RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/91
16 December 1998
(98-5103)
Council for Trade in Services Original:  English
COMMUNICATION FROM THE UNITED STATES
Telecommunications Services
The following communication received from the delegation of the United States was
circulated informally on 15 December 1998 to the Members of the Council for Trade in Services to
assist in the discussion on Telecommunications Services in the context of the Information Exchange
Programme.
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I. GROWTH OUTLOOK AND BENEFITS OF LIBERALIZATION
Telecommunications services is one of the fastest-growing industries in the world today.  By
some estimates, global revenues in the sector can be expected to more than double over the next ten
years, from an estimated 1998 level of approximately US$ 750 billion.
Insofar as the liberalization of trade and cross-border investment flows in telecommunications
services are relatively new phenomena, we expect that by taking such actions governments can
generate large gains in economic welfare.  In competitive telecommunications markets, new and
long-established service suppliers have lowered the costs of operating and maintaining infrastructure,while increasing its capabilities.  This has resulted in lower prices, better quality and more availability
of all types of services, inducing a large increase in usage.  In the end, while the average cost of phone
calls and other services has steadily fallen, the revenue generated by calls and other uses of networks
has continued to grow.
1
A significant number of Members made immediate commitments in enhanced or value-added
telecommunications services in the Uruguay Round.  Basic telecommunications commitments that
were agreed under the Fourth Protocol to the General Agreement on Trade in Services began to take
effect in February 1998.  Many of the latter commitments will come into force beyond January 2000.
The two sets of commitments provide a base upon which Members should seek to build, for threereasons.
First, the telecommunications sector provides infrastructure vital to many other industries and,
therefore, its advancement is vital to overall m acroeconomic growth and development, including for
emerging market countries.  In particular, the ability of small and medium-sized enterprises to reach
                                                     
1 Where cross-subsidies between sub-sectors were maintained under a monopoly regime (e.g., free
local calling subsidized by expensive long distance calling), there has been a need for initial price rebalancing to
cost-oriented levels at the outset of competition.S/C/W/91
Page 2
new markets through electronic commerce will depend on the economical and widespread availability
of services such as Internet access.2
Second, technological developments continue to validate the prediction that advances in the
manufacturing of digital memory devices will double the capacity of new generations of these devicesevery eighteen months.
3  Without private sector-led build-out and improvement of transmission
facilities, Members will not fully exploit the benefits of advances in technology and will lag in the
development of information industries.
Third and finally, Members already have recognized the importance of rapidly developing
sufficient disciplines to advance the growth of this sector on a global basis.  The success of the
negotiations on basic telecommunications services, including the widely-adopted WTO ReferencePaper, came just two years after the entry-into-force of the GATS and its Annex on
Telecommunications.
II. POSSIBLE AREAS FOR FUTURE DISCUSSION AND WORK
For many Members, the negotiations that begin in 2000 will present the opportunity to make
telecommunications services commitments for the first time.  More generally, Members will wish to
consider ways to improve upon existing commitments.  Questions for future discussion and work
include:
(i) Should there be more uniformity in sub-sectoral scheduling methods,
e.g., a reorientation of schedules as suggested by the GBT Chairman’s Note
on scheduling (S/GBT/W/2/Rev.1 of 16 January 1997)?
(ii) Should Members incorporate the WTO Basic Telecommunications
Reference paper into the GATS, while developing international best practices
guidelines in accord with the Reference Paper.
4
(iii) Have Members ensured adequately against conflicts of interest where
government sustains a dual role as a market participant (or shareholder in a
market participant) and as a market regulator?
III. U.S. REGIME
The U.S. market accounts for approximately one-third of global telecommunications services
revenues.  Competition and reliance on private investment have been major factors underlying the
U.S. market’s strong performance.  Information industries and other sectors that rely ontelecommunications services as a key input have benefitted from generally low costs as well as steady
advances in the availability of the newest innovative services.
                                                     
2 A recent communication from Egypt, “Special and Differential Treatment for Developing Countries
in the Multilateral Trading System” (WT/GC/W/109, WT/COMTD/W/49 of 5 November 1998), notes the
challenge to Members to determine “...how can trade beco me a tool that promotes convergence of standards of
living and levels of development among various countries and regions around the world and not widen theexisting and even growing gaps and inequities.”  Electronic commerce can help achieve this goal, by linkingsmall and medium enterprises of developing countries more closely to global markets, if underlyingtelecommunications services are economical and widely supplied.
3 This observation is known as “ Moore’s Law ”.
4 Members chose to incorporate the Annex on Telecommunications as an integral component of the
GATS within the Uruguay Round Agreement.S/C/W/91
Page 3
The United States’ WTO commitments extend to basic and enhanced voice and data services,
via wireline, terrestrial radio and satellite facilities. The United States maintains no restrictions in
relation to market access and national treatment for basic service licenses obtained via indirect
ownership, nor for value-added services.  There are no restrictions on direct ownership of firms
holding non-radio FCC licenses.  Direct ownership of a radio license may not be granted to or held by(a) a foreign government or the representative thereof; (b) non-U.S. citizen or the representative of
any non-U.S. citizen; (c) any corporation not organized under the laws of the United States; or,
(d) any U.S. corporation of which more that 20% of the capital stock is owned or voted by a foreign
government or its representative, non-U.S. citizens or their representatives or a corporation not
organized under the laws of the United States.  Indirect ownership arrangements for radio licensees
are allowed under FCC rules.  The FCC has stated that it will grant applications for up to 100%
indirect foreign ownership.
5
As a result of these policies, forty-eight license applications by foreign-affiliated firms have
been granted since the entry-into-force of the Fourth Protocol to the GATS on February 6, 1998.
A United States firm, Comsat, currently exclusively provides links with Intelsat, and with
Inmarsat for maritime services.  The FCC issued  a notice of proposed rulemaking in October 1998
inviting public comment on a proposal to end Comsat’s exclusive access to Intelsat.  Comsat’s
exclusive access to Inmarsat for maritime service will end when Inmarsat is privatized in 1999.
The United States does not apply any restrictions concerning the application of the rule of
transparency.  The United States did not include in its schedule of commitments direct-to-home,
direct broadcast and digital audio radio satellite services, in light of the lack of commitments in these
sub-sectors by most of its trading partners, and it maintains an MFN exemption with respect to these
services.
Basic telecommunications services are regulated at the federal and the sub-federal level.  The
Federal Communications Commission (FCC) has jurisdiction over inter-state, international and all
radio-based basic telecommunications services.  The Telecommunications Act of 1996 ended the
authority of state governments to grant monopoly or exclusive rights for intra-state
telecommunications.  State Public Utility Commissions (PUCs) retain authority to regulate rates,
terms and conditions of intra-state, non-radio-based basic telecommunications services.  Enhanced or
value-added telecommunications services are unregulat ed at both the inter-state and intra-state level.
IV. COMMENTS ON THE SECRETARIAT PAPER
The background note by the Secretariat on telecommunications services (S/C/W/74 of
8 December 1998) provides an excellent compilation of relevant information, analysis and issues for
consideration by Members.  Several points made by the Secretariat deserve reemphasis or comment:
/g110 “Modern means of telecommunications, enhanced by competition, will enable all countries to
participate more fully in international trade,  particularly if complemented by increased
liberalization of cross-border supply of many electronically deliverable services. Innovation
in telecommunications will be essential to ensuring that the anticipated growth of electroniccommerce can be fully realized.” (Section I, sixth paragraph.)
                                                     
5 To cite one prominent example, in August 1997 the FCC approved the proposed 100% acquisition of
MCI by British Telecom.  (The approximately $20 billion acquisition later was canceled by the two companies,
when a higher bid for MCI was received.)S/C/W/91
Page 4
/g110 “The development and employment of scheduling conventions, e.g., technology-neutral
commitments,  is important to clarify the intended nature and scope of commitments made in
telecommunications services.”  (Section II, fourth and fifth paragraphs.)
/g110 “In the face of what may be continuing dominance over essential infrastructure and the local
loop for a considerable period of time, effective regulatory safeguards, especially in relation
to competition and interconnection, will be indispensable.”  (Section V, fifth paragraph.)
/g110 With respect to the prospect that the largest Internet Service Providers (ISPs) may modify or
abandon mutually free-of-charge “peering” arrangements, this appears primarily to reflect the
ongoing transition of the Internet into a market-driven set of network-to-network
relationships.6  Peering originated when Internet access was managed principally by a limited
number of subsidized regional entities.  Today, in places where Internet access is market-
driven, a multiplicity of small, medium-sized and large ISPs are responding to end-user
demand, e.g., by offering flat-rate, unlimited service packages.  In turn, many of these ISPs
have sought more cost-oriented means than peering for the exchange of traffic with other
ISPs.  (Section V, fifth paragraph.)
/g110 “For services in which governments have committed to dispense with limits on the number of
suppliers, except perhaps involving use of radio spectrum, the practice of  requiring suppliers
to await the issue of tenders for licenses may no longer be suitable. Instead, suppliers
themselves may be the best judge of emerging market opportunities that they believe they canserve and should be able to self-initiate applications accordingly.” (Section V, sixth
paragraph.)
/g110 “With the dramatic growth of wireless services of all kinds, yet another concern will be the
availability of spectrum more generally;  how it will be organized and allotted, for example,to meet the many competing new demands in the not-too-distant future.”  (Section V, seventh
paragraph).
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6 "Peering” refers to the practice of ISPs who exchange traffic (i.e., allow each other's customers to
exchange e-mail and to view websites hosted by the other ISP) without charging one another.