WASHINGTON-The National Telecommunications & Information Administration estimates that the liberalization of the global telecommunications marketplace has resulted in a $675 billion opportunity for carriers that want to pursue business overseas.
While the World Trade Organization treaty has paved part of the way into what used to be closed or restricted markets, entrenched off-shore regulations still are creating barriers to entry in some cases for U.S. carriers and manufacturers.
Prior to the WTO, which covers 69 countries, only 17 percent of the top 20 international telecom markets were open to U.S. interests; today nearly 100 percent of those markets have been liberalized. The WTO has brought about a lot of changes “that we won’t have to fight about,” commented William Corbett, director of telecommunications goods and services trade policy for the U.S. Trade Representative during last week’s NTIA-sponsored “New Directions in International Telecom” round table. The real test of the agreement will be whether signatory countries are adhering to the open-trade strictures; a regulatory-reference paper on that subject is due soon.
New partners
What has been happening is “a dance you haven’t quite seen before,” said NTIA director Larry Irving, commenting on the scramble between U.S. and foreign interests to forge strategic partnerships. While going it alone can be done successfully, companies like WorldCom Inc. and AT&T Corp. have chosen to explore both possibilities, depending on the market.
“You can go it alone, but it requires resources and patience, and you have to choose your markets carefully,” said Robert Koppel, vice president of international regulatory affairs for WorldCom. “The only exceptions for us have been where foreign PTTs said we couldn’t. Only recently have we entered into a joint venture with Telefonica in Spain.”
Douglas Schoenberger, government affairs director for AT&T, added, “AT&T has taken the alliance route, and it creates strange bedfellows. You can argue and storm out of the room, but you have to come back to the same people during the afternoon.” IXC Communications, which builds out fiber-optic networks, recently joined with Telenor, the Norwegian PTT, to build in Great Britain because “they know how to get things done,” said Meri Braziel, senior vice president of European operations.
“Iridium cannot function without partners,” admitted Len Kolsky, vice president and director of global telecommunications relations for Motorola Inc. “It has trouble trying to get licenses. You may have to buy entree by signing key investors.”
Need goes both ways, and many European and Asian companies want U.S. telecom providers on their team. “U.S. companies need to partner with local business,” said Barbara Phillips, AirTouch Communications Inc.’s vice president for federal relations. “We were looked at as valuable in Europe and Asia because of our technical and operating expertise. We had Romania up and running in five months. Some consortia believe a U.S. partner is necessary to get a license.”
A small advantage
Big is good but sometimes small is better when telecom companies try to crack foreign markets. If giants like AT&T and WorldCom need to pair with home-grown entities to gain entry-mostly due to the perceived threat of a big U.S. company usurping local customs and revenues-smaller players may have an advantage.
“Large partnerships can be cumbersome and slow to meet market needs,” said Schoenberger. “There will be some fallout in the big ranks.”
On the other hand, smaller carriers “have it easier finding market niches and acting quickly,” said Don Hutchins, principal of management-consulting firm GH Associates in McLean, Va. “Carrier hubs can be created in six months.”
Incumbents don’t view small companies as much of a threat, and many can “slide under the entry-barrier radar,” added Diane Cornell, chief of the Federal Communications Commission’s International Bureau’s telecommunications division.
European and Asian carriers and manufacturers have made sure their phones work when subscribers travel, and U.S. carriers and manufacturers have not, according to Regina Keeney, chief of the FCC’s International Bureau. These de facto global standards are posing problems for American manufacturers, which have been discovering that, even in an open market, carriers will opt for local equipment.
“Equipment there is different than equipment we build here,” Motorola’s Kolsky said. “In cellular, we made a decision to provide what the market wanted. Now the question is, can me make diversity pay off? We don’t know if we want a global standard, but we have to recognize that there is one, de facto. The argument is that if the government picks the standard, it may not be the best one, but someone has to choose. The industry will not coalesce by itself to the best standard.” U.S. carriers, however, don’t seem to have a problem adapting to what foreign markets want, service-wise.
Keeney countered that the government has to push the industry to pick the standard, even with all the political pressure applied by lobbyists.
Corruption
Along with de facto or de jure standards, bribery also is viewed as a barrier to entry, with Kolsky calling it “a tremendous problem.” Corruption is a development problem, added Corbett of the USTR, and the United States needs to be more vigilant in making sure the Corrupt Foreign Practices Act is working.
According to Kolsky, “In some markets, bribes are a way of life. Non-U.S. countries have a more liberal attitude toward this, and the United States has a more rigorous standard. Because Motorola adheres to that standard, we are disadvantaged.” Kolsky said Motorola sometimes has problems getting its gear through customs, although its distributors have no such problems. If a Motorola distributor is found handing out bribes, it must stop.
Other problems
The Asian financial crisis has impacted global telecom competition somewhat, but most of the panelists view the downturn as only a correction, and they plan to sit tight and wait things out. WorldCom foresees no decrease in interest in the Asian market, and it is working on a five-to-10-year buildout plan. “Asia is an extraordinary market, and the problems are short term,” Koppel said. AirTouch’s Phillips agreed, saying that different regions of Asia are experiencing different setbacks. “We’re in Korea and Japan, and people still are using their wireless phones,” she said.
For those looking for cheaper acquisitions, this may be the time to move. Because of the crisis, company values have gone down. “You hate to make money by someone else’s misfortune but the opportunities are there,” said Kolsky, who also pointed out that “Asia isn’t Asia. Some countries need reform, and that will take a long time. With others, it’s just money, and that will be fixed.” China will come back, he explained, but Indonesia will take longer because of basic government problems.
The pace of global spectrum allocation and management continues to plague U.S. participants, which apparently are last in line to adopt and implement guides. “The FCC has not implemented the spectrum rules adopted during WRC ’92, and we’re getting ready for WRC ’99 in 18 months,” Kolsky said. “Regarding third-generation cellular, the whole world lines up but us. We still haven’t done second-generation cellular.” Auctions preclude uniform global allocations, and the United States needs to decide how auction winners can use their spectrum-based on service or on winner preference.
Overall, these issues will remain bones of contention as U.S. interests continue to diversify. “Things aren’t going to get less complicated, but more complicated,” concluded NTIA’s Irving. “If we don’t get in front of the issues, we will be behind.”
