CONSUMER WELFARE AND GOVElZbhENT REGULATION OF TELECOMMUNICATIONS: LESSONS FOR PAKISTAN

Joseph Wilson

A thesis submitted to the Faculty of Graduate Studies and Research in partial fulfillment of the requirements of the degree of

MASTER OF LAWS

Institute of Air and Space Law McGili University, Montreal

August, 1996

Copyright O Joseph Wilson, 1996

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To Professor Richard A. Ja&

Whose Tutelage, Patience, & Support Embled Me to Conpiete this Programme

Acknowledgments

A number of people contnbuted and helped me in complethg this programme. AU contributions were equdy important. Therefore, the order of appearance of names does not reflect the order of importance.

First of ail, 1 wish to thank Mr. Rasheed Ahmad and his wife Shaguflha Jabeen, whom 1 met --exactly a year ago-- when 1 came to Montreal to start my studies at McGill. The couple, since our first meeting, accepted and loved me Like their brother, and took upon themselves a duty to take care of me. Providig deiicious Pakistani meals to me became a sacred obligation for Ms. Jabeen, which she is meticuIously performing, hitherto. The couple indeed is a Living paradigm of generosity and abysmal love. Without their support, this past year may not have been as pleasurable as it was. 1 thank them with al1 sincerity and love.

Indeed, living in Montreal and studying at the Institute of Air and Space Law has been a unique expeiience. Never before had 1 experienced such a cosy environment in an educational institution. Professors, administrative s t a , and students together were like a smaii family.

1 wish to thank dl of my professors for the pains they took to irnpart knowledge to the students. In particular, I wish to thank Professors Richard Janda and Michael Milde. A debt of gratitude is owed to Professor Jeremy Webber, Associate Dean, for making it possible for me to attend the institute.

A bundle of thanks is offered to al1 the administrative stafFat the Institute. In particular, to Cathy Duggan, who always made sure that my time-sheets got signed without delay, and to Maria D'Amico for her exceptionally caring and fnendly attitude.

Special thanks are owed to Faroon Shaw, my cousin, who generously put his word processing facilities at my disposal. Without those facilities, 1 would never have been able to complete my thesis in tirne.

A debt of gratitude is also owed to Salman K. Chima, and Khalid S. Ibrahim of Chima & Ibrahim, Advocates, Lahore, Pakistan, and to Jamshed Masood, Deputy Director, Pakistan Telecornmunication Authority, for making some matenal on Pakistan telecom available to me.

Thanks is offered to ail my fiiends and class-fellows, for their wondefil association. To Ben Singer, who painstakingly proohad thk paper. (However, if there are still any grammatical errors, those wül be mine).

Finaily, 1 would never have been able to embark on this acadernic odyssey witliout the never-ending support, encouragement, and love of my mother, Bimla Wdson, and brother, Riclq Wilson.

1 thank you aii.

Joseph Wilson August, 1996

Abstract

Govemments started regulating the telecommunications industry, fxstly, because the govements thought that the industry possessed the characteristics of what is generdiy known as 'naturai monopoly', and, secondly, to protect the usen of telephone seMces fiom potentiai abuses that are associateci with the monopoIy power. The governmental intervention went so far that, with the exception of few countries, virtually everywhere in the world telecommunications services were provided by the governent departments of Post Telephone and Telegraph (PTT). However, with the technological advances made in the telecommunications industty, the industry can no longer be characteriad as 'naturd monopoly,' and, therefore, the primary rationale for regulating telecornmunications industry is undermineci. Despite the technological advancements and the move to deregdate te1ecommunications industry prevalent elsewhere in the world, some developing countries are adamant in maintainhg thek monopoly over the provision of telecornmunications senices. What was regulated to protect the consumers against the monopoly abuses is now regulated to extract monopoly profits fi-om the consumers. This paper adopts the prernise that whether govements regulate an industry, or deregulate it, or introduce competition in it, they should strictly adhere to the objective of govenimental intervention, that is, consumer welfare.

Resumé

Les gouvernements ont commencé à réglementer le domaine destélécomrnunications pour deux raisons: premièrement, ils ont cm que cetteindustrie possédait les caractéristiques "d'un monopole naturel" (naturalmonopoly), et deuxièmement afin de protéger les consommateurs de servicestéléphoniques des abus potentiels qui sont associés avec les monopo1es.L'intervention gouvernementale était si importante que, sauf quelquesexceptions, partout dans le monde les services dans le domaine destélécomrnunications n'etaient fournis que par le biais de départements de laposte, du téléphone, et du télégraphe. Cependant, en raison de nombreuxrécents développements technologiques, le domaine des télécommunications nepeut plus être considéré comme un monopole naturel et, en conséquence, lesraisons initiales pour Ie réglementer n'existent plus. Malgré ces nouveauxdéveloppements technologiques, et la tendance mondiale à ladéréglementation, les gouvernements de plusieurs pays veulent toujoursgarder leur contrôle sur les services téléphoniques. Malheureusement, leurmotivation n'est plus celle de protéger les consommateurs contre les abusmais plutôt de s'approprier une source de revenus importante. L'auteurmaintient que quelle que soit la forme de l'intervention gouvernementale(1a réglementation, la déréglementation, ou la compétition), la motivationd'un gouvernement doit demeurer le bien-être des consommateurs.

TABLE OF CONTIENTS

Dedication Acknowledgemnts Abstria Resurné

INTRODUCTION 1

CHAPTER-I OIUGIN AND RATIONALES FOR REGULATION 4

A. E v o ~ v n o ~ OF REGULATIONS 1. DEFINLTION OF REGULATION 2. EVOLunoN

B. THEORY OF R E G ~ T I O N 1. RATIONALES FOR REGULATION

a. Natural MonopoIy b. Imperfect and Asymmetric Information c. Extemalities d. Public Goods e. Destructive Cornpetition f. General Comment

C. RATIONALES FOR REGULATING TELECOMMUNICATIONS 1. NATURAL MONOPOLY 2. EXTERNALITES 3. UNIVERSAL SERVICE 4. GENERAL COMMENT

CHAPTER-PI DEREGULATORY MOVEMENT 22

A, WHY DEREGULATE? 1. XNEFFICIENT RECULATORY AGENCES 2. mGULATBRY COSTS

a Direct Costs b. Indirect Cost or Private Sector Coraipliance Cost

3. T E L E C O ~ C A T I O N S NO LONGER A NATURAL MONOPOLY B. DE~GULATION AND CONTESTABU MARKET THEORY

1. INDUSTRY STRUCTURE AND PROPER THEORY TO RECULATE 2. CONTESTABLe THEORY AND REGULATION

C. DEREGUlLATXON AND THE ROLE OF COMPETITION LAW

1. us ANTITRUST LAW 2. PAKISTANI COMPETITION LAW

a History b. The Monopolies Ordinance c Economic Reform Order, 1972 d. GeneraJ Comment

D. DEREGUTION: RECULATORY SHlFT FROM ECONOMIC TO ANTITRUST

CHAPTER-III ROLE OF TELECOMMüNTCATIONS IN ECONOMIC DEVELOPMENT 37

A. IMPORTANCE OF TELECOMMUNTCATIONS 1. B E N E ~ OF IMPROVED TELECOMMUMCATIONS a. Economic Benefits b. Social Benefits

B. TELEcOMMUMCA'I'IONS INFRASTRUCTUFtE AND D E V E ~ P I N G COUNTRIES 1. OBSTACLES IN IMPROVING TE~COMMUNICATIONS

a. State Monopoly i. Autonomy from Govenunefit ii. Inadequate Internai Organization iii. Inadequate Funds

2, GETIWC A TELEPHONE CONNECTION 3. LACK OF W m NETWORK IN DEVELOPING COUNTRIES: A SILVER LINING

C. l'RIVATIZATION AND ECONOMIC WELFARE 1. E ~ C T OF PRIVATIZATION ON EMPLOYMENT PATTERNS

CWTER-IV TELECOMMUNICATIONS STRUCTURE IN THE UNITED STATES 51

A. THE POWER TO RECULATE: STATE POUCE POWR B. REGULA~ON OF TIFF TELECOMMUN~CATIONS WDUSTRY

1. THE FEDERAL COMMUNICATION ACT, 1934 a Tariff Determination under The FCA b. Interconnection under the FCA

C. FROM MONOPOLY TO COMPETITION: THE INDUSTRY IN WSITION 1. MFJ: OF AT&T a Rationale for the MF'J b, Effect of the

2. THE T E L E C O ~ C A T I O N S ACT OF 1996 a Effixt on MFJ b. Biennid Review of Regulations c. F'CC's Interconnection Order d. General Comment

CHAPTER-V mLECOMMUNICATIONS STRUCTURE IN T m E.U 66

A. M O N O P O ~ C MARKET B. R o m TO LIBERALIZATION

1. THE GREEN PAPER 2. THE TERMINAL EQUIPMENT DIRECTIVE 3. THE SERVICE D m c m 4. THE OPEN NETWORK PROVISION DIRECTIVE 5. THE COMMISSION*^ GUIDELINES 6. THE 1990 SATELLITE GREEN PAPER 7. THE Mosrm GREEN PAPER 8. THE 1992 REVIEW: A DIRECTIVE FOR LIBERALIZATION 9. RECULATORY AUTHORITY IN THE EU

CHAPTER-VI TELECOMMUNICATIONS STRUCTURE IN CANADA 79

A. THE FEDERAL REGULATORY AUTHORITY 79 B. MAJOR TELECOMS 80 C. THE TELECOMMUNICATlONS ACT OF 1993 81 D. F~EWEW OF RECULATORY FRAMEWORK: TELECOM DECISION CKTC 94-19 82

CHAPTER-VI1 TELECOMMUNICATIONS STRUCTURE IN INDIA 85

C r n E R - W I I TELECOIM-MUNICATIONS STRUCTURE IN PAKISTAN 93

A. T#E TELEGRAPHY ACT, 1885 B. THE WIRELESS TELEGWHY ACT OF 1933 C. THE PAKIST~W TELECOMMUMCATION CORPORATION ACT, 1991

1. BOARD

2. OBJECTIVES AND PURPOSES OF THE PTC 95 3. TARlFEs 96 4. S-Y 96

D. m0M CORPORATIZATION TO PRWATIZATION: TELECOMMONICATIONS ORDXNANCES 97 1. POWER OF PRESIDENT TO PROMULGATE ORDINANCES 98

a. Life of an Ordinance 99 b. Constitutionality of Actions Taken under the Orciinance after its Expiry 99

E. CURRENT TE~LECOMMUNICATIONS REGULATORY FXAMEWORK IN PAKISTAN 99 1. THE PAKISTAN TELECOMMUNICATION AUTHORITY 1 00

IL Functions of the Authority 100 b. Powers of the Authority 101

2. PAIUSTAN ~'EL~COMMUNICATION COMPANY UM~TED 101 3. NATIONAL TEUCOMMUNICATION CORPORATION 1 03 4. FREQUENCY AILQCATION BOARD 103 5. ROLE OF TKE COURTS 104 6. LICENSING 104 7. TARIFES I O 6 8. NATIONAL SEC~RITY 107 9. PREEMPTION AND REPEAL 107 10. VAtIDITY OF LICENSES ISSUED UNDER THE ORDINANCE 1 07

F. PRNAm'ïioiï OF PTCL 108 G. TELECOMMUMCA~ONS INFRASTRUCTURE 110

1. BASIC TELXPHONE SERVICES 110 2. FIBER OPTIC NETWORK 111 3. WIRELESS SERVICES 111 4. PAGING SERVICES 112 S. CARD PAY PHONES 112 6. PvsUc DATA NE'XWORK 112

CHAPTER-IX RlECOMMENDATIONS FOR PAKiSTAN 114

A. ENACT THE REGULATORY F ~ M E W O R K INTO LAW B. UNRAVEL TEE DEFINITION OF BASIC TELEPHONE SERVICE AM> OPEN

C O M P E ~ O N IN LONG DISTANCE AND ~ R N A T I O N A L TEI;EPHONE SERVICES 1. EFFECï ON EMP~YMENT BY &J.DWING SECOND OPERATOR

C. mRcomcnvrru D. UNIVERSAL SERVICE E. &3ANDON MÀJORlTY STAKE IN l'l'CL AND OPEN UP C O M P E ~ O N

Introduction

Telecommunications networks form what might be thought as a country's nervous

system. No country can develop and progress in the absence of this nervous system. The

importance of telecomrnunications for economic development is growing around the world

and in developing countries in particular. The developing countries have realized that "wealth

does not create telephone density, but that telephone density creates wealth."' In the

developing countnes, growth in telecommunications has been impeded by the inabihty of many

governrnents to adapt to the deregulatory and liberalization rnovement elsewhere in the world,

tracing its ongins at least to the breakup of AT&T and privatization of British Telecom in

1984.~

The telecommunications industry has traditionally been regulated. It "constitutes one of

the four essentiai modes or channels that permit trade and discourse among members of a

society, the other three being transportation, energy utilities, and the system of currency

exchange, or money."' These four industries are also called the infrastructure industries. The

primary rationale adduced by governrnents to regulate telecommunications was that "because

of the high infrastructure costs, network harmonization requirements and the obligation to

provide universal service, telecornmunication [ils a 'naturd r n o n ~ ~ o l ~ . " ' ~ Cornpetition or

market forces, it was thought, could not effectively safeguard the consumers' interest. Thus,

governments prompted by the desire to safkguard the consumers' interest, introduced

regulation as a "substitute for cornpetition." However, the govemment intervention went so far

that virtually everywhere in the world, except in a few countries such as Canada, the United

' D. Benton, MSS systenis advance telmrnrnunications in Lndia, Satellite Communications, v18, n l l , p18(1) Nov, 1994. * S. D. Lando, "The Eumpean Community's Road To Telecommunications Deregdation," (1994) 62 Fordharn L. Rev. 2159 at 2187.(Tiie Thatcher Government passed the Tefecommunications Act which privatized British Telecommunications.)

R B. Honvig The Irony ofReplation Refonn, (Odord University Press, 1989) at 1 1. World Telemmmunication Development Report, (rrv, 1994) at p. 50, [hereider refemd lo as

"Telecommunication Repor6"I.

Introduction

States and the ~hilip~ines,~ telecommunications seMces were provided by the govemment

department of Post Telephone and Telegraph @TT).6

However, entered for the sake for protecting citizens from the danger of behg

exploited by monopoly profits, govemments are now holding on to the monopoly over the

provision of telecommunications for the sake of maintainhg monopoly profits. In Pakistan, for

example, Pakjstan Telecommunication Corporation, for the year 1994, eamed profits at the

rate of 155 percent,' yet the telephone density in Pakistan up until now is less than 2 per cent.

Govements such as Pakistan's transfer revenues earned fiom the provision of

telecornrnunications services to other departments. They have given little attention to

reinvestment in telecomrnunications. With the advancements made in dl spheres of life around

the wodd, telephone connection, which was once considered a lumry, became a necessity of

life. Demand for telephone connections surged. But owing to the spending pattern of

govemments, PTTs were not capable of meeting the demand in reasonable tirne. Backlogging

of applications, rather than adopting the means to meet the demand for telephone connections,

was given pnonty by the PTTs. In Pakistan, for example, until 4 years ago the normal wait

period to get a basic telephone connection was 5 years.8 The backlogging reached a point

which scared even the PTTs. Govements came to realize that the demand for telephone lines

could not be met without the assistance of the private sector. concomitant with the

backlogging, technological advancements in the field of telecommunications undermined the

traditional "natural monopoly" argument for regulating telecommunications. Thus,

govemments started loosening control over the telecommunications industry by

corporatization and privatization of the PTTs. Pivatkation of PTTs served as harbinger for

cornpetifion in the provision of telecornrnunications services. Cornpetition is preferred because

it maximize "consumer welfare, or . . ., economic efficien~~."~ Encouragement of "competition

in the telecommunications sector" started taking place in the national polices and legislation

Ibid at 55. Ibid at 50.

7 Telecom Market, Feb. 15, 1996. me PTC earned profits of Rs. 1G7024 million on revenue of Rs. 26, 365 million.).

Telccomrnunication Report, supra note 4, pendices, p. A-7. R H. Bo* The Anlihust Padox, (Toronto : Maxwell Macmillan, 1993) p. 427.

goveming telecommunications in an increasing number of countries.'* New economic theones

and technological advancements instmct that competition in local telephone seMces is also

feasible and should be allowed in order to achieve economic efficiency which would result in

lower prices for consurners. This argument holds tme in the developing countries context as

much as in developed countries. Yet some govemments are reluctant in giving up monopoly.in

the 'provision of basic telephone services: the bottleneck facility. The monopoly over basic

telephone setvices is not maintained because consumer will benefit fiom it, but because

govemments do not Iike to lose their cash cows.

This thesis ridopts the premise, developed by Robert Bork among others, that whether

govemrnents regulate an industry, or deregulate it, or introduce competition in it, they should

strictly adhere to the objective of govemmental intervention, that is, consumer welfare.

Chapter one of the paper examines the origin of regulation and rationales traditionaily been

advanced to regulate telecornrnunications industry. Chapter two surveys the move to

deregulation, advocacy therefor advanced by contestable market theory, and the role of

competition law in a competitive market. Chapter three bnefly looks at the role of

telecornmunications in the economic development of a country, and at the rationales for

privatizing PTTs. Chapters four to six survey broadly the telecornrnunications regulatory

framework of the USA the European Unity, and Canada, respectively. Chapter seven briefly

traverse the Indian telecornrnunications sector. Chapter eight looks at the origin and evolution

of telecommunications regulatory regime in Pakistan. Finally, chapter nine makes some

recommendations for changes to improve the regulatory structure for telecommunications in

Pakistan.

'O For example in: European Union: Article 3(f) of the EC Treaty States that the activities of the Community shall include "the institution of a systern ensuring lhat competition is not distorted."(EC Treaty, Article 3(f)). In the preface to the EC Treaty, "fair competition" is cited as a key method for removing existing obstacles dividing Europc(EC Treaty, Prcface). The United Statcs: Telecommunication Act, 1996: "to promote cornpetition and reduce regulation in order to secure lower prices and higher quality seMces for Amencan telecommunicatioris consumers and encourage the rapid dep1oyment of new telecommunications technologies." (PL 104-104 (S 652)). Canada: Section 7(f) of the Telecommunication Act, 1993: "to foster increascd reliance on market forces for the provision of telecommunication services and to ensure that regdation, where required, is efficient and effective." ~elecomrnunications Act, SC 1993. c. 38. Sec 7(f)). Pakistan: Section 6 of the TeIecommwiication Ordinanœ: to encourage "exœpt subject to the exclusive right of the Company in basic telephone service, fuir cornpetition in the telecommunication sector."

Chapter-1 Ongin and Rationales for Regulation

A. Evolution of Regulations

1. Definition of Regdation

Regulation, as defined by Barry Mitinick is "a process consisting of the intentional

restriction of a subjectls choice of activity, by an entity not directly party to, or involved in, that

activity."ll According to Alan Stone regulation is "a state-irnposed limitation on the discretion

that rnay be exercised by individuals or organizations, which is supported by the threat of

sanction. "'* Replation defines the limits of a subject's choice of activity and implements such

limitations through a political institution, which consolidates legislative, executive, and judicial

fùnctions in a single apparatus.13 This political institution is known as the regulatory agency,

which create substantive mies and policies backed by threat of sanction for non-conformity.'*

2. Evolu tion

Concomitant with the nse in econornic growth, regulatory agencies started emerging in

the late 19th and early 20th century. The existing institutions of political power of the 19th

century --the courts and the political parties- were deemed incapable of handling the

instability, complexity and conflicts generated by the corporate e c o n ~ r n ~ . ~ ~ Regdatory

agencies, with their emergence, constituted a new institution of political power and a new

branch of law: administrative law?

Though the regulatory agency forms a new institution of political power, its objects are

very much in line with the old common law. English common law courts, as early as the reign

of Edward 1, awarded certain businesses --ferryrnen, bakers, cmiers, innkeepers, and miilers,

I I B. Mitnick, The PoIitid Economy of Reguiation (New York: Columbia University Press, 1980) a0 9. l 2 A. Stone, Regulotion und ifs Alternatives, (Washington D.C: Congressional Qumerly Press 1982) at 10. l 3 Horwitz, supra note 3 at 46. l4 lbid. j5 HoIUiiz, supra note 3 at 48 l 6 Ibid at 46.

Ongin and Rationales for Regulation

among others- local monopolies in exchange for an obligation to serve ail at reasonable

charges. l7

The eariy subjects of regulation were "public utilities." According to Alfred Khan, the

term "public utility" can be described as:

And yet there is such a thing as a public utility. The line between these and other types of industries is a shadowy ara; and shifts over time. But there remains a core of industries pnvately owned and operated in this country, in which, at least in pnnciple, the primary guarantor of acceptable performance is conceived to be (whatever it is in tmth) not cornpetition or selgrestraint but direct govemment controls --over entry (and in many instances exit), and price, and conditions of service-- exercised by administrative commissions constituted for this specific purpose. In this respect, the public utilities remain the fairly distinct group, comprising the same industiies that 60 to 80 years ago would have given essentially the same designation and regulatory treatment -- the generation, transmission, and distribution of gas; telephone, telegraph, and cable communications; common carrier transportation, urban and intesurban, passenger and freight; local water and sewerage supply (to the extent at least that these continue to be provided by privately-owned companies); and, in a sense at the periphery, banking''

Shepard and WiIcox define "public utility" as a "vernacular phrase for a cornmon

carrier [which] may be pnvately or publicly o~ned . ' "~ In tum, a "cornmon carrier" is a

"fhnchised utility required to serve a11 customers at the regulated ratesN2"The primordial

regulations governing public utilities were in the form of obligation to offer services on a

non-discriminatory basis to al1 custorner.*'

As the time passed, govemments started regulating other business, in addition to public

utilities. With the increasing sphere of business that cornes under regulation, the body of

regulations grew. Regulations may now be generally divided in three main categories: a)

economic regulation, b) social regulation, and c) antitrust regulation. Economic regulation (or

direct regulation) regulates pnce, and quantity of the cornmodity/setvices, and ents, into and

18 ibid, quoting A. Kahn, The Econortiics of Regulation, vol. 1 (New York: John Wiley & Sons, inc., 1970) at 10. l9 Jbid quoting W . G. Shepard & C. Wilcox, Public Policies Toword Business, ~omewood , Illinois : Richard D. Irwin, Inc., 1979) at 292.

ibid 2' mential C O I I I I I J U ~ ~ C U ~ ~ O ~ S Systetns, Inc., v. Anlericm Telephone di Telcgraph Cowpany, 6 10 F.2d Il 14 ai 11 19 (1979);

Ongin and Rationdes for Regdation

exit out of the market. Economic regulation is industry-specific, that is, it applies to the

activities of a single industry. Social regulation is designed to prornote heaith, safety, and the

protection of the environment. The tem "social regulation" is used to reflect the broad social

objectives embodied in such regulation. Most of the social regulation can be grouped into four

categories: (i) health and safety, which includes regulations pertaining to consumer product

safety, 'transportation safety, occupational health and safety, pure food and dnig fire

protection, etc.; (ii) environmental regulation, includes regulations pertaining to control of air

and water pollution, land use regulation, etc.; (iii) "faimessfl regulation, refers to protection

against fiaud, deception or inaccuracy in the reporting of information and includes al1

consumer protection and anti-discrimination legislation; and (iv) "cultural" regulation, that is,

regulation to protect culture: for example, Quebec's legislation pertaining to display of signs in

~ r e n c h . ~ ~ Antitrust regulations are aimed at preventing abuse of market power and

anticompetitive practices.23

Up until early 1960s regulations were introduced pnmarily to address economic and

social n e e d ~ . ~ ~ However, in the late 1960s and the 1970s growing awareness for the

environment and public welfare, prompted governments to promulgate environmental, health

and safiety regulations.25

B. Theory of Regulation

The oldest of the theories regarding governrnent replation of business is the so-cailed

public interest theory. The theory essentiaily holds that the fùnction of public utility regulation

is to provide safeguards for the consumer against the potential or actual abuses of monopoly

power.26 The goals to be achieved by a regulator under this theory is promotion of efficiency

and the minimization of maldistnbution of incorne by the monopolist. This regulation is meant

to function as a "substitute for c~rn~eti t ion."~~ Why substitute for competition? It is believed

" Responsible Regulation, An Interim Report by the bno rn i c Council of Canada, 46 (1979)(hereinafier "In terim Report"]. " Projecf: "Regulatory Reform: A Swwy of the impact of Rereguiation and Deregulation on Selected Industries and Sectors" (1995) 47 Admin. L. Rev. 461 at 4G4 @minafier reférred to as "Regulatory Refoim"]. 241bid, at 463. 25 Ibid; 26 W. G. Bolter, et al., Teleco~?ztnunica~ions Policy For ïhe 1990s and Beyond, (1990) at 42. 27 Ibid

Origin and Ratr0onales for Regulation

that competition furthers economic efficiency. Economic efficiency, in simple terms, "results

when voluntary exchanges are maxirnized in any market, each of which leave both parties

better off."28 It is postulated that voluntary exchanges are maximized or resources are best

allocated under competitive market conditions. "The assumption . . . recognizes îhat aii

elements of a bargain -quality, service, safety and durability- and not just the hunediate cost,

are favorably affecteci by the fiee oppominity to select arnong alternative o ~ e r s . " ~ ~

Under a competitive market conditions, price is equd to long-mn marginal cost. When

pnces are above the long-mn marginal cost, the potential exists to eam abnormally high profits

by investing new capital. This encourages investment, and also induces suppliers to try new

means of production and introduce new products. Thus, the '<possibility of abovecost pricing"

provides an incentive for innovation. At the same time the fact the above-cost pricing

encourages new investments will ultimately prevent the "potentiai for high profits" to exkt for

long. Thus, the price will descend to meet the long-nin marginal cost.)' Likewise, below-cost

pricing will not attract new investment. Capacity will Wear out fiom such a market. Since, the

capacity will not be replaced, the decline in capacity will force price to nse towards long-run

marginal cost .)'

An industry is generally deemed to be perfectly cornpetitive if it possesses the

following t h e attributes:

(i) It is made up of a very large number of fims, each of which provides so negligible a proportion of the industry's total output that no one firm's output decisions can have any discemible effect on price; (ii) the industiy's products are perfectly homogeneous in the sense that no buyer distinguishes between the products of any two suppliers even in tenns of any accompanying services, packaging or marketing procedures; and (iii) entry into and exit from the industry is totally ~nirn~eded.)~

Though attaining 'perfect competition' in a market is impossible, it has long been used

as an ideal standard for the structure and performance of a market. Under perfect competition

28 Ibid 29 National SOC> of Pro@ssionaI EXrg'rs v, United States, 435 U.S. 679 st 695 (1978). 30 J. T. Wenders, 7he Econor)zics Of Teleco))trrtunicalior~s, (Ballinger Publishing Company, 1987) at 203. '' Ibid. 32 2. E. Bailey & W. J. Bauniol, "Deregulation And The Theory Of Contestable Markets" (1989) 1 Yale J. on Reg. 111, at 112-13.

%gin and Rationales for Regulutîon

standards, excess profits are precluded, inefficient fims are eliminated, cross subsidies do not

exist, and pnces reflect the most efficient allocation of resources seMng the consumer

preference."

1. Rationales for Regulation

In public utility industries, it was thought impossible for companies to operate without

governent permission. In U.S. law, raiiways, electric companies, telephone companies and

pipelines have ordinarily required access to the right of eminent domain in order to construct

their various facilities. Providers of gas, and water have to have the iight to dig up city streets.

Telephone and electric companies have to have the right to put up poles and wires dong the

sidewalks, highways and across the country. Govenunent have been unwilling to allow several

companies tear up streets to 1ay competing gas or water mains or build their own telephone or

electricity poles when one would suffice.)' The desire of the government to franchise one

Company each in public utility industries created monopolies. Thus, according to Jack Hjgh,

"telecommunications is an 'unnaturd monopoIy,' that is, a monopoly put in place by

govemment decree." 35

However, there is plethora of literature which asserts that public utilities are "naturd

rn~no~o l i e s . "~~ Lack of competition in public utilities induced govements to regulate them:

first, to curb (potential or actual) abuses of the monopolist that may flow fiom its monopoly

power, and, second, to protect social welfaree3' In addition to curbing monopoly power,

regdators also intervene when they feel that market failure may occur owing to, among others,

imperfect information, extemalities or spillovers, and destructive c~ rn~e t i t i on .~~

33 ibid at 1 15. 34 A. E. Kahn, The fionontics OfRegulation, vol 2 (Boston: The MIT Press, 1988) at 3. 35 1. High, Introduction: A Tale of Two Disciplines, in REGULAnON ECONOMIC 'IHEORY AND HISTORY 1, 1 1, 15-16 (Jack High ed. 1991). 36 See infra for detail. 31 "The purpose of regdation is to ensure socially desirable outconies when conipetition cannot be relied upon to achieve them. Regulation replaces the invisible hand of competition wilh direct intervention-with a visible han& so to speak" KENNETH E. TRAïN, OPTMAL REGULATlON 2 (1991). 38 Regdatory Refortn, supro note 23 at W.

Ongin and Rationdes for Regulation

a. Natural Monopoly

Before we discuss "naturai monopoly," it may be appropriate to discuss simple

monopoly. Monopoly, econornic theory propounds, is associated with bad performance.

Reasons for such association are precisely stated by Schmalansee as follows:

If a monopoly produces goods or services for which there are no dose substitute, its demand is iikely to be relatively insensitive to the prices it charges. . . It will Iikely charge pices that are wel in excess of costs. Such pices can have sizable adverse effects on the efficiency with which scarce resources are employed. By reducing allocative or economic efficiency, prices well in excess of costs impose losses on the community or nation as a whole. There is potential gain fiom controls that would force prices down to the level of c ~ s t s . ~ ~

It should be noted that for a monopoly to exist, there should be "no dose substitutes."

Substitutes, in the sense used in economics, is defined as "pairs of goods or services such that

an increase in the price of one product or service causes a corresponding increase in the

arnount of demand for the second comparable product or s e ~ c e . " ~ ~ Regulation may be

appropriate for monopolized products or services, which have no close substitutes. Availability

(or lack) of substitutes is directly proportional to the elasticity of derna~~d.~' In services, like

etectricity and gas, there are no close substitute and therefore demand for such services is

inela~tic.~~.

In a monopolistic market, it is argued, regulation would act to restore some degree of

cornpetition. Regulatory agencies act, through the control over rates and profit levels, as a

watchdog for the general welfare."

Naturai monopoly is an ideal case for direct regulation by government. Natural

monopoly occurs when "the total cost of production in an industry or market are lowest at ail

'' Ibid. at 73; Schmaiell~ee, THE C~~OLOFNATURALMONOPOLIES, pp. 5,6. 'O A. C. Larron, "An bnomic Guide io Cornpetitive Standards in Telmmmunications Reguiations" (1993) 1 Cornmlaw Conspectus 31, at 44. Sexvices are said to be substitutcs if they show a positive cross-elasticity of demand with respect to pria. lbid

Elasticity of Demnnd is defined as a "rnea.sure of the responsiveness of quantity of a wmmodity demandai to change in market place. Formula: percentage change in quantity demanddpercentage change in prioe. Conventionaily expresseû as a positive number, it is a pure nwnber ranging from zero to infinity. See Lipsey, Sparks & Steiner, Econo~rtics 3rd ed (New York: Harper & Row 1979) at appendix 42 Larsen, supra note 40 at 44. 43 Honvitz, supra note 3 at 25.

Origin and Rationales for Regulntion

levels of outputs if there is only one producer."" Put differently, a natural monopoly exists

when a single firm, with a given production technology, can supply the market at lower cost

than two or more f ï ~ m s . ~ ~ Natural monopolies exhibit economies of scale, which are present

when the marginal costs of production are less than the average costs of production over the

relevant range of output.& Examples of natural monopolies include the distribution of water,

electricity, and local telephone semice. Naturai monopolies generally possess the following

four characteristics: (1) the services tend to be necessities (such as electricity or local phone

service); (2) typicaily there are no close substitutes available for the product or seMce

supplied; (3) the services or product of the monopoly cannot be stored; and, (4) services are

not transferable between customers." In industries which display above characteristics,

production typicaily is achieved most efficiently by one firm.'*

One rationaie of regulating naturd monopoly is to "ensure that the cost savings

enjoyed as a result of economies of scale can be passed on to consumers in the fom of lower

prices."49 Other rationales include "fairer income distribution, avoiding discrimination in price

or service &.long customers, and distrust of the social and political (as well as other economic)

power of an unregulated monopolist."'O Thus, naturai monopolies were regulated to protect

consumers from the abuses that rnay flow fiom a monopoly power.

b. Imperfect and Asymmetric Information

Market failure may occur if individuais are not well infonned to make rational

decisions subject to their preferences. Economists have long stressed the importance of

information in a cornpetitive market system.

Market transactions cannot be an efficient method of organizing human activity unless both the buyer and seller understand the fiil1 costs and benefits to them

44 Intenm Report, supra note 22, at 46. 45 D. F. Spdber, "Dereguiating Teleçornmunications" (1995) 12 Yale J. on Reg. 25 at 31. 46 Ibid n. 16 : The finn's average mst f i o n refers to the cost per unit of output waluated at each level of output. The fim's marginal cost fiinction refers to the additional cost of producing one more unit of output, evaiuated at each level of output. Ecanornies of d e are not necessary for natural monopoly. The natural monopoly propetty cm be present at an output Ievel at which the cost funetion exhibits decming retums to d e . 47 Stone, supra note 12 at 69. 48 Ybid 49 S. Breyer & R Stewart, Adninislrative Law And Regulatory Policy, 2d eâ. (1385) at 16. 50 Ibid

Origin and Raîibna1e.s for Regulation

of the transactions they undeitake, including any side effects that impinge on their own welfare?

Efficient market theory assumes that all the players in the market have sufficient

information to f o m sound decisions. Market failure occurs when this key presumption turns

incorrect. There are two factors that make this assumption go wrong. First, consumers,

producers, and workers may not have access to complete, accurate and available infomation.

For example, when fims withhold information that could increase wages or reduce sales.

Second, even when complete and accurate information is available, the person inforrned may

not comprehend the information. These kinds of problems often arise in the food and drug

industries where consumers rnay not coinprehend the information provided and may

consequently fail to make weii infomed ch~ices.'~

The fact that information available to market participants is inadequate, which can have

significant ramifications suggests a possible role for govemment. To counter this problem, a

possible regulatory approach is to require the provision of adequate and honest information.

This approach is adopted where the person provided with the information can comprehend the

information and can evaluate the accuracy of it. Labeling requirements speciijing the content

of food products, clothing and hazardous chemicals for household use assist the consumer in

making infomed choice. These kind of regulations also address concerns arising fonn

problems relating to asymmetnc inf~rmation.'~

Where the person provided with the information cannot comprehend the information

provided to him, a regulatory approach to counter this kind of situation involves requiring

licensing of, or setting standards for, those who have the information. In the case of

prescription drugs, disclosure of contents of the drugs can hardly be understood by consumers.

The consumer has very iittle choice -it is the physician who determines the choice of the most

economicai and effective ~ I - L I ~ S . ~ ~ Hence, govements intervene by requiring iicenses for the

--

5 1 Interim Report, supra note 22, at 48 quoting C. L. Sdiultze, 73ie Public Use of Private Interest (Washington, D.C.: Brookings Institution, 1977) at p. 36. 52 Ibid 53 Ibid 54 Interim Report, supra note 22 at 49.

(?rigin and Rationdes for Regdation

physcians, in order to protect consumers fiom making wrong decisions owing to impeifect

andor asymmetric information available to thern.

c. Externafities

The terrn "externalities" or "spillovers" refers "to the costs incurred by society that are

not included in the costs of consumption or production."55 In other words, extemaiities o m r

when "there is a divergence between pnvate and social costs and between private and social

benefit~."~Alan Stone defines extemaiities as "an activity that imposes cost or benefit upon

persons who are not parties to a transaction or ~ontract ."~~ Externalities may be categorized as

p i i v e and negutive. Positive extenlalities are those that confer benefits on others with which

the subject firm has no contractual relationship. For example, a firm may plant trees that

prevent soi1 erosion for the entire surrounding community. Cornmuter train and local air

seMce benefits not oniy cornmuters and air travelers but dso peopIe who own real estate in

the comrnunities they Negafive exfertxzZifies occur when a firm's cost are not entirely

intemalized but are borne in part by others. For instance, a railroad which may damage and

dirty the area near its path with "smoke and soots. ""

Replation of extemalities is justified since it help avoids economic waste. For

instance, assume that a factory can produce sugar either by using production method A or

production method B. Method A costs 9 cents per pound of sugar but also produces a lot of

black smoke that covers an area of a few miles around the factory "to the annoyance of its

re~idents."~' Method B costs 10 cents per pound of sugar without producing any smoke at dl.

In the absence of emission control regulation, the profit maximizing factory owner would

adopt method A, even if those injured by the smoke would be willing to pay more than one

cent per pound of sugar to get rid of smoke. Method A is socially more expensive. Therefore,

method B, not A, should be chosen, because its totaî social costs are lower. However, if the

- -

" Regdatory Reform, supra note 23, at 465. 56 hterirn Report, supra note 21 at 47. Private costs are Uiose i n m e d by individuais and firms directly party to specific transaction; social cost reflects the total costs incurred by society including those over and above private Çosts. " Stone, supra note 12 at 91.

1 Kahn, mpra note 34 p. 194. 59 Stone, supra note 12 at 94.

S. Breyer, Regdation andRe/nn, (Hwd University Press, 1982) at 23.

Ongin and Rationales for Regulation

affected residents wish to have a pollution fiee neighborhood, they should offer some

consideration to the factory owner to choose method B. Where the public prefers a pollution-

fiee environment, yet find no practical means to offer consideration to the factoty owner, too

many of society's resources are attracted in deploying method A (lower sugar pnce not being

reflective of the cost of pollution) for production than method B (pollution-free products and

processes). In such a case, govemrnent intervention is arguably justified to help eliminate this

economic wastem6' The ultimate effect of which is the welfare of the residents.

d. Public Goods

The problem of extemalities ofien aises in conjunction with public goods.62 For

example, an electric power plant may emit smoke produced during power generation. Air is a

public good. Although the power plant and the plant's customers should pay for the cost of

polluting the air, they ofien do not. In the absence of regulation, the cost is not included in the

cost of production. In fact, the market stnidure offers no incentives to reduce pollution and to

protect the en~konment.~~ "Since no one profit-maker has the incentive, or indeed the power,

to solve problems involving 'extemalities', there is a clear case for some kind of inter~ention."~~

Governments traditionally step into these kinds of cases and force the producers --through

regulation known as command-and-control- to include the cost of pollution in their total cost

structure.65 Other approaches, like pollution-taxes or marketable pollution permits are

suggested by a growing number of economists as a means of countering negative

externalitie~.~~ These approaches use economic incentives to achieve poiiution reduction at the

lowest cost.

- - - --

" lbià.. " Stone, supra note 12 at 98. Goods are classified as colleflive goods ifthere is joint consumption over the good and the cos& of excfuding people is hi& Exwt, & Direly, An Introduction To BeneJt-Cost Anaiysis, 22, 22-23 (1994). Clean air is a non-rivalrous gooà because many p p l e can enjoy it at the same time. The market for clean air is an imperf i one because consumers of air do not take into amunt the fidi impact of any damage uiey cause. Ibid " Regulatory Reform, supra note 23 at 466.

Interirn Repon supra note 22 at 47. 65 Regdatory Reform, supra note 23 at 466. 6" Ibid; see generally, R W. Hahn, "Economic Prescriptions for Environmeniai Problems: How the Paîient Followed the Doctofs Orders" (1989) 3 J. Ecoa Perspectives 95. (outlining various economic solutions to environmental problems).

Ongin m d Rationdes for Regdation

e. Destructive Cornpetition

"Excessivet' or destructive competition may result ftom a cyclical downward trend in

demand or fiom a long terni trend to substantially increase the industry's production potential

relative to dernandm6' The key characteristics of destructive competition are substantial excess

capacity and infiexibility to reaiiocate capital and labour. The inability of the industry to adjust

to the mismatch between demand and supply at cornpetitive prices results in extended periods

of excess capacity and the possibility of cutthroat c~ rn~e t i t i on .~~

As noted earlier, one of the charactenstics of a natural monopoly --and of public

utilities in particular-- is that the service or product of the monopoly cannot be stored.

Therefore, when supply outstnps demand, "the vicissitudes of the market cycle are particularly

brutal for such industries." Producers may be forced to charge prices equal to or below the

marginal cost of production. The inability of producers to cover fixed costs over the long mn,

and therefore the costs of wear and tear of the physical plant, may force the producers to go

out of business.'*

Thus, in the absence of regulation, an industry suffering from destructive competition

might operate at a loss for a long period. Consumers would suEer through a degradation in the

quality of goods or service. And for some industries, safety standards may fdl to a dangerously

low level." The govemment intervenes to protect the consumer fiom poor quality goods and

services, and to maintain d e t y standards at reasonable safe levels. An other argument for

govemment intervention is that in public utility industries consumen always need a definitive

supply. However, a public utility industry suffenng fiom excess capacity would eventuaily

witness a trend in the business cycle where demand exceeds supply. The prices for the goods

and services would then rise sharply. The goverment intervenes to shield the public utilities

fiom the fiIl efEect of competition. The shielding assures the public an adequate supply to

satisfy maximum demand, without drastic swings in price.72

67 Interim Report supra note 22 at 47. Ibid

" P. S. Dempsey, "Market Failure And Regdatory Failure As Catalysts For Politicai Change: The Choiœ Behveen Imperfi Rcgulation And Imperfi Cornpetition" (1989). 46 Wash. & Lee L. Rev. 1 at 2 lquoting D. Loçklin, Econo~riics of Transportafion (6th ed. 1966) at 138. 'O Ibid 7 1 interim Report, supra note 22 at 47. 72 Dempsey, supra note 69 at 21-22.

Origîn and Raiionales for Regulation

f. General Comment

The common theme that runs thtough ail five rationdes for regulation discussed above

is the welfare of the consumer. In the foiiowing section, we wiil discuss the rationales that are

specifically applied to telecomrnunications industry. Again, we will notice, that the objective of

regulation is consumer welfare.

C. ]Rationales for Regulating Telecornmunications

1. Natural Monopoly

The primary argument adduced in defense of regulating the telecomrnunications

industry is that it possesses natural monopoly characteristics. As noted above, natural

monopolies exhibit economies of scale. Econornies of scale can be due to many technological

factors and fixed c ~ s t s . ~ ~ Unlike variable costs, fixed costs are costs which are not sensitive to

the level of output. The fixed cost of establishing a network system are the costs of laying

telephone Iines, costs which are insensitive to the level of transmission on the lines." Aîmost

every govemments believed that two or more telephones lines dong the sarne street would be

wastefirl. It would therefore be more efficient to gant one firm a monopoly subject to

govemmentai control over its pnces and profits.75

In a perfectly cornpetitive market, so goes the justification, companies expand their

output to a point where pnce (P) equals marginal cost --the cost of producing an

additional unit of output. In order to charge higher prices in an unregulated market, the

monopolist will not expand its production to a point where P = MC. IGgher pnces mean less

demand, but the monopolist would forgo sales to a point where the revenue earned by units

sold at a higher pnce would more than compensate for the revenue that would have been

73 Spulber, supra note 45 at 3 1. 74 Ibid '"reyer, ReguZufion und R e / m , supra note 60 at 15. " Marginal cost is the cost of produchg one more unit; it c m equalfy be envîsaged as the wst that would be saved by producing one les unit. Looked at the fïrst way, it may be termed incremcntd cost- the added cost of (a small amount of) incremental output. Observed in the second way, it is a synonyrnous with avoidable cost- the cost that would be saved by (slightly) reducing output (Although thesc three t e m often are used synonymously, marginal cost, stnctiy speaking, refers to the additionai cost of suppIying a single, infinitesimaliy srnall additional unit, while "incremental" and "avoidable" are sometimes used to refer to the average additionai cost of a finite and possibly a large change in production or sales). 1 Kahn, supra note 34 at 65.

ongin and Ration& for Regulation

earned by selling the product at a price where P would be equal to MC. This would result in an

economic waste.

Consumers compare the highiy priced product of the monopolist, with the products

competitively produced and sold at cornparatively cheaper prices, and will prefer to buy more

of the latter irrespective of the fact that (i) they prefer the product of the monopolist; and (2)

the production of the monopolist's product costs less to the society in real ternis than the

production of the cornpetitor's product. Thus, where the govemment finds that economies of

scale render the cornpetition wastetiil, it wil regulate the rnarkethndustry and try to fix the

price of the rnonopolist's product near or close to the marginal cost. This will induce the

monopoiist to increase its output to a socially preferred level, that is, where the consumers are

not forced to purchase cheaper products (which are socially more expensive) as a substitute for

the monopolist's product (which are socially less e ~ ~ e n s i v e ) . ~ ~

Regulation is directed at avoiding the transfer of wealth fiom consumers to naîural

monopolist by forcing the latter to produce at a level where price is equal to marginal cost, and

to sel1 the product closer to MC than he otherwise would do in the absence of govemment

intervention. The transfer of wealth fiom the consumer to the natural monopolist is regressive

in character and, therefore, undesirable. Regulation also attempts to prevent the monopolist

fiom practicing pnce discrimination.

2. Externalities

The regulation of pubIic utilities is also rationalized on extemal economic effects:

externalities. For example, the reduced rates of telegraph, telephoto and post for newspapers

benefits not only the buyers, advertisers, and subscnbers, but also reflects the extemai benefit

to society of the widespread transmission of n e ~ s . ~ *

In public utility industries, one positive externality that benefits the public accrues fiom

the obligation of a service provider to provide services to the public at ail times on demand.

The mere availabiZ@ of the service to ml-mers constitute an option to use the facilities

" Breyer, Regdation and Re/on, supra note 60 at 15-16. 78 1 Kahn, supra note 34 at 194.

Origin and Ratiofiales for ReguIation

whenever they wish. Burton A. Weisbrod propounds that the cornpetitive market may fail to

satis@ this "option demand," when:

(1) the option is not in fact exercised (or not exercised with sufficient fiquency); (2) revenues fiom actual purchasers are insufficient to cover the cost of continued operation; and (3) "expansion or re-commencement of production at the time [in the future] when occasional purchasers wish to make a purchase. . . [is] difficult or impossible. "79

An instance of this phenornenon is found in the disappearance of passenger railroad

service in Ithaca, NY. The senice was withdrawn because the traffic on the route was not

sufficient to cover marginal costs. Thus, governmental intervention is required to ensure the

provision of services even if the service providers are not recovenng the marginal cost of

providing the

Relevant to the above phenornenon is the issue of 'cream-skirnrning.' Crearn-skirnrning

occurs when any competition "reduces the contribution of some portions of a public utility

business to joint or cornrnon cost and therefore either endanger the seMce to other customers

or imposes on them a greater share of the burden."*' The franchised seMce provider, who is

under an obligation to keep the "option demand" open, suffers economic injury which would

ultimately pass on to the consumer, when competition is allowed and the competitor "skims

the ~ r e a m , " ~ ~ thus, inducing market failure, and therefore government intervention.

An instance of cream-skimming is found 1~7 re AppIicaiions of Micrawave 83 Corntnu~~ications, br., where Microwave Communications, Inc. (MCI), filed applications

for construction permits for new facilities in the Domestic Public Point-to-Point Radio Service

in Chicago, III., St. Louis, Mo., and nine intermediate points. MC1 proposed to offer its

'' Ibid. When the ICC ref- to permit railroad abandonmenis of parsenger senice, it did so on the basis of a variety

of considerations : the national interest in presewing düïerent transport media for possible emergency; a desire to maintain quality of life in out-of-the-way communities; a feeling that the externd bene/ts of continued passenger service tu such conrrnunities rnay have justved the continuation evcn though private revenuesjèfl short ofprivate cost. 1 Kahn, supra note 34 at 192. '' 2 Kahn, supra note 34 at 226.

Ibid " 18 F.C.C.2d 953 (1969).

Ongin and Rationales for ReguIution

subscnbers a limiteci cornmon carrier microwave radio service, designed to meet the inter-

office and inter-plant communication needs of srnall businesses. However, MC1 did not plan to

provide its subscribers with a complete microwave service. The proposed service would be

limited to transmissions between MCI1s microwave sites, making it incumbent upon each

subscnber to supply his own cqmrnunications iink between MCI's sites and his place of

business ("loop senice"). MC1 asserted that it will ofer its subscnbers substantially lower rates

than those charged for similar services by the established carriers.84

MCI1s applications were opposed by Western Union Telegraph Co. (Westem Union),

among others (the ~artiers),~' which then provided microwave services to the geographical

area which MC1 proposed to seme? In sum, the main contention of the Carriers was

"as Bell writes . . . 'Grant of Applications Would Threaten The Integrity of The Nationwide Communications Rate Structure. . .' and Westem Union . . . that MCI, by its own admission, seeks to enter a specialized and attractive market, with rate based on a particular microwave facility on a particular low cost route.' They assail MC1 as a cream-skimmer, lapping up the profits on favorable routes and eschewing high-cost low-retum service; accordingly, they say, on Iosing profitable routes (where expenses were relatively low) to a cream-skimmer, they would be compelled to reexamine their own rate structures, whkh distribute total costs for their undifferentiated service among customers favorably and unfavorably situated. They would have to saddled high charges then on high-cost users, instead of homogenizing the cost among a11."~'

MC1 was able to offer lower rates because its system was cheap and far less adequately

protected against emergencies and outages than the Cariers' facilities. It conceded that its

commercial feasibility depended also on the ability of its subscnben to interconnect with the

Carriers' facilities, in order to give them end-to-end communications service. The Carriers

contended that the MCI's subscribers subscribed to MC1 ody because they knew they could

always cal1 on the backup facilities of the Carriers if MCPs system failed. MC1 was thus

- -

84 Ibid 85 The other parties were: General Telephone Co. of Illinois (Generai), and the Associateci Bell Systern Cos., American TeIephone & Telegaph Co., Iilinois E3eU Telephone Co., and Southwstern Bell Telephone Co. (Bell). 86 Para 2. FCC, In re Applicalions of Microwm Co~~zt~iuniciaîions, Inc. Docket No. 16509, Initial Decision of the

Hearing Examiner, mimeo., par. 93 Odober 17,1967.

M'gin and Rationales for Regdation

improperly skimming the crearn by leaving it to the Cartiers to bear the financial burden of

providing backup s e ~ c e . * ~

Erosion of the Carriers' monopoly through the entry of MC1 rnight weii constitute

cream-skimming which may have the effect of introducing internai subsidization which had not

existed before --that is, "subsid*mtion of MCIts customers by the Carriers' captive customers

being forced to bear a disproportionate share of the back-up capacity costs." The subsidization

of one carrier's customers by the customers of the carrier (with the universai service obligation)

will unjustly deprive the latter carrier's customers of their property, and consequently cause

market failure. Thus, market failure due to selective entry 4 t h the effect of cream-skimrning-

could be avoided by protecting the public utility fiom ~ o r n ~ e t i t i o n . ~ ~

Externalities in telecommunications can also be traced on the micro-econornics level.

Positive consumption extemaiities are produced by the use of, and subscription to,

telecomrnunications services. When a caller calls to a called party, the called party has the

benefit of not having to pay, thus resulting in a cal1 externality. When a new subscnber pays

his subscription to get connected to the network, other subscnbers benefit by being able to cal1

the new subscriber and be called by hirn, resulting in network externalities. This network

externality is the undertying reason for regdators pursuing a "universal service" objective.''

3. Universal Service

The concept of Universal service is evolving together with the evolution of the

telecommunications industry. Originaily, it was meant to connect ail subscribers to the same

network with the focus being on interconnection. Later, the focus shifled towards the

provision of basic telecommunications seMces to everyone at fiordable prices. Currently, in

countries with advanced telecommunications systems, the tenn universal service is used to

express the "compensation payable to the principal neîwork operator in tems of

interconnection fees and a contribution to meeting the costs of uneconomic service

88 2 Kahn, supra note 34 at 228-229. 89 Ibid, at 239.

1. Vogelsang , "Micro-hnomic Effects of Privatizing Telecommunications Enterprises" (1 995) 13 B.U. ht'l L. J. 3 13 at 321.

Ongin and Rationales for Regrrlation

~bli~ations."~' In its 1993 Review communication, the European Commission, defined

universal seMces as "mak[ing] available a defined minimum setvice of specified quaIity to al1

users at an affordable price."g2 This paper wiii use the definition of universai service as

provided by the European Commission.

The key ternis in the definition of universal semice are availability, accessibility and

affordability. These concepts invite regdators to intervene since they believe that an un-

regulated marketplace cannot ensure ubiquity or affordable prices.g3 Thus, to facilitate

universal telephone service, poIicy makers require the development of a monopolistic system in

order to deliver service to d l . In setting tariffs for the provision of "basic telecommunication

services," the regulatory agency starts by calculating how much a customer should ideaily have

to pay- "affordability," instead of calculating the actuai cost of providing s e ~ c e s . ' ~ The goal

is to maxirnize participation by al1 residents in the econornic, social, and political life of the

nation, rather than to make profit.g5 if the cost of service is higher that its "affordable" pnce,

then subsidies are provided for the basic services from the revenues generated by other

services. For exarnple, in the United States subsidies are provided to local telephone companies

f?om long-distance providers and to rural local telephone cornpanies from larger, lower-cost

local telephone companies in order to further the policy of universal service?

There are two basic arguments adduced to justiQ a universal service policy. First, that

the telephone service is a necessity for reasons such as health and safety. Second, that the

benefits of subsidizing access for rural and low-income households may outweigh the costs.

Encouraging rural users to buy telephone services increases the value of the setvice to ail other

callers who will have more users to cal1 or be called by (positive network e~temalit~).~'

91 Dr. T. Kelly, "Universal SeMce: An Instrument for Regdatory Capture?" (1995) 2 TeIecomrnunications and Spaœ Jounial75 at 78. 92 Communication to the Council and European Parliament on the Conniliaiion on the Review of the Situation in the Telecornmunications Senice Sector, COM (93) 159 Final, at 21 (Apr. 1993). " S. G. Haddeq "E~qending Universal Semice Thrwgh The National uifomtion Infmstructure" [1994] ComrnLaw ConspÊctus 17. 94 J. Browning, "Free Markets for TeIecorn: Universal Access, Not Universal Service" Sep. 7, 1994, W u ST. J. A14, (1994 WL-WSJ 343366). 95 Ibid " P. Pitsch, "Free Markets for Telecom: Dismmect the Univeral Subsidy" April4, 1994, W w ST. J. A12 (1994 WL-WSJ 298204). 97 Ibid

Ongin and Rationales for Regdation

However, recently a strong view has been championed by scholars and those in the

industry which, while it endorses the view of providing universal service, opposes the

subsidization of basic telecornmunication s e ~ c e s fiom other telecommunication seMces

(international, in particular) in order to facilitate the provision of universal service. They argue

that by arbitrarily averaging rates across the nation, policy makers have unintentionally created

a remarkably regressive tau. A poor single mother on welfâre living in an urban area is often

paying artificially high rates to subsidize service to wealthy families who Live in nearby rural

areas. They hold the view that the method of subsidization is arbitrary and h~e~ui tab le .~~

Others who argue against cross-subsidization assert that studies have shown that rural

callers make more long-distance calls on average than do urban custorner~.~~ And low-iicome

custorners pay over 60% of their monthly bill for long-distance service. Thus, the abolishment

of subsidies from long distance service to basic telephone service will directly help urban and

Iow-income customers, who initially were the intended beneficiaries of the subsidies. 'O0

4. General Comment

We have studied three rationales for regulating telecommunications, namely, 1) natural

monopoly; 2) extemalities; and 3) universal service. The base line of dl three justifications is

consumer welfare. However, in the later chapters, as we look at case studies of the

telecommunications regdatory frarneworks of different countries, we will notice that

regdation are deployed more to protect the monopolies than to protect the consumers fiom

the monopolies.

A. D. 'T'hierer, "Free Markets for Telecom: Universai S e ~ c e : The Fairy Taie Continues", Jan. 20, 1995, WALL ST. J. AIS, (1995 WL-WSJ 2 105078). 99 Piîsch, supra note 95. 'Oo Ibid

Chapter-II Deregulatoiy Movement

A. Why Deregulate?

"Paradoxidly, just as economic regulation was bom of market failure, . . . dereguiation was bom of regulatory fail~re."'~'

The traces of the deregulatory movement can be found in the dissatisfaction of people

and business with the performance of regulatory agencies and with the direct and indirect costs

of complying with regulations. Deregdation in the telecommunications industry further finds

support in the changed market structure owing to technological developments.

1. Inefficient Regulatory Agencies

More oflen than not, appointments to the top position of regulatory agencies are

politically motivated.lo2 Further, there is excessive job secunty for the employees of such

agencies. Both of these factors promote unproductivity and inefficiency.'03 ~ c c o r d i n ~ to

Professor Bernard Schwartz, political patronage and excessive job secunty enjoyed by agency

heads are two causes for public and business dissatisfaction with the administrative agencies.

Professor Schwartz states:

The goal ofcheap and inexpensive justice by experts, one of the chief rasons for setting up agencies, has proven illusoty. The administrative process has too ofien proved even more expensive and tirne-consuming than the judicial process. Even more important has been the increasing failure of agencies to protect the very public interest they were created to serve. The administrative process, which had once been vigorous in fighting for the public interest, has become an established part of the economic status quo. It hm corne to remts with lhose it is ostemibiy regulating; the public interest' is equated more and more with the interest ofhose being regi~ated.~~' (Emphasis supplieci).

'O' Dempsey, supra note 69 a& 28. ' O2 Ibid at 27. ' O3 lbid. ' O 4 Ibid.

Regulatory agencies became subject to "capture," says George stigler, los by becorning

victirns of those whom they were supposed to regulate. By protecting the regulated industries,

the regulatoiy agencies became astigrnatic of the objective that lies in their foundation, narnely,

consumer wetfare, or to use the words of Professor Schwartz, the 'public interest.'

2. Regulatory Costs

a. Direct Costs

Direct regdatory costs are costs needed to support regulatory agencies and their large

staffs. In 1995 the United States federal goverment spent an estirnated $15.6 billion to mn its

regulatory agencies -10 times what it spent in 1970 - according to the Center for the Study of

Arnerican Business at Washington University. 'O6 After adjusting for inflation, the direct cost of

government regulatory efforts increased about three-fold over the past 25 years.107

The above is tme for other countnes as well. The large amount of money needed to

support regulatory agencies prompted governments to reduce the staff of the agencies. This, in

turn, necessitated the abolition of regulations that required irnrnediate and continuous

supe~s ion of businesses by the reylatos, agencies.

b. Indirect Cost or Private Sector Cornpliance Cost

In the United States, for example, some estimate that it costs business and the country

as a whole $500 billion a year to comply with federal regulations.'08 The cost imposed on

individuais and fims to comply with regulations can be divided into severai categones. First,

the cost of dealing with regulatory agencies. This includes fees for lawyers and expert

witnesses, lobbying, preparing background material for submission, and the time of individual

executives. Lobbying costs are incurred to influence the agency in its standard setting decisions

or rate increases. Second, the cost of complying with the regdatory decisions. In the case of

direct regulation, this includes the costs of implernenting rate schedules and conditions

'OS lbid 106 Regulation at What Cost? First Look at Government's Expenses HR Focus, v72, n4, p1(2), April, 1995 [hereinafter "Regulation at What Cost"]. 'O7 Ibid 'O8 Ibid

appurtenant thereto. Third, the costs of record keeping and the provision of infiormation to

demonstrate compliance with regulations.'"

Realizing the compliance costs that regulations place on businesses and individuals, in

1995 the Republican-controlled US Congress decided to radically reform the manner in which

niles and regulations are created and implemented. The Regulatoy Reform initiative was

evidence of the Republican party's "desire to reduce red tape and govemment

micromanagement of business activities and decision making processes that are best handled by

corporate management." "O To reform the regulatory process, the Republicans entered into

the much celebrated "Contract With America." The advocates of regulatory refonn claimed

that excessive intervention of government in an ever-increasing array of businesses "ham-

stmng the private sector; stunted economic growth;" and made American cornpanies less

competitive in the global marketplace. To counter this increased governrnent intervention, the

Republican's proposed to important steps. Firstly, a moratorium on any new federal rules

uniess Congress approves permanent reform of the regulatory process. Secondly, they required

that federai agencies conduct extensive risk assessrnent of new regulations before

implementing them. For example, any proposed regulation that would cost industry more than

$25 million in compliance cost would be subjected to an extensive cost-benefit analysis to

determine if it should be issued."'

The direct and indirect costs of regulation caused distortions in the marketplace which

resulted in a misallocation of society's resources. For example, in the transportation industry,

regulations created excessive seMce and insufficient cornpetition in pricing, cornpared to that

which would have occurred in a competitive market. In the natural gas industry, regulations

imposed low prices, but gave rise to inadequate supply. In the telecornmunications industry,

regulation underpnced local services, but overpriced long distance. 112

'09 Interim Report, supra note 22 at 35. Io ReguIation at What Cost? supra note 106. lii Ibid Il2 Dempsey, supra note 69 at 28.

3. TeIecommunications No Longer a Natural Monopoly

As mentioned earlier, telecommunications was regulated because it was considerd to

be a natural monopoly. However, this argument has lost much of its weight due to

technological advancements made in the area of telecommunications and because of the

changed market structure. Professor Spulber has forcefuly argued against the natural

monopoly argument, and gave the foliowing reasons in support of his assertions. First, the lack

of an existing simgle best technology for telecommunications transmission. Second, due to

rapid technological advances in telecommunications, there is no best technology or

combination of technologies. Third, the connectivity of networks diminishes the natural

monopoly because multiple carriers can provide intercomecting networks. Fourth, the

justification for regulation that it prevents duplication of facilities (Iaying of telephone lines) is

no longer applicable becauçe substantial duplication has aiready taken place (cable lines). I l 3

B. Deregulation and Contestable Market Theory

Professors William Baumol and Elizabeth Bailey, in their classic on

contestable market theory, have elaborated a new perspective for regulators to ascertain the

market's appropnateness for regulatory intervention or for deregulation if the market is aiready

regulated. Following is an attempt to provide a summary of Baumol and Bailey's excellent

work, wherein they argued that the philosophy of deregulation is consistent with the

contestable market theory (CMT).

The contestable market theory asserts that many markets that are subject to economies

of scale (natural monopolies) should not be regulated by conventional methods. It is "neither

the large size nor the fewness of h s " that necessarily cause market fàilure. Rather,

impediments to entry or exit which have been the prirnary objects of regulatory dictates are

among the major causes for unsatisfactory performance of an industry. Regulators traditionally

believe that it is the economies of scde that makes an entry difficult. However, CMT

propounds that even though the economies of scale make an industiy a nahiral monopoiy or

oligopoly they "need not permit excessive profits or prices or any of the other manifestations

Spulber, supra note 45 at 34. I l 4 Bailey & Baunol, supra note 32.

Deregulrriory Movement

usually associated with market power."115 Rather it is the presence of sunk costs that influence

the decision of entry or exit in an unregulated market. A sunk cost is defined as "an outlay than

cannot be recoupeci without substantial de~ay.""~

A perfectly contestable market is defined as a market wherein no p h is "in

equilibrium when its magnitude is such as to enable an entrant to undercut it and nevertheless

eam a profit." A market, therefore, protected by substantiai entry barriers is not contestable

since the impediments to entry allow a pnce equilibrium which may include monopoly profits.

In the absence of barriers, the pices and profits would be eroded by entrants seeking to

capitaiize the profit opportunities which the market provide. Put differently, a market is said to

be perfectly contestable "if fims can enter it and then, if they choose, exit without losing any of

their inve~tments."'~' If such conditions prevail, then no pnces set by incuinbents that provide

opportunity to entrants to make profits could endure for long. Hence, the fkeedom of entry and

exit are the key characteristics of a contestable market.

The second version of the definition of a perfectîy contestable market is equivalent to a

requirement that there be no sunk costs. As mentioned earlier, a sunk cost is a cost that cannot

be recoupeci without substantial delay. Thus, if entry into the market requires the entrant to

sink considerable amount of investment, then the requirernent of the perfectly contestable

market theory that exit be absolutely costless would be violated. What is important is not the

amount of capital that is required for entry, but the amount of capital that is sunk. Thus, even if

entry requires huge amounts of capital, but the capital nonetheless remains mobile, the ease of

exit owing to mobility of capital will make the market contestable.

As mentioned earlier, regulations are introduced in a market where competition is

lacking, in order to provide a substitute for cornpetition. "Perfect cornpetition" has traditionally

been relied on as the theoretical foundation for regulation. The virtues of perfect cornpetition

are that it preclude excess profits, eliminates inefficient fims, cross-subsidies are absent, and

pnces are charged that reflect the most efficient allocation of resources seMng the consumer

preference. However, under a "perfect competition market theory," in a natural monopoly

I l 5 Ibid at 111. " 6 Ibid. at 114. "' Ibid. at 113.

situation (where a single firm enjoys economies of scale -that is a firm large enough to affect

the piice by its output decisions) markets could fail, thus, necessitating intemention by the

govemment to cure the failure.

The contestable market theory, however, asserts that a natural monopofy situation

does not offer substantial justification to introduce regulation. In a natural monopoly situation,

a single producers cm achieve a b e r total cost than can any group of finns, and that total

costs are usually higher than n~argiillal costs. Since, marginal cost pricing is likely to involve

costs that exceed revenues, no firm can a o r d such a pncing policy. Contestability would,

however, ensure that a natural rnonopolist wiIl be able to prevent entry only if it sets the lowest

prices consistent with the financial viability of the firm. Otherwise, an entrant charging slightly

lower prices than that of the incumbent could attract the entire market to himself and eam

nominal profits. Thus, the contestable market theory departs fkom the tradition that classified

xale economies act as barriers to entry. Under CMT, an entry bamier is something which

provides incumbent firms sufficient protection fiom entry so that they can obtain above normal

profits or c m abuse market power. Scale economies, per se, are not a source of undesirable

performance in a contestable market and cannot be considered a banier to entry.

1. Industry Structure and Proper Theory to Regulate

Scale economies, however, affect the usefùlness of contestability vis-à-vis competition

as a source of guidance for regulators. As noted earlier, public utility industries exhibit

economies of scaie and are regulated on the prernise that regulation provide a substitute for

competition. For an industry to be perfectly competitive there must be a "large number of

fimis, each of which provides so negligible a proportion of the industry's total output that no

one h 1 s output decisions can have any discemible effect on price."118 In some industries,

even ifthere is a large number of small fims which are operating with exemplary efficiency, the

overall result may be inefficient. This could be because the industry's technology provides

economies of scale or scope to large firms which may then be able to supply goods or senices

far more cheaply than the many small fims. Scale economies, thus, introduce inefficiency in

industry structure as opposed to inefficiency in the operations of individual firms. In such a

case, perfect cornpetition is inconsistent with industry efficiency and will be unable to survive.

On the other hand, an industry operating under perfect contestable standards will aiso

be operating under an efficient industry structure. Ifan industry is contestable and outputs are

efficiently produced by four h s rather than six or any other nurnber of fim, then in the long

mi that industry would be composed of four f h s .

To illustrate the above hypothesis, suppose that there are nine firms in a market, even

though four firms can produce the total output more cheaply. Of the nine finns, some will seize

the opportunity offered by the availability of economies of scde and scope to reduce costs.

These economies would ailow the fims who seized the cost-reduction opportunity to undercut

the prices of the those who failed to take advantage of the opportunity to expand. However, if

ail incumbents in the market are slow to reap the profits offered by economies of scde then

new entrants would do so, since in a contestable market the entrants would not bear any entry

cost or risk. Over a period of time, surplus fims would be forced to leave the industry, and a

four-finn structure that supplies total dernand of the industry at lower costs will ernerge. Such

a four-firm industry may be perfectly contestable, but it cm hardly quaiiQ as pefectly

cornpetit ive.

Thus, in an industry where economies of scale or scope offer a competitive advantage

to some fims over others, the perfectly contestable model is a better ideal for regdators than

the perfectly cornpetitive model. In public utility industries, a perfectly competitive structure is

simply not attainable. The very idea of transforming, Say telecommunications, electric, or water

industries into an industry composed of a large number of smail firms is preposterous on its

face. Thus, perfect contestability is a standard of stmcture and

appropriate than pure cornpetition given the peculiar characteristics

2. Contestable Theory and Regulation

performance that is

of specific industries.

more

The key factors of a contestable market are the fieedom to exit and the absence of

sunk costs. Any impediment to exit increases the nskiness and therefore the real CO& of

entenng into the business. A potential entrant wiil hesitate, and therefore delay entry, before

starting a business fiom which it will be difficult to withdraw if his entry tums out to be a

Deregdatory Movement

rnistake. Thus, the traditional resistance of regulators to exit -for example, their refusa1 to

pennit the abandonment of unprofitable routes by railroads or airlines- is not without cost to

the economy. No matter how socially benevolent the motive behind opposition to exit may be,

it certainly has an unintended adverse consequence, that is, "preclusion oÇ or restraints on, exit

discourage entry and thereby reduce the cornpetitive threat posed by the availability of

potential entrant^.""^ Regulators should therefore adopt policies that promote contestability.

If an industry behaves as if it is contestable, most of the benefits of perfea cornpetition can be

obtained without governent intervention. To promote contestability, regulators should not

impede entry or exit or interfere with the timing or manner of entry.

To promote contestability in an industry which requires heavy su& costs, the

regulators should require equal access to the sunk cost facility --for example, airports in the air

transportation industw and local fixed networks in the telecommunications industry. If the

facility is pnvately owned, regulations should requires that al1 fims seeking to use the facility

be given access to it at reasonable prices and on a non-discriminatory basis. If the sunk facüity

is in the hands of a local public authority, then that authority should be mandated not to

discriminate among private users in its access policies.

The second approach is to separate the sunk investments fiom other investments if the

two investments are separable. This worrld leave a relatively contestable part of the industry's

operations to be controlled by market forces, "while the portion with substantiai amounts of

sunk capital is regulated or even operated by the public s e c t ~ r . " ' ~ ~

Most of the developing countnes have adopted the above suggestion of separating

sunk investments. In the telecornmunications sector, developing countries have allowed

cornpetition in non-basic services, such as cellular semices, radio paging, etc., where sunk

costs are relatively small when compared to investing in local fixed services. m

C. Dereguliition and the Role of Cornpetition Law

WhiIe deregulation has signifiant benefits, it h a not been without its costs. Under a

fiee market environment, there is always a threat that a big market player because of its 'market

power'121 and 'market share'lu may engage in anticompetitive behaviour and distort

competition. This necessitates regulation of the market with a different style: regulation to

ensure a competitive marketplaces.

Set out below, is a bief survey of the competition laws of the United Sates and

Pakistan.

1. US Antitrust Law

In 1890, the United States Congress passed the Sherman Act (hereinafter the "Act"),

to ensure that national economic policy promotes competitive marketplaces. lu The prirnary

objective of the antitmst provisions contained in the Act is to promote consumer welfare

through ensuring fiee c~rn~e t i t ion . '~~ In addition to fostering cornpetition, the other objective

of the Act is to protect small businesses from anti-cornpetitive beha~iour.'~'

Section 1 of the Act declares ilIegal "[elvery contract, combination . . ., or conspiracy,

in restraint of [interstate or foreign trade~.""~ Section 2 focuses exclusively on

monopolization, declaring it illegal to "monopolize, or attempt to monopolize, or combine or

conspire with any other person or persons to monopolize any part of [interstate trade]."12'

In 1914, the US Congress, responding to the need for tougher antitmst laws to

"properly control . . . the great industrial corporation that really has power --the power to

arbitrarily control prices and thus exact unjust profits fiom the people,"128 enacted the Clayton

~ c t " ~ and the ETC ~ c t . ' ~ ' The Clayton Act supplemented the broad language of the

j2' "Market Power is defined as the ability of a firm (or group of firms) to raise prices abve competitive levels for a significant p e n d of time. Stated another way, it is the ability of a fim or group of fim acting jointly to mise pnces above the competitlve level without losing so many sales SQ rapidly lhat the price increase is unprofitable and must be rescinded." Larson, supra note 39 at 42. Iz2 "Market share for a single fim is ideally deuned as the firm's sales divided by the produnive capacity of al i firms producing the same item and items that consuiners regard as reasonable substitutes." lbid 12' 15 U.S.C.A SS 1-7 (1973 8L Supp. 1992). 124 S e Reiter v. Sunotone Corp., 442 U.S. 330 at 343 (1979) ("Congress designed the Sherman Act as a 'consumer welfare prescription."' (quoting R Bork, The Aniiirust Paradox p. 66 (1978)); see dso 1 Ar& & Turner, Antihusl Law, P 103 (anaiyzing policy choies underlying the cornpetition principle). IZ5 G. Myers, T h e Diaering Treatmcnt Of'Efficiency And Cornpetition In Antitrust And Tortious Intederence Law" (1993) 77 Mim. L. Rev. 1097 at 1 101, 126 15 U.S.C.A. S. 1 (1973 & Supp.1992). 12' Ibid S. 2. lZ8 5 1 CONG. REC. 9265 (1 9 14) (statements of Rep. Morgan). 129 Clayton Act Ss 1-20, Pub. L. No. 99-435, 38 Stat. 730 (1914) (codifieci as amended at 15 U.S.C. Ss 12-27 (1 988)).

Sherman Act, and spelled out the specific practices that would result in anti-trust violations."'

Section 7 of the Clayton Act prohibits the acquisition of the assets of one corporation by

another "where. . . the effect of such acquisition may be substantially to lessen competition or

to tend to create a rnonop~l~.""~

From the above, it can be seen that the role of antitrust laws is to promote competition

with the objective of achieving consumer welfare or economic efficiency.

2. Pakistani Competition Law

a. History

At the time of its birth, Pakistan, in 1947, inherited a meager share of industrial

undertakings then operating in the sub-continent. Of the 921 rnanufacturing establishments

only 34 came to the share of ~akistan."' To encourage the pnvate sector to set up industries,

the Government of Pakistan adopted a liberal industrial poIicy in 1948. As a result of the liberal

industrial policy, industry flourished. However, economic power seerned to concentrated "in

the hands of few family groups which dorninated industrial, commercial, banking and insurance

activities in the country."'" This gave nse to a wave of discontent in the general public. The

discontentment of the public was, however, thought unpropitious to the public interest and that

set the stage for the issuance of the Monopolies and Restrictive Trade Practices (Control and

Prevention) Ordinance of 1970"~ (hereinafter the "the Monopolies Ordinance").

b. The Monopolies Ordinance

''O 15 U.S.C. Ss 41-58 (1988). The F ï C Act cfeatcd the Federal Trade Commission (FTC) and enacted laws furtlier regulating business conduct; G. A. Graff, Note, "Target Standing Under Section 16 Of The Clayton Act: When Your Antitrust Injwy Hurts, Standing Can Be A P roblcm," (1991) 1991 U. Ill. L. Rev. 219 at 222. "' R B. Friedrich, Note, "Regulatory and Antitrust Implications of Ernerging Cornpetition in Locai Access Telecomrnunications: How Congres and the FCC can Encourage Cornpetition and Technologid Progress in Telecomrnunications" (1995) 80 Curneii L. Rev. 646, at 679. 13' No person . . . shail aquire, d i r d y or indiredly, the whole or any part of the stock . . . and no person . . . shall aquire the whole or any part of the assets of another person . . . where . . . the effect of such acquisition rnay be substantially to 1-n cornpetition, or to tend to create a rnonopoly. 15 U.S.C. s 18 (1988). '33 M. S. Khan, Regdation and C o n h l of Monopofies and Reslriclive Trade Pructices in Pakistan, 4 (Karachi: Royal Book Company 1992). ' 34 Ibid at 5. 13' Ordinance No. V of 1970, published in the Gazette of Pakistan, Exdraordinary dated Feb. 26, 1970. The Ordinance had be validated by the Parliamerit by the passing the Validation of Laws Act, 1975 which received assent of Oie President on July 24, 1975. [Hereinafter referred to as the "Monopolies Ordinance"]

Dereguhtory Movement

The Monopolies Ordinance is the first specific Iegislation on cornpetition law in

Pakistan. Its prirnary objective is to prevent "undue concentration of economic power, growth

of unreasonable monopoly power and unreasonably restrictive trade practices."'36 Section 4 of

the Ordinance sets out the circumstances which would constitute "undue concentration of

economic power." They are:

1. when the 'asset value"" of a pnvate ~ n d e r t a k i n ~ ' ~ ~ exceeds 150 million

Rupees;

ii. when the asset value of a public undertaking exceeds 150 million Rupees and

50 per cent share of it are owned and c ~ n t r o l l e d ~ ~ ~ by an individual.

iii. when any dealing between 'associated ~indettakin~s"~* gave unfair benefit to

the owners and shareholders of one associated undertaking to the prejudice of the

owners and shareholders of any other of its associated undertaking.

Section 5 sets forth the circurnstances that constitute "unreasonable rnonopoly power."

They are:

1. when associated undertakings produce, supply, distnbute or provide one third

of the total goods or services in a market; . . il. when a merger or acquisition is likely to create monopoly power or to

substantially lessen cornpetition in any market, including any acquisition which creates

a situation stated in (i) above;

13' Pceamble and W o n 3 of the Monopolies Ordimce. "' "value of assets," in relation to an undertaking means the value of assets of the undenaking at mst l e s depreciation at the normal rates at which depreciation is calculated for the purpose of assessrnent of incorne-tax Section 2(0) of the Monopolies Ordinance. 13* An undertaking means any mnœrn, institution, establishment or enterprise engage. in the production, suppIy or disiribution of goods, or in the provision or control of any service. Section 2(m) of the Monopoiies Ordinance. 139 "control" in relation to an undertaking, mean the power to exercise a controlling influence over the management or ihe policies of the undertaking, and, in relation to shares, nieans the power to exercise a controlling influence over the voting power attached to such shares. Section 2(d) of the Monopolies Orciinance. ''O "associated underiaking" means any two or more undertakings in tem~ected wiîh each other in the following manner, namely: (i) if a peson who is the owner or a partner of an undertaking or who directiy or indiredy hoIds or controls shares carr)ing not less than Uiirty per cent of the voting power in such undertaking, is also the owner or a partner of another undertaking or, directly or indirectly, holds or controls shares carrying not less than thirty per cent of îhe voting power in the undertaking or (ü) if the undertaking arc under common management or cornmon control or one is the subsidiary of another. Section 2(b) of the Monopolies Ordinance.

Deregulntory Movement

iii. when a loan is granted by a bank or insurance company to any of its associated

undertaking on tems more favourable or of greater arnount than extended to any other

undertaking (not associated with the lender) in comparable circumstance; or

iv. when a loan is granted by a bank or insurance company to any undertaking on

the understanding that the borrower will in tum lend a loan to a person or undertaking

associated with the lender.

Section 6 of the Orciinance States that any agreement between actuai or potential

competitors would constitute "unreasonable restrictive trade practices," if the agreement would

have the eEect of

(i) fixing the purchase or selling prices or imposing any other restrictive trading conditions with regard to the sale or distribution of any goods or the provision of any services; (ii) dividing or sharing of market for any goods or services; (ii) limiting the quantity or the means of production, distribution or sale with regard to any goods or the manner or means of providing the service; (iv) limiting technical development or investment with regard to the production distribution or saie of any goods or the provision of services; (v) excluding by means of boycott any other person or undertaking fiorn the production, distribution or saie of any goods or the provision of any s e ~ c e s ; ' ~ '

Any agreement between a supplier and a dealer of goods fixing minimum resale price

would dso constitute unreasonable restrictive trade practices.142

However, none of the circumstances mentioned in section 5 and 6 are deemed to

constitute unreasonable monopoly power and unreasonable restrictive trade practices,

respectively, if it cm be shown that they (1) "contributes substantially to the production or

distribution of goods or of the provision of senices or to the promotion of technical progress

or export of goods"; (2) "that such efficiency or promotion could not reasonably have been

achieved by means less restrictive of competition; and (3) "that the benefits of such efficiency

or promotion clearly outweigh the adverse effects of the absence or lessening of

competition. " lP3

S d o n 6(1)(a) of the Monopolies Ordiimce. '42 fiid. section 6(l)(b). 14' Ss 5(2) and 6(2) of the Monopolies Ordixunce.

Section 8 provides for the establishment of a Monopoly Control Authority, whose

fùnctions include enquiry "into the general economic conditions of the country with particular

reference to the concentration of economic power and the existence or growth of monopoly

power and restrictive trade pra~tices"'~ and to "conduct enquiry into the affairs of any

undertaking or individual as may be necessary for the purposes of [the Monopolies]

~rdinance. "'"

c. Econornic Reforrn Order, 1972

Soon after the implementation of the Monopolies Ordinance, the Govenunent

promulgated the Economic Refonn Order of 1972 (the "Refom Order"). Pursuant to the

Reform Order, the Govemment nationalized ai1 basic industries --for exarnple, iron & steel,

basic metal, heavy engineering, heavy electrical, cernent, and oil refineries- in the countiy. The

Refonn Order scared private investors from investing in basic industries, which resuIted in a

lack of economic activity in the private sector. Such an economic environment gave little

opportunity to the newly-bom cornpetition law to grow and evo~ve . '~~

d. General Comment

Since the late 1980s the govemment has adhered to the policy of denationaiiing

industries which were nationdized in 1972. Investment in the pnvate sector is now Mgorously

encouraged by the govemment. With increased economic activity in the private sector, it is

hoped that the next decade will provide a conducive ground for competition, and the

competition law, to flourish in Pakistan.

However, unlike the competition laws of the United States whose objective is to

ensure consumer welfare through fiee competition, the Pakistani competition law focuses on

"undue concentration of economic power" in a few hands. However, concentration of

economic power is not per se detrimental to the welfare of the consumer. As we have seen in

the preceding section, that an efficient industs, structure operating under "contestable market"

condition may dictate that there be only one finn that provides goods or service to the entire

14' Senion IO@) of the Monopolies Ordinance. 14' Section 1O(c) of the Monopolies Ordinanœ. ''' Kfian, supra note 133 at 7.

Deregdatory Movement

market. Contestable market conditions cripple the monopolist's abilities to abuse his monopoly

power to the detnment of the consumer. With the advances made in the field of economics

which suggests that a monopoly may be in the interest of consumers, it is suggested that

Pakistani competition law be redrafted with consumer welfare as its primary objective @y

ensuring ffee competition) rather than fostering an unstudied bias, harbored and fanned by

general public, against the wealthy.

D. Deregulntion: Regulatory Shift From Economic to Antitrust

With the onset of deregdation, the screen that was fonned over the competition laws

because of the public utility regulation has staried moving. Deregdation is paving the way for

antitrust regulations to take the place of economic regulations. According to classicai theory,

both econornic and antitrust regulations aim at achieving similar econornic objectives. These

objectives may be described as "benefits" that rnay flow frorn workable cornpetition.14'

However, there is a difference in the way these regulatoiy schemes operate.

Economic (or Public UtiIity) regulation skirts "the cornpetitive process and seeks to

obtain these benefits directly. Replation typically involves an administrative body that deals

with private firms through an adversarial process."14g (In the case of telecommunications

industry, however, in many countries the regulatory body and the regulated firm were divisions

of the sarne entity: the PTT). The objective of the regdatory body, more ofien than not, is to

ensure that senices are provided to custorners without discrimination and at rates which are

'just and reasonable.' Regulations are designed on a 'no-fault' basis, and are implemented

"through ongoing comprehensive supervision that ernphasizes ex artle guidance."150

Regulators set tariffs, rules, and control entry into and exit out of the market according to

established regulatory objectives.

Antitrust regulation, on the other hand, tries to achieve these benefits indirectIy. It

focuses on the promotion of competition as the guarantor of consumer welfare. The antitrust

14' S. G. Breyer, Antitrust, Deregulatioq and the Newly Liberatcd Market Place. (1987) 75 Calif L. Rev. 1005 at 1006 [hereinafter "Ncwly Liberated"].

For an exilensiive treatments of distinctions behveen antitnist and public utility laws, sg Areeda, "Antitrust h w s and Public Utility Regdation" 3 BELL J. ECON & MGMT SCI. 42 (1972). '" Newly Liberated, supra note 147 at 1006. 150 A. C. Larson & W. E. Kovacic, "Predatory Pricing Safeguards in Telecommunication Regdation: Removing Impedirnents to Cornpetition" (1990) 35 St. Louis U. L. J. 1, at 12.

laws set forth a few negatively phrased directives, which are enforced by the courts or the

regulatory agencies. They prohibit anticompetitive market behaviour, such as price fixing,

agreements in restraint of trade, or any behavior that may lead to, or help maintain,

anticompetitive market str~ctures.'~' Antitrust laws corne into play by "expost review of the

challengeci conduct. Antitrust remedies typically take the form of discrete, 'quick cut' cures,

(like injunctions, damages, fines, and prison ternis) to repair the h m of wrongdoing and to

deter similar c~nduc t . " ' ~~ In extreme cases, as in the case of unjustified monopoly, they may

require restructuring a market. In essence, antitrust laws prornote competition so that

cornpetition itseif b ~ g econornic benefits to society.

Deregulation does not mean an absence of regulation. Even where there is no

economic and antitrust regulation by govemments, there are always market forces that regulate

the conduct of market participants. However, market forces alone cannot guarantee consumer

weffare, and therefore govemrnents intervene to ensure consumer welfare by introducing

competition laws.

"I Newly Liberated, supra note 147 at 1006. lS2 b n & Kovacic. supra note 150 at 12.

Chapter-III Role of Telecommunications in Economic Development

A. Importance of Telecommunications

It is no more than conventionai wisdom now to say that the ability of a city, state, region, or nation to compete in the global market place will hinge on the successfùl development of a highly sophisticated inf~rmation"~ infrastructure. 15*

Telecommunications is now widely viewed as a key element in the infiastructure"' of

economic development, and a strategic tool for improving economic competitiveness at al1

levels namely, the finn, the region and the country.156 This link between telecommunications

and economic development has been acknowledged by many. For example, the High Level

Cornmittee of the International Telecommunication Union called telecomrnunications an

"essential engine of socio-econornic development in the global information economy and

society" and "a positive force . . . in closing the development gap between developed and

developing countnes and within individual count r ie~ ."~~~ Therefore, one of the pnmary

objectives of the Telecomrnunication Development Sector of the ITU is to raise the awareness

of decision-makers regarding the importance of telecommunications for national and social

development.

The EC Commission has acknowledged the role of telecommunications in economic

development and stated that "improvement of telecomrnunications in the Comrnunity is an

Is3 Teleco»t~rtunicutions &clor Bacùground and Bank Group Issues, (Joint World Bank/ IFC Seminar) Telecommunication Seminar, F&niary, 1994. at 7 [hereinder "Telecommunications Seminar"] Information has becorne a fiuidarnental factor of production, alongside capiîaJ and labor. About one-half of the output and ernployment in OECD econornies cornes fiom handling information (as distinct from goods). IS4 S. Gorosh, "Small Business, Telmmuniutions, and Economic Developrnent: The Neai To Lifl Regulatosy Restrictions on the Sharing and Use Of Telecommunications SeMcest' (1993) 29 Cal. W. L. Rev. 393. (footnotes omitted) Is5 Infrastnicture is defineci as "[ilhose structural elements of an ecunomy which fiditate the flow of goods and services between buyers and sellers. Examples of tliese structural elements are communications and m r t ( r d railways, harburs, airports, telephones etc.)." THE MIT DICIïONARY OF MODERN ECONOMICS (3d ed. 1986). ' s6 Gorosh, supra note 154, at 394. '" Totliomow's ITU: Ihe Challenges of Change, Report ofthe High Level Cortitriittee to Review the Structure and Funclioning of rhe Tefeco/rirnunication Union, (Geneva : ïïü Apr. 1991) at 23.

Role of Telecon~nurnications in Econoniic Development

essential condition for the hannonious development of economic activities and a competitive

market in the Comrnunity . . . ."'58

An "Infi-astructure Report" by the United States National Telecornmunications

Information Administration (NTiA) characterizes the economic advantages of

telecommunications as "clear and pervasive," and concludes that the avdability of reliable

telecornmunications facilities can "facilitate economic devel~~rnent ." '~~ The awareness as to

the dependency of economic development on reliable and state-of-the-art communication

infiastnicture led the Clinton Administration to propose "a package of $500,000,000 over the

next four years for advanced public teIecommunications infiastructure projects," including a

well- publicized high-capacity fiber optic "information s ~ ~ e r h i ~ h w a ~ . " ' ~ ~

The functioning of an economy without communication is inconceivable. Large

businesses depend heavily on the use of telecornmunications (voice communications, fax

transmissions, data transfers, etc.), and therefore, telephone bills constitute a major expense of

their businesses. An efficient and reasonably p r k d telecommunications service gives a

competitive edge to its users over the users of costly and inefficient telecommunications

service. A region OF a country possessing a competitive telecornmunications market has an

economic advantage over a region or country with a poor telecomrnunications market.16'

Thus, countries that Iack access to modem telecomrnunications system cannot effectively

participate in the global economy.

1. Benefits of Improved Telecommunications

a. Economic Benefits

Most of the developing countries are agncultural economies. Cotton and textile

industries are their major foreign exchange eamers. However, in order for developing countries

Is8 Commission Directive 901388, preamble, 1990 0.1. (L 192) 10. Is9 Gorosh, supra note154 at 394.; U.S. DEPT. OF COMMERCE, NAïïûNAL TELECOMMUNICATIONS INFORMATION ADMMISTRATION, THE NTIA INFRASTRUCTüRE REPORT x (1991). The Rqmrt finds that "Amencan businesses can use telecommunications to operate more efficiently, better serve theu customers, and compte more effectively in the rapidly changing global economy." Ibid at i.

Gorosh, supra note 154 at 395. 161 T. L. Barnich et al. Telecommunications Free Trade Zones: A Mode1 For Local Exchange Cornpetition, TELESTRATEGIES IESSIGHI' (McLean, VA: Telatntegies Pubiishing hic., Feb. 1992) at 3; See also J. M Naftel, "The N a W Deah Of A MonopoIy: Cornpetition In EC Telecommunications Temùnals Judgmenttl (1992) 6 Emory Inl'l L. Rev. 449.

to market their products globally and to take advantages of cheap labor and raw material, an

efficient telecommunications infi-astmcture is imperative. To highlight the need for a reliable

and efficient telecommunications system for textile economies to efectively participate in

global trade, consider the case of the garment industry whose global sales are equal to $100

billion. 162

When a clerk at a retail fianchise in Tysonts Corner, Vrginia, USA, passes a purchased

shirt through an optical scanner, "the information is automatically transmitted to the main

computer at the company's headquarters in Europe, where demand and sales are assessed."'"

From the headquarters, orders are placed to the textile mills (which may be iiî Indonesia) to

produce the materials and send them to the assemblers (who may be in the Philippines or Sri

Lanka). The assembler then ships the final product in small batches directly to the retailer in

Tyson's Corner. The restocking cycle takes place in about 30 days, only because of efficient

telecornmunications links. Thus, countries which do not have telecommunications links that

can handle high speed data transfer cannot participate in the Tysonts Corner network,

notwithstanding the fact that they can offer high quaiity gments at cheaper prices. Ici4

The above is just one example. Telecommunications have now become an integral part

of financial services, commodities markets, media, transportation, and tourism. As

demonstrateci above, telecornmunications provide vital links among manufacturers,

wholesalers and retailers. If developing countries wish to take part in global trade, they need to

establish telecornmunications infiastructures that meet the standards set by their western

trading partners. The Iack of efficient telecomrnu~cations systems not only prevent developing

countries fiom making use of the competitive advantage which they have over developed

countries because of cheap labor, but fùrther broadens the development gap between

developing and the developed countries.

In industrial countries telecommunications are deployed to make efficient use of

vehicle fleets. This is tme for most of the businesses on wheels, be it taxi operations, delivery

truck fleets or vehicles used to maintain equipment in the field. Benefits are reaped by using

'" Telecommunication Semi* supra note 153 at 9. Iii3 lbid

Ibid.

Role of Teleconznurnicntions in Economic Development

various levels of te~hnology'~' For example, a truck business uses a public telephone to locate

a destination or secure a return load; a large business having a fleet of vehicies uses a

sophisticated radio system to locate and identiS, vehicles automaticdly and to transmit posting

instructions fiom a central location.'66

b. , Social Benefits

During the last few years telecommunications systems have been effectively used to

provide social seMces and to promote regional development. These systems are being used to

develop human resource through the provision of "distance education and training; to facilitate

heaith services in nird areas through linkages to interactive medical information networks, to

extend and consolidate govemrnent administration to regions; to enhance agricultural

development and resource management by enabling f m e r s to access such information as

market trends, weather report, and modem growing techniques; and to support the

mobilization of aid for disaster relief operations, among other th ing~ ." '~~

The University of the West Indies Distance Teaching Experiment (UWIDITE)

provides a usehl example of social benefits through the use of telecomrnunications. UWIDITE

was established in the early 1980s with fùnds provided by USAID. It was the first university in

the developing world which used a full-scale telephone based conference system for academic

training. It serves 14 Carîbbean nations, with three main campuses in Jamaica, Barbados, and

Trinidad, and eleven small university centers. 168

In relaying lectureslprograms simultaneously to al1 of its campuses, W I T E deploys

"a hybrid satellite/microwave/cable system which uses the existing capacity of the telecom

networks. Prograrns are broadcast fkom the main campus in Jamaica via the Intelsat 4 satellite

to Trinidad, re-routed through the local system and a microwave lin. to the network bridge at

St. Lucia, then transrnitted using micro wave signais to other i~lands."'~~

R J. Saunders, 3. J. Warford & B. Wellenius., Te~eco~rirr~unications And Economic heloprrient, 2nd ed. @aitimon: Johns Hopkins, 1 994) ai 1 37~erein&r "Saunders"]. ' 66 Ibid '" Teleaimrnunication Seminar., supra note 153 at I l . 16' Ibid. at 12. 169 Ibid.

An assessment made by USAID concluded that the project achieved al1 of its original

objectives in a very cost-effective way. Compared to a one day face-to-face seminar which

costs more than $1 1,000, a one-day serninar using teleconferencing costs just $1,000.

Teleconferencing is now also used for health programs, like fertility management, family

planning, and cardiology, and cornmunity development programs. "O

Govemments are increasingly becoming aware of the "spillover effect of cost-

cornpetitive, high quality telecommunications on the competitiveness of other national

industries that may help the country to retain and attract employrnent and investment." 17' A

look at the connection between teIephone line density and Gross National Product (GNP)

reveals the role played by telecornmunications in economic development around the world.

(See h e x - 1 ) . According to one UN study, a one percent increase in the teledensity of

developing countries leads to economic growth of tluee percent. This multiplier effect emerges

from the fact that "Ietting your fingers do the walking is much faster and cheaper than a wasted

and wasteful visit."'" "A recent survey of decision makers investing in emerging economies

indicated that inftastmcture quality is the single most important influence on multinational

investment." '73

B. Telecommunications Infrastructure and Developing Countries

In 1982, the ITU being concemed with the gap in telecornmunications development

between the developed and developing countnes set up a commission commonly known as the

Maitland Commission to examine the global development of te le communication^.^^^ The

''O Ibid. "' S. Beardsley, "Getting Teleams Privatization Right. ~elecommunications Companies)" McKinsey Quarterly, (Wntr, 1995) nl, p3(24)[hereinrifter "Getting Privatization Riglit"] quùting D. Wlieeler and A. Moody, "International Investment Location Decisions," Journal of International Economics, Volume 33, Nos. 1; 2,1992. Cost-effective telecommwiications is a major factor for companies deciding where to establish customer seMce call œnters, set up information processing centers, site bank branches, locate assembly plants quiring close supplier linkages, configure distri'bution centers, or simpIy open new stores needing rapid replenishment and sophisticated logistics systems. Companies and countries that jack access to adeqt.uk services sirnply will not be cornpetitive in the increasingly gl& economy of the future. 172 Latin American Productivity, McKinsey Global Institute, Washington DC, June 1994. 17' Getting Privatintion Right, supra note 161. 174 International Teleaimmunication Union (1984). The Mailland Commission, fomially known as the Independent Commission for World Wide Teleconununications Dwelopment. The Commission's final report established the geneml goal for world policymakers as king to bring "the whole of mankind within easy reach of a telephone. . . by the early part of ihe 21st Century."; See Saunders, supra note 155 at 3.

Role of Teleconznurnicatiom in Economic Devebpment

Commission issued its report in 1985, wherein it noted that "in rnost developing countnes, the

telecomrnunications system is not adequate even to sustain essential ser~ices.""~ However,

despite increasing awareness of the co~ection between telecomrnunications and economic

development, govemments in developing countnes and development agencies pay inadequate

attention to the development of the telecomrnunications ~ector.''~

Developing countries have a disproportionately smd share of the world's

telecommunications facilities. They have about 75 percent of the worldts population and 16

percent of its products, but only 12 percent of the total number of telephone lines.'" The low-

income countries in ASia have 50 percent of the world's population but only about 5 percent of

telephone lines.

1. Obstacles in Improving Telecommunications

a. State MonopoIy

For reasons identified in chapter one, telecornmunications seMces histoncally have

been provided by the state-owned and operated entity. This is still true in most developing

countries. These govemment-owned telecommunications operating entities are organized in

various ways. Some form part of a conventional govemment department (as in Aigena,

Carneroon, and India), some are semi-independent, state-owned enterprises (as in Ecuador,

Indonesia, Jordan, Malaysia, Thailand, Togo, and Uganda), and some are state-owned

corporations organized under Company law (as was the case in Argentina, Chile, and Mexico

before privatization occurred between 1987 and 1990)."~ In Pakistan, the three foms of

telecommunication organizations just noted have evolved in tandem. Before 199 1, the

telecornmunications entity in Pakistan was a department of the govemment: PTT. In 1991, the

PTT was transfonned, by an Act of the Parliament, into a stated-owned enterprise: Pakktan

Telecornmunication Corporation (PTC). And in July 1994, PTC was re-structured under the

17' lbid Ibid Ibid at 4. Telecommunication Seminar, supra note 153 at 14.

'79 Saunders, supra note 155 at 65

Role of Teleconz~utnicntiuns in Econonùe Development

company law to fom Pakistan Telecommunication Company Limited (hereinatler "PTCL" or

the "Company").

Under the arrangement identified above, three important factors lirnit the development

of telecommunications: (1) "the operating entities' lack of autonomy fiorn the government; (2)

their inadequate intemal organization and management; and (3) a shortage of fùnds for

in~estment."'~~

1. Autonomy from Government

The dynamic character of telecommunications requires that the telecomrnunications

entity be severed fiom direct govemmental control. In addition to the dynamic nature of

telecomrnunications, three additional factors are particularly relevant to developing countries:

(1) excessive demand for basic telephone service; (2) awareness of govemments that the

general econornic developrnent of a country is dependent on "at least a minimum level of

public access to telecommunications facilities"; and (3) that enhanced services, such as

advanced data, facsirnile, electronic mail, and information systems have the potential for

promoting large "productivity increases in the modem sectors of the economy." The dynarnic

character of telecommunications coupled with conditions specific to developing countries

demand that the management of telecomrnunications entities must be professionally disciplined,

and be alert and responsive to emerging needs and opportunities. To perform well and

professionally, teleco~nrnunications entities should have a certain degree of financial and

management autonomy. '13'

ii. Inadequate Interna1 Organization

Inadequate intemal organization is the second major problem faced by the

telecommunications sector in developing countnes. OAen the entity's organizational structure

is not developed enough to be able to handle a business of the size of telecornmunications or to

manage development efforts required in developing ~ountries."~ Job descriptions, eligibility

lSO Ibid ''' Ibid at 65-66. Is2 lbid

Rule of Teleconmurnications in Econornic Developmni

therefor, s e ~ c e standards, separation of responsibilities, and demarcation of authority are not

weU defined. Management lacks incentives to promote efficiency. Administrative and hancial

controls are weak. The concept of accountability is non-existent. No single unit is responsible

for long-tem planning and economic analysis. BilIing and collection of receivables are

inefficient, which places fùrther burdens on the financiai capacity of the entity. Little attention

is Paid to improving the network hardware and to supeMse projects. Finaiiy, these problems

get worse as the size and complexity ofthe organization increases.lg3

iii. Inadequate Funds

Another major impediment in developing telecommunications in developing countnes

is inadequate fùnds. Until recently, the improvement of telecornmunications infi-astructure has

not been a pnonty in most of the developing countries. Telecommunications is a capital-

intensive industry. The ratio of capital to output has been estimated to be about 3:1.184 The

financial constraints get tighter when govements divert revenues earned by

telecommunications entities into politically attractive investments like food subsidies or big

urban hospitals.

Jean-Paul ~ h a ~ o n , ' ~ ~ States that financial inadequacy in developing countnes is "a

vicious circle. Govemments that are strapped for cash are not spending enough money on

telecommunications services, so these seMces detenorate because equiprnent is not repaired,

updated or expanded. And as the senices deteriorate, subscribers refùse to pay their bills. And

the unpaid bills lead to fewer revenues availabie for irnprovements to the telecornrnunications

network. " Ig6

It should however be noted that in Pakistan, PTT was the highest revenue generating

department for the govemment &er the Centrai Board of Revenue (CBR).'~'

2. Getting a Telephone Connection

Ibid. at 69. la4 Ibid at 74.

A senior engineer in IFC and -author of the report, "hivatizing Telecommunications Systems: Business Opportuni ties in Devetoping Countries". '" Arnbrose, et al., "Privatizing Teleeomunications Systems: Business Oppomuiities in Developing Countries" (1990) (IFC Discussion Paper No. 10) at 13 [liereinaftzr "Privatizing Telecommunications"].

Role of Telecommunicntions in Economic Devdopment

Getting a telephone instalkd in Pakistan can take up to 5 years. And Haitians face

waits of more than 10 years. (See h e x 2) Even if you are lucky enough to have a telephone

connection, there are no guarantee that it will work. And if it does work, it is likely that you

will have to dia1 the number several tirnes before your cal1 is co~ected.

In India, businesses that want an "immediate" phone connection must pay a fee of

30,000 rupees [$1,350], and thereafter wait for two to six weeks to get a diai tone.lg8 In

Pakistan, every member of Parliament has a quota of five telephone coruiections per month.

Applications for telephone connection approved by a member get instdled within a month.

This quota system, extends the wait period for an ordinary applicant, and is an overt exarnple

of political influence on a telecommunications department.

Unlike in developed countries where International Self Dialing (ISD) facility is a

constitutive part of basic telephone connection, in developing countries, however, ISD facility

does not form part of the basic connection. In Pakistan, for example, to get an ISD facility a

customer bas to make an application to PTCL, which should be accompanied by a bank

guarantee of Rs. 100,000 (US$2,777.00) in favor of the Company.

3. Lack of Wire Network in Developing Countries: A Silver Lining

A p t nom the administrative obstacles in privatizing and improving the

telecomrnunications sector in developing countries, the lack of a wired network is a blessing in

disguise. With the technologicaî advances made in telecommunications, a number of solutions

have emerged to solve the needs of developing telecommunications system in a cost-effective

and fast r n a ~ e r . ~ * ~ Only few years ago there was just one cost-effective way to establish a

telecommunications network, that is, through wire line technology. Now, a number of choices

-- -

187 D. J. Bamford, "faktel Communication on the Move. Pakistan Telecommuiiications Corp." Economic Review, v23, n11, p13(2) (Nov, 1992). The CBR is die trvr collection agency of Pakistan.

Canadian Business, 68, nl, p20 (Jan, 1995). lS9 Fasi gmwth is associated with rapid changes in teclmology. - Digital electrorucs are replacing earlier anrilog electronic and çlectromechanicat solutions wi th much more fûnctionai, compact equipment that enables enicient network utilization. - Satellites give independenœ fiom distance; introduced in the 1960s for international communication, they are now extensively used also for domestic and coprate networks. - Fibre optic cables bring high transmission capacities at virtually zero marginal cost per unit of traffic. - Cellular, corâiess, and other radio systems allow flexible and mobile cannection of the end customer. Telecommunications Seminar, supra note 153 at 4.

Role of Telecorimtunic~tions in Economic Vevelupmer~t

are available to setup a telecommunications network. Certain factors, such as geographical

conditions of the region, the gravity of urgency for telephone connections, the capital available,

etc., Muence the selection of a specific technology to establish the telecommunications

network.

In Germany, for example, af€er the crumbling of the Berlin wall in 1992, Deutsche

~ u n d e ~ o s t Telekom "chose a fixed version of cellular telephones to upgrade priority business

and govemment customers in the East within a few months, rather than wait over a year to

connect them using conventional wire line t e c h n ~ l o ~ ~ . " ~ ~ In Madagascar satellites are used to

provide "seMces to toms separated fiom the main cities by rugged terrain that would make

traditional cable and rnicrowave solutions slow and co~ t l~ . " ' ~ ' In December 1992, when the

Indonesian island of Flores was hit by an earthquake and tidal wave, a wireless local loop

system was established to link the island of Flores with the rest of the world. The system

reportedly took three weeks to deploy fiorn the placement of the order to actual

implementation. Moreover, the implernentation cost for the systern was relatively low

compared to that for its wired c o ~ n t e r ~ a r t . ~ ~ ~

New technologies (wireless local loops and satellite-based communications) offer cost-

effective alternatives to access remote areas, and even to provide seMces in urban areas. The

developing countries have a choice in adopting new technologies to establish state-of-the-art

telecommunications systems. Improved telecornmunications will promote economic, social

and regional development, and will help alleviate poverty in developing countries.

In Pakistan, the govemment is aware of the need for and efficiency of ceilular networks

and has so far fianchised three private companies to establish cellular networks and provide

cellular seMces throughout the country. Recently, Pakistads Mînistry of Communication has

given its approval to Acsys Limited, a US-based Company, to set up a satellite

telecommunications network in Pakistan. Acsys will lay a VSAT'" network in rural Pakistan,

'90 Ibid at 6. lgi ibid 192 M. Konuya, "Fkcd wireless local -1oop system: a new recipe for success?" Microwave Jownal, (June, 1994) v37, n6, p24(6). I g 3 Very Srnall Aperture Terminds MATS): A srnall satellite antenna. These s d l antennae are used to transmit and receive data by retail stores and other operations seeking to transmit information internally witfiout having to incw the costs of using the public-nvitched network. Brent & Weiss, International Tefecortitnunications (Indiana : SAMS Publishing 1993) at 430.

Role of TeIeconrnurnicatio~ts in Econonùc DmeIopment

and will provide national and international data communications and value added services.

Acsys plans to install a network hub and a 6.1-metre antenna in Karachi, which wiii serve

VSAT te&& throughout Pakistan. It is estimated that by the year 2000, the network hub

will support 750 remote units. Ig4

C. ' Privathtion and Economic Welfare

Governments have corne to realize that teIecomrnunications is no longer a Iuxury, but

an important senice that plays a vital role in determining the competitiveness of a country, and

hrther have realized that poor performance of state telecommunications entities is directly

associated with governments' actions as owners. Thus, they have started privatizing the

telecommunication sector. Privatization is viewed as a means to sever the link between the

govemrnent and the enterprise. It is a process whereby performance can be improved, capital

can be raised, and governrnent's exposure to commercial risk red~ced.'~' Privatization "aims

to transfer property rights to owners who have incentives to defend the interests of the capital

they own, and who are expected to support the painfùl steps necessary to achieve a market

e c ~ n o r n ~ . " ' ~ Privatization, it is believed, should be coupled with cornpetition so as to "make

the economy, and hence its citiens, better 0 ~ " ' ~ ' Thus, the measure of success or failure of

privatization should not be "whether the sale occurs, [or] whether the Company is more

efficient, [or] even whether the privatized firm suMved, but rather the test should be whether

privatization enhances economic we~fàre."'~~ A recent study of twelve cornpanies three in

each of the four counties (Chile, Malaysia, Mexico, and the United Kingdoni) shows that

privatization enhanced economic welfare in eleven of the twelve cases.Ig9 In the UK, Mexico

Ig4 TELENEWS Ask Jan 25, 1996. 19' M. M. Shirley, "Privatization and Performance" (1994) 17 Hastings ùit1l& Comp. L. Rev. 669 at 670. '" S. Kikeri, 1. Nellis, & M. Shirley, "Privatization: The Lessons of Experience in Market Emnomies" World Bank Res. Observer, July 1994, at 241. 19' Shirley, supra note 195 at 762. 19% Ibid. Ig9 Ahmed Gala1 et ai., nie Weifàre Consequences of Selling Public Enterprises: Case Studies fiom Chile, Malaysia, Mexico and the U.K. (1994).

This study mmpared the performance of privatized fim with how the firms would have performed had they remaineci public. The methodology contralied for variables other ?han ptivatization that might infiuenœ resuits. It measured the overail weIfare impact of privatization on the economy as weli as the distribution of the gains and losses among mnomic actors (govemment, buyers, labor,

and Chile, productivity improved in the telecommunications sector. In Chile, for example, the

telecommunication Company doubled the number of telephone lines in three years with an

investment which the governent refùsed to make. In other cases a significant nse in

investment improved welfare of the country. For instance, in Mexico privatization mobilized

$20 billion in revenues (over six bilIion fiom the sale of the telecommunications mrnpany,

Telmex, alone). The fiinds so generated were used to reduce the govemment's domestic debt,

which helped decrease interest rates (fiom 67% to 22%) and inflation (fiom 52% to 20%), and

bolstered confidence in the economy. New investment doubled econornic growth fiom two to

four percent.200 Privatiition improved economic welfare by bnnging new capital, new

management and with new market in~entives.~''

1. Effect of Privatization on EmpIoyment Patterns

One cnticism that is often levelled against privatition is that "econornic gains may not

be widely distnbuted and that some, labor in particular, will 10se."*~~ No doubt, state

enterprises which provide a large number of jobs cannot be privatized without having an

impact on employment patterns. In most developing countries telecommunications

administrations represents a major source of employment for the population. They have more

than 50-100 employees for every 1,000 telephone lines in service compared to 5 employees or

fewer per 11000 lines among telephone companies in the US, Europe, and ~ a ~ a n . " ~ In

Pakistan, as of 1992, there were 50 employees per 1,000 telephone line~.**~

Privatizing a PTT with a bloated work-force is not an easy task. State enterprise

workers are often organized, informed and politically active. They dislike, and are formidable

opponents to, any change. When India decided to privatize its telecommunications enterprise,

Indian telecommunication workers, led by the Indian Telecommunications Industry Services

custorners) and the sources of the weifare clmges (e.g., price changes, productivity improvernents, investment). Shirley, supra note 195 at n. 10

200 Shirley, supra note 195 at 675. 'O' lb id 'O2 Ibid. 'O3 Telsommunications Report, supra note 4, at A-40 (See Appendix-3). 'O4 Ibid

Association, went on strike (on June 22,1995) to oppose govemment's plans for

pnvatization.205

In Pakistan, with the corporatization of PTT, aU employees of PTT were transferred to

the Pakistan Telecommunication Corporation. However, when PTC was to be transform into

PTCL the Workefs Union planned a strike, which was called off when the Union reached an

agreement with the govemment over job ~ e c u r i t ~ . ~ ~ ~ Comrnenting on the work force of PTC,

one leading Karachi stock broker, many of whose clients have bought PTC shares, said: "[tlhe

Company is heavily over-staffed compared to similar concems in other countries. But lay-offs

would create trouble for the new management unless the govemment cm first settle the terms

of redundancies. "207

Redundancies have to be reduced if any successfùl effort to curtail losses and to

increase efficiency is to be made. Pnvat'mtion makes dom-sizing of staff more likely, because

it severs the enterprises' reliance on the govemment's coffers. However, privatization cm also

reduce opposition to down-siing by offenng compensation to offset the loss that may occur to

Iaid off employees. OAen the severance pay arrangements that accompany pnvatization are

generous.208 For instance, when Mexican airlines, Aeromexico, laid off its employees, it gave

them compensation equal to one y d s wages; apparently enough time to find new

employment. British Airways paid £20,000 as severance payment to 4,600 employees which it

laid off d e r privatization. Some researcher are of the view that "workers who were laid off

were compensated enough to offset the loss of their jobs."209 Thus employees fared well. even

when they were Iaid off afier privatization. Privatization also benefits those who remain

employed after pnvatization through schemes that offer employees shares in the enterprise at

discounted rates. According to one survey, there are 33 developing countnes that have some

provision for employee share ownership dunng privatization.210 The discount on share price

'O5 Telmm Markets, June 22, 1995 at 16 Netw~rk Week, August 19,1994,

'O7 Financial Times (London), Oct 3, 1995 p. m.. 208 Shirley, supva note 195 at 679. 209 1bit-i 210 Ibid al 680 quoting S. C. Smith, '2mployee OivnerslUp in Pnvatiwtion in Developing and Reforming Couniries" (World Bank, Aug. 1992) (unpublishcd document, on file wih M.M. Shirley).

ranges from ten to seventy five percent, normally on ten to twenty percent of the company's

share, in addition to some 'gi~eawa~s.~"

Although the criticism that privatization necessarily results in dom-sizing seems

reasonably solid, the facts, however, d i ta te against it. A survey covering sixty-one companies

in eighteen countries found that two-thirds of the sucty-one companies hired more employees

d e r piivatization.2'2 An explanation for this phenornenon is that new owners plan to invest

and expand, and are therefore willing to retain the excess work-force in the hopes that they can

be productively employed in the fibre. An exarnple of this could be found in the privatization

of the Mexican telecommunications enterprise, Telme% which despite over-stafing, did not

witness any layoffs after privatization.2"

In addition to employees of the PTTs, the other group that may bear the impact of

privatization of PTTs, especially in developing countries, is rnessengers. "[A] major contributor

to transport congestion in . . . concentrated centers [such] as Caracas is the thousands of

messengers who race around the city carrying pieces of paper from one office to an~ther."*'~

When improved and fiordable telecommunications services are available, many of the

messengers would certainiy be out of business. The diminution of the messengers profession,

would, however, have a positive effect on the society as a whole. "LJetting your fingers do the

walking is much faster and cheaper than wasted and wasteful v i ~ i t s . " ~ ~ ~

Overall privatization with its concomitant macro-econornic refoms improves

employrnent oppomtnities. For instance, in Argentina the privatization plan included layoff of

125,000 worker from public enterprises between 1989 and 1992 in addition to 125,000 civil

servants. Despite Iayoffs the unemployment rate fell fiom 8.8 percent to 5.4 percent over the

same period.2'6 One explanation of this phenornenon is that privatization triggered economic

refom which improved private investment climate and therefore created new jobs.

211 Ibid 2'2 Ibid. at 679 quoting William Me@mn et ai., The Financial and Operating Performance of Newly- Pnvatized F i m : An International Ernpirical Anaiysis, J. Fin. , June 1994, at 403-452. 213 Nor was the company sold ai a deep discount to induce the buyer to keep thc level of employrnent up. 214 Saunders, supra note 155 at 130. "" Latin American Pruductivity, MCKINSEY G ~ B A L I N S ~ ? Washington, DC, June 1994. '16 Shirley, supra note 195 at 680.

Chapter-IV Telecommunications Structure in the United States

A. The Power to Regulate: State Police Power

In the United States the govemment's power to regulate was recognized as early as

1877, when the Supreme Court upheld the constitutionality of Illinois' regulation of the rates

charged by grain elevators and warehouses in Mum v. ~llinois.~" The Court held

. . . that when private properiy is, "afkcted with a public interest, it ceases to be jurisprivafi only." . . . Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at

The Court recognized the nght of states to regulate certain businesses, but also

restrained the states' police power, by limiting the exercise of such power to businesses

affected with public interest. The determination as to whether or not a business was clothed

with a public interest was now to be made not by state legislatures but by the courts.219 The

court found that Chicago grain elevators and western railroads constituted business clothed

with a public interest, inasmuch as they "stand in the very 'gateway of commerce, and take toii

fiom d who pass."'220 The Court also established, though nebulously, that public control

could be exercised only where there was existence of a monopoly or virtual monopoly, in the

sense that the public was "compelled" to make use of the seniices involved. The quasi-

monopoly power of business, therefore, pemits regulation of it.221

The federal government started exercising its regdatory power by regulating

industries like railroads and trucking, in order to "put an end to cutthroat cornpetition and

ensure access, service, and affordable rates to the public."222 The Interstate Commerce Act

of 1887 had required that railroads publish and file with the Interstate Commerce Commission

'" Munn v. Illinois, 94 U.S. 1 13 (1877). Ibid at 126.

'19 Hom&, supra note 3 at 59. 220 Mun& supra note 217 at 132. 22' Honvitt, supra note 3, at 59. 222 Regulatoiy Reform, supra note 23 at 463.

Telecornmunican'o~t~ Structure in the United States

(ICC) rates that were "just and reasonable," and prohibited certain discrimination^.^^ Carriers

were fiee to generate tariffs, however, under the watcffil eye of ICC, whose role was to

effectuate consumer protection and antidiscnmination policy of the Interstate Commerce

~ c t . ~ ~ ~ The authority of ICC over tariffs was extended by the Mann-Ehs Act of 19037'

and later by the Hepbum Act of 1906.~~~ The extended tarifbuthor@ of ICC allowed ICC to

set bide tariffs and fix maximum rates.227

The Mann-Elkins Act designated the telecommunications cornpanies as cornmon

carriers, and thereby imposed upon them the obligation to provide service on request at just

and reasonable rates, without unjust discrimination or undue preference.228

Telecomrnunication companies were made subject to the basic cmtsurner protection and

antidiscnmination policy of the 1887 Act.

B. Regulation of the TeIecommunications Industry

Regulation of the telecornmunication industry, in the United States, began as early as

1879, three years d e r the invention of the te~e~hone .*~~ The industry was regulated because

of the e d y recognition of its natural monopoly character. Market forces, therefore, "were not

tmsted to provide quaiity services as widely as was thought to be socially desirable and at

pnces which were afKordable by most households. Telephone companies were thus subjected

to schemes of public utility regulation and to common carrier duties under which the carriers

were not allowed to conduct their businesses as ordinary commercial enter prise^."^^^

Regulation of the telecommunications industry was also attributable to public dissatisfaction

with duplicative exchange ~ervice.~' Competition in telecomrnunications senices was,

223 Exsential Co)~~~t~unicafions supra note 2 1 at 11 17 (1979); see a1.w Interstate C o ~ n e r œ Act, ch. 104, Ss 12, 3,6,24 Stat. 379 (1887). 224 Ibid at 1 118. 225 ch. 708,32 Star.. 847 (1903). 226 ch. 3591.34 Stat. 584 (1906). 227 ErrentiaZ Cor~t»>unication, supra note 2 1 at 1 1 18. " Sa Mann-EIkins Act Ss 7,12, ch. 309.36 Srat. 539 (1910). Z29 W h e m Pacifrc Coi>i»tumications Conpmy v. AT&T, 556 F. Supp. 825, at 856 (1983). 230 Ibid , at 857. '" '&id. at 856 o. 13: " It is intereshg to note that in Uie e ~ l y years of the 20th century, ihere were competing telephone companies in approrrirnarely one-halfof al1 cities wilh a population over 4W. Initially, the public had welmrned this cornpetition. After a EWy brief experiment, howwer, the public and its oficials ovenvheimingty

Tefecorttmunr'catio11~ Siructure in the United States

therefore, "ddiscouraged, and local telephone companies were hchised as monopolies within

their respective operating temt~nes.""~

Federal regulation of the telecommunication companies began with an amendment of

the Interstate Commerce Act, whereby the communications c h e r s were brought under the

juridiction of the Interstate Commerce Commission and were governed by the provisions of

the Interstate Commerce AC^.^^

1. The Federal Communication Act, 1934

In 1934, Congress enacted the Federal Communications ~ c t , " ~ which took away the

power to regulate telephone, telegraph, and radio industries fiom the ICC and invested that

power to regulate these industries in the newly created Federal Communications Commission

(FCC). "' The Act was enacted to coordinate and regulate the federal aspects of the provision

of telecommunications services.236 In enacting the Act, Congress intended to occupy the field

of telecomrnunicationq "to make available, so far as possible, to al1 people of United States a

rapid, efficient, reasonably pnced cornrnunications service, govemed by one uniform regulatory

~cherne."~'The Act is prharily designed to protect customers against unjust and

discriminatory services rather than to protect cornpetitors against unfair cornpetitive

practices.u8 When cornbined with various state legislation, the Act produced an intricate

structure of regulation in the telecommunications industiy. "9

Under the Act, the FCC regulated the comrnon carriers according to a public interest

standard.240 In determining whether a company's practices were in the public interest as

defined by the Communications Act, the FCC consider factors such as competition, network

mncluded that competition in telephone seMce was inefficient and wasteful. The general experienœ with competition in this field was ihat it auseci inwnvenience. higher msts, and degraded sekice quali&." lbid 232 lbid '13 United States Transmission Sysfeem. hc., v. Anlericon Tekphone & Telegraoph Company, 564 F.Supp. 1029 at 1025 (1983) ; Sec Mann-Eikins Act of 1910,36 Stat. 539,61st Cong., 2d Sess. (1910). '" 47 U.S.C. Ss 15 1 et seq. '" United States Tml>Nsrion , supra note 233 at 1025. 236 Jmis, hc. v. A~nerican Telephone & Telegroph Company, 481 FSupp. 120, 122 (1978). 237 47 U.S.C. s 15 1 ; see also Cooperalive Co~)i~nunications, lnc. v. AT 4 T Corp., 867 F.Supp. 15 1 1 (D. Utah 1994). 238 MCI Co~wt~unications Corp. v. AT &T, 462 ESupp. 1072 (N.D.ii1.1978) 239 Jutvis, supra note 236 at 122. 240 See 47 U.S.C. ss 201,214.

Telecornnumications Structure in the United States

safety and efficiency, the need of the public for reliable senice at reasonable rates, the proper

allocation of the rate burden, the financial integrity of the carriers, and the future needs of both

users and carriers."'

a. Tariff Determination under the FCA

With respect to tariffs, the 1934 Act continued the pnor practice that tariffs be

generated, at least in the first instance, by the camiers thernse~ves.'~~ Under section 203(a) of

the Act, these tariffs must be filed with the FCC, and carriers must give the FCC and the public

ninety days notice of any proposed changes.243 NO charge may be demanded or collected, or

any service rendered, except in accordance with a filed tari^'^^ Section 204 of the Act further

authorizes the FCC, either on its own motion or upon request, to conduct a hearing concerning

the lawfùlness of the rates embodied in a proposed tariff and to suspend operation of the tariff

for up to five months."' If at the end of three months the hearing has not been completed, the

tariff becomes effective.246 Thus, FCC's approval is not essential for the tariff to become

effective. However, once the tariff becomes effective, it binds the carrier and customers alike

until it is modified or s~~e r seded .~~ '

Under section 205(a) of the Act, FCC is authorized, d e r the hearing, "to determine

and prescribe what wiii be the just and reasonable charge. . . . to be thereafter observed, and

what classification, regdation, or practice is or will be just, fair, and reasonable to be thereafter

followed . . . ."248 Any carrier that knowingly fails to obey an FCC's order issued under section

205 is liable for a fine of $12,000 per violation per day?" In addition, any common carrier

which does or causes to be done any act prohibited or declared uniawfùl by the

24' UnitedStutes Tranmissiun , supra note 233 at 1025; see ulso Phonetele, Inc. v. Amencan Tel. & Tel. Co., 664 F.2d 716,722 (9th Cir. 198 1) cerf. denied, - U.S. -, 103 S.Ct. 785,74 L.Ed.2d 992 ( 1 983); FCC v. RCA Communications, Inc., 346 U.S. 86, 93,73 S.Ct. 998, 1003.97 L.W. 1470 (1953); Hawaiian Tel. Co. v. FCC, 498 F.2d 771,777 @.C.Cir. 1974). 242 UnitedSiotes Truss~~~ision, supro note 233 at 1026; Sec also Southem pacific, supra note 229 at 1 1 19. 243 '&id; 47 U.S.C. s 203(a) (1976); 47 U.S.C. s 203(b). 244 Ibid s 203(c). 245 Ibid s 204. 246 Ibid. s 203@)(1). 247 Ibid s 204(a). 248 Ibid s 205; see / l~r~e&zn Broadcartng Co~tpanies v. FCC, 643 E2d 818,822 @.C.Cir. 1980). 249 Ibid. S. 205@).

Telecornnaunications Structure in the United Sin fes

Communications Act shall be liable "to the person or persons so injured thereby for the full

amount of darnages," plus attorneyst feesz5'

b. Interconnection under the FCA

The Communication Act did not require of the telephone companies to provide

interconnection to each other on an equal and non-discriminatory basis. Section 201(a) of the

Act required mandatory interconnection "only where the public interest would be served by

such inter~onnection."~~' In enacting the intercomection provisions of the Act, "Congress

refused to do what some had urged --narnely, to make it an automatic duty of each carrier to

interconnect whenever requested to do so by another carrier."252

C. From Monopoly to Cornpetition: the Industry in Transition

As early as 1900s, the power of American Telephone and Telegraph (hereinafter

referred to as "AT&TM) to form monopoly became clear to the regulators.253 In 1913, the

Department of Justice and AT&T concluded the Kingsbury Commitment ("the Comrnitment"),

whereunder AT&T agreed to dispossess the recently acquired Western Union, desist from

acquiring independent telephone companies, and provide full intercomection with independent

telephone c ~ m ~ a n i e s . ~ ~ ~ The Commitment, however, proved ineffective in restraining AT&T

in foming a monopoly in telecommunications industry2" In 1934, when Congress enacted

Federal Communication Act, AT&T, through its vertically integrated Bell system, held a

virtual monopoly over the U.S. telecommunications i n d u ~ t r ~ : ~ ' ~ "Westem Electnc

manufactureci equipment; the Bell Operating Companies ("BOCs") provided local exchange

senice; AT&T provided interexchange (long distance) service that linked the local exchanges

*" Bi& 47 U.S.C. s 206 (1976). 47 U.S.C. s 20 l(a).

252 Southern Pacific, supra note 229 at 856. S. F. Cullari, "Divesiiture ik 1s The Local Loop Ripe For Cornpetition?" (1995) 3 CommLaw Conspechis

175 at 176. '" Ibid (footnotes omined). 255 &id "' MC1 Telmmmunications v. AT&T, 114 S.(X 2223 at 2226 (1994).

Tekcomnurnicatr'ons Structure in the United States

into a national and international system; and Bell Laboratones researched future industy

de~elo~rnents."~"

On January 14, 1949 the DoJ made a second attempt to restnct the monopoly of

AT&T, by filing an action in the District Court for the District of New ~erse~.'" The DoJ

charged AT&T with monopolizing and conspiring "to restrain trade in the manufacture,

distribution, d e , and installation of telephones, telephone apparatus, equipment, matenals, and

supplies, in violation of sections 1,2, and 3 of the Sherman AC^. "259 The relief sought included,

among other things, the divestiture by AT&T of its ownership in Western Electric and the

separation of telephone manufacturing fiom the provision of telephone s e ~ c e . ~ ~ ' The suit

against AT&T culminated with the filing of a proposed decree, which was accepted by the

District Court for the District of New Jersey on January 24, 1956.~" The consent decree

"precluded AT&T from engaging in any business other than the provision of cornmon carrier

communications senices; precluded Westem Electric fiom manufacturing equipment other

than that used by the Bell ~ ~ s t e r n . " ' ~ ~ The decree, however, did not require the structural

change that was originally requested by the govemrnent.

The consent decree exhibited a retreat from the position rnaintained by the Department

in the original suit. The change in Dors stand was a result of influence exerted by the

Department of Defense in favor of AT&T. The DoD argued that a divestiture of Western

Electric would "effectively disintegrate the coordinated organization which is findamental to

the successfiil canying fonvard of [a number of] critical defense projects, [and would] be

contrary to the vital interest of the nation."263 The District Court for the District of New Jersey

approved the Consent Decree, finding it to be in the public intere~t?~~ notwithstanding the fact

"' L. A. Sullivan & E. Hertz, 'The AT&T Antitrust Cotisent Decree: Should Congress Change The Rules?" (1990)s High Teh. L.J. 233 at 233-34. 258 United Stato v. AT&T, 552 F. Supp. 131,Sd (D.D.C. 1982) alfdsub norn Maryland v. United States, 460 U.S. 1 0 1 (1983)mereinafter '!AT&TDivestituret']; S e also Friedrich, supra note 13 1 at 655. 259 ATBLTDivestiture lbid at 135-36; see lrLw 15 U.S.C. Ss 1-2 (1988). 260 Ibid. 26' bid at 136.

lbid. at 138. '" Friedrich, supra note 13 1 at 656; quoting Antitrust Subcomm of Uie House on the ludiciaxy, 86th Cong., 1st Sess., Report on the Consent Decm Program of the Dep't of Justice 56 (Cornm. Print 1959).

AT&T ~ivestiture, supra note 258at 138; See also United States v. Western EIechic Co., 673 F.Supp. 525. 529 (D.D.C. 1987); FriedrichJbid. n.58: Sitbject to the requiremenr of the Tunney Act, 15 U.S.C. S. 16(b)-(h) (1988), antitrust consent decrees must be approved by a court. The Tunney Act requires that the approval

Telcconznuinicntions Structure in the United States

that the Decree did not introduce any structural changes witlljn the AT&T and was virtually

toothless in restraining AT&Ts monopoly power.265

After neary a quarter of a century since the DoJ fled its first antitrust suit against

AT&T, the DoJ, in November, 1974 filed a second antitrust suit against AT&T, in the District

Court for the District of Columbia. In the suit, the DoJ accused AT&T of "conspiring to

mo'nopolize the nation's long distance phone senice, speciaiized telecornmunications services,

and the manufacture of much of the telecornrnunications equipment."266 The govemment

sought the dissolution of Western Electnc and divestiture of the ~ 0 ~ s . ' ~ '

The case went to trial on January 15, 198 1. However, in January, 1982 the parties

proposed a Consent Decree. Judge Harold Greene approved the Decree with some

modification, which is commonly known as Modified Final Judgment (MFJ).~~* Uniike the

1956 Consent Decree, the MFJ required major structural changes within AT&T.

1. MFJ: Divestiture of AT&T

The 1982 MFJ ordered the separation of AT&T, Bell Labs, and Western Electnc fiom

the BOCs, which in turn were restructured into independently owned and operated Regional

BeU Operating Companies ("RBOCs"). The divestiture took effect on January 1, 1984.

During the trial, the govemment's evidence tended to show that AT&T had planned

and executed strategies to deter market entry to long distance seMces and telephone

procedure culminates in a finding by the court that the Decree is "in the public interest." In determinhg whether a consent decree is in the public interest, courts looks to the principles and goals of the antitrust Iaw, wliich the Congres enacted to "preserv[e] free and unfettered competition as the mie of trade." AT&T, 552 F. Supp. at 149 (quoting Norfhem Pac. Ry. Co. v. United Sfates, 356 US. 1 , 4 (1958)). 265 rbid 266 "Regdatory Reform in Transition: The TeIecon~nunication Indusûy and the MFJ Regdation" (1995) 47

Admin. L. Rev. 569 at 570[hcreinafter "MFJ Reguiation"]. 267 AT&T Divesfiture, supro note 258 at 139. '" Friedrich, supra note 13 1 at 657, n. 64: The MFJ as actually aibmittcd to fhe Disvict Court for the Disrrin of New Jersey, as an amendment to the Consent Decree cntered by the parties in 1956. The pariies then çought to dismiss the District of Columbia action. This was designed to prevcnt the parties fiom having to comply with the Turuiey Act, which is applicable to all antitrust consent decrees, but arguably not to subsequent modincations of deme; See AT&T Divestiture, supra note 258 at 144 & n. 5 1. The D.C. District Court, however, r e W to dismiss the case on the gounds Uiat the proposai 1982 Consent Decree was more than a simple modification of the 1956 Decree and that a dismissal wodd be wntrary to the purpose and intent of the Tunney Act. The New Jersey Western Electric case vas tmnsfèrred to the D.C. court and the Consent Decree was amsiderd by the court in accordance with the requirements of the Tunney Act.

Tckcontnutnicatiom Structure in the United States

equipment offered by others, by making access to local networks awfully diffic~lt.*~~ For

instance, in the long distance seMce market, the customers of the competing carriers were

required to diai significantIy more numbers to gain access to the network then were users of

the AT&T long distance s e ~ c e . ~ ~ ' In the telephone equiprnent market, AT&T observeci strict

wnnection conditions under the guise of protecting the network fiom faulty or substandard

equipment.271 The conditions requireà a "protective connecting arrangement" (PCA), by a l

those who intended to connect competing telephone equipment with the network."

a. Rationale for the MFJ

The rationale for the divestiture was that without control of access to locai operating

networks, AT&T would be unable to exercise monopoly control over the long distance and

equipment market.273 The divestiture would remove the incentive for the BOCs to

discriminate in favor of AT&T, and abolish the BOC's ability to cross-subsidize AT&T's long

distance s e ~ c e through monopoly profits eamed through local exchange services.

b. Effect of the MFJ

As a result of the divestiture, the twenty-two BOCs were consolidated into seven

RBOCS.~" Each RBOC possesses a monopoly over several local networks, also known as

"exchange areas" or "local access and transport area" LAT TAS).^^' The MFJ imposed

restrictions on the RBOCs' ability to enter markets other than local exchange

telecomrnunications. The RBOCs were restrained fi-om providing interexchange (or

interLATA) services, fiom manufacturing telephone equipment and fiom providing

information The MFJ required the RBOCs to provide equd access to their

269 A T H Divesfiture, supra note 258 at 161-63. 270 Friedrich supra note 13 1 at 657. 271 A T&T Divesfiture, supra note 258 at 16243. 272 lbid. 273 Ibid at 160-70. 274 Ibid ai 142 n. 41. Although the decree did not assign names to the seven RBOCs. as of April 1995, the names of the RBOCs are, Amentech, Bell Atlantic, BeIlSouth, Pacific Telesis, Southwestern Bell, NYNEX and U S West. s e . C M , supra note 253, at 176. 275 Friedrich, supro note 13 1 at 658. 276 ATdSTDivesIifure. mpra note 258 at 186-94; Sullivan & Hem, supra note 257. at 234;

Tekcommunications Structure in the United States

network for both interexchange caniers and enhanced s e ~ c e pro~ders.277 The restriction and

obligations were imposed to prevent a recurrence of the vertical control exercised by AT&T,

pnor to, leading to, the divestit~re.~'~

The MFJ, on the other hand, elirninated al1 "line of business restrictions" placed on the

AT&T by the 1956 Consent ~ec ree .~" The coun reasoned that:

[tlhe antitrust laws do not require that a Company be prohibited fi-om competing in a market unless it can be demonstrated that its participation in that market will have anticompetitive effects. Past restrictions on AT&T were justified primarily because of its control over local Operating Companies . . . [and] continued restrictions are not required unless justified by some other rati~nde.~''

The MFJ, by severing BOCs fiom AT&T, and by requiring the consolidated -Cs

(RBOCs) to provide equal access to al1 long distance carriers, helped promote competition in

the provision of long distance and international services. "Before divestiture, AT&T avoided

any threat of cornpetition by requinng the BOCs to charge hi& rates to give a competitor

access to local end user or not allowing competitor to use the switching facilities at

The MFJ, however, allowed RBOCs to enjoy a monopoly over the provision of local

services: the bottleneck monopoly. The long distance carriers rnust rely on RBOCs to switch

long distance calls to local lines. For switching calls to local fines, RBOCs charge access fee to

the long distance carriers. RBOCs make at least $22 billion per year in access charges.282 The

access charges constitute 40 per cent of the price of a long-distance call. US West, on of the

seven RBOCs, "received $3.1 billion f?om access charges in 1995, compared to $4.3 million in

For the purposes of MN, "Information service" is defined as "a capability for generating, acquiring, storing, Uansforming, processing, retrieving, utilizing, or rnaking available information which may be conveyed via telecommunications, except that such seMœ does not include any use of any such capability for the management, conlrol, or operation of a telecommunications ystern or the management of a telecommunications s e ~ o e . " s e S. M. Gorinson, Conpetition And The Telephone Indushy, Practising Law ïnstitute, (1984) Order No. G4-3759 (Wedaw Cite: 192 PLVPat 9). 277 AT&TDivestifure, ibid at 142 n. 41; S e dso Caiij6rnia V. FCC, 104 F.C.C.2d 958 (1986). 2" Friedrich, supra note 13 1 at 660. 279 AT&T Divestilure, supra note 258 at 178-86. (However, AT&T was restncted from entering electronic publishing for at kast swen years) 280 Ibid at 175-76. 28' MFJ kgdation, supra note 266 at 571-572. 282 COMMUNICATIONS WEEK ~NTERNATONAL, AU* 12,1996. p. 9.

Te~ecommrtnicutiions Structure in the United States

revenue fiom its main business of local phone service."" The long distance carriers paying the

access charges feel that the charges are about 6 to 7 times above ~ o s t . ~ ' ~

The MFJ, by stifling competition in the provision local service, promoted an act which

was detrimental to consumer welfae. Had the MFJ allowed competition in local services, there

would have been lower access charges and therefore the charges for long distance cails would

have been lower, which would have increased consumer welfare.

Regulating industries is pnmarily the domain of the legislative organ of a governrnent.

However, in the United States, judge-made regulation govemed the telecornmunications

industry for fourteen long years, before the US Congress responded to the fact that its

regulatory domain was usurped by a judge. The US recaptured its regulatory domain by

passing the Telecommunication Act of 1996.

2. The Telecommunications Act of 1996

On February 8, 1996, President Bi11 Clinton signed the Telecommunications Act of

1996~~' into law. The first comprehensive legislation, 62 years after the enactment of the

Communication Act of 1934, enacted to respond to the changed market structure and

technological advancements in the field of telecornmunications and broadcasting. The objective

of the Act is "to promote competition and reduce regulation in order to secure lower prices

and higher quality senrices for Amencan telecomrnunications consumers and to encourage the

rapid deplopent of new telecommunications technologies."286 The Act amended the

Communication Act in large part,287 and has been hailed by many industry representatives as a

defining moment in the history of the communications i n d ~ s t r ~ . ~ ~ *

The Act opens up competition by streamlining guidelines through which Regional Bell

Operating Companies (RBOCs) can sel1 inter-local access and transport area (interLATA)

services and long distance carriers cari enter the local loops. The Act also opens up the market

283 DENVERBUSINESS JOURNAL (CO), July 5,1996, p. A3. '13' Ibid ; "On & About AT&T' EDGE, 29,1996, p. NIA. 285 PLl01-104 (S 652). 286 ibid "' Ibid. S. lm). 288 1. E. Canis & E. C. Soriano, "The Te~~mmuiiications Act Of 1996: A Global Analysis" (1996) 4 CommLaw Conspechis 147.

TeIecommunicatioits Structure in the United States

for other s e ~ c e providers, üke cable companies, competitive access providers and reseiiers, by

the introduction of two key mechanisms - wholesaling and interconnection. *" Section 271 of the Act requires RBOCs to open their markets to competitors and meet

the 14-point check list stipulateci in the section, before they can ofer long distance s e ~ c e s .

The 14-points of the check iist are: 1) Xntercomection; 2) Local loop transmission f'rom centrai

offices to customer prernises; 3) Local transport fiom the trunk side of any switches; 4) Access

to network elements; 5) Access to poles, conduits, and rights-of-way; 6) Use of switches

unbundled fiom any other transport or services; 7) Access to 9 1 1, directory assistance, and

other core services; 8) White pages directory listings for cuçtomers of competitive carriers; 9)

Nondiscriminatory access to telephone numbers; 10) Nondiscrininatory access to databases

and signaling necessary for cal1 routing; 11) Intenm nurnber portability; 12) Access to

resources necessary for local diaiing parity; 13) Reciprocal compensation; and 14) Resale of

telecommunications

a. Effect on MFJ

Section 251(d)(l) mandates that the FCC complete al1 actions necessq to establish

regulations to irnplement the provisions of the Act within six months fiom the date of

enactment of the Act (Feb. 2, 96). Until the FCC adopts new regulations, the MFJ's provisions

regarding equai access and non-discriminatory interconnection and LATA boundaries will stay

in effect. The Act dso permits RBOCs to engage in activities which are otherwise prohibited

by the Act, to the extent that such activities previously were authorized by the MFJ ~ a i v e r s . ~ ~ ~

In effect, the Act nuiiifies the MFJ, "prompting sonie industry wags to cal1 it the Judge

Greene Retirement AC^.''^^* In an interview reported in Asiai2 Wall Sheet Journal, Judge

Greene expressed his concem that the Act may not prevent the "phone giants from essentially

re-erecting the monopoly that he spent a career helping to tear apart."293

289 LAN Magazine, Jdy 1.1996, vol. 11, No. 7 at 60 (1996 WL 8009456). 2w Ibid; Sect 271 of die Telmmmunicationç Act.. "' Assistant Attorney General-Antitrust Anne Bingamans letter io FCC Chairman Reed Hundt dated Feb. 7. 1996, quoted in Communications Today, @&NW 12,1996) 1996 M'L 2328482. 292 "Greene Pamires: U.S. Telecom Czar Frets Over New Indunty Rula" THE As1.m WALL STREET Jorn& F&nrary 13,1996 (1996 WL-WSJA 3327212). 293 Ibid

Teleconrmunicatfons Structure in the United States

The above comment by Judge Greene reflects, however, somewhat a blurred vision of

the purposes of antitrust laws. The sole goal of antitmst laws is to promote consumer welfare

through ensuring free c ~ r n ~ e t i t i o n . ~ ~ ~ ~ h e antitrust laws protect competition and not

competitors.295 The Supreme Court in Norfhenl Pacflc Raihuay Co. v. United tat te?^ held

that the "Sherman Act was designed to be a comprehensive charter of economic liberty airned

at presehgfree and unfttered cornpetition ar the d e of t r d . It rests on the premise that

the unrestrained interaction of cornpetitive forces wili yield the best allocation of our economic

resources, the lowest prices, the highest quality and the greatest material progress. . . . (1297

(Emphasis supplieci)

Antitrust law does not declare monopoly illegal, per se. Section 2 of the Sherman Act

requires a plaintifF who presses monopolization charges to establish that the defendant's

possession of monopoly power and "the [defendant's] willfùl acquisition or maintenance of that

power as distinguished fiom growth or development as a consequence of a superior product,

business acumen, or histonc accident."298 Hence, a firm may attain (andlor maintain) a

monopoly as long as it results fiom "superior skiII, foresight and industry"*" However,

antitrust laws do prohibit attaining monopoly by engaging in exclusionary practices.300

Antitrust laws come into action when market forces are manipulated to the detnment of a

consumer.

b. Biennial Review of Regulations

The Act provides for a review of its regularions every two years starting fiom 1998.

Ail regulations that apply to the operations and activities of providers of telecommunications

294 See Reiter v. Sonofone Corp., 442 U.S. 330 at 343 (1979); see supra note 124. "' Brunswick Corp. v. Pueblo BowI-û-Mat, 429 U.S. 477,488 (1977) ("The antitrust laws ... were enacted for the protection of competition, not competi tors. "' (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)); Colorado Interstate Gas Co. v. Natural Gus Pipeline Co., 885 F.2d 683, 691-97 (10th Cir. 1989) (applying the competition principle and overturning an antitrust verdict for the plaintifi), cerf. denied, 11 1 S. Ct. 441 (1990); 1 P. Areeda & D. F. Tumer, Antitrust Law PP 103-1 13 (1978); R A. Posner, Antihvsr Law: An Economic Perspective at ix (1976). 296 356 U.S. 1 (1958). 297 356 U.S. at 4-5. 298 United States v. Grinneil Corp, 384 US. 563,570-7 1,86 S.Ct. 1698,1703-1704,16 L.Ed.2d 778 (1966). 299 Ibid

Aspen Sriing Co. v. Aspen Highianck Sking Corp., 472 US. 585.605 n32 (1985). E x h s h a r y behavior is "'behavior that not only (1) tends to impair the opportunities of rivals, but also (2) either does not futther competition on Lhe rnerits or does so in a u n n d l y restrictive way."' Ibid

seMces wiil be reviewed in order to determine whether any of these regulations is no longer in

the public interest because cornpetition between providers renders the regulation no longer

meaningful. Regulations that the Commission detennines are no longer in the public interest

are required to be elirninated.)O1

c. FCC's Interconnection Order

On 2 August, 1996 FCC approved historic interconnection order that sets fiamework

for opening local telephone markets -worth an estimated $94 billion in 1995- to

c ~ r n ~ e t i t i o n . ~ ~ ~ Pursuant to section 251 of the Telecom Act, FCC's intercomection order sets

national policy, leaving many details to state commissions, who will be responsible for

approving intercomection agreements between new entrants and incurnbent Local Exchange

Carriers (LECs). The order gives states 2 options on pncing issues: (1) They can set their own

rates, using FCC guidelines for developing cost studies and other price-setting processes; or

(2) they c m use FCC default pice ceilings if they don't have resources needed to develop

those complex cost studies.

The order requires LECs to lease local phone lines to new cornpetitors at 17 per cent

to 25 per cent discounts fiom the retail prices. The LECs are also required to cut the fees that

cellular and wireless companies pay to terminate calls on local lines from around 3 cents per

cal1 to between 0.5 cent and 1 cent.303 As a result of the new pncing structure, wireless

c h e r s are expected to save 70% to 80% (US$ 800 million a year) on interconnection

charges. The common theme that run though the pncing structure of the order is FCCts

insistence on states' basing rates on forward-looking costs; that is, sunk (or embedded) costs

should not be reflected in prices.304

The order also requires LECs to unbundle a minimum of 7 elements: (1) Local loops;

(2) local & tandem switches; (3) interoffice transmission facilities; (4) signaling; (5) operator

seMces & directory assistance; (6) network interface devices; and (7) operations support

'O' A new section 1 1 in Titie 1 of the Communications Act is added by section 402 of the Telmmrnunications Act. 'O2 Communications Week International August 12, 1996 p. 9. 303 Ibid. '04 Communications Daily, August 2, 1996 (1 996 WL 2369827).

Te~econmurnicaîions Structure in the United States

systems such as ordering and Parties who have already entered into

interconnection agreements will have the opportunity to renegotiate those agreements under

the tems of the order. The order also includes a "most-favored-nation" provision in which new

entrants will have a nght to the best tems negotiated so fa?

The order, however, required that LECs will continue to receive "access charges" for

originating and tenninating calls until June 1997.~" Suc11 a requirement does not benefit

consumers. However, the argument to justiQ this action is that access charges are used by

LECs to subsidize universal service to loss-making rural areas.

Commenting on the order, Amencan Mobile Telecomrnunications Association praised

the provision enabling LECs to provide cost-based, nondiscriminatory interconnection and

unbundled elements to wireless providers. However, Mary Jones, chairman of Alliance for

Public Technology, said she was "disappointed" with order because it "doesn't focus on

consumers" and doesn't give cornpetitors incentives to build their own network~.)~~

Though consumer will not benefit immediately Born the interconnection order, in the

near future the ultimate w i ~ e r will be the consumers. By making it "easier and cheaper for

cornpetitors to build and extend their networks and to latch ont0 those of the Bells, businesses

and consumers nationwide will begin to see the kinds of low-priced, high-quaiity network

seMces already seeping into a handtiil of U.S. markets."309

d. General Comment

The Telecomrnunications Act "once and for all mandated at the federal level the

removal of bamers to entry into the local telephone market." The Act rendered al1 states' public

utilities regulations illegal that posed baniers to entry, and thereby promoted r n o n ~ ~ o l ~ . ~ ~ ~ By

removing the reylatory barriers-to-entry the Telecom Act provides an environment that WU

promote contestabiity in the market

Telecom Act presupposes that the

However, according to Professor Richard Janda the

existing market position of leading US telecos as

- -

'O5 Ibid. 'O6 Ibid.. 'O' COMMUNICA~NS WEEK INTERNATIONAL, August 12,1996. p. 9. 'O8 COMMUNICATIONS DAILY. Augllst 2,1996 (1996 WL 2369827). 309 COMMUNIC.~~ONS WEEK ~TERNATIONA~, AugLl~t 12,19%, p. 9. ''O Ibid.

64

Teleconzmunicntiom Structure in the United States

contestable and subsequent FCC action suggests that these positions are not only contestable

but will be ~ontested.~"

" ' Opinion expressed by Prof. Janda in a meeting with the author.

65

Chapter-V Telecommunications Structure in the E.U.

A. Monopolistic Market

Telecommunications seMces in the European nio on.,^'' until recently, were

traditionally provided by state monopolies, known as Post, Telegraph, and Telephone

Administrations (PTIS).~'~ ~ a c h country has its own PTT, which to varying degree was

integrated into the nationai administration, and was responsible for the provision of these three

communication ~ h e PTTs enjoyed a complete monopoly in the provision of

telecornmunications equipment and services in their respective countries. In addition, the PTTs

were also invested with the power to set prices, conditions and gant approvai for provision of

service and equipment. They acted both as referee and player in the market.315 The PTTs were

members of international organizations like the International Telecommunications Union, its

subsidiary organization, the International Telegraph and Telephone Consultative Corrunittee

(CCITT), and the Conference of European Postal and Telecommunications Administrations

(CEPT), a group including more than twelve Member states of the E C . ) ~ ~

Despite sharing membership in different organizations, the PTTs adhered to confiicting

national standards and incompatible equipment types. Owing to monopoly restrictions, PTTs

did not enter into alliances with other PTTs. This resulted in a poor European

telecornmunications network and in expensive international telephone calls when compared

with the sirnilar services provided in the United tat tes.^" In Spain, for example, there are

about 244,000 applications for basic telephone connections still pending. In Greece, the

waiting list for phone installation has swelled over to one miIIion, with the wait sometimes

--

'12 The Ewopean Union was fomed by the Treaty on European Union, commoiily known as the "Maasuicht Trcaty," which carne into force on Novernber 1, 1993. Vreaty on European Union , reprinted in 31 I.L.M. 247 (1 992)). The Maastricht Treaîy amended the Treaty of Rome, as amcnded by the Single Euopean Act, which is Lhe foruiding document of the European Community. (Treaty Establishing the Europcan Eoonomic Cornrnunity, reprinted in 298 U.N.T.S. 11, amended by Singfe Europan Act, 1987 O.J. (L 169) 1). 31 3 Lande, supra note 2 at 2 159 (1994). See also Nafiel, supra note 161 at 45 1. '14 Ibid, Naftel. '15 Ibid at 454. '16 Ibid at 451. 317 lbid at 452.

Telecor~mutnicntions Structure in ilte E U

lasting more than four years.3 '* Even in Belgium, the seat of EC headquarters, an average of

six months of wait is must to get a basic telephone c o ~ e c t i o n . ~ ' ~

The monopoly of PTTs started eroding in 1982, when the United Kingdom licensed

Mercury Communications to become a competitor of British Telecom (BT)."' In late 1983, a

duopoly policy was implemented that placed an embargo on new entrants in the market. In

1984, the British Government privatized British Telecom, thou&! the government retained, at

the time of privatization, a forty-nine percent share in the Company. At present the

Govemment has a share of 21.8%.~~' The privatization of BT traces it roots to the

~or~oratization,~" of the British Post Office fi-om a ministiy to a public corporation in

1 969.323

The duopoly created by the Bntish Government proved successfirl. Mercury got a

significant market share by offering discounts.324 11n 1990, the British Governrnent issued a

white paper that called for fiee and unfettered cornpetition in ail facets of

te~ecommunications.~~~

In France, on the other hand, improvements in telecommunications network were

made through intense government intervention. The French governent made a substantial

financial investment in modemizing its telecommunications network. The improved network

also provides information s e ~ c e s to the generd

'" Lando, supra note 2 at 2160. '19 W e i , supra note 161 at 452.

. '*O Vogelsang, supra note 90 at 322. '*' F. Pombo, "European Comrnunity TelecommwUcations Law And Invatnient Perspectives" (1994) 18 Fordham Int'l L.J. 555 at 603. 322 l'Corporatizationtl or "destatization" - signrfies the sepamtion of an enterprise fmm the govemment, unially through the establishment of a joint-stock company (or the quivalent) which is wholfy owned by the government and seif-financing - tint is, weaned fiom the government budget. Often wrporatization is the first step on the road to privatization.. "Privatization," by wntrast, usually involves the sale of equity to strategic or financial investors. The privatized equity a n consist of a minority share of the stock, al1 the way up to 100% of the sliare. A Regdatory Perspective on the Comnrercialization, Privalizofion, and Financing of ~eiecotnmunic~tion~", DATA MANAGEMENT OF INTERNATIONAL TELECOMMUNICATIONS , Febnüiry 1994, p 12 1. 323 Vogelsang, supra note 90 at 322. 324 Naftel, supra note 161 at 452. 32s Lando, Supra note 2 at 2188. 326 Naflel, supro note 16 1 at 453.

Tdecumntunicatiuns Structure in the E U

B. Road To Liberalization

1. The Green Paper

The generally poor telecommunications structure in the Europe prompted the

European ~o rnmun id~ ' (the "Community" or thetiEC") to consider ways to improve

telecomrnunications intiastmcture in the ~omrnun i ty .~~~ While liberalization of the

telecornmunications industry got started in the United States, in the late 1960s, through

removal of barriers to trade in the telecommunications market, the trend reached the European

Comrnunity some twenty years ~ater.'~' The EC Commission recognized that "improvernent of

telecomrnunications in the Community is an essential condition for the harrnonious

development of economic activities and a cornpetitive market in the Community. . . .""O The

EC Commission is the organ of the Cornrnunity responsible for enforcing the Treaty

Establishing the European Cornrnunity (the "EC ~reaty").'~' The Commission started the

liberalization process by applying Cornrnunity competition rules to the telecomrnunications

industry. It did so by attuning the essentiai eIements for establishing an EC regdatory

fiamework, that is, by adopting standardkation and mutual recognition mechanisms, and by

encouraging competition through the setting up of FUkD centers and trans-European

networks. 332

In 1987, the Commission, responding to comrnercid pressures and to the growing

importance of the telecommunications, undertook a study and drafted a Green Paper on n e

Development of the Cornmon Market for Telecommunicatio~~~ Services and Epipment (the

"Green ~a~er")."' The Council adopted the Green Paper on June 30, 1987, which provided

"' Lando, supm note 2 at 2159 n.4: n i e EC consi& of hveîve Member States: Belgim., Denmark, France, Germany, Great Britain, Greece, Ireland, Etaiy, Lusembourg, the Ne~herlands, Portugal, and Spain.

Austria, Finland, Iceland, Liechtenstein, Nonvay, Sweden, and Switzerland subjected thernselves to most EC regdations when they joined with the EC to form the European Economic Area. See Vivienne Robinson, "Recent Developments in the Law of the European Communities"(l992) 2 Duke J. Comp. & Int'l L. at 25-26. In March, 1994 Austria, Finland, and Swveden joined the European UNon, which is the urnbrella organization over the EC. See Three Nations Agree to Join EU, Waii St. J., Mar. 2, 1994, at A6. 328 Lando, supra note 2 at 2 159. 329 Pombo, supra note 321 at 555. 330 Commission Directive 901388, preambfe, 1990 O. J. (L 192) 10. 33' Seesupra note'312. 332 Pombo, supra note 321 at 558. 333 Ibid at 558; See also Lando, supra note 2 at 2 16 1; Commission of the European Cornmunities, To~vards a Dynamic European Economy: Green Paper on the Development of the Common Market for Telecommunications Services and Equipmeiit, COM (87) 290 Finai (June 1987) [hereinafter "Green Paper"].

Telecomnzunicntions Structure in the E U

for competition in al1 facets of telecommunications excepi h r basic services, which would

remain under the domain of PTTS."~ To achieve a comrnunity-wide open telecornmunications

market, the Green Paper stipulateci the foltowing objectives:

(a) liberaiization of the supply and provision of both terminal and network

equipment;

@) liberalization of services, with the temporary exception of public voice and the

operation of the basic network;

(c) separation of regdatory and operationai fiinctions, so that telecommunication

organizations are no longer both referee and player in the telecornmunications industry;

(d) ensuring open access to networks, inter-workin& and interconnection ("Open

Neîwork Provision" or "ONP");

(e) encouraging European standardization, with the creation of European

Telecommunications Standards Institutes ("ETSI"); and

( f ) full application of the competition niles to the telecornmunications ~ector.~''

These general objectives have been irnplemented through the adoption of severai

~jrectives.~~'

2. The Terminal Equipment Directive

In 1988, the Commission adopted a first directive, Directive on Competition in the

Markets for Telecommunicafio12~ Terminal ~ q i i p n w ~ t > ~ ~ ("Terminal Equi pment Directive"),

&er the issuance of Green Paper. Article 1 of the Directive defines "terminal equiprnent" as

ttequipment directly or indirectly connected to the termination of a public telecommunications

network to send, process or receive information. "338 The Directive required:

-.

334 Pombo, supra note 32 1 at 559; see Green Paper, Ibid. s (3) 14. 335 Ibid.; See Green Papcr, Ibid at 4. 336 Ibid.; Directives stipulate Community aims. Member States must implement direcîives within a prescribed time pend by enacting national legislation. EC Treaty, supra note 2, art. 189. 337 Lando, supra note 2 at 2175, Commission Directive 881301 on Competition on the Markets in Telecommu~cations Tenninal Equipment, 1988 0.1. (L 131) 73 [hereinafter "Terminal Equiprnent ~irective."]. 338 Ibid art 1.

Telecontnwnicatiom Structure in the E U

(a) the separation of PTTs regulatory fùnctions fiom its service providing

fùn~tions~'~

(b) Member states to publish a list of al1 technicd network specifications for

manufacturing terminal equiprnent, and to provide the same to the ~ommission>~~

(c) Member states to promote cornpetition in the EC's telecommunication terminal

equipment market:41

(d) the ending of ail speciai or exclusive rights bestowed on PTTs to supply

terminal equipment, and to provide certain services;"*

(e) the prohibition of "tying," that is, conditioning the provision of

telecommunications services with the purchase of telecommunication equipment:43

Al1 Member States have given effect to the Terminal Equipment Directive, and now

terminal equipment c m be fkeely traded and imported within the Community market.344

3. The Service Directive

On 28 June, 1990 the Commission issued a second directive, Directive on Compeiition

NI the A4arket for Telecommtrnication (the " S e ~ c e s Directive"), following the

Green Paper. The Directive required a body independent of the telecomrnunications

organization to issue licenses, control type approvd and specifications, allocate f'iequencies,

and to observe usage conditions.346 Through this provision the Services Directive rectified the

conflict of interest inherent in the earIier structure of the PTTs, whereby they acted both as

referee and player, and thus dorninated the telecornrnunications rnarket~.~"The SeMces

Directive required Member States to "withdraw al1 special or exclusive nghts for the supply of

telecommunications services other than voice telephony" f?om the PTTs and to allow any

339 Ibid art. 6, O.J. L 13 1/73, at 76 (1988). 340 Ibid. art. 5,0.J. L 13 1/73, at 76 (1988). 341 Ibid. art. 1, O.J. L 131173, at 76 (1988). 342 Ibid art.2-3, O.J. L 13 1/73, at 76 (1988). 343 Ibid. at 75 344 Pombo, supra note 32 1 at 560. 34"ommi~~ion Directive N o . 90/388/EEC, O.J. L 192110 (1990) [hereinafter the "SeMoes Directive"]; See also Pombo, supra note 32 1 at 562; Lando, supra note 2 at 2 176. 346 See Ibid at 15, art. 7; Lando, supra note 2 at 2177. 347 Lando, supra note 2 at 2 177.

Telecommunicntions Structure in the E U

operator to supply such services. Where Member States require a license to provide

telecomrnunication services, the conditions for the grant of the license should be objective,

non-discriminatoty and transparent. In case of rejection of an application for the license,

reasons for refisai and a right to appeal against such refùsai rnust be provided to the

applicant.348 Where the Member States maintain supenor rights and control public

telecornmunications networks, they should then formulate objectives and non-discriminatory

conditions for the access to the networks and should publish them a l ~ o . ~ ~ ' The Directive

required the PTTs to allow competition in non-basic telecornmunications s e~ces .~ '*

4. The Open Network Provision Directive

In order to bolster the Services Directive, the Council adopted on June 28, 1990, the

same day Services Directive was adopted, a Directive on the Establishment of the Intemal

Market for Teleconm~irnicatio~~s Services ïhrozqh the ImpZen~entatiori of Open Netwurk

~rovisio,ts'~ (the "ONP Directive"). The objective of the ONP Directive is " harmonization of

conditions for open and efficient access to and use of public telecommunications net~orks ," '~~

and services across Europe and to promote the establishment of new telecommunication

services by providing an 'even playing field' for market entrant^."^ The Directive provides for

equal access to any firm which intends to offer new telecomrnunication services through the

use of existing networks, and to transform existing public iïxed networks into a Europe-wide

network through which any service provider can provide telecommunications services. Since

network infiastructure traditionally, was operated as a monopoly, the ONP Directive proved

very instrumental in fiirthenng competition in the data and value-added semice fields.

Standardization is the top pnority of the Directive to create Europe-wide net~ork."~

However, the ONP Directive did not interfere with the control of the PTTs over the basic

348 Senices Directive, supra note 35, art. 2, O.J. L lgî/lO, at 15 (1990). 349 9bid art. 4. 350 Lando, supra note 2 at 2177. IS' Council Directive No. 90/387/EEC, 0.1. L 19211 (1990) [liereinafler the "ONP Directive"]. 352 Ibid art. 1, at 2. The ONP Directive initially aimed to hannonize the followving areas: leascd lines. packet- switched and circuit-suitched data services, the Integrated SeMces Digital Network, and relatai seMces such as voie telephony, telex, and access to networks. See Ibid at Annex 1, at Id.; See also Lando, supra note 2 at 2179. '" Pombo, supra note 32 1 al 564 '" Ibid ; see also Lando, supra note 2 at 2 18 1.

Telecommunications Structure in the E U

seMces which is "derived f?om the exercise of special or exclusive nghts granted by Member

States and which are compatible with Community la^."'^^ The Directive required of the PTTs

to act in a non-discriminatory way towards service providers by setting tariffs which must be

transparent and published, and "sufficiently unbundled" so that users have choice between

specific services.356 Though the Directive required the tarifEs to be cost-based, it recognized

that the tariff setting wiii be the domain of national legislation and is therefore not subject to

the ONP provisions.3"

The Directive also did not interfere with the Member States' power to impose

conditions of access to their networks. The States' power to restrict access is, however, lirnited

to cases where network security, network integrity, senrice interoperability, and data

protection are implicated. Therefore, economic gains is not a valid reason to impose

restrictions.358

Annex-II to the Directive specifies the areas where open network provision conditions

may be drawn up. They are: leased lines, packet- and circuit-switched data s e ~ c e s , ~ "

integrated services digital network ("IsDN"),)'~ voice telephony3", te le^.,^^^ mobile services,

new types of network access, and the broadband netw~rk.~~ ' The directive, however, made no

provision for broadcasting and satellite communications.

3s5 ONP Directive, supra note 35 1 , Art. 3. 356 Ibid., Annex II, at 8. "' Ibid '" Ibid art.3(2). 359 "packet- and circuit-switched data services" means the commercial provision for the public of direct transport of data via the pubIic switched nehvork or nehvorks sucli h t any equiprnent connecteci to a nehvork termination point can communiate with quipinent connected to another termination point. Ibid., art 2(9).

Integrated Services Digital Network is a polyvalent network, added to îiie existing telephone network, that provides a brmd range of voice, data, image, and transmission senices via single access. It is curreniJy available in al1 Member States except Portugal, Greece, and Luxembourg. Pombo, supra note 32 1 at 564.

"Voice telephony" means the commercial provision for the public or direct transport of real-time speech via the public switches network or networks such that any user can use equipment connccted to a network termination point to communicate with another user of equipment wnnected to another termination point. ONP Directive, supra note 35 1 , Art 2(7). 362 II Telex senice" means the commercial provision for the public of direct transport of telex messages in accordance with the relevant "Conrite consultatif international telegraphique at telephonique" (CCFï) recommendation via the public switched nehvork or netwwks, whereby any user can use equipment mnnected to a network termination point to communicate with anotlier user using another tennination point. Ibid, art m. 363 See Ibid Annex-II ; See also Pombo, supra note 321 at S U .

Telecornnumications Structure in the E U

5, The Commission's Guidelines

In order for the PTTs to give effect to the Commission's stated aim, that is, "to

establish the necessary CO-operation mechanism, and in order to create -or ensure-

Cornmunity-wide full interconnectivity between public n e t ~ o r k s " ~ ~ ~ without mnning h l of

European Community Competition ~aw,'~' the Commission issued Guidelines on the

Applcatioon of EC Cornpetition Rdes in the Telecommunifatiom Secm (the ' ' ~u idehes ' ' ) .~~~

'" Europe 2ûûûComrnunications & Information Technolog, October 1, 1991(1991 WL 26 16768). 365 EC Cornpetition law is enshrined in EC Treaty Article 85 (oontrolling anticompetitive agreements), Article 86 (controlling monopoly abuse) and Article 90. Article 85 reads as follows:

1. The following shall be prohibited as incompatible with the cornnion market: al1 agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade betwœn Member States and which have as tiieir object or efféct the prevention, restriction or distortion of coinpetition within the cornmon market, and in particular those which: (a) dircctly or i n d i d y fu purchase or selling p r i a or any other trading conditions; (b) lirnit or control production, markets, teclmical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing thern at a wmpetitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementa~y obligations which, by tlieir nature or according to commercial usage, have no connedon with the subject of such contracts. 2. Any agreements or decisions proliibited pursuant to this Article shdl be automaticaIly void 3. The provision of pamgraph 1 may, however, be declared inapplicable in the case of: - any agreement or category of agreement between underhkings; - any dccision or category of decisions by associations of undertakings; - any concertai practice or category of concerted practices; which contributes to improving the production or distribution of goods or to promoting technical or eçonornic progress, while ailowing consumers a fair share of the r d t i n g benefit, and which does not: (a) impose on die undertakings concrned restrictions which are not indispensable to the atlainrnent of îhese objectives; (b) af5ord such undertakings the possibility of eliminating competition in respect of a substantiai part of the products in question. Ibid

Article 86 reads as follows: Any a b w by one or more undertakings of a dominant position witiun the common market or in a subsîantid part of it shall be prohibited as incompatible with the common market In so far as it rnay affect trade beween member-States. Such abuse rnay, in particular, consist in: (a) directly or indirectly irnposing unfair purcluse or selling prias or other unfair trading conditions; @) lirniting production, markets or technical development to the prejudiœ of consurners; (c) applying dissiinilar conditions to equivalent transactions with other trading parties, thereby placing thern at a cornpetitive disadvantage; (d) making îhe conclusion of contracts subject to acceptance by the other parties of supplementaxy obligations which, by their nature or according to cornniercial usage, have no connection with the subject of such contracts.

Article 90 reads as follows:

Telecortzrnunic(~tiom Structure in the E U

The Guidelines specie which types of CO-operation are allowed or prohibited,

including bans on agreements and abuse of dominant position.367 The Guidelines are based on

the rules enunciated by the European Court of Justice (ECJ), and indicate how the ECJ would

enforce competition law in the telecommunications sector."' The Guidelines, however, do not

mate enforceable rights, and are not binding on the Commission, the Court, or national

a~thorities.~~'

6. The 1990 Satellite Green Paper

Satellite communications, which were not dealt with by 1987 Telecommunications

Green Paper, Services, or Open Network Provision Directives, were covered with the

adoption of a 1990 Satellite Green (the "SG-Paper"). The main purpose of the

Satellite Green Paper is to extend the general principles of Cornrnunity telecommunications

policy to satellite communications, with due regard to the special characteristics of this fom of

communication, md the need to speed up the development of Europe-wide satellite

services.371 The SG-Paper proffered a regdatory regime to promote Cornmunity-wide systems

1. In the case of public undertakings and undertcikings to which Meniber States grant spccial or exclusive riglits, Member States shall neittier enact nor maintain in force any rneasure conûary to the rules containecl in this Trcaty, in particuiar to those des provided for in Article 7 and Articles 85 to 94. 2. Undercakings entnisted with the operation of seMces of general econornic interest or having the charactea of a revenue-producing monopoly shall be subject to the rules containeci in this Treaty, in particular to the ruies on competition, in so far as the application of such d e s does not obstruct the performance, in law or in facî, of the particular tasks assignecl to theni. The developrnent of trade must not be afïected to such and ex-tent as would be contrary to the interest of the Community. 3. The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States.

366 Guidelines on the Application of the EEC Cornpetition Rules in the Telecornmunications Sector, O.J. C 233/2 (1 99 1) [hereinafter the "Guidelines"]. 367 Pornbo, supra note 321 at 569. n. 53: Essentially, abusive of dominant position include cross-subsidization (Le., financing non-reserved seMces with monopoly income) and usage restrictions on the provision of reserved services, particuiarly network and leaseù circuits (e.g., discriminatory pricing, refusal to supply, and tying the provision of the reserved seMce to the supply of speciric equipment or to coopentive arrangements with service providers). 368 Lando, supra note 2 at 2 183. 369 Pombo, supra note 321 at 569. "O Commission of the European Communities, Towards Eumpe-Wide Systenis and SeMces: Green Paper on a Comrnon Approach in the Field of Satellite Communications in the European Cornmunity, COM (90) 490 Final (Nov. 1990) [hereinafter the "Satellite Green Paper"]. "' Ibià.

Telecomnurnicntio~~~ Structure in the E. U

and to counter problems wising fiom competition for orbit/spectrum resources. The major

regulatory changes suggested by the paper were:

(a) elirnination of speciai or exclusive rights of the PTTs with respect to the earth

segment;

(b) provision of access to space segment capacity, by ail seMce providers, on a

non-discriminatory basis, without the need to obtain access to transponder capacity

through a PTT designated operator;

(c) provision of commercial fieedom to space segment providers, with a right to

direct marketing of satellite capacity to seMce providers and users, subject however to

the licensing requirements and Community competition laws;

(d) adoption of measures to harn~onize: type approval procedures, fiequency co-

ordination procedures, standards for recognition of licenses, and co-operation for

services with non-EC countries, so as to deveIop the provision of Comrnunity-wide

services;

(e) establishment of body independent of PTT to perform regulatory fùnctions

pertaining to access and control of space segment; and

( f ) issuance of licenses on objective, transparent, and non-discriminatory

~riteria.~'~

In order to advance the objectives of the SG-Paper --that is, creation of the

competitive Cornrnunity-wide satellite communications market-- the Council in 1991, adopted

a concrete action plan.373 The plan included the following actions to be administered by the

Commission: (a) extension of competition laws to the satellite communications market; (b)

unification of Member State laws goveming satellite earth stations, and their cornpliance

through the principle of reciprocity; (c) establishment of a unified structure for licensing

satellite networks and services; (d) promoting cooperation in fiequency CO-ordination

. --

"' Ibid.; See also Pombo, supra note 32 1 at 576. 373 C o u d Remlution of 19 Decembei 1991, O.J. C 8'1 (1992) (on the Development of the Comrnon Market for Satellite Communications SeMces and Equipment).

Telecontnutnications Structure in the E U

procedures; and (e) ensuring fiee movement and use, within the Comrnunity, of mobile and

portable satellite earth stations.'"

7. The Mobile Green Paper

In order to un@ its approach towards mobile communications regdation, the

Commission on Apnl29, 1994, issued a Green Paper on a Comnron Approach in the Field

of Mobile md Personal Communications hi the Europem U~liori (the "Mobile Green

~a~er") . '" The Commission suggested an extension of the principles for the broader

telecornrnunications industry --that is, promotion of competition, and unification of standards--

to mobile communications. To this end, the Commission identified some obstacles and

suggested approaches to overcorne them.'" The major obstacles recognized were: (a) the

gant of exclusive or special nghts, which hinder competition in the market, and inhibit the

exploitation of resources at the optimal level; (b) market fragmentation owing to licensing

scheme based on technology; (c) delay in the implementation of Comrnunity-wide system

owing to nationally-oriented licensing procedures; (d) prevention of the development of the

global personaf communications seMces (PCS), owing to non-uniform approach of the

Member States towards PCS; (e) unresponsiveness of the Comrnunity towards U.S. initiatives

for satellite-based personal communications; (g) inefficiencies due to the use of incompatible

infiastruchtres; (h) retardation of competition in global mobile telephony owing to tariffs and

price structures; (i) barriers against access to third country markets faced by Cornmunity

manufactures' and service providers.377

To counter the above-noted obstacles, the Mobile Green Paper made several

proposals. First, it receomrnended abolition of special or exclusive rights for the provision of

mobile telecommunication services. This would result in the introduction of competition in the

mobile telephony market, complemented by the issuance of licenses based on objective,

374 Ibid; see also Pombo, supra note 32 1 at 577. Commission of the European Comrnunitia, Towds the Personal Commiuiications Environment: Green

Paper on a Cornmon Approach in the Field of Mobile and Personal Communications in the European UNon, COM (94) 145 Final, at 4 (Apr. 1994) [hereinafter "Mobile Green Paper"].

Ibid "' Ibid. ; see also Pombo. supra note 32 1 at 583.

Telecomnucnicntiorts Structure in the E. U

transparent, and non-discriminatory criteria. Allowing mobile network operators and

independent service providers to bid for contracts to provide public telephone services via the

fixed network. Second, the Paper proposed commercial fi-eedom for mobile telephony service

providers, subject however to EC cornpetition law. Third, the Paper suggested the extension of

principles of "interc~nnection,~~ as defined by the ONP Directive for connecting mobile

communications networks to public networks. Fourth, the Paper proposed that the mobile

network operators be fiee to establish and share their own inflastmctures. Finalfy, the Paper

stressed the need to use resources required by the mobile communications sectors to their

optimal 1eve1.~'~

8. The 1992 Review: A Directive for Liberalization

The SeMces and ONP Directive, in addition to liberalizing the regulation of data and

value added setvices, provided for a reassessment of public voice telephony regulation by

1992. The Commission undertook the reassessment and drafted a 1992 Review

~ornrnunication,~~~ which considered specific proposals to reconsider the exemption of voice

telephony services fiom EC cornpetition iules, and to liberalize the public voice telephony

sector. The EC Councit approved the 1992 Review Communication, but suggested that the

Commission to draft an additional communication. The Commission in 1993 issued a

Commz~rricatimr to the Coumil arxi Europemt ParZiament or1 the Consdîatiorz ort the Review

of the Sitî~ation ir> the Telecon~n~z~~iicatior~ Service ~ecto?~'("1993 Review

Communication"). The 1993 Review Communication provided the underlying fiamework for

the CozmiZ's Resoluion on the Review of the Sifz~ation i r z the Teleconmlutzications Sector and

the Nerdfor Further Develupment in that ~ a r k e t . ~ ~ '

The 'I'elecommunications Development Resolution provided for: (1) fùll liberalization

of public voice telephone services (international, long-distance and local) by Jat~uary 1 ,

378 Ib id . ; see a h Pomb, I b i d at 584-585. 379 Conununication by the Commission of October 21, 1992, on the Review of the Siîuation in the Telecommunications Sector, SEC (92) 1048 Final (ûct. 1992). 380 Communication to the Council and Ewopean Parlianient on the Consultation on the Review of the Situation in the Telecornmunications SeMce Sector, COM (93) 159 Final (Apr. 1993). "' Chuncil Resolution of 22 July 1993, O.J. C 21311 (1993).

Telecontntunica~oons Structure in the E U

1998;"82 (2) publication of a green paper on network infiastructure liberalization; and (3)

adjustment in the ONP fiarnework and establishment of a regulatory framework for

interco~ection of services and ne t~o rks .~*~

With the implementation of Telecommunication Development Resolution, EC will

become the first transnational market in the world to completely open up for c~rn~e t i t ion .~*~

9. Regulatory Authority in the EU

The Commission has now become a pi-imary regulatory authority over the PTTs in the

European telecommunications market. Starting with the issuance of Green Paper, and

supplementing it through subsequent directives, the Commission introduced reform in the

European telecomrnunications market and transforrned it from a monopolistic market to

competitive market. On the road to deregulation, the Council assisted the Commission by

passing its own legislation to govem the PTTs. The Commission, finding support from the

ECrs endorsement and the Council's legislative masures, has successfully opened

telecomrnunications markets to cornpetition, and will continue to do so in the

382 An additionai transitional period of wo years for Luxembourg and Belgium and five year period for Greece, Ireland, Portugal, and Spain. 383 Pombo, supra note 321 at 589; see also H. Ungerer, "EC Cornpetition Law In The Telgomrnunications, Media, and Information Technology Sectors" (1996) 19 Fordham Int'i L. J. 1 1 1 1 at 1 120. 384 Ibid. 38s Lando, supra note 2 at 2184.

Chapter-VI Telecommunications Structure in Canada

Unlike European PTTs or American pre-divestiture Bell System, Canada never has

had a single national Canadian telecornrnunications industry consists of a mixture of

large and smd, private and state-owned entities that are regulated either at the federal,

provincial or municipal le~el.)~' However, a large portion of the telecomrnunications sector is

made up of separate provincially based rnon~~ol ies . '~~

A. The Federal Regulatory Authority

On a federal level, the regulatory authority over the telephone companies was

exercised by the Board of Railway Cornmissioners (the "Board"). Established in 1903 by the

Railway ~ c t , ) ~ ' the Board's power to regulate railway rates was extended over telephone and

telegraph companies through an amendment in the Railway Act in 1906.)~ Prior to the

establishment of the Board, telephone rates were regulated by the Govemor in ~ o u n c i l . ~ ' ~

Except for a change in narne in 1938 to "the Board of Transport Cornmissioners for

c ana da,""^ the Board exercised the regulatory power until the creation of the Canadian

Transport Commission (CTC) in 1967. "' The CTC exercised the jurisdiction of the former

366 Hi N. Janisch, "Canadian Telecommunicatioiis: The World Tumed Upside Down" CANADIAN LAW N E W S L E ~ R , ( m e r 1993) Vol XVIII p. 5. '" Cari E. Beigie, An Economic Framework For Policy Action in Canadian Telecommunications, at 70 in English's Telecornmunication For Canada 388 Janisch, supra note 386 at S. 389 The Railway Act, 1903,3 Edw. VII, c. 58. '90 An Act to Amend the Railway Act, 1903,6 Edw. WI, c. 42. "' 'Regdation of Beii's rates first occurred in 1892,when BeU's Charter was amended to prohibit Bell from increasing its then existing rates without the consent of the Govemor-in-Council. Then in 1902, Bell's Charter was m e r amended to permit the Govemor-in-Council to increase or decrease company rates upon the application of the cornpany or of any interested municipaiity. The Govemor-in-Council, in turn, had the power to commission any Supreme Court, Exchequer Court or Supeiior Court Judge to inquire in a surnmaxy way into the application and to make appropriate recommendations to the Governor-in-Council for an order changing the rates." 392 The Transport Act, S.C., 1938, c. 53. 393 The National Transpomtion Act, S.C., 196647, c.69.

Telecomnurnicnli*~~~~ Structure in Canntia

Board, through its arm: the Telecommunications ~ o m r n i t t e e . ~ ~ ~ In 1976 authority over the

federally regulated telecornmunications carrier was transferred to the Canadian Radio-

television and Telecommunication ~ommission~~' (the "CRTC").

B. Major Telecoms

The major telecommunications carriers are Bell Canada, British Columbia Telephone

Company, Alberta Govemment Telephone Limited (AGT), the Island Telephone Company

Limited, Manitoba Telephone System, Maritime Tel & Tel Limited, the New Brunswick

Telephone Company Limited ("N.B. Tel."), Newfoundland Telephone Company Limited and

Saskatchewan Telecommunications ( " ~ a s k ~ e l " ) . ~ ~ ~

These major telephone companies together with Telesat Canada, were al1 members of

Telecom Canada, a loose alliance which coordinated network operations and distributed

revenues fkom jointly provided services. 397 The member companies were closely

interconnected in an integrated national system for the provision of telecommunications

services.398

However, in the mid 1980s, changing market structure prompted the members of

Telecom Canada to create a more permanent institutional fiainework for Telecom Canada.

They chnstened the new institution 'Litentoc The Power of ~elccont~mmicatiom.'~~~~ Stentor

Canadian Nehvork Management, an arm of Stentor, was invested with the responsibility to

manage and monitor (as had Telecom Canada) the telephone companies' inter-provincial

network and their North Amencan interconnection~.~~~ Whereas Telecom Canada was mostly

394 C.C. Johnston, Sh~dy Paper, "The Canadian Radio-television and Telecommunication Commission" Administrative Law Series, (1980) at 8. 395 The Canadian Radio-Television Cornnussion came into existence on April 1, 1968 with regulatoiy authority over the broadcasting undertaking. In April 1, 1976, when Bill C-5 reconstituted CRTC as the Canadian Radio-television and Telecommunication Commissiori. See CRTC Act, S. 3(1). 3% See Johnston, supra note 382 at 3; M. H. Ryaq "Cornpetition And Price Regdation In The Market For Public Long-Distance Telephone Services" (1 995) 4 1 McGiIl L.J. 169 at 171. 397 Janisch, supra note 386 at 5 398 Ibid. 399 Stentor was a Greek god of antiquity renoivned for his ability to project lis voice long distances. He was eventuaIIy killed by Hermes. A number of organizations narned Hemes have k e n set up by the Cornpetitors. 400 OIiier organs of Stentor are: Stentor Resource Centre, which develops and delivers national telecummunications products and service% Stentor Telmm Policy, Inc., ads as a government relations and acivocacy a m for the telephone companies. See Janiscli, supra note 386 at 8.

Telecornmunicatiuns Structure in Canada

concerneci with the exchange of trafnc and sharing of revenues. Stentor is concemed with new

corporate services and global competitiveness.*'

Until late 1989, the major telephone companies were subject to dEerent r e g d a t o ~

regirnes, i.e., provincial and federal. However, in August 1989, in Alberfa Govemments

Telephones v. Canadiun Radio-television ami Telecommunications ~ornrnission,~~~ the

Supreme Court of Canada held that the major telephone companies were al subject to

exclusive federal regulation. The decision swept aside a long-standmg jurisdictional

compromise and helped to standardue the regulatory regime applicable to major

teiecornmunication c ~ r n ~ a n i e s . ~ ~ ~

Up until 1992 long-distance telephone services were largely provided by the members

of stentor?04 ~owever, in 1992, the CRTC~'' in its decision entitled Competition in the

Provision of Public Long Distance Voice Telephone Services and Related Resale and SIsaring

~ s r n e s ~ ~ approved the application by Unitel Communications Inc. ("Unitel") to provide public

long-distance telephone s e ~ c e in cornpetition with the members of Stentor. Subsequently a

number of other cornpetitors have entered the long-distance market.

C. The Telecommunications Act of 1993

On 23 June 1993, tiic Canadian Parliament enacted the Telecommunication AC^^" (the

Act), which came into effect on 25 October 1993. The Act repealed the telecornmunications-

related provisions of the Railway Act.

Section 7 of the Act afhns that telecommunications perforrns an essential role in the

maintenance of Canada's identity and sovereignty and that the Canadian telecommunications

polis, has as its objectives the following:

401 Ibid. 402 119891 2 SCR 225. 403 H. N. hkch, "At Iast! A New Canadian Telecommunications Act" (Dec. 1993) TELEC~MMUMCATIONS POUCY at 691. 4" Ryan, supra note 396 at 17. 405 The C.RT.C. does not reguiate SaskTel. The Telecommunications Act, S.C.1993, c. 38, S. 133, provides that SaskTel shall not corne under the jurisdiction of the C.RT.C. until a date to be fur& for that purpose by the Governor in Council on or &er ûctober 25, 1998 (the fïfh anniversary of the coming into force of the Act), unless the Govenunent of Saskatchewan requests that an earlier date be fixeci. 406 (1992), Telecom. Decision C.RT.C. 92-12 mereinafter Long Distance Competition]. 407 Telecommunications Act, SC 1993. c 38.

TeIeconznwnicntions Structure in Canntln

(a) to facilitate the orderly development throughout Canada of a telecommunkations system that serves to safeguard, enrich and strengthen the social and economic fabnc of Canada and its regions; @) to render reliable and afFordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in dl regions of Canada; (c). to enhance the efficiency and competitiveness, at the national and internationai levels, of Canadian telecomrnunications; (d) to promote the ownership and controi of Canadian carriers by Canadians; (e) to prornote the use of Canadian transmission facilities for telecomrnunications within Canada and between Canada and points outside Canada; (f) to foster increased reliance on market forces for the provision of telecommunications senices and to ensure that regulation, where required, is efficient and effective; (g) to stimulate research and development in Canada in the field of telecommunications and encourage innovation in the provision of telecornrnunications services; (h) to respond to the economic and social requirements of users of telecommunications services; and (1) to contribute to the protection of the privacy of persons.

The Act entrusted the CRTC with the necessary powers to implement and realize the

objectives of the Act.

D. Review of Regdatory Framework: Telecom Decision CRTC 94-19

With the onset of cornpetition in long-distance telephony in 1992, the Commission was

forced to revise the procedures to which it adhered in regulating the prices charged by the

Stentor meinbers, and to restructure the regdatory regime taking into account the new

competitive milieu.408 The restructuring process reached its climax in September 1994 when

the CRTC issued a Telecom Decision entitled Review of Regldnto~ ~ r a r n e w o r k . ~ ~ ~ The

Commission introduced drastic changes, which include, inter alia, the abandonment of the

408 Ryan, supra note 396 at 171. 4w Regulatoiy Framework, supra note 408.

Teleconznwnications Structure in Cùnadà

system of "rate basdrate of retuml' regulation4'10--the foundation of telephone Company

regulation for several decades- for the telephone companies' competitive s e ~ c e s . ~ "

The proceedings were undertaken to come up with a regulatory structure that would

best adapt the existing regulatory fiamework to respond to technologicai change, competition

and industry convergence, in a manner that is consistent with the objectives set out in the

Telecommunications AC^.^^^ Through the Decision, the Commission developed a reylatory fiamework that wiii be

conducive to the development of telecomrnunications infiastructure. It wilI make accessible for

al1 Canadians an increasing range of competitively provided basic and advanced information

and communications products and senices to serve increasingly diverse user requirements.

Users will have the opportunity to choose services and service providers that best fit their

specific needs. Such an environment is achieved by reducing technical, regulatory and

economic barriers to entry. The framework thus established places greater reliance on market

forces, and attempts to ensure that where regulation is needed it should be effective. Market

forces allow users more choices and ensure tliat the suppliers respond to the users' demand

instead of regulators. In the Commission's view, regulation is nevertheless imperative to ensure

affordable s e ~ c e , where chances of market failure linger owing to undue preference or unjust

discri~nination.~'~

The Commission fùrther decided to replace eamings regulation (rate basecihate of

retum) with price regulation. Price regulation is deemed more appropriate than eamings

regulation, for regulating utility services in a competitive environment. However, pnce

regulation will not produce anticipated benefits such as reduced regulation and increased

incentives to reduce costs until rates are closer to costs. Accordingly, the Commission has

decided to replace eamings regulation with pnce caps effective 1 January, 1998. This will

allow time to reduce cross-subsidization tiom long distance seMce to the local

Rym, s u p note 396 at 172 n. 8: Under rate basclrate of r e m reguiation, tlie reylator establisha a rate base equal to the value of the capital invested (or the total value of the plant employed) in the enterprise and fixes a rate of return on that base. Rates are then set in such a way that the revenues they generate, minus permissible expenses, qua1 the aüowed rate of return. 411 Ibid. 41 2 (1994), Telecom. Decision C.RT.C. 94-19 at 7 [hereinafter Regdatory Framewvork]. 4 '3 Ibid. at 12. 414 Ibid. at 15.

Teleconzmunications Structure in Canada

In order to increase competition in al1 markets, the Commission is determined to

remove al1 barriers to entry, as well as restrictions on the participation of telephone companies

in emerging information and transactional telecommunications service markets. To provide

greater choice to subscnbers and sewice providers in the provision of telecommunications and

information services, restrictions on local competition wiil be removed and open access and

interoperability principles among the networks will be promoted.415

However, the Commission noted that the fiarnework adopted in the Decision applies

prirnarily to AGT and the other Stentor Companies that were party to this proceeding. The

Commission has adopted a difFerent regime for some small ~ o r n ~ a n i e s . ~ ~ ~

41s lbid. at 16. Ibid. at 13. WWe the Manitoba Telephone System (Manitoba Tel) is a Stentor rnernber îhat is subject to

regulation by the Commission, it did not becorne subject to the Commission's jurisdiction until 3 1 December 1993. Accordingly, it was not made party to this proceeding and is not subject to this Decision. Manitoba Tel is directe. to provide comrnents, within 45 days, as to which, if any, aspects of the framework for AGT and the other Stentor companies set out in this Decision should not appty to it.

As of 26 April 1994, the independent teleplione companies in Canada came under the Commission's jurisdiction. In the proceeding, CITA representing many of these companies, argue. that the Commission should take account of the particular circumstances of these companies in developing its regulatory i'ramework. The Conunission is m n t i y working with the independents to mate a reguiatory structure that recognVRs their particular needs, and \vil1 determine the most appropriate structure thtough separate processes.

Chapter-VI1 Telecommunications Structure in India

India, like Pakistan, inherited the Bntish legal system d e r its independence fiom the

British Empire in 1947. Soon after its independence, India established two communications

departments: the Post and Telegraph Department (P&T) and the Overseas Communications

Service (OCS). P&T was responsible for al1 domestic telephone services, including local and

long distance, whereas, OCS was responsible for international communication^.^^^ As of June, 1994, there were some 8 million telephone Iines in the country with a

waiting list of 2.5 million. Only 24% of 576,490 villages in the country have access to phone

senices. The telephone density is 0.8 per hundred persons as against the world average of 10

per hundred persons. India's telephone density is lower than that of China (1.7), Pakistan (1.7)

and Malaysia (1 3).418

A. Feeling the Wave of Privatisation

Until the mid-I980s, al1 facets of telecommunications sector -for exarnpIe, policy

formulation and implementation, manufacturing of equipment, operations, maintenance, and

regulation of senices- were completely dorninated by govemrnent departments and 100 per

cent state-owned corporations.419 In 1986, the Indian telecommunications sector went through

drastic changes under the leadership of late Prime Minister Rajiv Ghandi. The provision of

postal seMces was separated fiom the tetecommunications services. This was done to put an

end to the cross-subsidization of the posta1 seMces by the telecornmunications senices. In

addition, the Department of Telecommunications (DOT) was established. The OCS waç

broken into two corporations namely, Videsh Sanchar Nigarn Ltd. (VSNL), and Mahanagar

Telephone Nigam Ltd. (MTNL). MTNL took over the New Delhi and Bombay network

operations, including the maintenance and development of telecommunication services. It was

4'7 Brent & Weiss, supra note 193 at 326. 4'8 hivatisation International, June 1994, ISSN: 096 14206. 419 R Jain, "Review of the Policy Changes in the Telecom Sector: Implications for Decision Makers", JOURNAL OF GLOBAL INFORMATION MANAGEMENT (Sumner, 1993), Vol 1, No. 3. p. 34.

Teleconznutnicaîions Structure inlisdia

given autonomy to make corporate decisions including power to raise money in the capital

market to supplement it intemal resources. New Delhi and Bombay represent some 25 per cent

of the country's telephone lines, and it was thought that a corporation rather than a government

department would be better able to serve the large market. VSNL was entrusted with the

responsibility to plan, develop and provide international telecommunication seMces in India.

The DOT thus provides domestic seMces throughout the country with the exception of New

Delhi and Bombay, where MTNL operates network. Regulatory and policy making fùnctions

rest with the DOT, which also exercises authority over both MTNL and VSNL. In addition to

VSNL and MTNL, other public sector units under the control of DOT are Indian Telephone

Industries (ITI), the telecommunications equipment manufacturer, Hindustan Telepnnters and

Telecommunication Consultants ~ n d i a . ~ ~ '

In 1989, a new govemmental organ --the Telecom Commission- was established with

broad executive, administrative and financial powers to formulate and implement policy, and

prepare budget for the DOT. The Commission was composed of eight members, four of them

s e ~ n g on a full time basis and the other four on a part time basis. The fiil1 time members are

responsible to look afier the technology, production, service and financial matters. The part

time members represent the Planning Commission, Department of Finance, Industry, and

~lectronics.~~' In 1991, at the initiative of the govemment, a high level committee was

established to study the organizational structure of the telecornmunication sector. The

committee was to make recornmendations for the establishment of a regulatory fiamework and

for the adoption of an appropriate organizational structure, which would ensure rapid growth

in infrastructure and services. The mernbers of the Comrnittee recommended the following:

a) that the Telecom Commission be held responsible to form policy and to

establish the regulatory fiamework to implement the poIicy;

b) that zona1 telecom operating corporations be formed across the country to

provide telecom services. Initially the corporations would be 100 per cent state-owned;

c) that a corporation to manage long-distance network be formed. Initially the

corporation would be 100 per cent state-owned, with provision for participation by

420 TELECOMMKTS., April 15, 1992 (1992 WL 2624208). 421 Jain, supra note 419 at 37.

Telecornnu nications Structure inlndin

zona1 telecom operating corporations, and possibly private companies providing value

added services;

d) that value added services be provided by the private sector;

e) that equipment manufacturing be shared by both public and private enterprises;

f ) that telecom research centres be formed with reasonable operating autonomy;

g) that autonomous training institutes be f ~ r m e d . ~ ~ ~

Aiso, in 1991, the government sold off 30 per cent stakes in the two telephone

operators and in the ITI, with a plan to sel1 19 per cent of each Company over the next three

years. 423

B. Opening of Gateway to Cornpetition

1. Equipment Market

As a first step towards opening a gateway to cornpetition, the DOT, in the first quarter

of 1992, awarded both Alcatet and Siemens contracts to supply 100,000 lines of digital

~wi tchin~.~" This was followed by a closing of the first ever international tender by DOT for

an interdZy-funded main switch contract. According to one leading international switch

supplier, the tender represented "a break with the past." Until then, Indian Telephone

Industries (ITI) firlfilled al1 DOT equipment requirements, except for orders fùnded by loan

fiorn the World Bank or the Asian Development Bank, for which international tenders were

held. By offering the main-switch to private producer/suppIiers for tender, the DOT put an end

to the long standing monopoly of ITI on deliveries not fùnded by extemal agencies. Tender for

main switches was followed by cornpetitive tendering across a11 areas of equipment

procurement.425

The govemment, however, required foreign suppliers to set up plants in India, rather

than import equipment fiom outside. To facilitate the setting of plants by foreign companies,

the government changed the foreign ownership laws to allow foreign companies to own

4" Ibid. at 38. 423 TELECOM MKTS., April 15.1992 (1 992 WL 2624208). 424 Ibid. 425 TETELEM IMKE., Apri12, 1992 (1992 WL 2624240).

Teleconzmunications Structure inlndia

majority stakes in Indian rnanufacturing operations. Previously, the laws limited foreign

ownership to a maximum stake of 40 per cent, except in certain sector~.~ '~

For the financial year ending March 3 1, 1992 the government removed al1 subsidies

flowing f?om the govenunent to the DOT. This meant that in the future the DOT had to finance

its own investments (primarily 6y selling stakes in its subsidia~ies).~~' The end to subsidies is an

indicator of government's cornmitment to the introduction of market forces in the sector. It

also hlfills a condition, imposed by the World Bank for a $500 million structurai adjustment

loan, that India phase out budgetary sector support for al1 public ~ t i l i t i e s . ~ ~ ~

2. Value-Added Services

M e r subjecting the equipment market to cornpetition, the DOT opened up the market

for value-added services. In the last quarter of 1992, DOT invited proposals fiom Indian

cornparies - 4 t h or without foreign partners-- to set up service providers for electronic mail,

videotex, video coderencing, voice mai1 and moming aiann services. Licensees are fiee to

propose their own tariffs, but before the tariffs go into effect they must be approved by the

DOT.^''

3. CeIluIar TeIecornmunication Services

ln the last quarter of 1992, the DOT opened cornpetition in the cellular

telecornmunicstion services market.43o However, owing to legal and bureaucratie

impediments, licenses could not be issued to service providers until two years after that date.

Initially, eight digital cellular telephone operators, each with a foreign partner, were issued

licenses to operate cellular telephones in four main cities of India, namely, Bombay, New

Delhi, Calcutta, and adr ras."' The licensees started their operations in September, 1995, and

426 Ibid 427 TELECOMMK~., Apnl 15,1992 (1992 W L 2624208). 428 Ibià. 429 TELECOM M~Ts., Sep. 17, 1992, at 4, (1992 WL 9855862). 430 TELECOM MKTS., ûci. 15, 1992, at 4, (1992 WL 985592 1). 43' F~NANCIALTIMW (London) October 5, 1994, p. 7.

Telecon znur nications Structure inIndia

currently have a subscnber base, for the four cities, of about 85,000."~ Unlike equipment

manufachiring undertakings, foreign stakes in Indian carriers are limited to 49 per

In Novernber, 1995, the Indian govemment decided to impose a lirnit on the number of

licenses it awarded to any single cellular in the 18 regional licensing zones, roughly

corresponding to India's states. Bidders were invited to provide seMces in the regional

zones.434 Under the ternis of the license cap, a single operator can hold no more than three

licenses in the grade A and B license circles, which are the most attractive regions. However,

there is no limit on the number of licenses it can hold in the less attractive C circles. The

observers argue that the license cap was placed because the governent wanted to impose

similar cap on the number of licenses for fixed network services. They say that the government

felt that it could not impose a cap on one sector and not on the ~ t h e r . ~ ~ ~

In early 1996, the DOT issued licenses to private cellular service providers in 19 Indian 436 states. Since the issuance of the licenses, the Indian cellular telecornmunications industry

has witnessed a major development. Nine non-competing cellular ~ ~ e r a t o r s ~ ~ ' formed an

alliance under the name of World 1 Network to offer roaming services to their subscribers by

early 1997. The members of the alliance are non-competing as they are licensed to operate in

different states of India. Only one of the two licensed cellular operator in each "circle" was

ailowed to join the alliance. Subject to the approval by Indian government, the project will

enable the subscribers to use their handphones throughout the country and to make

international calls when they are a b r ~ a d . ~ ~ ~

4. Fixed Lod Services

In early 1994, the Indian govemment decided to open competition in the provision of

fixed local telecornmunication services. Under the policy, private companies - 4 t h or without

foreign partners-- are allowed to build and operate local telephone networks in competition

432 NEWSBYTES, June 18,1996. 433 TELECOM m., Sep. 29,1994, P. 12, (1994 WL 8917526). 434 MOBILE COMMUNICATIONS, OCt 16,1995, p. 4, (1995 WL 9980574). 435 Ibid 436 NEWSBYTES, June 18,1996. "' Birla AT&T, Modi-Telm Escotel, ~ e ~ h m , Hutcluson Mzq Abtel, Modimm Tata Cellular and Cellular. '" AGRA Alimentation, Juiy 10,1996, p. 3, ISSN: 03394109.

Tekconmunications Structure inIndia

with the state-owned telephone ~ ~ e r a t o r . " ~ Foreign stakes in Indian carriers are, however,

limited to 49 per cent.440 In late 1994, the government started inviting bids for 15-year licenses

to operate fked local seMces in 21 regions. The bidding process was twice delayed before the

govemment set June 23, 1995 as deadline for tendering the bids."'

As with the license cap for the provision of cellular seniices, the govemment, imposed

a limit on the number of licenses any singie operator could hold for the provision of fixed local

telecomrnunication services. No single operator will be allowed to hold more than three

licenses in the 15 relatively lucrative licensing zones that are classified in the A and B

categones. There is no limit in the six circles fdling into the less attractive C

The license-cap procedure for fixed services is similar to the one adopted for cellular

Iicenses. However, in the case of fixed-senices, a multiple wimer which exceeds the cap will

be given a choice to retain any three licenses. In the case of cellular services, multiple w i ~ e r s

are obliged to retain the three licenses for which they subrnitted the highest bids, and to

relinquish the re~t ."~ The terms of the Iicense for the provision of fixed-services would,

however, require the licensee to provide local seMces using optical-fibre and fixed wireless

technologies, with copper wire permitted only for the 500 meters fiom the subscnbers

premises.444

As of 11 July, 1996, the government has only issued letters of intent, and no formal

license for the operation of fixed local telecorninunication services has been issued to any

company.44s

5. Paging Services

In late 1994, the Indian govemrnent gave permission to fifleen pnvate groups to

operate radio paging seMces in twenty seven

439 TELECOM MiCrS., Jan. 20, 1994, P. 12, (1994 WL 8917039). 440 TELECOM mm., Sep. 29,1994, P. 12, (1994 WL 8917526). 44' TELECOM Mm., May 25, 1995, P. 18, (1995 WL 9699830). 442 Tkww~hlKTs., Nov. 23, 1995, P. 6, (1995 WL 10476209). 443 ïbid 444 TUEco~rvliin., ûct. 12,1995. P. 1, (1995 WL 10476018). "' TELENEWS As& Jdy 11,1996, 446 F~NANCWITIMES (Landon) October 5, 1994, p. 7.

Telecommunications Structure inIndia

6. VSAT Service.

In December, 1995, WiproBT, a joint venture between BT and Wirepro, launched a

very small aperture tetminal (VSAT) network. The network is said to be the countv's first to

offer complete end-to-end service to the business cornrn~ni t~ .~~ '

C. DOT'S 10-Year Prospective Plan for Telecom Sector

The DOT has prepared a 10 year prospective plan for the telecornmunications sector

fkom 1997 to the year 2007. Under the Plan, the DOT wil) install 40.8 million connections.

Thereafter it will be able to provide telephones on demand by 2007. DOT will introduce

Integrate SeMces Digital Network (ISDN) lines to al1 disttict headquarters by 2007. Intelligent

network 0 seMces will introduced fiom 1997 to al1 towns with a population greater than

half a million. The IN services will include fiee phone service that will allow callers to make

free calls to companies, with companies paying for the calls (toll fiee calls like 1-800 or 1-888

numbers). It will also include credit card billing, where a caller uses a personal account number

to make calls and the telephone fiom where the cal1 is originated is not charged. DOT will also

introduce multimedia senices, like video-on-demand, remote diagnostics and interactive tele-

education by the year 2 0 0 0 . ~ ~

The plan dso states that there will be extensive use of optic fibre in local, junction and

long distance networks, with the replacement of analogue, coaxial and radio systems. The Plan

also include the provision of personal communication system (PCS), which dlows a subscriber

to have one phone at work, at home, and on the move with direrent tariff structures depending

on the location where the phone is used. DOT also plans to introduce the Geographically

Independent Numbering Scheme (GINS), a technology based on low earth orbiting (LEO)

satellites that allows a subscriber to have a global mobile phone with one nurnber

~or ldwide.~~ '

Concomitant with the release of 10 year plan by the DOT, the Ministry of

Communications announced its installation target for the DOT for the year 1996-97. The

Minister for Communications, Beni Prasad V m a , said 75,000 public telephones will be

Telecornniunications Structure inIndia

installed under the village telephone programme, and a target of 2.6 million new connections is

set for urban area~.~''

Chapter-VI11 Telecommunications Structure in Pakistan

The regulatory fiamework goveming telecommunications in Pakistan find its roots in

the Telegraphy Act of 1876, which was promulgated by the Crown in its colony - British India.

Upon its independence fiom the British Empire in 1947, Pakistan inherited and adopted the

British legal system, mzrtatis mutandis, including the Telegraphy Act of 1885.

A. The Telegraphy Act, 1885

The main objective of the Telegraphy Act of 1885 was to give power to the

Govement, and to any Company or person licensed to provide telecommunication services

under the Telegraphy Act of 1876, to place and maintain telegraph lines and posts under and

over the property of any person whether pnvate or public.45'

Section 4 of the Act gave the Federal Govemment "the exclusive privilege of

establishing, maintainhg and working telegraphs." A proviso to section 4 gave the Federal

Govemment the power to gant a license to "any person to establish, maintain or work a

telegraph within any part of Pakistan." "Telegraph" is defined to mean "any apparatus,

equipment or plant used for transmitting, emitting, making or receiving signs, signais, writing,

speech, sound or intelligence of any nature by wire, radio or visual or electromagnetic

~ ~ s t e r n . " ~ ~ ~ The word "electromagnetic" in the definition of telegraph embraces al1 wireless

apparatus. The term "any person" in the proviso to section 4 implies that there was no

restriction as to the nationality of the service provider. Under section 4(2) of the Act, the

Federal Government may, however, delegate its license issuing power to the Director General

of the Pakistan Telegraph and Telephone Department (PTT).

Pursuant to section 7 of the Act, the Federal Governrnent acted as the regulatory

authority to control the conduct of al1 or any telegraphs established, maintained or worked by

the Governrnent or any other person licensed under the Act.

4s' A. Mahmood, nie Telegraph Act, (Lahore, Pakim: Mansoor Book House) at 1. 4" Section 3(1) of the Telegraphy Act of 1885 amended by the Teleppli (Amendment) Act, LXW of 1976.

93

Telecomn2u nicatiom Structure in Pakistnn

Like in most European countnes, telecommunications seMces in Pakistan were

monopolized by the state department, the PTT. The PTT also had the power to regulate

market entry and impose such conditions on the new entrants as it deemed fit. The PTT, thus,

acted at the same time as referee and player in the field of telecommunications.

B. The Wireless Telegraphy Act of 1933

The Telegraphy Act of 1885, gave power to the Federal Govement only to control

the establishment, maintenance, and working of telegraphs which also included the wireless

apparatus. The "possession" of wireless apparatus was thus not covered under the Telegraphy

Act. Therefore, the then Indian State Broadcasting Service, whose most important source of

revenue was a fee on licenses for wireless apparatus, found the successfùl prosecution of

holders of unlicensed wireless apparatus very difficult. To prove that a offense under the

Telegraphy Act had been committed, it was first necessary to locate the unlicensed apparatus

and then to prove that it had actudly been 'established, maintained and worked.' The inability

of the Indian State Broadcasting Service to prevent the use of unlicensed wireless apparatus

caused considerable revenue loss to it. Thus, to remedy the lacuna in the Telegraphy Act, the

Wireless Telegraphy Act was enacted in 1933 which prohibited the possession without license

of wireless apparatus, as distinct fiom the establishment, maintenance and working of such

apparatus.453

Under section 5 of the Wireless Act, the Director General, Pakistan Post Offices, or

any officer authorized by him in this behalf shall have the authority to issue licenses to possess

wireless telegraphy apparatus. The iicenses may be issued on such conditions and on the

payrnent of such fees as may be prescribed by rules made under section 10 of the Wireless

AC^.^'^ The license issued under the Wireless Act, however, did not authorize the licensee to

do anything for which a license or permission under the Telegraphy Act of 1885 was

n e ~ e s s a t ~ . ~ ~ ~

453 Gazette of India, 1933. Part V, p.8.; See also section 3 of the Wireless Telegnphy Act, XVIl of 1933. "* Sec. 5 of the Wireless Telegraphy Act. 455 Jbid., Section 11.

94

Telecontntunications Structure in Pakistnn

C. The Pakistan Telecommunication Corporation Act, 1991: Corporatuation of the

PTT

The privatization and de-regulation wave in North Amerka and Europe also affected

Pakistan. Through the enactment of Pakistan Telecommunication Corporation Act of 1991,"~

Pakistan corporatized the PTT, henceforth the Pakistan Telecornmunication Corporation (PTC

or the "Corporation). Under the Act, ail assets, liabilities, and fùnctions of the PTT were

transferred to the ~or~oration."' The employees ofthe PTT were also transferred to the PTC

on the sarne terms and conditions under which they were employed by the PTT.'~' The

Federai Govemment was the initial and the sole shareholder of the PTC. However, at the

authorization of the Federal Govement, the PTC could offer its shares to the general

1. The Board

Section 4 of the Act vested the generai direction and administration of the PTC in the

Board. The Board was to be composed of twelve directors inchding the Chairman, who were

appointed by the Federal Govement. The Chairman of the Board was a fùll-tirne officer and

the chief executive of the PTC and held office for a tenn of three years.

Under section 5(2A), any power, pnvilege or concession granted to the Pakistan

Telegraph and Telephone Department was deemed to be ganted, mutatis mutandis, to the

Corporation. Section 4(2) of the Telegraph Act of 1885 ailowed the Federal Govemment to

delegate its licensing power to the Director Generd of the PTT. Thus, by reading sections 4 of

the Telegraph Act and 5(2A) of the PTC Act together, the Board had the power to gant

licenses to establish, maintain or work telegraphs. The Board was also empowered to make

such regulations, with the approval of the Federal Govement, as it deerned necessary or

expedient for carrying into effect the provisions of the AC^.^^*

2. Objectives and Purposes of the PTC

456 Act NO. XVIII of 199 1. [hereinafier referred to as the "PTC Act"]. 457 Ibid, SS. 3 & 12. "' Ibid, Se. 9. 459 Ibid, Sec. 13.

Telecomnzunican'ons Structure in Pakistnn

Section 6 of the Act set forth the purposes and objectives of the PTC, which, among

others, were the folowing:

(a) to establish, maintain and operate telecommunications;

(b) to plan, promote, organize and implement programs for the provision of

telecommunications services in al1 parts of Pakistan (Universal service provision);

(c) to promote, establish, own, mn, manage any undertaking to manufacture

telecornmunications plant and equipment in Pakistan.

(d) to promote research and development in telecornmunications and to acquire

technology fiom abroad.

(e) to promote human resource development, that is, to promote the skills of PTC

ernployees by education, training and otherwise;

(f) to maintain liaison with foreign telecornmunications administrations, and

international organizations pertaining to telecomrnunications.

3. Tariffs

Under section 16 of the Act, the Board with the prior approval of the Federal

Governrnent was empowered to set tariffs, at which the PTC may provide telecornmunication

services to its users. In fixing the tariffs, the Board was to take in account (1) the cost of

providing services; (2) the need to eam reasonable retum on the investment; and (3) the need

to mobiiiie funds for the development of telecommunications. In case of conflict between the

rates set by the Board and the rates under the Telegraph Act of 1885, the rates set by the

Board were to take precedence.461

4. Summary

In essence, the PTC Act was the first step in sevenng the telecornmunications

enterprise fiom the govement. It reflected the belief that no matter who owns them,

telecommunications operating entities perform best when they are run as a profit-driven

business. This notion has indeed vindicated by the profits reported by the PTC. In the financiai

460 Ibid, .Sec. 20. 461 Ibid, SE. 16.

Telecommunications Structure in Pakisînn

year 1994-95 (to the end of June 1995) PTC reported net profits of Rs. 1483 5 million ($49 1

million) on revenues of Rs 33,060 million. This compares to profits of Rs. 16,024 million on

revenues of Rs.26,365 million in the year ended June 1994.'~~ In the year 1992-93 it reported

net profits of Rs. 14,140 million, and in 1991-92 profits were Rs. 10,990

Through corporatization, the PTC weaned fiom budgetary constraints of the

government. It did not need to cornpete with other sectors, like defense, health care,

education, etc., to get finds fiom the government to meet its demands. It cm now use ali

revenues raised by it for implementing its own projects without those being diverted by the

govemment to subsidize other sectors. However, corporatization did not affect the powers of

the PTT(and the newly fonned PTC) to set tariffs, and regulate market entry (issuance of

licenses).

The major objective of the PTC was to provide universal basic telephone services. The

services were provided at rates set by its Board. In setting the tariffs for the provision of

telecommunication senices, the Board was guided by the principle of "rate of retum." Thus,

even after corporatization, PTC, enjoyed rnonopoly in the provision of telecommunications

services, and acted both as the referee and the player.

D. From Corporatization to Privatization: Telecommunications Ordinances

On a road to liberalization the obvious next step d e r corporatization is privatization.

The plan to privatize PTC, by selling a strategic stake in it, has been on and off the government

agenda since 1991. But the idea was faced with strong objections Rom the defense forces and

security officiais, who were concerned that a vital national secunty interest would be

compromised if the telecom sector went to private cents-01.~~~ The objections of the defense

forces were appeased by a coinmitment fiom the govemment to create a smaller

telecornmunications Company for the exclusive use of defense services, with the fùnds raised

fiam the sale of PTC?

462 TELECOM MARETS, Feb 15, 1996, ESN: 0267-1484. 463 FINANCIALTIMES (London), Oct 3, 1995, p. XXVII. 464 Ibid 465 Ibid

Telecommunicntions Structure in Pakistnn

Thus, in order to pnvatiie the PTC and to give effect to its cornmitment to the defense

forces, the President of Pakistan, on 13 th July, 1994, promulgated the Telecommunication

Ordinance, 1 994.466 The Ordinance provided 1) for the establishment of Pakistan

Telecommunication Company Limi ted, a company limited by shares to be incorporated under

the company law of Pakistan, to provide telecornmunication seMces to general public and 2)

for the establishment of the National Telecommunication Corporation to provide seMces to

the defense forces and government departments. To separate the service providing functions of

the PTC nom its regulatory functions, the Ordinance rnandated the establishment of separate

and independent regulatov bodies, namely, the Pakistan Telecomrnunication Authority and the

Frequency Allocation Board.

Since July, 1994 to date (August 1996), the telecommunications regulatory fiamework

in Pakistan is govemed by Ordinances. It will therefore be usetUl to understand, before

discussing the current Telecommunication Ordinance, the constitutionality of an ordinance, and

of actions taken under it.

1. Power of President to Promulgate Ordinances

Article 89 of the Constitution of the Islamic Republic of Pakistan empowers the

President of Pakistan to promulgate Ordinances, if (1) the National Assembly is not in session;

and (2) the President is satisfied that circumstances exist which render it necessary for him to

take irnmediate action. Section 89 of the Constitution reads as follows:

89. Power of President to promulgate Ordinances. (1) The President may, except when the National Assembly is in session, ifsatisfied that circumstances exist which render it necessary to take inunediate action, make and promulgate an Ordinance as the circurnstances may require.

(2) An Ordinance promulgated under this Article shaU have the sarne force and effect as an Act of Parliarnent and shaii be subject to like restrictions as the power of Parliarnent to make law, but every such Ordinance.

(a) shall be laid (i) before the National Assembly . . . , and shdl stand

repealed at the expiration of four montlis fiom its promulgation or, if before the expiration of that period

466 TeIec~municaîion Ordinance, 1994 (LI of 1994). Gazette of Pakistan, Extraordinary, Part 1, 13th M y , 1994.

Teleconznutnications Structure in Pakistm

a resolution disapproving it is passed by the Assembly, upon the passing of the resolution.

(ii) before both Houses if it . . . (b) may be withdrawn at any tirne by the President.

(3) Without prejudice to the provisions of Clause (2), an Ordinance laid before the National Assembly, shall be deemed to be a Bi1 introduced in the National A.ssembly.*'

The President is the sole arbiter as to the existence of circumstances, which render

promulgation of an Ordinance imperative. The judgment of the President is not justiciable.468

The Ordinance has the same force as an Act of the Parliament, and it must relate to matters

which are within the cornpetence of the Parliament to legislate.

a. Life of an Ordinance

Depending on the subject matter of the Ordinance, it must be placed before the

National Assembly or before both houses (the National AssembIy and the Senate). The

Ordinance stands repeaied after four months fi-om the date of its issuance or before the

expiration of that penod, if the National Assembly, or, as the case may be, the Senate,

disapproves it by a Resolution. In the latter case, the Ordinance expires on the date of the

Resolution. When placed before the National Assembly, the Ordinance is deemed to be a Ml.

However, the a d of placing the Ordinance before the National Assembly does not prejudice

the provisions relating to expiry, repeal, or withdrawal of the Ordinance.

b. Constitutionalify of Actions Taken under the Ordinance after its Expiry

In Government of Punjab v. Zia UZlah Khan und o~hers:~~ the Supreme Court of

Pakistan held that any amendment introduced to an Act by an ordinance, that is not placed

before the National Assembly and stood repealed with the efnwc of four months, will disappear

with the expiry of the ordinance introducing the arnendments.

E. Current Telecommunications Regulatory Framework in Pakistan

467 ATf. 89 of the Constitution of the Islarnic Republic of Pakistan. 468 Governmenl ofPunjab v. Zia Ullah Khan, 1992 SCMR 602. 469 1992 SCMR602.

99

Telecomnurnican'ons Structure in Pakistnn

Since the Promulgation of Telecommunication Ordinance, 1994, a series of ordinances

have followed it."' Currently, the Ordinance in force is the Pakistan Telecommunication (Re-

organization) Ordinance, 1996 (7th March 1996).47' The Ordinance provides for the

establishment of the following bodies:

1. Pakistan Telecommunication Authority;

2. Pakistan Telecommunication Company Ltd.;

3. National: Telecommunication Corporation; and

4. Frequency Ailocation Board.

1. The Pakistan TeIecornmunication Authority

Section 3 of the Ordinance provides for the establishment of the Pakistan

Telecommunication Authority (the "Authonty"). The Authority is composed of three members

appointed by the Federd Govemment for a terrn of four years. One of the members is

nominated as the Chairman of the Authority, and is entrusted with the administrative powers.

a. Functions of the Authority

The fùnctions of the Authority, among others, are to:

(a) regulate the establishment, operation and maintenance of telecommunications

systems and the provision of telecommunication services in Pakistan;

(b) receive applications for the use of radio-eequency spectrum;

(c) promote and protect the interest of users of teIecomrnunications services in

Pakistan;

(d) promote the availability of a wide range of hi& quality, efficient, cost effective

and competitive telecommunications services throughout Pakistan;

(e) promote - rapid modernization of telecornrnunications systern and

telecommunications services;

470 _ Telecommunication Ordinance, 1995 (XXIII of 1995) Gazette of Pakistan, Exmordinary, Part 1, 7th March 1995; Telecornmunication Ordinance, 1995 (CD1 of 1995) Gazette of Pkistan, Ex-traordinary, Part I,7th August, 1995; Pakistan Telecommunication (Re-Organization) Ordinance, 1995 (CXV of 1995) Gazette of Pakistan, Extraordinary, Part I,27th November 1995. 47 1 Pakistan Telecommunication (Re-Organization) Orciinance, 1996 of 1996) Gazette of Pakistan, Extraordinary, Part I,7Ui March 1996.

Telecontntktnications Structure in Pakistan

(f) perform investigative and adjudicative fùnctions with respect to cornplaints

filed by service providers;

(g) make recoinmendations to the Federal Government on policy matters relating

to international telecornrn~nications.~~~

b. Powers of the Authority

Section 5 of the Ordinance enlists the powers of the Authority. Which are, arnong

others, to:

(a) grant and renew licenses for any telecommunication services;

(b) monitor and enforce the terms of the licenses;

(c) receive application for the use of radio fiequencies;

(d) regulate tariffs for telecommunication services;

(e) prescnbe standards for telecommunication equipment and temiinal equipment;

(f) provide guidelines for, and determine, the terms of inter-connection

arrangements between the licensees;

(g) issue regulations for exercising its powers and performance of its functi~ns."~

The Authonty is also responsible for safeguarding the interest of consumers, and for

encouraging fair cornpetition in the telecommunications sector, except in the provision of basic

telephone seMces where the Company is given exclusive rights for seven years (starting fiom

January 1, 1996).~'~

2. Pakistan Telecommunication Company Limited

Section 34 of the Ordinance provides for the establishment of Pakistan

Telecommunication Company Lirnited (the "Company" or "PTCL"). The Company is

incorporated as a public Company under the Companies Ordinance of 1984, and otficially came

472 Section 4 of the Pakistan Telmmmwiication (Re-orgaruzation) Ordiiiance, 1996 (XXX of 1996) (7 March, 1996, No. F. 2(1)/96 pub.) mereinaller the "Ordinanœ"] 473 Ordinance, supra note 472 Sec. 5. 474 Ibid., Sec. 6.

Telecoimur n i c a t i o Structure in Pakistnn

into being on January 1, 1996.~" The principal object of the Company is to provide dornestic

and international telecommunications and related services consistent with the provisions of the

Ordinance. Initially, al1 shares of the Company are issued to, or held in trust for, the President

of Pakistan. The Federal Governent may, whenever it thinks appropriate, transfer its shares

in the Company to pnvate investors or general public on such tenns and conditions as it may

determine. Section 34(5) prohibits, unless the Articles of Association of the Company provide

othewise, any person fi-om controlling, directly or indirectly, ten per cent or more of the votes

on a poll at a generai meeting of the Company.

The Company inherited the employees, operations and undertakings of the Pakistan

Telecommunications Corporation which stood dissolved the day the operations were

transferred to the Company (the "effective date").

The Company is granted an exclusive license to provide basic telephone services for a

term of seven years fiom the effective date and a license to provide telecommunications

seMces for a term of X4" "Basic telephone service" is defined by section 2(b) as the

provision of any telecommunication service which consists of --- (i) two-way ljve voice telephone service, in digital form or otherwise, over

any public fixed switched network or between base stations or switches or nodes of any public mobile switched network;

(ii) real-time transmission or reception of facsimile images over a public fixed network;

(iii) international telephone seBice; and (iv) the lease of circuits for the provision of the services specified in sub-

clauses (i), (i), and (iii).477

Section 38 of the Ordinance exempts the Company fiom paying "any income tax, super

tax or wealth tax on its income, profits or gains," until30th June, 1999."'

475 TELECOM MARKETS, Feb 15,1996, 476 Ordinice, sùpm note 473 sec 39(2); see olso Invcste~A, "Pakistan Telecom Corp.", Company Report No. 1763827, 10 July, 1996, at 7[herein;ifter "Investex? Report]. 477 Ordinance, supra note 472 Sec. 2 0 . 478 Ordinance, supra note 472 Sec. 38.

Telecomnurnications Structure in Pakistan

3. National Telecornmunicatictn Corporation

Section 41 of the Ordinance provides for the establishment of National

Telecornmunication Corporation (NTC), a body corporate. NTC oficially came into being on

January 1, 1996"' and is granted a license by the Authonty on a non-exclusive basis to

provide local and long-distance telecommunications seMces within Pakistan to the armed

forces, defense projects, Federal Govements, Provincial Govemments, or to such other

Governmental agencies or Governmental institutions as the Federal Governrnent may

determine. NTC's network will be built up by taking over 32,800 existing PTCL lines in

Islamabad and other major cities. An additionai 10,000 limes will be installed by NTC using its

own resour~es.'~~ hiring the period when PTCL enjoys the exclusive rights to provide basic

telephone sewices, NTC is not allowed to sel1 its capacity on the telecommunication system to

any person other than Govemment agencies and PT CL.^^'

4. Frequency Allocation Board

Section 42 of the Ordinance provides for the establishment of the Frequency

Allocation Board (the "Board"). With the establishment of the Board, the Pakistan Wireless

Board stood dissolved and the fùnctions thereof were taken over by the Board. The Board has

exclusive rights to allocate and assign portions of the radio frequency spectrum to the

Govemment, service providers, telecommunications system providers, radio and television

broadcasters, and public and private wireless operators. However, an application for allocation

and assignment of radio fiquency spectrum is first made to the Authority, which refer the

application to the Board f i e r making such inquines as it deem fit.482

The Board is composed of six members, four of whom are the nominees each of the

Federal Govement, Ministry of Defense (Corps and Signais), Ministry of Information and

Broadcasting, and Ministry of Interior. The other two members are the chairman of the

Authority and the Secretary of the Mnistry of Communications. The Secretary of the Ministry

479 TELECOM PVIAR);ETS, Feb 15,1996. 480 Telecom Markets, Feb 15, 1996. 48' Ordinance, supra note 472 Sec. 4 1. 482 Ibid., Sec 43(5)

Telecornmunications Structure in Pakisîan

of Communications acts as the Chaiman of the Board, whereas the nominee of the Federal

Government acts as the Board's Vice-Chairman. In exercising of its powers, the Board seeks

guidance fiom the applicable recomrnendations of the International Telecornmunication Union,

its organs, and other international bodies.483

5. Role of the Courts

Under section 7 of the Ordinance, High Courts are entrusted with appellate jurisdiction

over the decisions of the ~uthot-ity.~*~ Jurisdiction of the High Courts under section 7 of the

Ordinance is diflerent fiom the jurisdiction which the Courts have over al1 administrative

bodies under Article 199 of the Constitution of Islarnic Republic of Pakistan. Under Article

199 of the Constitution the courts exercise writ jurisdiction: a jurisdiction which can be

invoked by any aggrieved party who has no other alternative remedy available against public

authorities,

With the inclusion of the courts in the regulatory tiamework, it is hoped that

telecommunication seMce providers will be able to resist political influence that may be

exerted by the Authority in the absence ofjudicial review of its decisions.

6. Licensing

The Authority is vested with the exclusive power to issue licenses for providing

telecommunications services in Pakistan. In issuing a License, the Authority takes into

consideration the following, arnong other, factors:

(a) the technical and financial resources of the applicant;

@) the interest of the public and benefits to the users of telecomrnunications

services; and

(c) policy directives fiom the Federal Government, which are issued under section

8 of the ~rdinance .~~ ' The directives are generally on the matters relating to (i) the

number of licenses and the tenns under which they are to be issued in respect of

483 Ibid., Sec 43. 484 Ibid, Sec. 7. 48s Ibid, Sec. 2 1 .

Telecornnumications Structure in Pakistan

telecommunications systems; (ii) the nationality, residence and qualification of persons

to whom licenses for the public switched network may be granted or transferred or the

persons by whom the licenses may be controlled; and (iii) national security and the

relationship with foreign govemments.486

The Ordinance, however, does not restrict "foreign ownership" of the applicant.

Cornmenting on the foreign ownership issue, Alwar Shawjul Huela, Director General of

Pakistan's Board of Investment, said that "there will be no restrictions on foreign participation

in Pakistan's telecommunications industry. . . Foreigners will be completely ii-ee to invest in and

operate telecommunications services in Pakistan once the privatisation process is

complete. "487

The Authority issue licenses on a non-exclusive basis. However, it can not issue

licenses for basic telephone senices for seven years from the "effective date"488 of the

~ o r n ~ a n ~ . ~ * ~ While issuing a license, the Authority may impose various conditions rnay

include, among others, a direction to provide services to al1 persons on a non-discriminatory

basis and restrictions or limitations on transfer or assignment of the ~icense.~~' Subject to the

consent of the licensee, the Authority may modiQ a license or its conditions, However, the

modifications shd not Vary the tenure or scope of the l icen~e.~~'

Licenses for the establishment, maintenance or operation of any telecomrnunications

system or the provision of any telecommunications services, issued pnor to the commencement

of the Ordinance, if not contrary to the provisions of the Ordinance, shall be deemed to be

licenses issued under the Ordinance for a period of twelve months fiom the date of

commencement of the ~ r d i n a n c e . ~ ~ ~ However, the licensees are obliged under section 2 l(6) of

the Ordinance to apply to the Authority for the continuation of their license within three

months fiom the cornrnencing date of the Ordinance. The Authority, in tum, is obliged to

486 ib id , SE. S. "' TELENEWS ASrq Dec 14,1995. 48"bid.. Sec. 2(f): "eEet<ive datet1 for the . . . Company. . . means the date on which property, right and liabilities of the Corporation are vested under section 35 in the . . . Company. 489 Ordinance, supra note 472 Sec. 39(3). 490 Ibid, Sec. 21. 49' ibid., Sec. 22. 492 Ibid, Sec 2 l(5).

Telecommunications Structure in Pakistan

decide on the application for continuation within nine months of the date of the application. If

satisfied that that the license was validly issued under the laws at the commencement of the

Ordinance, the Authority may declare that the applicant is a licensee under the Ordinance until

the expiry of the term of the license and with such modification thereto as the Authonty may

deem fit.493

7. Tariffs

The Authority is also empowered to set tariffs for telecommunications seMces

including basic telephone service. Section 26 of the Ordinance provides general principles for

the Authority as a guide in setting tariffs. The principles are:

(a) that the tariffs be set with a view to achieve the greatest degree of pncing

fiexibility and stability compatible with safeguarding the interest of consumers;

(b) that the tariffs shall apply on a non-discriminatory basis;

(c) that the tariffs shall provide the service providers a reasonable "rate of retum"

on investments taking into account the cost of operation; and

(d) that there shall be no cross-subsidization fiom basic telephone service to other

telecommunications s e ~ c e s . ~ ' ~

While setting tariffs for the provision of telecommunications services, the Authority

adopts the "rate of retum" method as opposed to "price caps." The Authonty mandates that

tarEs be applied on a non-discriminatory basis, and that no cross-subsidization be provided by

one of kind of seMce to the other. However, it rnay be mentioned here that under the wording

of section 26(c) of the Ordinance which reads "there shall be no cross-subsidiz~1fion of other

telecommunication services by basic telepho~z service" (emphasis supplied), and given the

definition of "basic telephone service""' which includes local, long-distance and international

telecommunication services, cross-subsidization ftom local to longdistance or international or

vice versa is allowed. As al1 three seMces fall under the definition of basic telephone service,

493 Ibid, Sec 21(5-7). 494 Ibid, Sec. 26. 495 &e inpa note 477 and accompanying teA$.

Telecornmunications Structure in Pakistnn

the subsidization of one by the other y i l l not constitute cross-mbsidization of oiher

felecon1mtrnicalic7n services by basic telephone service.

8. National Security

Section 54 provides that the Federd Govemment may in the interest of national

secunty authorize any person to intercept calls or messages or trace calls through any

telecomrnunications system. In case where Pakistan engages in war with any foreign power, or

if there is internaf aggression, or for reasons of defense or secunty of Pakistan, the Federd

Governrnent will also have preference and pnority over any licensee in the use of

telecomrnunications system. The Federal Govenunent also has the power, in case of

emergency declared by the President of Pakistan, to suspend or modiQ any license issued

under the Ordinance. However, the licensee whose license is suspended or modified under a

state of emergency may be compensated by the Federal ~ o v e r n m e n t . ~ ~ ~

9. Preemption and Repeal

Section 58 of the Ordinance provides for the preemption by the Ordinance of

"anything contained in the Telegraph Act, 1 885 (Xm of l88S), the Wireless Telegraphy Act,

1933 (XW of 1933), or any other law" that is inconsistent with the provisions of the

Ordinance. Section 59(2) of the Ordinance repeals the Pakistan Telecommunication

Corporation AC^,^" 199 1, fiom the effective date for PTCL.

10. Validity of Licenses issued under the Ordinance

As noted earlier, the Iife of an ordinance is four months uniess it is disapproved earlier

by a resolutionof the National Assembly or withdrawn by the President. The Govemment of

l'unjab4" implies that the Pakistan Telecornmunication Corporation Act, which is repealed by

the Telecornmunication Ordinance will corne back to life 6 t h the expiry of the

PTC Act requires that any person who wishes to provide telecornmunication

ordinance. The

services within

Ibid Sec. 54. 497 Acî CXLof 1991.

1992 SCMR 602.

Telecornntunican'0~1~ Structure in Pakistnn

Pakistan must have a license issued under the PTC Act. Thus, the licenses issued under the

ordinance will, in rny opinion, be held invalid and unconstitutional, once the ordinance expires.

F. Privatization of PTCL

The Ordinance was promulgated with a view to selling andlor transfemng shares of

PTCL to private investors and the general public. In September, 1994, the govemment had

already divested five million vouchers, which account for an approxirnate twelve per cent stake

of the Pakistan Telecommunication Corporation. The vouchers raised $1.4 billion for the

govemment, and will be exchanged for shares in PTCL by the end of June, 1 9 9 6 . ~ ~ ~ In

November, 1995 the chairman of Pakistan's Privatization Commission (PC) announced that 26

per cent stake in PTCL will be offered to foreign i n v e s t o r ~ . ~ ~ ~ The stake will also allow the

purchaser to get the management control of PT CL.^'' In February, 1996 the PC invited

prospective strategic investors to a pre-qualiQing round. In March, 1996 PC told that it has

received inquires fiom various international parties.50' However, the list did not include the

names of major international telecom operators such as British Telecom. The lack of interest

shown by major telecorns is considered by one anaiyst as a blow to the privatization

process.503 According to this analyst, the main reasons why major telecoms have not s h o w

interest are:

1. The investors are concemed about the political and economic stability in

Pakistan.

2. The legai fiamework is uncertain. Concessions given to PTCL through the

Telecommunication Ordinance, such as three year incorne tax exemption504 and seven

499 TELECOM MKTS., Sep. 15,1994, p. 11 (1994 WL 98174 15); TELECOM MARKETS, F e . 15,1996. 'O0 Nehvork Briefing, Nov 17,1995. 'O' S e generaly Privatisation Intemationai, April 1, 1996; ï 'E~~co~ MARKETS, Feb 15, 1996; C O M P ~ R G R A M INTERNATIONAL, Feb 9,1996; FINANCIALTIMES (London) , Oct 3, 1995, p. XXVII,. 'O2 hvesiext Report, supra note 476 at 3. The list included the name likes Daewoo, Korea Telecom, Telecom Maiaysia Berhaci, Sumitorno Corporation, Indosat, General Electric Company, KDD and some Middle m e r n investment companies, among others. 'O3 Ibid '04 Ordinance, supra note 472 Sec. 38.

Telecomntunications Structure in Pakt'stm

year monopoly over the provision of basic telephone se~ces" ' would be in the air,

once the ordinance expires.

3. Concurrent with the pnvatization of PTCL by Pakistan, a large number of

other countnes are also pnvatizing their telecommunications companies. This has given

the major telecoms the option to pick and choose investments. Braiil, Pem, Taiwan

and Russia are expected to pnvatize their telecoms this year. In addition to

pnvatizations, almost US $24 billion worth of telecom offerings are expected in stock

markets.'06 Al1 the factors combined have prompted major telecoms to survey the

market before they commit fund~.'~'

Investors who have show their interest are required to submit their "statement of

qualification," ('SOQ') which should include information on: financial capability, technical

capability, experience, human resource capability, corporate objectives and plans, and level of

commitment. Once SOQs are received, the PC wilI evaluate them against its pre-set cnteria,

which include: 1) a minimum of 2.5 million lines in service; 2) network revenues should exceed

US $ 2 billion; a minimum credit rating of BBB (long term) or A2 (short term) or Baa3 (long

term) or P2 (short term); and 3) qudity of service requirements (85% of applicants connected

within 30 days, 95% of incoming international cails completed, 75% of faults repaired within

24 hours).'08

The investors who qualiQ under the cnteria of PC will be shortlisted. Thereupon the

shortlisted investors, f ie r complying with certain formalities, will be provided access to the

confidentid information of PTCL, before they submit their find bid. Since the stake will

provide management control of PTCL, the privatization commission does not wish to sel1 the

stake to a single investor. Therefore, at present at lest four consortia are in the process of

being formed. It is expected that the final bids will be made in the first week of December,

1 9 9 6 . ~ ~ ~

'O5 Orciinance, supra note 473 Sec. 39. in veste^? report, supra note 476 at 3.

'O7 Jbid *O8 Jbid, at 4.

Jbid at 5.

Telecornmunications Structure in Pakistnn

G. Telecommunications Infrastructure

The existing basic telephony network in Pakistan is old and deteriorated. Problems like

cross-talk, noise and significant downtime are the nom, especially when it rains during the

monsoon s e a ~ o n . ~ ' ~ Voice lines are particularly noisy, and most calls must be dialed several

times before they get through, even during off hours. Calls made to Pakistan fiom abroad are

often not completed for unavailability of circuits, and if they get connected they are very noisy.

Currently, there are only 2.2 million lines instailed in Pakistan, equivdent to about 1.7

lines per 100 inhabitants or 0.0169 iine per capita."l The total revenue generated by

telecommunications in Pakistan amounts to 0.2 per cent of the total revenue generated by

telecommunications in the world. l2

1. Basic Telephone Services

Hitherto, the provision of basic telephone services in Pakistan is the sole domain of

state-owned PTCL. Although there are only 2.2 million telephone Iines installed in Pakistan.,

this figure has much improved since the corporatization of Pakistan Telegraph & Telephone

(PTT). In the 43 years of its existence, PTT installed just 900,000 telephone lines, as compared

to 1,150,000 lines installed by PTC within three and a half years of its birth (December,

1990)."' During the year 1994-95, 421,000 new lines were installed, long distance cdls

increased by 20 per cent and international paid minutes grew by 14 per cent."4

PTCL aims to double teledensity from 1.7 per cent to 3.3 per cent by the year 1998.

This will be achieved by installing 140,000 lines in rural areas, with new switch and

transmission facilities, cables and TDMA (time-division-multiple-access). And by installing

public cal1 offices in dl population centers of more than 500 people. PTCL also has plans to

digitalize its network? lS

''O 1 tried calling from Montre. to my famiiy in Lahore behveen July 24, 96, and August 56,96, but muld not get through becasue my family's telephone was out of ordcr due to rains.

TELECOM MARKETS, Feb 15,1996. AGRA Ahenration, June 18,19%, p. 1.

51 3 T. C. Hunter, Jr,, "Pakistan Telecommunications" GUIBAL COMMUNICA~ONS, v16, n4, p16(4), Juiy-August, 1994.

Ibid MIDDLE EAST ECONOMIC DIGEST, ~ 4 0 , n9, pS(8), March 1, 1996.

Telecornnumications Structure in Pakisîan

2. Fiber Optic Network

A major fiber optic cable installation in Pakistan was completed in 1993. Under the

project, more than 2000 km fiber optic cable was laid between the cities of Karachi and

Rawalpindi. The cable Linked thirteen cities: Rawalpindi, Jhelum, Kharian, Sargodha,

Faisalabad, Lahore, Gujranwalq Sahiwal, Multan, Rahim Yar Khan, Sukkur, Hyderabad, and

Karachi. It can transmit 70,000 telephone conversations simultaneousIy and can also carry

hi&-speed data and TV signals. With the cable installed, the capacity of the Pakistan network

quadmp1ed.s'6

The Karachi-Rawalpindi fiber optic project provided a backbone for the future telecom

needs of the country. Following the Karachi-Rawalpindi project, fiber optic cable was laid

between Rawalpindi and Peshawar to complete the north-south country wide link."'

3. WireIess Services

Cellular telecornmunications were introduced in Pakistan in 1990. In late 1989,

Pakistan's govemment granteci, for the first time, two nationwide 15 years licenses for the

provision of cellular services to private service providers. The first recipient was ~ a k t e l , ~ ~ ~

which is jointly owned by Cable and Wireless (80%), a London-based Company, and Hasan

Associates (20%), a local group of companies. The second cellular license was issued to

Pakcom (later Instaphone) which was then owned by Millicom (62%) and Arfeen (38%)."'

In early 1994, the government of Pakistan awarded Pakistan Mobile Communications

Ltd. ("PMCL"), a subsidiary of Motorola Inc., the first license to provide GSM (Global

System for Mobile Communications) digital cellular seMces in Pakistan. PMCL was also

issued a license to operate a nationwide paging ~ ~ s t e r n . ' ~ ~ Recently (early 1996), the Pakistan's

Ibid ; see also CO~MUNICATIONS INTERNATIONAL , Seplember, 1993. p. 37. Ibid

"' Paldel was formeû in January 1990 and went inIo operation in November 1990 diii the introduction of cellular mobile telephone senice in Karachi. Today it serves over 28,000 subscribers and is offering services nationwide, including Karachi, Lahore, Islamabad and Faisalabad. 51' ECONOMIC REVIEW, v23, n l l , p13(2), Nov, 1992. The initial share holdiiigs of Pakcom at the time of issuance of Iicense was MiIlicorn (US) 25% C o r n a (S~veden) 25% and Arfeen International (Pakistan) 50%. TELEPHONY, October 30, 1989, p. 24. 520 NEWS REIEASE, Dec 19, 1995.

Tekcomnzunications Structure in Pakistnn

Ministry of Communication has given approvai to Acsys Limited, a US-based Company, to

provide satellite-based telecommunication services in Pakistan. Acsys will lay a VSAT network

in rural Pakistan, and will provide national and international data communications and value

added services. It will jointly market the seMce in Pakistan with AT&T Corp's NCR Corp.

unit.521 Acsys plans to install a network hub and a 6.1-metre antenna in Karachi, which will

serve VSAT temllnals throughout Pakistan. It is estimated that by the year 2000, the network

hub will support 750 remote units. 522

The cellular market in Pakistan has grown fairty rapidly primarily because of its ability

to provide instant service.

4. Paging Services

The pioneer in providing paging services in Pakistan is Digital Communications. It

operates in the cities of Karachi and Islamabad. Pakistan Mobile Communications Ltd. also has

a license to provide paging services. This service include tone, numenc and alpha nurneric

paging, and voice mail services accessed either by operator assistance, which is most popular,

or through computer modem or DTFM telephones. Paging services are soon expected to

become available t hroughout the country.

5. Card Pay Phones

As of August 1994, the govemment had iicensed 19 pnvate sector companies to install

and operate public pay card phones. Under the terms of the license, each licensee is required

to set up a minimum of 250 pay phones in the first term of its license. The Pakistan

Telecommunication Corporation gave the requisite number of telephone lines to the licensees

on pnonty bais. 524

6. Public Data Network

In 1990, the PTT established a Packet Switched Public Data Network (PSPDN). The

PSPDN was narned "Paknet," and its international network identification code number is

''' TELENEWS As14 Jan 25,1996. '*' Ibid "' MIDDLEEA~~ECONOMICDIGEST, ~ 4 0 , n9, p5(8), March 1, 1996. 524 Ibid

Telecotnnutnications Structure in Pakistnn

"4100." As of August 1994, it had 200 ports with speeds up to 9600 baud. The nodes are

interco~ected by analog Mcrowave and coaxial channels at 9600 baud. The nodes were to be

upgraded to 64Kbps with the completion of Karachi-Rawalpindi fiber optic cable project.

Packet switching exchanges and nodes are installed in, among other chies, Rawalpindi,

Islamabad, Lahore, Faisalabad, Karachi, and ~eshawar.'~'

Cha pter-IX Recommendations for Pakistan

After having understood the rationales for regulating telecomrnunications, and the

contemporary trend of deregulating telecornunications industry, we are now in a position to

make some recomrnendations to the governrnent of Pakistan to improve its regulatory

structure conceming telecommunications.

A. Enact the Regulatory Framework into Law

As of July, 1994 the telecornmunications regulatory fiamework in Pakistan is governed

by a senes of Telecommunication Ordinances. As mentioned eariier, an ordinance has a four

month term, unless it is been placed before the National Assembly (NA) and the NA enacts it

into an Act. Unfortunately, legislative paralysis in Pakistan has precluded the enactment of a

comprehensive telecornmunications legislation. Indeed since July, 1994 the National Assembly

has hardIy held any sessions --and then only to be faced with walkouts by members-- and

certainly has given no attention to passing the Telecomrnunications Ordinance into an Act.

The telecornmunications industry is a capital intensive industry. The uncertain

regulatory M e w o r k deters foreign investors Eom investing in a country where they are not

sure what will be the future of a fianchise which they get under the strength of a legislative

instrument (ordhance) that is so ephemeral in nature. Investors --be they foreign or iocal--

demand a transparent legd and regdatory fiamework for the privatized sector. They feel

cornfortable in investing in an environment that clearly enunciates rules for making uivestment,

for day-to-day operations of the company, and in case of a foreign investor, the repatnation of

profits. Without legal certainty investors wiU not have confidence to invest the tirne, effort, and

funds which are so vital to complete the pnvatization process that has been started in Pakistan.

Recommencinn'om for Pakistun

B. Unrave1 the Definition of Basic Telephone Service Open Competition in Long

Distance and International Telephone Services

"[Tlhe ultimate determinant of the quaiity of the entire telecommunications system is

the quality of competition in long distance."52G To irnprove the entire telecommunications

system of Pakistan, it is suggested that the first step to be taken is to unravel the definition of

"basic telephone service," by divorcing long distance (nation wide) and international seMces

fiom local services. The second step is to open competition in the provision of long

distance/international services. Through competition not only will the quality of services be

enhanced but pnces will also tend to be more cost-onented.

As discussed in the first three chapters, govemments control public utilities because

they fear that markets in public utility industries are not competitive. Regulation was

introduced to provide a "substitute for competition." Now with technological advancements,

the market structure of the telecornmunications industry, which was once considered a natural

monopoly, has changed. Alternate service providers using satellites and microwave

technologies, have now established themselves as a viable competitors in the world's major

markets. The natural monopoly rationale for regulating telecommunications which was once

valid is no more valid. Giving PTCL a generalized monopoly over basic telephone service for

seven years, thus, seems to be devoid of a valid rationale.

One might posit that if PTCL is operating under a loss, its monopoly should therefore

be protected from competitive forces for some time to enable it gain health and to be viable in

a competitive environment. Yet the telecom sector has been profitable since its inception. PTT

was the second major revenue eamer after the Central Board in Revenue in Pakistan before

corporatization. Revenues earned by PTCL for the year 31 March, 1996 exceeded its

target?*' Profits reported for the year ended in June 94 were at rate of 155 percent. Thus,

maintaining PTCL's monopoly over basic telephone service for seven years can not be justifieci

on the ground that PTCL must be nursed back to health. Rather it seems clear that the

government does not wish to give up a source of income from which it earns profits at

526 J. A. K. Huiitley, "Competition and the Provision of a Universal Telecornmunication Service" WORLD COMPETITiON P. 38. 527 MEED, Augusi 2. 1996, p. 2 1.

Recumniendations for Pakistnn

exorbitant rates. Indeed, one is forced to conclude that the governrnent in Pakistan is

regulating telecommunications not to protect its citizens fiom monopoly but to squeeze the

hard eamed rnoney of its citiiens through monopofy pricing.

Currently, in Pakistan the rate per minute of a call fiom Lahore to Karachi is Rs. 42

compared to Rs. 72.8 for a call made fiom Lahore to the United states.jz8 The difTerence in

the rates dûes not seem to correspond with the differerice in cost of calling fiom Lahore to

Karachi and fiom Lahore to the United States. This is because domestic long distance calls are

distance sensitive, whereas international cails are n ~ t . ~ " Sensitivity (or insensitivity) to

distance is attributable to the difference in technology used to cany these calls. Domestic long

distance calls are carried by using traditional copper wires and optical fibre cables, whereas

international calls are canied pnncipally by satellite. Satellite links are distance insensitive, it

does not matter whether you call a neighbour living next door or a son studying abroad at

McGill .

Consumer welfare demands that the lowest cost technology, including satellites, be

used in the provision of dornestic long distance services. However, in the absence of a threat

that a competitor may use a better technology to provide cheaper services, PTCL will have no

incentive to adopt better technology which will result in lower rates for the consumers.

Allowing competition in the provision of long distancelutemational seMces will, as stated

earlier, improve the quality of service (as satellite links are fast and devoid of distortions which

are found in communications via copper wires) and lower the prices for the calls (as the cdls

will be distance insensitive).

In the same vein, it may also be suggested that competition be allowed in the provision

of local fixed services. In this regard, Amencan Telecornmunication Act of 1996, and a recent

FCC's interconnection order provides a good exarnple. The Telecom Act requires open

528 Sée Telephone Directory for 1994-95 at pp. 28 and 38. With the imposition of Excise duty passed by the Federal Budget Act, 1996-97, the rates for international d l s have increased by 40% fiom Juiy 1, 1996. Prior to July 1, 1996 there was no excise duty on international calls. 529 Sec Ibid at p.25 describing cal1 charges. "NWD (Nation Wide Dialing) ails are charged by the number of pulses. For each pulse, an equivalent of one local cal1 is charged. The fiaction of a puise corn& as a fùll pulse. For example the duration of a pulse between More and Multan is four seconds. Ifa call is made behveen these two points for a duration of 48 seconds an equivalent of 12 local calls will be charged." The duration of a pdse fhm Lahore Co Karachi is 2.79 seconds. Therefore, 21.5 (60 minl2.79) locai cab per minute wili be charged for a cal1 between Lahore and Karachi.

Recon2nzendations for Pakistan

competition in the provision of the full range of telecommunications services. Until June

1997,'" forty per cent of the bills for long distance and international calls from the US

constitute access charges which long distance carriers pay to Regional Bell Operating

Companies (RBOCs) to switch their calls fi-om long distance lines to local lines. Having

monopoly over the local services, RBOCs charge access fees to long distance carriers at a rate

six to seven times higher than co~t .~" With the opening of competition in the local seMces,

the access fee d l become more cost onented, resulting in lower rates for long distance and

international calls for the consumers.

To counter the above suggestion, it may be argued that mimicking American trend is

not plausible in Pakistan, since the United States has a high teledensity, whereas Pakistan does

not. Therefore, PTCL needs to have monopoly over local fixed services, so that it can expand

the infiastructure fiom revenues earned fiom access charges. However, infrastructure can be

expanded with more speed where there is plurality of operators. This can be achieved by

granting license to new entrants conditional upon installing a certain number of telephone lines

in regions which offer low profit incentives."* This wili help expand the infiastructure, while

at the same time protecting consumers h m exorbitant 'access fees' which may be charged by

PTCL to long distance seMce providers. As in the United States and elsewhere, it may prove

necessary to set upper limits on access charges.

In the context of opening up competition, exampIes fiom some developing countries

may be instructive.

In 1989, when Chilean governrnent privatized its telecornmunications enterprise,

Empresu Nacional ak Telecommunicacio~~es (ENTEL), it immediately introduced competit ion

in long-distance and intemationai services. In 1994, Chile opened its market completely. As a

result of opening cornpetition, the prices for international seMces in Chile are the lowest in

Latin America. A peak time three-minute cd1 fiom Chile to the US costs US$ 1.65, compared

to US$5 in Mexico or U S 6 in Argentins.'"

530 See supra note 307 and accompanying test.. 53' Sée infra note 284and accompanying text. 532 This point is discussed further below under the heading "universal service". "%lting Privalization Right supra note 16 1 .

RecommnctBn'om for Pakistm

Even India, a country which for quite a long time followed socialist policies has

recently foclised on the role of telecomrnunications inftastnicture in economic development

and opened up competition in the telecornrnunications sector by ailowing foreign participation.

In 1994, India opened competition in fixed local telecommunications services.

The lesson to be learnt from the above examples for Pakistan is to put an end to the

monopoly of PTCL over basic telephone services by allowing competition in long distance and

international seMces at the earliest possible time and by proceeding towards competition in

local fked seMces as well.

1. Effect on Employment by Allowing Second Operator

Currently, PTCL employs 243 employees per 10,000 telephone lines, compared to 23

employees per 10,000 lines employed by Telecom Asia (Thailand) or 103 employees per

10,000 lines in Telekom Malaysia (h4alaysia).53J PTCL is indeed over employed. However, it

cannot cut its staff because of the contract entered into between the government (the majonty

stake holder) and the Workerst Union at the time of transformation of PTC into PTCL."'

Alternate operator could attract some of PTCLts employees, thereby Iielping PTCL to shed

redundant employees without breaking the promise made to the ernployees by its major

shareholder. While the employees who wiil join the cornpetitor likely will be better off by

getting a higher salary. The economy on the whole will benefit fiom lower pices and improved

quality seMces which follow the opening up of competition in the area of basic telephone

services.

Interco~ectivity is the vehicle which transforms the telecornmunication industry f?om

monopoly to competition. No service provider --be it a wireless or a long distance service

provider- c m provide its service to customers udess it get connected to fixed local loops.

Thus, for competition to be fostered in the telecornmunications industry, it is imperative that

534 hvestext Reporî, supra note 476 at 16. 535 See supra note 206 and accompanying text. Although, under Company law, a company is not obliged to honor any contract (except for the remuneration of services rendered in the process of floating the company) entered into by its promoten befonr the formation of the cornpany. However, it does not suit govemments to renege from their promises made to citizns.

Recomnrendntions for Pakistm

the new entrants be provided assurance that it get access to local Ioop no matter what happens

and at a fair pnce.

Despite the importance of intercomectivity to cornpetition and therefore to consumer

welfare, the Pakistani government on January 4, 1995 disconnected cellular seMce providers

fiom the national telephone network and ordered them to intermpt senrice in Karachi and

Hyderabad. "The Government claimed that groups involved in political violence or crime

would use Mobilink cellphones, which scramble communications by jumping frequencies at

random, to avoid eavesdropping by intelligence agencies."536 The government requested

Mobilink "to provide technical interfaces that would enable authorities to scan and eavesdrop

on over the air cellular calls made by Mobilink ct~stomers.""~ Acceding to the govemment's

request, Mobilink provided monitoring equipment to government that would allow calls to be

monitored at switching exchanges. However, despite getting technology to monitor calls, the

govemment did not restore a reliable connection to mobile s e ~ c e providers until March,

1 996.538

Though other governrnents do exercise surveillance over cornrnunications, they do not

discomect pnvate sewice providers fiom the national telephone network. In the United States,

for example, the Communications Assistance for Law Enforcement Act (commonly known as

the "Digital ~ e l e p h o n ~ ~ c t ' ~ ) " ~ requires telecomniunications carriers to cooperate with law

enforcement agencies in the latter's attempt to intercept electronic comunications. The Act

536 TELENEWS AIA, March 23,1995. 537 Ibid 538 C O M P ~ R G R A M INTERNATIONAL, March 5,1996, ISSN: 0268-716X. 539 Pub. L. NO. 103 - 414, 108 Stat. 4279 (1994) ( ~ ~ d i f i e d at 47 U.S.C.A. s lûû 1 -10 (West Supp. 1995) and in scattered sections of 18 U.S.C). The law was passed in October 1994. In the US the federal regulation of surveillance of telecoinmunication began with the Suprerne Couds decision in Olmstead v. United States, 277 U.S. 438 (1928), which held that electronic surveillance did not fa11 within the realm of search under the Fourth Amendment. Thereatter, in 1968 Title i'ïï Omnibus Crime Control and Safe Streets Act (commonly known as Titie II1 Wiretap Act of 1968)(18 U.S.C. Ss 1367 et 9.) was passed. Owing to technological advances made in telecommunication, Congres amended the 1968 Wireiap Act with the Electroiiic Communicatioias Pnvacy Act of 1986 (18 U.S.C. Ss 2510-2522 (1994)). To keep abreast with the leap frogging of the technology, which presented "technological impediments" to law enforcement agents' ability to wiretap, the Federai Bureau of Investigation ("FBI") introduced the DigitaS Telephony and Communications Pnvacy Improvement Act of 1994 ("Digital Telephony Proposal"). (The Digital Telephony Proposal was designed to make clear that the use of new technologies would never be an excuse for access denial).The Digital Telephony Proposal was enacted into the Digital Telephony Act in 1994.5ée generally S. Freiwalà, "Uncertain Privacy: Communication Attributes Mer The Digital Telephony Ad'' (1996) 69 S. Cal. L. Rev. 949; D. Ward, Note, "Sisyphean Circles: The Communications Assistance For Law Enforcement Act" (1996) 22 Rutgers Cornputer & Tech. L.J. 267.

Recommencintions for Pakistan

requires of a telecommunications carrier that the services it provides its customers be capable

of "expeditiously isolating and enabling the govemrnent, pursuant to a court order or other

lawfùl authorization, to intercept, . . ., dl wire and electronic corn muni cation^."^^^ Under the

Act, a court shall issue an order to a telecommunications carrier to assist law enforcement

agencies ody if the technology used by the carrier cannot be intercepted by the law

enforcement agencies.541 The authority of law enforcement agencies to require

telecornmunication carriers to assist them in interception is subject to court order or other

lawfùl authorization. The agencies cm in no circurnstances order a telecornrnunications carrier

to stop providing services to its customers, let alone in circurnstances when the carrier has

provided the agency equipment to monitor calls.

To restore the confidence of incurnbent cellular service providers and of those who

aspire to provide telecommunications services in Pakistan, the Pakistani government should

create a legal fiamework like the Digital Telephony Act.

"Defining arrangements for intercomection of networks operated by different

companies is the . . . essentiai step in establishing a competitive environment." 542 The

negotiation of interconnection agreements between a newly fianchised service provider and the

incumbent telecommunication operator, in the absence of any guidelines from a regulatory

agency, causes considerable delay in the introduction of new services.

Currently, section 5(4) of the Ordinance requires the Authority to provide "guidelines

for, and determine the terms of inter-connection arrangements between licensee where the

parties 20 those awat~gements are uttable to a p e upon such tems." (Emphasis supplied).

The wording of section 5(4) refiects the adoption of the "conventional wisdom . . . that

interconnection is a commercial issue to be negotiated in secret between the interested parties

with reylators being called in only as a last r e so~ t . "~~ This approach is, however, wrong, for

the following, among other rasons:

1. In the early days of competition, market structure generally has a "David and Goliath" type appearance in which the incumbent is able

-

540 47 U.S.C.A. s 102(a)(l). 54' 47 U.S.C.A. s 1007. '" Telecommunications Repoq supra note 4 at 69. 543 Ibid

Recommendnfions for Pakistnn

to impose its wiil through . . . monopolistic access to network, and sheer size. Thus int erconnect ion agreements are rarely negotiated on a level playing field.

2. Because of the lack of transparency [since there is no provision in the ordinance for the publications of intercomection agreement], it is not possible to know whether new market entrants are being afforded equal market access with established market players or whether foreign players are afTorded equal treatment with domestic companies.

3. Potential new entrants evaluating opportunities are hindered by a lack of idonnation conceming cost and revenue information. Consequently, market entry decisions will inevitably be sub-optimal, which benefits neither the incumbent operator nor consumers.544

"Given that interco~ection is central to so many areas of regulatory concern

(cornpetition policy, pnce control, universal service obligations, accounting rates and

separation to name but a few) it is vital that regulators play a full and active role in overseeing

intercomection agreements negotiated privately."545 To play an active role in interco~ection,

the Authority may require that "intercomection agreement be published and reviewed on

periodic basis."'" In the alternative, a provision be added in the instrument defining

telecomrnunications regulatory regime for providing equal access to new entrants on a non-

discriminatory basis. The provision for interconnection could be drafted on lines sirnilar to that

of FCCts Intercomection Order of August 2, 1996, or the European Comrnunity's ONP

Directive.

D. Universal Service

One of the fùnctions of Pakistan Telecommunication Authority is to "promote the

availability of a wide range of high quality, efficient, cost eflective and cornpetitive

telecommunication services throughout ~akisatn. "s47 (emphasis supplied). If we refer to our

definition of "universal service" outlined in chapter one, the key tems are availability,

affordability and accessability; the parallels of these latter tems are italicized in the preceding

544 Ibid. s4s Ibid. 546 Ibid. 547 Sec 4(d), Orciinance.

Reconznzendan'ons for Pakistan

sentence. Thus, we can say that one of the functions of the PTA is to provide universal service

or, put differently, to increase the telephone density in Pakistan. The objective no doubt is

admirable. However, a number of questions arise. For instance, is it economically and

technicaily feasible to pursue a universal service policy? Can an average Pakistani citizen &ord

to have a telephone line in her home? How competitive cm telecommunications services

throughout Pakistan be when PTCL has monopoly over basic telephone service? As long as

PTCL has exclusive rights for the provision of basic telephone senices, will PTA only promote

competition in non-basic services? If yes, is the 81% of population iiving in rural areas

interested in ceIlular or paging services rather than getting a basic telephone line?

The answer to the above questions is not difficult. Indeed, in this technologically

advanced age, telecommunication seMces can be provided anywhere --no matter what the

geography may be. But is it economically feasible to make telephone lines available to every

house, when the majonty cannot afford to get it? The income per capita in Pakistan is $325,

which hardly enables an individual to get bread and butter. With such an income per capita, the

idea of pursuing universal senice is not economically feasible. This assertion fin& support

fiom the fact that out of 2.8 million telephone lines installed in Pakistan, 600,000 are not in

use.548 The reason being that Lines were instailed in areas where people can not afford to have

telephone connections. However, whoever can afEord to get a telephone line would be

interested, first, in getting a basic telephone line. Certainly, competitive basic

telecommunication seMces cannot be provided when one Company has statutory monopoly

over it. Cornpetition in basic telecommunication services could help to extend services even if

it cannot presume to create universal service.

Over al1 the focus should not be on providing universa1 service or even simply

increasing teledensity but rather on providing public access to telephones. "Accessibility is

more appropnate for developing countnes than telephone density," says A. Djiwatarnpu,

deputy director at Indonesia's regulatory Directorate General of Post and

~e1ecommunications.l" In this respect, guidance could be sought form India's Village Public

548 See Investext Report, supra note 476 at 15. 549 J. Williamson, Telephony, (Oct 22, 1990) v2 19, n MA, p34(6).

122

Recornmendàtions for Pakistan

Telephone ~ r o ~ r a r n m e . ~ ~ ~ Under such a programme public telephones should be installed in al1

villages, so that the residents of villages could have access to a telephone facility whenever they

wish to make calls.

Further, in case competition is aliowed in basic telephone service, licenses to new

entrant could be conditioned on the licensee installing certain number of telephone lines in rural

areas every year. As a sanction for non-cornpliance, renewai of licenses should be made subject

to the installation of number of telephone lines stipulated in the conditions of the license, or

license fee should Vary with performance ofthe rural installation obligation.

E. Abandon Majority Stake in PTCL and Open Up Cornpetition

The sale of 26 per cent stake in PTCL to foreign telecos is a step in a nght direction.

The foreign teleco will bring new technology and better management skillq which will enhance

the operational and financial efficiency of PTCL. The enhanced efficiency of PTCL will likely

result in an increased number of telephone lines, and the introduction of new and better quaiity

services. However, in the absence of competition, PTCL may have no incentive to lower its

rates for services.

The 26 per cent stake oEered for sale although giving management control wili

nevertheless allow the investors limited room to make major structural changes in PTCL. The

lirnited capacity of the investors wili have a direct bearing on the level of efficiency that may be

achieved. The maintenance of major stake in PTCL by the govemment is yet another reason

why some major international telecos did not show any interest in the offer.

A large number of countries which have successfùlly pnvatized their telecos initially

oEered more than fi@ per cent of stake to private investors.'" Any entity in which a

govenunent has more than fifty per cent stake cm hardly be characterized as a private entity.

However, the percentage of shares matter less than the objective of privatization. As discussed

in chapter III, the objective to pnvatize should be to enhance economic welfare, rather than

''O See supra note 450 and accompanyhg text. "' Argentina, in 1990, initially sold 60 per cent stake both in Telefonica Argentina, and Telecom Argentina. Canada initially sold 100 per cent stake in Teleglobe in 1987, and so did Chile for E N T n in 1988 and New Zeaiand for Telecom Corporation of New Zealand Ltd., in 1990. However, Chile initially sold 50 pet cent stake in Cumpania de Telefonos de Chile (CTC) in 1988. Britain initially offered fifty one per cent stake in British Telecom in 1984. See Telecommunication Report, supra note 4 at 56.

Recommendatiom for Pakistan

simply to transfer ownership of an entity fi-om the govemment to pnvate parties. However,

given the privatization procedure adopted for PTCL, the cornmitment to enhancing economic

welfare seems nebulous.

Privatization is to serve as a harbinger to cornpetition. It is competition that will

ultimately enhance eeonornic welfare. With cornpetition prevented in the provision of basic

telephone services for a long period of seven years, privatization of PTCL, even if the

governrnent divests al1 of its shares, may not enhance economic welfare as significantly as

competition. Though the privatized entity rnay offer a variety of new and better qudity

services, the pices for them may not be cost-based. Potential entry by cornpetitors, as

contestable market theory instructs us, forces a producer/supplier to bring pnces close to the

cost. In an environment where no such potential entry exists, the chances that prices wili be

cost-oriented are low. When prices are not cost-based, economic welfare cannot be achieved.

M e r dl, telecornrnunications services and pices have a direct bearing on the competitiveness

of Pakistan's business abroad.

Although allowing foreign participation is a positive step, the retention by the

government of a majority stake and the maintenance of monopoly status will not allow the

users of the telephone seMces to enjoy al1 the benefits, of deregdation. The unwillingness of

the govemment to divest a larger share in PTCL perhaps reflects its intention to keep cashing

in on the monopoly profits which PTCL is now making.

To achieve the ultirnate objective of privatization, --economic welfare- it is suggested

that the govenunent reduce its share in PTCL to less than fiQ percent and abolish the

monopoly accorded to PTCL at present.

1. Basic indicators P o p ~ ~ o n GDP Main telephone lima Total mh' Total Per q ù a Toral Per lOO (M) fprrha) (8 US$) (US8 fk) inhabitmu

1992 1992 1991 1991 1992 1992 1 Afghanistnn 21.6 34 2.5 125 29.0 al3 2 Buiglderh 119.3 828 21.9 190 256.3 a21 3 Benin 4.9 44 1.9 390 15.8 032 4 Bhuua 1.6 35 0.2 160 3.0 0.18 5 BurlrinaFam 9.5 35 3.3 360 19.8 02 1 6 Bwndi 5.8 208 1.2 205 13.1 023 7 Cunbodii 9.1 50 2.0 225 5.0 0.06 8 CmaJAfdanRep. 3.2 5 1.3 405 5.8 QI8 9 C h d 6.0 5 1.3 225 4.2 0m - -

10 China l'175.7 1 23 371.2 320 1 1 '469.1 0.98 11 Cornoror 0.6 31 1 0.2 430 3.9 0.66

15 dia 0.9 88 0.4 390 14.0 1.49 16 G h 16.0 67 6.4 415 47.8 0.30 17 Guinei 6.1 25 27 455 11.8 0.19 18 Guincr-Bi- 1 .O 28 0.2 . 225 6.5 0.64 19 Guyana 0.8 4 0.2 290 28.4 350 20 Haiti 6.8 244 2.6 400 45.0 0.67 21 Honduru S. 1 45 2.6 530 104.8 206 22 W. 879.6 27% 240.5 285 6796.7 0.77 23 fndonuir 184.0 9 6 . 116.1 635 1'485.3 0.8 1 24 Kenya 27.0 46 8.3 320 207.4 0.77 25 Lao P.D.R. 4 3 19 1 .O 245 6.8 0.15 26Luotho 1.8 6 1 0.6 355 10.5 057 27 Liberia 2.6 23 1.2 480 4.5 0.17 28 Muiagaru t2.8 22 2.7 235 36.6 0.29 29 Malawi 10.4 110 2.2 255 30.8 0.30 30 Maldives 0.2 772 O. 1 635 8.5 3.7 l 31 Maü 9.8 8 2.5 260 12.8 0.13 32 MaMunia 2 1 2 1.1 555 6.8 0.32

- 37 Niger 8.3 7 2.3 290 10.3 0.12 38 Niguia 1 15.7 1 25 35.3 315 320.9 0.28 39 Plkisua 115.5 144 37.3 325 1243.6 1 -08 4û Rwanda 7 3 286 1.6 210 11.8 0.16 4 1 Sb Tomé & Rincipc O. 1 124 0.1 420 2.3 1.93 42 Sicrn Leone 4.4 61 0.5 1 3 0 13.8 0.32 43 Solomon Islrnds 0.3 Il 0.2 590 4.9 l .44 44 Somolia 9.2 15 1.1 145 15.0 0.16

47 Tu- 48 Togo 49 Umda

- - - - -- - -

54 Zimbabwe 10.4 27 3.9 385 127.1 1.22 l;c:.:+LU) ... ... 44.8 130

2% Algnia 26.4 11 43.9 1710 962.2 3.65 57 Angola 10.6 9 9.2 915 48.9 0.46 58 -nia 3 5 i l6 7.2 2'1 15 578.4 16.64 59 AzerbPiju, 7.2 83 12.1 1705 657.5 9.09 60 &lize 0.2 9 0.4 2'1 55 24.8 IL42 61 Bolivia 7.8 7 5.0 660 186.0 2.38 62 Bulgaria 9.0 81 7.1 795 2'339.7 26.14 63 Cuneroon 12.2 26 12.4 1W5 52.0 0.43 64 Cape Verdc -... p-.

94 ?:?----- 0.3 820 11.9 3.14 65 Chile 13.6 18 31.3 2'340 1'2 13.2 B . Y ~ - - 66 C o l d i r 33.4 29 43,l 1310 2'82 1.7 8.44 67 Congo 2.4 7 2.9 1'240 17.9 0.76 68 CosuRiu . 3.1 61 5.5 1795 326.8 10.54 69 Côte dlvok 12.9 40 9.5 765 86.1 o.6!-.-_ 70 CUG- 10.8 YS 16.2 1'535 344.2 3.18 71 C m h Republic 10.3 ... 24.3 2'360 1'818.6 17.64 72 D.P.R. Korca 22.9 187 ... ... 1 '089,3 4.75 73 Djibouti O. 5 20 0.4 990 6.8 I .U

1. Basic indiccitors Annec-1 Population GDP Main telephone lines

Total Densin roui Percmira Toicil Ptr 100 IM) (perrtmi) (B USSJ CUSS) (ctj inhabitmu

1992 1992 1991 1991 1992 1992 74 Dominia O. 1 93 0.2 2'015 13.7 19.57 75 Dominian Rep. 1.5 154 7.3 995 474.4 6.35 76 Enuda 10.7 23 ' 11.6 ID70 531.3 4.95 n m w r d o r 5.4 252 $9 IWO 164.9 3.05 78 Fiji 0.7 40 1.4 1935 49.7 6.71 79 Gcagia 5.5 79 9.4 1725 S72.7 10.42 80 Grendr 0.1 26 1 0.2 2'335 18.5 20.56 81 Gurtemrlr 9.7 89 9.3 985 214.4 2.20 82 h (Islunic Rcp.) 59.7 36 1 17.2 2'030 2997.9 5.02 83 trq 19.3 44 ... ... 675. O 3.50 84 Jimiica 2.5 216 3.9 1'635 168.1 6.8 1 85 Jw&ui 4.3 45 4.1 995 278.3 6.49 86 Kazakhsun 17.0 6 36.8 2'1 85 1930.7 1138 87 Kiribati O. 1 108 ... 1.4 1.86 88 Kyrgyum 4.5 23 7.2 1'66 338.7 .758 89 Lebanon 3.8 363 4.3 1'160 330.0 9.26 90 Mdrysia 18.8 56 46.7 2545 2V9 1.6 11.13 91 MmMl lsluids 0.0 27 ... ... 0.9 1.73 92 Mauritius 1.1 579 2.7 2'5 15 80.1 7.42 93 Micioncsia O. 1 80 ,.. ,.. . 3.1 2.81 94 Moldovi 4.4 129 IO. 1 2'305 511.0 11.73 95 Mongolia 2.3 1 2.2 1'050 69.2 3.00 % Morocco 20.3 40 27.7 l m 5 653.9 2.48 97 Nunibir 1 .5 2 2.3 1'530 61 .O 3.99 98 Puranu 2.5 32 5.5 2245 22.7 9.67 99 R p u i New Guina 4.1 9 3.7 990 36.5

I ' W P Y 4.5 I l 6.2 1 '420 128.1 4 .

2.83 101 Pau 21.9 17 49.0 2295 613.7 ' 2.81 102 Philippines 64.3 214 45.1 715 660.6 1 .O3 103 Poland 38.4 123 78.0 2 W 3'945.0 10.28 104 Rommir 23.0 97 27.6 1200 2574.1 t 1.17 105 Sencgd 7.7 39 5.8 775 58.1 0.75 106 Slovak Republic 5.3 ... 9.9 1'870 820.9 15.49 IM S!, Lwia 0.2 253 0.3 2'1 15 20.3 13.04 IO8 St V i m t O. 1 280 0.2 1'385 15.2 13.97 109 Swazilurd 0.8 45 0.9 l'O80 15.2 1.92 110 Syria 13.0 70 11.5 885 513.4 3.96 11 1 Tajüristan 5.5 38 5.9 268.1 4.87 112 Thiland , 57.8 112 93.3 "OW 1 '640 1790.0 3.10 113 Tonga O. 1 144 0.1 1'3 15 5 5 5.43 Il4 Tunisir 8.4 5 1 13.1 1'565 374.8 4.46 115 Turkey 58.6 m 7 107. 16.17 116 TurLmnitun 3.8 8 8.6 2305 248.8 6.55 117 ükrainc 52.2 86 119.1 2290 ~577.9 14.52 118 Uzkkisun 21.5 48 29.0 1'380 1'439.5 6.70 t 19 Vanuatu 0.2 10 0.2 1'170 3.2 2.06 120 We~ran Suror 0.2 56 O. 1 865 6.5 4.06

L a r s M l d d L m 78Pd 33 1'16L7 1'470 557I1J 7.05 121 Antigua and Bnrbudr O. i 158 4'870 19.4 27.69 122 Argcntinr 33.1 12 12:: 3'945 3'6821 11.12 123 h ô a O. 1 316 ... .- 20.4 33.44 124 B.hnin 0 3 802 3.9 7'585 1 12.5 125 Bubaôos

21.23 0.3 605 1.8 6750 80.1

126 &luus 30.8 1

10.4 50 32.5 3'150 1744.5 16.77 127 h w u u 1.4 2 3.5 , ZS70 36.5 2.62 128 Bnzil 156.3 . 18 420.9 2745 lV670.1 6.83 129 aoyia 4.8 85 ... ... 954.6 19.88 130 Estmir 1 .S 34 6.3 3'965 334.5 - i3l French Guiorrri

21.92 O. I 1 ... ... 36.4 37.95

132 Gabon 1.2 5 4.9 4'020 24. O 1.94 133 Greccc 10.3 78 703 6'990 4'496.5 134 Guadcloupc

43.66 0.4 225 ... ... 138.5 34.63

35 Guam O. 1 33 1 ... _ . . . ... 46.3 31.06 ... 36 Hunguy 10.3 111 31.6 3'053 1291.1 f23-X- 37 K ~ m ( R t p . ) 43.7 443 283.0 6'540 15'865.1 36.34 38 Iwvi. 2.6 4 1 10.1 39 iibya

3765 6525 24.8 1 4.9 3 21.9 4'975 235.8 4.04

40 iilhuania 3.8 .---,

58 16.7 ... 41 Mruu y.?; 832.3 92.14

(. -: . 23'806 3.1 $2 MreQl i i r EY.R

i 20.8 -.- 3 1 . 7 1 a.. ... ...

$3 Mdu 203.0 ._ 9-35

0.4 1'139 2.7 7'700 1 SQ.4 41.80 W Mrniniquc 0.4 336 .- ... 140.8 38.04 15 Mryorte O. 1 263 ... ... 3.8 i6 Mcxico ~5 .5

3.82 45 286.5 3260 6753.7 --

7.54

1. Basic indicatom Anna-1

Population GDP Main tekphone l h t x Torol -@' Total Percapùa Toml Per IN

(MI (prrkir>) ( E US$) (USSI (4 ink&lonu -. 1992 1992 1991 1991 1992 lm2 2 ... . W.

148 Newrilrr(mia 0.2 9 ... ." 35. I 19.85 149 Omin 1.6 6 10.5 6745 130.1 7.93 150 Portugal 9.8 107 68.8 6980 3'162s 32 12 151 PuatoRico 3.6 400 22.5 6y160 le105.1 30.W 152 Réunian 0.6 243 .- ... 187.5 30.69 153 Rush 149.5 ' 9 518.6 3'480 ZLW9.0 1538 154 Saudi Anbh 15.9 7 108.6 7'065 1'568.4 9.86 155 Seychelltr O. 1 173 0.3 4'895 10.0 14-31 156 Slovcnia 2.0 98 126 6'3 1 5 494.3 24.83 157 South A f i h 39.8 34 107.4 2980 3'524.1 8.85 158 St Kim d Nevir 0.0 157 ' O. t 3'665 11.0 26.83 159 Surinune 0.4 3 1.9 4'360 433 9.89 160 Trinidad and Tobrgo 1.3 246 5.2 Cl95 180.1 14.29 161 Uruguay 3.1 17 9.8 3'155 492.1 15.72 162 Venauclr 20.7 23 52.6 2'655 1 W.3 k71 163 Yugodavia 10.6 ... ,.. ..- 1'821.4 17.13

u ~ p c r ~ l d d ~ ~ n r i m a~u 16 zm8.2 ras ~ 1 1 3 s UA) 164 A n d m 0.1 129 ... ... 42.17 165 Ausmlia 17.5 2 295.5 17'050 82%; 47.10 166 Austria 7.9 ~ 94 164.2 21'060 3'466.5 43.97 167 Behamu 0.3 19 .3.3 1 2'660 79.5 30.58 168 Bclgium 10.0 328 201.4 20'465 4264.3 42.64 169 Bermuda O. 1 969 1.6 269W 39.8 76.07 170 BninciDMiuilam 0.3 47 3.8 14W10 48.1 17.82 171 C d 27.4 3 592.8 21955 16'246.6 59.21 172 Cypnis 0.6 ' 65 5.0 10Ul0 290.9 ' 4a.U 173 Denmark 5.2 I 20 130.3 25'245 3üO2.8 57.97 174 Faroe Islands 0.0 34 ... ... 23.7 49.46 175 Finland 5.1 L 3 121.2 2 4 W 2742.0 54.24 176 Fruice 57.4 105 1'195.8 20960 29'905.3 52.13 177 French Polynaii 0.2 52 3.1 15'585 43.5 21.16 178 Germany 80.6 324 1'573.9 19'680 35'420.8 43.96 179 Greenland O. 1 O ... ... 16.8 30.45 180 Guanrcy O. 1 846 ... ... 36.0 65.45 181 Hongkong 5.8 Y46 1 81.5 14'155 2'8 19.8 4.62 182 Iceluid 0.3 3 6.5 25'040 140.0 53.86 183 kland . 3.6 52 43.6 12'385 1'1 13.0 31 -35 184 Israel 5.2 250 63.0 12'680 1'8453 35.56 185 1uly 57.8 192 1'139.5 19975 23709.0 4 1 .O3 186 Japui 123.4 334 3'346.4 27'005 57652.3 46.74 187 Jcmey O. 1 716 ... ... 53.6 64.63 188 Kuwait 2.0 8 1 ... ... 345.6 17.54 189 Luxembourg 0.4 151 10.5 28'255 206.2 52.87 190 Ncrherlanda 15.1 368 286.4 19'015 ~395.0 48.88 191 NewZuluid 3.4 13 42.4 12'545 1534.0 44.99 192 Norwiy 4.3 13 105.9 24'865 2168.5 52.88 193 Qlitar 0.5 39 6.7 15'165 104.6 23.25 194 Singaporc 2.8 4'562 40.4 14'61s 1'169.1 41.60 195 Spain 39.1 77 527, l 13'510 13792.2 35.29 1% Sw&n 8,7 19 - 237.8 27'3 10 5Y 19.0 68. IO

. 197 Swilterland 6,8 165 232.0 34'170 4'184.8 61.27 198 Taiwan. C h i 20.8 577 182.7 8'890 74 18.3 35.75 199 United Amb EmLites 1.7 22 33.7 m655 540.5 3236 200 United Kingdom 57.7 ' 236 1'018.3' 17750 26'084.0 45.25 201 United Staicr 255.0 27 5'672.6 22'49) 144'055.7 56.49 202 Virgin lrlrndi (U.S.) 0. i 288 1.3 13'050 54.3 54.67

-rlrna 15 17'37i.O 21'008 4W315.û a.14 WORLD i . 1 5 ' 4 7 u 11 21m.l 3- 513~m3.4 1.49

. ,-' . . 23 414.7 605 lOW&l IN Am~~rkn 7433 ' ' 19 T410.7 lM'QW3 2643 Ild. '. 3'165.7 1 19 S334.0 3.86

5591 75 T U 1 6 W31@ 1WC48.9 3536 0at.nli n3 3 34a9 l2m 1cranJ x79 FarmaUSSR 29211 13 829.8 2'835 40'536.û L3%4

Nore: Fm diu compnbiliiy d covn~gc, sec h c technicd n w . F t g u ~ III 131cs uc ~ ( U r n - or COC y- *I t h h sptcltled- Source: ITU, W. UN, World Bank.

Wotrrn8 lut for relephoru l k s Toial Sotitfird waù"v U G R 'femud . * rhu

+. (5) . 4 1,-92 fM (5) tyran) 1992 1992 1992 ... 1 A f g h b -. 154.0 18.8 ."

2 ~ m ~ ~ d u h ... 121.5 ... 3n.7 67.8 5.7 3 Benin .- ." ... ... ." .- 4 Bhum .- ... 3.0 100.0 5 BuritimFuo 4.2 ... ... ... ... ... 6 Burundi 0.6 5.0 26.6 18.1 723 28 7 CMbodii ... 7.0 ". 12.0 41.7 ... 8 CeatrdAlricuiRep. 0.3 ... ... .- ... .- 9 C h d 0.5 1 A 123 5.6 74.7 9.6

10 Chini 158.1 1'620.4 29.5 I3ü89.5 87.6 0.8 I l Comoc01 ... 1.2 ... 5.0 , 76.9 3.4 12 Egypt 700.0 1267.5 6.8 3'441.2 632 6 1 13 F3quUai.lOuintr . ... ... .- ." ... .- 14 Eùwpi. 26.0 139.8 20.5 280.3 50.1 a10

30 Mddivu ... 1.3 ... 9.8 86.6 1.2 31 Mdi 0.4 5.6 55.4 15.3 63.2 5.3 32 MuuiiMU 0.3 4.2 36.8 11.0 61.4 6.5 33 Mozambique 24.1 51.7 8.9 107.8 52.1 >IO 34 Mymmu ... ... ... ... ... ... 35 Nepal 29.6 128.4 17.7 197.3 34.9 >IO 36 Nicuigua ... 28.1 ... 78.1 64.0 >IO 37 Niga 1 .O 1 .O O. 8 11.3 90.9 2.3 38 Nigcrir ... 243. l ... 564.0 56.9 > 10 39 Pnkhul 2S1.1 743.4 12.8 1986.9 626 4.9 40 Rwuidr 1.3 5.0 16.1 16.8 70.2 5.9 4 1 SI0 Tomé B Principe 0.6 O. 3 -7. 26 88.0 8.3 42 SiemLeons ... 1.2 .- 15.0 92.0 3.7 . 43 Solomon lduidr , .. O, 03 ... , 3.8 W. 1 0.1 44Somrlir ... S.. S.. ... ..* S..

45 Srilrnlu 33.5 96.2 12.4 23 1.7 58.5 . 9.6 46 SudPn 14.0 27.4 8.7 91.0 69.9 >IO 47 TuuMir 47.0 134.3 12.4 215.6 37.7 >IO 48 Togo 4.8 0.2 -29.7 15.5 98.7 O. l 49 Uglidr 19.7 6.2 -12.0 34.5 81.9 >IO 50 Vict Nun ... 1 SO.0 ... 350.0 57. l 3,8 51 Y e m ... 98.0 ... 24 1.4 59.4 5 8 52 ZUre ... ... ... .., ... 53 Zunbia 176 64.1 15.5 140.0 54.2 >10 54 Zimbabwe . 25.2 88.8 . 15.0 215.9 58.9 >IO ..... . f a - ,;.* :.:**. . > - I I : . g 's#9 W. *. y ~ : . , . w m ?$A 1J 55 AlbPair 250.0 ... 291.5 , 14.2 >IO 56 Aigerir 3&3 756.9 10.7 1719.2 56.0 >IO ... 57 Angoti ..a ... .... .S.

38 Armenia ... 52.8 ... 6249 91.6 3.3 59 Aterbaijrn .,, 213.6 ... 871.1 75.5 9.5

- i T E l r 7 ~ 1,7 3. 8 .6 25.6 9 1.0 62- 61 Bolivii ... 6.2 ... 191.3 %.B 1.1 ... 62 BulgMo ... 585.0 2'924.7 80.0 5.1 63 îhmxnm 1.0 9.0 9.4 61.0 85.2 1.7 64 CIpcVcrde 1.0 8. O 26.0 19.9 59.8 4.7 65 Chik 1 15.4 3 13.7 11.8 1'527.0 743 1.7 66 col^ 315.0 650.0 8.4 Y47 1.7 81.3 3.0 67 Congo 3.5 7.0 8.0 24.9 71.8 9.8 68 CostaRica 11.4 71.2 22.6 398.0 82.1 3.9 69 Côtedlvoh .... 36.2 ... 122.3 70.4 6.1 ... 70 Cubi ... ... ... ... ... ... 7 1 Czcch Republic ... 490.3 2r308.9 78.8 S b ... 72 D.P.R. Kom ... ... ... ,.. .., 73 Djibouti 0.2 O. 1 -1 1.6 6.9 99.0 O. 1

76 Ecuador ... 95.6 626.9 84.8 3.7 n ~ t s i l v * 11.0 160.4 34:; 325.3 50.7 >IO 78 Fiji 8.4 8.6 0.3 58.3 W.2 2.5 79 Gawgir ... 290.1 ... 862.8 66.4 >10 BOOrradr 4.2 0.8 - 17.4 19.3 96.1 0.3

M Junricr ... 132.8 ... 300.9 55.9 S. 1 8s ~ordra ... n.3 ... 3555 78.3 5.8 86 Kuiüutrn 656.8 782.2 2 2 2558.6 70.6 7.6 87 Kirikti 0.3 0.2 -5.9 1 J 90.2 1.6 88 Kyrgyzffui .- 80.8 ... 419.5 80.7 4.8 89 Lebmon ... 240.0 ... 590.0 59.3 >IO 90 Mahytia 199.8 168.7 -1.9 3 925 0.7 91 M u s M l b W ... ... ... ... ... ... 92 Mauritius 21.0 70.0 14.3 150.1 - 53.4 7.6 93 Micmriuh ... 0.5 . .... 3.6 86.1 3.9 94 Moldwr ... 200.1 . ... 711.1 71.9 7.1 95 Moagoiia ... 56.0 ... . 1252 55.3 >IO % Momcco 140.0 134.6 ' -0.4 788.5 82.9 1.3 97 NuPibir ... 3.1, .- 64.0 95.2 0.9 98 Panuna 7.8 18.0 9.8 260.6 93.1 1.3 99 Rpui NcwGuinu. 2.4 0.4 - 18.5 36.8 99.0 0.2

100 R n g u i y ,.. 10.7 .- 138.7 92.3 1.3 101 Pau 205.2 346.2 6.0 959.9 63.9 >10 102 Philippines 199.4 789.3 16.5 1'449.8 45.6 >IO 103 P o l d 1214.0 2'422.0 8.0 6'367.0 62.0 8.9 104 Rcmunir ... lV26.9 ... 3'470.1 70.4 >IO 105 Scrbegil 4.3 8.8 3.8 66.9 86.8 1.2 106 Slovak Rcpiblic ... 160.3 .- 981.1 83.7 3.2 . 107 S t LucU ... ." ... ... ... m..

108 S t V i ... 2.4 ... 17.6 86.5 1.1 109 Swaziland ... 9.1 ' ... 24.2 62.6 >IO lio 777.0 1720.0 9.2 2233.4 23.0 >10 11 1 Ta~ikiaui ... T1.7 ... 345.8 77.5 6.1 112 lhi lurd 437.4 1'59 1.8 15.4 3'38 1.9 52.9 7.6 113 Tongr 0.7 3.8 21.7 9 3 58.9 7.6 114 Tuniria 84.5 143.4 6.0 518.2 72.3 4.4 115 nirlcey 1'825.3 1202.9 4.5 10'674.7 88.7 1 .O 116 'lirrknuiUUip ... 85.9 ... 3 x 6 74.3 6.6 117 k k . e ... ~ m . 4 ... 112433 67.3 9.4 118 Uzbekirtui ... 326.6 ... 17&1 815 > 10 119 Vmurru ... 0.1 ... 3.1 97.4 0.3 120 Wentni Samoa ... 0.8 ... 7.3 89.0 1.9 ww -,: .. , - ->.-:$di .V ' .+ . . , : 'kb#rYIs ta:dcrSj '19 :. , 4.7 121 hnciguaand Barbudi ... 1 .O ... 20.4 95.1 0.5 122 kgcatiru 1'026.2 373.7 -10.6 4W5.9 90.8 123 Aruba

3.1 ,.. 3.0 ... 23.4 87.2

124 Blhnin 3.1

0.3 0.2 -8.2 1128 99.8 12s Bubdor

0.0 2 6 2 8 0.9 829 %.6 3.9

126 Belma ... 724.4 ... 2'468.9 70.7 7.8 127 M w u u .... 11.2 ... 47.7 763 2.4 128 BnUI ... 310.3 ... 11'1 80.4 95.4 129 &tir

O. 8 ... 69.5 ... 1 ü24.1 93.2

130 Esumii 0.2 ... 145.5 ... 480.0 69.7 > 10

131 French Guiuu 0.5 0.5 . 31-0 132 O h ..

98.3 0.2 2.0 2.S 3.1 232 89.3 1.5

133 Greace 901.1 658.6 -3.4 5'1552 87.2 2.8 134 Guadeloupe 8.0 3.2 -124 12f.l 97.4 0.3 135 GuPm ... ... 46.3 100.0 136 H W a r ) . ... 753.0 63.2 137 ICau (Rep.)

2944.1 464.0 - 100:0 1SlMS. 1

xi- 100.0

131 Luvia ... 170.5 S..

139 Libp 8229 79.3 9.7

149,O 23 1.7 5.0 467.5 50.4 >IO 140 Lithuania ... - - . -.--__ . 186.3 ... f ïH8.6 81.7 5.7 141 M a u 22.9 2.3 -22.4 1-91 142 hl-F.Y.R.

98.1 - * '~: j - . - .a.

143 Malu 18.1 . ... 221.2 91.8, ...

27.7 13.9 -7.4 164.3 91.5 1.5 144 Martinique 14.3 3.6 - 18.0 125.6 97.2 0.4 145 Mayotu - - - - _ - o. 1 146 Mexico

O. 9 31.9 ?? 76.1 802.3 662.5 -2.1 7'4 16.2 91.1 I .O 'L,

-* lit, fW (4 (W (rcwr)

1983 1992 1983.92 ' 1992 1992 147 Nethtrian& Antilla

lm ... ... S.. a.. ". 148 N c w C û d o a u 0.5 1.6 14.6 36.8 9s.5 0.6 149 Onran 15.0 4.8 -1 1.9 134.9 96.5 0.4 150 Panigd 119.1 132.8 1.2 3295.4 %.O 0.4 151 RiertoRico ... 33.4 ... 1'138.5 97.1 0.3 152 RCunian 18.6 2.0 -27.3 164.4 98.8 0.2 153 Rusiin ... IO'û16;2 ... 32'865.2 695 85 1% SuidiAnbii ... 399.9 ... 1W.3 79.7 15s Seychclkr

27 1 .O 2.4 10.7 125 8Q.4 3.0

156 Slovcnb ... 58.9 ... 533.2 89.4 1.7 157 South Afnu 225.3 120.4 -6.7 . 3'W.S 96.7 0.8 158 StKiturodNcvir ... ... 11.0 100.0 159 Surinam 7.0 13.0 7.1 %5 n.0 4.1 160 Trinidid md Tabrgo 144.3 5.8 -30.1 185.9 96.9 1 A 161 Uruguay 66.3 84.1 . 2 7 85.4 2.2 162 Vcow~eh lM.3 ' 562.3 20.2 2 Y : i 76.2 3.0

. .

165 AumPllir 4.8 4.3 -1.9 7'424.3 99.9 166 A u d a 60.2 20.3 -1 1.4 3'486.7 99.4 0.2 167 BPhunu 0.9 10.8 31.8 90.3 88.1 1.8 168 &Igium 16.5 6.7 -9.6 427 1 .O 99.8 169 Bennu& ... ... 39.8 100.0 170 Brunei Duuurlm ... 12.0 ... 60.1 80.0 20 171 cladi 16'246.6 100.0 172 CY~IUS 47.5 14.2 -123 MS. I 95.3 0.7 173 Denmuk 3Wn.8 100.0 174 F i r o c i s l ~ 0.1 ... ... ... ... ... 175 Finland 1.1 -100.0 2742.0 100.0 176 F m 104.1) - 100.0 24905.3 10.0 177 French Polynaia 0.3 0.6 7.6 44.1 98.7 0.2 178 Gemuny 33.0 1200.0 ' 49.1 36'620.8 %.7 03 179 O r # a l d ... ... ... ... ... 180 Cluantey 36.0 100.0 181 Hongkoo# 1.7 3.8 10.8 2W.2 99.9 182 Ialrnd 0.9 -100.0 140.0 100.0 183 Irelind . 60.0 1.1 46. 1 1'1 14.1 99.9 184 h l 221.0 13.0 -27.0 L'858.S 99.3 0.1 185 llrly 480.3 45.0 -23.1 237S4.0 99.8 O. 1 186 J i p e n ST6S2.3 100.0 187 laoey ... O. 3 ... 50.3 99.4 0.2 188 Kuwiit ... 2.8 ... 34.4 99.2 0.3 189 Luxembourg 1.8 2.4 3.2 m . 6 98.9 0.2

14. Telecc~amunicatioa s î M Annex-3

Telemn sfq# Main lines per employer uGR ac'i

22 lndir 298.5 345.4 ' 1 .B 9 If 0 2 ' 23 ladomth 30.0 11.1 4.0 17 30 7.7 24 Kenya 8.2 13. O 6.8 1 @ I I 27 25 Lio P.D.R. 0.7 0.9 3.6 8 7 -1.7 26 ttsotho 0.5 5.0 1 O 13 L9 27 Ukrir ... t: ... ... 9 ... 28 Mdigucai 2.7 3.4 2.6 7 11 4.4 29 Miliwi 1 .O 2 0 8.1 17 15 -1.3 30 Mdâiver O. 1 0.3 7.5 14 32 9.9 31 Mali ... 1.4 ... ... 9 ...

35 Nepl 2.3 3.5 4.7 7 20 12.0 36 N w u 3.8 3.3 -1.7 9 17 6.8 37 Niga 1.4 1.2 -1.8 5 9 5.5 38 Nigair 17.0 1.9 -0.7 II 20 7.3 39 RLiuui , 36.7 61.8 6.0 10 20 7.5 40 Rwanda 0.5 0.6 1.6 9 20 9.0 41 *Tomé & Rincipe 0.2 0.2 -1.3 8 13 5.9 42 S i L # m O. 2 0.6 10.4 53 24 -8.5

-..

U Somalia 1.2 1.5 2.8 7 1 O 5.2 45 Sri Luiki 9.2 7.8 -1.9 8 17 9.1 46 Sudia 8.7 66 -0.1 6 / 2.7

M AlgaU 14.6 19.2 3.1 31 5.6 57 Angola ... 2 1 ". ... 23 ." 58 Amrall .- 7.0 ... .... 82 a..

59 Azcftmijui ... 11.4 ... ... 58 ... 66 Bel& 0.2 0.4 8.4 31 62 8 .O 61 ûolivia 1.4 2.6 8.2 109 71 -5.2 62 Bulguii 24. O 43.8 6.9 56 53 -0.6 63 CPmcraM 1.9 20 0.8 13 26 8.2 64 CIpcVadt 0.1 0.7 23.3 19 18 63 Chik

-0.5 8.6 9.6 1.1 SI 127 10.7

66 Cdanbir 22.9 25.4 1.1 57 111 7.8 67 Congo 0.9 1.0 1.2 i O 17 6.9 68 CwuRico 2.8 3.3 2.1 71 98 5.7 69 Cbiedlvoirc ,.. 3.8 ... ... 23 .. ... 70 Cuba ... 124 ... ... 28 ... 71 CYch Republic , ... 24.8 a.. .S. 73 .a.

72 D.P.R. K a u ... ... ... 73 Djibouti

"1 S.. a..

0.3 0.5 5.4 13 15 1.7

14. Telecommunkation s t n n Anna-3 Telecom Main liner per employrc

CAGR= CAGR

-. fk) (%) (8)

1983 1992 I N - 9 2 1 983 lQ92 1983.92 74 Domulicri O. 1 0.2 8.6 27 57 11.2 75 DominiCui Rqr. 1.7 7.4 17.6 72 64 -1.4 76 Ecuda 5.3 6.6 26 50 80 5.3 77 ETWvdor ' 5.4 6.7 23 15 - 22 4.3 78 Fiji 1.3 0.9 -3.9 19 49 124 79 Guxgia ... 14.0 -a ... 4 1 ... 80Gamdi 0.0 0.2 23.4 98 87 -13 81 GuuemrL 3.7 4.9 3.3 29 43 4.7 82 hi (Iilunic M.) . 32.2 64.0 8.0 44 47 0.7 : Zk. 14.4 ... ... 23 ... ...

2. O 4. O 8.0 32 42 3.0 85 Jadro 3.3 3.3 0.3 31 83 11.7 UKurLbraii, ... 3&8 ... ... 18 ... 87 I(irihti 0.1 O. 1 -3.1 4 15 15.1 88 K- .- 124 ... ... 27 ... 89 Muma .... 4,3 ... ... 72 ... 90 MW- 30.3 29.6 -0.3 23 II 132 91 Marrhllrii.nrii ." 0.1 a" ... 10 ... 92 M d u r 1 .O 1.3 4.9 .34 45 3.9 93 Micrwc~ii ... O. 1 ... ... 20 ... W Moldova ... 7.0 ... ... 73 ... 95 Maigdia ... 6.0 ,.. ... I I .-

9!J Pipru New Guinu 1.4 l .S 0.4 19 23 2.2 100 mur 3.6 6.7 7.3 19 19 0.0 101 Pau 12.4 12.7 0.3 29 48 5.8 102 PhilipPiner 28.1 18.1 4.8 16 37 9.9 103 Pdrad 61.5 68.9 1.3 . 36 57 5.3 104 R d r 40.0 53.6 3.3 45 48 0.7 105 Sclwgd 1.4 1.9 3.3 14 30 9.0 106 Slovk Rcpiblic ... 9.8 ... ... 77 ... 101 ~r~uci . O. 2 0.3 5.8 28 68 10.4 Io8 s r v i t m.. 0.2 m.. S.. 74 S..

IO9 Swaziland 0.3 0.5 4.2 23 32 3.9 110 S N 11.5 14.1 23 32 36 15 I l l Tajürirun ... 5.5 ,.. ... 47 ... 112 .nuilad 16.5 ' 24.8 5.2 2 8 63 10.6 '

113 Taagr 0.2 0.3 6.6 17 18 1.1 114 lbhiu 3.9 7 J 7.5 39 50 2.9 II5 Turlcv 70.4 88.1 2 . 5 . 24 107 18.3

... ... ... ... 142 M-P.Y.R. ... ... 143 Milu 1.4 1 .9 3.3 55 79 4.3 144 Mutinique 0.6 O. 8 3.1 88 160 7.7 145 Mayone -- 0.0 O. 1 35.2 7 L - + - 42 -6.4 146 Mexico ' 3 2 . 5 48.9 4.6 1 03 138 3.3

fW 1%) 1983.92 1983 1992 1983-92 ... 147 Neihtrlands Antillu ... ... 123 .- ... 148 New Calakir ... 0.3 ... ... 133

149 Ormo 1 5 . 23 4.9 14 57 16.6 150 Pomid 23.8 226 4.6 52 140 11.5 151 RKnoRico -. 83 ... ... 132 ... 152 üéunion 0.6 0.8 3.7 100 219 10.2

, 153 RUSU ... 407.3 ... ." 56 ". , 154 SrudiAnbi i 17.1 20.6 21 46 76 5.7 155 Seychclia 0.2 0.3 S. 1 23 32 4.0 156 Slavenia ... ... ... 218 ... 157 SaithAfncr 88.8 6% -3.9 23 57 10.4 158 SL Kim .ad Nevis O. 1 ... , .- 2 1 ... ...

I 159 Surinmie 1 .O 1.5 1 4.3 2 1 29 3.9

177 French Polynaia 0.3 0.4 4.4 62 102 5.7 178 Gcrmany 204.7 231.0 1.4 114 153 3.3 179 Grrcnluid .- . 0.5 ... ... 36 .-- . . ..- 180 Guaiuey ... 0.3 . ,... ... 138 ... 181 Hongkong 15.4 15.9 0.4 102 177 6.3 182 Iccluid 1.5 1.1 -3.7 64 126 8.8 183 I r c l d 18.2 13.0 -3.6 34 83 10.9 184 Ltncl . 7.8 10.0 2.8 133 185 3.7 185 Itdy 107.0 90.5 -1.8 1 46 262 6.7 186J.pui ' 324.0 266.1 -24 132 211 6.0 187 icncy 0.3 0.3 0.4 121 178 4.4 188 Kuwait 6.7 6.6 0.2 30 S t 6.6 189 Luxcmbwtg 0.7 0.8 1 .O 218 267 23 190 Ncthtrlindr 27.7 34.9 2.6 1 97 212 0.8 191 N m 7 , l i u d 21.1 123 -7.2 SI 124 10.5 192 Naway 17.9 14.8 -2 1 87 153 65 193 Qatar 1.5 1 A -0.3 41 73 6.6 194 Singlpae 12.9 10.9 -1.9 53 108 8.3 195 Spain 71.5 74.4 0 3 118 185 S. 1 1% S e n 39.5 34.1 -1.6 127 174 3.6 197 S w i M l d 17.7 21.4 2 1 175 1% 1.2 198 Tuwur.Chinr 27.2 36.2 3.2 133 - 2 O S 4.9 199 United Anb Emlluei 4.4 4.6 05 41 118 12.4 200 UnircdKhgdom 246.7 170.7 -4.0 . 79 153 7.6 201 Unitaiswu 078.6' 651.6 . -3.7 127 214 6.8

I

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