners, which includes 16 telecommunications carriers that provide services in 31 countries in the Asia-Pacific region, North America, and Europe. In Germany, the largest telecommunications market in Europe, North American companies are playing an especially prominent role. The major ventures include Thyseen-Bell South; DASA-Northern Telecom; Viag Interkom-British Telecom, Veba-Cable and Wireless; and an alliance of CNI (Mannesmann-Deutsche Bank), AT&T, and Europe's Unisource.

These alliances are just the tip of a rising global information economy characterized by new patterns of international exchange and a dense web of public and private networks crossing industry and national borders. Market access continues to be a critical issue, but while the negotiations in Geneva could help, they are not the most important piece of the puzzle. Recent trends highlight the growing importance of marketplace developments relative to public institutions in setting the de facto rules of the game. The official rule-making process takes, on average, more than 10 years, whether for a domestic agreement (the U.S. 1996 Telecommunications Act) or a multilateral accord (the Uruguay Round Agreement and the pending WTO telecommunications deal). Contrast that experience with the rapid development of the Internet. Written off just two years ago as a plaything of the technical elite, the Internet is redefining the rules and the very nature of the telecommunications industry. Less than two months after the Telecommunications Act was passed, long-distance and local phone companies were lobbying the FCC to change the definition of a telecommunications carrier and stop "unfair competition" from innovations like Internet telephony.

With technology blurring the lines between industries, it is no longer clear where the lines should be drawn, or if they even can be drawn. Should Microsoft, Netscape, or Internet access providers be regulated as telecommunications carriers in the domestic and international arenas? Should voice services delivered over what used to be simple data networks be treated as enhanced services that are not regulated, or should they fall in the heavily regulated category of basic services? Definitions may ultimately matter very little. By the time an official decision is made, the marketplace will probably look fundamentally different. An industry rule of thumb is that one human year is equal to about five Internet years.

In this chaotic world of converging markets and rapidly changing technologies, government should do what it can to promote a uniform, stable framework of rules. The United States failed at this task last April in Geneva. According to the U.S. Trade Representative, 33 governments "have indicated that they are prepared to commit to fair rules of competition. This is an unprecedented development in a global market that is still dominated by inefficient state-owned monopolies." But instead of seizing the opportunity to anchor these commitments to a multilateral system of rules that would have improved the access of U.S. telecommunications firms, the United States walked away from the negotiations.

In doing so, the Clinton administration also lost a strategic opportunity to strengthen the WTO and put to rest nagging questions about America's commitment to the multilateral liberalization process. Congress was already skeptical about what the United States would gain from the WTO. Senate Majority Leader Bob Dole further encouraged distrust with his proposed "three strikes and you're out" commission, which would review WTO rulings and recommend that the United States pull out after it finds three it doesn't like. Other countries are also responsible for the WTO's setbacks--Malaysia and Indonesia did not even make liberalization offers in the telecommunication talks--but their decisions do not carry the same weight as those of the United States.

The success of international agreements like the Uruguay Round, which created the WTO, depends largely on the level of support from their most powerful members. The U.S. government spent seven years convincing the international trading community it needed a global free trade watchdog. It also seems to think that the WTO can serve American interests: Twelve of the 18 disputes pending before the WTO were initiated by the United States. But if the United States wants a credible WTO around to handle its complaints against offensive trade practices and to shape the global framework for the marketplace being created by converging technologies, it needs to stop playing around with reciprocity games. Countries that choose not to open their markets do so at their own expense. If the U.S. government cannot demonstrate its faith in the benefits of competition based on its own experience, especially when current trends so overwhelmingly favor U.S. interests, what other government will? Periods of momentous change and opportunity reward those who not only talk about what needs to be done but who lead by example.

Comments

business phones|10.21.10 @ 7:10PM|#

I guess this is the way the world is going these days. I'm sure we can expect the trend to continue.

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nfl jerseys|11.16.10 @ 8:47PM|#

nmfrhr

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infiniti |4.12.11 @ 5:16PM|#

I think modernization makes it easy for broadband companies to connect to the world. The number of options can seem overwhelming, however the broadband companies do what they can to sweeten the deal. In fact, broadband phone providers charge you a much lower monthly fee for local, long distance and international calls than traditional phone service . The only catch for broadband users is that Call quality depends on the quality of broadband connection and the performance of your personal computer. You should have good internet connection and make sure that both your computer hardware and software are running properly.

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