U.S. DEPARTMENT OF COMMERCE
NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION
NEW FRONTIERS ON THE INFORMATION SUPERHIGHWAY:
New Directions in International Telecom
National Press Club
539 14th St., N.W.
Washington, D.C.
Wednesday, April 1, 1998
PRESIDING:
LARRY IRVING, U.S. Department of Commerce
PARTICIPANTS:
MERI BRAZIEL, IXC Communications
WILLIAM CORBETT, USTR
DIANE CORNELL, FCC
DANIEL GOLDBERG, PANAMSAT
GORDON HUTCHINS, GH Associates
REGINA KEENEY, FCC
LEONARD KOLSKY, Motorola
ROBERT KOPPEL, WorldCom, Inc.
BARBARA PHILLIPS, AirTouch Communications
SANFORD REBACK, MCI Communications
DOUGLAS SCHOENBERGER, AT&T
P R O C E E D I N G S
(9:36 a.m.)
MR. IRVING: Good morning. I apologize for
being late, but the advantage of my being late is that
means that my opening comments will be shorter.
I appreciate all of you being here this morning,
and I particularly want to thank a truly distinguished
panel of speakers, panelists. We're excited this morning
to talk about new directions in international telecom.
I'm particularly excited. Some of us were off in Malta
last week and got a chance to first-hand see some of the
new directions in telecommunications.
We in the United States have tremendous
opportunities. We talk about convergence of the Internet
with the telecommunications structure, we talk about new
satellite systems. I heard just yesterday, for example,
the FCC licensed yet another system. There are exciting
things happening.
As you see the growth, you see the literally
trillions of dollars that are going to be generated and-
or invested in the telecommunications sector, you also, if
you travel the world, see a lot of places where
telecommunications infrastructure is needed for just basic
communications. So you have the situation where there is
tremendous economic potential, tremendous economic
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opportunity, and there is also tremendous deprivation and
tremendous need.
This morning we're going to really talk more
about what has happened. At the same time as we look at
the international Internet, we look at satellites, we look
at wireless technologies, we are also seeing regulatory
reform at an unprecedented pace. Domestically, we're all
very familiar with what's happened, and I think the group
of people who are here today can talk about what's
happening internationally with regard to the pace of
liberalization and deregulation.
Before I start turning to the panelists and ask
them to introduce themselves to you, I do want to note
that one of the most exciting things I think is what's
happening with regard to the U.S. Government. When you
look at the FCC and the leadership of Chairman Kennard and
the International Bureau Chief Gina Keeney and I think one
of the most able civil servants I'm ever going to meet,
Diane Cornell, you see a pace over there. They have a
tremendous amount of work, tremendously under-resourced,
and yet they are moving to assist U.S. companies and to
assist global liberalization.
Similarly at USTR, working with Bill Corbett and
Don Abelson and Charlene Barshefsky and my former boss,
Mickey Cantor, who I guess started the ball rolling, USTR
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has done an outstanding job in making sure that the rest
of the world has a full understanding of the benefits of
liberalization and market-opening opportunities.
Within the Commerce Department, obviously I'm
proud of the work that was begun by Ron Brown, that was
continued under Mickey Cantor's leadership, and Bill
Daley. I think there's no better advocate for U.S.
telecommunications interests than Bill Daley. I think
whether it's ITA, which has resources, literally global
resources -- anyone who's trying to do anything in this
world with regard to telecommunications, I don't care
where the country is, the International Trade
Administration at the Department of Commerce is a place
that you should know about.
But also NTIA. I think the work we're doing at
Commerce is assisting the work of U.S. industry, and we're
doing it in conjunction with our partners in the U.S.
government.
So I wanted to give that government plug,
because I really do think you've got an administration,
starting with Bill Clinton and Al Gore, and we were
constantly reminded while we were in Malta that the focus
of a global information infrastructure was really
developed by Al Gore and Bill Clinton in 1994 at the World
Telecommunications Development Conference.
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We're going to continue to talk about private
investment, competition, open access, universal service,
and flexible regulatory regimes. When I started this job
in 1993, very few people in the world, very few countries
in the world, had bought onto those precepts. Now I think
virtually every country in the world understands that the
only way we're really going to get this global
infrastructure built is through private investment,
through liberalization.
So today what we want to talk about is new
directions. We want to talk about what this opportunity
means. And we want to talk mostly to the people who are
doing it. We want to talk to the men and women who work
at the companies that are capitalizing this great economic
opportunity.
What I hope to do is have a nice roundtable
discussion. Once again, I'm going to be the poor man's
Montel Williams. My wife says I just can't shave my head
completely; there are too many lumps. So I'm doing the
best I can.
But we are going to try to make this an
interactive discussion among the panelists. But what I
also want to do early in the process is turn to those of
you who are in the audience to get a chance to hear from
you. And I think all of you who are on the panel should
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speak into the microphone because this is going out to the
Internet.
When we turn to the question and answer session,
I'm going to ask you to go up to the microphone again so
that the folks out there in the rest of the world who are
maybe tuned into this on the Net have a chance to hear
your questions.
Finally, I would be remiss if I didn't do one
thing. A lot of work goes into pulling these kinds of
efforts together, and I want to thank in particular two
people from NTIA's Office of International Affairs, Becky
Burr, the Associate Administrator for OIA, and Amy
Flatten, who worked tirelessly. While some of us were off
in Malta, Amy was here back in the States pulling this all
together. So I want to thank Amy and Becky for their
efforts today. And again, I want to thank my colleagues
on this panel for being here.
Let me now turn, in alphabetical order, to our
various panelists. What I'm going to do is I'm going to
give you their name and their title, and I'm going to
leave them some time to tell you what they really do,
because all of us know, any of us in Washington know that
titles never fully reflect anybody's responsibilities, and
nowadays corporate names don't necessarily reflect what a
corporation is truly engaged in.
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So let me start with Meri Braziel from IXC
Communications. She is the Senior Vice President for
European Operations.
MS. BRAZIEL: Thanks, Larry. It's good to see
you in the States here again.
Where I stand, I live most of my life on an
airplane, but I'm definitely glad to be back here in
Washington. IXC is a company that has just built 10,000
miles of fiber optics in the U.S. We sell predominantly
to carriers and have extended our network internationally
into Mexico and into Europe now.
So the company has -- in Mexico you may have
heard it under Marketel. We're the fourth largest carrier
down there, selling services and experiencing lots of joys
in the Mexican marketplace, which I think some of my other
colleagues on the panel will speak of.
And we have just initiated a joint venture in
London with TeleNor, the Norwegian PTT, and the name is
called StormTel Communications.
So everything we do we do predominantly for
carriers and opening up various markets in Latin America
and Europe.
MR. IRVING: Thank you.
Let me now turn to Bill Corbett, the Director of
Telecommunications Good and Services Trade Policy at the
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U.S. Trade Representative's Office.
MR. CORBETT: Thanks, Larry. I had to sit in
the front of the class from kindergarten through high
school, and my name in the alphabet's coming back to get
me again.
Good morning. I'm from USTR. We are the
negotiators of the WTO telecom agreement and many other
bilateral trade agreements. It's interesting to be here
on April 1st because every year at this time we are tied
in knots making our final decisions on an annual review of
our telecom trade agreements, and Ambassador Barshefsky
made those determinations yesterday afternoon and we'll be
issuing a press release this morning, which I'm not
allowed to scoop.
MR. IRVING: We won't tell anybody. It's only
going out on the Net.
MR. CORBETT: I was going to brief it until I
heard you were on the Net.
But we have, with the WTO basic telecom
agreement coming into effect on February 5th, we have gone
from a world where every year we analyzed -- since the
Trade Act of 1988 came into effect and we negotiated a
series of agreements over the succeeding years, we've gone
from a world where we had to look at basically ten markets
where we had negotiated agreements, where we had problems
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and thereby negotiated agreements, now to all 130 markets
in the WTO, because every WTO member has obligations under
the agreement to provide most favored nation treatment and
transparency in its regulatory processes.
We've had this year in our review process
comments from several of the industry players present in
the room. I like to think that, from a workload
perspective, I'm pleased that a forecast that was made at
a conference like this in Brussels in October didn't come
true. We had Neil MacMillan in the chair then. He was
the chairman of the negotiations at the WTO. And the
first question out of the box once the forum was opened up
to the industry participants was: Does the WTO have
enough staff to handle all the disputes that will be
brought on January 2nd?
That was a little bit worrisome because we
hadn't budgeted for that kind of reaction from industry,
and I'm pleased that we don't have -- we have less than
130 countries on which we have to go forward and negotiate
anything this year. But we do have complaints from
industry that relate to Taiwan, Japan, Canada, and Mexico
this year, all of which are important markets for U.S.
industry, all of which have in the past received a lot of
attention, and with which we have done good work in the
past in resolving problems.
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I'm confident going forward that we're going to
be able to work things out to the benefit of U.S. industry
and to the benefit of the countries in question. I always
like to, in talking about the WTO agreement, to point out
to folks that the commitments we got from Brazil on
telecom didn't require any exchange of concessions for
fruit juice; with respect to Japan, we didn't make any
concessions on semiconductors; with respect to Europe, no
concessions were made on wine. The negotiation operated
basically on the principle that this was good for
everyone, we all needed to do it, we all needed to set a
level playing field in place, and doing it multilaterally
at the WTO made sense for everyone.
I'll stop there.
MR. IRVING: Thank you. Not thank you for
stopping, but thank you for the statement.
(Laughter.)
MR. IRVING: Our next panelist is Diane Cornell,
who's the Chief of the Telecommunications Division of the
International Bureau of the FCC. Diane.
MS. CORNELL: Thank you, Larry.
We in the Telecommunications Division basically
do most of the international, both processing of
authorizations for service and rulemaking proceedings that
don't involve satellites. There's a separate division
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that does the satellite issues, but we do most of the
other work involving policy issues.
During the last year or so we've been very
active, as everyone knows, in negotiating the WTO
agreement, working very closely with Bill and his
colleagues during that very intense period, and then after
that working on implementing the WTO agreement. We worked
very hard on producing a rulemaking that was adopted last
November by the brand-new Commission. It was the first
major rulemaking proceeding that they adopted, so that was
quite a challenge, getting them up to speed as quickly as
we needed to do that, but it was very exciting as well.
What we've also been doing is spending a huge
amount of time in the last year or so on international
accounting rates. I'm sure everyone who has traveled
outside of our borders has been hearing about this. We
certainly have been, and it's obviously been a very
controversial set of issues.
We are now turning to continuing both of those
processes, and I echo Larry's comments here earlier that
we are very interested in hearing from you folks who are
doing business out in the field about the kinds of
problems that you're facing on a practical basis. We do
have ongoing contacts on a very regular basis with foreign
regulators and foreign carriers and are very happy to
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discuss issues that have merit regarding regulatory
systems or barriers to entry. So I also encourage a
dialogue on that point, which of course is what we're
doing here today in part.
We also are spending a lot of time working on
educating foreign regulators on how to regulate, how to go
about setting up an independent regulatory process, the
steps that need to be taken. And it's a dialogue. It's
not a one-way discussion. So we've been spending a lot of
time doing that.
I will stop there and turn it back to Larry.
MR. IRVING: Thank you.
You know, the problem when you go around lauding
everybody is you always forget somebody. Before I turn to
Dan Goldberg of PanAmSat, I forgot to mention one part of
the administration and executive branch team and that's
the State Department Office of Communications and
Information Policy. Ambassador McCann and her staff are
also an integral part of what we do, and I just want to
make sure that, since this is going out on the Net and
some of my friends are here and some of my friends are her
friends, that I didn't forget to notice that State's not
here this morning, but mostly because they have been down
in Brazil negotiating some important agreements with
regard to Intelsat. But the omission was the fact that
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I'm -- as my wife said, everything above the eyebrows is
going, not for any other reason.
Dan.
MR. GOLDBERG: Thank you very much. Thanks also
for having this discussion this morning. It's a great
thing. It's particularly a great thing for PanAmSat to
participate in.
Unlike a lot of other companies, PanAmSat
started its business as an international service provider.
We didn't start providing service here in the United
States until fairly recently, within the past year, when
PanAmSat merged with Hughes, which had a big domestic
satellite network. So we have a long experience of going
abroad, trying to get into markets.
We were very pleased with the WTO agreement and
we worked very closely with USTR and other folks in the
government to make sure that our concerns were reflected.
So we should have some insight in terms of what it's like
to do business around the world.
MR. IRVING: Thank you, look forward to hearing
your comments.
Now it's my honor to introduce Don Hutchins from
GH Associates.
MR. HUTCHINS: Thank you. I'm pleased to be
here this morning and I think, as a management consulting
14
firm, I'd like to think I speak not only for my company
but for a number of our clients who represent small
businesses both in this country and abroad who were
attempting to grow in the international telecommunications
market that's opening up to all of us.
Many of them are U.S. companies that have been
in the domestic business in this country for a number of
years and are now expanding internationally as they see
opportunities, and some are companies very much like them
that are starting to come up overseas in the emerging
markets, particularly in Europe now and starting more and
more in Asia, to get in and compete and become the second
or third or fifth or tenth carrier in their country.
They're predominantly long distance companies
and that's been my background as well over the years. I'm
enjoying working with them and enjoying both the
challenges and rewards that are out there today in the
international marketplace.
MR. IRVING: Thank you, Don.
We are truly privileged to have with us this
morning the Chief of the FCC's International Bureau. She
has been one of my friends for more than a decade, Gina
Keeney.
MS. KEENEY: I was only four, though.
(Laughter.)
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MR. IRVING: I thought I was 14 a decade ago.
(Laughter.)
MS. KEENEY: Thanks. I'm Gina Keeney, Chief of
the International Bureau. Larry got all that right, very
good.
What the International Bureau is doing can be
summed up conveniently by what our new Chairman has talked
about with the three C's: competition, community, and
common sense. What that means in the international arena:
Competition means, obviously, competition domestically,
competition abroad. We are eager to move forward with
licensing. We want new entrants. We want the rest of the
world to embrace the concept of competition.
And I think that's closely related to the other
goal of community, which means to some extent universal
access. Two-thirds of the world's households still do not
have telephone lines. So I think we're kidding ourselves
if we forget that.
How are we going to serve those other markets?
It's not only doing good as far as our businesses to have
other markets open, but it helps us do the right thing.
It's important for the FCC and the whole U.S. government
to carry this message, but carry it in an effective way.
Over and over and over again in Malta, Larry and I were
told the obvious, which is people around the world do not
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appreciate being lectured to, and the U.S. government
cannot go around the world or U.S. industry cannot go
around the world like the ugly American tourists who think
if they just speak louder people will understand them.
MR. IRVING: Or they'll be able to speak over
this air conditioning.
(Laughter.)
MS. KEENEY: We have to go with facts and
figures. Why is competition good? Well, our experience
has been the following. And we have to tailor our
arguments that way. Otherwise, you can see people's eyes
glaze over. You have to be persuasive, not just louder.
The third "C" that our Chairman has articulated
is "common sense." What that means for the International
Bureau is we are going through our rules and processes
over and over again to see what we can cull. The
International Bureau is fortunate in that it's a
relatively new bureau. We don't have decades and decades
of arcane procedures.
That doesn't mean we can't improve things, and
in fact we are, wherever we can, trying to streamline.
One goal that I have that I think is extremely important
and maybe somewhat controversial, but the applications
that are filed for satellite systems today, we have to
change. In the past we have been very kind of parental
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and helpful and, oh, you didn't do it right and let us
help you fill out the application.
We just don't have the resources and staff to do
this. We are just going to have to be a little bit harder
edged, and if applications come in that are not complete,
that aren't right, that are incomprehensible, we just have
to bounce them, because we cannot do the industry's work
for it.
So common sense is a two-edged sword. Industry
needs to get its act together, too, and apply once they
know what they're applying for a little bit more.
So with that, I'll turn it back over to you.
MR. IRVING: Thank you.
I'm not sure. This is probably the first time
in about two years that I've met Len Kolsky in country.
We've traveled a lot together around the world on
telecommunications missions, and it's my pleasure to
introduce Leonard S. Kolsky, Vice President and Director
of Global Telecommunications Relations for Motorola.
MR. KOLSKY: Thank you, Larry.
I guess I'm the only manufacturer on this panel,
so perhaps our problems are, I think you'll find, somewhat
similar to yours, but we have a rather unique perspective.
My specific job is to manage a series of
government relations offices we've established around the
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world to deal with the ministries of communications in
particular and regulatory bodies in general. We're
particularly concerned about spectrum. We're particularly
concerned about standards. And we're also, of course,
always involved in barriers to entry, barriers to entry
not as an operator but as a manufacturer seeking to
compete in various economies.
Thank you.
MR. IRVING: Thank you.
Next is Bob Koppel from WorldCom.
MR. KOPPEL: Good morning.
I'm Vice President, International Regulatory
Affairs, at WorldCom. I imagine by now most people are
familiar with WorldCom, although it wasn't very long ago
that I had to fully introduce the company and people would
look at me with this sort of blank stare. And there are
still various press organizations, including I believe the
"Wall Street Journal," who occasionally refer to us as
"Jackson, Mississippi-based WorldCom, Inc.," which we are,
although we have about I think 600 employees in Jackson
and about 16 or 17,000 elsewhere in the country.
I think WorldCom is an example of what happens
in the U.S. and around the world when you liberalize and
open up markets. WorldCom was a result of the 1984
divestiture of AT&T -- not the result, but was able to get
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into business, expand its business in a liberalized, open
U.S. market, grow very rapidly, grow on its own,
internally as well as through mergers and acquisitions,
and in the last four or five years has started working
overseas and has been pushing the envelope in one country
after another to try to push liberalization in those
countries and then enter the markets, in the U.K., in
Germany, in France, in The Netherlands, all of which have
markets that are now partially to mainly open, in Italy,
which is lagging, and now in Asia as well.
In Japan, WorldCom last month was granted the
first type one license, which is a full facilities-based
license for international and domestic services. It was
the first type one license granted to a wholly owned -- to
a company wholly owned by a non-Japanese entity. WorldCom
is a wholly owned U.S. company. So Japan is sort of our
new frontier.
As well we're trying very hard to obtain further
liberalization in Hong Kong so we can expand our
operations there. And we're bidding for a license in
Singapore and opening operations in Australia.
And, not to take away thunder from anyone else,
but, having thought about all these issues that we face, I
guess we realized we didn't have enough issues with
liberalization, so we decided that it would be important
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to acquire MCI so that we could face the issues in Mexico
and elsewhere.
(Laughter.)
MR. IRVING: Thank you, Bob.
Now we're going to hear from Barbara Phillips,
the Vice President for Federal Relations at AirTouch
Communications. Barbara.
MS. PHILLIPS: Thank you, Larry.
Unfortunately, I seem to be one of the few D.C.-
based people here, so I don't get to meet anybody
anywhere. I get to stay home, so that's unfortunate. But
I'm delighted to be here this morning, thank you very
much.
Today actually is a special day for AirTouch
because it marks the fourth anniversary of our spinoff
from Pacific Telesis, which people find surprising
sometimes because to pick April 1st and April Fool's Day
to be your opening day of business could be a bad omen.
But here we are, we're still here four years later.
I was talking to someone this morning from the
former Pacific Telesis and they said how SBC and Telesis
had announced on April 1st of '96 about their merger. So
we've decided it's something in the water in California
that drives you to this April 1st, although water in
California is not a funny story any more, either.
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For those of you that don't know AirTouch
Communications, we are what we refer to as a pure play
mobile communications company. We're not affiliated any
longer with telephone or cable or long distance or any
other companies, and our business strategy is fairly
simple: We want to be the premier global mobile services
company.
We've done well, I think, in driving towards
that goal in the last four years. We've increased our
footprint certainly in the U.S. substantially, but we're
now serving -- we are a mobile services provider. We're
in partnerships around the world. We're now in 13
countries on 3 continents and continuing to grow,
continuing to partner and apply for licenses, acquire
licenses, and build out. So we feel pretty good about
that, and I'm delighted to take part in this discussion
this morning.
MR. IRVING: Thank you, Barbara.
Our next panelist -- I was trying to figure out
how to make this a joke, but I decided I wouldn't because
I guess it's still under regulatory review. Our next
panelist is Sandy Reback from MCI Communications.
MR. REBACK: And obviously whoever set the
seating arrangements for the panel had no sense of humor
at all.
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(Laughter.)
MR. REBACK: First of all, thanks very much for
inviting me this morning. I think I've been at MCI now
for almost two years, in one of the most tumultuous times,
in a good way, in MCI's history, but at the same time
mirroring what's going on in the communications industry
generally.
We feel very fortunate now to have settled on a
definitive merger agreement with WorldCom because I think
in many ways it's a marriage of companies that come from
the same kind of tradition. As Bob was saying, WorldCom
grew out of the 1984 divestiture. I think even Bob will
concede that the company that's probably most responsible
for the 1984 divestiture is MCI, and I think we both come
from a tradition of fighting in the marketplace to win
every customer we have.
We have now embarked on that on an international
scale and scope. We look forward to trying to use our
experience to help WorldCom in ventures in which it is
engaged, and hopefully they can use their experience in
helping us in places where we are currently engaged.
It's also been a real privilege to have the
opportunity since I've been at MCI to work with Commerce
and the FCC, USTR, and State on the WTO agreement. Having
worked at USTR for many years in the early 1990's, I
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realize what a tremendous achievement that was on the part
of the U.S. government and I commend them for it, and also
with this proviso, that in many ways it has been very hard
thus far, but it's really the first step in terms of what
effect the agreement and its implementation will have on
the future competition worldwide.
So we look forward to continuing to work with
all the agencies as we go down that path together.
MR. IRVING: Thank you, Sandy. And I noted that
you got all four agencies right the first time. Bill
said, remember, it's the quad. I think, given this week,
I'll remember the Final Four. It's an easier way for me
to remember, with basketball references.
Finally, we're going to hear this morning or
introduce this morning Doug Schoenberger, who is with
AT&T's International-Federal Regulatory Organization.
MR. SCHOENBERGER: Thank you, Larry.
As you all know, AT&T is very active, involved,
and interested in offering telecommunications services
both domestically and internationally. That is true both
from a technical perspective, in that that's where we see
a lot of revenue growth, and both from a strategic
perspective, in that the game is to be worldwide and
global, and we are very excited about that.
For better or for worse, and sometimes both,
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that involves public policy and regulatory issues, and
that is where I come in. I represent AT&T here in town on
regulatory issues, mostly accounting rates, but also get
into trade issues, market access issues. And very happy
to be here and looking forward to this, Larry.
MR. IRVING: Thank you.
It's interesting, one of the things as I'm
listening to the folks around the table, and I want to
underscore: If you look at every success that we've had
in terms of policy, whether it's global recognition of the
importance of the five principles outlined by Vice
President Gore or the WTO agreement or the work that's
being done in the World Trade and Development Conference
or the efforts being undertaken yesterday and Monday down
in Brazil with regard to liberalization of the satellite
markets, none of that could have happened without the
active involvement and support and interest and resources
of the private sector.
You talk about public-private partnerships and
there are things that only the public sector can do in
government to government relations. But in terms of
informing the debate, I really think it's been the work of
the people represented by the people around this table.
We can't do our job -- I remember the wee hours of the
debate on the WTO when Bill and Don were trying to figure
25
out some things and we literally had some of our soldiers
going out and finding, getting the information, and
working some of the other delegations were America's
private sector.
As we become a global community and as more and
more companies have operations globally, we have the
resources we need to really effectively discuss these
things.
I guess it all comes back to the WTO and that
particular agreement. And I'm old enough to remember a
rap song called "Don't Believe the Hype."
MR. CORBETT: How old does that make you?
MR. IRVING: You don't have to be that old.
It's actually an eighties rap song. But "Don't Believe
the Hype" was a number one hit on the stations I listened
to, anyway.
As I'm looking at the WTO agreement and looking
at the Telecom Act of 1996, I think a lot of people always
push back and say: Well, it's hype and why should I
believe it? So I want to turn to my colleague and friend
and ask him, what's going to be the real practical value
to U.S. telecommunications corporations and to would-be
shareholders and to the U.S. market of this new WTO
agreement?
MR. CORBETT: I think the least obvious and
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easiest answer is that it's a lot of changes around the
world that we don't have to fight about or work towards in
a controversial way. Before the Malta conference we were,
most of us, the quad agencies, were all together in Geneva
for the Second World Telecommunications Policy Forum. The
subject of the forum was trade in telecommunications. We
got through two opinions out of three there on a
relatively noncontroversial basis, some judgments about
how the world has changed and what is the legitimate way
towards regulating telecommunications markets going
forward into the twenty-first century.
It was a conversation and a set of opinions that
you couldn't have imagined coming out of that group, or at
least I couldn't have, five years ago, talking about
private investment, competition, and how to regulate
markets so that you get the most benefit out of private
investment, you have competition not for its own sake --
our foreign friends are always eager to remind us -- but
in order to serve the classic objectives of regulation in
this sector, and that is universal service, better
services, lower prices, and new services.
I think that fundamentally is the most important
thing that came out of the WTO agreement, that is to
legitimize in the minds of the regulators in this sector
around the world the approach that really has taken 20
27
years to develop in the United States and other countries,
and that is that we really need to move away from thinking
about this sector as a natural monopoly in any sense and
move towards a system of regulation that promotes
competition and relies as much as possible on the
marketplace.
MR. IRVING: Thanks.
Anybody else want to respond? We had the two-
year anniversary of the Telecom Act and we constantly
hear, well, it hasn't done everything it should have done,
and I keep responding: What two-year-old ever does
everything we want it to do?
With regard to the one-year, or I guess the two
month old WTO agreement, how does MCI feel about what's
happened so far?
MR. REBACK: Well, I think it is important to
note, Larry, that it's only been two months. We really
look upon the WTO agreement as the first step, and in fact
the market opening commitments that have been made by
various countries in the agreement are a very important
step. But from our perspective in trying to compete on
the ground in Mexico and New Zealand and in other places,
we really think that the real test of the WTO is going to
be in this regulatory reference paper, the set of pro-
competitive principles modeled in many ways on U.S.
28
practice, although obviously the compromise of
international negotiation, which will determine whether
new entrants like MCI in foreign markets can have a real
chance to compete.
A commitment to open one's market without laying
down things like an independent regulator, like fair and
cost-oriented interconnection, like provisions to prevent
anti-competitive behavior by the incumbent carrier, is
really not worth very much at all. And I think we have
been working closely with USTR and the FCC and the other
agencies to try to bring some meat to the bones of the
reference paper, and if we see progress in that area I
think we'll see success for U.S. companies abroad.
MR. IRVING: Thank you.
Let me turn a little bit now to global
partnerships. If you've been reading the trades and the
international telecommunications papers over the last
couple of years, you probably see more partnership changes
than -- and I'll date myself again -- since I snuck in to
see "Bob and Carol and Ted and Alice" back in the
seventies. You've got Telefonica switching with --
MS. PHILLIPS: I was much too young for that.
(Laughter.)
MR. IRVING: It was an R movie. I think I was
15.
29
(Laughter.)
MR. IRVING: You know, we don't have any wife-
swapping movies or spouse-swapping movies any more, not
that I want to see any of them.
In any event, I'm violating Ed Markey's -- Ed
Markey has something called the first rule of holes, and
I'm violating it. That rule is, when you're in one stop
digging.
But we have some companies like Unisource and
Telefonica, and AT&T and MCI and BT. We're beginning to
see a dance that you've never quite seen before. One of
the most interesting questions I had last week when I was
in Malta was, now that Stat Telecom is off by itself did
that mean that they couldn't really succeed in a global
marketplace?
So I guess that leads to the next question:
What are the advantages and disadvantages of global
partnerships or joint ventures? Is it possible for a U.S.
company to go it alone if they're trying to expand into
emerging global markets? And maybe I should turn to
WorldCom and AT&T to start that one.
MR. KOPPEL: Well, there certainly are
advantages and disadvantages. I'm going to skip over that
part for a second or maybe I'm going to defer to Sandy and
Doug, who have been in alliances before. WorldCom has
30
only recently entered into an alliance with Telefonica.
But let me answer your question directly: Is it
possible to go it alone? Yes, it is possible to go it
alone. WorldCom until its alliance with Telefonica did go
it alone in every market or virtually every market that it
entered overseas. The only exceptions were in markets
where the foreign ownership laws prohibited WorldCom from
owning 100 percent of the entity, the operating entity
overseas, in which case we worked with a partner.
But yes, you can go it alone. It does require
resources, it does require patience, it does require
having good people on the ground with language skills,
with technical expertise, and it requires choosing your
markets fairly carefully.
I don't think you can go it alone in every
market in the world. I think that what WorldCom found was
that, although we had gone alone in all of Europe and were
trying to do it in most of Asia with the exception of
Singapore, where we're in a partnership because of the
foreign ownership laws in Singapore, that the world is
even larger than that, and Latin America is very
significant and Eastern and Southern Europe are
significant as well, and that led to our alliance with
Telefonica.
But I think you can do a combination of
31
strategies, and certainly if you choose your markets there
is no reason that you cannot go it alone.
MR. IRVING: Doug.
MR. SCHOENBERGER: Yes. AT&T has definitely
taken the alliance route in significant ways, and we
believe that that is a pretty critical step to get started
for serving multinational corporations to begin with. But
I truly creates strange bedfellows. We also have
bilateral relationships with countries with respect to
accounting rates, and many of those people who we sit
across the table from when we are negotiating and yelling
and screaming and pounding the table and leaving the room
on accounting rates in the morning, we have to come back
to in the afternoon and say, we need to get our private
lines to serve a multinational corporation together.
So it does create some interesting dynamics.
But with respect to local knowledge, understanding the
customer, customer access, we think it's pretty important.
MR. IRVING: Now, are we going to see what some
people are fearful of? You know, if you go into the
hallways of Malta and you talk, folks are saying it's
going to be four or five companies and they're going to
dominate the world. When you really talk to some of the
ministers from some of the smaller developing countries,
they are fearful of the loss of autonomy and it'll be AT&T
32
and Deutsche Telekom and WorldCom-MCI and their partners,
three or four, NTT, carving up the world into their
fiefdoms.
Is there a realistic fear of that?
MR. SCHOENBERGER: Large is sometimes good,
there's no doubt about that. But on the other hand, there
are certainly niches where small is also good as well.
Our chairman came out with a statement a couple of weeks
ago about basically the difficulty of being large and
alliances and partnering.
Large is not always good as well. Large can
also be cumbersome and slow and sometimes slow to meet
market needs. So you know, we all read the same pundits
and we see some of this alliancing going on. I would be
surprised if there's one or two left in three or four
years that are ruling the telecommunications world.
MR. IRVING: As you were talking about large can
sometimes be cumbersome and slow, I was thinking about
Stanford's front line and how they lost to Kentucky. I'm
still scarred by that.
But when you talk about that, it also raises the
issue that small can sometimes be more effective. And if
you really look at the global economy, particularly the
domestic economy, the companies that are really
contributing to our domestic economy were small companies
33
not that long ago. If you look at the WorldCom's, the
MCI's, TCI, PanAmSat, a lot of the companies that are
household words, at least in our households -- but then we
may not be typical households -- they were companies
nobody heard about 10 or 15 years ago. And if you look at
where the wealth is being created, it's the small
companies.
What's happening with small companies? Do they
have some unique advantages or disadvantages with regard
to this new global marketplace? Maybe Don and Meri can
speak to that.
MR. HUTCHINS: Sure. I think there are clearly
some advantages, particularly on the side of being able to
find a market niche, move quickly and capitalize on
something without necessarily the approval and funding
processes and steps that a larger company may have to go
through to make a decision.
We've seen a lot of companies in the last two,
three, four years move in international to where the sort
of category of an international carrier's carrier, that
didn't really exist two or three years ago, now has
probably a dozen players in it, some of whom are in excess
of a half billion dollars a year after simply three years
of just getting into business. Clearly, they've been able
to capitalize on a market opportunity and do it very
34
quickly.
You're also starting to see companies like that
overseas. A company I'm working with right now has
decided less than six months ago that they wanted to
create a carrier hub in Japan and now, six months later,
they have a switch in place, they have facilities in place
to the U.S., they're passing traffic between U.S. carriers
and the Japanese network.
So there are some real advantages in terms of
being able to see an opportunity, move quickly, and if the
opportunity fades in two or three years move on to another
one, whereas a bigger company, by the time they build the
structure, get the approvals they need, may not be able to
do that.
There's a down side in that those smaller
companies sometimes don't have the clout to accomplish
things, and again the Japan example comes to mind. We
heard a few minutes ago about WorldCom getting approval to
be a type one over there. I'm sure that's something that
they invested a lot of time and energy in making sure that
it happened on a timely basis. The particular company I
know is leasing facilities right now as a type two carrier
because they've not been able to obtain that type one.
It's not quite as simple as getting a 214 authority here
in the U.S. and getting approval, and as a small company
35
they're committing a very high percentage of their
resources to trying to work with the regulator in Japan
and make that happen, where a big company may have a lot
more of a problem with that -- may have less of a problem
with it.
MR. IRVING: Does anyone have follow-up before I
turn to Meri?
MS. CORNELL: Let me comment quickly, before
Meri steps in, on Don right now. There's a flip side to
that. I very much agree with the point that Don just
made, but that sometimes the smaller companies are not so
threatening to the foreign regime as well, either to the
incumbent carrier or to the regulator, and they can sort
of skirt in under the radar screen, not necessarily in an
inappropriate way. But they are not viewed as taking away
from the incumbent's market share and the regulator and
indeed the incumbent carrier view them as, you know,
perhaps a little helpful competition on the margins, but
they're not going to create barriers to entry to a new
entrant, a smaller entrant, in the same way that they
might to a large carrier like AT&T or some of the other
carriers.
MR. IRVING: Good point.
MS. BRAZIEL: I agree. I want to speak a little
bit to the fact of going with partners. We've been very
36
fortunate in the European marketplace. Certainly IXC
could have gone in like WorldCom did, choose to invest.
Europe's fairly well liberalized. The regulators are
likely to give licenses. There are very limited barriers
to entry. There are some.
But we chose to partner with actually a PTT,
which would sort of make you think, gosh, talking about
small. And we chose to partner with the Norwegians, who
actually, the Norwegians are part of Concert and
participate with BT. They also have bilateral
relationships.
But what's been interesting is they have a whole
new management structure in who do not come historically
from telecom. They come historically from IT and Bull,
DEC, IBM. Very different mentality, and they're very
aggressive in the marketplace, want to expand, and
recognized also -- and I'm speaking on their behalf, but I
think in looking at the U.S., they wanted to go with a
carrier who wasn't a large carrier, one that knew how to
operate in a market, in a competitive market. They
recognized that they didn't have the skills to bring from
a competitive marketplace, but yet they had the skills
from a technology standpoint. They knew the European
Commission. They knew how to get things done.
So from our standpoint it's been a very nice
37
partnership, and we believe that's the way to go into
these markets.
MR. IRVING: So you would say that to go into a
market a partnership is essential, necessary, helpful?
MS. BRAZIEL: Helpful. I don't think it's
essential. In certain marketplaces it certainly is. I
think we've referenced the foreign ownership. I mean,
Mexico; we are in a partnership down there mainly because
of the foreign ownership restrictions. We're located in
Texas. Mexico is pretty much just an extension of the
Texas marketplace.
MS. CORNELL: Don't let Mexico hear that.
(Laughter.)
MS. BRAZIEL: Actually, it would probably be the
reverse. Actually, up to San Antonio, they believe that
the border extends up to San Antonio, so it is a
combination. The border is very fluid.
But I think that from our standpoint we have
been able to be viewed more as a European carrier in this
case because we had that partnership. And by aligning
with a PTT, they've been able to bring us into -- even
though WTO and everything else, there truly is still an
old club. That's a given. It's not going to change for
several years and it is a reality.
So I think -- I see some smirks over there.
38
Things don't happen in two months or two years. They
evolve over time.
So I think that it's been a very interesting
partnership that has been very helpful.
MR. GOLDBERG: I think that the answer to a lot
of these questions also depends on, gee, what is the
service that we're talking about. In PanAmSat's
experience, for instance, if we are selling satellite
capacity and really doing little more than that, in those
instances, yeah, we can probably go it alone, achieve a
fair amount of success there. In terms of the size of the
company that's required to do something like that, I think
you can get away with being a fairly small company. You
know, economies of scale are less of an issue.
If you're talking about a DTH service, there's
an instance where it would be very foolish to try to
proceed by yourself. A DTH service, there is a huge
cultural element that is such a part of that type of a
service, and to think that a U.S. company could go into
India, say, and seek to provide a DTH service without
involving an Indian partner, an Indian programmer, that
would be foolish.
Again, so I think in answering this question, I
think you really do have to take a step back and say, what
is the service that you're talking about, and many of
39
these companies provide many different services. Len
sells equipment and I'm sure they would take a different
view of how important it is to partner versus how much
success you can achieve by going alone.
MR. KOLSKY: Excuse me. I just wanted to
broaden your point. I don't think any global service
provider can function without having partners, and they've
got to be global partners. The biggest problem Iridium is
now facing as I understand it is getting licenses to
operate in various countries, and to the extent that it is
able to spread its investors out over into those key
markets there's no doubt that its opportunities to get
those licenses escalate.
As you've been reading, technically that isn't
the problem. The problem is a regulatory problem, and so
you in effect try to "buy" -- quotes around "buy" --
entree by picking key investors.
MS. PHILLIPS: Just the wireless experience.
Clearly, our formula was based on a partnership. Always
when we went after licenses, you look at our history in
Europe, and not only partnerships, but partnerships that
invariably they would have a local business, because that
gives you the resources on the ground, it gives you
hopefully some political involvement on the ground.
We were looked at as a valuable piece of the
40
partnership because we came in -- what AirTouch would sell
in these partnerships, particularly in the European
licenses and some of the Asian and now we're in Eastern
Europe, is our technical and operations expertise. We
come in, we usually are the technical manager, operations
manager.
In Romania, from the time we got a license until
we were actually operating, we did that in five months,
when we were actually providing service. So that's the
piece that AirTouch as a U.S. carrier brings.
Also, what we found is that when you form these
partnerships, for many of the governments when they're
deciding on these licenses they want to have a U.S.
carrier. I mean, there's a whole political issue of them
liking to have a U.S. carrier, was what we found, in their
partnerships.
So again, the formula for us is have a local
business and --
MR. IRVING: Why do foreign governments
sometimes like to have -- that almost cuts against the
common wisdom.
MS. PHILLIPS: In some consortia, in some
license applications -- and we've been involved when
there's different consortia -- there is this view that it
is good to have as a piece of the one license to be a U.S.
41
carrier. You'll have U.S. carriers, U.S. companies, be
involved in a variety of different licenses, but we found
it actually has been helpful in some.
MR. IRVING: That's good to hear.
MS. PHILLIPS: Well, I thought I should bring
you some good news this morning, Larry.
MR. IRVING: Thank you. I always want good
news. I missed opening day yesterday, so I've been in a
depression every since.
Barriers to entry. We've heard from everybody
that barriers to entry is a critical issue, and there seem
to be all kinds of different barriers to entry, whether
you're talking about ease of use -- I'm sorry, ease of
exit from a market, sunk costs, economies of scale,
willingness of consumers to switch vendors. All of those
come up at various times.
Len, what are you seeing out there as regards to
Motorola on, say, economies of scale as a barrier to
entry?
MR. KOLSKY: Well, it's an interesting question
for us. The panelists who are going around the world and
investing in operating systems outside the United States
will generally secure equipment which meets the standards
of those countries. In general, those are not standards
which are dominant in the United States. So one of the
42
problems we have, I would say a first line problem, if
we're going to supply equipment to one of these companies
offshore we have to manufacture equipment which is other
than what is sold in the United States. That's a serious
problem for us competitively because you don't get
economies of scale.
Motorola made a judgment, at least in cellular,
and that is we would provide what the market wants. That
means in Europe we provide GSM, that means in the United
States we provide both TDMA, CDMA, et cetera. I think
there's a question long-run whether we can generate enough
volumes of economies to make those kinds of diversities
pay off.
So we would like, I guess, Gina and Diane, to
some degree Bill and yourself -- I don't know if we'd want
a global standard. That seems perhaps beyond where we
want to go. But I think we want the United States
Government to reflect some sensitivity to that problem,
that the Europeans and the Japanese are very well
organized in that standards environment and they thereby
create a de facto barrier to entry. It's not a legal one;
it's a de facto one, but meaningful nevertheless.
MR. IRVING: Let's talk about that a little bit,
and I'll try to get Barbara and maybe my colleagues from
the government in this. In the United States we have,
43
whether you're talking about wireless technologies or
digital television, we have, I don't want to say a
theology or ideology, but a preference for market-driven
decisions. We prefer to let the market, the industry, to
work amongst themselves and figure out what's the proper
standard, figuring that the market will always be a better
determiner of what the consumer needs than the government
will be.
What I'm hearing from you is that, well, that
may be nice in theory, but some of our trading partners
have either a better organized industry or a kind of top-
down governmental determination of what the standards will
be, and that affects the ability of U.S. companies to
compete effectively in global markets.
MR. KOLSKY: Let me tee something up and see
whether the other panelists respond. One of the arguments
we've heard is that if the government picked the standard
it wouldn't be the best standard. My experience is that
it isn't the best standard when the industry picks a
standard. It's the one that's available at the time, that
will do the job they want at that moment.
The United States particularly, we're very
driven by short-term profits, quarters, weeks, months, and
I don't think that we're ever going to get a situation
where the industry by itself, industry being both
44
manufacturer and operator, is going to coalesce to the
best standard.
When you talk about the marketplace, Larry, that
certainly exempts the end user. The end user is utterly
indifferent to what the standard is. He wants to pick up
the unit and talk. So it gets down to what does the
operator want and what is the manufacturer able to
provide, and I think we have dissipated some of the
natural energies that the United States economy, a robust
economy generally, can contribute by getting into a
diversity of equipment.
I'll just end with one comment and let the
panelists discuss it. When these companies go overseas
and they have seen a choice of standard in the United
States which maybe they helped pick, I'll bet when they
get over there and it turns out that that country X has a
different standard they adapt to that just like a duck
takes to water.
MR. IRVING: You know, we're very fortunate in
that we have I think the only person in the history of the
world who has headed both the FCC's Wireless Bureau and
the International Bureau, and she's seated right to my
right. Do you want to respond to that?
MS. KEENEY: Standards are extremely important.
I think it's a tough issue. Kind of the American cowboy
45
attitude has been the government shouldn't pick standards.
But I'll tell you, when I travel I am envious when I see
all of the European people or Asian people pull their
phones out of their pockets and flip them on, and my phone
doesn't work when I travel.
We have had this view that government really
shouldn't do it because they won't pick the right
standard. I think you've put your finger on one of the
issues. But you know, as you say, industry economics
don't always lead you to the right standard, either. I
would point to Beta and --
MR. IRVING: VHS.
MS. KEENEY: Yes, VHS, Macintosh, Windows. I
think Macintosh is better. It's not the standard any
more, or it never was.
We have to acknowledge that the next set of
barriers to entry are standards and that if we sit on our
hands the Europeans and the Asians are very organized,
they are getting together. They are picking a standard,
and if we sit this out we're going to be left behind.
I don't think that means that the government
picks the standard. I think what that means is the
government has a process to push the industry to pick the
standard. The one thing we have to be very careful of is
the politics that are involved. If the government is
46
involved in picking a standard, you have well-heeled
lobbyists who push in a certain direction and the
entrepreneurs, who don't have lobbyists in Washington,
don't get that attention. And I'm humble enough to be
aware of the political pressures on standards.
MR. KOLSKY: My heels are all worn down.
(Laughter.)
MS. KEENEY: Because they've been dragged
around?
MR. CORBETT: I have to say that, on the
equipment side of the industry, a lot of the environment
globally is really predetermined by the services side of
the industry. And let's face it, we are only one foot
forward in terms of bringing most of the world out of a
monopoly mindset. Nirvana in terms of services
competition is something that I'll be reading about in
retirement perhaps, if I can still read and I live that
long.
I think that when we get to a point where
governments really will have gone far enough in promoting
competition on the services side, that they will be forced
to make decisions to enable entrepreneurs without really
good shoes to get the spectrum they need and come to
market and grow their service relatively quickly; that you
will see, I think, a bit more culture -- not cowboys over
47
there, but in Japan they'd be samurais and in Europe
they'd be people without -- who haven't gone to L'ecole
Nationale. But it's going to take some time.
MR. IRVING: Let me turn to different sectors
now. Are there differences in terms of what the barriers
are for a wireless company like AirTouch versus a -- well,
you're also a wireless -- a wire line company like
WorldCom, MCI, or AT&T, or some of the folks that you
represent, Don? Are there differences for manufacturers
than there are for satellites? Could maybe we talk a
little about what we might see in the satellite area in
PanAmSat? Is your experience the Iridium experience, that
but for an ownership interest it gets a little bit more
difficult to benefit markets?
MR. GOLDBERG: I think the best way to
understand market access problems is to ask yourself, what
are countries threatened by? And this goes to Diane's
point about sometimes if you come in below the radar
screen and they perceive you as non-threatening, you don't
run into a lot of those access problems. We have found at
PanAmSat -- and I wouldn't be surprised at all if this is
the experience that other companies have shared -- is that
countries are threatened sort of on two different levels.
One, money. If you're coming in -- and I think
this relates to standards, too -- if you're doing
48
something that threatens the activities of their incumbent
providers, of their incumbent manufacturers, a lot of
countries make a whole lot of money off their telecom
sector, whether it's monopoly PTT's, whether it's a
relationship with Intelsat in the satellite context. So
again, to understand market access issues I think you have
to ask yourself, what are countries threatened by. One is
money.
Two -- this is what we experience in the
satellite field a lot -- cultural issues. A big problem
with DTH, we see a lot of market access barriers come up
because countries are threatened by the United States'
sort of cultural dominance, it's often perceived. This is
the case in Canada, this is the case in France, this is
the case in India.
So these are the two sources of market barriers
that we see. And yes, I think the satellite industry has
its own unique ones. Certainly -- and PanAmSat talks
about this a lot, but certainly the existence of Intelsat
has provided a lot of countries with an economic incentive
to deny access to competitive carriers, particularly with
respect to certain types of services. And this goes back
to what are you threatened by.
We have a much better ability to provide video
type services than we do for PSD type services, and that
49
was largely the case because a lot of these countries
were, frankly, making less money off of their video type
services than they were off of PSN traffic. And as we try
to move into that market, the restrictions on separate
systems, non-Intelsat systems, to provide telephony type
services have finally gone away with respect to U.S.
carriers, and we're facing very high barriers from other
countries because they do feel threatened by us coming in
and eroding some of the money that they make off of their
telephony type traffic.
MR. IRVING: Aren't you providing some other --
aren't you providing some benefits to the populace that
offset that money, loss?
MR. GOLDBERG: This is the case that we make and
this is the case that the folks in country who want to
make use of our services make to their regulators. We
think that what few revenues they lose because of the loss
of their monopolies, that those losses are hugely offset
by the stimulus to their economies that the introduction
of sort of a competitive provider offers.
When we come into markets, it's always the case
that satellite facilities -- that the prices that the
folks are paying for satellite facilities go down, and
that's a good thing. It gives more people access to those
types of facilities. We've found that in Africa, for
50
instance, we've had some great examples there where
Internet service providers in Africa who couldn't afford
satellite capacity on Intelsat could afford satellite
capacity on PanAmSat.
And the Internet is actually -- and we hope that
this remains the case -- is one of those areas where a lot
of countries still aren't feeling threatened. It's not
their PSDN traffic. As we see Internet and telephony
starting to merge a little bit, we expect to see more
restrictions thrown up there.
But yes, Larry, we think that if they take the
long view of this, that those market barriers will come
down.
MR. IRVING: You mentioned the concern about
content, and I always thought that content concerns were
overstated, until Gina and I were standing in a restaurant
in Malta watching basketball while listening to Puff Daddy
sing "It's All About the Benjamins." There's something
just kind of bizarre about Puff Daddy being exported to
Malta.
MR. GOLDBERG: Right.
MR. IRVING: I mean, I've never quite understood
why, if I've got to watch hockey, my Canadian friends
don't want Puff Daddy, but other than that -- but in
Malta, I could kind of understand if I was a parent of a
51
17 year old in Malta Puffy might be a little bit over the
top for me.
MR. GOLDBERG: Just one more point on this. The
cultural issue is twofold. One, it's a concern that U.S.
programming and U.S. music and the like are going to
overwhelm their indigenous cultures.
Two, a lot of countries, there is sort of a
national pride built up in, with respect to satellites,
launching your own satellite. And we have found that
there are some markets where we were happily providing
services for a long time without any market access
restrictions at all, then all of a sudden they've decided,
gee, it's time that we launch our own regional system or
our own national system, and then there were preferences
to make use of that system. So markets that we've been
able to serve, suddenly we have market access problems.
MR. IRVING: Is there the same kind of national
pride thing about having a long distance company or an
international carrier that affects what MCI or AT&T is
doing?
MR. SCHOENBERGER: I want to talk to the
barriers to entry, too, a little bit from a services
perspective. You almost couldn't ask for something better
than GATS. If you just started from a dead start and you
said, we need to get down barriers to entry around the
52
world, and someone handed you the GATS agreement, you'd be
pretty happy, I think.
Not to mention, when you read further you saw
the reference paper terms and how good those are. So from
a services perspective, we don't have much to complain
about in theory.
But I do want to get back to what Sandy started
with. Implementation is really important. A colleague of
mine describes it like this. He says: GATS is like a
block party. He says: You can come to the block party as
long as you commit to bring anything, not that you bring
anything, but just that you commit to bring anything.
(Laughter.)
So the day of the party is here. The U.S. has
certainly lowered its market entry barriers, and now the
trick is getting people to come with what they committed
to bring. Now, arguments rage about should you be there
because you committed to bring a plastic fork versus those
who have committed to bring all the hamburgers and hot
dogs, a la, gee, the U.S. market is the plum here. I
think those arguments are past.
But implementation is the key word.
MR. REBACK: Just to pick up on what Doug was
saying, I guess what Dan was saying previously, and I
agree with everything Doug said basically. I think it is
53
important, and I think this was an argument that the U.S.
negotiators were beginning to make in the WTO over the
past year, that it really is in the economic self-interest
of our foreign trading partners to open their markets.
And it seems to be an argument that is starting to take
hold and we're getting some responsiveness to.
We make efforts on our own. U.S. negotiators
make efforts in conjunction with us and on your own. But
the capital markets are a completely different mechanism
out there, and money is flowing to areas of the world
where markets are beginning to take steps to open up, and
that may end up being the most dynamic factor in bringing
liberalization worldwide.
Hopefully what we'll see as those areas that are
opening up are attracting capital, their neighbors will
see that, we're going to miss out on the capital if we
don't do similar things. It's certainly an argument we're
trying to make in places like Mexico. We put $900 million
into the ground in Mexico and we're willing to do more.
That's a lot of societal benefit for Mexico and that needs
to be weighed against by the Mexican government as an
example with the kinds of essentially above-cost
accounting rates that the dominant carrier may be getting.
The economy -- the foreign trading partners need
to look at where they want to be, not just today, but
54
what's going to be best for their development, the
development of their infrastructure, five and ten years
down the road. And in our view, that's opening up and
allowing competition to come in. They just can't do it on
their own. I think that world has passed.
MR. IRVING: You raised the issue of geography a
little bit and let me ask a couple of questions with
regard to what's happening in different parts of the
world. I'll ask anybody's input on this. You know, the
President is still in Africa. I think he comes back later
this week.
Secretary Daley, we had our what we call
executive management team Motorola yesterday. He was with
the President for part of the trip and he was talking
about the wonderful sense of excitement of the
possibilities for Africa. And yet, if you look at Africa
there are more telephone lines -- you've all heard this -
- more telephone lines in Tokyo than in all of Sub-Saharan
Africa. There are more cell phones in Thailand than on
the entire continent of Africa. So you're not seeing the
level of investment.
But if you look back 10 or 15 years ago, you
didn't see the investment in Central Europe, you didn't
see the investment in Latin America. Those things
changed.
55
What's happening globally and what's happening
in Africa? What are the impediments to investment in
Africa and why have so many companies looking at Central
Europe after the opening up and democratization, why do so
many companies who didn't want to be in Latin America in
1980 decide by 1985, 1988, certainly by 1995, that that
was a place to play? How did you make those decisions as
businessmen and women as to where to make your
investments?
MR. HUTCHINS: I think a lot of it, Larry, is
financially driven. It shouldn't necessarily be. It
would be nice if we all had nice societal goals as well
and that type of thing. But I think you mentioned early
on the pressure on corporations for profits, earnings,
that type of thing. Whether they be large or small, that
occurs.
And when you start looking and saying, okay, how
can I make the best return on my investment, whether I am
purchasing cable, putting up satellites, installing
equipment, doing wireless networks, or whatever, it's
going to be where there's a high volume of traffic either
existing or in the very short term developing. That
caused people to go into Europe first, as did the
regulatory climate, really going into Asia now as a
primary market, and also to Latin America.
56
Really, Africa I think, less for the regulatory
restriction, really more just for the density of traffic,
the volume of business, and what kind of return on
investment you can get, is coming at the tail end of the
stream at the moment. You're going to start to see and
are seeing things happening in South Africa. You're
seeing things happening in some of the North African
countries where there is a higher telephone penetration,
more usage, that type of thing.
But I think for a lot of the rest of the country
that infrastructure has to develop to get the calling
volumes there and the business that makes astute
corporations say, the dollar I invest there will benefit
me as well as a dollar invested in Central Europe or in
Asia at this point in time.
MR. IRVING: Does the crisis in Asia affect
what's happening? Are you seeing folks less willing, less
excited about investing in Asia, given the fall of some of
the currencies? And can the pace that we expected be
expected to be maintained in light of some of the fiscal
problems of some of both the governments and financial
markets in Asia? Doug?
MR. SCHOENBERGER: Good question.
MR. IRVING: Thank you.
MR. SCHOENBERGER: From a traffic perspective, I
57
think we've seen a little impact. But ironically and
perhaps sadly, sometimes when things go bad phone traffic
goes up.
From an investment perspective, I would defer to
people who are looking to get in on the ground on an
equity basis in those areas, to get their bounce.
MR. IRVING: Anybody here interested in Asia?
MR. KOPPEL: WorldCom is very interested in
Asia. So far as I know, we've had absolutely no decrease
in our interest in Asia. When you look at investing in
telecommunications facilities, you're looking at a five to
ten year or longer project in terms of building out and
gaining customers. And I think that, I hope in everyone's
view and certainly in my view, if you have a long-term
perspective, Asia is an extraordinary market and the
problems there are short term.
Quite honestly, by the time we resolve the small
regulatory issues that we're facing in various countries
in Asia and get our system built out and get cost-based
interconnection and negotiate rights of way, we'll be,
hopefully, talking about the Asian crisis as a piece of
history. So I think that we still have to keep our eye on
the regulatory issues, and I don't see any decrease at all
in interest in Asia.
MS. PHILLIPS: Larry, I would just agree with
58
that. One of the things, if you have a company that
you're involved in countries in different regions of the
world, this is -- I agree with Robert, this is a short
term. It's economic fluctuations which you see kind of
crop up in different parts of the world at different
times. One of the ways you can balance that off is we're
in Korea, we're in Japan, and we've not seen tremendous
dropoff. I think folks are still using their wireless
phones. There is a disruption, but it's not a crisis of
any kind as far as our service goes.
And as I said, it's one of the ways you weather
it when you have these properties and businesses in
different regions. It's a way to deal with that.
MR. GOLDBERG: In fact, the crisis really
provides some good opportunities for companies that are in
sort of an acquisition mode. A lot of these companies had
valuations that were much higher just a few months ago and
for companies that are out there looking to expand their
presence in Asia now is a very good time to be looking at
strategic opportunities.
MR. IRVING: So this might be something of a
market correction mechanism?
MR. KOLSKY: Well, I think two points. One,
Dan's point is absolutely correct. I guess the down side
of that from a global perspective is you sort of hate to
59
make money or create opportunities for yourself by
somebody else's misfortune, and that's what the Asian
situation has provided.
Secondly, I think it's dangerous to think of
Asia as Asia. There are a bunch of countries there and
the countries are all different. Some countries are
suffering and bad economy and they need basic reform. I
think until they get it they're going to be in that
position for a long time. Other countries, I think it'll
pass, there will be natural corrections.
Motorola, which is heavily leveraged in Asia, as
in overall, we have suffered quite substantially. We
think it's a short-term downturn and we're confident that
everything in the long run will come back. I think, for
example, we're more optimistic that China will come back,
even though there are severe economic problems in China,
than we are about Indonesia, where we think there are some
basic fundamental government problems.
So I think you've got to particularize. I would
sort of agree with Robert that by the time somebody gets
the regulatory hurdles solved for a big investment this
probably will have passed or eased.
MR. IRVING: Let me turn to Don.
MR. HUTCHINS: Just a brief one. I think you
mentioned earlier some of the differences between the
60
segments of the industry we're talking about, and here
again I think this one varies whether you're talking, say,
a wireless communications company, where you're really
looking at a network and calling which occurs largely
within that country, which may have a different impact
than say a wireline-based international network, where if
you look at many of those companies a very healthy
percentage of that traffic originating in the U.S. from
our large Asian-American population going to Asia can
literally drive the profitability of that network
regardless of how much traffic originates in the early
days in that foreign country.
So you can justify your entry on one type of
traffic and then build your market in that foreign country
to increase your profits over time. It's a little
different scenario from something which is totally in
country-based.
MR. IRVING: Let me ask a difficult question
that probably no one's going to want to answer, but I'll
make somebody. At a function recently I was talking to an
individual who does a lot of work overseas, and my boss,
Bill Daley, has been on the point for the administration
on the Foreign Corrupt Practices Act. And the question
constantly comes up -- I had never quite heard this term,
but if I ever hear it again I'll leave the room.
61
Apparently there are occasions in markets where somebody
will come into a business negotiation with a foreign
company or a foreign government official and the question
will be asked by the official or the entity: Are we
covered, meaning is everybody here taken care of?
Is bribery a problem? Is bribery a market entry
barrier that should concern us? When I go back and see
the Secretary this afternoon should I say, you know, we've
got to redouble our efforts on FCPA? Or is it overstated
as a market barrier?
MR. KOLSKY: Well, I'll --
MR. IRVING: Thanks, Len. You were the one I
was going to turn to.
MR. KOLSKY: I know a cue when I hear one.
Yes, it's a tremendous problem. There are
markets where bribery is a way of life, and it's enlarged
or magnified by the fact that other companies outside the
United States have a more liberal, shall we say, attitude
toward it.
MR. IRVING: As a liberal, I resent that remark.
(Laughter.)
MR. KOLSKY: A more of a "when in Rome," et
cetera, so that they do not regard it -- in fact, there
are cases, I understand, where one can deduct the costs,
those costs of doing business, on your country's income
62
tax.
The United States has a much more rigorous
standard. We're a United States company. We adhere to
those standards, and we are disadvantaged. And it isn't
in getting contracts, although that sometimes happens.
It's literally that your goods can get through customs and
mine can't. There's a hundred different ways -- and let
me give you the moral dilemma you're in.
We will find that we can't get goods directly
through, but a distributor of ours can get them through.
Well, there isn't rocket science to figure out he's doing
something that we would not espouse ourselves. So we say
no, you can't do that. And then we find somebody who is
not a Motorola dealer, he's a general dealer and he
handles anybody's equipment, and he gets those through.
It's a very, very difficult problem. The recent
moves in trying to cure that we think are very salutary,
even if -- you used, Doug, the example of somebody
bringing a plastic fork to the party. Even if people will
wink at what they've signed, we think the fact that
they've stepped up to recognizing that corruption exists
and should be dealt with is very salutary, and we hope the
United States will stay rigorously on top of this.
MR. IRVING: Bill, Ambassador Barshefsky's been
part of this team. Is there more that we can and should
63
be doing with regard to the Foreign Corrupt Practices Act?
I mean not part of the team bribing; part of the team
that's trying to root out the bribery in the system.
What can we be doing that we're not doing to
assist our colleagues?
MR. CORBETT: Well, I think Len points correctly
to the progress at the OECD in putting together a code and
making it illegal as a matter of tax practice, at least,
to deduct payments to foreign officials. We need to be
vigilant in terms of making that code work.
Len mentioned that some of the parties to it may
be winking. We are not interested in having them wink.
We're interested in them following the letter of what they
agreed to. We're interested in following it up at the
OECD, making it work. And as with most of the things that
we start at the OECD, we're interested in spreading what
we learn there to a larger audience of countries, because
at the end, I think the World Bank has recognized,
corruption is a development problem. It's not a problem
for listed developed -- listed companies in developed
countries and how it affects their bottom lines, because
the greater problem is for development economics in that
entire part of the world, and that's really where the
emphasis should be.
MR. IRVING: Let me turn now maybe back to
64
policy and ask my colleagues from the FCC. I'll put you
on the spot first. What are in your opinion the principal
obstacles in the international market to market entry and
expansion abroad in terms of foreign government policy and
regulation that we might not have discussed yet this
morning? What's out there that we need to be worried
about as folks who talk government to government that our
friends from the private sector may not have talked about
yet?
MS. KEENEY: Well, I think in our view our job
is largely being in partnership with industry, and we need
to hear from industry. More than in the other bureaus in
which I have worked, we really have a partnership with
industry, and if there are problems in getting entry we
need to know about them. We have regional experts who are
set up to follow everything that goes on in the regions to
which they are assigned, and I hope that industry talks to
them frequently and raises problems.
We will continue to work with regulators around
the world to have a dialogue. Hopefully we will be
persuasive that clear, simple policies are the way to
attract investment in their countries. But where we're
not successful, I want to hear about it.
MR. IRVING: Diane?
MS. CORNELL: Let me just add, I think that the
65
biggest problem that we're facing in foreign countries is
the learning curve, particularly among the regulators, but
also among the industry in other countries. What we do at
the FCC when we talk to foreign regulators is try and
encourage them to set up a process, a process by which
they can get input from outside parties, that they don't
just deliberate among themselves, including other
governments, but most particularly industry.
Then the next step is basically to turn it over
to all of you, who are doing business in these countries,
to do exactly the same thing that you do here in the
America: provide information on what are the key issues,
what are the key concerns, what are the obstacles, what
needs to be done to fix it.
And the solutions are going to vary from country
to country and the problems are going to vary from country
to country, although there are certain consistent themes -
- interconnection, et cetera. But I think that the basic
step has got to be to get a process up and going and to
get as much industry input as possible.
So I very much encourage all of you who are
doing business in these countries to make sure you stay in
as much contact with the foreign regulators as you do with
us. And they'll just thank me for it forever, I'm quite
sure.
66
(Laughter.)
MR. IRVING: Bob?
MR. KOPPEL: I just want to amplify what Diane
said, which is that the U.S. Government has invaluable
expertise in liberalized markets, the U.S., and obviously
has dealt with virtually every aspect or is coming to deal
with virtually every aspect that arises --
interconnection, rights of way, resale, the hundred other
issues that are all critical to market entry overseas.
And in other countries, virtually every other
country in the world, with the exception of the U.K. and
maybe Canada, the regulators have very, very little
experience and very few resources. We met recently with
the Dutch regulator and I think they told us that their
entire staff was about 50 or 60 people, and they are in
the process of implementing a telecommunications law not
unlike our implementation of the 1996 Telecom Act. And if
you can imagine trying to implement that Act with a grand
total of 50 people --
MR. IRVING: There are some in Congress who
might see that as a goal.
(Laughter.)
MR. KOPPEL: But what we've seen is -- and
really, sort of the U.S. should do -- the first step has
to be sort of the framework, which is the WTO agreement,
67
and that's important and that's the big picture. But
there's a lot of regulators out there who I think would be
amenable to implementing the WTO, but just plain don't
know how to do it. And the U.S. ought to devote as many
resources as possible, and get industry to support them to
make sure those resources are there.
MR. IRVING: It is funny you should mention
that. Bill, Gina, State Department, USAID, Commerce have
been working to try to do as much education as possible.
There was one -- I don't remember it exactly -- I think
regulator to regulator workshop hosted by Chairman Kennard
in February. I know one of my colleagues, who was here
five minutes ago, is off to Guinea-Bissau to talk to the
folks in Guinea-Bissau about some things.
We're also -- we're not ready to announce all of
the things we're doing, but it would be useful to have
industry work more closely with us in providing the
resources for some things we do. We're doing some of it
with AID money. USTTI under Mickey Gardner's leadership
has been critical to some of these things.
But I do think that you have, from the Secretary
of Commerce to Ambassador Barshefsky, Chairman Kennard,
Secretary Allbright, an absolute commitment -- Brian
Atwood, Administrator of AID, A-I-D -- I think you have a
commitment at all levels to do what needs to be done.
68
We do have incredible resources in spectrum
management, the rights of way, the issues you're talking
about, across the various agencies. And I think you're
right, and anything you can do as industry representatives
to educate your colleagues about the importance of the
effort we are undertaking I think would be welcome and
appreciated.
As some of you may know, we had a December
meeting on this subject. And I'll be candid: I was less
than -- I wasn't even whelmed. I guess I was
underwhelmed, actually, with the response back from
industry following that meeting. There wasn't a lot of
follow-up by industry.
MR. CORBETT: Let me just say two things. On
the earlier point, every WTO member has a transparency
obligation now that the basic telecom negotiations are
completed. That's not 69 countries, that's every WTO
member. The transparency obligation in article 3 of the
General Agreement on Trade and Services is not a public
notice and comment commitment, but it is a commitment to a
certain degree of transparency which, if not upheld by a
government, is a matter subject to WTO rules. And I would
encourage industry to take note of what that commit is,
note it to foreign governments where you think you've got
a concern, and if that concern isn't resolved come and see
69
us.
Going to the latter point, and harking back
again to the example of my colleague from British Telecom
who asked about staffing at the WTO of disputes, it's
penny wise and pound foolish to put all our emphasis on
solving problems in foreign countries through
confrontation.
The United States government has some resources
which we are marshalling in a very focused way to do what
we can on a bilateral, regional basis to support other
countries. There is -- Diane's correct, there's gigantic
demand in the rest of the world for the knowledge of how
to do this stuff. The ITU's regional trade and investment
seminars which began I guess three or four years ago to
focus mainly -- since the Buenos Aires Development
Conference, they were designed to focus on financing
issues; increasingly, I'm told by ITU staff, have focused
on how do I change my regulatory system so that I meet the
conditions that people with money want to see in my
regulatory environment before they bring the money to my
country?
The ITU, as a result of the WTO agreement,
validated by the policy forum results two weeks ago, is
going to increasingly turn its resources towards
regulatory reform in support of those countries that want
70
it. I just -- we need to put some eggs into every basket
along these lines because the demand is insatiable right
now for the how-to with respect to creating competitive
markets.
MR. GOLDBERG: In PanAmSat's experience, we have
found that the way the U.S. government has been most
helpful for us, and particularly the FCC, is in the role
of sort of a technical adviser. As Gina said, you have to
be careful not to be the ugly American lecturing to other
countries about what to do. But we have found it very
effective when we have asked the Commission to speak
regulator to regulator on just sort of a technical, a
technical adviser sort of capacity. That has been very
effective.
And we are keenly aware of the limitations that
the Commission has in terms of resources, and we have
tried to talk to Congressional offices about more
appropriations designated for those types of activities.
MR. IRVING: Good luck.
MS. KEENEY: I don't know that we'll get more
appropriations, but we do have many opportunities. We
get, I think sometimes it feels like more visitors than
the Washington Monument, people coming from other
countries who are eager to talk, to learn from us, or just
get our ideas. And if we haven't heard from industry
71
about the problems you're having or the issues in these
various countries, we're missing an opportunity. So be
sure to tell us.
MR. IRVING: I think that's the same thing.
What's interesting, the most interesting development since
I've been in this job has not just been that international
-- at NTIA, has not just been that international has
become important, but that my folks on the domestic policy
side increasingly are drawn into the discussions with the
international players. And I think Kathy Brown, who runs
OPAD, which has traditionally been the bastion of domestic
policy at NTIA, spends probably a quarter to half her
time. That's not counting the time that Becky and all the
folks at OIA are spending. It's the domestic folks are
getting pulled in because they want to hear the
experience. They want to find out what we're doing. They
want to know what the administration's policies
domestically are.
And my spectrum managers, when I start looking
at the travel sheets, you know, the spectrum managers have
gone all over the world giving -- you know, we have a
desktop spectrum management system that has cut our costs,
made us more efficient. Well, for folks who are starting
from ground zero, they don't have to recreate that. They
can learn what we're doing and figure out how to do it.
72
And spectrum management, which is a question we're about
to get to in a minute, is crucial to what Barbara for
example and Len for example are doing. If people are more
efficient with their spectrum, they can figure out how to
manage it better, it creates commercial opportunities.
So please, know that I think all of us here are
there to provide resources to the extent that you like.
Again, I commend USTTI because I think about 15 years --
I'm trying to think of how old USTTI is now. 10, 15 years
ago, Mickey Gardner had a vision that a lot of us are
beginning to really reap the benefits from.
Meri, you've been straining to ask a question -
- to make a comment.
MS. BRAZIEL: No, no. I want to just make a
comment, that I think the workshops are very helpful and
useful, and I hear it throughout various countries that
I've been in, that they really want to learn.
From my standpoint, though, and I don't know
where this fits from the government, I feel like there
needs to be something deeper, though, than a workshop.
Perhaps there are other programs that I'm not aware of,
but a workshop is -- for example, if you go to a training
session, how much of that do you remember? You remember
maybe one thing, and you get a binder and it potentially
stays on the shelf.
73
A lot of this is in the day to day; when
somebody runs across an issue, how do they deal with it?
What are the various solutions to it?
MS. CORNELL: They call us.
MS. BRAZIEL: Perhaps they do, but they may call
you on the smaller issues and maybe not the larger. I
don't know.
I think there needs to potentially be more
involvement in the government, and I don't know. Maybe
you could speak to that. But from what I've seen in
certain countries, yes, they learn from the workshops, but
it's just not deep enough, and there needs to be a second
tier, a third tier continuing effort.
MR. IRVING: Diane.
MS. CORNELL: Yes, let me comment on that.
That's absolutely true. I mean, obviously, from a couple
of days or a week workshop you can't learn all you need to
know, God knows. But what we have been doing for years
now is working fairly intensely with the countries that
have stepped up to the plate and are actually implementing
liberalization.
Mexico is one good example. We've certainly
worked very intensely with the U.K. during the process in
which we've both been developing regulations, and with
certain other European countries and certain Asian
74
countries.
So basically there are -- there are more intense
relationships going on. We've also found an increasing
incidence of countries contacting us when they have
particular policy issues. It might be yellow pages, it
might be -- who knows what it is. Unfortunately, this is
extremely resource-intensive, and it's pulling on people
in our domestic counterparts who are fully occupied
already.
That's where -- I keep coming back to this
theme. That's where industry can help on the basic
education piece. So there are two pieces. One is what
are we talking about, what are the issues involved? Then
the second piece is, okay, what's the government's slant?
And that's where we can come in. But the industry can
help a lot in sort of bringing other countries -- and by
that I mean both the regulators and the industry
participants -- up to speed enough so that the contacts
are profitable, not just sort of a -- they can be a real
exchange of issues rather than just sort of a brain-dump.
MR. IRVING: I don't think any of you all
expected to get out of here this morning without talking
about accounting rates. Anywhere we go we have to talk
about it, so why should you be spared. The question I
want to raise is -- and candidly, whether you're talking
75
about Geneva and the world and the policy forum or you're
talking about the World Telecommunications Development
Conference, when you talk to your colleagues, when you're
a government official and you talk to your colleagues on a
global basis, the first thing they want to know is why are
you Americans -- in my case they say ugly American, in
Gina's they don't; I don't understand that -- but why are
you Americans forcing us to adhere to your precepts with
regard to accounting rates?
Since we're taking all these body blows, and in
some cases they're more than body blows, let me ask some
of you who are affected out there in the industry: Does
it matter? Is it important enough that we should be
almost our entire -- the rest of our entire international
telecommunications agenda is impacted? Should we be
spending the amount of time, energy, effort to reform
accounting rates that we are?
MS. CORNELL: Good question.
MR. IRVING: I'm going to give that to the
industry first.
MS. CORNELL: Yes, I agree.
MR. REBACK: From our perspective, Larry, I
think the answer is absolutely. I think from MCI's
perspective the notion of accounting rate reform and the
notion of liberalization really go hand in hand, that it's
76
going to be extraordinarily difficult to give American
companies a fair chance to compete overseas and even in
the U.S. market when accounting rates remain so far above
cost.
So we certainly appreciate everything that the
U.S. government has done in this regard. We know it's not
an easy task, and we don't have easy tasks when we're in
commercial negotiations with our correspondent relations
in many countries. But from our perspective, in many ways
it's the single most important thing that will enable us
to be competitive in the future. It's hard to see how we
can manage it if accounting rates don't come down.
MR. IRVING: Does WorldCom have a point of view,
Bob?
MR. KOPPEL: Well, I think it's critical, what
the Commission is -- what the government, the entire U.S.
government, is doing with regard to accounting rates. And
I -- this is my personal opinion. I certainly am aware of
the reaction that you've gotten overseas. But I think
that the reaction is based on, and justifiably, on pride
and other things that go a little bit beyond the issue,
and I think the reaction is a little overwrought, because
what we're finding, which is what we would expect to find,
is that in markets that are liberalizing the accounting
rates are coming down well below the benchmarks, well in
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advance of the benchmark deadline. And those countries
are the countries that are offering lower rates to their
consumers and are increasing employment in the
telecommunications sector and are making themselves into
telecommunications hubs and advanced telecommunications
centers, able to serve commercial, all sorts of commercial
entities.
And we've seen this spread all across Europe
now, starting in the U.K., and Spain announced -- Spain;
Telefonica announced two months ago that it would reduce
its accounting rate below the settlement rate benchmark,
and not because of the settlement rate benchmark per se,
but because of competitive pressures. And Switzerland's
just agreed to reduce its settlement rate below the
benchmark.
But you're going to say, given all of that, why
do we need -- why do we need the benchmarks? Because
without --
MR. IRVING: You're very good. Want to sit
here?
(Laughter.)
MR. REBACK: Without -- first of all, that's my
answer to why I think there's been an overreaction. The
countries where the benchmarks have come below the
settlement rate are countries that have introduced
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competition.
Unfortunately, there are many, many countries
that have not and are not about to introduce competition,
and it is for those countries that settlement rate
benchmarks are absolutely critical, because but for
settlement rate benchmarks we would still be paying
enormous sums of money to those countries. And I don't
see that that money is being invested in the local
infrastructure.
The argument that if the foreign carrier does
not receive a subsidy from foreign -- from international
traffic, they can't build new telecommunications
infrastructure just doesn't hold much water in my personal
opinion, because they've been receiving this subsidy since
the beginning of time and they haven't built
infrastructure. It's competitors and competition that
build infrastructure.
But in the markets where there's not
competition, settlement rate benchmarks are critical. In
the other markets, settlement rate benchmarks help
enormously in pushing the countries towards a lower
settlement rate and forcing their neighboring countries to
come along with them.
MR. IRVING: Doug.
MR. SCHOENBERGER: I would also suggest that a
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lot of the emotion comes down to something we all get
emotional about, and that is money. And the numbers here
are so large and, as the Commission's benchmark order
recognizes, $5.8 billion outpayment, $4 billion of
subsidy. You're going to get some emotion around that.
We always say it's when they stop complaining is when you
have a problem.
I want to give the benchmark order a little more
credit for some of those low European benchmark rates. I
don't think it's completely coincidental that there has
been significant increase in the filing of benchmark-
consistent rates since the order. I think the Commission
has sent strong signals to help that.
In fact, if you look at the countries, all the
countries who are either at benchmark rates or have
committed to get to a benchmark rate, and you look at all
outbound U.S. traffic, in '96 over half the U.S. outbound
traffic now is terminating in countries that fit one of
those two characteristics. We think that's wonderful,
first of all.
And we also think that what the Commission said
was going to happen is indeed starting to happen, that the
competitive environment catalyzed, if you will, by the
benchmark order, is starting to really, really take
effect. And we think that's excellent.
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On the other hand, there are still some people
out there who are saying heck no to benchmarks, and our
message back to the U.S. government is stay, stay the
course, stick to your guns, enforce the glide path,
enforce the benchmarks, send a consistent message
worldwide. And we think we'll see more of that pro-
competitive actions being taken.
MR. IRVING: Anybody else?
(No response.)
Let me turn to spectrum briefly. How are we
doing on spectrum frequency issues? We've got, oh, for
those of you who are counting, about 18 months before we
get to go back to Geneva and do another World Radio
Conference. Are you being well served by the
international processes for spectrum allocation? Is U.S.
industry being well served?
MR. KOLSKY: Oh, my. Well, here we are in 1998.
The FCC has not implemented what WRC did in 1992. WRC is
now proposing a whole series of additional spectrum.
We've had one meeting with the U.S. government's
representatives and industry representatives. My
impression is the U.S. government says all those
frequencies proposed are off the table, we've got some
sort of government use for them.
If you look at a chart of third generation
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cellular, the whole world lines up uniformly in terms of
spectrum; the United States, region two, does not.
What can we do about it? Well, dare I mention
the word "auctions" -- an eight-letter word, twice four.
Auctions preclude a uniformity of allocation or they make
it very difficult.
Do I think the United States has to do something
about it? Of course. It goes along with the --
MR. IRVING: What do we have to do about it?
MR. KOLSKY: Well, you have to decide. If
you're going to continue to auction spectrum, and I don't
see any diminution in the --
MR. IRVING: $578 million instead of $2 to $4
billion?
MS. KEENEY: We don't auction for allocation.
We auction for assignments.
MR. KOLSKY: Well, I don't know. I hear people
talk about -- and this is a good question -- that the
licensee, the auction winner, should be permitted to do
whatever he wants to do with that spectrum. I've also
heard people say, Gina, what you say. I'm not quite sure
where we stand.
Certainly, heretofore the successful auction was
the PCS auction. Everybody went to PCS. There wasn't any
really alternative. Could they have? My understanding is
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yes, they could have, they could have put it to some other
use.
But in any event, that will help. But we're
talking about systems, the Europeans are talking about
systems, that are four or five years away. The United
States carriers -- AirTouch, some of the rest of you --
they haven't implemented their second generation systems
yet. So the auction system may have done what its
proponents claim, it may have got spectrum out there
quicker, but the cost of doing that is inhibiting that
kind of investment.
What's happening now? We're facing this with
all other manufacturers. The auction winner, just the way
the lottery winner used to do, he comes to the
manufacturer and says: Underwrite me. And those who are
able to do that get that business.
So I'm not sure in the long run the public is
totally well served. But again, if you're talking about
global spectrum, we are sadly behind, and I don't see any
move afoot to have us catch up.
MR. IRVING: Once again, we are privileged to
have with us the only person who has ever served as both
the head of the Wireless Bureau and the International
Bureau. Would you care to respond?
MS. KEENEY: Well, we could spend all day
83
debating auctions. I don't think anybody wants to.
MS. PHILLIPS: We actually spent years debating
it.
MS. KEENEY: WRC prep, I'll turn to WRC prep.
We are -- the U.S. and the U.S. industry again -- you can
see Diane and I have this theme -- have to do a lot, a lot
earlier, than we have in the past to get ready for World
Radio Conferences, and to that end we have picked a head,
a chair and a vice chair of the World Radio Conference
Advisory Committee, Tony Cook-Bush and Cheryl Tritt, who
are really shaking things up. They've been having
meetings internally, not always with the rest of the
industry, twice a week. They are really pushing things
along.
They were picked because they're people who can
move things. My sense of this, and I've come to it more
recently than many people, is many things in the ITU are,
shall we say, slow-moving and that we have got to take the
initiative and push things forward.
One of the things that has happened in WRC's in
the past is that the U.S. has gone and just figured
because we're the U.S. we can get our way and if we just
say no that's enough. That's not enough, and we have to
be going around the world getting allies. We have to go
to the WRC with more than one vote, because if we go again
84
just assuming we're the U.S. and if we shout loudly we'll
get our way we're going to get our clocks cleaned.
MR. KOLSKY: Again.
MR. IRVING: Let me echo that I think within
NTIA Bill Hatch, who is heading the Office of Spectrum
Management, is also working closely with the IRAC to make
sure that the Federal Government users begin their
preparation earlier for what we have to do. And we also
understand the input of industry and we recognize that
we've got to work with the FCC and industry to have a
unified front at the World Radio Conference.
They're not going to get any easier. Not only
are they more frequent, they're more difficult issues to
resolve. You don't have the four years; you've got the
two years, and you don't have a lot of folks sleeping out.
You've got everybody now with a huge capital interest or
financial interest in the outcome across every continent,
every region, every country.
MS. PHILLIPS: I just wanted to echo one of
Len's comments, because the next frontier for wireless is
third generation. We didn't talk about the third
generation. You've got two big issues. You've got
spectrum allocation and you've got standards.
And what Len was saying, I just want to echo.
The fact that we don't line up on the spectrum -- and
85
there are also standards issues where we've regionalized
the kind of standard-setting process. Also, on
allocations it doesn't line up the same. And again,
that's the next business opportunity. That's what
everybody in wireless is talking about. Europe is ahead
in looking at third generation.
MR. IRVING: So all right, you've got USTR,
Commerce, FCC, and we could probably get a phone call to
Vania over at State. What should we be doing with regard
to third generation wireless that we're not doing?
MS. PHILLIPS: Actually, I think the good news -
- and I was not the one in my company that participated -
- on the eighth floor meetings. The Commissioners are
meeting with industry -- I think Len attended some
meetings -- to talk about third generation. There are
issues that are operator issues versus manufacturer
issues, and there has been interest of late on the eight
floor. There have been meetings held in trying to figure
out where industry needs to go. There's an industry group
that is chaired by a former AirTouch employee who has gone
on to PanAmSat, that is leading a group in discussions on
this.
So I think there is activity going on. It's
just making sure that we continue to move forward with it.
MR. IRVING: I promised when we started this,
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the one thing I wanted to get to but we're not going to
get a chance to get to, but I don't think there will ever
be a meeting like this held anywhere in the world where we
don't get to more discussion of some of the Internet
issues. But given the lateness of the hour and because of
my promise that those of you who have sat patiently
through this would have a chance, if you want to, to ask
questions, I thought it important to turn to the
questions.
If anyone has any questions, there's a
microphone there and there's a microphone there, and we'd
be delighted to have you come up and ask anything you'd
like to ask.
Yes, please.
MS. GANNON: First, in the way of a statement -
- I'm Kelly Gannon from Bell Atlantic -- I'd just urge you
in the USG to think about barriers moving forward as
operational, not necessarily access or entry, because
that's improving now for us with the GATS agreement. But
part of the challenges that we have found is that we get
in country and then there is slow implementation of
reform.
So that's something that we'd ask you to look at
and help us with as we move forward.
MR. IRVING: Any suggestions as to how we could
87
speed up implementation of reform?
MS. GANNON: Well, I think everybody's working
on it right now, but keep the dialogue open and exchange
with industry. And we appreciate the opportunities to get
in and tell you what our problems are and keep you posted.
Also, I wanted to hear what the update was on
Malta from the development conference.
MS. KEENEY: Well, when I left many issues that
were not really directly related to telecommunications
were brewing. Unfortunately, all kinds of world politics
issues were popping up, fortunately or unfortunately. The
U.S. is definitely in the defensive with accounting rates.
It's great to hear the industry saying that we should
continue to hang out there.
MR. IRVING: Thank you so much.
(Laughter.)
MR. IRVING: "Hang in there" is what you meant
to say.
MS. KEENEY: Something like that.
(Laughter.)
MS. KEENEY: The conference is ending today, so
we'll get a better report soon.
MR. IRVING: I mean, I think other than the
tangential issues, the core issues seem to be fairly
moving in the same direction as they had been moving. I
88
think most nations understand the imperatives now and what
needs to be done.
The numbers are still daunting. I mean, the
numbers are frightening, the numbers are frustrating. I
mean, although we have people who want to talk about
universal service, now we're going to universal access.
We're talking about a phone, what they hope to get over a
five-year period is a phone per village.
One of the most frustrating statistics I heard
and maybe daunting statistics I heard is that, while the
telephone penetration rate is beginning to advance in a
lot of countries, the telephone penetration rate in rural
parts of many of those countries is beginning to decline,
because what's happening is the cities have a higher
penetration rate, but they're not able to do as much in
rural areas.
Those are the kinds of things that will
frustrate you and frighten you. And again, you come -- I
have seven phones between my home, my wife's two cell
phones, and my two cell phones. We have a two-bedroom
apartment with its three phones, I carry two cell phones,
one personal, one business.
MS. KEENEY: You've heard of the phone number
shortage, the number depletion?
(Laughter.)
89
MR. IRVING: They went to 877, I noticed just
yesterday.
But when you look at those kinds of things, when
you think of what we all carry around with us, and then
you look at a country where you can go a hundred, a
thousand square miles and not find seven phones, it's kind
of, it's scary. It's very scary. A hundred or a
thousand, not 100,000. A hundred or a thousand miles and
not find seven phones is kind of scary.
But all in all, I think the development
conference, it's serving the purpose it needs to serve,
and I think what it's really beginning to do is bring down
the barriers between North and South, developed and lesser
developed. And I think what they're really beginning to
find is, we took -- one of the most important things is
there were 75 official members of the U.S. delegation.
There were actually more than 100 American citizens in
country out of about 12 or 1400 people at the conference,
and most of those people were businessmen and women
representing commercial interests.
I think the government, the USG delegation
including the Ambassador to Malta, was under 15 people.
So what people were seeing, there is an opportunity to do
some things in developing countries, and I think the
developing countries are seeing the clear commitment by
90
industry to partner with some of these countries to drive
those numbers up. I think that's what I took away that
was most important.
Any other questions? Please.
MS. WAYNE: With WRC being such a short period
of time away and due to the fact that we did get whacked
by having only one vote at the last one, what are the key
issues that are being addressed right now and who will be
your key strategic partners to make sure that we do have
more than one vote on an issue?
MS. KEENEY: Well, clearly the industry may want
to weigh in on what they think the key issues are. PFD
limits, for those of you who really follow WRC issues, are
of course essential.
Our strategy to get more votes when we go to the
WRC is to have outreach now. We have people traveling
with their tattered suitcases around the world talking,
not lecturing, but talking to other countries about what's
important to them, to see if we can find alliances. The
industry is doing the same thing, I hope -- right, Dan?
MR. GOLDBERG: Yes, we are. For us in the
satellite industry, the critical issue that we're going to
be looking at at WRC '99 is this NGSO-GSO sharing issue.
And we've learned our lesson from not being prepared
enough at WRC '97 and we are working very, very hard both
91
within the U.S. and within the WRC preparatory processes
here, but working very hard with satellite operators who
are not U.S. satellite operators, so that we can build
support outside of the U.S. And we're spending a lot of
time doing that.
MR. IRVING: Let me begin to sum up. I'm going
to, for one of the few times in my life, actually end
something close to on time.
This has been an incredibly important
opportunity I think for all of us to have input from the
private sector and the public sector on what's happening
in international telecommunications. There is so much
happening. I think in three weeks Gina and I will be,
three weeks and a day, we'll be sitting in Argentina along
with Secretary Daley, 26 U.S. companies, and 12 ministers
or sub-cabinet members of Latin American countries --
Argentina, Brazil, Chile, Paraguay, Uruguay, Mexico,
Venezuela, and others.
We'll get a chance to talk about policy. We'll
also get a chance to talk about market opening
opportunities for U.S. companies. That's just one example
of the kinds of things that the government can do in
partnership with. I think Commissioner Tristani's also
coming. I know State has to be in an Intelsat meeting, so
they can't be there. But again it's the kind of public-
92
private partnership, the kind of things we need to do more
often.
This world's not going to get less complicated.
It's going to get more complicated. And these issues are
going to become more difficult for us to resolve unless we
have the kind of dialogue we're having here today.
When I started this job five years ago, I knew
virtually nothing about international telecommunications,
and what's frightening, as I sit around this table I'm
still the least educated person at this dais with regard
to international telecommunications. But it's not -- but
what we're seeing is that if we don't get in front of
these issues, we're going to be overwhelmed by them.
I'm looking forward to the next one of these and
the future one of these because as we're talking about
these issues I'm beginning to realize that we didn't even
talk about the impact of Internet telephony on all of the
underlying economic assumptions that all of the business
partners of these men and women have made as they've made
their investments.
As I'm sitting here, I realize we really haven't
talked about the impact of some of the newer satellite
systems and what they're really going to do in terms of
the telecommunications infrastructure. We really didn't
have a chance to talk about some of the new undersea
93
cables and the competition between those cable systems and
the satellite systems.
There are a myriad of issues that we just didn't
have time to talk about, not because they're not
important, but because we don't have the opportunity.
I want to make sure that people also know one
other thing with regards to government. In addition to
the things that the folks of us here in Washington do,
there are people in country who spend a lot of their time
on behalf of U.S. industry. And I'd be remiss if I didn't
mention the folks at State and Commerce who are in
country.
If I'm going to go into Latin America with Gina
in two weeks, three weeks, we're going to need the people
from those 12 countries who are in country, who deal every
day with their counterparts and know what those markets
are really doing and have a sense of what the regulators
in those markets are thinking. So when you're thinking
about how we can help you in government, don't stop at
Washington. Make sure that you're also -- if you come to
us, we'll put you in touch in many cases with people in
country who can give you a pretty good fix on the in-
country imperatives.
With that, I want to sincerely and deeply thank
everyone who participated on the panel. I want to thank
94
all of you who sat through the panel and hope you took
something away from it.
And I again want to end, as I began: I want to
thank Becky Burr and Amy Flatten who pulled this together
on very, very short notice. As some of you may know, we
had a different topic scheduled for this agenda and we
pulled this together in three weeks. I think it's made a
valuable contribution to my understanding of what's
happening in these markets, and I hope it did to yours.
Thank you very much.
(Applause and, at 11:33 a.m., the meeting was
adjourned.)