Exploring the Reference Paper on Regulatory principlesBoutheina Guermazi

The successful conclusion of the agreement on basic telecommunications services under the World Trade Organization and its entry into force on February, 5 1998 mark an important milestone in the telecommunications industry's shift towards global competition, liberalization and open markets.(1) The agreement contains specific commitments in the field of basic telecommunications from 69 countries representing over 90% of the world’s basic telecommunications revenues.(2) In addition to market access and national treatment commitments,(3) the agreement on basic telecommunications embodies a negotiated set of pro-competitive regulatory principles contained in a reference paper.(4)

The reference paper represents the regulatory component of the basic telecommunications agreement. It is a set of common guidelines for a regulatory framework that countries should follow to support the transition of the telecommunications sector to a competitive marketplace and to guarantee effective market access and foreign investment commitments. The reference paper deals with six regulatory principles including competitive safeguards, interconnection, universal service, licensing, allocation and use of scarce resource and creation of independent regulator. The reference paper was adopted in full or in part by 61 signatories to the basic telecommunications agreement as additional commitments in application of article XVIII of GATS(5) . Once adopted, the principles of the reference paper become binding commitments and enforceable through dispute settlement under WTO.

The objective of the reference paper is twofold. First, it aims to provide foreign service providers with regulatory safeguards to guarantee that monopolies or former monopolies do not abuse their market power to undermine competition. Second, it aims to provide a harmonized set of regulations in order to minimize the phenomenon of asymmetric regulation. For many countries, especially the most developed ones, the set of regulatory principles only codifies the actual regime already in effect in their domestic rules. For others, however, the set is an invitation to extensive regulatory reform in the telecommunications sector.

This contribution argues that among all aspects of the WTO agreement on basic telecommunications, the reference paper on regulatory principles is perhaps the most significant and groundbreaking. The objective of this contribution is to shed some light on the reference paper as an original international legal instrument. The real importance and significance of the reference paper is its precedent setting value. The reference paper offers the international community an unprecedented example at least in three different areas. First, from a competition law perspective, the reference paper is the first international instrument to have introduced enforceable competition elements in a trade framework. Second, from a telecommunications law perspective, the reference paper is the first international document that embodies concepts and elements of telecommunications policy and regulations. Third, from a trade perspective,

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the reference paper offers an important answer to an old but always intricate conflict between the principles of sovereignty and regulatory autonomy on the one hand and the prerequisites of free trade and harmonization on the other hand. The present contribution deals with each of these aspects separately. The last section looks at the reference paper from a practical point of view focusing mainly on the huge implementation task ahead for many countries especially developing ones.

SECTION 1: The reference paper: A precedent setting instrument in competition matters

Discussions about the need and the desirability to extend multilateral trade disciplines to cover competition policy matters have been prevalent for over fifty years. From the charter of the born dead international trade organization,(6)

to numerous attempts to address the issue in multilateral codes of conduct (7), the issue today knew a renewed attention with the first Ministerial meeting of the WTO 's creation of a working group on competition and trade (8).

Today, the question of extending trade rules and disciplines to private anti-competitive practices of national firms lies as one of the most important topics to be addressed by the next round of trade negotiations in early year 2000.(9) This old debate, however, proved contentious and no consensus has ever emerged on whether and how to address competition concerns within a global trade framework. (10) The importance of the reference paper in this respect is that it provides a possible workable approach to the problem through sector specific regulatory commitments with competition policy elements. (11)

The reference paper was driven by the concern that free trade principles, market access and national treatment commitments are insufficient to guarantee effective competition in the basic telecommunications sector without rules to ensure that major suppliers do not abuse their position. In this respect, important elements of competition policy such as the notion of major supplier, dominance, essential facilities and competitive safeguards were introduced.

The reference paper's disciplines on major suppliers go far beyond the original GATS article VIII on monopolies and exclusive service suppliers. To a large extent, the reference paper was driven by a conviction among negotiators that GATS disciplines on monopolies are not well suited to address the concerns specific to the telecommunications sector. Indeed as aptly summarized by an author, article VIII is of limited value mainly because "what the article covers may well be less important than what it excludes". (12) Article VIII codifies the disciplines that should apply if a monopoly situation exists in a particular market. The article obligates the parties to ensure that monopoly providers of a service do not act in a manner inconsistent with the parties’ obligations under MFN and the specific commitments it undertakes. (13)

In the reference paper, the concern is not about existence of monopoly per se but on the anti-competitive practices of major suppliers in a particular market. Emphasizing on major supplier rather than monopoly is an important element of the reference paper. With the development of technology and unleashing of market forces, the rationale for establishing and maintaining a monopolistic structure in the telecommunications sector is disappearing. Keeping this in mind, the existence of monopoly is less problematic than the dominant position that incumbents maintain in the market. That last element is left out of the

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umbrella of GATS. The reference paper in this respect fills a void left by GATS. Although every regulatory principle of the reference paper has a direct or indirect competition policy dimension, this section will focus only on the regulation of major supplier.(14)

Definition of major supplier:

Providing a definition of a major supplier is an important precedent in the reference paper. So far no international text defines the issue of dominance in general. The matter is left to national antitrust and commercial laws as well as to regional laws (mainly the European Union competition rules). The different interpretations and nuances in these rules can easily inhibit the application of regulatory safeguards in the reference paper and creates disagreement among the members. This is not to say, however, that the reference paper provided a clear-cut definition for the major supplier. The definition is very general and leaves a wide discretion for parties.

Under the reference paper, a major supplier is a supplier of basic telecommunications services whom because of its control over essential facilities or because of its market position has the ability to affect the terms of participation in the market.

The power to affect terms of participation in the market is not defined in the reference paper. It applies to the different measures and practices at the disposition of the major supplier that interfere with the application of free market principles. In this case, the major supplier is in a position to affect the terms of trade and circumvent market access and national treatment commitments. Typical measures in this case relate to denial of network interconnection, or refusal to provide interconnection on commercial terms as well as recourse to misuse of commercial information and cross subsidization.(15)

Under the reference paper, the ability to exercise a control over the market by the major supplier results either from the position of the supplier on the market or from its control over essential facilities. The first cause, although not expressly mentioned in the reference paper, refers to the concept of dominant position. This criterion is however very loosely drafted. There is no indication on the minimum share of the market in order to be considered a major supplier. A study of national and regional laws shows no uniform criteria for the definition of dominant market position. In the context of the European Union telecommunications law, a similar concept of major suppliers applies to telecommunications organizations with significant market power. Criteria of significant market power include a share of a 25% in a given market. The European telecommunications regulations further detail criteria for a dominant market position.

The second criterion for major supplier is control over essential facilities. In the reference paper essential facilities are defined as facilities which are exclusively or predominantly provided by one or few suppliers and which cannot be economically or technically substituted in order to provide a service. It should be mentioned that in competition law, the concept of essential facilities is one of the least understood. The difficulties encountered at the national and regional levels anticipate similar and may be even more profound problems for the transplantation of the doctrine in the international level. For this reason, the definition provided in the reference paper of the essential facilities concept, though not very detailed, is a good precedent.

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The doctrine of essential facilities has given raise to extensive legal and economic analysis in academic circles. A review of literature and case law about the essential facilities doctrine reveals a dilemma in adopting a clear-cut position on the doctrine. The dilemma stems from the fact that a broad definition of the essential facilities doctrine may have detrimental effects on the regulated industry because it can result in harming incumbent firms by transferring their profits to less efficient firms. On the other hand, a restrictive definition could harm the competitive process in downstream markets and injure customers".(16)

The definition of essential facilities in the reference paper draws directly from US(17) and EC definitions(18). The paper retains two criteria to determine the essential facility in telecommunications. First, the provider enjoys a monopolistic or quasi-monopolistic position, and second, the facility cannot be feasibly substituted.

The telecommunications industry is among the regulated industries where competitive access is strongly related to the possibility of competitors and new entrants to have access to the network. The principle that dominant carriers in a given market have a legal obligation to provide access to essential facilities is of particular importance in a deregulated telecommunications industry.

The main criterion for defining the essential facilities doctrine is the non-substitutionality of the facility by the new comer. Criteria developed in case law both in the US and EU would serve as a guide for international community to interpret the definition of major supplier in the reference paper.(19)

General Competitive Safeguards.

The reference paper calls upon members to enact appropriate measures to prevent major suppliers from engaging in anti competitive practices. The paper does not prescribe particular or specific guidelines for governmental measures. It is left to the entire discretion of members to determine the appropriate measures. A review of countries' practice in this area shows at least two possibilities to determine appropriate measure to control anti competitive practices. Countries might opt for sector specific regulation. Or bring the telecommunications sector under the discipline of competition law. It is reported that although competition rules are becoming more popular in the last decade, still many countries especially the developing ones do not have a tradition in competition law.(20) This might make opting for industry specific regulation more attractive for those countries.

The reference paper did not define the notion of anti-competitive practices. Dominant telecommunications service suppliers may attempt to monopolize the market through panoply of anti competitive practices ranging from excess prices, price discrimination and predatory low pricing to refusal to deal and vertical restraints. Among all possible anti competitive practices, the reference paper calls the members' attention to three particularly important ones, which should be forbidden under national regulation. Those are engaging in anti-competitive cross-subsidization, using information obtained from competitors with anti-competitive results and not making available to other service suppliers on a timely basis technical information about essential facilities and commercially relevant information which are necessary for them to provide services.

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Among all three practices, the call to prevent and outlaw cross subsidization is the most sensitive. Generally speaking, Cross-subsidization consists in the use of profits derived from a profit making area of operation to finance and sustain loss-making areas.(21)

In the telecommunications industry, the practice of cross-subsidization has long been practiced both in developed and developing countries and evolved as a common business practice and an explicit policy by telecommunications enterprises. In this sector, profits in long distance and business markets go to cross subsidize the losses in local and residential markets. The system of cross subsidization in the telecommunications sector has been closely related with the support of the social goal of universal service.

In the last few years and due to technological development, the unleashing of market forces and the introduction of competition in the telecommunications markets, voices of economists raised to convince regulators and policymakers that the system of cross-subsidization is a case of inefficient financial structure that should be prohibited. Numerous economic studies testify that this inefficient pricing system has negative effects on telecommunications. The practice has been criticized as economically inefficient, increasingly impractical, in addition to being inequitable and unfriendly to the universal service goal.(22)

Despite the economists' campaign against cross-subsidization, the experience of developed countries shows that it is difficult to control cross-subsidization unless extensive regulatory safeguards are adopted and mechanisms for the creation of different subsidiaries and different accounts for the activities of the telecommunication enterprise are implemented. In the European context, the same difficulty has been witnessed in the prevention and control of cross- subsidization through competition law principles.(23)

In the context of liberalization of trade in telecommunications services, control of cross-subsidization will have far reaching implications. First, abolition of cross-subsidization will oblige members to reconsider the tariff structure of different telecommunications services and opt for more efficient pricing of both local and long distance services. This would translate into lowering international telecommunications charges. The issue is particularly important if seen in the light of the current debate over the accounting rates system and the need to align it with cost.(24) A rate restructuring exercise in this context would facilitate the move towards a cost-oriented accounting rate. The argument that above cost accounting rates are necessary to boost telecommunications development will be challenged if operators are already obliged under the reference paper to outlaw cross subsidization and opt for more efficient pricing.

The second concern with the cross subsidization scheme relates to the threats that the system presents to the liberalization of trade in telecommunications services.

The Case of cross-subsidization becomes very puzzling when in the context of a liberalized environment for telecommunications services national carriers with monopoly profits in some areas use these profits to cross-subsidize telecommunications services offered in competitive markets. In this case foreign operators competing in the competitive area with the operator in question will be at a competitive disadvantage because their competitor is using revenues from monopoly services on protected national markets to subsidize

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telecommunications services in competitive markets. The practice undermines the introduction and success of competition in basic telecommunications services. The incumbent using cross-subsidization to give its activities in competitive markets an unfair competitive advantage vis-à-vis other entrants. The problem remains how to prevent the incumbent from exploiting its market position to cross- subsidize its competitive services.

The reference paper did not provide any guidelines on how to control or prevent cross-subsidization. As outlined above, regulation of cross-subsidization proved to be a difficult endeavor and extensive guarantees are needed to control this business practice. The tool used in the United States is the separate subsidiary approach. Under this approach, dominant carriers, which operate both in regulated and unregulated markets, are obliged by law to segment their operations through the use of physical separation of financial accounts. The separation approach was used in the USA since 1970 and proved an important regulatory tool to mitigate the potential for cross-subsidization.(25) The absence of reference to similar regulatory safeguards in the reference paper led commentators to argue that the reference paper's discipline on anti-competitive safeguards are very weak leading to a doubt on the effectiveness of a general commitment to prevent cross-subsidization without more.(26)

It should be emphasized however that a more detailed commitment to prevent and outlaw this business practice is not possible in the reference paper. Already if we look to commitments of countries, we will notice that many countries including India made a reservation on the specific point of cross subsidization. India refused to bind itself with to a general prohibition on cross- subsidization knowing that India's commitment to develop the rural segment is mainly promoted through an openly declared policy to cross subsidize rural services from revenues earned from other segments. The question indeed is very sensitive and lies at the heart of operators' gains and profits and relates to governmental policies on universal service.

It follows from the above that the reference paper incorporated interesting competition elements in the regime of liberalization of trade in telecommunications services. The introduction of the notion of major supplier and designing rules to regulate the conduct of the major supplier in the areas of competitive safeguards and interconnection make the reference paper an important precedent that links competition law with the liberalization of trade in telecommunications services. Already as mentioned by an author this link was made possible and necessary due to "the historical power of monopoly service providers in the telecommunications industry".(27) However, the reference paper precedent promises proponents of incorporation of competition law into a GATT framework that such a development is after all possible as witnessed in the telecommunications sector.

Section 2: The reference paper's disciplines on general telecommunications regulatory matters.

Telecommunications regulation is a body of rules, laws, norms and procedures governing the economic behavior of participating companies in the telecommunications industry. Market oriented regulatory reform in the telecom sector has been prevalent throughout the industrialized world over the past two decades.(28) The reference paper summarizes in a general framework the

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elements that should be present in the regulatory framework of participating countries.

From a telecommunication law perspective the reference paper is the first document that contains a set of rules in relation to telecommunications regulation. The reference paper provides a road map for countries engaging in regulatory reform on the basic guidelines that a modern, pro-competitive regulation should contain. In this respect the reference paper contains elements related to various telecommunications regulatory matters related to universal service, interconnection, use of scarce resources and licensing. The reference paper principles echoes principles embodied in the telecommunications legislation of many countries especially the United States 1996 telecommunications act. By elevating these principles to an international level, the reference paper is the first international instrument that contains substantive elements of telecommunications regulation.(29)

Reference paper's discipline on interconnection

The reference paper defines interconnection as the "Linking with suppliers providing public telecommunications transport networks or services in order to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier". The definition retained echoes the definitions retained in the US and European telecommunications law,(30) where the focus is on the any- to-any rule, meaning any subscriber in any network should have access to any other subscriber in a different network. Interconnection in this context means the commercial and technical arrangements under which service providers connect their equipment, networks and services to enable customers to have access to the customers, services and networks of other service providers.(31)

Among all regulatory matters, interconnection is the most detailed in the reference paper. Liberalization of trade in telecommunications services raises the overall importance of clear and effective interconnection policies.(32) Taking into account the critical importance of fair interconnection policies in promoting competition and entry in telecommunications markets, the reference paper contains a set of pro-competitive regulatory matters that set the acceptable parameters for interconnection.

Although interconnection matters relate to numerous cases, the focus of the reference paper is to provide regulatory safeguards for interconnection of the new entrant's network with the facilities of major supplier for services on which commitments have been taken. Interconnection issues inevitably arise when the monopolistic structure in a given market is no longer the rule. The new entrant granted access to serve the market would need interconnection to the preexistent network of the incumbent. The necessity to interconnect results from the very nature of the telecommunications industry. Being a network industry and given the legal and technical impossibilities to create a network on its own to conduct its services, the new entrant depends on the incumbent to be able to deliver its services.(33)

Without regulatory safeguards, the incumbent dominant operator will have a myriad of anti competitive tools to force the competitors out or at least to create situation of unfair competition. Technical, operational and commercial matters in the interconnection agreement can be used as practical obstacles to fair

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competition and be a disguised protectionist tool to the market of the incumbent despite commitments to open the market to competitors.

For the above mentioned considerations, fair and pro competitive interconnection is increasingly considered in national, regional and international settings as the fundamental key to the viability of competition in telecommunications.(34)

Providing a regulatory framework for interconnection is a technically complicated matter. However, despite the technicality of the question, a review of different regulatory schemes for interconnection shows that some regulatory principles relating to interconnection are today widely accepted. The reference paper codifies those principles agreed upon in academic and regulatory national and regional spheres in the first international regulatory document.

The reference paper's disciplines on interconnection deal with numerous areas organized in five subsections dealing with interconnection to be ensured, public availability of the procedures, transparency of interconnection arrangements and dispute settlement. The disciplines of the reference paper can be grouped into three different categories: Technical, procedural and commercial disciplines.

1. Technical Guarantees

Technical matters for interconnection have a great importance for new entrants. They influence both the cost and quality of service that the entrant can offer to its customers. Technical guarantees relate to the location or point of interconnection and to the quality of service that the incumbent commits itself to provide for the interconnection.

The first principle in the reference paper is that interconnection with a major supplier should be ensured at any technically feasible point in the network. This principle is of paramount importance for a new entrant. The new entrant should have the ability to choose suitable locations for points of interconnection. According to the forth regulatory colloquium organized by the ITU, if the number and location of such points of interconnection are limited by the incumbent, the entrant may be forced to offer a substantially less attractive service.(35) How the entrant is allowed to interconnect its network with the incumbent's network is crucial for the entrant's ability to compete effectively. To illustrate this point one should keep in mind the difference between trunk side interconnection versus line side interconnection. In the first case also called co-location, the carrier delivers services on its own facilities ands direct interconnection arrangements with the local carrier. In the second case, the entrant's network connects to the incumbent's like an ordinary end user. In the latter case the ability of the new entrant to compete and the variety of services it can offer is much more restricted.(36)

The second technical point is that the entrant should be offered an interconnection of a quality no less favorable than that provided for its own like services of non-affiliated service suppliers or for its subsidiary or other affiliates.

2. Commercial /financial guarantees

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Pricing of interconnection is by far the most complicated problem posed by regulation of interconnection. It is a powerful tool for incumbents to frustrate competition. In many cases interconnection charges can constitute up to 50 per cent of the total cost incurred by the entrant(37). Accordingly determining a reasonable charge for interconnection is a critical factor for the survival of the new entrant.

The reference paper's disciplines on interconnection charges are very general. The paper embodies the principle that interconnection charges should be cost oriented. The principle is very important as it prevents the incumbent from inflating the interconnection charges to recoup the financial consequences of entry in order to preserve monopoly profits.

Determining the interconnection charge is a very complicated matter. The lack of further details in the reference paper can be said to be the major lacuna in the first international telecommunication regulatory document. Commentators agree that in the absence of specific criteria for interconnection charges, cost-based charges will be difficult to realize in practice.(38) Cost based interconnection charges should take into account the different costs incurred by the incumbent to provide interconnection. Incumbents incur different costs that relate to the costs of establishing physical interconnection between both networks. In addition to the costs incurred for providing capacity for switching, transmission to accommodate the traffic of the new entrant. Those are coupled with usual costs like accounting, management and legal costs.(39) A review of economic literature on pricing of interconnection service shows numerous theoretical methods that can be used by regulators to determine cost based interconnection.(40)

The reference paper did not get into these details leaving to national regulators the freedom to determine the appropriate method. However, it should be mentioned that for developing countries, the invocation of cost oriented interconnection charge is a little bit controversial, as we shall see later when we talk about the difficulties of implementing the reference paper

The last point worth mentioning about commercial guarantees in the reference paper is the requirement that interconnection be unbundled. The unbundling issue is very important for interconnection pricing to ensure that the new entrant is not obliged to buy more services that it needs for interconnection purposes.

3. Procedural regulatory guarantees

The reference paper sets forth a list of procedural guarantees that members should incorporate in their regulatory framework concerning interconnection. The first guarantee is that interconnection should be offered without delays to the new entrant. This guarantee is important because in most cases, the incumbent will have incentives to delay interconnection by delaying providing the entrant with requested information and delaying the decision for interconnection. In the first dispute over interconnection opposing the United States to Germany (March 1999), The Us carrier has complained to the USTR that Deutsche Telekom is not fulfilling its obligations under the WTO agreement with regard to interconnection. The case might go to the WTO dispute settlement if the USTR endorses the complaint of the US carries. The complaint against Deutsche telecom practice is specifically related to the timetable and volume of interconnection as well as general terms. The complaining parties

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also argue that the interconnection terms of the interconnection agreement discriminate between interconnection carriers with facilities in Germany and local competitive carriers.(41)

In addition, the reference paper insists on the public availability for the procedures for interconnection negotiations as well as transparency of interconnection arrangements. The first principle serves as a guarantee for insuring non-discrimination to new entrants as each new entrant will have information and pricing of interconnection with earlier entrants publicly available. The principle of transparency is crucial for any liberalization of trade in services. It has a very important role in regulation of liberalized telecommunication services. In the matter of interconnection, the transparent rules based on objective criteria are a key element in providing fair and equitable terms for interconnection.

4. Institutional safeguards

As outlined above, interconnection is one of the issues that require a great deal of regulatory attention. A review of national regulatory schemes reveals a wide of variety of approaches to regulating interconnection arrangements. Some countries prefer the commercial negotiation approach, whereby interested parties have the freedom to set the interconnection terms under strict commercial negotiations subject to resolution of disputes under general commercial and competition rules. This method is used in New Zealand. At the other end of the spectrum we find strong regulatory intervention with powerful regulators deciding the terms of the interconnection agreement from the outset. Between these two extremes lies a range of possibilities where the intervention of the regulator is either more discrete or ex post facto. For example many systems leave interconnection arrangement to commercial negotiations but in case of failure the regulator intervenes to help the parties reach an acceptable agreement. This is the method used in Australia. Other regulatory regimes leave the parties free to engage in commercial negotiations but the agreement on interconnection should be approved by the regulator, as is the case in United Kingdom.

The reference paper did not tackle the issue of decision making in interconnection leaving it to the discretion of parties to adopt the alternative that suits each country’s particular regulatory preference. The reference paper, however, seems to favor the approach that whatever the system used and even though the intervention of regulator in setting interconnection arrangements is not mandated, an independent domestic body should take care of dispute settlement with regard to terms conditions and rates of interconnection.(42) Insistence on this institutional safeguard is very important since relying solely on dispute settlement under WTO will prove insufficient to resolve interconnection disputes which require timely resolution. Dispute settlement by an independent regulatory body is another guarantee for foreign service suppliers against the major supplier trying to use its market position not to honor the regulatory safeguards. The reference paper allows recourse to dispute settlement at any time or after a reasonable period of time. Finally, the reference paper does not prescribe guidelines for the domestic body. The only requirement is that the body should be independent from the supplier. The parties are left with a variety of choices ranging from compulsory arbitration by third parties, to intervention of specialized competition policy organs, to general courts of law. The reference paper cites a telecommunication regulatory body as a possible candidate to handle dispute cases arising from interconnection

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arrangements. This choice has been widely used in the recent telecommunications laws enacted after the adoption of the reference paper. The case of the telecommunications law of India and Morocco are worth noting here.(43)

Reference paper's disciplines on licensing

Disciplines on licensing differ from country to country according to the level of market openness and the level of commitments to open competition in the domestic market. Many countries are waiving the licensing requirements for certain type of service especially value-added services. While others still require licensing for any kind of service. Although licensing is one of the most widely accepted and practiced regulatory exercises in most countries, licensing can become an important weapon at the disposition of national administrations wishing to restrict market entry by foreign operators. There exist numerous scenarios where licensing regime can be used as an important regulatory tool to erect market entry barriers. These include restriction of number of licenses, recourse to lengthy, complicated and non-transparent procedures, as well as opting for outrageous license fees to discourage entrants.

To avoid distortions that licensing conditions may introduce, the reference paper introduced a set of guiding principles to be applied by members. The focus of the reference paper's disciplines in licensing is on transparency. Applicant should know the terms, conditions, criteria and the length of time needed to reach a decision on their application. The reference paper also insists that the applicant should be informed of the reasons for denial of their award of licenses.

Analysis of the reference paper's disciplines on licensing shows that the set is very weak. One might even argue that the contents of this article are already covered under the general disciplines of transparency as well as under article VI of GATS on domestic regulations(44).

A more elaborate regime on licensing is found in the European level. In 1997, the European Union adopted Licensing Directive (97/13/EC of 10.04.97) which harmonizes licensing principles in Europe and lays down a regime to ensure that licensing procedures do not constitute unnecessary barriers to a fully competitive European Market.(45)

The reference paper does not extend to areas of when a license is required or what conditions could be attached to license or to cost trends for license. Finally, the reference paper does not introduce the concept of mutual recognition of licenses.(46)

However, a more complete regime tailored on those principles may very well be difficult to accept by various countries with different level of telecommunications development. For instance a discipline that would oblige parties not to pose limitation on the number of market entrants would be in conflict with the flexibility embodied in GATS and the basic telecommunications agreement to scheduling commitments in opening their market. In addition, provisions related to acceptable and non acceptable conditions in licenses for operators would not also be welcomed by countries which envisage extending obligations on foreign service providers as a quid pro quo of opening their market. Here the cases of countries that attach awards of licenses to

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participation of operators in network development are worth noting. The practice of pairing awards of licenses with the requirement to install a certain number of lines in disadvantaged areas is now recognized as one of the most used approaches to enhance universal access. The case of Philippines where five mobile cellular operators were required to install 400,000 new lines over five years is one case.(47). Finally, issues related to the cost trends in licenses which is theoretically preferable to ensure that new entrants are not unduly being discriminated against may be considered unacceptable for countries which see the licensing process as an attractive source of income. High license fees are increasingly used as a barrier in certain Markets. According to ITU, potential market entrants in India and some Arab States are being deterred from entering those markets because of high license fees.(48)

Reference Paper's discipline on allocation and use of scarce resources:

Scarce resources in this context refer to spectrum allocation, numbering and right of way. In most countries of the world, allocation and use of scarce resources are regulated to ensure that they are wisely and equitably shared between interested parties. The reference paper mandates that allocation and use of scarce resources shall be carried out in objective, timely, transparent and non-discriminatory manner.

In most cases, spectrum management can constitute a powerful regulatory tool to protect markets. Spectrum scarcity is most of the times the reason for restricting the number of market entrants. A body of market oriented literature is defending the idea that the scarcity of these resources does not warrant setting a limit on the number of licenses. Technological development as well as market-oriented methods to allocating frequencies are available and are increasingly being used by a number of countries. Indeed the technique of auction is now being used in like Australia and the USA.

The reference paper does not tackle the issue of whether it is acceptable to invoke scarcity as a ground for restricting entry nor does it endorse a preference to any approach to national spectrum management techniques.(49)

Numbers are a valuable public resource for all industry players and users and a scarce resource. The authority responsible for numbering taking into account ITU recommendations must administer the numbering plan and allocate numbers to operators and service providers. Here also the procedure for allocating numbers should be transparent and non-discriminatory. Numbering can constitute a significant barrier to entry and numbering mismanagement can restrict service development and result in network inefficiency. For example if dialing parity is not ensured to new entrants, meaning that the entrant's customers cannot dial the same number of digits as the incumbent's customers, the new entrant would be at a competitive disadvantage and might lose its customers because of this anti-competitive technical restriction. One issue that raises in competitive market is number portability, meaning that the end users can retain their phone numbers even if they want to change operators. The reference paper was silent on this issue.

In addition to spectrum management and numbering, rights of way is treated in the reference paper as an important scarce resource that shall be allocated and used in objective, timely, transparent and non-discriminatory manner. In the

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telecommunications sector, rights of way includes the privilege to lay cables, wires and antenna over land and buildings that are not the property of the operator and to continue to use this right over a long period of time. National authorities generally grant rights of ways to the network operators under a franchise agreement. Rights of way are very important for infrastructure competition. If clear rules were not put in place, the new comer would face a costly and slow process to obtain new rights of ways franchises. Experience of countries in this respect does not offer enough insight into the subject. Despite its importance rights of ways is perhaps the subject that attracted the least regulatory attention. According to Melody and Moller, this is an area where national and regional rules are still missing.(50)

Reference paper's discipline on Universal Service

Liberalization of international trade in telecommunications services brings issues of universal service to the forefront in any discussion on regulatory safeguards. Concerns were raised that foreign operators will be only interested in profit making section of the market. The fear of cream skimming is not chimerical. Indeed, with the opening up of the market for competition including foreign competition, it is very difficult to prevent skimming practices unless vigorous regulatory measures have been taken. By allowing countries to impose any kind of universal service obligations (USO), the reference paper already ascertains that USO obligations are not per se prohibited. The reference paper however lays down a detailed legal regime for acceptable universal service obligations.

It should be mentioned from the outset that the reference paper does not define universal service or universal service obligations. The lack of definition is mainly due to the lack of universal definition of universal service and to the big variety of approaches to USO used by countries in their national legislation and regulations.

Concerning the definition of universal service, it has been rightly concluded by a recent study on universal service/universal access conducted by ITU that there are as many definitions of universal service as there are regulators.(51) Despite this variety, we can maintain that universal service is a broad aspiration of public policy in almost every country and there are several basic elements to the definition of universal service that we find in most countries.(52) Those elements are availability, accessibility and affordability of telecommunications services. The concept of universal service is a dynamic concept that evolves with technological developments. In addition the concept is closely tied to the economic and social developments of particular countries.(53)

A variety of instruments have been used in different countries to support aspects of universal service policy. In a monopolistic market, universal service methods have been traditionally pursued through the use of profits from long distance and international service to subsidize the provision of local lines. With the introduction of competition, universal service policies had to be more diversified. In some cases, universal service obligations are incorporated in licenses to operators to provide service whenever a particular country allows competition in the market. The use of license conditions is increasingly used in different countries whereby entrance to a market is associated with an obligation to participate in achieving universal service. This policy choice is becoming the norm in countries in the Asia Pacific region.(54) In addition to license conditions, countries also resorted to techniques of access charges

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whereby participation of new entrants in universal service is incorporated in the interconnection charge they pay to the incumbent. The technique is used in a variety of countries especially developed ones. It has been used in the USA since 1984 whereby long distance operators were obliged to pay local operators per minutes access charges. Lately many countries have resorted to the universal service fund mechanism that consists in creating an account funded by operators' contributions to support service in specific areas.(55)

Although universal service policies have always been accepted as a political and social aim at national level, their maintenance in open international markets becomes a matter of concern from an economic point of view.(56). Indeed each method described above can have anti-competitive and distortive effects in a liberalized environment. For this reason the reference paper argued that whatever the method of USO used the obligation should have four characteristics. Transparent, non-discriminatory, competitively neutral and finally no more burdensome than necessary. The elements that make up the legal regime of USO under the reference paper are not quite clear. It is very likely that interpretation of these elements in specific cases can give raise to dispute settlement.

The first requirement for an acceptable universal service obligation on foreign operators is that the obligation should be transparent. In other words, the operators should know of any universal service obligation that they would be required to perform before entering the market. This means that laws and regulations related to universal service obligations should be published and available. Another dimension of the transparency requirement applies for instance in case the operators are required to pay a universal service obligation as a part of the interconnection fee to the incumbent's network.

The second requirement for USO is that they should be non-discriminatory. The basic meaning of non discriminatory in this context is that if the market is open to different foreign operators, these should be treated equally in the universal service obligations they should perform and they should not be discriminated against because of their national origin. An example of non-discriminatory USO is provided in the case of Columbia, which imposes a tax of 5% of revenue of all market entrants whether foreign, or nationals payable to the incumbent who bares an USO.(57) The use of technique of universal service fund has the advantage of treating incumbent and new entrants equally. The method is also consistent with requirement of transparency.(58) The question whether the licensing conditioning method stands the test of non-discrimination under the reference paper remains problematic.

The last elements in the legal regime for universal service are that USO should be competitively neutral and no more burdensome than necessary. These mean that USO should not constitute a burden on new entrants which would prevent them from entering a particular market nor should it be a reason for operators in a particular country to exit the market as a reason of universal service obligations. However, the dividing line between what is necessary and what is unnecessary for the kind of universal service defined by a member would give raise to interpretative disputes that may trigger WTO dispute settlement mechanism. It is important to see how in the future the term necessary would be interpreted in case there is a conflict between operators and regulators as to whether a certain USO is more burdensome than necessary for the kind of universal service defined by a member.

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Reference paper's discipline on establishment of regulatory institutions

Establishing a regulatory framework for telecommunications sector requires in addition to setting substantive rules such as those pertaining to interconnection, universal services, licensing etc., the design of the regulatory institutions. A regulatory entity is a crucial factor in the liberalization of telecommunications services. The role of a regulator as a referee in enforcing rules between market players is crucial for a successful competitive market.

During the last couple years, the establishment of regulatory bodies has become one of the most important developments in telecommunications. Between 1994 and 1998, 44 new regulatory bodies were set in place.(59) This momentum is expected to continue and rise in the future as more and more countries are interested to be part of the telecommunications liberalization wave.(60)

The reference paper did not mandate a specific format for the regulatory authority. The only criterion embodied in the reference paper is that the regulatory body should be independent and non-accountable to any supplier of basic telecommunications services.

It is particularly important that the regulator be independent from any entity providing services because of the conflict of interest between operator as a regulator and the operator as a competitor. The case of independence in this first aspect is very important even in countries that have long introduced the separation between operators and regulators. The concern is to guarantee that the regulator is not kept prisoner of the regulated firm. A study of telecommunications sector reform in countries that undertook regulatory reform recently show that the first level of independence meaning the separation between the functions of regulating and operating the telecommunications industry has been adopted by the majority of countries. Example all the APEC countries except Brunei and Thailand have separated between operators and regulators.(61)

The reference paper's definition of independence is not carefully drafted. It is very selective in the meaning it accords to the term independence while the concept is increasingly growing to be multifaceted in order to create efficient institutions.

The emergent meaning of independence of telecommunications regulatory institutions encompasses in addition to independence from operators, independence from policy makers and from other interested parties. The debate about creating independent telecommunications regulators around the globe treats all three aspects of independence equally. It is important here to cite the definition of independence in the first regulatory colloquium organized by ITU which defines independence as a term that variously refers to the separation of regulatory and operational functions, neutrality, insulation from external pressure, or simply the designation of an official publicly identified as having the regulatory responsibility and not subservient to the rest of the ministry.(62) In other words there are three distinctive aspects of the independence of regulators. First, independence from the operator of the telecommunications sector (the PTOs). Second independence from other interested parties such as industrial interests and finally, independence from political actors like ministers for the day-to-day matters.(63)

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Although the reference paper focuses only on the independence of regulator from the operators, it becomes problematic for countries to establish independent regulator when the operator is at the same time the regulator and the policy maker as it is the case in countries which still maintain a public monopoly in telecommunications services under the auspices of the telecommunications ministry.

A survey of countries' regulatory choices in the telecommunications sector shows a great variety of independent regulatory structures which range from giving the power of regulation to the minister itself, to establishing independent regulatory agencies such is the case in the United States. Between those two ends of the spectrum lies numerous variations of regulatory institutions.

The first model consists in the creation of a distinct regulatory body within the ministerial structure. This is the prevalent model among countries that just embarked in market liberalization. In this case guarantee of independence should be carefully thought to minimize the effects of the structural relationship between the regulator and the ministry.

The second possible choice is to create semi-autonomous regulatory bodies like the example of the CRTC in Canada or OFTEL in the United Kingdom. In the United Kingdom, the 1984 communications act vested the regulatory responsibilities with the Director general of Telecommunications supported with office of Telecommunications. Oftel is a non-ministerial government department. The director General is appointed by the Secretary of State for trade and industry for a period of 5 years. The activities of the regulatory body are funded directly from the parliament and with license fees.(64) In Canada, the decisions of the CRTC are subject to review by the Cabinet. Finally the closest example of an independent regulator is the one provided by the US Federal Communications Commission. In the US, regulatory matters on the federal level are confined to a fully autonomous regulatory body with five commissioners appointed by the president subject to consent by the Senate. The decisions of the FCC subject to judicial review. The example of the United States is today a subject of fascination from OECD countries.(65)

After insisting that the regulator shall be independent from the operators, the reference paper stressed the importance of impartiality of both decisions and procedures of operators with respect to all market participants. The reference paper's disciplines on creation of independent regulators are one of the least detailed. No guidelines are provided for functions and roles of regulator, nor acceptable procedural guarantees. Members retain a total freedom in designing their institutions according to their needs and preferences. The test for acceptable regulatory institution is whether and to what extent they respond to the objective of liberalization of trade in telecommunications services.

It follows from the forgoing overview that the reference paper codified for the first time a framework for pro-competitive regulatory system. In this respect the paper summarized most important elements of regulation. The only element that was kept outside the reference paper is the issue of price regulation, an issue that is arguably too sensitive because it lies at the heart of operators losses and profits.

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Section 3: The reference paper: A precedent setting compromise to the regulatory autonomy and free trade dilemma

The tension between respect of national regulatory autonomy on the one hand and the requirement of an international trading system to minimize obstacles to trade on the other hand is as old as trade itself. However, perception about the policy antagonism opposing both propositions and the need to address the friction is a recent concern in trade circles.

In the context of trade in goods, the issue was first debated in the Tokyo round of trade negotiations. When the Tokyo Round was launched in 1973, it became widely apparent that barriers to the free flow of goods are not restricted to tariff barriers and quantitative restrictions as recognized in the original GATT but new and intricate barriers were resulting from regulation on the domestic level. The elimination and control of regulatory barriers has become one of the key challenges facing liberalization efforts. The Tokyo round of trade negotiations responded to the problem by the adoption of the technical barrier code also called the standards code. The code recognizes that application of technical regulation and product standards, although adopted by national regulators to promote legitimate policy objectives such as protection of human, animal health, national security etc., should not constitute unnecessary obstacles to international trade.(66)

In the context of trade in services, The tension between national regulatory autonomy and the prerequisites of free trade is more flagrant in the context of trade in services than in the case of trade in goods. Indeed in the service trade, barriers are more complicated and less transparent.(67) Instead of operating at the borders in form of tariff barriers, protection of services typically finds its origins in domestic regulations. As a consequence, any effort to liberalize trade in services should include an effort to reduce regulatory barriers to trade.

The GATS dealt with the tension between regulatory autonomy and free trade in two different occasions. First the preamble second a specific article on domestic regulation.

Paragraph 4 of the preamble strongly recognizes the right of Members to regulate, introduce new regulations on the supply of services within their territories in order to meet national policy objectives. The enunciation of the principle is not undermined by any considerations. It first looks that according to this paragraph as long as the new regulations are intended to meet national policy objectives they are acceptable and they represent a right of members to regulate their domestic sector according to their national policy objectives. This right to regulate is however restricted by international disciplines contained in GATS itself.

The Domestic Regulation article is unique to the service agreement. No similar principle is announced in GATT. The article results from the fact outlined above that trade barriers in services are regulation prone. This article conditions the principle of regulatory autonomy by setting international criteria and safeguards for the application of this right. The article establishes that domestic measures must be administered in a reasonable, objective and impartial manner. The aim is that domestic regulations should not affect international trade in services in sectors where countries have undertaken specific

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commitments. Article VI does not define the criteria set for acceptable national regulations. On the contrary it invites the parties to provide foreign service suppliers with the possibility to challenge national regulations. The article leaves total freedom to national authorities to determine the kind of recourse whether judicial, administrative or arbitration according to their constitutional structure and the nature of their legal system. In addition to the general safeguards, article VI treats two points of particular importance where regulatory autonomy and the exigencies of liberalization might come under conflict. These are matters related to the authorization to provide service as well as technical and qualification requirements. The main point emphasized by this article is that those procedural matters should not be regulated to constitute unnecessary barriers to trade. The GATS provides the members with general guidelines to ensure that these regulatory procedures do not serve protectionist measures. First, these requirements should be based on objective and transparent criteria. Second they should not be more burdensome than necessary to ensure the quality of the service, and finally, in case of licensing procedures they should not themselves constitute a restriction on the supply of service.

The language of article VI draws directly from article 2 of the standards code adopted under the Tokyo Round. Under this article, members should ensure that technical regulations are not prepared, adopted or applied with a view or with the effect of creating unnecessary barriers to trade. Under the code, technical regulation aimed at fulfilling legitimate objectives should not be more trade restrictive than necessary to fulfill these objectives. The code introduced the notion of the least trade restrictive national measure and article VI of GATS incorporates a similar concept. The key question remains however how to define and interpret the word necessary in the context of trade in services. Although general in scope and not very detailed, these safeguards are very important as they provide guidelines to condition the discretionary power of major administrations. In addition being incorporated in a legal text, they can be enforced by dispute settlement procedures under the WTO. Issues related to authorization to provide service as well as matters related to technical matters are particularly important for the telecommunications sector.

It follows from the above that GATS tried to struck a balance between the principle of regulatory autonomy and the exigencies of free trade. However the balance looks more in favor of regulatory autonomy. Indeed given the wide diversity of regulation across services industries it was not possible to draft a detailed provisions on how much freedom should members enjoy in their regulatory regimes without endangering or undermining the liberalization process. The GATS framed the sovereign right to regulate as a general principle assorted with general broad safeguards leaving specific matters to sector specific negotiations. In this respect the telecommunications sector approach to the problem is of particular importance as it provides a precedent of international rulemaking.

During the negotiations of the basic telecommunications agreement, it became easily apparent that GATS disciplines on regulatory matters are too weak to ensure competitive market conditions and that market access and national treatment commitments could be nullified in absence of additional regulatory rules. Indeed, the tension between exigencies of free trade and regulatory autonomy is nowhere clearer than in the telecommunications sector.

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There are two kinds of barriers to international trade in telecommunications services. The first and common barriers are those directed at the entry of foreign providers to serve in the market of a particular country. Those barriers are dealt with in the principles of most favored nation and national treatment and in commitments of market access under GATS. The second kind of barriers is domestic barriers, which apply to the service provider once they have been admitted in the foreign market. These barriers result from the structure of the service sector in the host country and the way telecommunications services are regulated. The telecommunications sector grew in most countries to be a heavily regulated sector under a public utility regime. The long history of government involvement in the telecommunications sector makes that liberalization of trade in telecommunications services requires beyond the border measures to ensure that national regulations do not constitute additional barriers to trade.

In absence of regulatory safeguards the dominant service provider in the domestic market disposes of a whole host of regulatory means to inhibit the market access commitments under the forth protocol. The irony of the telecommunications sector is that new comers need to collaborate with their competitor to have access to the infrastructure and be able to provide their services. This creates a case where monopolies or dominant service providers controls the local and long distance exchanges and are in a position to impose harsh terms to the new comers and de facto inhibit the market access commitments under the forth protocol. Such impediments include restrictions on access to networks or at least discriminatory conditions for its use, discrimination in allocating numbers, unreasonable universal service obligations and so on. It follows that in the telecommunications sector, granting market access de jure is in most cases insufficient without ensuring through effective regulatory regime fair opportunities to compete.

Restriction of trade in telecommunications services pertain to the domestic industrial structure and national regulations aimed at specific policy objectives. The domestic or regulatory barriers are difficult to control because they are rooted in domestic policy questions and reflect national priorities which in principle and under the pledge of the ministerial declaration of GATS should not come under international scrutiny.(68)

Conscious with this dilemma, the negotiators of the agreement on telecommunications had to come up with a legal mechanism that responds to the prerequisite of liberalization of trade in telecommunications services without undermining, at least theoretically, the principle of regulatory autonomy as mentioned in GATS preamble. The additional commitment mechanism is in this respect a novel approach to the old trade dilemma.

Under article XVIII of GATS, parties are allowed to schedule commitments in addition to market access and national treatment commitments. In principle those additional commitments are binding on countries that made them and are enforceable through dispute settlement under WTO. The reference paper is a case of multilateral concessions rather than unilateral basis. In other words, the reference paper contains a common set of rules agreed upon multilaterally, but gives the flexibility for countries to pick and choose from the reference paper according to their national needs.

It is important here to provide a brief overview on how the reference paper ended up to be a common set of regulatory rules subject to additional

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commitments. Already in 1994 and before the GBT was founded to negotiate liberalization of trade in Basic telecommunications services, developed countries led by the United States expressed their concern that liberalization of basic telecommunications would mean nothing without commitments to create a competition friendly regulatory regimes. The USA prepared a paper on "Procompetitive Regulatory and Other Measures for effective Market Access in Basic Telecommunications Services" and submitted it along with its draft offers in July 1995.(69) Based on principles contained in the US document and with contributions from other countries, notably, Canada, EU, Australia, Japan drafted a composite text for regulatory matters. The new text was submitted to a select group composed of USA, Australia, New Zealand, Japan, Korea, EU, Brazil, Singapore, Chile, Mexico, and the Philippines. The select group drafted the reference paper on regulatory principles(70), which was later circulated to all NGBT participants.(71)

The problem then became to find a legal mechanism that allows elevating principles in the reference paper to be legally binding. This question is a little bit delicate because as aptly outlined by an author; there is not a self-standing agreement on basic telecommunications to which new articles could be added(72). Another possibility would be to amend the text of GATS or the telecommunications annex to introduce the principles of the reference paper. In addition to doubts whether this is possible given the difference in subject matter between both documents, it was argued that the venue of amendment is not a feasible alternative because of the cumbersome procedure involved for amendment and entry into force of new provisions(73). The choice of treating the regulatory principles as additional commitments that members can include in their schedule was then a good approach to conciliate the specific nature of the Basic telecommunication deal (being mainly a set of schedules for commitments) and the need to ensure that regulatory principles become binding principles. The use of additional commitments venue has the advantage of containing a built in flexibility, which allows countries to pick and choose from a common set of rules.

The results of Basic Telecommunications already show this flexibility. Indeed, 57 participants adopted the reference paper in full. Six participants scheduled selected elements of the reference paper. Other countries drafted their own wording to additional commitments in regulation. Finally, only Tunisia and Ecuador decided not undertake any regulatory commitments.

This method is indeed precedent setting. It is very likely that future sector negotiations on services have recourse to this legal engineering.

The reference paper can also be seen as an example of deep integration. The last few years witnessed an increased debate about deep integration, a new concept in trade parlance, which denotes both the removal of barriers to trade and the formulation of a common set of standards, rules and policies. Concerns about deep integration are driven by the importance to create a global harmonization of domestic practices so that diversity in national regulatory systems does not constitute a hidden barrier to trade. Debate about harmonization and deep integration were mostly centered in issues related to competition policy, environmental policies and labor policies as well as to product and technical standards.(74) The reference paper offers an interesting precedent of deep integration. The set of pro-competitive regulatory principles embodied in the reference paper provide a road map to participants to the fourth protocol on how to shape domestic regulatory principles to serve the

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liberalization goal. From a deep integration perspective the importance of the reference paper is twofold; First it clearly determines that in trade in telecommunications services liberalization should go beyond border barriers into domestic policymaking and second, it underlies the idea that a harmonized set of regulations is needed.

The reference paper approach to regulatory autonomy and free trade dilemma is that regulatory harmonization is an important component to the liberalization of trade in services but that countries have in principle a total freedom and flexibility to abide by these rules according to their needs. It should be emphasized here, that in practical terms, countries that want to join the liberalization wave would be faced by a de facto obligation to adopt these regulatory principles considered as a minimum guarantee to attract foreign operators. This hidden obligation translates into a huge implementation task ahead for many countries especially the developing ones.

Section 4: Beyond the flexibility myth: The reference paper: a huge implementation task ahead for developing countries

For many countries that made commitments under the forth protocol and for others that contemplate joining the liberalization wave, adoption of the reference paper marks the beginning of a new and sturdy battle to implement the paper's principles in national laws and regulations. It is important to distinguish when discussing the impact of the reference paper between those countries well equipped to endure the tension associated with regulatory reform and those to which adoption and implementation of reference paper will prove to be a difficult task.

To a large extent one might argue that the reference paper codifies the laws and experience of regulatory reform of some countries. For many countries, adherence to the reference paper's principles will not affect their national rules. For the United States for example, the principles of the reference paper already mirror the principles of the Telecommunications act of 1996 and a long regulatory tradition.(75) For other countries and especially the developing one, adherence to the reference paper principles means a total subversion of traditional methods and concepts. For these countries, the reference paper is an obligation to engage in extensive reform of exiting laws and institutions and in many cases in creation of new regimes.

Most developing countries which undertook commitments under the forth protocol did adopt the reference paper as additional commitments either fully or with minor change. It is worth noting that regulatory commitments were included in more schedules of developing countries than any single sub-sector of basic telecommunications services except for data transmission.

It should be recognized from the start that the reference paper presents important advantages for developing countries engaging in regulatory reform. However, without additional international commitments to guide developing countries and couch them in this difficult exercise, the reference paper might become a heavy burden for these countries.

Promises of the reference paper for developing countries are manifold. The most important utility of the reference paper is that it provides policymakers in developing countries with a road map on how to reform or establish a

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regulatory framework. In addition, the reference paper embodies and compiles in one short document the result of long years of regulatory practices of few countries. Many countries had an important shortcut to regulatory reform without having to go through the same long path taken by other countries.

Despite the importance of these points, the implementation of reference paper by developing countries will prove to be a very difficult task.

Already if we attempt an assessment of the implementation level of the reference paper among participant countries numerous deficiencies will come into view. Although efforts have been deployed to incorporate reference paper principles in national laws and regulations, the reference paper has not yet been fully implemented even for those countries that were committed by January 1998. Such deficiencies in implementation can be witnessed in many countries both developed and developing. Although it is not the purpose of this contribution to undertake a country by country analysis of implementation of the reference paper, the following examples of deficiencies are worth noting. Japan committed itself fully to the reference paper by January 1998, however, up until now very important elements of the reference paper are not implemented in national legislation. Japan has no fair trade laws and practices. It does not have an independent regulator as stipulated by the reference paper and its interconnection rates have been considered not cost oriented.(76) Other countries like Poland, Mexico and Turkey do not have yet clear, transparent and non-discriminatory licensing criteria. The lack of rules for interconnection is perhaps the most striking deficiency in the implementation of the reference paper.(77)

This section surveys some of the difficulties encountering developing countries in implementing the reference paper. Some of these difficulties are general in nature, in the sense that they would face developing countries in any regulatory reform exercise and others are sector specific difficulties that stem from the specificity of the telecommunications sector.

1) Implementation of reference paper will require an engagement from developing countries in massive legislative and administrative exercise to create new laws and amend exiting ones. Although the reference paper does not contain a direct obligation to engage in substantive law making, the paper is indeed a case of substantive harmonization of laws at the international level. It sets forth the guidelines that a telecom regulation should contain with regard to universal service, interconnection rules, competition matters, licensing and the like. Of course countries are free to choose the legal method and means for legislating on these areas. Countries might opt for telecommunication-specific legislation like the US telecom act that gathers all these matters in a single document, or opt for a piecemeal approach with laws specific to different matters.(78) Countries might also incorporate these elements in general rules related to general competition matters rather than telecom specific legislation. They might also adopt these principles on administrative rather than legislative acts to speed the process of adoption and prevent lengthy discussion of these matters in legislative bodies. Among different possibilities, developing countries should opt for the introduction of telecom specific legislation. The main reason for favoring this approach is that this approach would provide a more coherent approach to sector reform. A sector specific legislation would have a significant impact on attracting the attention of foreign investors to the sector. Undoubtedly countries with coherent laws would have better chance in the fierce competition for private investment in the telecom sector.(79) This approach

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is nonetheless the most difficult venue for developing countries. Adoption of a complete legal framework is a lengthy and slow process. In the United States, the legislative reform process took almost a decade. Developing countries making commitments under the reference paper should not lose sight of the deadlines for their negotiated commitments under the reference paper.

The last couple years witnessed an increased legislative exercise with new telecommunications laws and regulations enacted to reflect commitment under the basic telecommunications agreement. Examples include Argentina (ley 25.000 of 1998), Bulgaria 1998 telecommunications law, Dominican Republic (1998 ley de telecomunicaciones) ad El Salvador (reglemnto de telecomuicaciones)(80)

2) In addition to adoption of substantive laws, participants to the basic telecommunications agreement that adopt the reference paper have also committed to regulatory structures and processes. Here the problems of developing countries will be most apparent in two fronts: First difficulties to establish independent regulatory authorities and second the financial and human resources constraints that might hinder the proper functioning of the institution.

Although the reference paper's proposal looks relatively straightforward namely that members should create independent, impartial and transparent institutions, the experience of countries familiar with the subject shows that creating an independent authority is indeed a very delicate task. An author writing on the experience of OECD countries with regulatory institutions concluded that building effective regulatory institutions is an art that is poorly understood in OECD countries with decades of experimentation to guide them.(81) This challenge is even more pronounced in the case of developing countries with little or no tradition in regulatory forms of economic control and with weak governance environment.(82)

The difficulty with establishing an independent regulator has to do first with the ambiguity of the concept of independence. Indeed of all difficulties encountered in establishing a new regulatory framework is the issue of independence.

A study of the newly established regulatory institutions in a sample of developing countries that made commitments under the forth protocol of telecommunications sector reveals experience of limited success in getting the recipe of independence right. If we focus on African countries we find different examples of regulatory agencies established in 1997. The National Communications Authority of Ghana(83) and L"Agence Nationale de Regulation des Telecommunications of Morocco(84), Uganda communication commission(85), and the South African telecommunicatios regulatory authority (SATRA)(86)

For all these examples and despite the quest for independence, the legal instruments creating these bodies do not give them complete independence. Independence from operators is in most cases clearly stipulated in the documents creationg the regulatory agencies. For example under paragraph 8 of the telecommunications act of South Africa no councilor or a member of his or her family can have a controlling interest or any substantial interest in the telecommunications or broadcasting industry. However, in most of the examples above, the telecommunications sector is not completely in private hands, the government has still stake in some operating companies which makes the lack of guarantees of independence of regulators from political influence a threat to

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the independence of the regulatory authorities mentioned. In all the examples cited, the telecommunications minister has authority to issue directives to the regulator. The degree of involvement of minister varies from country to country. While in the case of South Africa, the involvement of minister is not heavily felt, in other cases like in Uganda, the ministry of communications is responsible for tariff approval and setting license fees.(87) Independence of regulator is an important guarantee to foreign investors and service providers that unwanted political interference of government can be curtailed.

In addition to the difficulty of getting the recipe for independence right, developing countries could get stuck with lack of resources and the scarcity of well-trained staff that would put the potential effectiveness of these institutions at risk. In addition to these general concerns, attention should be given to the real threat of hidden regulation in countries with no tradition of regulatory structure. Indeed, regulatory agencies weigh heavily on the financial level. Novel methods of financing should be introduced so that financial constraints do not hinder the regulatory bodies' activities nor compromise their autonomy. The importance of relying on self-financing like through the use of licensing fees is an important strategy to contemplate.(88)

Human resources constraints are also a major handicap for developing countries for the implementation of the reference paper. The lack of experienced and skilled staff to run regulatory agencies and to deal with highly technical matters related to interconnection for instance is mainly due to the lack of regulatory tradition and market principles in the telecom sector of developing countries(89). A major training effort should be undertaken by developing countries to help telecom professionals educated and experienced in era of natural monopoly telecom to adapt to the new environment of telecommunications services.

It is perhaps difficult to establish institutions but it is even more difficult to get the institutions to work efficiently and effectively. Indeed as mentioned by an author, "To expect new regulatory agencies in emerging economies to become immediately effective without a package of supporting initiatives is not realistic, Thus it is not surprising that, with few exceptions, these new regulatory agencies have been slow to get off the ground and perform poorly".(90)

There are many areas where regulators in developing countries would probably express some difficulties.

Interconnection is a complex issue that requires expertise from regulators. Most of the contentious issues would in principle be related to the price structure of interconnection. This problem is heavily felted even in developed countries with long tradition in market regulation. It is even more acute for emerging economies. Despite the insistence on cost based interconnection charges, the provisions of the reference paper remain very meager and it is to be expected that developing countries will find numerous difficulties to set acceptable criteria for determining cost in this case. The legal dispute that opposed telecom New Zealand to clear underlie the difficulties and controversies that interconnection pricing will cause for countries with weak regulatory frameworks and lack of experience with deregulation and its challenges.

Already implementation disputes with regard to interconnection have arisen lately. In Chile, a dispute over interconnection is being settled by the Supreme Court of Chile between the incumbent operator Telefonica of Chile and the

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Government. The latter ordered a reduction in interconnection rates and the former argues that the new rates to access its network by rivals are very low. The suit was dismissed at a lower court level and the Supreme Court reject Telefonica's appeal.(91)

In its the fourth regulatory colloquium, ITU mentioned that determining cost based pricing is difficult for different reasons. The colloquium defended the need for developing countries to use alternative methods in absence of established methods to determine cost. The forum recognized that interconnection charges should be aligned with benchmarking exercise. Under this exercise, interconnection charges in a given country should not exceed the charges made efficient incumbents in other similar countries. The rationale behind this proposition is that the benchmarking pricing can be regarded as a means of approximately identifying the incumbent's cost of providing interconnection services ought to be.(92) Another strategy for developing countries to avoid early interconnection disputes is to establish a well-thought default interconnection agreement that members should apply if they cannot reach acceptable terms. The more the legal framework concerning interconnection is detailed the less likely there would be a need for intervention of regulator to settle disputes.(93)

In addition to difficulties in implementing interconnection disciplines of the reference paper, developing countries will also face difficulties to control cross subsidization and other anti-competitive practices mainly because of the lack of competition tradition and competition institutions.(94)

The obligation in the reference paper to prohibit cross-subsidization has far reach implications on the way rates are structured on the national level. For many years, the local market has been sustained by profits made in the long distance and international markets. The prohibition of this business technique under the reference paper means that developing countries have to rethink their rate structure. Although this exercise is highly needed especially with regard to the pressure to drop accounting rates to cost, determining the appropriate pricing policy is a very technical exercise and loaded with political and social concerns.

This brief overview shows that the process of building regulatory agencies and adopting new laws to conform to the reference paper's principles is indeed a heavy burden on developing countries. These countries lack expertise on these area, but on the same time, they want to reap the benefits of participating in the liberalized environment of telecommunications services

How to coach developing countries in the regulatory exercise

For many developing countries a poorly planned regulatory reform will lead to negative outcomes. This last section argues for strengthening international technical assistance as well as renovated approach to international cooperation in order to help developing countries in the implementation of the reference paper. Cooperation could take two venues,

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Bilateral cooperation: Cooperative agreements between regulatory agencies.

Although we fully agree that there is no single best approach to regulatory reform, we believe that countries with well established regulatory tradition could come to help developing countries sail in the sea of regulatory reform. Numerous venues of technical assistance on regulatory matters are already available from regulators in advanced countries A legal method is the conclusion of cooperative agreements between old and well established regulatory agencies with the newly born ones as a channel for cooperation. In 1998, the Federal Communications Commission engaged in organizing regulatory workshop to respond to the increasing number of technical assistance requests following the entry into force of the basic telecommunications agreement.(95) The FCC organized five workshops dealing with matters related to independent regulation, interconnection policies, licensing, spectrum policy and so on.(96)

In addition to regulator to regulator assistance programs, numerous assistance programs are being increasingly undertaken by development agencies of developed countries. For example the United State Agency for International development (USAID)'s Southern Africa Regional Telecommunications Restructuring Program (RTRP). Components of this activity include capacity building and improvement of Southern Africa's regulatory structure. The establishment of TRASA is widely cited as a success story of this mode of cooperation.(97)

Another interesting example of cooperation to emulate is the leading role that the Canadian International Development agency has been playing in telecommunications capacity building initiatives in South Asia.(98) CIDA's philosophy to telecommunications aid is centered around the notion of capacity development broadly defined as the building of human, organizational and institutional capabilities within the recipient countries to successfully sustain a development effort. Using this philosophy, CIDA is currently engaged in a development program with India centered on the support of an effective regulatory environment in India.(99) Similar role is played by CIDA in Bangladesh. It is providing assistance with issues of interconnection, tariffs and other regulatory matters.

The European Union offers similar assistance schemes in many regions of the world.(100) In the Mediterranean countries and Middle East for example the Union is launching The MEDA program(101). The project focuses mainly on training courses, seminars ad forums on reform of the telecommunications sector, legislative techniques, analysis of the telecommunications market and so on. The most concrete example of a bilateral assistance program is the cooperation underway between the EU and the newly established national telecommunications regulatory authority of Morocco. The program includes helping the authority develop strategy and action plans, financial management as well as general matters of organization.(102)

International Cooperation:

Here the roles of ITU and the World Bank as a facilitator of regulatory reform in developing countries should be outlined and emphasized.

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The role of ITU in technical assistance to developing countries is as old as ITU itself. This role has been developed and is taking new and modern methods. The paper argues that technical assistance to implement reference paper should be another priority that fits perfectly within this role of ITU.

The development activities of ITU date back to the 1950s when the first technical cooperation were undertaken in association with United Nations Development program. The role of ITU in technical cooperation activities knew a renewed importance by its sanctification in the ITU constitution which stipulates in its first article that the objective of ITU is inter alia to "Foster international cooperation in the delivery of technical assistance to the developing countries and the creation, development and improvement of telecommunication equipment and networks in developing countries in developing countries by every means at its disposal, including through its participation in the relevant programs of the United Nations and the use of its own resources, as appropriate".

The work of the Union in the field of technical cooperation covers numerous achievements. This activity of ITU has encompassed through the years projects related to the promotion of regional telecommunications networks in most regions like in Africa through the PANAFTEL projects and in the Arab States the MODARABTEL initiative. It also included the strengthening of national telecommunication technical and administrative services in developing countries and strengthening of the regional presence. However among all ITU activities in technical assistance, its role in the development of human resources for telecommunication is likely to be the role within which technical assistance for the implementation of reference paper would fit.

The development of human resources is one of the most important areas of all cooperation activities provided by the Union. This method of cooperation might be offered upon request from a particular country or through the organization and implementation of specific projects. The list of examples of activities conducted and organized by ITU under this specific method of cooperation are abundant. It is not our purpose here to catalogue these activities. Nonetheless a recent initiative undertaken by ITU is worth close study as it offers a good indication of the pioneering role that ITU can play in helping developing countries implement successfully the reference paper. It is the case of centers of excellence.

Under resolution 11 of the Kyoto Plenipotentiary conference (1994), the gains from the TELECOM events should be affected for development projects. Four centers of excellence have been created with a main of human resource development. This includes the formation of policy makers, regulators and managers.

In addition, in the second World Telecommunication development Conference, the conference decided to establish a program dedicated specifically to the areas of reform, legislation and regulation. The purpose is to assist countries in the preparation and implementation of sector reform. This includes elaboration of national telecommunication policy, establishment of autonomous regulatory bodies. Upon request, the program assists countries to make their new regulatory bodies functional.

In addition to the role of ITU in helping developing countries adopt the reference paper, the role of World Bank needs also to be mentioned here.(103) The World Bank is also involved in technical assistance in regulatory matters.

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The World Bank assistance programs encompass a wide variety of areas including helping emerging economies develop modern legislation and establishment of regulatory agencies, development of sector competition policy and assistance with implementation of new entry, advisory

services, training and other form of capacity building for regulatory agencies as well as support of multilateral liberalization efforts and compliance with WTO's reference paper.(104)

Conclusion

The reference paper on regulatory principles constitutes one of the most important achievements of the basic telecommunications agreement. The reference paper's legacy goes far beyond its attempt to create a global regulatory framework to guarantee that market access and national treatment commitments are not impaired with domestic measures or omissions. The reference paper offers the international community a possible approach to paradoxical issues with which policy makers and analysts have been struggling for many years. It offers an example on how to reconcile national regulatory autonomy with the prerequisites of free trade and how to address competition elements in trade framework. Despite the importance of the reference paper in all these aspects, it marks the beginning of a long and fierce battle for many countries to reflect these principles into national laws and regulations. For countries having faith in the importance of liberalization for network growth and modernization, this journey is worthwhile despite the hurdles and any possible failures down the road.

 

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End Notes(1) The Basic Telecommunications agreement was concluded on February 1997 under the auspices of the World Trade Organization. It is the first international agreement regarding liberalization of basic telecommunication services at the international level. The agreement covers basic telecommunications services whether local, long distance or international for public and non-public use provided on an infrastructure basis as well as through resale. It covers telecommunications services provided by any means of technology including cable, wireless and satellites. The WTO deal on basic telecommunications has attracted the attention of many analysts. See Marco C. E. J. Bronckers and Pierre Larouche, "Telecommunications and the World Trade Organization" (1997) 31:3 Journal of World Trade Law 5-50. Lee Tuthill, "The GATS and new rules for regulators" (1997) 21:9/10 Telecommunications Policy pp. 783-798.William J. Drake and Eli Noam, "The WTO Deal on Basic Telecommunications: Big bang or Little Whimper?" (1997) 21: 9/10 Telecommunications Policy pp. 799-818. Markus Fredebeul-Krein and Andreas Freytag, "Telecommunications and WTO discipline: An Assessment of the WTO agreement on Telecommunications Services" (1997) 21:6 Telecommunications Policy pp. 477-91.

(2) The following countries made commitments: Antigua and Barbados, Argentina, Australia, Bangladesh, Belize, Bolivia, Brazil, Brunei, Bulgaria, Canada, Chile, Columbia, Cote d’Ivoire, Czech Republic, Ecuador, El Salvador, Ghana, Grenada, Guatemala, Hong Kong, Hungary, Iceland, India, Indonesia, Israel, Jamaica, Japan, Korea, Malaysia, Mauritius, Mexico, Morocco, New Zealand, Norway, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Romania, Senegal, Singapore, Sri-Lanka, Switzerland, Slovak republic, South Africa, Thailand, Trinidad and Tobago, Tunisia, Turkey, United States of America and Venezuela. Plus the 12 members of the European Union. Today the number of countries committing in the basic telecommunications sector is around 75 countries. This figure comprises the 69 participants in the fourth protocol, 4 members that have submitted subsequent schedules, 2 recently acceded countries.

(3) Market access commitments under the GATS cover cross border supply of services, commercial presence, consumption abroad and movement of staff.

(4) Reproduced in 36 I. L. M. 367 (1997).

(5) Under article XVIII of GATS Members may negotiate commitments with respect to measures affecting trade in services not subject to scheduling under Articles XVI (market access) or XVII national treatment), including those regarding qualifications, standards or licensing matters. Such commitments shall be inscribed in a Member's Schedule

(6) Chapter V of the draft Havana Charter for an international trade organization (1948) dealt with competition matters in Chapter V on restrictive business practices. The chapter called inter alia for the adoption of appropriate measures to deal with business practices of private or public enterprises which restrain competition, limit access to market or foster monopolistic control. The Havana Charter's disciplines on restrictive business practices never entered into force.

(7) These include a set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Principles included in resolution 35/63 of the United Nations General Assembly (1980). Efforts were deployed within the UNCTAD (The United Nations Conference on Trade and development), The OECD (The Organization for Economic Development and Cooperation) and the UNCTC, (The United Nations Commission on Transnational Corporations. For an overview on earlier multilateral efforts see Peter Lloyd and Gary Sampson, "Competition and trade Policy: Identifying the issues after the Uruguay Round: 18:5 World Economy 1995 681-705.

(8) The first ministerial meeting took place in Singapore. It established a working group to study issues raised by Members relating to the interaction between trade and competition policy, including anti-competitive practices, in order to identify any areas that may merit further consideration in the WTO framework.

(9) The millennium round will be launched by the third WTO Ministerial meeting scheduled to take place in Seattle, Washington from November 30 to December 4, 1999. Already in the submission to the meeting, numerous contributions dealt exclusively with competition matters. Contribution is posted in the WTO web at http://www.wto.org/ See contribution from Japan on competition matters WT/GC/W/308. Communication from Norway of 07/09/99 WT/GC/W/310. Communication

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from Korea on Trade and Competition WT/GC/W/298 of 6 August 1998. See also communication from Kenya on behalf of the African group on the Interaction between trade and competition policy WT/GC/W/300 of 06/08/99.

(10) . Lloyd, Peter G. 1998. "Multilateral Rules for International Competition Law?" The World Economy, 21, 1029-1049; Hoekman, Bernard. 1997. "Competition Policy and the Global Trading System," The World Economy, 20:383-406; Brittan, Sir Leon. 1997. "Competition Policy and the Trading System: Towards International Rules in the WTO," paper presented to the Institute for International Economics, Washington DC, 20 November.

(11)Numerous possibilities are being discussed on the best approach to include competition policy under the multilateral trading system. These include negotiating a framework agreement on competition, including competition matters in anti-dumping rules, extension of non-violation cases to cover competition disputes. See Bernard Hoekman, "Competition Policy and the Global Trading system The World Economy, 20:383-406

(12) Aaditya Mattoo, :Dealing with Monopolies and State Enterprises: WTO Rules for Goods and Services" WTO, Staff Working Paper TISD 9801.WPF, January 1997

Article VIII does not forbid the existence of monopolies in the services sector. It only prescribes general disciplines that should apply to monopolies. Parties have an obligation, when monopolies abuse mfn or specific commitments to provide relevant information to the Council of services at the request of other members under article VIII & 3. In addition article VIII of GATS imposes an obligation to inform the council of trade in services before the implementation of monopoly rights. In addition rules on modification and withdrawal of commitments apply in this case. Under these rules codified in article XXI, members wishing to establish monopolies should initiate negotiations with affected members to determine necessary compensation adjustments.

(14) After defining the major supplier, the reference paper elucidates two areas that warrant appropriate regulatory measures designed to prevent the major suppliers from abusing their market position. The first area relates to general competition safeguards. The second is specific to the telecommunications sector: Interconnection. In this section we shed some light on competition policy elements of the reference paper. The discussion on interconnection, however, will be deferred to the next section dealing with substantive elements of regulatory framework.

(15) See definition of bottleneck monopoly position and market power in OECD, The OECD Report on Regulatory Reform, Volume I: Sectoral Studies, (Paris 1997) P. 33. The report defines the market power of bottleneck monopolists in terms of the possibilities to control access to the existent infrastructure especially the local loop, through provision of leased circuits and through access to customers.

(16) Alexander Larson, William Kovacic and Douglas Mudd, "Competitive Access Issues and Telecommunications regulatory policy " (1994) 20 J. Contemp. L.423.

(17) A review of antitrust case law on the doctrine of essential facilities shows that US courts since the MCI case define essential facilities by using four criteria.

o Control of essential facilities by a monopolist o Competitor’s inability practically or reasonably to duplicate the essential facility.o The denial of the use of the facility to a competitor o The feasibility of providing the facility.

The criteria in US jurisprudence were developed in the MCI case. In this case, the court of Appeals challenged the refusal of AT&T to provide MCI with interconnections to local circuits necessary for MCI to provide telephone customers with long distance services under the essential facilities doctrine. Waller , "The new Law of monopolization: An examination of MCI v. AT&T" (1983)

32 De Paul L. Review 595.

(18) In the context of the European Union Law, the doctrine of essential facilities is more clearly stipulated. The EU competition law as well as the case law of the Court of justice treated the essential facilities cases as a specialized example of dominant position. The duty to provide access arises if there is an insurmountable barrier to entry for competitors of the dominant company without access in practice or if without access, competitors will be subject to a serious,

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permanent and inescapable competitive handicap that would make their activities uneconomical John Temple Lang, "Defining Legitimate Competition: Companies' duties to supply Competitors and access to essential facilities" (1995) 18 Fordhum International Law J. p.437.

(19) See Larson and others in footnote 16. The authors reviewed the cases where US courts had to define tests for measuring a competitor's ability to practically and reasonably duplicate the essential facilities. The cases mostly deal with cases in the power industry and involve cost based standards to determine essentiality. P.456, 457

(20) Mohammed Lahouel and Keith E. Maskus, "Competition Policy and Intellectual Property Rights in Developing Countries: Interests in Unilateral initiatives and a WTO agreement" the WTO/World Bank Conference on Developing Countries in the Millennium Round, WTO Secretariat, Center William Rappard, Geneva, 20-21 September 1999.

(21) We should be cautious here about the real meaning of cross subsidization. Not every case of differentiation of price among different types of customers is necessarily a case of cross subsidization. For the purpose of the paper we will retain the definition of cross-subsidization retained by Thimothy Irwin which considers that there is a case of cross-subsidization when in the case of a firm producing two goods, Product A cross subsidizes product B if and only if the Price of A is greater than its stand-alone cost and the price of B is less than its incremental cost. The stand-alone cost is the cost the firm would incur producing A but not B. The incremental cost of B is the additional cost producing B given that the firm is already producing A. See Thimothy Irwin, " Price structures, Cross-subsidies, and Competition in Infrastructure" Public Policy for the Private Sector, Note No 107, February 1997, The World Bank Group. For a general overview of the practice of cross subsidization see, G. R. Faulhaber, "Cross-subsidization: Pricing in Public enterprises" (1975) 65 Am. Econ. Rev. 966.

(22) D. L. Kaiserman and John W. Mayo, "Cross subsidies in Telecommunications: Road to more intellegent Telephone Pricing"(1994) 11 Yale Journal on Regulation 119.

(23) M. C. E. J. Bronckers, "Cross subsidization in EC Competition Law" in . Stuyck and A. Vassestein (eds.) State, Entrepeneurship, National Monopolies and European Competition Law, (Kluwer, Denventer 1993) cited by M. C. E. J. Bronckers and Pierre Larouche, "Telecommunications services and the World Trade Organization" (1997) 31:3 J. W. T footnote 95.

(24) Boutheina Guermazi, "International Accounting Rates, Developing Countries and the WTO: The Dilemma and a Possible Solution" International Journal of Communications Law and Policy, Web Doc 1-3-1999. Available at http://www.digital_law.net/IJCLP/3_1999/ijclp_webdoc_1_3_1999.html also International telecommunications Union and Telegeography, Direction of traffic: Trading Telecom Minutes, September 1999.

(25) See Walter G. Bolter, James W. McConnaughey and Fred J. Kelsey, Telecommunications Policy for the 1990 and beyond ( M. E. Sharpe, Inc. London: England 1990).

(26) See Bronkers and Larouche op. Cit at 27.

(27) Arthur Appleton, "Telecommunications Trade: reach out and Touch Someone?" (1998) 19 U. Pa. J. Int'l Econ. L. 209.

(28) Telecommunications regulation has appeared as an issue of paramount importance with the introduction of competition in the telecommunications sector. With the introduction of competition, it became clear that regulatory rules are needed to ensure that competition works effectively. For a description of the rationale for regulation and early discussion of first experiences in telecommunications regulation, see S. K. Vogorel, Freer Markets, more rules: Regulatory Reform in Advanced Industrialized Countries (Cornell Studies in Political economy 1996).

(29) In this respect the reference paper differs fundamentally from previous international telecommunications law instrument. For example, the International telecommunications Regulations (ITR). The ITRs are a set of international binding rules that regulate the operation and provision of international telecommunications services as well as the transport means used to provide such services. They also set rules applicable to Administrations and Recognized Private Operating Agencies (RPOAs) in respect to international telecommunications services. The ITR do not provide for rules concerning how to regulate the national telecommunication sector. It only

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provides guidelines for provision and operation of international telecommunications services in each relation is pursuant to mutual agreement between administrations. Based on this principle, topics related to the handling, termination and payment arrangements for international traffic accounts are also based on bilateral agreements as stipulated in the International telecommunications regulations adopted in Melbourne 1988. Extracts from the Final Acts are available on the ITU Website at: http://www.itu.int/intset/itu-t/index.html

(30) In EU law, interconnection is defined as "The physical and logical linking of the telecommunications facilities of organizations providing telecommunications networks and /or telecommunications services, in order to allow the users of one organization to communicate with the users of the same or another organization or to access services provided by third organizations" See Commission directive 96/19 on Full Competition in Telecommunications Markets, 1996 O. J. (L74) 13. For a detailed analysis on European Laws related to interconnection: Leonard W. H. Hg, "Access and Interconnection Issues in the Move Towards the Full Liberalization of European Telecommunications" (1997) 23 North Carolina Journal of International Law and Commercial Regulation 1.

(31) See ITU, "Interconnection: Regulatory Issues" Forth Regulatory colloquium, Geneva 19-21 April 1995.

(32) William H. Melody, "Interconnection: Cornerstone of Competition" in Melody ed., Telecom Reform: Principles, Policies and Regulatory Practices (1997) Den Private Ingeniorfond, Technical University of Denmark. 53

(33) This assertion is however being challenged by economists who argue that technological development has made it very easy for new entrants to have their own network. The idea is related to long-standing belief that the local loop constitutes a natural monopoly. Despite the importance of these development, it remains true in many jurisdictions and cases that legal obstacles, technological matters as well as cost constrains still prevail to mandate that entry to a market by a new participant requires that new entrant interconnect with the existent service supplier.

(34) For a detailed analysis of interconnection policy in the context of the European Union T. Kiessling and Y. Blondeel, "The EU regulatory framework in Telecommunications: a Critical Analysis" (1998) 22:7 Telecommunications Policy 571- 592.

(35) ibid.

(36) Eli. M. Noam, "The prerequisite for Competition: Two Proposals to Reform Universal service and Interconnection" .Paper presented at the Munchner Kreis congress on "regulation and Competition in Telecommunications: An International Comparison" September 26, 1995 available at http://www.vii.org/papers/citinoa8.htm

(37) Analysys, Negotiating Interconnect Agreements Analysys June 1998

(38) M. Fredebeul-Krein and A. Freytag, " Telecommunications and the WTO discipline" Telecommunications policy p 490.

(39) See Bridger M., Werner Neu, K.H Neumann and Ingo Volgelsang, "The Regulation of Pricing of Interconnection Services" in Gerald W. Brock, Toward a Competitive Telecommunications Industry: selected Papers from the 1994 Telecommunications Policy Reseach Conference p.95.

(40) Those methods are: basing interconnection charges on the incumbent PTO's end-user prices, basing Interconnection charges on historic cost and allowed rate of return, Basing interconnection charges on forward looking costs, the efficient Component Pricing Rule or Baumol-Willig rule, Stand-alone cost. Each of these methods focuses on specific kinds of costs that the regulators think should be recouped in the interconnection charge. In the case of interconnection charges based on incumbent's end user prices, the entrant pays the price charged to ordinary users of the public switched telecommunication network after minor subtraction of costs related to billing and marketing. This system has been praised for providing conceptually easy to understand system and a protection of the entrant against predatory pricing of the interconnection. Second in the method of historic cost and allowed rate of return, the entrant is supposed to contribute to cost of using the capital assets determined according to their original cost taking into account depreciation rules in addition to an allowed rate of return. This

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method was mainly criticized on the grounds that it does not provide a reliable method to measure cost because it relies on old technologies. The forward looking cost method is based of the cost that the incumbent would incur to expand its network and operations to carry the entrant's traffic using current technology. Under EU law, interconnection charges should be calculated on the basis of forward looking long run average incremental costs. According to the commission's Recommendation of January 8, 1998 on interconnection in a liberalized telecommunication market, the forward looking method of calculating cost is the most compatible method with competitive markets. It implies an accounting method based on current costs rather than historic costs. Those current costs approximate those of an efficient operator employing modern technology. In addition, according to the EU commission, interconnection charges which are based on such costs may include justified mark ups to cover a portion of forward looking, joint and common costs of an efficient operator as would arise under competitive conditions. Finally, the efficient Component Pricing rule also known as the Baumol- Wilig rule makes interconnection charges equal to the sum of incremental costs and the opportunity costs that would have returned to the incumbent should no business has been diverted to the new entrant. In other words, under this method, the incumbent is allowed to recoup the financial consequences of entry. In this case, the loss of end user revenue is regained from interconnection charge.

(41) David Molony, "Us poised to take German interconnect row to WTO" Communications Week International, March 15, 1999.

(42) Reference paper 2 (5).

(43) Article 8 of the Law of Morocco creating the national regulatory agency stipulates: "

The Interconnection between various telecommunications networks shall be accomplished under acceptable, objective and non-discriminatory legal, technical and financial conditions, which shall ensure a fair competitive environment.

The national telecommunications regulatory authority referred to in article 27 and hereinafter referred to by abbreviation as the "ANRT" shall have authority to ensure compliance with the above provisions and shall resolve disputes related thereto".

(44) Paragraph 3 of Article VI on Of GATS stipulates that "Where authorization is required for the supply of a service on which a specific commitment has been made, the competent authorities of a Member shall, within a reasonable period of time after the submission of an application considered complete under domestic laws and regulations, inform the applicant of the decision concerning the application. At the request of the applicant, the competent authorities of the Member shall provide, without undue delay, information concerning the status of the application."

(45) Kiessliong T and Blondeel Y, "The European Union Regulatory Framework in Telecommunications: A critical Analysis" (1998) 22:7 Telecommunications Policy 571.

See also Xavier P, "The licensing of Telecommunications Operators: Beyond the EU's Licensing Directive" (1998) 22:8 Telecommunications Policy.

The directive embodies the following principles. -No limits on the number of market entrants are permitted unless for reasons related to frequency. - Urge the licensing authorities to use general authorizations instead of insisting on individual licenses for each operator. In addition, the directive lays down a harmonized set of licensing conditions with regard to both individual and general authorization and special emphasis on the need to set license fees on administrative cost. Finally, the EU directive encourages coordination of EU licensing regime. The idea is motivated by the importance to provide one stop shopping procedure for European operators in different EU countries.

(46) Marco C.E. J. Bronckers and Pierre Larouche, "Telecommunications Services and the World Trade Organization" (1997) 31:3 Journal of World Trade Law, 30.

(47) ITU, General trends in Telecommunications Reform 1998, volume 1.

(48) ITU, General trends in Telecommunications Reform 1998, volume 1.

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(49) The experience of European countries with spectrum management reveals three approaches. The centralized administrative approach, the semi-administrative approach and the market oriented approach. While in the first two cases, spectrum management is insured by an administrative organ whether the national regulatory agency (Finland, Denmark) or by semi-autonomous body (Radiocommunications agencies in UK, in the third case economic principles of offer and supply apply to frequency management as well as technique of auction. ITU, General Trends in Telecommunications Reform, Volume I 1998.

(50) See William Melody and Dorte Moller, "Rights of Way as a Foundation for Infrastructure Competition" in William Melody, Ed, Telecom Reform: Principles, Policies and Regulatory Practices, DTU 1997, p.124

(51) International Telecommunications Union, Universal Access, World Telecommunications Development Report 1998

(52) For an overview of universal service definitions and policies around the world see, Sean Siochru, Telecommunications and Universal Service: International experience in the Context of South African Policy reform, International Development research Center, Ottawa, 1996

(53) Comparing the level of access to telecommunications services in both developed and developing countries can test this assertion. While developed countries have to a certain extent reached good levels of availability accessibility and affordability of telecommunications services, developing countries are far behind. For developing countries with low household teledensity, the essence of becomes on providing a universal access to a telephone. For developing countries extending infrastructure to unserved and underserved areas and communities become an essential element in the definition of universal service. See World Telecommunications Development report, Universal Access, ITU, 1998

(54) See chapter on Asia Pacific in ITU, General trends in Telecommunications Reform, Volume one, 1998

(55) For an overview of different universal service funding schemes see ITU, World Telecommunications Development Report, Universal Access, 1998 p.85-90

(56) For a distinction between the political, social aspects of universal service and its economic aspects, see Tim Kelly, "Universal service: an instrument of regulatory capture"(1995) 2 Telecommunications and Space Journal 289.

(57) ITU, country case study of Columbia. http://www.itu.int/wtpf/Columbis/index.html

(58) The European Commission stressed its preference to the use of the method of universal service fund as the best method to boost universal service in a liberalized European market. However efforts to agree on a common financing scheme for a European universal service fund failed. See Kiessling T and Blondeel Y, "The European Regulatory framework in Telecommunications: A critical analysis" (1998) 22:7 Telecommunications Policy p.571.

(59) ITU/BDT, General Trends in telecommunications Reform, 1998.

(60) Although theoretically countries have a total freedom to choose to adopt reference paper's principles or not, in practical terms, this freedom is not absolute. The reference paper elevates the principle of regulatory reform from a domestic issue to an international policy matter. It set a harmonized set of principles that reflects the minimum guarantees for foreign entrants in a particular market. New members liberalizing their market will face a de facto obligation to adopt the reference paper if they want foreign operators to enter and invest in their market.

(61) Erika Wada and Tomohiko Asano, "Telecommunications Services in the Asia Pacific Countries" in Gary Clyde Hufbauer and Erica Wada, eds., Unfinished Business: Telecommunications after the Uruguay Round Institute for International Economics 1997p.181

(62) ITU, The changing role of Government in an era of telecom deregulation: Report of the colloquium held at ITU Headquarters 17-19 February 1993.

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(63) See Warrick Smith, "Utility regulators: the independence debate" Public policy for the private sector, World Bank Note No. 127 Available at the World bank web site.

(64) P. Gist, "The Role of OFTEL" (1990) 14 Telecommunications Policy 26-51.

(65) It should be emphasized, however, that when the world is turning its eyes to the US example of regulatory authority for guidance, the FCC is coming under tremendous pressure lately. Voices have been heard criticizing the FCC and calling for its abolition or at least for a major reorganization of the agency to improve its efficiency, avoid strategic appointments and alleviate budgetary constraint caused by the regulatory exercise. See Harry M. Shooshan III, "A Modest Proposal for Restructuring the Federal Communications Commission" (1998) 50 Fed. Com. L. J. 637.

(66) See article 2 of the standards code.

(67) For an economic analysis of the characteristics of services and the nature of barriers, Fetekuty, G, International Trade in Services: An overview and Blueprint of Negotiations, Cambridge Ma , Ballingert Publishing co., 1988. Phedon Nicholaids, Economic Aspects of Services: Implications for a GATT Agreement" 23 J. World Trade 125 (1989) S. F. Benz, "Trade Liberalization and the Global Service Economy" 19 Journal of World Trade Law 95 (1985).

(68) the ministerial declaration launching the Uruguay round solemnly declared that any multilateral regime for trade in services should respect the policy objectives and national laws and regulations in the services sector.

(69) Communication from the United States, Draft Offer on Basic Telecommunications, S/NGBT/W12/Add.3 (July 31, 1995). Available at http://www.wto.org/wto/ddf/ep/public.html.

(70) For an overview of the different steps that led to the adoption of the reference paper, See Laura Sherman, "Wildly Enthusiastic About the First Multilateral Agreement on Trade in Telecommunications Services" (1998) 51 Federal communications Law Journal 61.

(71) ibid.

(72) The basic telecommunications agreement is a set of schedules attached to the GATS by a protocol. A protocol is a legal means to attach schedules of specific commitments by members to the GATS. According to article XX (3) of GATS "Schedules of specific commitments shall be annexed the "GATS" and form an integral part thereof". The protocol has the force of international binding agreement. It is registered in accordance with the provisions of article 102 of the United Nations’ Charter. (Paragraph 5 of the fourth protocol to the general agreement on trade in services)

(73) ibid. 88

(74) For interesting debate about deep integration Stephan Haggard, Developing countries and the politics of Global Integration Washington DC, Brookings Institute, 1995. Lawrence Robert, Regionalism, Multilateralism and deeper Integration, Brookings Institute 1994.

(75) Many other countries have adopted laws before the entry into force of the basic telecommunications agreement, which reflect the principles of the reference paper. To name few, the telecommunications Market Act of Finland (1997), The telecommunications Act of France (1996)

(76) The USA has questioned Japan's compliance with the WTO basic telecommunications agreement in different occasions. Lastly, in its 1999 report Foreign trade barriers under section 1377 of the Trade Act, The USTR invoked that NTT interconnection rate are unacceptable under the reference paper.

(77) See report of the European Public Telecommunications network operators association on assessment of the level of implementation of the reference paper by markets of interest to Europe. Available at ETNO site at http://www.etno.be

(78) Denmark is a case in point with different laws and regulations for each telecommunications matters. For instance we find an Act on Universal Service Obligation and certain Consumer

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interests (1996), an other Act on competitive conditions and interconnection (1996), Act on radio Communications in the telecommunications field (1997), Act on Assignment on Number Resources, Act on National Telecommunications Agency and Act on Rights of Way and Interconnection (1997)

(79) During Telecom 99 organized in Geneva 10-17 October 1999, The minister of information industries of China called the developed industrial nations to help China develop and integrate its infrastructure. The minister reassured potential interested investors that China would draft a new telecommunications law as soon as possible to help create an orderly, equitable and competitive environment. For a daily web cast of events at Telecom 99, visit http://www.totaltel.com/t99

(80) See the ITU regulatory web site on country specific legislation. Available at http://www7.itu.int/treg/

(81) Scott H. Jacob, "Building Regulatory Institutions in Central and Eastern Europe" Paper prepared for the OECD/World Bank Conference on Competition and Regulation in Network Infrastructure Industries, Budapest, June 28-1 July 1994.

(82) See Peter L. Smith and Bjorn Wellenius, "Strategies for successful telecommunications regulation in weak governance environments" World Bank paper, March 31, 1999. Available in the World Bank web site.

(83) The Act establishing the authority is available from the ministry of communication of Ghana's web page at http://www.communication.gov.gh

(84) Established under Title II of Law 24-96. Available at http://www.anrt.net.ma/

(85) Created in 1997 under Uganda Communications Act.

(86) Established in 1997 under the telecommunications and broadcasting No 103 of 1996. Available at http://www.doc.gov.za/ The SATRA web page is at http://www.mikom.csir.co.za/sabre/

(87) Other cases of involvement of ministry of communications in the regulatory activity is more pronounced in other cases. For example, in Madagascar, Mozambique and Botswana the telecommunications regulators report directly to the minister of communication.

(88) Many newly established regulatory agencies are financed by license fees, spectrum allocation fees. Examples include Tanzania communications commission, National communications authority of Ghana, Botswana Telecommunications authority, The regulatory authority of El Salvador (SIGET), CONATEL, the national commission of telecommunications of Paraguay.

(89) According to Wellinus and Bjorn, the number of staff needed to run effectively a regulatory agency could sometimes exceed 100 in developing country especially if the regulator is entrusted with spectrum management tasks. See Nulty, Timothy E and Eric Scheneidewinde, Regulatory Policy for telecommunications" in Wellenius Bjorn, Peter Stern, Timothy Nulty and Richard D. Stern, eds. Restructuring and managing the Telecommunications sector, World Bank, Washington, DC, 1989.

(90) Peter L. Smith and Bjorn Wellenius, Strategies for successful Telecommunications Regulation in Weak Governance Environment". Op.cit

(91) Heather Walsh, "Chile's Telefonica loses case to block fee cuts" Total telecommunications, September 29, 1999.

(92) This benchmarking exercise has also been used in the European level as an interim practice until adoption of long run average incremental cost methodology.

(93) See Wellenius, op.cit

(94) See Mohammed Lahouel, University of Tunis III and Keith E. Maskus, University of Colorado, Boulder, Competition Policy and Intellectual Property Rights in Developing Countries: Interests in Unilateral Initiatives and a WTO Agreement, Paper prepared for The WTO/World Bank

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Conference on Developing Countries' in a Millennium Round, WTO Secretariat, Center William Rappard, Geneva, 20-21 September 1999

(95) For a more detailed overview of technical assistance program, refer to WTO Council of trade in Services special session on telecommunications services of June 25, 1999. Specifically see the official submission from the United States, "Communications from the United States: Official sources of United States technical assistance in the telecommunications sector: available at http://www.wto.org/wto/services/w110a2.doc.

(96) As part of its activities in technical assistance in regulatory matters, the FCC has published in June 1999 a regulatory guide, Connecting the Globe: Regulator's guide to building a global information community", available at http://www.fcc.gov/connectglobe/regguide.pdf

(97) Communication from the Chairman of he Telecommunications Regulator's Association (TRASA) submission for Council for Trade in services, Special Session on Telecommunications Services, June 25 1999 S/C/W/110/Add.8

(98) See document presented by Canada in the World Telecommunication Development Conference (WTDC-98) Valetta, Malta, 23 March- 1 April 1998. Document 58-E CIDA's Telecommunications Capacity Development in South Asia.

(99) The program encompasses support of the Telecommunications Regulatory Authority of India (TRAI), training of personnel, development of R&D capacity and help in the establishment of a center for Telecom Policy studies at the Institute of Management (Ahmedabed) ibid p.4

(100) WTO Council of trade in Services special session on telecommunications services of June 25, 1999. Communications from the European community and its member states: European Commission Actions to assist third countries in adapting to the changes in the telecommunications environment. Available at http://www.wto.org/wto/services/w11oa6.doc

(101) MEDA program includes the following countries: Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, Syria, Tunisia, Turkey and the Palestinian authority

(102) WTO Council of trade in Services special session on telecommunications services of June 25, 1999. Communications from the European community and its member states: European Commission Actions to assist third countries in adapting to the changes in the telecommunications environment. Available at http://www.wto.org/wto/services/w11oa6.doc

(103) For a detailed description on World Bank involvement in technical assistance in regulatory matters see World Bank contribution to the WTO council of services special session on telecommunication of June 25, 1999. : Technical Assistance, telecommunications reform and the WTO: Activities of the World Bank Group". Available at http://www.wto.org/wto/servises/w110a7.doc

(104) World Bank has engaged in numerous projects of technical assistance in 1999. Most of the projects are scheduled to continue for couple of years. Bangladesh, Cameroon, India, Sri Lanka, Bolivia and Romania are but a few examples of recipients of World Bank technical assistance in regulatory matters.

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