The WTO Telecom Agreement or Grabbing the Global Telecom Pie13/01/2009
Last month, a new global telecommunications agreement was reached under the aegis of World Trade Organisation (WTO). It follows various other unequal agreements that have been reached under the new global trade regime of WTO. This agreement opens up the $615 billion global telecom markets of all countries, hitherto a preserve of their national telecom carriers, to global competition. No wonder that Charlene Barshevsky, the US Trade representative to WTO, hailed the pact saying that it will give international carriers (read US multi-nationals) free access to nearly 100% of the world’s telecom market as against only 17% now. Barshevsky also added that this will create upto one million jobs in US alone.
The India has also agreed to provide such market access in long distance and international calls by 1999 and 2004 respectively. Though India has agreed that the foreign ownership will be allowed up to only 25%, this has little meaning as it has already allowed foreign ownership of 49% directly and 75% indirectly in Indian telecom companies. The only saving grace has been that India has managed to keep the call accounting rates out of the purview of the agreement while agreeing to market access. However, once competition is allowed as well as foreign ownership, this will be difficult to sustain. This will reduce, if not eliminate, the cross subsidies that currently long distance and international calls provide for expanding and maintaining low cost telecom access.
The telecom market has seen tremendous growth in the last decades. The services segment has grown even faster, the bulk of the turnover today in telecom is in the services sector. Not only is this chunk of the market much bigger than the equipment market, it is poised for even higher growth with the expansion of Internet and data communications. As the telecom services grow rapidly, the global telecom pie is going to become even bigger.
Telecom and Information technology have been identifies as levers thorough which less developed countries can leverage their growth and leap frog intermediate stages. The Maitland report, in 1984, had raised this possibility. The reality has been quite otherwise, with the disparities between the information rich and the information poor countries growing even sharper. Obviously, the disparities within these countries are even sharper, with a thin creamy layer aspiring to global standards while the rest are denied even rudimentary access.
Initially, the developing countries considered telecom a luxury. This view was to change in 1980’s. It was recognised that telecom could motor economic growth and therefore its provision became a state priority. The strategy of growth for these countries have been to provide state investments to develop the telecom infrastructure, keeping in mind the need also to expand telecom services to rural and backward areas. Korea, Taiwan and Malaysia followed this route; subsequently China and India adopted this as a part of their strategy of development.
An underlying philosophy of such telecom expansion has been the provision of universal service obligation — the telecom carrier has to provide similar telecom access irrespective of location. Provision of universal service obligation requires cross subsidies as less lucrative areas or traffic have to be subsidised from more lucrative areas or traffic. Thus, cheap connection costs and local calls are subsidised by higher long distance and international call rates.
The new telecom agreement stipulates that each of the market segments — the local, the long distance and the international segments will have to be opened to competition. This will make cross subsidies increasingly difficult. Telecom will be considered a commercial activity like any other, and its role in advancing other economic activities will take a back seat. Under such a competitive regime, the users who originate the highest call rates will undoubtedly benefit. However, the cost to all others will increase sharply. It will help the local elite to globalise more easily while the rest are excluded from the larger economy. There will be thus no incentive to provide telecom access to rural and backward areas that have low call densities.
Which are the companies most likely to benefit from the new open telecom regime? Opening the national markets to global penetration is skewed heavily in favour of existing telecom giants. While the telecom agreement was under negotiations, first under General Agreement on Trade in Services (GATS) and subsequently in WTO, the advanced countries sorted out their internal differences. Originally, USA scuppered the telecom agreement in GATS as they were not willing to accept foreign equity beyond 20% in the telecom sector. Germany, and France were not too keen either to allow for foreign companies in their domestic markets. However, new alignments have been formed in the last two years — MCI of US has now merged with British Telecom, Deutch Telecom (Germany) have aligned with French Telecom. Apart from the above, the other players are likely to be the telecom giant AT&T of USA and NTT of Japan. These major telecom players are now prepared to expand out of their national markets. Once the advanced countries had cleared the decks for their national telecom companies though such alliances, they had little difficulty in forcing this highly unequal agreement on all other countries.
The telecom agreement is one part of the attack that US and other advanced countries have launched on the less developed countries. The Federal Communications Commission (FCC) has recently argued for a change in call accounting rates. Today, more calls originate from US for other countries then is received in US from others. The US has to pay the difference according to a settlement rate bilaterally agreed between the telecom carriers. The US is now arguing that the each telecom company can charge only what is the cost of carrying the call according to certain bench mark costs worked out by FCC. Thus, if the carrier in US has higher costs than the Indian carrier, the Indian carrier should pay a higher amount while the US carrier pays a lower amount. Further, such an accounting will also remove subsidies that the international traffic today provides for the expansion of the network.
The impact of the FCC proposal can be seen for the Indian case. US will bring down its differential payment from the existing $915 million to about $160 million. VSNL and the Indian representatives have rightly argued that the outflow from US is higher as the calls that originate from US are far higher than calls for US originating from India, and not because of the call accounting rates. Though there was a lot of pressure to bring the call accounting rates under the WTO purview, the Indian negotiators successfully kept this out of the scope of the agreement. This lead to other countries such as Pakistan, Bangladesh, etc., also opting out of the WTO framework for settlement of call accounting rates.
However, the settlement issue will become irrelevant once competition is allowed in long distance and international traffic. Once these areas are opened to competition, cross subsidies will no longer be possible. The removal of cross subsidies, is therefore, the inevitable fall out of the telecom agreement.
The Indian Government gave away its entire bargaining strength with the introduction of the new National Telecom Policy in 1994. This policy, announced a day before the then Prime Minister, Narasimbha Rao left for US, accepts unilaterally all the terms of the telecom agreement. The proviso of agreeing to only a 25% cap on foreign ownership in WTO now is an empty proviso, as the terms of the so called National Telecom Policy allow for 49% direct foreign ownership and 75% indirectly through foreign investment companies. At the time of announcement of the Policy, a number of experts had argued that such a policy should not be finalised while the telecom agreement was still under negotiations. Once the bargaining position was thus given away, there was little we could hope to gain from the negotiations. The contrast with China is glaring in this respect. China allowed foreign companies to operate but was able to secure technology upgradation for its state sector telecom manufacturing units in exchange for its market.
In India, we are willingly handing over our internal market while allowing state sector companies such as ITT , C-DOT, etc., to fall sick. The Sukh Ram episode only brings out that the policy changes did not take place out of ignorance. It was selling India — pure and simple — for private profit.
The global trade regime is only another name for neo-colonial penetration. The trade agreements under WTO are thinly veiled designs for re-division of the world markets amongst leading countries and their multi-national companies. The issue here is not whether there should be globalisation or not, but the terms on which this globalisation is taking place. The WTO is therefore an arena of dividing the global market, with developing countries increasingly submitting to the dictates of imperialism. The telecom agreement is the latest example of this neo-colonial re-division of the world market.