Talk is cheap - liberalizing the telecommunications industry

Reason, August-Sept, 1996 by Cynthia Beltz

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 super-carrier 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 play-thing 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.