From International Competitive Carrier to the WTO: A Survey of the FCC’s International Telecommunications Policy Initiatives 1985-1998

I. INTRODUCTION As both the mainstream and trade press reports continue to herald, the world is in the midst of an international telecommunications revolution. With the creation and implementation of the February 1996 World Trade Organization Agreement on Basic Telecommunications Services (the February Accord or WTO Agreement), the international telecommunications community has (at least on paper) promised ostensibly to move away from markets characterized by monopolies and toward a world of competition and deregulation. The big question, however, is whether these efforts will actually lead to better economic performance in the market for international telecommunications products and services. The purpose of this Article is to examine one particular, yet extremely significant, portion of this inquiry--how much have U.S. international telecommunications policies specifically helped or hindered this process. This Article, after surveying Federal Communications Commission (FCC or Commission) precedent from the FCC's first major international policy decision (International Competitive Carrier) through the FCC's implementation of the WTO Agreement (January 1, 1998), concludes that despite a few laudable achievements, several key problematic themes run throughout this time period.(1) In particular, the FCC's efforts have been marred by both the demonstrable rise of neo-mercantilism over the past several years at the expense of consumer welfare, and substantial legal and economic analytical inconsistencies and outright errors resulting from the FCC's embarrassing attempts to implement and defend this neomercantilist policy.(2) By adopting such economically flawed policies, therefore, the United States has achieved neither trade policy's basic goals of promoting U.S. investment abroad nor the maximization of consumer welfare under the FCC's public interest mandate. Tragically, the only tangible achievement apparently has been the delay of effective World Trade Organization (WTO) implementation of the WTO Agreement and the rise of international ill-will against the United States and, a fortiori, U.S. firms.(3) To examine these issues in greater detail, this Article is comprised of three analytical strands: (1) The FCC's formulation, adaptation and modification of its International Competitive Carrier (also known as "dominant" carrier) paradigm during this period; (2) the FCC's policies toward international accounting rates and the implementation and adaptation of its International Settlement Policy (ISP) during this period; and (3) the FCC's attempts to reconcile and distinguish these sometimes contradictory, yet sometimes complementary, policies in the context of carrier-specific adjudications. Each of these strands will be examined in both a pre- and post-WTO context. II. STRUCTURAL CHARACTERISTICS AND BASIC ECONOMIC CONDITIONS OF THE INTERNATIONAL MESSAGE TELECOMMUNICATIONS SERVICE (IMTS(4)) MARKET To put the concept of "international telecommunications" into context, it is initially necessary to identify some of the major structural characteristics and basic economic conditions of the market. A. Relevant Markets First, try not to visualize the market for international telecommunications products and services as some sort of generic, global information superhighway. Rather, this market is made up of a series of individual country-route markets between "originating" countries and "destination" or "terminating" countries.(5) Both supply-side and demand-side factors lead to this view. From a supply-side perspective, because carriers need to obtain operating agreements and/or regulatory approval from each terminating-country market, a carrier cannot freely provide service to a given country merely if it wishes to do so. In addition, it is very difficult for a carrier to shift its facilities from serving one country to serving another based upon market conditions because the use of relatively few cable and satellite facilities often provides less flexibility than the broader-based domestic facilities. …