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Digital Technology Law Journal |
1. Given the lightning pace of change in the telecoms industry, a book on the current status of the relevant laws and regulations risks being outdated even before it is in the stores. Spiwak and Naftel have therefore rightly chosen an entirely different, but interesting approach. In their book 'The Telecoms Trade War' they 'cynically' explore the respective efforts of the United States and the European Union to implement the World Trade Organisation Basic Agreement on Telecommunications Services and how initiatives to open up local markets affect markets for international telecoms. Their exploration begins by signalling two disturbing trends in telecoms regulation today: (1) a tendency towards neo-mercantilism[1] that is causing a growing telecoms trade war; (2) whereby regulators loose sight of what should be the first and most important goal of regulating telecom markets, i.e. maximising consumer welfare by promoting effective competition.
2. To explore and clarify these trends the book is divided into four sections. The first section provides an analytical framework for understanding the developments in international telecoms regulation in the following sections. Whereas a reader with some knowledge in the field could get the impression that in this part Naftel and Spiwak are merely stating the obvious, this ad fontes is necessary to understand and critically view the developments described in the next sections.
3. As the authors amply demonstrate and prove through many examples in the book, the on-going telecoms trade war turns basic economic principles on their collective head. Neo-mercantilism leads to statutory policies essentially marked by the protection of national interests. Market openings imply accessibility from the outside. However, national regulation today produces barriers to entry; namely, technical barriers to the inter-operability of infrastructures by a restrictive interconnection plan, economic barriers by a dissuasive system of settlement rates, and legal barriers by a regulation of investments.
4. Section II examines US efforts to promote both domestic and international telecoms, before and after the WTO Basic Agreement. In this section Naftel and Spiwak sketch a development in which the Federal Communications Commission (FCC) instead of just promoting effective competition, gets increasingly engaged in trade politics.
5. Naftel and Spiwak's analysis of the FCC's approach to the international telephony market illustrates the fact that the FCC is becoming increasingly involved in trade politics in a very convincing way. Take for example the FCC's International Carriers Paradigm: while it focused on obtaining operating agreements with foreign correspondents, it was not used to force open foreign markets for the benefit of US carriers. The follow-up Effective Competitive Opportunities Order, however, was nothing more than a reciprocity approach as a precondition for foreign entry, meant to serve trade interests. This was not the end of it. Even after the WTO Basic Agreement the FCC remained distrustful of the good intentions of foreign states. In its ECO Order the FCC maintained that it would not make the presence of cost-based accounting rates a pre-condition of entry, but would instead permit foreign entry if it found that US carriers could avail themselves of effective competitive opportunities in the foreign destination market; or, in the absence of such opportunities, if it found that countervailing public interest factors were present. In its Foreign Participation Order, however, the FCC decided to apply a completely opposite standard for foreign entry into US markets. It decided to simply charge a substantial entry fee to any WTO Member country that wanted to participate in US markets. The size of the fee depended on a classification system lacking an analytical foundation, thereby making this regulation highly arbitrary from an economic perspective.
6. In Section III the European regime is analysed. Because the book is specifically written for American readers, this section begins with a general introduction to EU law. Naftel and Spiwak discuss EU competition law, including the essential facilities doctrine in more detail. As we know, telecommunications competition in the EU happened largely through application of EU competition law. Naftel and Spiwak examine thoroughly the European Commission's efforts to bring down international calling prices through the promotion of international interconnection, the application and interpretation of the concept of special and exclusive rights, the EU's Telecommunications Access Notice and the on-going efforts to force incumbents to unbundle local loops. Other subjects are the EU's approach to the Information Society and, of course, the future of telecommunications regulation as laid down in the 1999 Telecommunications Review. Naftel and Spiwak are very critical of the concept of significant market power, noting that it has no basis in jurisprudence of the European Court of Justice. However, this concept should be seen in the light of markets moving from a monopolistic situation to a more competitive situation. In the Telecommunications Review the heaviest regulatory burden is placed on dominant parties, i.e. parties with a market share of 50 % or more.
7. In principle, Naftel and Spiwak see the 1999 Communications Review as a step further in the right direction, because it substantially limits the amount of regulation. I believe that the FCC should follow the European example. Economic regulation is a substitute for competitive rivalry, not a complement, and it. should be based on a long-term view of how markets should look like. The new EU regulation appears to have the advantage in this respect. However, the new EU regulation has yet to prove its value in practice.
8. In section IV Naftel and Spiwak examine various 'hot spots' of contention in the growing 'Telecoms Trade War', such as universal service, cable landing petitions, international spectrum issues, and competition law authority review of international mergers, acquisitions and joint ventures. They show that significant entry barriers can emerge when regulators try to promote public interests. For example, universal service obligations in the US require, amongst other things, making broadband Internet access available in libraries and schools. The costs of making this service available are placed on the market parties, thereby significantly deterring new entry for little companies. In contrast, the EU has understood that universal service should be just a basic service. For example, until today only France has an universal service fund.
9. Naftel and Spiwak succeed in proving there is a neo-mercantilistic development in telecoms regulation. Although sometimes overly cynical, they convincingly show that the growing telecoms trade war is to be taken seriously. We have to critically view the activities of regulators, otherwise effective competition in the telecommunications market could be duped, along with consumers. For this warning the book is to be recommended to everyone with an interest in the field.
Notes
[1] Neo-mercantilism is a trade policy whereby a state seeks to maintain a balance of trade surplus and to promote domestic production and employment by reducing imports, stimulating domestic production, and promoting exports. Regulation is one of the means to reach the above mentioned goals.