Session Ten:
International Telecommunications

Lecture Notes

  Lecturette 10 – International Communications

You have probably heard about "globalization" a lot lately. The term refers to the way in which telecommunications in general, and special features like fax and the Internet are "shrinking" the world. In theory, at least, anyone in the world can now access a telephone that can call anyone else in the world. Signaling is the glue that holds the world network together; this session is about the detailed issues of billing and collection, engineering standards, and changes in policies in other countries that are facilitating this dramatic change and the "shrinkage" of the world.

Economically, technologically, and policy-wise, the U.S. has driven the world telecommunications market. With a worldwide market of approximately $2 trillion, the U.S. market is nearly one half of all money spent on telecommunications equipment and services. And with only half of the world’s population having yet made or completed a telephone call, the potential for growth is staggering.

Other nations have sought to emulate the results of U.S. telecommunications growth. Not all have followed the U.S. model. At least one country, Singapore, has used telecommunications not only to position itself globally, but also as the catalyst for dramatic change in its own economy and culture.

Historically, telecommunications outside the United States was largely a government monopoly. Most often following the British lead of a "PTT" – a Post, Telephone and Telegraph ministry, telecommunications revenue served as a subsidy for cheaper mail service. In many countries, telephones also represented a threat to dictatorial regimes, in turn limiting the availability of telephones to individuals.

As you saw in the readings, two basic trends are changing the face of telecommunications in other countries. First, "privatization" is shifting the ownership of the telecommunications system from the government to private owners. Second, "liberalization" means reducing the barriers to market entry for new players. Not all countries which have "privatized" have also "liberalized", and vice versa.

In Japan, for example, the telephone system was "privatized" within a few years during the mid-1980’s. But restrictive standards have made market penetration in Japan by other carriers and equipment suppliers extremely limited. Similarly, Siemens dominates the German market, having previously been the captive supplier of the DBP, the Deutsches Bundes Post (post office ministry) which ran the telephone system. So far, other European suppliers have been more successful than either the North American or Asian producers in penetrating the German market in competition with Siemens.

But in the other countries, openness is the watchword. The former republics of the Soviet Union have found telecommunications to be a critical enabling technology for them to conduct business with the rest of the world. They have also found the separations process to be an important source of hard currency for them.

Here’s why. When a telephone call is made from one country to another, the revenue for that call is divided evenly between the countries at the originating and terminating ends. Since most international calls concerning, say Ukraine, tend to originate in western Europe rather than Ukraine, and since calls originating abroad tend to cost less than calls originating in Ukraine, there is a net gain in revenue to Ukraine. The incentives and disincentives tend to make the westerners originate the calls, at least those of long duration, so the revenue stream stays pretty steady. Since few industrialized nations are willing to accept payment for services in rubles at the official exchange rate, the telecommunications system has become a huge source of dollars, marks, pounds, and yen for the Ukrainian government.

Similarly, underdeveloped nations have used the revenue from telecommunications to plus up their trade balances. In the early 1970’s, Singapore remained a largely agrarian (if very small) former British colony. Its primary asset was, and is, its location at the confluence of sea routes between the oil-rich middle east and Europe at one end, and Australia, the Philippines, the U.S. and the industrial nations of East Asia –Japan, South Korea, and Taiwan, at the other end. As an act of national policy, Singapore set the goal of becoming a "developed nation" by the millenium. This generation-long goal was achieved through information technology.

First, the nation built an information system to support its port and docking facilities and to speed up in-port turnaround times. With the experience gained by building and using these information systems, and with the technology-rich capability the nation built, it was able to make a near quantum leap forward. From the base in IT-supported port facilities, the nation built up its capability for processing financial data and making multinational transactions. This capability and experience, in turn, revamped the nation’s basic economy. Formally recognized in 1998 as a "developed nation" becoming the 8^th member of the G-7, Singapore is now largely a financial services economy, a role similar to that of the Swiss in the past.

International calling falls under the purview of the International Telecommunication Union. This international body, headquartered in Geneva, Switzerland, serves the world telecommunications industry by setting standards and providing a forum to negotiate rates and distribution of the revenue. Participation occurs at a high governmental level. Corporations are represented by their own governments.

Another issue is cross ownership. Since most countries regard their telecommunications system to be a part of their strategic interest, they generally prefer their own nationals, if not the government, to own the system. Domestic ownership is presumed to be intrinsically safer that foreign ownership in the event of war or national emergency. The U.S. limits and places under scrutiny non-U.S. ownership of U.S.-based telecommunications firms. This interest has some profound implications within the global economy. British-owned Cable & Wireless, for example, must operate in the U.S. under slightly different rules that MCI and Sprint. Conversely, the "deal" between Sprint and Deutsch Telekom and Telecom France was met with skepticism by U.S. regulators and policymakers.

The consequence has been to form partnering agreements, rather than outright ownership, across national boundaries. Still, the potential for increased globalization, particularly because to the Internet, remains high. With the current state of the technology, governments can retain some control of access to national systems at "Gateway"switches but routing all traffic through them. But the Internet, with cheap, plentiful routers and overlapping networks, makes it harder for individual governments to police the traffic. The government loses some leverage as the networks become cheaper, "smarter" and more prolific.

The future of global telecommunications appears to be accelerating. During the decline in the Southeast Asian economy in 1998, telecommunications sales continued at a high rate. The criticality of telecommunications as an enabling technology is so great, that purchases of telecommunications and other information technology equipment and services were seen as the key to ending the recession.

And half the world has yet to complete a phone call….

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