International Telecommunications: An Opportunity for U.S. and EU Joint Leadership
Good morning and it's nice to see so many people here.
It is a pleasure being here to toast the New Year with some juice and coffee and to kick-off this year's roundtable program at The European Institute. I've always found that this Institute provides a terrific forum for representatives from U.S. and EU organizations to build relationships for the communication of new ideas. I hope we can continue that tradition with our roundtable discussion this morning.
Rather than surveying the major domestic telecommunications decisions confronting the FCC in 1999 --- for instance, acting on the SBC, Bell Atlantic, AT&T and other pending telecom merger applications; addressing television and radio station ownership issues; acting on the Joint Board's universal service recommendations, and many more --- I thought I'd take a slightly different tack this morning.
Instead, I'd like to sail into the international telecommunications waters that U.S. and EU regulators certainly will be navigating during 1999. As I'll delve into in a minute,
1999 has the potential to be a pivotal year for reaching a consensus on international telecommunications policies in several critical areas.
How U.S. and EU regulators navigate their way through these unchartered regulatory waters --- either sailing together or separately --- could have significant repercussions for how other countries around the world resolve these same issues.
Leading By Example
As I mentioned, 1999 is likely to offer U.S. and EU regulators unusual opportunities to fashion sound policies in the areas of spectrum management and standards for emerging third generation wireless mobile systems. If we pursue these opportunities constructively, we not only will be resolving some tough issues but also we will be setting an example of joint leadership for how difficult or contentious international telecommunications policy matters can be resolved in the future.
This year's a good time to demonstrate this leadership for a few reasons.
For one, we will be celebrating the one year anniversary of the U.S., EU and other countries opening their markets to basic telecommunications services under the groundbreaking WTO Agreement. How the U.S. and EU interpret and give effect to honoring their WTO commitments will be watched closely by the rest of the world.
This is important because many WTO and non-WTO countries have yet to open their markets to foreign telecommunications providers. For most of them, it's only a matter of time before they do. And when they do, they will look back at how the U.S. and EU implemented the WTO Agreement. So, we must remember, what goes around, also is likely to come around again.
Another reason why this year is significant is that there are a myriad of other international regulatory and commercial events that are taking on increasing significance. To name just a few --- establishing cost-based accounting rates for international telecommunications traffic; finding ways for geostationary and non-geostationary satellite systems to share the same spectrum; and the continuing worldwide roll-out of global mobile Big Leo and Little Leo mobile satellite systems.
Given these events coupled with the burgeoning commercial demand for spectrum resources, now seems to be a good time to take stock of the international telecommunications regulatory issues on the front burner for both U.S. and EU regulators to identify: (1) those issues where we occupy common ground and are successfully collaborating to spread pro-competitive policies around the world; and (2) those issues on which we differ or where we need to share more information, if we are to have a chance at reaching common ground to resolve them.
U.S. and EU regulators are recognized as opinion leaders in the international telecommunications sector. We regulate the most innovative and technologically advanced telecommunications carriers and networks in the world.
Perhaps working together to understand each other's positions --- and maybe reaching common ground on some of them --- we can provide an example of joint leadership for the rest of the world to follow on these and other difficult issues. In turn, this may serve as a model for cooperation among countries as they implement their commitments under the WTO Agreement and ease the transition to open and fair competition in their own markets.
There's one thing for sure, though, that we can count on. As we move into the next millennium, the rest of the world will be watching us to see how we resolve the tough policy issues we face this year --- both those issues we approach the same way as well as those issues we approach differently.
Where We Have Common Ground
To begin with, let's identify some of the areas of international telecommunications policy where the U.S. and EU occupy common ground. There are several, really.
WTO Agreement Market Access
First, both the U.S. and EU --- as well as many other countries --- were very proactive in making commitments under the WTO Agreement. We are now starting to see the benefits of those commitments for consumers. In 1998, the largest U.S. carriers reduced their residential rates significantly along major international routes. Moreover, we are seeing large numbers of new entrants beginning to provide service in the higher teledensity markets --- particularly in EU member countries. These are very positive signs that the pro-competitive forces unleashed by the WTO Agreement are making headway.
Looking ahead, the challenge for U.S. and EU regulators will be not only to live up to their commitments under the WTO Agreement but also to monitor and ensure that the market access commitments made by other WTO countries are realizable by new entrant service providers.
A key aspect of market access will be the ability of new entrants to interconnect with incumbent carriers to terminate international and domestic calls on the public telephone network based on nondiscriminatory and reasonable rates. The WTO's Reference Paper sets forth guiding principles for new entrant interconnection. No doubt that the devil will be in the details when implementing these principles. But we must remain vigilant in striving for nondiscriminatory and reasonable interconnection rates and rules.
Ensuring nondiscriminatory market access under the WTO Agreement is certainly an area that the U.S. and EU share the same problems and challenges.
I would look forward to the opportunity to get together with my colleagues from EU member states to develop strategies for addressing market access issues.
Accounting Rate Reform
Another area where significant progress is being made is the effort to reform the bilateral accounting rate/settlements process. In the six months since January 1, 1998 --- the effective date of the Benchmarks Order --- the average accounting rate for international calls originating in the U.S. fell by over 14 percent. We don't have year-end data for 1998, but we expect the annual decrease to surpass 1997 decreases by a much larger margin.
More good news is that the decrease in accounting rates is not just limited to the developed world. For example, over the last few years accounting rates between U.S. and Dominican Republic and Philippine incumbent carriers have decreased, 54 and 46 percent, respectively.
I was intrigued to see last year that the EU released a Directive concluding that the current form of Internet telephony was not considered voice telephony subject to regulation. As more international voice traffic shifts to Internet based networks --- and these networks are bypassing the existing accounting rate process -- I expect we'll see more downward pressure exerted on accounting rates.
These are positive economic developments for U.S. and EU international telecommunications service providers. The U.S. intends to continue participating actively --- together with the EU --- in ongoing ITU discussions regarding a multilateral approach to accounting rate reform. In the meantime, however, the FCC will continue taking steps to enforce the accounting rates established in its Benchmarks Order.
I expect that we will continue to see accounting rates decrease and this certainly is another area where U.S. and EU regulators must continue to work closely together.
A third area where we work well together is in the field of merger policies. We should continue to maintain the focus of our merger policies on the goal of promoting competition, rather than letting these policies degenerate into trade weapons. So far, promoting competition has been the focus of our merger policies, and I have been particularly impressed with EU competition commissioner Karel Van Miert's efforts in this regard.
Bilateral and Multilateral Agreements
A final area where the U.S. and EU have made significant progress is in concluding radio transmission equipment mutual recognition agreements. These agreements or "MRAs" are truly groundbreaking. They remove the regulators from the equipment certification process --- in effect, privatizing this process.
Under the MRA, U.S. companies will be permitted to certify radio equipment to EU standards for use in the EU. Likewise, EU companies will be allowed to certify such equipment for use in the U.S. In fact, just last month the FCC adopted regulations to accredit and certify EU companies for this purpose. This MRA has served as a model for similar MRAs that the U.S. has negotiated with APEC member countries and is currently negotiating with CITEL member countries.
This MRA offers an excellent example of how the U.S. and EU can work together to put in place a streamlined equipment certification process for approving the large quantities of radio equipment expected to be deployed in coming years. It also offers a model approach for the rest of the world to facilitate the deployment of advanced communications equipment worldwide.
Searching For Common Ground
I've highlighted some of the areas where the U.S. and EU are cooperating closely.
Now, I'd like to identify a few areas of international telecommunications policy where the U.S. and EU seem to be moving in different directions.
Two that readily come to mind are: (1) what spectrum policies should apply to new entrants seeking to provide service in already crowded spectrum; and (2) what role, if any, should government play in setting standards for telecommunications services.
How the U.S. and EU work together to bridge their policy differences has the potential to serve as an example for how other countries will resolve these same matters going forward. It's crucial that we do work this out particularly as global communications systems from both the U.S. and EU begin providing services worldwide.
Last September in a speech at the PCIA Convention, I outlined my thoughts regarding the U.S.'s three-step approach to spectrum management. First, we generally allocate spectrum for a particular service or use; next we develop technical and service rules for how licensee's may use the spectrum; and finally, we assign the spectrum to qualified applicants, in most cases by auctions. For the most part, this process has worked well for the U.S.
But rapid technological innovation coupled with the emergence of new entrant demands for ever increasing amounts of limited spectrum is challenging the bounds of our spectrum management process.
The rise of global communications systems that provide instant communications between persons anytime and anywhere is one such development that's putting pressure on our spectrum management policies. These global systems must obtain a license to use spectrum from each country in which they plan to provide service, not just in the U.S. and EU. As leaders in spectrum management, the U.S. and EU must be careful to consider the effects that our spectrum policies will have on these global systems as they seek licenses in other countries.
For instance, some are questioning the U.S. relocation policy applicable in the 2 GHz frequency band that requires new entrants --- who are being given the right to access spectrum already licensed to existing users --- to pay the costs to relocate those existing users who will be interfered with by the new entrants. This policy enables the spectrum to be put to its most efficient and highest valued use. Let me also point out that this policy applies equally and non-discriminatorily to all new entrants, regardless of their nationality.
While I support this spectrum policy, I do have a concern that other countries might try to impose a similar policy without adequate justification. This could seriously setback the development and deployment of global communications systems.
Also somewhat controversial has been the U.S. policy of licensing spectrum by auctions. To date, however, the U.S. has been able to license all qualified global satellite systems in the available spectrum without resorting to auctions. In some cases, this has required much effort on the part of the FCC and industry to develop spectrum band plans that can accommodate all qualified applicants.
One can easily see the difficulties that a global communications system would encounter if it were required to participate in an auction in every country in which its business plan requires it to provide service. The costs --- not too mention the uncertainty and delay --- associated with participating in such auctions could negatively effect the economics of financing the design, construction and operation of such a system.
I've noted with interest that the EU's Green Paper on Radio Spectrum Policy calls for comment on whether the EU should implement Community-wide spectrum relocation and auction policies, similar to those in the U.S.
I believe this area of spectrum policy --- particularly as it affects global communications systems --- is one where the U.S. and EU have similar interests. A little later this year, the FCC will be conducting a spectrum management en banc to open for public discussion the effectiveness of our spectrum policies, not dissimilar from what the EU is undertaking with its Radio Spectrum Policy Green Paper. I would encourage EU input at the en banc regarding these timely spectrum issues.
Another critical spectrum policy issue now being addressed by the ITU is how geostationary and non-geostationary satellites can share the same limited amounts of spectrum. Given that U.S. and EU companies operate both kinds of satellite systems, this is another area where U.S. and EU joint efforts would stand to benefit global communications systems.
Another sticky policy issue squarely confronting U.S. and EU policymakers is the ongoing debate over what the radio equipment standards should be for third generation mobile wireless systems (also referred to as 3G or, in the EU, as UMTS).
The arguments in the debate are not novel: Should government select and impose a standard or technology that industry must deploy for a new service or should the decision about what standard or technology to deploy be left to the individual industry participants?
The U.S. supports an approach that allows wireless service providers to select whatever standards or technologies they deem best for delivering 3G services to consumers. On the other hand, the EU has adopted a Decision that requires 3G systems operating in the EU to comply with standards established by the European Telecommunications Standards Institute (ETSI).
A major concern about the EU's approach that I share with other U.S. government policymakers is that if the EU sanctions a single standard adopted by ETSI, wireless consumers may be the losers in the end.
The single standard adopted by ETSI doesn't enable mobile wireless systems based on other standards a migration path for upgrading their existing infrastructure to be compliant with the standard adopted by ETSI. The ETSI standard also doesn't require EU 3G systems to be compatible with other types of mobile wireless systems. Thus, consumers using existing mobile wireless systems that are incompatible with the 3G standard adopted by ETSI will not be able to enjoy seamless roaming with their systems in the EU.
A second concern is that it may be premature for ETSI to adopt a standard while the ITU standards evaluation process is ongoing. To do so risks signalling an unwillingness to join in the multilateral process underway that may recommend more than one standard for 3G systems.
In any event, a more open dialogue between the U.S. and EU on 3G standards is needed so that mobile wireless consumers are able to use the system of their choice to enjoy state of the art 3G services, at affordable rates, anywhere, anytime.
I look forward to working with EU regulators to make this happen.
So, 1999 presents us with an opportune time jointly to continue the progress being made to spread pro-competitive telecommunications policies around the world. At the same time, it also challenges the U.S. and EU to recognize and respect their differing views on matters of international telecommunications policy, yet still strive to find ways to bridge these differences.
More eyes than we realize are watching us. How we approach and resolve some of those matters of policy that I've mentioned this morning will be scrutinized closely.
We have an opportunity to set an example of joint leadership in matters of international telecommunications policy. Will we seize it and add momentum to the spread of pro-competitive policies worldwide? Or, will we leave a vacuum of leadership on these issues for others to fill?
It's our choice.