U.S. Telecommunications Services in European Markets August 1993 OTA-TCT-548 NTIS order #PB93-231355 R ECOMMENDED CITATION: U.S. Congress, Office of Technology Assessment, U.S. Telecommunications Services in European A4arkefs, OTA-TCT-548 (Washington, DC: U.S. Gover- nment Printing Office, August 1993). F’t)r WIC h) [he (1 S. (;[I\crIIIncIl( PI intlng 011’Icc SupcIIIIlcIdL.nt t~f DtKumcIIt., M.111 Sl{Ip: SS[Y. W’;i\h]r]glfm, M’ 20402-932X” ISBN O-16 -041895-X Foreword The European T HE E UROPEAN MARKET FOR TELECOMMUNICATIONS SERVICES will grow rapidly over market for the next decade, fueled by demand from the European business community for fast telecommunications data transmission and other advanced services. In most European countries, the services will grow telecommunications services market is still largely reserved for a state-owned rapidly over the Public Telephone Operator, but this is likely to change in the near future. next decade, Meanwhile, U.S. telecommunications firms-including regulated carriers-are fueled by demand successfully competing in some European markets already open to them, from the European especially in cellular communications and cable television. U.S. firms appear to business have an edge in these markets because of their experience operating in competitive community for fast markets and developing innovative services based on advanced network data transmission technology and in response to changing user needs. and other advanced services. The U.S. economy can benefit both by increased export of telecommunica- tions and related services to overseas markets, and by the support that U.S. networks provide to other U.S. firms operating in global markets. Success in international trade in services can, and already does in part, offset our troublesome deficit in trade in merchandise. U.S. telecommunications firms are eager to pursue opportunities in foreign markets, and no government interventions appear to be necessary, other than continuing to press our European trading partners to open markets to U.S. competition. Beckoning success in European telecommunications markets does, however, raise some domestic policy concerns, including the role that trade objectives should play in fomlulating telecommunications policy. This study of U.S. participation in European telecommunications markets was requested by the Senate Committee on Finance and the House Committee on Foreign Affairs, A Background Paper, [1. S. Bunks and International Networks, prepared in the course of this assessment was released separately in October 1992. d-w== - Roger C, Herdman Director Page iii Advisory panel John Diebold, Chairman Gene Kimmelman Diebold Institute for Consumer Federation of America Public Policy Studies, Inc. Michael Nugent James R. Beniger Vice President and Professor Associate General Counsel Annenberg School of Communications Citibank, NA University of Southern California Barbara O’Connor Mark L. Bigelow Professor/Chairperson Network Architect, Information Services Alliance for Public Technology Bechtel Corporation California State University NOTE: OTA appreciates Department of Communications and is grateful for the Robert Bruce valuable assistance and Partner Reynie U. Ortiz thoughtful critiques pro- Debevoise & Plimpton Vice President for Public Policy vided by the advisory panel U.S. West members. The panel does Emilio DeLia not, however, necessarily Frances Plude approve. disapprove, or Department Director endorse this report. OTA International Communications Services Professor assumes full responsibility AT&T Communications Department for the report and the John Carroll University accuracy of its contents. Steven Flajser Vice President for Space Systems Michael J. Reilly, Sr. LORAL Vice President for External Relations Reuters America, Inc. Kenneth Gordon Chief Commissioner Tony Rutkowski Massachusetts Department of Director of Technology Assessment Public Telecommunications SPRINT Bruce Greenwald Marie-Monique Steckel Professor President Department of Economics France Telecom, Inc. Columbia University School of Business J. Donald Karmizin Reviewers and contributors Vice President see Appendix A, pages 203-210. Management Infomation Systems United Airlines Page iv Project staff P RINCIPAL STAFF C ONTRACTORS Vary Coates, Project Director Bruce Egan, Columbia Business School Todd LaPorte, Analyst Louis Feldner, Mark Young, Research Analyst Feldner Telecom Consulting Rob Frieden, Telecommunication OTA MANAGEMENT Consultant and Attorney John Andel in, Assistant Director, OTA Dale Hatfield, Science, Information, and Natural Hatfield Associates Resources Division Manley Irwin, James W. Curlin, Program Manager University of New Hampshire Telecommunication and Computing Gligor Tashkovich, Consultant, Technologies Program International Telecommunications Deborah Workman, Consultant A DMINISTRATIVE OTA ADVISORY GROUP Liz Emanuel, Office Adminisstrator Michelle Smith, Secretary Peter Blair. Karolyn St. Clair, PC Specialist Energy and Materials Program Sylvester Boyd, Telecommunication and Information Systems Linda Garcia, Telecommunication and Computing Technologies Program Julie Gorte, industry, Technology, and Employment Program William Keller, Industry, Technology, and Employment Program Bill Westermeyer, Oceans and Environment Program Robert Weissler, Industry, Technology, and Employment Program Ray Williamson, International Security and Commerce Program David Wyc. Telecommunication and Computing Technologies Program Page v Contents 1 Exporting Telecommunications Services to Europe 1 Summary of findings 3 Conclusions and policy options 21 2 Technological Trends and Issues 25 Changing technology 25 The evolution of advanced services 31 The implications of technological change 37 Standards 38 3 The European Market for Telecommunications Services 47 The structure of the European market 49 Trends shaping the European telecommunications market 56 Market estimates and projections 64 The importance of U.S. trade in services 67 4 European Activities and Strategies of U.S. Telecommunications Firms 71 U.S. regulations and overseas expansion 72 U.S.,telecommunications firms’ European activities 74 Encouraging foreign expansion 88 Conclusions 89 5 Users’ Perspectives-Views of U. S. Services Exporters 91 Problems with European telecomnunications networks 92 European regulatory problems 97 Representative services export sectors 98 Policy issues 107 6 Telecommunications in Central and Eastern Europe 109 Defining and characterizing Central and Eastern Europe 110 The condition of telecommunications in Central and Eastern Europe 113 Regional relationships 117 Involvement of the United States 129 Conclusion 132 7 Domestic Deregulation and lnternational Trade Negotiations 135 U.S. deregulation and the worldwide consequences 135 Changing attitudes toward services and trade 138 GATT 143 Negotiating GATT 151 Long-range consequences of a GATT agreement 155 Page vii 8 How Telecommunications Policy Is Made 159 The telecommunications policymaking structure 160 The policymaking structure for trade in services 168 The adequacy of data for decisionmaking 171 Conclusions and options 174 9 international investment and Domestic infrastructure 181 International comparisons 182 The question of domestic disinvestment 188 Determinants of infrastructure investment 193 Conclusions 197 A Reviewers and Contributors 203 B Acronyms 211 Index 215 Page viii Exporting Telecommunications Services to Europe 1 CHAPTER U.S. TELECOMMUNICATIONS FIRMS are send- by the Office of the United States Trade ing a message to Europe—’ ‘we intend to Representative (USTR). The industry struc- offer services to Europe’s under-served tele- ture, regulatory environment, and invest- communications users, ’ They are watch- ment strategies that are conducive to free fully assessing European progress toward trade and encouraged by the USTR may liberalization of national markets and inte- not be equally appropriate for meeting the gration into a single European market. Mean- broaderrange of national telecommunications while, U.S. carriers and enhanced-services objectives. providers1 are entering the niche markets Inadequate investment in domestic tele- that are open to them, such as cellular communications infrastructure could re- communications and cable television. sult from continuing investment overseas The entry into European markets for by regulated U.S. telecommunications op- The entry of U.S. services by American telecommunications erators, according to some State regulators telecormmmications firms, from major carriers to small niche- and public interest groups. (The Office of firms into European services providcrs, is—at this early stage—a Technology Assessment finds eviidence services markets striking success story. Growing U.S. export for this inconclusive, but concludes that is-at this ear/y of telecommunications and related informa- investment trends should be monitored.) stage-a striking tion services2 in the future can contribute This report rests on the premise that success story. significantly to national economic goals. telecommunications is not just a set of Further expansion appears to require little or tradable services, but also a basic function of no government intervention—in this area, society, essential for effective governance deregulation and pursuit of free trade has social cohesion, and economic viability’ and worked well. equity. International telecommunications is However, there are some major caveats to a primary vehicle for U.S. participation in