Managing Internet-Driven Change in International Telecommunications
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Managing Internet-Driven Change in International Telecommunications For a listing of recent titles in the Artech House Telecommunications Library, turn to the back of this book. Managing Internet-Driven Change in International Telecommunications Rob Frieden Artech House Boston London www.artechhouse.com Library of Congress Cataloging-in-Publication Data Frieden, Rob. Managing Internet-driven change in international telecommunications / Rob Frieden. p. cm. (Artech House telecommunications library) Includes bibliographical references and index. ISBN 1-58053-019-2 (alk. paper) 1. Telecommunications policyInternational cooperation. 2. Multimedia systems. 3. Internet. I. Title. II. Series. HE7645.F744 2001 384.3dc21 00-068931 CIP British Library Cataloguing in Publication Data Frieden, Rob Managing Internet-driven change in international telecommunications. (Artech House telecommunications library) 1. Telecommunications policyInternational cooperation 2. Multimedia systems 3. Internet I. Title 384.3 ISBN1-58053-400-7 Cover design by Wayne McCaul © 2001 Rob Frieden All rights reserved. All rights reserved. Printed and bound in the United States of America. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, in- cluding photocopying, recording, or by any information storage and retrieval system, with- out permission in writing from the publisher. All terms mentioned in this book that are known to be trademarks or service marks have been appropriately capitalized. Artech House cannot attest to the accuracy of this informa- tion. Use of a term in this book should not be regarded as affecting the validity of any trade- mark or service mark. International Standard Book Number: 1-58053-019-2 Library of Congress Catalog Card Number: 00-068931 10987654321 For Katie, Alex, and Elizabeth Contents Introduction xxi 1 Telecommunications in an Internet-Driven Information Economy 1 1.1 Overview 1 1.2 An Interdisciplinary Undertaking 3 1.2.1 Economics 5 1.2.2 Law 7 1.2.3 Engineering 7 1.2.4 International Relations 9 1.2.5 Business 10 1.2.6 Technology Management 11 1.3 Appreciating Different Cultures 12 1.4 Clash of the Phoneheads and the Netheads 12 1.5 Challenges to Incumbents 13 1.6 Challenges to Market Entrants 14 vii viii Managing Internet-Driven Change in International Telecommunications 1.7 Managing Change 15 References 15 2 What Is Driving Change? 17 2.1 The Digital Imperative: Moores Law and Metcalfes Law 17 2.2 Internet-Driven Telecommunications Development 18 2.2.1 The Four Stages of Internet Development 20 2.2.2 The Internet Mantra 23 2.3 Uncovering Market Niches 26 2.3.1 Illegal Market Niches 27 2.3.2 Fewer Barriers to Market Entry 28 2.4 Liberalization Bias 28 2.5 Migration to an Information Economy 29 2.6 Wireless Ascendancy 29 2.7 Electronic Commerce 32 2.7.1 The Consequences of E-Commerce 32 2.7.2 The Promise of E-Commerce 33 2.7.3 Efficiency Gains Through E-Commerce 34 2.7.4 Individual Empowerment Through Disintermediation 35 2.7.5 Empowerment Through More Intermediation 36 2.7.6 Free-Rider Opportunities 36 2.7.7 Pitfalls and Risks of E-Commerce 37 2.8 Unfinished Business 38 2.9 Change 39 References 40 Contents ix 3 The Old World Order: Past and Present Models in International Telecommunications 41 3.1 The Rule of Multiple Cs 41 3.1.1 Consensus and Compromise 42 3.1.2 Collaboration 44 3.1.3 Consultation 45 3.1.4 Culture 48 3.1.5 Clubbiness 49 3.1.6 Cooperatives, Consortia, Cartels, and Collusion 50 3.1.7 Constraints and Comity 50 3.1.8 Commingled Costs and Cross-Subsidies 52 3.1.9 Closed or Conditional Market Access 53 3.2 The PTT Industrial and Regulatory Model 54 3.2.1 The Traditional PTT Model 54 3.2.2 Incentives to Maintain the Status Quo 57 3.3 Revenge of the Phoneheads: The Power of Incumbents 58 3.3.1 Persistent Bottlenecks 59 3.3.2 Access to Political and Regulatory Systems 60 3.3.3 Employer Leverage 60 3.3.4 Ineffectiveness of the ITU and WTO Multilateral Forums 61 3.4 Teaching Old Dogs New Tricks 62 References 62 4 The New World Order: Developing Models in International Telecommunications and Information Processing 63 4.1 The Challenge to Sovereignty and Control 63 4.2 New Models and Descriptive Terms 65 4.3 More Descriptive C Terms 66 4.3.1 Change 70 4.3.2 Corporatization 70 x Managing Internet-Driven Change in International Telecommunications 4.3.3 Commercialization 73 4.4 Competition Now! 74 4.4.1 Variations on a Theme: The Three Phases of Competition Policy 75 4.4.2 How Did Competition Appear? 77 4.4.3 Phase 1 Competition: The Grand Experiment 78 4.4.4 Phase 2 Competition 79 4.4.5 Phase 3 Competition 81 4.5 Convergence 83 4.6 The New Mandate: Privatize, Liberalize, Deregulate, and Globalize 83 4.7 Revamping Regulatory Oversight 87 4.7.1 Regulated Competition 88 4.8 Sustaining Competition and Protecting Consumers 90 4.9 Gray Market Ascendancy: Entrepreneurs Push the Legal Envelope 93 4.9.1 Accounting Rate Arbitrage 94 4.9.2 Internet Telephony 94 References 95 5 The Technologies in Modern International Telecommunications 97 5.1 Satellites 99 5.1.1 Satellite Fundamentals 104 5.1.2 Challenges to the Satellites Comparative Advantage 115 5.1.3 New Letters in the Satellite Spectrum Alphabet 119 5.1.4 New Orbits 120 5.1.5 Alternatives to Cradle-to-Grave Satellite Procurements 121 5.1.6 Basic Components in Satellite Systems 121 5.1.7 Improvements in Satellite Design 122 Contents xi 5.2 Submarine Cables 123 5.3 Enabling Technologies 124 5.4 The Internet 127 5.4.1 Features of the Internet 128 5.4.2 Impact of an Internet-Centric Environment 130 5.5 What the Internet Changes 131 5.5.1 The Internet Comes of Age 132 5.5.2 Distance Insensitivity, the Rising Importance of Packet Switching, and IP 133 5.6 The Promise of E-Commerce 134 5.7 Netheads and Nethead Companies: Major Forces 136 5.8 Basic Telecommunications: A Low-Margin, Commodity Business 136 5.9 The Rush to Merge and Provide Global, One-Stop Shopping 137 5.10 E-Commerce: Shifting the Locus of Control to Consumers 138 5.11 Revenge of the Phoneheads: What the Internet Does Not Change 139 5.11.1 A Clash of Cultures 139 5.11.2 The Phonehead Persona 140 5.11.3 The Nethead Persona 141 5.11.4 Phoneheads and Their Control of First- and Last-Mile Access 141 5.11.5 Incumbencys Deep Pockets and Resources to Respond to Changed Circumstances 142 5.12 A Tale of Two Telcos 142 5.12.1 Old Dogs, New Tricks 142 5.12.2 The New Game Plan 143 5.12.3 Coming Down from the Summit 145 5.12.4 The Way Forward 145 xii Managing Internet-Driven Change in International Telecommunications 5.13 Greater Opportunities for Consumers to Save Money and to Lose It 145 5.14 The Future 146 References 148 6 Players in International Telecommunications Policy Making 149 6.1 Why Nations Cooperate on Telecommunications Policy Matters 151 6.2 Why Nations Do Not Readily Cooperate on Information- Processing Policy Matters 153 6.3 A Brief History of the ITU 154 6.3.1 The ITUs Mission 156 6.3.2 Structure and Function of the ITU 157 6.4 Spectrum Management by the ITU 159 6.4.1 National Spectrum Management, Licensing, and Regulation 165 6.4.2 The Role of Scarcity in Spectrum Management, Licensing, and Regulation 169 6.4.3 Block Allocations 173 6.5 The Spectrum Auction Alternative 174 6.5.1 Spectrum as a Franchise 175 6.5.2 Bound by the Rules of Physics 175 6.5.3 Serving Global Interests 176 6.5.4 Satellite Spectrum Auctions 177 6.5.5 Going to the Well Too Often 177 6.5.6 Auctions: Only a Partial Solution 178 6.6 Managing the Satellite Orbital Arc 178 6.6.1 ITU Conflict Resolution in Satellite Orbital Slots 179 6.6.2 Inequity in Access to Satellites and Information Resources 180 6.6.3 Space WRCs 183 Contents xiii 6.6.4 Orbital Slot Reservation Alternatives 185 6.7 Standard Setting 186 6.7.1 Standard Setting in Perspective 188 6.7.2 Increasing Complexity in Standard Setting 189 6.7.3 Predicting When Consensus Will Occur 192 6.7.4 Standard-Setting Models 193 6.7.5 Products of the Standard-Setting Process 195 6.7.6 International Standard Setting 195 6.8 Development Issues 198 6.8.1 Telecommunications Development Assistance 199 6.8.2 Failed Strategies 203 6.8.3 The Payoff from Telecommunications Investments 204 6.9 Reforming the ITU 207 6.9.1 The ITU and the New World Order 208 6.9.2 Achieving True Reform 210 6.10 Internet Standard Setting and Governance 211 References 212 7 Players in International Telecommunications Trade Policy Making 215 7.1 Trade in Telecommunications Network Services 218 7.1.1 The WTO 219 7.1.2 Trade-in-Services Issues 220 7.2 Basic Trade Principles 223 7.2.1 Comparative Advantage 223 7.2.2 Most Favored Nation Treatment 224 7.2.3 National Treatment 225 7.2.4 Transparency and Other Trade Principles 226 7.3 Limits to What a Trade Forum Can Accomplish 227 7.3.1 Tactics for Restricting Telecommunications Equipment Market Access 227 xiv Managing Internet-Driven Change in International Telecommunications 7.3.2 Tactics for Restricting Telecommunications Service Market Access 228 7.4 Leverage in Trade Negotiations 229 7.4.1 Securing Market Access Parity in Telecommunications Service 230 7.4.2 ITU Efforts to Address Telecommunications Trade-in-Service Issues 233 7.5 Frustration with Multilateral Dispute Resolution 235 7.5.1 Regional Trade Pacts 236 7.6 Ranking Nations in Terms of Market Accessibility 238 References 239 8 Regulatory and Deregulatory Rationales 241 8.1 The U.S.