TRADE IN TELECOM
Liberalisation in most markets around the world has inspired dramatic growth. By 2006, total world telephone subscribers had reached nearly 4 billion (fixed and mobile), a level which brought global teledensity to 60%, compared with only 23% in 1999. Global telecom services revenue had reached more than $1.4 trillion by 2005.
Between 1996-2006, mobile subscribers increased nearly twenty fold and Internet users by 1500%. Worldwide, mobile subscriptions grew at 24% per year since the start of the decade and exceeded 100% annual growth in many developing countries. By 2006, mobile phones accounted for 70% of all phones in use, and have overtaken fixed-line services in nearly all countries. Internet has evolved into a full-fledged commercial service that is an integral part of the business world, consumers' lives and the global economy. Internet technology might well form the backbone for communications in the near future with the so-called next generation networks. Broadband technology has also taken hold, particularly in the developed world, but also in emerging Asian economies, where penetration ranges from 15-25%. Increasing access to broadband has become a policy objective even in the poorest economies.
Telecom reform has opened markets not only for large operators but also for entrepreneurs of small and medium sized companies. Internet access, data services, and many other "value-added" telecom services have low entry costs and can often find a niche customer base perhaps neglected by large operators.
Other small business oriented opportunities include resale services (e.g. calling cards), telecentres, and mobile franchises, sometimes implemented through association with operators. Creativity in small and medium sized telecom ventures has been a hallmark of reforms and government initiatives, increasing access in many countries.
COMMITMENTS ON TELECOM
Many WTO Members have taken GATS commitments on a broad array of telecom services. Whether you are a mobile or fixed-line operator, a reseller of services or capacity, a provider of internet access or of corporate data services, there may be market access guarantees in the economies where you wish to do business.
The appeal of making commitments in this sector can be credited in large part to an acceptance by governments that competitive frameworks can achieve many traditional and new policy objectives. Telecom is now widely recognised by policymakers as playing a key role in trade and economic growth. Indeed, the highest telecom growth rates and some of the most remarkable success stories are found in the developing world.
SECTORS COVERED
Definition and Classification
The GATS Telecom Annex defines telecommunications, in general, as “the transmission and reception of signals by any electromagnetic means". The Annex also defines public telecommunications transport services as those "involving the real-time transmission of customer-supplied information between two or more points without any end-to-end change in the form or content"; these services are commonly referred to as "basic" telecom services.
The GATS services classification list includes 14 types of services. These range from voice telephony and data transmission to computer-enhanced services such as e-mail, and on-line data processing, access and retrieval services. Services (a) – (g) in the classification list are considered to be basic services (telecom transport networks and services) and services (h) – (n) are generally regarded as "value-added" or "enhanced" services. The services listed have a corresponding CPC reference, but the match is far from exact due to many recent commercial, regulatory, and technological developments. Therefore, Members use a set of categories listed in a Chairman's Note on telecom scheduling to adapt the existing GATS classification to these developments and more clearly understand one another's telecom commitments.
Where is my service?
You may not find the exact service you provide listed explicitly in the telecom classification. There are a number of reasons for this, but it usually does not mean your service may not be covered. In some cases, services have developed new names for commercial or marketing reasons, even though the services actually do fall within the existing definitions of telecom services. For example, "streaming" is a form of data transmission. In other cases, new names have evolved for certain technologies.
In another example, "broadband" is a high capacity form of wire-based or wireless technologies and voice over internet protocol (VOIP) telephony is a form of voice telephone service. Finally, your service may be covered by more than one of the 14 types of services. Internet access, for example, typically combines a number of listed services, such as database access and retrieval, e-mail and on-line data processing.
Combined Services
Obviously, companies may provide one or many telecom services, separately, or in a trend that has become increasingly popular, in seamless combinations or bundles. In addition, liberalisation has made it increasingly feasible to provide telecom services through, and even combined with, other services. For the latter, the non-telecom content provided or business conducted through telecoms would be covered by the sector relating to the content or business concerned. For example, banking services provided on-line would fall under financial services. On-line medical diagnosis falls under health services. In short, in these examples, telecommunications is the "means of delivery". However, in situations where a content supplier may also lease or operate its own communication network or service, the company needs to consult both telecom and the content-related commitments to fully understand the GATS benefits for its business.
MODES OF SUPPLY
How are telecom services traded?
For commercial presence (mode 3) and movement of natural persons (mode 4) the issues that arise for supply of telecom is generally similar to that for any other sectors. Companies who establish a presence to supply services in the market would come under mode 3 and would be affected by, for example, foreign equity restrictions, if any. Foreign managers hired by companies or independent telecom engineers working under contract in a country would, for example, be covered by mode 4. It is also important to note that outgoing international telecom services from a country are considered to be an international service supplied via mode 3 by a foreign firm established in that country.
Cross border supply (mode 1) and consumption abroad (mode 2) merit further attention, in part, because telecom by its very nature consists of interlinked global networks and because of telecom's dual role as a service, in itself, and as a means of delivery.
For cross border supply, the first thing to recall is that GATS defines the mode in geographic terms (from the territory of one Member to the territory of another), rather than according to where a paying customer resides or the place and direction of payments. So when a service that does not require a commercial presence is supplied into a market, it can relate not only to telecom services sold to paying customers in that market (e.g. mobile satellite services, some internet-based services) but also to services that cross the border into that market for which a local resident may be the recipient, rather than the paying party (e.g. an incoming international telephone call or incoming transmission of data).
For consumption abroad, it is possible for a customer to request or use a service of a foreign company without moving physically abroad. Therefore, a corporate customer can send data abroad for processing similar to the way a consumer might send a watch abroad for repair. While such activities would be more common in business-to-business transactions, examples involving ordinary customers can include mobile roaming, calling card services, and internet telephony. Bear in mind, however, that such transactions usually culminate in or combine with cross border supply in an almost seamless way. This means that commitments on both modes are necessary to fully cover these types of services transactions.
REGULATORY ISSUES
What regulations affect trade in telecom?
Domestic regulations such as licensing and technical standards are common in the telecom sector. These are addressed in certain provisions of Article VI on domestic regulation. Also widespread are the use of competition policies (both general and sectoral, e.g. interconnection regulation), universal service/access requirements and public service obligations. Measures to safeguard competition or promote universal service may also include price or tariff controls. Policies to regulate competition, universal service/access or public service are not mentioned explicitly in the GATS framework, but form a part of the body of laws and regulations GATS considers to be domestic regulation.
Some aspects of competition policy are covered by GATS provisions on monopolies and exclusive providers (Art. VIII). However, these do not extend dominant suppliers who no longer retain formal monopoly rights over particular services. The GATS Annex on Telecommunications contains access and use guarantees that apply to the regulation of all public service operators, and can be particularly relevant when operators are monopolies or dominant. In addition, core provisions of the Reference Paper relate specifically to the regulation of dominant suppliers (referred to in the Reference Paper as "major" suppliers).
As in any other sector, regulations on committed telecom services must be implemented in a way that is reasonable, objective and impartial (Art. VI). And whether or not there are commitments, the regulations must not discriminate among the services or suppliers of different GATS Members – the MFN principle.
The Reference Paper
Many Members have added the Reference Paper on telecom regulatory principles to their schedules as "additional commitments". In effect, for the Members that include it, the Reference Paper adds obligations related to the domestic telecom regulatory framework. If the Reference Paper is taken on by a government in a market where you do business, it should provide you the benefit of competition safeguards, interconnection guarantees (including cost-oriented rates with dominant operators), licensing disciplines, competition neutral universal service mechanisms, and fairness in the allocation of scarce resources, such as the radio spectrum.
Although most Members added the standard template Reference Paper, departures were possible, so the schedule's additional commitments should be checked and confirmed for each market in which you do business.
Domestic Regulation vs. Schedules of Commitments
Many types of domestic regulations and policies do not generally fall within the types of measures GATS defines as restrictions on market access. Therefore, you will not usually see them listed in the schedules. Exceptions where such policies might overlap with restrictions can arise if, for example, 1) foreign companies are subject to different licensing or authorization procedures than domestic ones (national treatment limitation), or 2) a limit on the number of suppliers (e.g. monopoly or duopoly) or a market needs test (tied to issuance of new licenses). Such measures, justified in the past as a means to promote national objectives (e.g. network expansion or increased access) are sometimes still employed. However, they are considered to be trade restrictions that must be scheduled, if maintained, and are increasingly considered less effective than competition as a means to achieve these domestic policy objectives.
COMMON LIMITATIONS
What kinds of limitations will you most often see in schedules of commitments?
Overall, three types of market access restrictions are most commonly listed in telecom commitments:
- limitations on the number of suppliers;
- limits on foreign equity participation; and
- restrictions on the type of legal entity.
Such limitations are usually listed under commercial presence (mode 3).
Also fairly common are certain market access limitations used to clarify the level of liberalisation committed. For example, "routing restrictions" are sometimes listed under cross-border supply (mode 1) to clarify restrictions against bypass of the networks that are still under monopoly. Also, in partially liberalised telecom regimes, a market access restriction will sometimes be used to indicate that a certain category or sub-activity of a committed service is not allowed. Examples may include "resale not allowed" or "call back services not allowed". In these examples, the entries can mean the type of activity that is prohibited is subject to a "zero quota" (in trade jargon).
Restrictions listed in the national treatment column are relatively uncommon in this sector. In some instances, however, nationality restrictions on the composition or control of the board of directors of a firm may be found. While discriminatory market access limits are to be listed in the market access column of a schedule, these are also fairly uncommon in the telecom sector. For example, governments impose a duopoly on fixed services or a numerical limit on the number of mobile operators, they usually apply the quotas in a non-discriminatory way to both foreign and domestic firms.
SCHEDULING ISSUES
Two Chairman's Notes are used by Members when drafting their telecom commitments. You will be better able to understand what is and what is not committed in a schedule if you are familiar with these Notes and the general GATS scheduling guidelines.
"Technology neutral" approach
The Chairman's Note on scheduling basic telecommunications not only helps define the services, it also sets out guidelines often referred to as the technology neutral approach to scheduling. According to the Note, if a commitment does not clearly indicate that it is limited to one or more of these categories, then the commitment is understood to include all of them. In fact, the categories not only cover technologies, but also include geographic and regulatory distinctions. Conversely, this means a Member who does not want to commit on all categories, or opens some more fully than others, may specify whether and to what extent the service committed covers the categories.
The geographic categories concern local, long distance, or international markets. The technology-related ones are wired-based or wireless. The categories covering the methods used to supply services are facilities-based or non-facilities based. The final two categories, public or non-public use (i.e. private or corporate) involve a distinction often contained in laws or regulations.
Spectrum constraints
Even where markets are open, spectrum availability could act as a resource constraint on how many suppliers can be authorized to provide certain kinds of wireless services. The Chairman's note on Spectrum Management explains that limits on the number of suppliers imposed due to spectrum scarcity would not be considered limits imposed for protectionist reasons.
Related articles:
- Part 1: Introduction to the General Agreement on Trade in Services - GATS
- Part 2: Defining Trade in Services
- Part 3: MFN Treatment, Transparency and Domestic Regulations
- Part 4: General Obligations - Mutual Recognition, Competition Issues and Progressive Liberalisation
- Part 5: GATS Commitments
- Part 6: MFN Exemptions
- Part 7: General GATS Exercice
- Part 8: Service Sector - Professional Services
- Part 9: Service Sector - Business Process Outsourcing (BPO)
- Part 10: Service Sector - Computer Services
- Part 11: Service Sector - Postal and Courier Services
- Part 12: Service Sector - Health related and Social Services
- Part 13: Service Sector - Educational Services
- Part 14: Service Sector - Environmental Services
- Part 15: Service Sector - Tourism Services
- Part 16: Service Sector - Logistics Services