The WTO Legal Framework for Telecommunications Services and Challenges of the Information Age

Abstract

Much-discussed technological (r)evolution in information and communication technologies (ICT) has dramatically changed our lives. Significant technological changes of the ways and means of telecommunication, for instance convergence between telecommunications, computer (information) technologies and broadcasting, development of new generation networks (NGNs), and all-encompassing digitalisation, have become a driving force behind remarkable socio-economic shifts, which include ever-growing flow of data and information, continuously increasing importance of ICT in all spheres of life, as well as transformation of economic activities and of human participation in society. The socio-economic changes are considered by many scholars to be of such a fundamental character that they have led them to argue the dawn of a new type of society—information society also known as super-industrial society, as knowledge society, and by other names.

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Introduction

Much-discussed technological (r)evolution in information and communication technologies (ICT) has dramatically changed our lives. Significant technological changes of the ways and means of telecommunication, for instance convergence between telecommunications, computer (information) technologies and broadcasting, development of new generation networks (NGNs), and all-encompassing digitalisation, have become a driving force behind remarkable socio-economic shifts, which include ever-growing flow of data and information, continuously increasing importance of ICT in all spheres of life, as well as transformation of economic activities and of human participation in society. The socio-economic changes are considered by many scholars to be of such a fundamental character that they have led them to argue the dawn of a new type of society—information society also known as super-industrial society, as knowledge society, and by other names.¹

Fundamentally, new technological possibilities of (telecommunications) services provision and changed market (especially consumer) requirements render problematic certain issues of international trade in telecommunications services, which were not necessarily accounted for in the early 1990s, when the current legal framework of the WTO was elaborated. This contribution seeks to analyse whether and how the WTO legal framework can further enhance free international trade in telecommunications services in the view of the ongoing technological developments, technological convergence, in particular, resulting in the emergence of the information society.

The contribution starts with the section “Evolution of the Communications Environment” looking into technological and socio-economic features of the changed information environment in order to identify the topical challenging issues of the international trade in telecommunications services that need to be addressed by appropriate regulation.

The section “Overview of the Regulatory Framework” summarises the legal framework on telecommunications services created within the WTO, focusing on the Annex on Telecommunications, the Basic Telecommunications Agreement (BTA), the Reference Paper on Regulatory Principles (RP), as well as their interpretation by the WTO Dispute Settlement Body in the Mexico Telecoms case. This analysis shall allow for identification of outdated rules and other shortcomings of the framework in the light of the requirements for international regulatory rules for trade in telecommunications services changed by the development of technologies, markets, and the society.

The concluding section, “Challenges of Technological Convergence and Responses of the GATS Legal Framework”, addresses the question whether the WTO has a potential to meet the technological and socio-economic challenges of the information age and can propose solutions to the identified problems.

Evolution of the Communications Environment

Although information and communication have always been critical in political, economic, societal, and personal spheres, the difference is there is a great deal of information today more than ever before and that there are more means and ways to access and communicate this information. Both indications and causes of these phenomena are proliferation of communication media, media products and information services, rapid and ever-accelerating development, growth in significance and permeation of computer technologies in all spheres of our lives, growth of occupational activities and professions dealing with information, as well as growing importance and value, and therefore expansion, of information and knowledge.

A number of scholars have been trying to theorise quantitative changes of ICT presence and use in order to establish whether they amount to qualitative revolutionary changes of the society as a whole, similar to the one that happened when the widespread use of machines and technology brought about the Industrial Revolution.² The results of scientific research range from complete rejection of radical changes in organisation or direction of development of the society³ to recognition of significant but transitional character of the current developments with the final society type to be still in the making⁴ and, further, to announcements of the birth of a new information age.⁵

The present contribution does not intend to join the ongoing debate about the existence of an information society. Rather, it makes use of the relevant literature only in so far as it has profoundly documented and systematically analysed changes that occurred in the communications technology, industry, and markets over the last decades, as well as the societal reaction to them.

Technological Trends

Although the studies of information society come to different conclusions regarding the (r)evolutionary changes in the societal structure and organisation, they all agree on the central role that technology has played in changing communications landscape. Developments in electronics, optics, smart materials, biotechnology, nanotechnology, and fields using these technologies have brought along a huge amount of innovations in telecommunications equipment, networks, services, contents, and management over the past 20 years or so. The novelty of new technologic developments consists not simply in broadening of the scope of communication means but also in the appearance of a new technical content that caters for a new way of thinking and living.⁶ New ways and tools of communication appear and become obsolete with increasing speed, making it useless and impossible to draw a full list of them. Yet two major phenomena should be named that have conditioned the changes of the communication landscape, namely digitalisation and convergence.⁷

Digitalisation refers basically to conversion of an analogue signal into a digital one. The informational content is encrypted by means of binary code and in such a way can be indistinctively transmitted over any infrastructure (radio waves, cable networks).⁸ This development connected to the development of computer technology has been going on for decades but has intensified since the beginning of the 1990s. It was a precondition for blurring the borderlines between different communications networks—telecommunications, computer, and broadcasting—which had been strictly separated from each other before. Digitalisation of signal means decoupling of the informational content from a certain carrier signal. While in the past only voice signals could be transmitted over telecommunication networks, now text, image, or data can be carried as well because encrypted in binary code all of them are quasi-identical. This development has revolutionised data processing, allowed for data compression, and ultimately increased computing power. Thanks to that, network transmission capacity can be increased even if its bandwidth remained fixed. Thus, digitalisation has led to qualitative and quantitative changes of the existing communications infrastructures, changed the market structure, optimised telecommunications in general, reaffirmed the independence of telecommunications as a service, and laid the foundations for the currently happening convergence.

Convergence describes the coming together of voice, data, video, image, and facsimile applications, systems, and networks, both wireline and wireless, as well as industries (i.e., telecommunications, broadcasting, and computer/information processing).⁹ Convergence allows for provision of similar services over different networks (e.g., movies over television cable and videos per mobile phone on demand) and leads to merging of the terminal equipment (e.g., PC and TV set). The formerly separate markets for telecommunications, broadcasting, and information services—at least in the part of the high-end value-added services—merge slowly into one.

One of the most visible spheres of technological convergence is that of communication devices. There is an unusually great number of devices, all having similar communication (and other) functions. For instance, personal computers, mobile phones, and lately various smart devices (tablets) are equipped with sensor (touch) displays, possess an enormous storage capacity, and are able to process and transfer data (text messaging, emailing, web browsing, video streaming, and live broadcasting) and voice.

Due to expansion of the Internet, integration and recent beginning of convergence of various communication networks into NGNs, as well as convergence of wireline and wireless networks, the idea of a universal network is becoming a reality. Also, different communication devices have a potential to be used on different communication networks and thus become increasingly mobile. The technological issue of interconnection and guaranteeing of quality of service (end-to-end communication) have become a challenge as the single network consists of various network parts—satellite, cellular, radio, copper wire, cable, fibre, power line, and others—all based on different technologies. In the new networks, the Internet Protocol (IP), used for computer communication, seems to supersede the traditional telecommunications protocols of public switched telephone network (PSTN) as the major communication protocol.¹⁰

Thanks to digitalisation and convergence of signal, a shift to packet-based switching occurred and processing techniques and management of networks and traffic have been optimised, allowing to utilise the resources of the available infrastructure more efficiently and enabling multi-service delivery within the same network (so-called multiple play, commonly known in the form of triple play—provision of telephony, video, and Internet services by one supplier). This has been accompanied by an exponential growth of the speed and amount of the data transferred over networks and growth of the storage potential.

Convergence in services has given birth to sophisticated and demanding transmission capacity services, such as audio and video streaming, video conferencing, telewebbing (combination of Internet access and conventional television), and cloud computing (provision of Internet-based computer services instead of locally based client–server application).

Although it can be expected that somewhere there is a physical limit to this progress, one can safely assume that it has not yet been hit and that technology will continue to evolve at a different pace in different sectors.¹¹ Currently, all the technological trends point to the possibility of establishment a communications structure that allows instant communications at any time and any location.¹²

Evolution of Markets for Telecommunications Services

Convergence in devices, services, and networks cannot but causes transformations within the telecommunications markets, both on the demand (users) and supply sides.

The choice of communication services and of services providers has distinctly expanded to an extent never known before. Users can enjoy various information and communication services over any network and from any provider. Potential to use any type of available communications infrastructure, especially non-traditional one like power lines, improves the utilisation of the existing infrastructure and, at the same time, dramatically increases the coverage of national territory with communications services.¹³ Digitalisation of the signal—and also competition on the market—has promoted a better quality of service.

Coupled with liberalisation of telecommunications services markets, the described technological developments resulted in a rapid spread of new technologies, equipment, and services at relatively low prices. The claimed uneconomic areas and customers in many cases proved to be more profitable than expected, especially taking into account the use of new communication technologies. Surveys by the International Telecommunications Union (ITU) show that in 10 years (2001–2011) the number of telephone subscriptions worldwide tripled, mostly thanks to mobile telephony with its 5.9 billion subscriptions making up a penetration rate of 87 %, while the share of developing countries is 79 %.¹⁴ According to the statistics, four of five mobile connections are nowadays made in the developing world, and decreasing prices for mobile devices and air time allow to assume that this share is going to grow.¹⁵ Around one-third of the world population is now online with developing countries, and countries with transitional economy are finally overtaking the developed ones in the number of Internet users.¹⁶ Bandwidth and transfer speed are growing with increasing broadband take-up worldwide and with Europe leading in broadband mobile and fixed connectivity.¹⁷ Importantly, developing countries are in a unique position to skip some of the stages of technological development and to leapfrog to a higher level by, for instance, investing in NGNs and rolling out fibre instead of first updating legacy copper wire, which has a limited bandwidth capability and needs to be substituted anyway.¹⁸

For providers, digitalisation and convergence resulted in transformations of industry structure and new dynamics on the markets. On the surface lie appreciable reduction of costs of service provision, growing amount of users, and generation of significantly higher revenues. Further implications are expansion of service providers beyond their traditional sectors and dramatic changes of business models.¹⁹

The traditional business model that was vertically integrated with the big telecommunications providers controlling the complete value chain from equipment manufacture to facilities provision to network operation is rapidly eroding due, firstly, to new entrants to the different links of that chain and, secondly, to the evolution of the value chain itself.²⁰ Increasingly, the so-called layered model is used by the scholars to describe the structure of the telecommunications industry and market.²¹ The core layers consist of facilities and equipment provision, network operation, service provision, content provision, and application layer. Although the incumbent telecommunications providers continue to dominate the facilities and network operation layers, they have been joined by a number of competitors, in particular mobile carriers and cable operators.²²

Usage of the Internet Protocol to manage communication traffic created a bridge facilitating interoperability across heterogeneous networks and has in fact enabled the layering. Service-providing companies can ignore the networks and technologies supporting their products and deliver their electronic communication services over any network (for example, instant messaging over mobile networks). This has undoubtedly reduced barriers to entry into new markets for various actors increasing the number of service providers and promoting competition, both intra-sectoral and cross-sectoral. Furthermore, due to more efficient use of the communications infrastructure and the multiple play possibilities, costs of services provision have dramatically fallen, which results in more competition and innovation and benefits the consumers.²³

At the same time, convergence of services and networks has a potential to seriously undermine competition on the market. On the one hand, it has created new possibilities for vertical integration, allowing traditional telecommunications providers to move into higher content-related layers previously occupied by the big Internet companies, like Google, Yahoo, and Microsoft.²⁴ On the other hand, if a user can get all necessary services from one provider, the willingness to change the provider may fall and the cost of changing may increase. The adverse effect on competition is strengthened where the provider owns the backbone or access networks, which represent a crucial leverage in negotiations about access and interconnection with alternative providers.²⁵ Additionally, competition on the market may be affected by mergers and acquisitions undertaken by companies belonging to different information and communication sectors of economy in an attempt to expand and enter new markets.

Regulatory Challenges in the Converged Environment

Due to technological and socio-economic developments, several new aspects of services provision gain critical importance and some old regulatory issues have been put in a new perspective. In order to further promote competition for and in the market, to encourage innovation, and to cater for public interest issues, the following topics should be considered by regulators to a greater extent than before²⁶: technological neutrality, vertical integration, access and interconnection, as well as their pricing, digital divide, and universal service, and classification of telecommunications services.

Convergence by definition lives off a combination of different technologies. Only because of it, innovation and development of new services and devices, as well as various efficiency gains in the form of cost cuts and price reductions, are possible. Technological neutrality is a fundamental mode of functioning for a converged environment and shall be granted and promoted by the respective legal framework.

As noted above, technological convergence has an ambivalent impact on competition on the market. If further promotion of competition on the telecommunications market remains among the legal objectives, a closer attention should be paid to the potentially dangerous aspects of vertical convergence, what may require additional specific competition safeguards. At the same time, convergence effects enhancing competition could be supported by certain regulatory means.

For telecommunications as a network industry, interconnection has always been of a paramount importance because it allows to increase the reach of a network without investing into a construction of a new one. Traditionally, two telecommunications providers would interconnect in order to allow customers of one party to put through and complete calls to the customers of another one. In the converging technological context, interconnection is both possible and indispensable between networks of different kinds—wired and wireless, as well as telecommunications, broadcasting, computer (Internet), and potentially even power lines—as a means to facilitate competition in services and in infrastructure.²⁷ Besides, the simple fact of interconnection becomes insufficient in a converged communication environment. Interconnected networks may have profoundly different architecture and characteristics. Yet they shall be able to smoothly and without loss carry any type of communications services. These requirements render important quality of interconnection and questions of standardisation and interoperability of networks.

In the modern communication environment, the access issue is considered by some authors²⁸ to be of even greater importance than interconnection. Access to another operator’s facilities (local loop, set-top boxes, parts of mobile network infrastructures, and other) is indispensable for an operator seeking a direct commercial contact with the access provider’s customers. While it was relatively uncomplicated to argue for and to mandate access to the incumbent’s network facilities for a new entrant, it is difficult but necessary to tackle this issue in the conditions of variety of delivery means and technologies and for providers of manifold communications services.²⁹

Linked to interconnection and access is the issue of price regulation, which technological convergence has also put into a completely different light. Traditionally, cross-border supply of telecommunications services was possible only through cooperation of exclusive national providers. Monopolistic undertakings signed bilateral interconnection agreements, according to which the monopolistic provider of the addressee was obliged to forward an international call from the state border to the destination point. The other monopolistic undertaking was responsible for conveying the call from the addresser up to the country border of the addressee. The originating carrier never dealt directly with the residents of a foreign country, but with the telecommunications company.³⁰ Liberalisation of telecommunications markets, privatisation of the industry, and technological convergence resulted in the emergence of a great number of companies relying on contract law arrangements for delivering their communication services. New technologies make it possible for them to bypass and operate outside of the stifle accounting rules.

The problem of digital divide and the related issue of universal service provision, as well as general access of individuals to the resources necessary for participation in the information society remain topical. Despite the incredible technological advance and market liberalisation, digital divide has not been overcome so far³¹ and may thus exacerbate and add to the long-existing inequalities within and between the countries due to the immensely increased importance of telecommunications in the changed communication environment. Developed countries appear to have reached saturation levels as regards the access element and now are working to close the gap in use of ICTs, while most developing countries are still at the access stage.³² At the same time, the ITU report notes a qualitative shift in the nature of digital divide as it now focuses on bandwidth, speed, and quality of connections.³³

Last but not least is the question of classification and definition of telecommunications services. Thanks to digitalisation and convergence, the traditionally employed distinction between basic and value-added telecommunications services is not so evident any more. Moreover, due to convergence between broadcasting, telecommunications, and computer technologies and networks, classification of new high-end services becomes extremely difficult, raising questions as to what regulation they should be subject to.

Overview of the Regulatory Framework

At the international level, the rules on telecommunications services provision are concentrated within the GATS framework. Although general obligations from the GATS framework as, for instance, most favoured nation (MFN) treatment, as well as specific obligations (market access and national treatment), are essential for international trade in telecommunications services, the present research intends to largely ignore them in order to focus on the special provisions concerning exclusively telecommunications service. Such relevant clauses can be found in the GATS Annex on Telecommunications and in the Fourth Protocol to the GATS,³⁴ which is known as Agreement on Basic Telecommunications. A plurilateral agreement—Reference Paper on Regulatory Principles—contains additional commitments on basic telecommunications services set in the form of pro-competitive regulatory principles. Besides, important sources of information to be examined are individual commitments of WTO Members: in its own schedule to the GATS, each Member has defined specific commitments under Part III GATS and any additional commitments it wishes to undertake (Article XX GATS).

Classification of Telecommunications Services

The terms telecommunications and telecommunications service have no clear definition in the WTO law and are often used interchangeably. In the GATS, telecommunications is defined in para. 3 of the Annex on Telecommunications as “transmission and reception of signals by any electromagnetic means”. The Annex attempts further to define public telecommunications transport services because its scope of application extends over “all measures of a Member that affect access to and use of public telecommunications transport networks and services” (para. 2 a) Annex). The term “telecommunications transport service” is used in place of “telecommunications service”, reflecting the dependent, complementary role that telecommunications were perceived to play throughout the most of twentieth century being a channel for other services.

Any telecommunications transport service is considered to be public if it is “required, explicitly or in effect, by a Member to be offered to the public generally“ (paragraph 3 b) Annex). This formulation implies that a public telecommunications service can be equally provided by a state-owned or a private undertaking. According to the Annex, telecommunications services “typically involve the real-time transmission of customer-supplied information between two or more points without any end-to-end change in the form or content of the customer’s information” (paragraph 3 b) Annex). The Annex lists the examples of such services: telegraph, telephone, telex, and data transmission. The reference to the pure transmission of information, as well as the listed examples, points to the description of basic telecommunications services used during the Uruguay Round negotiations.³⁵

In national schedules of commitments, one can find further definitions of telecommunications services, while the GATS Members prefer to refer to the Services Sectoral Classification List in order to achieve greater clarity. The Services Sectoral Classification List MTN.GNS/W/120 of 10 July 1990 (W120) was elaborated by the GATT Secretariat on behalf of the Members and taking into consideration their comments.³⁶ The List was to be a negotiation aid on the services issues in the Uruguay Round and to provide a basis for the outline of schedules of commitments.³⁷ Telecommunications services are classified in 15 sub-sectors depending on the type of service. This approach harkens back to the international products classification of the UN, called Central Product Classification (CPC), however, in its early version.³⁸ Later on the 15 sub-sectors were broken down into two groups of basic and value-added services for the purposes of negotiations. Liberalisation commitments on the value-added services have been made during the Uruguay Round, whereas the services of basic telecommunications group were left for further negotiations within the specially created Negotiating Group on Basic Telecommunications (NGBT),³⁹ later renamed as Group on Basic Telecommunications (GBT).

In paragraph 1 of the Decision on Negotiations on Basic Telecommunications, “basic telecommunications” is defined as “telecommunications transport of networks and services”. In further negotiations, the WTO Member States were unable to agree on a more precise definition of basic telecommunications⁴⁰ and did not further define basic telecommunications services in their respective schedules but followed the outline of W120 taking into account the division into two groups.⁴¹ Therefore, the definition of basic telecommunications in the GATS framework stays very broad and covers virtually all telecommunications services.⁴²

The only clarification of which services belong to basic or value-added telecommunications is provided by the mentioned list of W120. According to the classification of W120, basic telecommunications include the sub-sectors from a to g: voice telephone services, packet-switched data transmission services, circuit-switched data transmission services, telex services, telegraph services, facsimile services, private leased circuit services. The services from h till n are considered value-added telecommunications: email, voicemail, online database storage and retrieval, online data processing, electronic mail interchange, encryption, and protocol conversion. The W120 list is open. There is also a category o (“other”) for unnamed or new services in which both basic and value-added services could be included. Seemingly stringent classification of W120 list has its flaws besides being non-exclusive. Contrary to most other service sectors under W120, there is no unequivocal link between that classification and the Central Product Classification of the United Nations, although the W120 list contains the corresponding CPC numbers.

Practice of the Members regarding the assignment of individual services to either group diverges because attribution of individual services to the groups did not always correspond with their experience. While the United States use the classification of W120 as an exhaustive list of what is covered under telecommunications services, the EU takes the opposite position and regards the classification of W120 as “illustrations of a broader definition which is included at the beginning of their commitments”.⁴³ Most WTO Member States have made commitments using the W120 structure, however sometimes with significant disparities. Some WTO Member States rejected the distinction between basic and value-added services. For instance, the EU defines telecommunications services generally as “the transport of electro-magnetic signals—sound, data image or any combination thereof”.⁴⁴ The commitments undertaken by the EU in the telecommunications sector do not cover “the economic activity consisting of content provision which require telecommunications services for its transport”, which is handled under a different schedule.

Annex on Telecommunications

In the background of the adoption of the Annex on Telecommunications looms the double nature of telecommunications services, which can be perceived as both separate economic activity and supporting service that enables provision of other services (financial, tourism etc.).⁴⁵ The Annex that was adopted together with the GATS in 1994, i.e. before the agreement on liberalisation of basic telecommunications services had been reached, was concerned primarily with the second role of telecommunications services. Therefore, the objective of this document is to provide for effective guarantees of access to public telecommunication networks and services, as well as to ensure unhindered use of them by all the service suppliers who depend on telecommunications in their economic activity.⁴⁶

A special feature of the Annex is that it does not require GATS signatories to enter any commitments on basic telecommunications services. Rather, the Annex has a nature of a general obligation, meaning that it applies “over and above what may be committed in schedules”.⁴⁷ Thus, under the Annex, a WTO Member has to guarantee access to and use of public telecommunication networks and services concerning the services listed in its schedule of commitments (paragraph 5 (a) Annex).

Due to the understanding of telecommunications services as a mode of delivery, the Annex’s main beneficiaries are providers of value-added telecommunications services and providers of other services falling under the GATS framework.⁴⁸ The guarantees of access to and use of public telecommunication networks and services by these users are constructed as their rights (paragraph 5 (b) Annex):

• a) to purchase or lease and attach terminal or other equipment interfacing with public networks;

• b) to interconnect private leased or owned circuits with public networks or with circuits leased or owned by another service supplier; and

• c) to use computer protocols of their choice, provided that this does not disrupt public telecommunication networks and the provision of telecommunications services to the public generally.

Additionally, Members must ensure that foreign service supplier may use public telecommunications transport networks and services to transfer different types of information within and across borders and that they can access this information, disregarding the place of their storage (Paragraph 5 (c) Annex).

These rights, however, are not limitless and can be constrained by certain regulatory measures of the Members that are undertaken out of necessity to secure one of the legitimate national policy goals exhaustively listed in Paragraph 5 (e) Annex. Paragraph 5 (e) Annex emphasises that the access and use of public telecommunication networks shall be principally ensured without any restrictive conditions that can take effect of trade barriers. However, Members may impose conditions that are “necessary to safeguard the public service responsibilities of suppliers of public telecommunications transport networks and services”. The term “public service responsibilities” is understood by many scholars and has been recently interpreted by the WTO Panel Body in the Mexico Telecoms case as including universal service.⁴⁹ The rest of the sentence in Paragraph 5 (e) Annex supports such interpretation, stating that “public service responsibilities” particularly refer to the ability of the suppliers “to make their networks or services available to the public generally”.

Paragraph 5 (f) Annex contains a non-exclusive list of the conditions for access and use of public telecommunications transport and services that may be imposed provided the criteria under Paragraph 5 (e) are met. These restrictive conditions may regard:

• a) restrictions on resale or shared use of the services;

• b) technical requirements for interconnection with networks and services;

• c) special requirements for interoperability of services and for encouragement of the achievement of the goals to promote international standards as it set in Paragraph 7 (a) of the Annex;

• d) type approval of terminal or other equipment that interfaces with the network and technical requirements relating to the attachment of such equipment to the networks;

• e) restrictions on interconnection of private leased or owned circuits with public telecommunication networks or services or with circuits owned or leased by another service supplier; or

• f) notification, registration, and licensing.

The type of restriction is not specified in the Annex. This leaves a considerable leeway for the Members for the application of the exception, whereas justification reasons of Paragraph 5 (e) are rather vague. At the same time, the restrictive governmental measures are subject to a kind of proportionality principle: they cannot fall outside the scope of the objectives named in Paragraph 5 (e) Annex, and they cannot be more burdensome than necessary to achieve them.⁵⁰

In the Mexico Telecoms case, the Panel addressed itself to the task of interpreting the above-named provisions of the Annex. Among the measures introduced by Mexico and challenged by the USA was inclusion of the cost of universal service provision and infrastructure development in the price of interconnection.⁵¹ The US argued that, in doing so, Mexico violated its obligations under Paragraph 5 (a) Annex because the interconnection rates paid by foreign suppliers constituted “unreasonable, above-cost rates for access and use” of public telecommunication networks and services.⁵² Mexico claimed defence under Paragraph 5 (e) Annex, which allowed the imposition of conditions on access to public telecommunication networks and services if they were necessary to “safeguard the public service responsibilities of suppliers”.

The Panel rendered this defence inapplicable. It first pointed out that interconnection prices constitute not “conditions” but “terms” of access⁵³ and, therefore, do not fall under the provision of Paragraph 5 (e) Annex, which permits to impose only conditions in order to “safeguard the public service responsibilities of suppliers”. Moreover, even if pricing was a condition, it had to satisfy the requirements of being “necessary” to achieve a public policy goal and of being “reasonable and non-discriminatory”.⁵⁴

Examining the meaning of the term “necessary”, the Panel notes that it can vary from “indispensable” to “making a contribution to” a policy goal⁵⁵ and comes to the conclusion that, in the context of Paragraph 5 (e) Annex, the latter meaning is employed because “indispensable” would render the use of the word “reasonable” for description of terms and conditions inutile.⁵⁶ The meaning “making a contribution to” is accurate as it requires a subsequent examination if the conditions in question are reasonable.

Furthermore, interconnection prices, as charged by Mexico, were also unreasonable, according to the Panel. They exceeded cost-oriented rates “by substantial margin”, and, in connection with their uniform nature, it was enough to amount to breach of requirement of “reasonable terms”, although the Panel considered it unnecessary to determine the exact point at which rates for access and use of telecommunication networks and services are no longer reasonable.⁵⁷

Another defence used by Mexico in the Mexico Telecoms case in order to justify its interconnection rates that included universal service costs was the invocation of Paragraph 5 (g) Annex. This article provides for special treatment of developing countries. Notwithstanding other paragraphs of Paragraph 5, developing countries may impose further restrictive conditions on access to and use of public telecommunications transport networks and services if they are necessary for the following purposes:

• strengthening domestic telecommunications infrastructure and service capacity, and

• increasing participation in international trade in telecommunications services.

Such restrictive conditions are subject to the principle of transparency and, thus, shall be specified in the schedules of commitments of the respective Members. The restrictive conditions shall be reasonable and consistent with the level of development of the respective Member. Mexico claimed to comply with all these requirements. In particular, limitations on market access were inscribed in Mexico’s schedule of commitments, and the pricing in question was necessary to enforce these limitations.⁵⁸

The Panel rejected these justifications on the grounds that departure from a country’s specific commitments is allowed under Paragraph 5 (g) Annex only if an explicit reference either to this article or to the development objectives, mentioned in this article, has been made in the country’s schedule of commitments.⁵⁹ Moreover, even if Paragraph 5 (g) Annex could be invoked, it would need to be proved that the conditions imposed were necessary and reasonable.⁶⁰

The WTO Panel ascertained application of the Annex on Telecommunications to basic telecommunications services⁶¹ and clarified and delineated the application scopes of the Annex and the Reference Paper to the issue of interconnection rates: the former applies to all operators of public telecommunication networks, whereas the latter provides for additional obligations for “major suppliers”.⁶² It has also unequivocally demonstrated that the above-mentioned provisions cannot be used by the WTO Members in order to pursue their national public policy and interpreted the restrictions of Paragraph 5 (e) and exceptions of Paragraph 5 (g) restrictively in interests of free trade. This approach will have strong implications for the future regulation of universal telecommunications service, especially by developing countries.

Denying pricing measures the status of “conditions” on access to and use of public telecommunication networks and services, the Panel considerably limits policy choice as regards mechanisms for and sources of financing universal service provision that can be used by countries. Restrictive interpretation of “reasonable terms”, on the one hand, and unwillingness to give definition or reference points on the question of when excessive prices are no longer reasonable, on the other hand, make it rather difficult to justify measures for universal service promotion on the basis of Paragraph 5 (e) Annex. It also may provoke regulatory insecurity with certain countries and compel them to legislative reviews.

For the developing countries, Paragraph 5 (g) Annex is rendered basically useless because no country has made direct reference, required by the Panel, to either the article itself or the development objectives listed there. It seems that only newly acceding Members can make use of this option; all the others would need to follow the procedure of Article XXI GATS in order to modify their schedules.⁶³

Agreement on Basic Telecommunications

The BTA covers all telecommunications services that involve end-to-end transmission of customer-supplied information. Value-added services that include more than simple transmission of a signal (e.g., storage, retrieval, email, voicemail, etc.) were formally not part of BTA negotiations but fell under the general GATS framework. The adopted agreement includes regulations concerning market entry and foreign investment. By and large, as regards market entry, the BTA allows for cross-border supply of telecommunications and enables foreign companies to provide local, long-distance, and international voice and data services through any means of technology.

It was agreed that market access commitments of the BTA apply both to facilities-based and resale competition.⁶⁴ It means that foreign companies should be able to build their own facilities to compete with the incumbents and resell existing capacity over private leased circuits. The foreign investment commitments allow provision of services through establishment of foreign forms or commercial presence and include ability to acquire shares in domestic telecommunications operators.

At the same time, the question of privatisation of the state-owned telecommunications operators falls outside the BTA (and the GATS) reach.⁶⁵ Although the participating Members have to open their basic telecommunications markets for competition, they are not obliged to privatise their incumbents. Even if they enter into this commitment, they are free to decide on the scope of foreign participation in local telecommunications operators.

Although the negotiated commitments might sound impressive, they need to be reminded that the effective level of liberalisation of basic telecommunications can only be determined after a thorough and extensive analysis of the individual commitments of the participating WTO Members regarding every single type of service and mode of provision. Such an endeavour goes far beyond the scope of the present research. In order to provide a better context in which universal service provisions were adopted and have been implemented, only the commitments on voice telephony—economically the most important basic service—in four modes of provision will be presented.⁶⁶

Of the 86 WTO Members that made commitments in telecommunications services, the absolute majority of 77 opened their voice telephony markets. The most notable exception is Brazil, which until now has no commitments in basic telecommunications sector. It participated in the WTO negotiations on basic telecommunications and made an initial liberalisation proposal but withdrew it a couple of years later, refusing to surrender to the international pressure to make deeper commitments.⁶⁷

Possible restrictions for trade in basic telecommunications services are manifold. WTO Members can prohibit the use of certain technology for provision of voice telephony (e.g., wireless). Commitments can be limited only to particular kinds of voice telephony service (local, long distance, or international). Additionally, WTO Members differentiate their commitments in different modes of service provision.

The majority of 77 Members made technologically neutral commitments, meaning that unless there is an explicit reference, voice telephony can be provided with the help of any technology.⁶⁸ In some schedules (Nicaragua, Nigeria, South Africa), differentiation is made between wireless (mobile or cellular) and wired voice provision, with the former enjoying more liberal regime than the latter. Satellite technology for provision of basic telecommunications services is treated restrictively and even excluded from some commitments (e.g., Vietnam, Chinese Taipei, South Africa, Philippines).

The commitments on market access vary greatly as regards the mode of provision and the kind of voice telephony. Clear tendency in commitments made can be recognised only regarding mode 4, “Presence of natural persons”, and mode 2, “Consumption abroad”. In mode 4, the absolute majority has chosen to remain unbound, unless something else is foreseen in horizontal commitments. In mode 2, the majority of the Members granted a free market access with no limitations at all. Commitments in mode 3, “Commercial presence”, although extremely diverse, can be classified in the following groups. The first and the largest group of about half of all Members with commitments in voice telephony opened their market without any restrictions. A smaller group of countries (Australia, Bolivia, Dominican Republic, Egypt, Moldova, and Venezuela) requires domicile or incorporation (sometimes in a particular legal form) in their country for telecommunications providers willing to provide voice telephony. A bigger group (China, Israel, Korea, Singapore, Vietnam, to name only the most prominent representatives) introduced restrictions on foreign direct investments. Another group of countries limited the number of operators, sometimes only for a particular kind of voice telephony service (e.g., Antigua and Barbuda have an exclusive operator for domestic voice telephony; Brunei reserves local and international telephony for the incumbent; India limits the number of operators issuing one licence per particular country region). The last group, which can be clearly identified, imposed several of the named restrictions (e.g., Mexico requires the operators to be a company under Mexican law and imposes limitations on foreign participation; the same conditions apply in the case of Colombia, but international voice is reserved for an incumbent). Provision of voice telephony through mode 1, “Cross-border supply”, usually depends on the restrictions in mode 3. Therefore, if WTO Members limit the number of operators or restrict foreign direct investment possibilities, they have immediate impact on the commitments in mode 1, where either provision of voice is reserved (Dominica, South Africa, Uganda) or provision through a particular network (Indonesia, Mexico, Morocco) or in cooperation with certain operators (Korea, Vietnam) is required.

Limitations on national treatment are less serious. An overwhelming majority of WTO Members impose no restrictions in the first three modes of service provision and remains unbound only in mode 4. All restrictions refer to mode 3 and concern commercial presence (domicile or incorporation) in the host country and the amount of nationals of the host country in executive organs of telecommunications operators (e.g., Brunei, Canada, Japan, Nepal, New Zealand, Philippines).

The brief overview of the Members’ commitments demonstrates quite well that international trade in voice telephony services is still far from complete liberalisation. The case of mode 3 commitments might be the most telling in this regard as being the most important way of telecommunications services delivery in general due to specifics of the sector. Effective provision of (especially) facilities-based telecommunications services requires commercial presence in the host state; therefore, even if other modes of delivery are liberalised, restrictions in mode 3 matter significantly. As pictured above, limitations in mode 3 remain rather extensive in comparison to other modes of services provision and have restrictive ramifications for mode 1.

Reference Paper on Regulatory Principles

The Reference Paper on Regulatory Principles was adopted, together with and in addition to market access commitments of the Fourth Protocol on Basic Telecommunications, which has a status of an annex to the GATS. It is not an annex but an optional document for the WTO Members, and WTO Members can include commitments to the Reference Paper in their schedules as additional commitments. At the same time, the Members are free to deviate from the RP, to select only particular rules for commitment or to rephrase them in their schedules.⁶⁹

The Reference Paper is widely praised as a unique and major achievement of the Uruguay Round negotiations⁷⁰: an international layout of the key principles for the design of national regulatory rules and institutions. As regards its objective, the document unites the features of competition law⁷¹ and of sector-specific regulation introduced by many countries that liberalised their previously monopolised markets. Thus, it renders precise several general competition-related provisions of the GATS, for instance Article VIII on monopolies and exclusive service providers, Article IX on business practices, and Article XV on subsidies. On the one hand, the document aims to guarantee the achieved degree of market liberalisation by requiring the committing Members to police behaviour of the former monopolists. The economic rationale behind this move is that even without the cloak of statutory monopoly the incumbent can use its accumulated market power to re-monopolise the market so that legislative liberalisation efforts would be undermined by private conduct. On the other hand, the Reference Paper addresses some of the domestic legislative measures, other than tariffs, that have a potential to become a barrier for international trade.

According to the Reference Paper, regulation of provider’s behaviour is triggered if a telecommunications company (or companies) is a major provider on the relevant market of basic telecommunications. A major provider is defined as one that is able to materially affect the terms of participation on the relevant market due to control over essential facilities or due to the use of its position on the market. Essential facilities are those exclusively or predominantly provided by a single or limited number of suppliers and that cannot feasibly be economically or technically substituted in order to provide a service.

The Reference Paper requires its Members to regulate major provider’s behaviour in two situations: 1) where it tries to prevent entry competition and 2) where it unilaterally attempts to obstruct competition on the market. Entry competition in basic telecommunications services market is enabled by means of interconnection—interlinking of public telecommunication networks belonging to different providers in order to allow a direct contact between a provider and customers of another provider (Section 2.1 RP) both in domestic and in international context.⁷² Differently from the Annex on Telecommunications, the Reference Paper does not address access to public telecommunication networks, which can be used for provision of any but basic telecommunications service.

The obligation to interconnect refers only to major provider(s): the incumbent(s), left with the largest and best developed network in the country after the liberalisation, must provide competitors with interconnection at any technically feasible point of the network (Section 2.2 RP). The interconnection requirements address three groups of issues: technical (point and quality of interconnection), commercial (price and other conditions), and procedural (interconnection negotiations).⁷³ The terms, conditions, and rates of the interconnection shall be non-discriminatory, and its quality shall be no less favourable than that provided for its own like services or for like services of other service suppliers. Interconnection shall be provided in a timely fashion and on terms, conditions, and cost-oriented rates that are transparent, reasonable, and sufficiently unbundled so that the service supplier does not need to pay for network components or facilities that it does not require for its service. Procedures for interconnection negotiations, as well as interconnection agreements. shall be made publicly available. The committing Members are requested to establish an independent national body to handle disputes over interconnection terms and other issues.

The principles of interconnection remain insufficiently precise on two important issues: unbundling and pricing. It is not clear which network components have to be unbundled so that the requirement of “sufficiency” is fulfilled.⁷⁴ The vagueness of the cost-orientation criterion for interconnection prices has been criticised in the literature⁷⁵ as countries use different methods for allocation of costs of interconnection, and therefore interconnection rates may be higher than the actual economic cost of interconnection. Precisely, this controversy became a focus of a dispute between the USA and Mexico.

In the Mexico Telecoms case, the USA argued that, among others, Mexico breached its obligations under Section 2 RP⁷⁶ because Mexico’s interconnection rates exceeded long-run incremental cost of providing telecommunication services as they included a contribution to finance universal service obligations. Mexico claimed that cost orientation of prices under Section 2 RP means not only that they recover the costs but also that they “recover amounts that reflect social policy and other concerns”.⁷⁷ Besides, accounting rates arrangements permit access to the complete infrastructure, and the pricing therefore can reflect the cost of rolling out the respective infrastructure.⁷⁸ Further, “cost-oriented rates … having regard to economic feasibility” mean in the context of interconnection a wide scale of possible prices to promote achievement of universal service goal.⁷⁹

Interpreting the meaning of cost orientation, the Panel drew upon ITU-T Recommendation D.140 because the notion of cost orientation has been a key concept of international telecommunications regulation through the ITU and in use since 1991,⁸⁰ and cost orientation is a regulatory principle of both the WTO and the ITU.⁸¹ The Panel noticed that the said Recommendation contained a list, enumerating cost elements to be considered in calculation of the rates, and required causality between the cost elements and the services provided.⁸² Interestingly enough, at the time of the dispute, Mexico applied ITU-T Recommendation D.140, and Mexico’s interconnection rates were consistent both with the target rates, recommended by the ITU Study Group 3, and with the benchmark rates for Mexico unilaterally set by the US Federal Communication Commission (FCC).⁸³ However, the Panel hardly addressed this argument and dismissed it with the statement that “ITU ‘target rates’ are just that, and are not, themselves, cost-oriented rates”.⁸⁴ Instead, the Panel applied a restrictive approach and concluded that cost orientation only referred to the costs incurred in supplying the service and that, although different calculation methods can be employed, long-term incremental cost methodologies have become a de facto standard internationally.⁸⁵ The qualifiers “reasonable” and “having regard to economic feasibility” do not modify meaning of cost orientation in such a way as to permit consideration of general state of telecommunications industry (coverage, quality, etc.) in calculation of interconnection rates.⁸⁶

Competition on the liberalised national markets shall be guaranteed by the requirement upon the Members to introduce in their telecommunications legislation competitive safeguards specifically preventing major provider(s) from engaging in anti-competitive practices (Section 1 RP). Negative effect on competition in the market may produce, in particular, anti-competitive cross-subsidies, use of information obtained from competitors with anti-competitive results, and failure to make available, on a timely basis, technical information about facilities and operations of major provider(s) that are required by the competitors in order to be able to enter the market. Despite the seeming detailedness, the provision lacks clarity as regards its central point: the definition of what constitutes an “anti-competitive” practice or result. Besides, the permissible mechanisms to counter anti-competitive behaviour are not addressed, leaving a broad leeway for the Members with potentially negative implications for the free trade.⁸⁷

Universal service, being a legitimate social policy objective in many countries, may negatively impact competition on the market and become a barrier for trade if administered in an anti-competitive fashion.⁸⁸ The relevant factors to be taken into account are the scope of the services to be offered universally and whether or not this scope shall be revised in the future according to technological developments, social changes, and service obligations. The pricing rules of universal service aimed at affordability, and the questions who shall finance universal service provision and how shall it be financed are of particular importance. The number of service providers that are obliged to carry out universal service obligations is important as they may result in diminishing of competition on a certain services market.

High degree of sensitivity and complexity of various national approaches resulted in a rather vague rule of Section 3 RP, which lays down the general principles for national regulation as regards universal service provision.⁸⁹ The government has the right to define the kind of universal service it wants to maintain provided that it is administered in a transparent, non-discriminatory, and competitively neutral manner. Obviously, these requirements are of a procedural character, addressing the administration of the measures and not their content.⁹⁰ They have been criticised as being too vague.⁹¹ For instance, in the light of the respective general and specific GATS obligations,⁹² interpretation of the terms “transparency” and “non-discrimination” is not clear, and only cautious textual interpretations have been suggested in the scholarly research.⁹³

In addition to the procedural requirements, Section 3 RP contains one more, which goes more into the substance: universal service obligation shall not be “more burdensome than necessary”. This requirement is likely to raise interpretation dispute because Members have the right to formulate universal service obligations and, therefore, to decide what is necessary or not. Moreover, as mentioned in Mexico Telecoms and other cases, on which the Mexico Telecoms Panel relies for its argumentation, the meaning of necessary may vary on the scale from “indispensable” to merely “making a contribution”.⁹⁴ Furthermore, it is not clear what the criterion is to determine if the obligation in question is “more burdensome than necessary”: operators or telecommunications sector in general or each individual operator.⁹⁵ Because the legitimacy of universal service obligation cannot be called into question, such wording of Section 3 RP generously allows Members to define universal service scope and provision obligations in a rather ambitious manner as long as all the other requirements are complied with.

Licensing conditions may create barriers for market entry if a government uses them to discriminate against foreign providers. The Reference Paper employs a procedural transparency requirement to prevent this from happening. Where a licence is required for provision of basic telecommunications services, information and decision-making procedures, as well as terms and conditions of an individual licence, shall be made transparent (Section 4 RP). Unfortunately, procedural requirements do not guarantee a competitively neutral distribution of licences as the situations in which a licence is required are not outlined and the content-related terms and conditions are not defined so that the Members are not prevented from imposing stricter or more burdensome licensing conditions on foreign providers.⁹⁶

Restrictions on the number of licences are prohibited by the general GATS rules (Article XVI). Yet in the case of telecommunications-related scarce resources (frequencies, numbers, rights of way), there may be a need to limit the number of the providers. The Reference Paper concerns itself with the question whether scarcity is an acceptable ground to introduce restrictions. It only outlines procedural requirements in this regard and sets out that the respective procedures are to be carried out in an objective, timely, transparent, and non-discriminatory manner (Section 6).

An establishment of a regulatory body for telecommunications markets is not required by the Reference Paper (a dispute resolution body for interconnection disputes disregarding). However, where such a body is established for a national telecommunications market, it has to be independent: separate from and not accountable to service providers (Section 5 RP).

Challenges of Technological Convergence and Responses of the GATS Legal Framework

Shortcomings of the GATS Legal Framework on Telecommunications Services Concerning Technological Convergence …

Even a brief overview of the GATS legal framework on telecommunications services clearly shows that it misses on the issues, which have become critical for provision of these services in the converged communications environment. It comes by no surprise though. The respective rules were conceptualised at the time when technological convergence was getting the impetus, and its extent and implications could be understood only rudimentarily, if at all. Besides, the thinking behind the elaboration of the GATS framework was strongly conditioned by the then extant, traditional way of telecommunications supply. Therefore, the objective of the GATS framework was to open up formerly monopolistic markets for telecommunications and keep the cross-border trade in services free by protecting it from the then known and anticipated disruptions.

The described legal framework is based on the traditional understanding of telecommunications services and their provision and is therefore not technologically neutral but in fact rather narrow in terms of the included technology.⁹⁷ The classification of telecommunications services in W120 is one of the most evident examples of this.

Not only from the regulatory point of view has the distinction between basic and value-added services lost its sense after the full liberalisation of the market,⁹⁸ but also from the technological point of view, it is not plausible any more, at least not according to the criteria used by the GATS. Progressing digitalisation and technological convergence render more complex even the most simple communications services. In many countries, a plain voice telephone call starts with an analogue outgoing signal being digitalised and encoded and sent as a data package to the receiving end where it is decoded and converted into an analogue signal understandable for a human. This can be said to turn a plain voice telephone call into a value-added service because the electromagnetic signal is not simply conveyed to the recipient but modified in the process.

Furthermore, many sub-sectors of the W120 list are expressly linked to a certain technology that makes them redundant when technology changes.⁹⁹ For instance, voice telephone services presume a transmission via fixed telephone lines and are a separate sub-sector from mobile and satellite telephone services. However, currently voice phone call can be partially carried by different networks. Besides this flaw, such services as telex, telegraph, and facsimile do not correspond to the trends of the modern telecommunications trade. Due to technological convergence, some categories of telecommunications services overlap with computer and broadcasting services, especially those commonly known as multimedia services.¹⁰⁰ Merging with adjacent sectors, telecommunications is becoming a part of a broader whole,¹⁰¹ and the role of various individual telecommunications services for society changes, while degree of uncertainty about their classification grows,¹⁰² what has negative implications for other regulatory issues, as will be shown below.

Both issues of interconnection and of access are addressed by the GATS legal framework, but to a limited extent resulting from the specifics of the classification of telecommunications services. Certain aspects of interconnection are regulated only in the Reference Paper, which applies only to the suppliers of basic telecommunications services or networks. Following the definition of interconnection, given in Section 2.1 RP, it can be assumed that providers of services, other than basic telecommunications, and operators of networks, other than for public telecommunications transport, cannot demand interconnection and do not enjoy the guarantees of Sections 2.2 till 2.5 of the Reference Paper. Besides, the obligation to grant interconnection on the prescribed terms is established only for major providers of basic telecommunications services or networks, while major providers of other communications networks cannot be mandated, even though interconnection of various types of networks is necessary for creation of NGNs and for achieving of universal network coverage.

Access to the network is regulated under the Annex on Telecommunications, which, as explained above, applies to any services that were included by the Members in their liberalisation commitments and that require a telecommunication network for their delivery. The provision on access therefore benefits greatly providers of value-added services and also providers of broadcasting and computer services. Yet access to the network is not equal to interconnection of networks; the following are the rights that a service supplier enjoys in connection with access to network: to purchase or lease terminal and other equipment necessary for access, to interconnect private leased circuits, and to use necessary operating protocols. The rights under Paragraph 5 (b) Annex are designed to help provide in the first line a non-telecommunications service and not to enable competition in communications services like those supplied by the provider granting the network access.

Therefore, for example, providers of Internet and cable networks can neither benefit from the interconnection provision of the Reference Paper nor circumvent it by relying on the access rules of the Annex.¹⁰³ At the same time, unless their activity is recognised by the domestic legislation of the Member as provision of public telecommunication network or services, Internet and other communication network providers cannot be obliged to grant access to their networks to any service suppliers¹⁰⁴ that might seriously undermine the development of electronic commerce.

Within the context of basic telecommunications provision, the Reference Paper introduces some competitive safeguards that are aimed at regulating behaviour of a major provider or providers. As has been noticed by scholars,¹⁰⁵ in contrast to European competition law, the Reference Paper's definition of a major supplier refers to the position of the so-called super-dominance, which requires a very high threshold when applied in practice.¹⁰⁶ Such approach might have justified itself in the past, but in the future, due to progressing convergence and increasing competition, a super-dominant position will become less common and behaviour of undertakings with a lesser market power may need regulation. Not only unilateral anti-competitive practices will be requiring closer attention, but possibly various types of agreements and orchestrated behaviour of several market players will require it too.

Besides, not only the players of basic telecommunications markets become of interest for and of relevance to a possible restriction of competition but also other communications services and networks providers due to the dangers of vertical integration—and due the implications of different layers of the communication infrastructure at each other. Technical convergence allows telecommunications providers to use various networks and facilities to cut costs while improving the service quality. Yet it also makes telecommunications providers dependent on operators of other communications networks because they cannot control the end-to-end transmission of services autonomously, as in the times of PTTs. In order to address these constraints, what is required are a more holistic view of the communications services market and more general competition rules, going beyond regulation of an incumbent.

As noted above, although the rules on interconnection pricing set by the GATS legal framework for telecommunications services are scarce and general, their implications for domestic legislation are significant. Besides, the requirement of cost orientation of interconnection rates is applicable only to major suppliers of basic telecommunication networks or services. Although one can safely assume that currently the owner of the relevant telecommunications infrastructure is most likely an incumbent undertaking possessing significant market power, the referred Section 2.2 RP does not completely satisfy the needs of a converged communications environment. As noted above, growing reliance on the Internet, cable, mobile, and other networks means involvement of new players in the cross-border supply of telecommunications services that do not necessarily fall under the scope of the Reference Paper. Moreover, proliferation of networks that can be used for telecommunications services provision means that a greater number of undertakings may have a dominant position on the market, without being super-dominant.

While at least most general rules on interconnection pricing are contained in the GATS framework, provisions on prices for access to the network are absent completely. In the situation of convergence, when access to public telecommunication networks has become important for providers of other communications services that can be regarded as competing with the services offer of the telecommunication networks providers, private pricing arrangements can be used to discourage competition.

The shortcomings in regulation of universal service in the Reference Paper can be also attributed to the flaws of classification. As mentioned above, GATS differentiates between basic and value-added telecommunications services, while universal service provisions of the Reference Paper apply only to the former.¹⁰⁷ Yet the significance of value-added services is increasing with the so-called information society taking roots and with further technological developments, predominantly in the fields of convergence, omnipresence of the Internet, data replacing voice on communications networks, and rolling out of NGNs. Having in mind current and possible future technological and market developments, Section 3 RP is likely to put constraints on certain WTO Members (in particular, developed ones, willing to promote information society and economy) who may wish to enhance their national universal service scope and include in it the so-called value-added services. In this regard, it needs to be reminded that to value-added services, according to the W120 classification, belong the following important services, which are being discussed as candidates for elements of the universal service scope at least at the national and EU levels: online data processing and email.¹⁰⁸

… and Possible Solutions

The foregoing account suggests that a solution of the classification issue is of a central importance in order to adapt the GATS legal framework for telecommunications services for the needs of the new communications environment. Among the urgent problems of classification are abolition of distinction between basic and value-added services, definition of Internet provision as a telecommunications service, classification of bundled services as telecommunications sub-sector or as a different services sector depending on their content, classification of new services characteristic of the new communications environment, such as data warehousing, multimedia services, and online chat rooms.¹⁰⁹

In the Doha round, the classification issue is in fact high on the negotiation agenda. Thus, in its communications TN/S/W/27 and S/CSC/W/44, the EU advocates the position reflecting its domestic policy approaches where the generic term “electronic communications service” is used for telecommunications services of any type. From the definition of electronic communications service is clearly excluded only services mingling with the content of the transmitted information, namely services providing, or exercising editorial control over, content transmitted using electronic communications networks and services and information society services, if they do not consist wholly or mainly in conveyance of signals on electronic communications networks.¹¹⁰ In regard to other classification issues, some WTO Members suggest to recognise Internet delivery services as telecommunications services.¹¹¹

If the respective changes can be introduced, it will represent the first step in the direction of a technologically neutral regulation by extending the application scope of both the Reference Paper and the Annex on Telecommunications. An inclusion of technological neutrality in the list of principles for domestic telecommunications legislation would significantly improve a convergence-friendly character of the GATS liberalisation and regulation framework, strengthen the process of the growing together of different communications sectors, and contribute to achievement of positive market developments, including lower prices, wider territorial coverage, and at least partial bridging of digital divide.

A similar effect of enhancing technological convergence can be reached not through the change of the multi- and plurilateral legal body, but through the deepening of trade liberalisation, i.e. improved commitments by the Members to open up national telecommunications service sectors. This approach has been pursued by the Members so far at the Doha negotiations. For instance, Annex C of the Hong Kong Ministerial Declaration of 18 December 200,5¹¹² referring to sectoral and modal objectives identified by the Members, envisages broad coverage of the telecommunications sector in a technology-neutral manner; significant commitments in all modes of supply; reduction or elimination of exclusive rights, as well as economic needs tests; restrictions on the types of legal entity permitted; and limitations on foreign equity.¹¹³

The call by the Hong Kong Ministerial Declaration to engage in plurilateral negotiations on the listed above matters was initially received enthusiastically by some Members who submitted a respective collective request on telecommunications services. Yet the subsequent negotiation sessions brought only a very modest amount of improved offers and stalled what can be explained by the lack of progress in other areas of the Doha negotiations agenda.¹¹⁴

In this context, it shall be noted that at the Doha negotiation round in its negotiating proposal for telecommunications services, Cuba, supported by several other Members, expressed unsatisfaction with the disparities between the nations regarding telecommunications access and use and blamed the universal service rules for that.¹¹⁵ The demands of developing countries shall be listened to more carefully now because, due to saturation of markets in the developed world and large population, future development of telecommunications will be defined by them.¹¹⁶ With this in mind, it is likely that the ITU might be of great help and relevance for the progress—or due to the absence of progress—in the WTO. The ITU has been undertaking a number of measures in order to respond to technology and market realities and has taken up a task of supporting and advising developing countries in elaboration and implementation of telecommunications legislation.¹¹⁷ The WTO experience in this field is comparatively limited, while the ITU expertise is likely to grow, not last due to participation of a wide variety of stakeholders in its everyday work.¹¹⁸ This fact also speaks for greater involvement of the ITU and greater consideration of non-trade issues—universal service and the interests of developing nations—in the WTO work.

Deepening liberalisation commitments without a proper adjustment of the regulatory framework would only have a limited, short-term effect but may at the same time push the Members to further regulatory reforms both domestically and internationally. In this context, besides the solution of the classification issues, the provisions on interconnection and access should be rendered in more detail. One of the central issues is interconnection and access pricing. As mentioned above, the Panel already produced a first interpretation of the term “cost oriented” but brought even more confusion on this matter: the two international organisations dealing with telecommunications services provision—the WTO and the ITU—seem to disagree on the meaning of cost orientation. Legal uncertainty for the countries that are Members of both organisations has therefore increased as they cannot be sure that by complying with the ITU guidelines on interconnection rates they are also fulfilling their obligations under the GATS. Moreover, the reform of the ITU’s accounting rates system is long overdue, and it would be of great benefit if, by working in cooperation, the Members could develop an up-to-date framework for telecommunications services provision. At the WTO level, a set of principles—non-discrimination, cost orientation—should be established, reflecting the experience of the liberalised trade in services and the technological change and taking into account special needs of developing countries. Within the ITU, more detailed rules in the form of guidelines and recommendations can be elaborated along these lines to help countries define best calculation methods. Similar principles and guidelines should be introduced for access to the network in order to allow for greater competition in communications services in general, to provide for innovation and new competition possibilities, and to enhance convergence of networks.

This effect can be strengthened by rendering more precise issues of interconnection and access indispensable for networks’ interoperability and relevant for market entry of new communications services providers. In this regard, standardisation comes into question, and so are activities of the ITU on quality of service, provision of sufficient capacity of a network access, routing arrangements and others,¹¹⁹ as well as their stronger connection and consideration within the GATS framework.

Competitive safeguards shall be updated and strengthened to be able to anticipate negative implications of technological convergence: foreclosure of telecommunications markets due to activity of non-telecommunications undertakings and potentially harmful vertical integration.¹²⁰ This would require revision of not only the provisions of the Reference Paper but also of the general GATS provisions of a competition law nature (Article VIII). The definition of major provider seems to require rethinking, and the focus of the rules should be widened to include anti-competitive practices of several undertakings, none of which has dominance on the market.