Remarks of Commissioner Gloria Tristani
to Camara de Comercio Latina de los Estados Unidos (CAMACOL)
February 3, 1998
Thank you for your gracious welcome. It is an honor to be here with you, and I would like to thank CAMACOL's members for this opportunity to share with you my first remarks as an FCC Commissioner. I want to thank President Luis Sabines for his hospitality in introducing me to the Hispanic business and civic community here in Miami.
I also want to congratulate Luis Sabines for his leadership and CAMACOL for the extraordinary work you do in your community, in our country and in the Americas. I had the opportunity to read the Perfil de la Camara and was impressed by the scope of your accomplishments and your programs. I'd like to note in particular your "Congresos Hemisfericos," and other activities you spearhead that are dedicated to promoting commerce, trade and understanding among our country, the Americas, and the rest of the globe.
You have already recognized the tremendous economic opportunities that global trade but in particular, trade with our neighbors in Latin America, represents. And you are specially prepared, because you speak the language and share a common culture and traditions, to seize these opportunities. It is with this perspective that I would like to talk to you about the new opportunities that you should be ready to seize.
In three days -- on February 5 -- a quiet but most remarkable event will occur. That is the day the World Trade Organization Basic Telecommunications Agreement (or WTO for short) comes into force. It will provide the opening for a transformation in the way we live our lives, the way we conduct our business, the way our children will learn and communicate with one another.
The Global Information Infrastructure: Growth and Opportunity
Two hundred years ago, the invention of the steam engine and the harnessing of electricity were the sparks for an industrial revolution that radically changed the way we worked and the prosperity of this country. In hindsight, it is easy to recognize the significance of that revolution.
But today we are experiencing another revolution, an information technology revolution, that is changing our lives and our businesses in equally dramatic ways. The digital information age is not only changing the way we communicate -- it is transforming nearly every aspect of daily life, from commerce, to education, to health care. The new technologies and new networks that are at the heart of this revolution enable us to transcend distance and time, and to connect the people, cultures, and ideas of the world through a global information infrastructure.
This technological revolution has been an important engine for economic expansion and job creation, both here and abroad. Today, telecommunications is a $600 billion global industry. And it is expected to double, or even triple, within the next ten years. In the United States, telecommunications has been one of the fastest growing sectors, at a rate 65% higher than the rest of the economy. Of the 12 million jobs created since President Clinton took office, a full 8 million have been in the telecommunications and information sectors.
This is good news for your businesses, and for our economy, because telecommunications is an "enabling" industry for others. It is the backbone which supports other sectors. The development of a nation's communications infrastructure is a reliable measure of that nation's potential performance in the global economy. The more advanced the network, the greater its capacity and efficiency, the greater its contribution to the economy overall. For us, the growth of new services like the Internet have eliminated distance-sensitive costs while greatly expanding capacity. This has created new markets for the long distance provision of goods and services, expanding the effective scale of markets. And trade in services is growing, worldwide, at a rate twice that of trade in goods. It is becoming more and more clear that the global economy of the 21st century will be fueled by the information networks that we are building today.
At the same time, an unfortunate reality remains: the communications network is still out of reach for most of the world's inhabitants. 45 of the world's countries have fewer than one phone line per 100 inhabitants. Some Latin American countries still have telephone penetration under 5 percent. This compares to phone penetration in the US of 94 percent. And did you know that there are more phone lines in the city of Tokyo than in the entire continent of Africa? So, in building this global information infrastructure, with its power to unite people across all corners of the globe, it is critical that we promote policies to close, rather than widen, the gaps between the technology "haves" and "have nots."
Privatization and Competition
More and more countries are recognizing that the model of a state-run telecommunications monopoly has been largely responsible for this gap. Building a ubiquitous information infrastructure is a highly capital intensive undertaking. It requires billions and billions of dollars to build out the underdeveloped infrastructure in even the not-so-remote regions of the world. Neither national governments nor private monopolies have the resources and the incentives to do so.
But countries around the world have begun to recognize that open competition and private investment are the linchpins to the development of a efficient and broadbased telecommunications network. The benefits of this thinking have already taken hold in much of Latin America. For example, in 1988 when Chile privatized its telecom sector, 5 of every 100 Chileans had a telephone. Within ten years under privatization, that figure increased to 15, a three-fold improvement. As more countries open up to privatization and full competition, we will continue to see such dramatic results.
World Trade Organization Agreement
This brings me back to that quiet but remarkable event -- the entry into force of the World Trade Organization Basic Telecommunications Agreement. The Agreement was signed in Geneva last year by 69 nations, representing 95% of that $600 billion in worldwide telecom revenues. One of my first acts as a new FCC Commissioner was the adoption of rules implementing this Agreement in the United States.
The Agreement is premised upon the ideas embodied in our own Telecommunications Act. When effective, it will end long-held view that telecommunications must be a monopoly service, and instead allow new competitors to deploy efficient, cost-effective technologies to tap unserved, and underserved, markets. Under the Agreement, US companies will be free to enter previously closed foreign markets to offer competitive local, long distance and international services.
The range of services and technologies covered by the Agreement is expansive. From satellite systems to submarine cables, from cellular phone service to fixed wireless networks capable of serving remote and underserved areas much more efficiently than the wireline network, the Agreement's market access commitments span the whole range of innovative technologies pioneered by US industry and workers.
The agreement incorporates three basic principles: market access, investment, and pro-competitive regulatory regimes. With respect to market access, the Agreement provides US companies with access through any means of technology, whether through building their own network facilities or through the resale of existing network capacity. Although some countries have limited access for certain services, 52 committed to full market access for all services and facilities. Importantly, there is also a requirement for non-discriminatory, national treatment. This means that US companies must be able to conduct their businesses in foreign countries on the same terms and conditions as their domestic competitors -- no special taxes or tariffs.
With respect to investment, the Agreement ensures that US companies can acquire, establish or hold a significant stake in telecom companies around the world. Again, although the amount of investment may vary according to the individual country's WTO commitment, 44 of the 69 signatories have agreed to allow foreign ownership or control of all telecommunications services.
Finally, the Agreement implicitly recognizes that a country's regulatory structure serves as the gateway for the development of its telecom markets. Open markets and national treatment are insufficient to spur growth and development if regulatory practices are unknown, invisible, or, worse yet, disparately applied. And as new services like the global satellite systems and the Internet naturally transcend national boundaries, the need for regulatory stability and certainty has become even more critical.
In recognition of this fact, 65 of the 69 signatories agreed to a set of pro-competitive regulatory policies, including establishing independent regulatory bodies with transparent regulation and licensing procedures. The FCC is active in assisting these countries as they establish their new regulatory structures. I have already had the opportunity to meet with the heads of new agencies from several Latin American countries. Certainly this is a work in progress, and the transition will take time. But the US and the other signatories are united in assuring that fair, transparent and non-discriminatory regulation across WTO member countries will provide investors with the confidence and stability necessary for long-term private investment.
Benefits for US companies and US Consumers
US companies and US consumers both have a great deal to gain. From wireless to wireline, US firms are at the forefront of technological development. They are accustomed to operating in the world's largest, most competitive telecom services market, and are well poised to enter new markets and compete. The Department of Commerce has estimated that growth in the global telecom services market will average 12 percent through the turn of the century, as continued expansion of foreign networks and lower prices through competition fuel demand. I fully expect that US companies will be in the thick of it, and I challenge you to take a stake in this unprecedented growth.
As part of this growth, the US Trade Representative has estimated that over a million new jobs in the US will be directly attributable to the WTO agreement. Companies here and abroad will need people with the experience and skills necessary to deploy telecommunications networks -- whether in technology development, information services, electronic publishing, marketing, or construction and land use.
One particular opportunity for US companies may be entry into foreign markets through resale. As I mentioned earlier, the WTO Agreement market access commitments include access to a country's telecommunications network through resale of existing facilities. Resale can be a good entry strategy when the infrastructure costs of building a duplicative network may be prohibitive. Essentially, resellers buy minutes of telephone service in bulk at wholesale prices, and then resell them directly to the customer.
Resale can benefit consumers by driving down retail prices. In addition, resale can be used as a targeted entry strategy, such as when resellers look for unserved niche markets. One example would be with cellular prepaid service, where a reseller might target consumers who either have low or infrequent calling needs, or alternatively, consumers who have had difficulty obtaining credit. Likewise, here in the US I have seen resellers who have targeted language or ethnic communities who are underserved, or who are not well marketed to, by the dominant provider in their area.
Opportunities abound for small businesses who can identify and serve these market niches, as well as for large firms who want to provide service on a broad scale. Hispanic American businesses are well positioned to make use of these opportunities. As you well know, Hispanic businesses are growing at a tremendous rate. And I know that Hispanic businesses here in South Florida are growing and performing well above the national average.
Hispanic American businesses like yours are uniquely positioned to help satisfy much of the unmet demand for telecommunications that exists in Latin American markets. The range of liberalizations under WTO varies widely -- from Chile, which has a fully liberalized market, to many of the nations of Central America, which are just initiating privatization and opening up to competition. Different models are being followed. Mexico, for example, privatized its state-owned telecom monopoly, Telmex, in 1990 and opened many of its sectors to private competition. Brazil has made the headlines for opening up competition in its cellular services. And Chile and Argentina are in the process of awarding multiple licenses for PCS (personal communications services), a competitor to cellular. These wireless services have been used in innovative ways to link residents in isolated rural areas, where the cost of laying a traditional wireline network has precluded them from being a part of a country's national network.
Certainly there is a range among the commitments to liberalization and privatization made by the Latin American countries at the WTO. What is critical is that the process has begun, and the region will see tremendous growth in the years and decades to come. Those countries going first stand out as examples for the rest: I already mentioned that Chile tripled its telephone penetration in the decade after privatization. In addition, since Chile opened its long distance market up to competition, prices have dropped by 40-50 percent, traffic has increased by 40 percent, and there are eight competitive carriers. But even as a regional leader with telephone penetration at 15 percent of the population, Chile still is an example of the great potential for growth.
The flip side of WTO opening foreign markets to competition is, of course, the opening of US markets to foreign competition. This increase in competition will benefit businesses and consumers through lower prices. The Trade Representative has estimated that international calls in this hemisphere will drop by as much as 80% over the next five years. This should have a particular benefit for Hispanic American households as well. On average, Hispanics spend 16% more than non-Hispanics on telephone service.
Along with the competition and lower prices that the WTO Agreement will bring, the FCC has taken additional action to help lower the cost of international calling. Last summer the Commission adopted international settlement rate benchmarks. Settlement rates are the per-minute fees that your US licensed carrier must pay to a foreign carrier to terminate your call in that carrier's country. These rates currently exceed the foreign carriers' actual costs for terminating the call, sometimes as high as 10 or 15 times cost. The effect on US consumers is that we pay on average 13 cents per minute for a domestic long distance call, and 88 cents per minute for an international call. But the actual difference in economic cost is only a few cents.
To put an end to this system, the FCC adopted rules limiting the amounts US carriers can pay in settlement rates. These rules provide for a phased-in reduction in the rates, with the targeted amount and the timeline for reaching it varying based upon the economic development and current telephone penetration of the country involved.
Technology, of course, is a great equalizer, and luckily for us, its development is hard to constrain. No discussion of the worldwide communications revolution would be complete without mentioning the Internet. And, by the way, in preparing for this speech, I was happy to find CAMACOL on the Internet. Although the Internet has advanced most rapidly in the U.S., it is quickly expanding in other areas of the world, such as Latin America.
The Internet is already having a significant impact on international communications and foreign countries. One small but important example is faxes, which today represent a significant portion of international telecommunications. Faxes can easily be transmitted over the Internet's packet-switched network, which has a lower cost structure than voice networks. The result is a dramatic drop in the cost of sending an international fax. This poses an interesting technological solution to the settlement rates problem I just mentioned, because independent of the FCC's regulation, voice traffic will probably follow faxes onto alternative networks unless countries move their call termination rates closer to cost.
For developing countries, the Internet also provides a priceless model for economic growth. The United States awakened very slowly to the potential of the Internet. The government funded the initial development of the Internet in the late 1960s, but it wasn't until the early 1990s that the Internet became a commercial and cultural phenomenon. Other countries with less developed communications need not wait this long. They can study our experience and deploy the type of networks that support robust data and voice communications simultaneously. This could be a real economic boon to foreign countries as well as a great business opportunity for American technology companies to help build those networks.
This brings me full circle, back to the tremendous potential the information technology revolution has for transforming our world and to the unparalleled economic opportunities for Hispanic-American businesses such as yours. You can be active participants in this technological revolution, whether it be in selling telecommunications services, investing in infrastructure, or partnering with others.
Despite all of the advances I have discussed today, and despite the development of packet-switched networks, of fiber optics, of wireless local loops, we often forget that more than half of the world's population has never made a telephone call. Technological advances like the Internet have done much to democratize access to information by dramatically decreasing cost. Together with the open markets and competition fostered by the WTO, this will do more to promote global universal service in the next decade than we have achieved until now. And the greatest message for Hispanic American businesses is that WTO enables us to grow and develop while helping other nations to do the same.
Thank you for the opportunity to be here with you today.