DOCUMENT RESUME

ED 370 540 IR 016 802

AUTHOR Savage, James G., Ed.; Wedemeyer, Dan J., Ed.TITLE Plenary Presentations. Pacific Telecommunications

Council Annual Conference (16th, Honolulu, Hawaii,January 16-20, 1994).

INSTITUTION Pacific Telecommunications Council, Honolulu, HI.PUB DATE 94NOTE 73p.; For conference proceedings, see IR 016 803.PUB TYPE Collected Works Conference Proceedings (021) --

Reports Descriptive (141) -- Speeches/ConferencePapers (150)

EDRS PRICE MFOI/PC03 Plus Postage.DESCRIPTORS *Developing Nations; *Economic Development; Foreign

Countries; Global Approach; Government Role;*Information Technology; International Cooperation;International Organizations; Models; Private Sector;*Telecommunications

IDENTIFIERS *Pacific Region; United Kingdom; United States

ABSTRACTThis document contains the following plenary speeches

from the 1994 annual conference of the Pacific TelecommunicationsCouncil (PTC): "Forging New Links--Focus on Developing Economies" bySir Donald Maitland of the Independent Commission for World-WideTelecommunications Development (United Kingdom); "The Missing Link:Still Missing? The Continuing Role of the ITU in TelecommunicationsDevelopment" by Pekka Tarjanne of the International TelecommunicationUnion; "Forging New Links Philippine Style" by Josefina T. Lichaucoof the Department of Transportation and Communications (Philippines);"Telecommunicatior . Liberalization--The Hong Kong Model" by AlexArena of the Telecommunications Authority (Hong Kong); "InformationTechnologies--Present and Future" by Warren E. Falconer of AT&T(United States); "KDD's International Cooperation Activities under aCompetitive Regime" by Kunishi Nosaka of Kokusai Denshin Denwa(J:,pan); "Telecommunications in the Pacific" by Ieremia T. Tabai ofthe South Pacific Forum Secretariat (Fiji); "The Co-Ordinating Roleof APT in Promoting Telecommunications in the Asia Pacific Region" byRiluvan Shareef of the Asia-Pacific Telecommunity; "Compatible Rolesof Government and the Private Sector in Fostering TelecommunicationDevelopment" by Derek H. Burney of BCE Telecom International, Inc.;and the abstract only of "Let's Take a Ride on the InternationalInformation Highway" by Mike Thurk of Digital Equipment Corporation(United States). The winner of the 1993 PTC research prizecompetition, "Telecommunications, Capabilities and Development:Towards an Integrated Framework for Development Communication"(Nikhil Sinha), is also included; this paper contains 54 references.(MES)

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Reproductions supplied by EDRS are the best that can be madefrom the original document.

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Edited byJames G. Savage andDan J. Wedemeyer

PLENARY PRESENTATIONS

U.S. DEPARTMENT OP EDUCATIONOffice el EduCatiOnal Rs Smirch and improvement

EDUCATIONAL RESOURCES INFORMATIONCENTER (ERIC)

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Oricenoting it0 Miner Changes nave been made to improre

reOrOduction quality.

Points of view or opinions stated in this docu-

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PacificTelecommunicationsCouncilSixteenthAnnualConference

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'PERMISSION TO REPRODUCE THISMATERIAL HAS BEEN GRANTED BY

R Barber

TO THE EDUCATIONAL RESOURCESINFORMATION CENTER (ERIC)."

January 16-26,1994Sheraton Waikiki HotelHonolu, Hawaii

PTC'94

PLENARY SPEECHES

AND

1993 RESEARCH PRIZE WINNING PAPER

Table of ContentsPage

Introductory Note iSir Donald Maitland 1

Pekka Tarjanne 6Josephine T. Lichauco 14Alex Arena 20Warren E. Falconer 27Kunishi Nosaka 34Ieremia T. Tabai 41Riluvan Shareef 44Derek H. Burney 48Mike Thurk 56Nikhil Sinha 57

©1994, Pacific Telecommunications Council.Published in conjunction with PTC'94, theannual conference of the PacificTelecommunications Council.

INTRODUCTION

In preparing for this 16th annual Pacific Telecommunications Conference, it came to our attention that

the quality and calibre of the Plenary papers submitted were exceptionally promising. Clearly, thisyear's theme - "Forging New Links: Focus on Developing Economies" - galvanized and motivated theConference Plenary participants. As a consequence, we decided it would be valuable to give thePlenary presentations their very own forum, and hence this publication came to be.

As Sir Donald Maitland notes in his Plenary presentation to PTC'94, telecommunications developmenthas rapidly outpaced general economic development throughout the world. It has been gratifying to allin the telecoms field to see that telecommunications is now viewed universally as a central tenet ofeconomic and social development. The most optimistic projections of the landmark 1984 MaitlandCommission study, The Missing Link, could not have foreseen how quickly much of the world hasbeen integrated into the global network, and how that network has itself evolved. But much workremains. Vast areas of the globe remain unserved or underserved; their economic development stalledin no small part as a result of this failure to communicate.

The Conference's other Plenary speakers address the specific development challenges in their countriesand regions. Josephine Lichauco reviews telecoms development in the Philippines, a particularlyinteresting case study of new regulatory structures being put in place to fuel development. IrermiaTabai and Riluvan Shareef analyze developments at the regional level from, respectively, the SouthPacific Forum Secretariat and the Asia-Pacific Telecommunity. As demonstrated by the PTC's ownefforts, regional cooperation has been an important catalyst to telecoms development.

At the worldwide level, the International Telecommunication Union (ITU) has been a powerful forcein identifying and highlighting the importance of telecoms development. As ITU Secretary-GeneralPekka Tarjanne notes in his presentation, "a new model of telecoms development has been launchedwhich is based on entrepreneurship, competition, and private sector participation".

Several other speakers. from Warren Falconer of AT&T, Derek Burney of BCE Telecom International,Kunishi Nosaka of KDD, Mike Thurk of Digital Equipment Corp., provide overviews of how theirenterprises have made telecoms development a priority and have, as a consequence, profited from aglobalized perspective, wider market awareness, larger telecoms activity (and hence revenue), and ascope of activity unimaginable only ten years ago. Alex Arena of the new Hong Kong regulatorybody OFTA (Office of the Telecommunications Authority) looks at the innovative regulatory modelHong Kong has chosen to oversee these rapid developments.

Finally, we are please to include within this publication the winning paper of the 1993 PacificTelecommunications Council Research Prize. The author, Dr Nikhil Sinha of the University of Texas,USA, focused on the search for a wider explanation of the importance and value oftelecommunications development. His paper bears close reading, for it centres on the developingcountry user's needs and motivation, and provides a framework for understanding the centralimportance of telecoms to development.

4

FORGING NEW LINKS - FOCUS ON DEVELOPING ECONOMIES

SIR DONALD MAITLANDCHAIRMAN

INDEPENDENT COMMISSION FOR WORLD-WIDETELECOMMUNICATIONS DEVELOPMENT

UNITED KINGDOM

In choosing to focus at this Sixteenth AnnualConference on developing economies, the PacificTelecommunications Council bas taken a timelyinitiative. For several years now the economictribulations of the major industrialised countries havetended to divert attention from the chronically poorquality of life in much of the developing world.

The disadvantaged nations first raised their collectivevoice when the leaders of twenty-nine' Asian andAfrican states came together at Bandung in Apil1955 and, in so doing, conferred a personality on apolitical force which came to be known variously asthe Third World, the South, or the Non-AlignedMovement. The economic ambitions of developingcountries were expressed at the first Conference onTrade and Development in New Delhi in 1964, whenthe Group of 77 came into being. At a meeting ofthe Non-Alligned Movement in Algiers in 1973 theseaims were enshrined in a the demand for a 'newinternational economic order'. The oil crisisprecipitated by the Middle East war later that yearobliged the international community as a whole totake seriously the demand of developing countries fora greater share of the world's wealth and fairer accessto the products of man's ingenuity.

For various reasons - political, economic and social -the solida,ity of the Group of 77 was short-lived. Yetthe basis of the case they made remained valid - forthe good reason that it was unanswerable. In anotherhistorical context President Woodrow Wilsonconcluded his message on the Fourteen Points withthese words:

An evident principle runs through the wholeprogram I have outlined. It is the principleof justice to all peoples and nationalities, andtheir right to live on equal terms of libertyand safety with one another, whether they bestrong or weak. Unless this principle be

1

made its foundation, no part of the structure ofinternational justice can stand.

That was over seventy-five years ago.

Considerations such as these were no doubt in theminds of delegates to the Plenipotentiary Conferenceof the International Telecommunication Union inNairobi in the autumn of 1982 who charged theIndependent Commission for World WideTelecommunications Development withrecommending ways of stimulating the expansion oftelecommunications across the world. The mandategiven to the Commission was essentially political. Itrecognised an inequity in a sector of cardinalimportance for the future prosperity and security ofnations; and, because potential remedies lay within therealms of the feasible, it foreshadowed progress ofpalpable benefit to individual citizens.

It is nearly ten years since the Commission set out itsprescription for achieving the objective of bringing allmankind within easy reach of a telephone by the earlypart of next century. In the interval the politicalcontext in which the Commission addressed itsrecommendations to -governments, internationalagencies and the telecommunications industry haschanged in ways none of us could have imagined in1984. While the end of the cold war removed thethreat of nuclear confrontation between the super-powers and restored basic rights to millions of peoplein central and eastern Europe and in southern Asia, italso released tensions which had been suppressed forover forty years. Here and there the consequenceshave been disastrous. In newly liberated parts ofEurope and the Caucases tyranny has given place towar, destruction, hatred and fear. In Russia itself thedifficult and dangerous search for political stabilitycontinues.

5

The high hopes that reconciliation betweenWashington and Moscow would at last enable theUnited Nations Security Council to play the roleassigned to it in the Charter have been disappointed.In many countries of Africa and parts of Asia, as informer Yugoslavia, the killing goes on; too often it isthe massacre of the innocents. Natural disasters,terrorism and the international drug traffic have alsotaken their toll.

Economic recession in much of the industrialisedworld has led to high levels of unemployment and thesocial distress which that entails. Nor is there anyearly prospect in Europe, at least, of a return to thehigh rates of growth achieved in the 1980's.Moreover, in the European Union economicdivergence is more evident today than convergence.In such circumstances, it is not surprising that therehas been a resurgence of nationalist sentiment,notably in Germany where the process of integratingtwo diverse economies has proved more difficult thanwas foreseen.

Elsewhere the picture is different. During the past tenyears, countries in Asia and the Pacific have beencomparatively immune from the economic and othermisfortunes of other parts of the world. Some haveadvanced with astounding speed, reaching andsustaining rates of economic growth far in excess oftheir competitors. The vigour with which China haspursued its programmes of economic regeneration isanother notable feature of the past decade. The factis there for all to see: the balance of economic poweris tilting, ever more rapidly, from the Atlantic basintowards the Pacific. The recent conference at Seattleof leaders from the Americas and east Asia seemed totake some Europeans by surprise. Commentatorsasked whether this meant the end of the NorthAtlantic partnership. One ionders where such peoplehave been for the past ten or fifteen years.

of**

Over the past several years growth rates in mostsectors, and especially those traditionally regarded aspillars of the world economy, have either been staticor declined. The outstanding exception has been thetelecommunications and information technologysector, which has continued its advance thanks toincreased globalisation, thl international shift towardsservices, the advent of new technology, decliningcosts and prices and de-regulation. Last year themarket for international telecommunications servicesand equipment grew by some 13% ten times the

2

growth of the world's GDP. this was rather less thanthe 15% to 20% achieved in the late 1980s. It is ofspecial interest that last year, and for the first time,new carriers contributed a larger sham of theadditional traffic than did the principal establishedcarriers. This is evidence of the determination withwhich operators and manufacturers, despite theinevitable pain, have been exploiting the opportunitiesoffered by de-regulation, privatisation andliberalisation which have transformed the structure ofthe industry. Already no less than 46 companiesworld wide are now in the private sector. Whereas inEurope the objective of privatisztion has usually beento contribute to a reduction of budget deficits, indeveloping countries, and principally in Latin Americaand Asia, the motive has been to attract investinent inorder to expand existing networks.

These structural changes have obliged the majorinternational companies to devise global strategiesand, to this end, grand alliances are being formed.The most spectacular so far have been those involvingAT&T and British Telecom.

The other instrument of change, of course, has beentechnological advance. Digitalisation, which is nowalmost universal, has been of special benefit to thosedeveloping countries which did not have aninheritance of out-dated equipment and have beenable to leap-frog to the new technology. Ways inwhich the various systems have been used - terrestrialtelecommunications, broadcasting, satellites - havebecome more sophisticated. We hear a lot todayabout multi-media. The latest generation of mobileequipment offers not only enhanced quality but alsoincreased access to communications networks.

These developments are gratifying. Unfortunately theglobal picture is not uniformly encouraging. In somedeveloping countries, for reasons with which we areonly too familiar, little improvement has beenpossible. Natural and human disasters have takentheir toll. According to a recent survey of 133countries by the International TelecommunicationUnion (ITU), 70 countries had fewer than fiveexchange lines for every 100 inhabitants. Theequivalent statistic for Chad was 0.07. These figureshighlight the correlation between penetration,orteledensity as it is also called, and gross domesticproduct. Almost all countries with a per capita GDPof US$7,000 or more have a teledensity of more than30 lines per 100 inhabitants. but most countries havea per capita GDP of US$2.000 and the teledensity ofless than 5 lines per 100 noted by the ITU.

Elsewhere substantial progress has been made. Themost ambitious programmes were those launched inChina and India. Given their respective populationsof 1.2 billion and 850 million, the immensity of thechallenge facing the two governments is clear. This,however, is not the only good news. The Asia Pacificregion contains six of the fastest growing telephonecompanies in the world. This has been achieved byexploiting all available technologies. Here too thereare variations. Teledensities range from 49 per 100in Hong Kong and 40 in Singapore to 2.7 in Thailandand 1.5 in the Philippines.

***

Ten years ago the independent Commissionrecognised more than one disparity in the world widedistribution of telecommunications. The most strikingwas the concentration of three-quarters of alltelephones in nine industrialised countries. Anotherwas the important disparity between the moreadvanced developing countries - the oil producers andthe larger more populous countries, such as Brazil andIndia - and the most disadvantaged countries, such asthe countries of the Sahel. There was also aperceptible gap within developing countries betweenurban and remote rural areas. That these disparitiespersist today prompts two questions: What has beenthe response to the recommendations of theIndependent Commission and how relevant are theserecommendations today?

Those who served on the Independent Commissionwould undoubtedly be impressed by the progressmade these past ten years in many parts of the world.In particular, they will have noted with satisfactionthe extent to which the central message in 'TheMissing Link' has been received and understood,namely that no developing country, hoping to providea better life for its citizens wherever they may liveand work, can afford not to invest in a comprehensiveand effective telecommunications network. It is alsogratifying that the governments of the two mostpopulous nations in the world - China and India -have set about the immense task of expanding andimproving their networks in ways which reflect manyof the Commission's recommendations. Perhaps themost encouraging developments, however, have takenOace in the Pacific Rim. The countries of this regionhave amply confirmed the Commission's belief thatfinancing problems could be mitigated if developingcountries were to create what the Commissiondescribed as "a climate generally conducive to inwardinvestment, including adequate assurance of credit-

worthiness".

The Commission's analysis of the problems facingdeveloping countries remains valid and, despitechanged circumstances, many of the Commission'srecommendations, modified to take account ofchanged circumstances still provide an appropriateprescription. Progress has been made; but muchremains to be done.

***

How then should we view the prospects for forgingnew links (1,/..x the next decade?

In the first place, it is reasonable to expect that mostof the predictions about the expansion oftelecommunications networks and the changes in thestructure of the industry will prove reliable. Whereasin the industrialised world the challenge will be tofind relevant and affordable uses for the immensecapacity which is already available and which islikely to increase throughout the rest of the decade,the emphasis in developing countries will be ongenerating more capacity.

The expansion of capacity in the Asia Pacific regionis likely to be the fastest in the world - a doubling ofthe lines by the year 2000 has been projected. Chinaalone, where today there are 17 million lines, has setan official objective of increasing this to 100 millionlines by the same date. In India, where three-quartersof the population of 850 million inhabit over half ofa million villages, the Government has also set anambitious target. While introducing value addedservices in urban areas, the plan to install a publictelephone in every village by the end of the centuryand to begin the process by providing a pay-phone ineach of the quarter of a million 'panchayat' villages -those which have a council of five persons. Good

progress in expanding networks elsewhere in Asia, theMiddle East and Latin America can also be expected.But the prospects for many countries in Africa aremuch less encouraging.

World wide the transformation of thetelecommunications industry will certainly continue.The pace will increase. Over forty telecommunicationcompanies are already quoted on the stock exchanges.Some observers believe that this total could double bythe end of the century. Virtually all of Europe'sleading operators will be wholly or partially ahead.Thc example of Argentina, Mexico, Chile, Venezuelaand Peru, where majority shares in the national

3 7

telephone companies have been sold, will be followedin the immediate future by Brazil, Uruguay and CostaRica. This progress can be expected to continue, forthe good reason that the motive in Latin America isnot so much to introduce competition but rather tofacilitate modemisation of the systems.

Privatisation in the Asia-Pacific region has made aslower start. Singapore Telecom is first in line and ithas been suggested that up to 20 others may follow.Further foreign investment, through 'build, operate,transfer' arrangements, is likely to be encouraged bysuccessors in Thailand, India and the Philippines.These could serve as models for countries in Africa,especially those working in close consultation withthe World Bank.

At the global level further rationalisation of theindustry through competition, mergers andacquisitions can be expected.

Technology will have a major influence on thedevelopment of the telecommunications industry overthe next decade. While the market for conventionalpublic switch and transmission systems in central andeastern Europe and in Asia - notably China and India- will expgind steadily, the more spectacular advanceswill come from exploiting the benefits of the newertechnologies. Optical fibre, digitalisation, satellite andbroadcasting systems will continue to improve accessto communications channels and enhance their quality.But the contribution of mobile communications mayprove the most effective. Already 30 millioncellphones are said to be in use in 70 countries;falling prices could increase this total three-fold bythe end of the decade. In the longer term mobilesatellite systems, including low, intermediate and highearth orbit systems, could well form a significantcomponent of a universal network. In the shorterterm, such systems could meet the needs of thebusiness traveller. They could also benefit remoteareas of developing countries, for example wherelarge-scale construction projects are being planned, orwhere mineral deposits are being exploited.

***

The prospects for the telecommunications sector areclearly encouraging. As has been brilliantlydemonstrated in the Asia Pacific region, developingcountries can exploit the vigor and vitality of theindustry. Success depends critically on the prioritythey hive to investment in this sector. But that isonly the beginning. Governments may will find it

4

rewarding to collaborate at regional levels overresearch and development, the choice of appropriatetechnology, and training. The right conditiona existfor mobilising local and regional capital, for mutuallybeneficial joint ventures and for attracting theattention of the World Bank and the regionaldevelopment banks. Experience in the moresuccessful developing countries has shown thatachieving the most effective results requiresdetermination and ingenuity. Hopes cannot be high,however, that in the foreseeable future the expansionof the networks in Asia and Latin American will bematched in the most deprived countries, andespecially those devastated by human and naturaldisasters. These cannot embark on the process ofeconomic and social regeneration without substantialoutside help. For the sake of the longer term it isimportant that these countries too accord this sectorhigh priority when formulating their requests for aidand technical assistance. The innocent inhabitants ofthese tragic countries are a special case and theydeserve special consideration by the internationalcommunity.

***

When they consider the prospects for forging newlinks over the next decade, those who make decisionsin the telecommunications sector cannot ignore thewider context. What factors will influence theinternational economic and political environment?

If inward investment is a measure of prospects foreconomic growth, then a number of developingcountries are well placed. In India, China, Mexicoand Poland, for example, economic liberalisation willprove an increasing attraction for investors who, oncethey establish themselves, will discover the allure ofthe domestic market in these countries for a wholerange of goods and services. If, as seems likely,returns on these investments begin to reach the levelsof the 1960s, then developing countries will becomeincreasingly more attractive to investors than most ofthe industrialised world.

What of the political prospects? The outlook worldwide can best be described as uncertain. Here andthere nationalism is resurgent. Despite reconciliationbetween the Palestinians and the Israelis, most long-standing disputes persist and new enmities havearisen. It would be unwise to expect all theseproblems to be solved overnight. At the same time asthe need for closer economic and commercial linksbetween regions has been recognised, the reassuring

political certainties of the second half of the centurywill increasingly be questioned. Likewisereservations about the nature of our societies willcontinue to be expressed. Respect for authority willcontinue to diminish. And this in turn will underminethe confidence of political leaders who are unlikely tobe able or willing to articulate a vision of the worldwe will take into the next millennium.

***

A final word. Human history has been marked by acontinuous conflict between scientific ingenuity andthe demands of the spirit - between the inexorableacquisition of wealth and knowledge of the one handand the preservation of values on the other.Moreover, we have come to expect that to each ofman's achievements there seems to be a counter.Advances in medical science have not emptiedhospital beds; on the contrary. Economic prosperityhas raised living standards and increased personalmobility but, in the process, tbe environment has beenjeopardised. Television has brought the world intoour homes, but has also, quite literally, put a facevalue on our political leaders.

The telecommunications industry has within its graspan achievement of historic importance. A globalnetwork can indeed be a reality as we move into thenext century. The sustained effort of which theindustry has shown itself capable in these past tenyears can surely provide all mankind with easy accessto this network. Dr Pekka Tarjanne, the SecretaryGeneral of the ITU, echoed the sentiment of PresidentWoodrow Wilson when he called on governments torecognise access to basic telecommunications servicesas a fundamental human right. The magnificent prizeof universal communication will permit theacquisition world wide of wealth and knowledge and,in time, reduce inequities. It will be for all of usensure that, when this prize has at length been won,the most precious human values are preserved.

59

UNION INTERNATIONALE DES TELECOMMUNICATIONSINTERNATIONAL TELECOMMUNICATION UNION

UNION INTERNACIONAL DE TELECOMUNICACION'2S

Honolulu, 16 January 1994

THE MISSING LINK: STILL MISSING?

THE CONTINUING ROLE OF THE ITU INTELECOMMUNICATIONS DEVELOPMENT

Dr Pekka TarjanneSecretary-General, International Telecommunication Union (ITU)

16th Annual Pacific Telecommunications Conference, 16-20 January 1994

Ladies and Gentlemen,

It is a pleasure and an honour for me to address this distinguished conference on a subject which isclose to the heart of the International Telecommunication Union, namely the telecommunicationdevelopment gap. This year, 1994, marks the tenth anniversary of the Maitland Commission Report entitled"The Missing Link" and this conference provides an opportune moment to revislt the main theme of thatreport, particularly as we have Sir Donald Maitland himself as one of the speakers.

The Maitland Commission report revisited

In 1982, the ITU Plenipotentiary Conference called for an Independent Commission for WorldwideTelecommunications Development to recommend ways in which telecommunications development could beimproved. The Commission released The Missing Link report in December 1984. The title of the reportreferred to the unbalanced development of the worldwide telecommunications network due to the large gapbetween developed and developing countries and the fact that access to basic telephony is not possible forsubstantial parts of the world's population. For example, the report found that three quarters of the world'stelephones were in just nine industrial countries and there were more telephones in Tokyo than the entireAfrican continent.

The report made a number of specific recommendations for remedying the situation that fell into four areas:

1. Governments and development agencies should give a higher priority to investment intelecommunications.

2. Networks in developing countries should be made commercially viable.3. Financing arrangements should take into account the scarcity of foreign exchange in developing

countries.4. The ITU should play a more catalytic role.

Progress towards meeting these recommendations since the release of the report has been mixed. Stronggovernment commitment to the telecommunications sector has been a factor in most of the success storiesof the last decade, though the support of development agencies has been uneven. "On paper" mostdeveloping country tetworks are profitable; however there are a number of internal and e xternal factorswhich affect profitability and network development. Foreign exchange problems in many developingcountries turned worse during the 1980s due to the international debt crisis. However, there are signs at thestart of the 1990s that some of these problems have been resolved with a substantial net inflow of foreigndirect investment, particularly in Latin America and in Central and Eastern Europe. The ITU itself has gonethrough a reorganisation in response to the changing telecommunications environment and now reflectsbetter its co-ordinating role in telecommunications development.

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Is the gap narrowing?

The year 1994 will also mark the first World Telecommunications Development Conference to be heldin two months time in Buenos Aires. As part of our preparations for that conference, ITU has prepared aWorld Telecommunication Development Report which reviews progress made in the intervening decadesince the Maitland Commission Report. The new report clearly shows that the development gap betweenhigh and low income nations still persists in telecommunications. Nevertheless, there is some evidence thatit has narrowed over time. For instance, as Figures 1 and 2 show, those countries with a GDP per capita ofless than US$10'000 have increased their share of global telephone mainlines from 22 per cent in 1983 to 30per cent in 1992. They have also been growing at a much faster rate: more than 13 per cent per year in thelow income countries, which is almost three times the global average. However, the low income countriesstill have less than a 5 per cent share of global telephone mainlines whereas they are home to some 55 percent of the world's population (Figure 3). This disparity is unacceptably high in economic, social andhumanitarian terms and the gap is narrowing too slowly.

Figure 1: Is the development gap narrowing?Trends in teledensity and in share of global telephone main lines, by income group, 1983-92

100

10

Telephone mainlines per 100 inhabitants

Hiiirane

Upcer rnidcle imam

I 1 11---1-115A-11.1a%erage

incidcle orne

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Nde: Lcgarittrnic scale

100%

90%80%70%60%50%40%30%

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Share or global telephone main lines

CJ

B High ham

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Low mkkleinccme

II Law inccme

Note: Low inoome = 50 countries with 1991 GDP per capita below US$600.Lower middle income = 46 countries with 1991 GDP per capita between US$601-2000.Upper middle income = 47 countries with 1991 GDP per capita between US$2001-10000.High income = 29 countries with 1991 GDP per capita above US$10'000.

Source:ITU World Telecommunication Development Report (forthcoming 1994).

Figure 2: Telephone mainlines, teledensity and growth rates, by income group, 1983-92

Income group Telephone main As % of Tele- Telephone main As % of Tele- CAGR,lines 1983 total density lines 1992 total density 1983-92

(million) (million)

Low 7'860 2.1% 0.32 24'699 4.3% 0.84 13.6%Lower middle 17'766 4.8% 2.81 39'403 6.9% 5.22 9.3%Upper middle 54'049 14.7% 7.47 107'267 18.8% 12.86 7.9%High 289'073 78.4% 38.81 398'011 69.9% 49.44 3.6%World 368'748 100.0% 8.10 569'381 100.0% 10.64 4.9%

Note: For definition of income groups, see note to Figure 1.Source: ITU World Telecommunication Development Report (forthcoming 1994).

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Fignie 3: Unequal shares0 Atist Wolf lation and telephone main lines worklwide, 1/1/93

World population

Total 5'463m

15% High income

ss.

12% ',rUpper middle

income

14%Lower middle

income

Low income

59%

Telephone main lines

Total 575m

40/0 Low incomeLower middleincome

High income

71%

15%Upper middle,income

Weire:' Toi definition Of incame §rocipS, See nOte..to Figitre1isourat gu:(ForthcOming, 1994) Vodd TeleCOMMUnioatiOn Development Report%

An aftemative way of considering the telecommunication development gap is in terms of thedistribution of the wodd's population compared to the distribution of telephone main lines. In Figure 4 aLorenz curve is used to show how, over the past decade, there has indeed been a slow convergencebetween the two indicators. However, this process is occurring at a much slower rate than the authors ofthe original Maitland Commission report would have hoped.

Figure i.t$:Slotaf. convergence , :

telephOnelines, 1983 end 1992":

. :, ':::::.:::

100%

90%.c

80%

(4) 70%

8- 60%

50%cs

40%

3 30%ci)

co 20%

10%

0%

0% 20% 40% 60% 80%

Cumulative wodd population shares

100%

1983

- 1992

Equal distribution

Source: ITU Wodd Telecommunication Development Report (forthcoming 1994).

The growth in telephone lines has not kept pace with new applications for lines. Some 44 millionpeople are on 'official" waiting lists for a telephone line; the average wait has been constant over the lastdecade at just over one and half years. Almost al: these "waiters" are in developing countries. The actual orlatent demand for telephone lines is probably much higher since many people have not bothered to registerbecause of long waiting times. The number of waiters is higher in lower-and upper-middle income countries

12

than in low-income ones because the prospect of getting a line soon is probably better in the formercountries. Also growing service availability often results in a larger waiting list since potentialusers perceivethat they may eventually obtain a connection.

as

40

as

30

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EOM Waiting listWaitingbrne.

- 2- 1.8- 1.6- 1.4- 12 2.- 1- 0.8 "I- 0.6- 0.4- 02

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198419851986198719881989199019911992

ikte: :: Oor tha ilefinition Of income grouPs, Pie* see noteS to Figure 1: . .. ,

tauriiiii ITU Woad TeleboMniuniclion Doietopinent Report (forthcOming, IS4).. .., .

At the end of 1992, almost 50 countries ar_tcounting for over half the world's population had ateledensity of less than 1. At their current growth rates, many of these 50 countries are not likely to pass thisthreshold by the end of the century. As long as half the world's population suffers from low levels oftelecommunications development, the vision of a global electronic village remains a dream.

The telecommunications development gap exists not only in quantitative terms but also in qualitativeterms. While it is true that the gap has narrowed in terms of the provision of basic telephone services, thereis some evidence to suggest that the gap has widened in other areas, notably in the provision of advancedtelecommunication services. Some advanced services -- such as cellular radio, fax terminals, Internetbased electronic mail -- are already widely available in developing countries. But in each case, thisrepresents mainly a consumer investment in terminal equipment rather than a public investment ininfrastructure. Where a major public investment is required -- for instance to provide high-capacity leasedlines or a data communications network -- then the developing countries are currently lagging far behind theOECD nations. The so-called Information Super Highways", which could become the growth engine for thepost-industrial age and a key element in national competitive advantage, are likely to be constructed first inthe OECD nations.

The experience of the Asia-Pacific region

The Asia-Pacific region, which is the main focus of this conference, has probably gone further thanany other in narrowing the telecommunications gap and consequently has much to teach us in extending thisexperience to other developing regions of the world. This region experienced the highest telephone mainline growth rates in the world (11.9 per cent a year over the last decade) led by the dynamic economies ofEast Asia such as the Republic of Korea or Singapore, whose teledensity has now converged with that ofOECD countries of the region (Australia, Japan and New Zealand). Other countries such as Indonesia andThailand have encouraged private participation through Build-Operate-Transfer schemes (BOT) as a way tospeed network development.

One of the most encouraging trends in this region is the fact that the transition from a low to highteledensity (from 10 to 30 lines per inhabitant) is apparently becoming easier and quicker over time. Thefirst country in the region to achieve this was New Zealand (1938-73), but it took 35 years to do so. As ofthe early 1990s, six other economies in the region have also made the transition and others will follow suitshortly. The evidence presented in Figure 6 appears to shoThat:

The telecommunications gap between the developeg and the developing economies can be closed giventhe right pre-conditions for growth.

The transition phase between low and high teledenstty economies is becoming quicker and easier overtime.

Figure 6: The telecommunications transitionExamples from the Asia-Pacific region, 1935-95

Makysia

Macau

Korea (Rep. of )

Taim an

Singapore

Hongkong

Japan

Austral"

New Zealand

1935

14.72%

1111111111114.72%

1111111101111 10.50%

MEM 12.98%

8.16%

12.98%

6.29%10 Fines per 100 pop. 30 lines per 100 pop.

11111101111111111111111111111111111111111111111111 CAGR 3-19%

1985 19951945 1955 1965 1975

Source: Asia-Pacific Telecommunication indicators (ITO, 1993).

These two trends represent good news for other developing countries further down the growthtrajectory. It is interesting to ask why the growth process appears to be speeding up. There would seem tobe a number of possible reasons:

There is a learning curve whereby the "lessons" of a successful investment strategy in one country canbe applied in others, given the right economic preconditions and policy framework. There is also strongconsumer demand for some new technologies such as mobile phones or fax terminals and this demandhas been spurred by advertising and by tourism;.

Technological change, and in particular the introduction of digital switching, has made rapid developmentof capacity much easier. The dynamic Asian economies have been able to jump straight from manually-operated to digital exchanges, thus by-passing the semi-automatic stage of network development. InHongkong and Malaysia, for instance, exchange line digitisation is above 75 per cent.

The dynamic Asian economies already had an industrial structure that depended heavily upontelecommunications-intensive activities such as consumer electronic manufacturing or services whereasthe OECD Member countries were still largely agricultural, resource-based economies when they startedthe transition.

However, the experience of the "four dragons" is not representative of the region as a whole. Many of thepoorest countries of the region (including Afghanistan, Cambodia, Laos, Mongolia and the Philippines) areactually growing at a slower rate than the regional average, which means that they are being left behind.Furthermore, the "official" waiting list for telephone connection in these countries is more than 7 million, evenbefore taking into account the latent demand that would be released if the waiting list were reduced from thecurrent 3-4 years. This suggests that the development activities of organisations concerned with theeconomic development of the region should be targeted at the very poorest countries.

One way to illustrate this transition is to take a series of countries at different stages of developmentand to examine their experience of growth. Figure 7 show how it is possible to make the transition from justone main line per 100 inhabitants to almost 40 within 30 years drawing upon the experience of three Asia-Pacific countries: Thailand, Malaysia and the Republic of Korea.

14

.

.....

;TheleledomthUnicatiOns ttansition:vxemPlitiodOrThalland, Malaysia an Republic .o orea,:.

Source: Mike Minges, Presentation to Asia-PaditficTeleCoMmtinicalicin Summit NoVember 1993.

How can ITU help?

As the United Nations specialised agency for telecommunications, the ITU has been involved intelecommunications development for over 30 years. In the early 1960s the Technical Co-operationDepartment (TCD) was established to provide technical assistance and to execute United NationsDevelopment Programme (UNDP) financed telecommunications projects. In the 1980s, as a result of one ofthe Missing Link recommendations, the Centre for Telecommunications Development (CTD) was establishedwith the mandate to improve telecommunication development worldwide.

The 1989 ITU Plenipotentiary Conference created the Development Sector as a separate "sector" ofthe ITU responsible for telecommunications development. The other sectors are Telecommunicationstandardisation and Radiocommunications. The Development Sector subsequently absorbed the CTD andthe TCD. By giving telecommunications development an equal status with the other sectors, it elevates itsimportance in the ITU positioning the ITU Development Sector to assume a leading role in the 1990s.

So what are the policy priorities for the coming decade and how can the International TelecommunicationUnion help?

One world, one network. The great strength of the telecommunications network is the ability to callvirtually any subscriber in the world, all 575 million of them, from virtually any telephone. Contrast thiswith other information industries such as computing, broadcasting or publishing where the multiplicity ofdifferent standards, formats and languages in use makes communication very difficult. The ITU hasplayed a pre-eminent role in global standardisation and inter-operability. In a world of competition,deregulation, multi-media networks and rapid technological change, theco-ordination role of the ITU isall the more important. Telecommunication policy-makers should work to ensure that the right ofconnection -- between countries, between networks and between individual users -- continues to beafforded the highest priority in network and service development. This will require working for standardswhich are truly global.

11 15

Market competition. The fastest growing parts of the telecommunications market -- mobilecommunications, trans-Atlantic and trans-Pacific traffic, data communications, private networks -- aregenerally those areas in which there is competition. On the other hand the slowest growing partsof the

market -- fixed-link subscribers in the local loop, local calls, telex services -- are those areas in whichcompetition has been limited and where monopoly service provision is still the norm. While it is possibleto achieve growth under monopoly conditions, this is not necessarily the quickest or most efficient route.The adoption of network development strategies based on market competition has been shown to workwell for mobile communications and this model might now be applied more widely in the fixed-linknetwork. Regulators will need to gain more experience in the procedures of licensing andinterconnection, and in defining regulatory safeguards against anti7competitive behaviour. The ITUprovides an appropriate forum for such information exchange and policy discussion, notably through theworld and regional Telecommunications Development Conferences, through the world and regionalTELECOM exhibitions and fora and through the Regulatory Colloquia, initiated in 1993.

Bringing down prices in line with costs. The threat and the impact of competition intelecommunications has done more to reduce prices in the last five years in those services wherecompetition has been permitted than all of the regulatory price-setting agreements in the previous fiftyyears. And yet, over the same period, the profits of public telecommunications operators have risen by19 per cent per year, suggesting there is still more scope for price reductions. Arguably, there are still afew regulatory safe havens where competition is limited or where operators experience little pressure tobring prices down in line with costs. One example is the local loop which telecommunication operatorshave tended to regard as an unprofitable natural monopoly and have resisted the introduction ofcompetition. A second area which would benefit from the influence of more market competition onprices is international call charges. The system of international accounting rates has served the worldwell for many years, but it is in need of reform. Growing imbalances and call-back schemes are some ofthe signs of its failure. Rekrm that works to reduce prices to consumers, while at the same timeassisting those countries which are truly dependent on settlement payments to finance their networkdevelopment should be pursued. This may involve transitional measures but the urgency of reformshould not be ignored. It must be ensured that both regulators and operators are represented in thediscussions which take place at the ITU the GATT, the OECD and elsewhere.

Private sector involvement. A handful of developing countries have embraced private sectorinvolvement in their telecommunication infrastructures, generally with positive results. These haveranged from sub-contracting of network installation (e.g., through Build-Operate-Transfer schemes) tothe licensing of value-added and cellular radio services to new market entrants and, in some cases, tothe privatisation of the PTO. However, many of the developing countries have been slow to allowprivate sector involvement. Because the telecommunications sector is so profitable, even in the lowi:,corne countries, there should be little problem in attracting private sector investment providing theregulatory and financial environment is secure and transparent. A majority of the top 40 puh...1telecommunication operators worldwide with revenues greater than US$1.5 billion are now privatelyowned. But the majority of the next 40 are still state-owned. Over the next decade this situation willchange quite considerably. But privatisation is a long-term, on-going process rather than a one-offopportunity for governments to realise some of their assets. Furthermore, the privatisation of amonopoly, in the absence of competition or a strong regulatory framework, is a very unwise route totake. Here again the ITU can help by providing a forum for information exchange and policy discussion,and through its programme of technical and policy co-operation.

Resource allocation. The traditional model of telecommunications industry regulation has been one ofmanaging the demand to fit the available supply. This has been done through waiting lists, through highpeak rate call charges and through volume-based usage charges. This model is no longer appropriatenow that the industry, at least in the developed countries, is heading towards over-capacity. But theregulator still has an important role in allocating other scarce resources, notably the frequency spectrumand the numbering plan. The demands on each will grow significantly during the next decade as manyparallel networks, for mobile, satellite and cable distribution, are developed. Again this is an area wherethe experience of the ITU in international co-ordination is unparalleled. Many of the problems of scarceresource allocation demand a global solution rather than merely a national or regional solution.

Governmental and multl-lateral commitment to investment programmes. The mismatch betweensupply and demand which has created the large gap between developed and developing counttynetworks needs to be reduced. In a growing number of countries where private sector funds have been

16

attracted or where competition has been encouraged, the market will find the best solution to thisproblem. But many other developing countries require assistance in understanding, planning andimplementing a reform process. In some cases, even though the operator may be keen to reform, it isunable to do so because of a lack of commitment from government. The ITU needs to work with othermulti-lateral development agencies (who often have more influence at the top levels of government) toraise the level of awareness of the need for reform and investment in the telecommunication sector.The ITU can also encourage the development agencies themselves to become more involved intelecommunication sector reform, especially in those countries that, for reasons of risk or indebtedness,have little immediate possibifity of attracting private sector investment or introducing competition.

Across the world as a whole, the telecommunications industry is prosperous, profitable and fast-growing. The supply side of the industry has benefited over the last decade from technological change andfrom sector restructuring, notably where private sector participation has been introduced. But not all of thesebenefits have been passed on to the user. Furthermore, where benefits have been passed on, they havebeen unequally shared between users. The large, commercial, sophisticated user has benefited much morethan the residential user. Also, there is a growing mismatch between a relative over-supply oftelecommunication services in the advanced industrial nations and an under-supply in the developingcountries. The gap has been slowly narrowing in quantitative terms but not necessarily in qualitative terms.

In conclusion, the year 1994 will mark the tenth anniversary of the Maitland Commission report on thetelecommunications development gap. It will be a chance to assess the achievements and failures sincethat report was written. The year 1994 will also mark the tenth anniversary of two other seminal events: thebreak-up of AT&T in the US, and the privatisation of British Telecom in the UK. These two events havetriggered changes in many other countries around the world: in Europe, in Asia, in the Pacific, in LatinAmerica and spreading now to Africa. A new model of telecommunications development has been launchedwhich is based on entrepreneurship, competition and private sector participation. As noted earlier, not allcountries are yet ready to adopt this new model. Many preliminary steps need to be taken to establishregulatory frameworks, to separate the functions of the regulator and the operator, and to create anenvironment which is attractive to investment. Nevertheless, it is important that the developing countries aregiven every encouragement and opportunity to participate in this new model. For this new model presents agenuine hope that the development gap can now be narrowed in qualitative as well as in quantitative terms.

13 17

FORGING NEW LINKS PHILIPPINE STYLE

JOSEFINA T. LICHAUCOUNDERSECRETARY

DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONSMANILA, PHILIPPINES

1. DYNAMISM AND POTENCY OF THEASIA-PACIFIC REGION

Ladies and gentlemen, some ten years ago TheMissing Link was submitted by the IndependentCommission for World Wide TelecommunicationsDevelopment, better-known as the MaitlandCommission.

As we all know, the Maitland Commission was giventhe task of recommending ways in which theexpansion of telecommunications across the worldcould be stimulated. The resulting report, publishedin 1983, stated as its overriding objective:

that by the early part of the next centuryvirtually the whole of mankind should bebrought within easy reach of a telephone.

My purpose here today is to review the progressachieved to date towards reaching Sir Donald'sobjective, and to look at the prospects for the year2004. In doing so, I intend to focus ontelecommunications developments in the Asia-Pacific12,:tgion, and in particular, on the experience of myown country, the Philippines.

In his introduction to The Missing Link Sir Donaldwrote:

It cannot be right that in the latterpart of the twentieth century aminority of the human race shouldenjoy the benefits of the new(telecommunications) technologywhile a majority lives incomparative isolation.

He also said:

Neither in the name of commonhumanity nor on grounds ofcommon interest is such a disparityacceptable.

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Ladies and gentlemen, the sad fact is, of course, thatin many parts of the world, including the Asia-Pacific, this disparity still exists. However,considerable headway is being made and the outlookfor the future development of telecommunications inthe region bright.

I say this because the Asia-Pacific area is currentlythe most dynamic regional economy of the world. Itis here, in this vibrant environment, that many of theglobal trends which are likely to dominate thetelecommunications sector over the next decade arealready much in evidence.

In 1987, I represented the Philippines at a high-levelconference in Kuala Lumpur where these trends wereidentified and discussed. Of course, I am referring tothe forces of demonopolization, privatization,liberalization and globalization. The conclusions ofKuala Lumpur in 1987 remain valid today.

In the telecommunications sector, the Asia-Pacificregion is enjoying a period of continuing growth. Letme give you a few significant facts that have beencompiled by our friends at the InternationalTelecommunications Union.

More than one half of the world'spopulation lives in the Asia-Pacific Region.

The Asia-Pacific Region accounts for onequarter of the world economy.

'Overall telephone density in the region isjust 4 main lines per 100 population.

It is this combination of an enormous market,considerable wealth and untapped potential thatmakes the area very attractive to telecommunicationsinvestors and suppliers. Indeed, the last decade hasseen the number of main lines grow by 70 per cent.In the coming decade, the Asia -Pacific will be the

18

center of global growth and the hottest market onearth.

And yet there are extreme differences from onecountry to another in terms of economic potential andthe development of telecommunications networks.For example, just three countries in the region(Australia, New Zealand and Japan) account for morethan 70 per cent of the wealth and more than 50 percent of the telephone lines, even though theirpopulation is just 5 per cent of the totaL By thesame token, two countries (China and India) accountfor just 12 per cent of the wealth and telephone lineswhile having two-thirds of the region's population.

In terms of telecommunications policy, the gamutruns from state-run monopolies to virtuallyunregulated competition, reflecting the contrastingideologies of the region. However, policy makersand regulators everywhere are being faced with a hostof unfamiliar issues which are forcing them to giveway to new ideas and approaches.

But one should not be tempted to conclude that theregion has little in common. Economic dynamisminevitably tends to spill over national borders. And asindividual nations in the region begin to take offeconomically, intra-regional trade grows andengenders a closer sense of regional identity.

The growing importance of trading links within theregion is confffmed by the volume of internationaltraffic. For instance, calls within the region accountfor about 55 per cent of all traffic originating in theAsia-Pacific. This is greater than the North AmericanFree Trade Area and is the same as the EuropeanCommunity. Satellites and undersea cables link thecountries of the Asia-Pacific with their regionalneighbors and the world beyond.

Everywhere in the Asia-Pacific dramatic expansion intelecommunications has accompanied the dramaticsaga of economic growth. It is little wonder then thatwe look forward to the dawning of the Pacificcentury when the focus of global economic activitywill shift towards this region of immense promise.

2. STATE OF TELECOMMUNICATIONSIN THE PHILIPPINES

In my own country of the Philippines. we are also onthe verge of exciting changes. Like many Asiancountries, we have a history of uneventelecommunications development and low penetration.

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Unlike many of our neighbors, however, ourtelecommunications system has always beencharacterized by a high degree of private ownership.Perhaps other countries who are in the midst ofcorporatizing or privatizing their telecommunicationsentities will find our experience instructive.

When former President Ferdinand Marcos fled thePhilippines in February 1986, he left behind a countryon the edge of a precipice. The ultimate challenge tohis successor was to prevent the country fromplunging into the abyss. The catastrophicconsequences of unbridled use of power by the oldregime were abundantly in evidence. The economywas in shambles. The counffy was in near penurywith a crippling debt load.

This deplorable state of affairs was reflected in thecondition of the Philippine telecommunicationssystem. The telecommunications sector was highlysegmented and fragmented by service, technology andgeography. This imbalance resulted in an overalllack or absence of adequate and reliabletelecommunications services in most populationcenters. In fact, telephone density stood at aroundone line per 100 persons for the country as a whole,or only about half the Asian average.

Today, under the leadership of President FidelRamos, the situation l."; beginning to stabilize. ThePresident recently articulated his vision fordevelopment when he launched Philippines 2000 andthe Philippines is becoming the target of renewedinvestor confidence. However, at the moment, thetelecommunications system has only marginallyimproved from the Marcos era.

Teledensity now stands at just 1.4 lines per 100persons. The major problems of poor access totelephone service, large unmet demand, unbalancedurban-rural distribution and poor quality of servicestill remain. These problems result primarily frominadequate telecommunications infrastructure. Thisinadequacy can be attributed to insufficientinvestment, lack of rural service obligations ofexisting operators, and insufficient interconnection oftelecommunications carriers.

However, I did not come here to simply recite alitany of woes. On the contrary, the Philippines nowstands on the threshold of an era oftelecommunications growth unparalleled in its history.Foreign investors are striving to enter ourtelecommunications market. Telecom stocks have

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carried the Philippine stock market to record highs.Previously unthinkable strategic alliances betweenerstwhile competitors are being announced as a matterof course. How did this come about? What miracleshave transpired to bring about this sudden change?

3. RECENT TELECOMMUNICATIONSPOLICY AND REGULATORYINITIATIVES

There were no miracles and these changes did notoczur overnight. Rather, they have been theculmination of a series of policy and regulatoryinitiatives that have taken place over a period ofseveral years. Some of these initiatives may appearunorthodox and even unworkable. However, theyreflect the realities of working within the Philippineculture and environment; I would not presume tosuggest that in all cases they are readily transferableto other countries.

The fffst step came in 1987, shortly after thecountry's leadership changed bands for the first timein more than two decades. At that time, the newgovernment of President Cory Aquino issued theMedium-Tenn Philippine Development Plan whichrecognized the vital role of the telecommunicationssector in the economic development process.

Also in 1987, the Department of Transportation andCommunications issued Department Circular No. 87-188. This was a landmark document which containedpolicy statements intended to rationalize and guidethe orderly and competitive development ofPhilippine telecommunications through the 1990s. Asa direct result of that circular, our country's regulator,the National Telecommunications Commission,promulgated regulations for the connection ofcustomer-provided equipment to thetelecommunications network. This was a significantstep towards opening up the sector to competitiveforces.

Building on the foundation of Circular 87-188, theDOTC started work on an updated NationalTelecommunications Development Plan covering theperiod 1991-2010. This work was completed inOctober 1990 and further updated in July 1993.

Following the publication of the 1990 NTDP,significant progress was made on several fronts. Letme enumerate a few:

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(1) Technical standards governing thesector were issued by the NTC in1990:

(2) Implementation guidelines for therationalization of local exchangeservice were developed in 1991;

(3) In 1992, a policy and implementingguidelines for the orderlydevelopment and operation ofcellular mobile telephone servicewere issued; and,

(4) A policy and guidelines to governdomestic satellite communicationswere released in 1993.

Also back in 1992, the new Philippine Medium-Term Development Plan 1993-1998 was approved byCabinet. The Plan provides the guideposts forattaining President Ramos's vision of making thePhilippines a newly-industrialized country by the year2000. To fulfil this vision, the telecommunicationssector was directed to pursue more vigorousdevelopment through intensified private sectorparticipation.

The high level of attention given to thetelecommunications sector reflects the government'srecognition that an inadequate telecommunicationsinfrastructure impedes economic growth, and that thePhilippines has fallen behind nearly all other SouthernAsian countries in terms of telecommunicationsdevelopment. Thus the government, with the majorparticipation of the private sector, aims to expandbasic telecommunications service throughout thecountry as well as improve service in the areasalready being served.

As tangible evidence of the President's commitmentto these goals, I would draw to your attention twoexecutive orders issued by his office in 1993. Animportant feature of these executive orders is thestrong enforcement powers granted to the NTC. Thishas provided a clear signal to the industry that thegovernment is serious about compliance.

The first, Executive Order 59, provides for themandatory interconnection of publictelecommunications carriers. This order haseffectively broken the stranglehold exercised by thedominant Philippine carrier and has reassured newplayers that their traffic will have equal access to the

20

public switched network. 4. OUTLOOK FOR THE FUTURE

Executive Order 109, for its part, takes a somewhatunconventional approach to improving local exchangeservice. EO 109 requires the holders of internationalgateway franchises and cellular mobile franchises toinstall at least 300,000 and 400,000 local exchangelines respectively in underserved areas in return forthe privilege of holding their franchises.

To implement this order, the NTC has embarked onan innovative plan that divides the country into tenservice areas. Potentially lucrative service areas willbe coupled with less profitable ones where thegateway and cellular providers will be assigned tofulfil their local exchange commitments.

Whether this ambitious plan can be accomplished inan orderly and rational way remains to be seen. Inaddition, the ability of the gateway and cellularoperators to survive while raising the necessaryfinancing for the local exchange construction will beseverely tested. But ultimately, we should see adecided increase in local exchange lines and that iswhat is important.

I have spoken of the Philippine government's ro/eprincipally as a policy maker and regulator.However, we have also been involved in certaininfrastructure projects, financed with assistance fromJapan, France, Italy, Canada, Germany and the UnitedStates.

In this regard, I should mention the NationalTelephone Program and the RegionalTelecommunications Development Program whichprovide telephone lines and an interconnectingbackbone network primarily in very remote andunserved areas. As well, the Municipal TelephoneProgram, jointly implemented by the government andthe private sector, is committed to installing publiccalling offices in all municipalities cuirently withouttelephone service.

However, I should emphasize that the government isfirmly committed to privatizing itstelecommunications assets and operations and is inthe process of doing so. And I should also point outthat government telecom facilities constitute less thanfive per cent of the Philippine total, the rest being inprivate sector hands.

17

So far I have been speaking about the past and thepresent. What about the future? In some ways thePhilippines is well-positioned to meet the future; inother ways we still have daunting challenges to meet.

First of all, there is a new business excitement in thecountry which can be attributed to the stabilizinginfluence of President Ramos. The Philippines, oftencalled The Sick Man of Asia, is getting up andfeeling better. The new excitement has translated tothe telecom sector due to the series of governmentpolicies opening up the maiicet.

Now, we have a plethora of applications andproposals to provide national backbones, localexchange service, international gateways, and cellularservice. These initiatives are backed by serious "bigname" overseas players - Bell South, Telstra, andSingapore Telecom, among others. If all their planswere to bear fruit, we would see the installation ofsome four million local exchange lines by the end ofthe decade.

Spurred by the specter of impending competition, ourdominant carrier, the Philippine Long DistanceTelephone Company or PLDT, has reacted in astartling reversal of form. Just a few months ago thecompany seemed heading for disaster. It was reelingfrom the government campaign to break itsdominance. Rival companies were snapping at itsheels, cheered on by consumers frustrated by years ofpoor service.

However, PLDT has now begun to seriously addressits telephone backlog problem and is competingaggressively with rivals in new telecommunicationsniches. Under its massive, others say optimistic, ZeroBacklog Program, the company intends to installclose to one million additional lines of its own by1996. And that is just to meet the current"expressed" demand. Nobody knows how manypotential subscribets have never applied for atelephone due to the long waiting time forinstallation.

Already the country's most profitable company,PLDT has now become the darling of the stockmarket investors.

All this looks very encouraging. However, as Imentioned earlier we still have daunting challenges tomeet. What are they?

21

There are many popular myths in this world. Let megive you some examples. Of course, we are allfamiliar with that all-time favorite: "The check is inthe mail". Others of more recent vintage include:"Automation will eliminate jobs" and "ElectronicData Interchange will eliminate paper". But there isalso another myth that zome people cling to and thatis: "Competition means deregulation".

This is the basis of the challenge that faces thePhilippines. In telecommunications, competition doesnot necessarily mean deregulation, it usually meansreregulation. The challenge is not to regulate less, itis to regulate smarter. We have to ensure thatcompetition is introduced in an orderly and rationalfashion. Wasteful duplication must be avoided. Wemust resist the temptation to fast track everything.New entrants must bc protected from anti-competitivebehavior by the dominant players. Carrier disputesshould be resolved efficiently. In short, the publicinterest must be maintained.

In the Philippines, as elsewhere, the global changesoccurring in the telecommunications industry areseriously affecting government institutions. Pressuresresulting from the introduction of new technologiesand the movement towards competition are forcingthe restructuring of government institutions.

There is a need for policy and regulatory frameworksthat operate independently from the service providers.Hence, the strengthening of existing governmentinstitutions, as well as the introduction of new ones,has become an urgent imperative. This is driven bythe need to develop policy analysis and regulatoryskills never before required in countries such as ours.

We in the Philippines have not neglected this aspectof telecommunications development. Through a longterm project with a Canadian partner, the DOTC andthe NTC have been engaged in a process ofinstitutional strengthening.

Past models of institutional strengthening haveusually involved a one-way transfer of technology orknowledge. But the traditional "technology transfer"or "training" programs are no longer sufficient. Theymust now be more sensitive to political, social, legaland even cultural aspects in addition to the usualtechnical requirements.

More importantly, institutional strengtheningprograms require a sustained partnership between thesponsor and the recipient organizations. These long-

18

term and trusting relationships are a critical successfactor in the project, allowing key individuals to builda rapport. Thus, we are developing the necessaryskills to deal with ever-changing telecommunicationspolicy and regulatory issues on a sustainable basis.

Ladies and gentlemen, I have outlined for you theexciting promise of telecommunications in the Asia-Pacific. I have discussed the hopes, the opportunitiesand the challenges of telecommunicationsdevelopment as they relate to the Philippines.

Let me turn now for a moment to a broader questionthat is currently being debated in the Philippines.And that question is: Are democracy anddevelopment compatible?

There are critics of democracy in my country whoadvocate a return to authoritarian government as thesolution to our economic problems. After sevenyears of restored democracy in the Philippines theysay, the economy does not seem to have improvedmuch.

They point to the East Asian tigers as compellingmodels. The Fast Asian tigers had authoritariangovernment in the period leading up to their success.They were able to leapfrog the usual, long stages todevelopment to get to where they are now. Theyappear to have made it through the massiveintervention of authoritarian government in theeconomy. Government, not just as catalyst but asleader in rapid economic development.

The type of interventionist policies that worked forthe East Asian tigers over the last thirty years ofcourse would not work in today's economic climate.They would only invite international retaliation.

And I would remind Ihe advocates of authoritarianismof the words of Winston Churchill who once said thatdemocracy is the worst form of government - exceptfor all the others.

The Philippines has already tried authoritarianism andwe are still paying the price. Perhaps seven years ofdemocracy is too short a time to recover from 14years of systematic plunder by a dictatorship.However, with the exception of the East Asian tigers.which have become demoaacies, the richest countriesin the world have been democratic.

Indeed, the Philippines enjoyed its greatest growthand its greatest prosperity in its years of democracy

following World War II.

In a recent speech, Mr. Jaime Zobel de Ayala, one ofthe leading businessmen in the Philippines declared:

Democracy is not a means todevelopment, it is the purpose ofdevelopment...There is nothing inthe record to show that democracyis incompatible with effectivegovernment.

And this is my message to you today. ThePhilippines, under a democratic government, isimplementing honest and intelligent economicpolicies. Our decisions may not always be right, butthey will not be tarnished by venal self-interest.

Under the democratic leadership of President Ramos,political stability has been established. Our electricalpower problems are close to being solved. The worldis starting to realize that the Philippines is a goodplace to invest again. Just look at what's happeningin the telecom sector. Or better yet, come to thePhilippines and see for yourself. Thank you.

TELECOMMUNICATIONS LIBERALIZATION - THE HONG KONG MODEL

ALEX ARENADIRECTOR-GENERAL OF TELECOMMUNICATIONS

OFFICE OF THE TELECOMMUNICATIONS AUTHORITY (OFTA)HONG KONG

ABSTRACT

Hong Kong, being a major fmancial business centrein Asia, naturally places a high value on having amodern telecommunications infrastructure. To thatend, telecommunications policies have beenoverhauled and a new policy framework is beingimplemented. This new framework builds on HongKong's pre-existing pro-competitive policies such asthose in mobile telecommunications.

Central elements of the new policy framework are theintroduction of competition in domestic fixedtelecommunications network services, theestablishment of an enhanced regulatory structure andthe implementation of a set of competitive safeguards.This paper provides an outline of the Hong. Kongapproach.

BACKGROUND

To make some sense out of this discussion I will needto set out some background to Hong Kong. In myopinion, Hong Kong has embarked on a rather specialexperiment. An experiment which over the next fewyears will confirm Hong Kong as a laboratory fortesting a variety of ambitious new telecommunicationsservices and the many futuristic, interactive, multi-media services receiving such intense commentary inthe trade press. But why Hong Kong? Let meexplain.

Hong Kong is a territory of the United Kingdom, andyes it will be united with China on 1 July 1997 inaccordance with the Joint Declaration and the BasicLaw which specifies "One Country; Two Systems".The territory comprises about 1,000 square kilometresand for the most part is around a series of ruggedhilly lands. The population of Hong Kong is about 6million people but as 90% of Hong Kong is nationalparks the remaining 10% (or 100 sq km) isintensively populated. Average population density isaround 60,000 people per square kilometre but some

20

localities well exceed 100,000 per square kilometre.The concept of the local loop takes on some differentcharacteristics in this environment - for example muchof the local loop is vertical rather than horizontal.

So while the physics is different so is the wiring.Telephone density is very high with about 3 millionexchange lines - ie line density is around 50% of thepopulation. The telephone network is 100% digital.Furthermore alternative building wiring is available inthe form of co-axial cabling for Community AntennaBroadcast Distribution (CABD) for "free to air" TVreception and Satellite Master Antenna Television(SMATV) for Satellite TV reception. In many casesadditional forms of cabling such as closed circuit TVor alarm or security monitoring cabling may beavailable. In addition a cable TV operation hascommenced. This will initially reach homes viamicrowave multi-plexed onto the SMATV/CABDcabling and progressively, to be completed circa 1997,will be reticulated territory-wide by optic fibre.

In terms of the Territory's economy, during thedecade 1982-92, average annual real GDP growth was6.5%. The corresponding rate for OECD countrieswas 3.0%. Over the next decade Hong Kong'saverage annual real GDP growth is forecast to exceed5%.

In 1992, per capita GDP was over US$16,000 peryear. This is amongst the highest in Asia; lower thanJapan but about the same as Singapore. In EuropeanCommunity terms, this is higher than Spain, Ireland,Greece and Portugal. During 1993 per capital GDPis expected to exceed that of the UK and Australiaand next year should exceed Canada's. Hong Kongis the world's tenth largest trading economy althoughit ranks only 89th in terms of population.

The economy has experienced significant structuraladjustment over the past decade and is no more than70% services-based. Hong Kong's container port hasthe highest throughput in the world. In 1992 Kai Takwas the third and fourth busiest airport in the world

24

in terms of international cargo and passengersrespectively. Hong Kong is one of the world'sleading financial centres in terms of the volume ofexternal banking transactions. Sixth largest in termsof foreign exchange transactions.

Of course much of this growth is stimulated by theemergence of China and Hong Kong's specialrelationship with Southern China, particularly throughthe Pearl River delta. But that is only part of it. TheOECD has recently forecast that Asia will account forabout one half of world production by the year 2040 -up from the 24% share in 1990. A map of the Asia-Pacific clearly shows Hong Kong there in the middle- a centre of excellence and superb capabilities withthe telecommunications prowess to supporttelecommunications-hungry service industries.

Putting it together you can see a rather special picturein Hong Kong;

- a dense population- quality telecommunications- cabling alternatives- high income levels- a propensity to use telecommunications

These form the pre-conditions which allow HongKong to experiment with its approaches totelecommunications policy.

HONG KONG'S TELECOMMUNICATIONSINDUSTRY

The current telecommunications industry ischaracterised by well-established, and extensive,competition in mobile services but monopolies infixed services.

Mobile Services

In Hong Kong there is already ample evidence of howcompetition can work to produce grealer benefits forconsumers -

- in mobile telephone, there are fourcompeting cellular operators and, with morethan 285,000 customers, one of the highestrates of mobile 'phone 'take up' in theworld;

- in radio paging, there arc 34 licensees andthe highest per capita subscription rate in theworld - with about 1 million pagers in use,

21

one in six Hong Kong people are pagingcustomers;

- in the supply of C1'2 'telepoint' services (aform of personal communications service,PCS), three operators have built up acustomer base of about 120,000 users in lessthan two years.

Given these benefits, a key question for Hong Konghas been how much further should competition beintroduced into the telecommunications market.

Scope for Further Competition

Until 1995, the Hong Kong Telephone Company(HKTC) holds an exclusive franchise to provide localvoice telephony by wire - or, in other words, HKTCcurrently holds a monopoly on the domestic telephoneservice. Hong Kong Telecom International (HKTI)holds a similar monopoly over international servicesuntil 2006.

The Hong Kong Government has stated clearly itsintention to honour the terms of existing franchisesand licences. To do otherwise would have had thepotential to send the wrong signal to the outsideworld about the way business is conducted in HongKong and risked jeopardising investor confidence.Nevertheless Government policy has made it equallyclear that there is no intention of allowing anyexpansion in the scope of existing exclusive rights.On the contrary a critical look continues to be takenon what room remains for further liberalisationwithout infringing them. Of course, significantopportunities have existed for some time forcompetition in apparatus supply, value added servicesand private networks (both domestic andinternational). The market for single line customerequipment, for example, standard telephones, can besaid to be truly deregulated as type approvalrequirements no longer exist for such equipment.

THE POLICY REVIEW PROCESS

The Reasons for Review

A number of factors prompted review of policy.First, there is the worldwide trend towards greaterliberalisation in the provision of telecommunicationsservices. This trend is both fuelled by and fuellingtechnological change. New services and new ways ofproviding services have discredited the old orthodoxy

2 5

of telecommunications as a natural monopoly.

The second factor is the expiry in 1995 of HKTC'sdomestic monopoly. Amongst other things thecompany needs to plan its business beyond 1995. Todo that it needs to know what the localtelecommunications operating environment will be.Similarly, potential local network competitors wouldneed to know what services they would be allowed toprovide: local data and facsimile services only, orvoice telephone services as well. And, if there wereto be competition, what would the ground rules bewith regard, for example, to network interconnection?Investment lead times are such that these questionsneeded to be answered as soon as possible.

A third factor which prompted policy review was thecollapse of the Hong Kong Cable Communicationconsortium, which in 1989 was selected to provide acombined territory-wide cable television and secondtelecommunications network. The intention was tolicense that network to provide non-franchisedservices (mainly local data and facsimile services) incompetition with the existing local network operatedby the Hong Kong Telephone Company. Had thatproject proceeded as intended, it would have providedthe means for extending the scope of local networkcompetition to include local voice telephony after1995. But it did not, and Government was obliged torethink its strategy.

Review Principles

Policy review was guided by a number of keyprinciples:

- that telecommunications policies shouldensure that the widest possible range ofservices are available to meet customerdemands at reasonable cost;

- a determination to maintain and enhanceHong Kong's competitive edge as a businessand financial centre; and

- further liberalisation bounded by acommitment to honour existing franchisesand licenses.

Following from the last mentioned principle, it is tobe expected that an integral part of the review processproved to be a series of discussions with Hong KongTelephone Company and Hong Kong TelecomInternational, on the possible ground rules for the

. 22

introduction of greater liberalization both at thedomestic and international level. Those discussionsdid yield a broad measure of agreement on a numberof important issues.

POLICY REVIEW OUTCOMES

Domestic Network Competition

The Hong Kong Govermnent has decided to replacethe Hong Kong Telephone Company's exclusivefranchise over the domestic telephone service with anon-exclusive licence when the fradchise expires in1995. This will pave the way for competing networksto provide local fixed-link voice telephone services,just as Hong Kong already has competition in mobiletelephone services. The Hong Kong TelephoneCompany's non-exclusive licence post-1995 wouldinclude a universal service obligation: that is thecompany would be obliged, as at present, to providetelephone service to anyone who requires it,regardless of where they live. In the shore term,before expiry of the franchise, the Government willlicense competitive networks wishing to provide non-franchised services such as data and facsimile, andlocal voice telephony thereafter.

The reference to competing networks plural should benoted. This is deliberate and reflects the fact that adecision had to be taken on how the Governmentshould go about licensing new local networks andwhether Government, rather than the market, shouldimpose a limit on the number that should be licensed.The main choice here proved to be between a tendertype licensing process, in which Government selectsone or more bidders to provide a competing networkor networks or an open licensing regime - such as hasbeen adopted in the U.K. Under the latter approach,that is a market-driven approach, the Governmentwould consider new network applications on theirmerits, as and when they are received. However, thiswould not mean a free-for-all. For example,applications might be ruled out if they would causeunacceptable public disruption because of additionalroad opening. This would encourage applicants tomake use of existing ducts and tunnels as much aspossible and/or make innovative use of radiotechnology.

The Hong Kong Government decided to adopt themarket-driven approach and in late September 1992,invited proposals for competing networks. In

response seven panics submitted proposals by the

26

closing date of 1 February 1993. Generally, theproposals received were substantial and involvedsome of the major global telecommunications players.Following a detailed assessment of the proposals andan analysis of Hong Kong's likely future market size,I announced on 30 November my intention to awardthree new licenses to compete with the Hong KongTelephone Company. The successful applicants (inalphabetic order) are Hutchinson CommunicationsLtd, New T and T Hong Kong Ltd and New WorldTelephone Ltd. Licences are to be issued as soon aspossible once the terms of the licenses are finalizedand following consultation with the ChineseGovernment since the licence will span 1997.

Lest it be misunderstood, non-renewal of the existingexclusive franchise should not be interpreted asindicating that the Government is unhappy with theservice provided by the Hong Kong TelephoneCompany. The Hong Kong community values thehigh quality of service it provides. But theGovernment sees no reason to shield HKTC fromcompetition after 1995, and thereby forego thebenefits of improved innovation, price discipline andcustomer responsiveness that competition wouldbring.

What does Domestic Network Competition Mean?

Essentially domestic network competition in HongKong means little less than wide-scale local loopcompetition. Clearly the scope of HKTI'sinternational licence will preclude the new entrantsfrom providing their own international services totheir customers but, in effect, for simple switchedvoice traffic, they will be required to obtain theirinternational connection from HKTI for such traffic.Furthermore, Hong Kong does not have toll/long-distance traffic internally as all calls within HongKong are "local". Yet it is this local market which isto be competitive first rather than theinternational/long distance market first as is theestablished pattern in most countries which haveintroduced competition in telecommunications.Despite these circumstances, competitive local fixedlicences have been the subject of very keen interestand, based on Hong Kong's special circumstances,there is good reason to believe this competition willbe viable and survive.

THE HONG KONG REGULATORYPRESCRIPTION

The Hong Kong Government is well aware of the fact

that introducing competition in telecommunications, inparticular in fixed networks, is not a simple task - aview confirmed by the experience of those countrieswhich have taken this step. The monopoly operatorhas the potential to abuse its market power to deternew entry by even the best resources competitors.The clear message from overseas experience is that astrong, specialist and well-resourced regulator is anecessary counter-balance to the dominant player'smarket power, thereby allowing competition to take

For Hong Kong the issue has been to formulate aregulatory prescription which is in keeping with itssuccessful laissez-faire economic philosophy. Thusregulatory models in use elsewhere which rely onplacing excessive regulatory burdens on all players,particularly the incumbent operator, have beenrejected. Rather Hong Kong has adopted a 'light-handed' regulatory model, under which regulatoryrequirements are tailored according to the nature andextent of the operator's market position. This doesnot mean that the regulator is powerless: theTelecommunications Authority has been equippedwith a range of powers which would enable him toact should market power be abused or the publicinterest warrant his intervention (for example shouldoperators collude to the detriment of competition orconsumer interest).

As necessary first step has been to sharpen theregulatory focus. Traditionally, regulation oftelecommunications in Hong Kong has been under thejurisdiction of the Postmaster General. In recognitionof the increasing importance, scope and complexity ofthe work of telecommunications regulation,particularly in a multi-carrier environment, theGovernment has established a separatetelecommunications regulatory body: the Office of theTelecommunications Authority (OFTA), effectivefrom 1 July 1993.

This move parallels that in a number of otherliberalized telecommunications regimes and is a stepdesigned to facilitate the achievement of theGovernment's policy objectives. The creation ofOFTA is, in itself, a pro-competitive measure. TheDirector-General of Telecommunications as both thehead of OFTA and as appointed under Hong Konglaw, the Telecommunications Authority, has beengiven more resources and statutory powers to performhis functions.

23 27

The Telecommunications Authority is charged with abroad sweep of responsibilities across bothtelecommunications and radiocommunications. Theseresponsibilities include;

technical regulation(eg - standanls

- compliance procedures- radio interference investigation- co-ordinating satellite filings etc)

economic regulation(eg - issuing licenses

- administering license conditions- resolving carrier disputes, such as

interconnection- price control- maintaining fair competition)

radio frequency spectrum management

formulating and administering HongKong's telephone numbering plan

protecting consumer interest eginvestigating complaints, actingagainst misleading advertising bycarriers.

It should be noted that the TelecommunicationsAuthority serves as the technical regulator forbroadcasting services in Hong Kong and is appointedas a Member of the Broadcasting Authority.

To facilitate fixed network competition theTelecommunications Authority is now implementinga competitive safeguards regime which includes:

Interconnection. For there to be effectivecompetition, it will be necessLry for a new competingdomestic network to interconnect with the existingfixed-link telecommunications infrastructure of theHong Kong Telephone Company and Hong KongTelecom International. As part of the discussionswith the companies, referred earlier, the Governmenthas reached a common view on the board principlesthat should apply to network interconnection. First,any new domestic fixed-link network should, in thefirst instance, seek to negotiate its terms ofinterconnection level directly with the Hong KongTelephone Company. If the parties cannot reachagreement, the Telecommunications Authority has thepower to arbitrate between them and determine theterms and conditions (both technical and commercial)

24

that will apply.

As far as interconnection with international facilitiesof Hong Kong Telecom International is concerned,the Government has agreed in principle with thecompany that the current system whereby the HongKong Telephone Company receives a share ofinternational telephone service revenue should beconverted into an azcess charge arrangement. Underthe new system the Hong Kong Telephone Company,and any new domestic public fixed-link network,would receive payment on a per minute basis forcarrying traffic to and from its customers and theinternational facilities of Hong Kong TelecomInternational. The charges payable would takeaccount of the universal service obligation undertakenby the Hong Kong Telephone Company. So therewould be no immediate, at least, phasing out of thepresent cost subsidy arrangement. Thesearrangements will also apply to cellular mobiletelephone networks, which effective from 1 August1993, are able to interconnect directly with theinternational gateway, instead of via the Hong KongTelephone Company network.

The principles sketched out above on interconnectiononly represent a broad framework within whichdomestic network competition could take place.Legislative amendments have been made toimplement this framework and it will be refined, asnecessary, in consultation with the competing fixednetwork licensees.

Numbering. Access to a fair allocation of numbersis a vital operational requirement for any current orprospective provider of public telecommunicationsservices. In recognition of the fact that numbering fortelecommunications purposes is a public resource, theregulatory authorities in other jurisdictions, forexample in the U.K. and Australia, have taken upoverall control of their national numbering plans.Hong Kong is, effectively, doing this as well. TheTelecommunications Authority is charged withensuring a fair and reasonable allocation of telephonenumbers among operators. OFTA expects to finaliseHong Kong's new numbering plan by the end of1993. Number portability (for both geographic andoperatory portability) and a territory wide personalnumbering scheme are two issues theTelecommunications Authority intends to implementin the new numbering plan.

Fair Trading. Hong Kong does not have a commonframework of anti-trust/fair trading law which applies

to the generality of trade and commerce. In thetelecommunications industry the TelecommunicationsAuthroity is required to manage such fair-tradingaspects as are relevant to this industry. TheTeleconununications Authroity discharges theseresponsibilities through a set of licence conditionsinculded in competitve licences. While the licenceconditions do not attempt to replicate a complete anti-trust regime as exists in a number of countries, theydo constitute a substantial set of controls which theTelecommunications Authority can use to curtail suchanti-competitive practices as predatory pricing,collusion, tied sales, exclusive dealing and excessiveservice bundling.

Other competitive Safeguards. The new policyregime also addresses a number of potential concernsby providing for:

- a requirement for HKTC (as the dominantcarrier) to tariff its services and charge onlyin accordance with its published tariffs (thatis a control over price discrimination);

- a financial monitoring regime to enable theTelecommunications Authority to detect suchmatters as cross-subsidisation and transferpayments among a carrier's various lines ofbusiness and its affiliates; and

- restrictions on the control over andownership in licensees. Hong Kong has noforeign ownership restrictions intelecommunications but there are reservepowers to control undesireable cross-ownership among licences should it provenecessary.

Consumer Interests

Local tariffs. When the Hong Kong TelephoneCompany's scheme of control expired on 31 March1991, HKTC indicated to Government that it did notwish to enter into a new agreement along the previouslines. The Government too had reached a view thatthe scheme of control, which enabled HKTC to earnup to a maximum of 16% return on shareholders'funds was no longer the most appropriates means ofregulation for the Hong Kong Telephone Company.The Government therefore agreed in principle thatHong Kong should move instead to a system ofincentive regulation known as price-capping. Thisapproach, which has been adopted in Australia, theU.K. and thc U.S., ensures that the weighted average

25

annual increase in the charges for telephone servicesis not allowed to exceed the prevailing annualinflation rate minus an "X" percentage.

Following discussion with HKTC it was agreed inprinciple that the level of "X" should be fixed at 4%for the remaining three years of HKTC's existingfranchise, with a further review in 1994/95 todetermine the price control arrangements thereafter.Over the last ten years under the previous scheme ofcontrol, the Company's telephone charges haveincreased at an average annual rate of 2.5% less thanthe rate of inflation as measured by the consumerprice index (CPI). So an "X" of 4% will result intelephone charges resing by some 1.5% p.a. less thanthe historic trend. The Government believes this is agood deal for consumers, ensuring that, in real terms,local telephone charges will decrease significantlywhile providing a reasonable degree of incentive forthe company to continue to invest and improve itsefficiency over the life of the price-cap. To furtherprotect consumer interests, sub-caps have been put inplace such that rises in connection charges also do notexceed CPI - 4% and that rental fee increases for aresidential line do not exceed CPI - 3%. Regard willalso be given to minimum quality of service standardsto ensure that service quality does not deteriorateunder these new price-cap arrangements.

International Tariffs. It has been the Government'sview for some time that significant reductions arewarranted in international tariffs in order that more ofthe benefit of the cost reductions that have beenoccurring in international telecommunications shouldbe passed on to consumers. After intensivenegotiation with HKTI the Government securedagreement for IDD charges to be reduced by about12% (in nominal terms) over three years:commencing with an 8% reduction on 1 August 1993;and followed by further reductions of 2% in each ofthe next two years. Taken together with the localtariff controls, these measures represent a major stepforward, in the interests of the consumer.

INTERNATIONAL SERVICES

Further liberalisation in international services is ofcourse constrained by the terms of Hong KongTelecom International's license which does not expireuntil 2006. There is, however, in the Government'sview still room for further liberalisation ininternational services without infringing the exclusiverights granted under that license. In particular, the

29

Government believes that the current restrictionswhich limit the use of international private leasedcircuits in the provision of competitive servicesshould be relaxed further. Some more relaxation hastaken place recently with confirmation thatinternational managed data network services may besupplied competitively and the clarification that HongKong does not require bilateral agreements to be inplace before it authorises these types of competitiveinternational services. In addition, companies andorganisations are to be authorised to provide theirown international private circuits by, for example,directly leasing satellite capacity. These matters arethe subject of continued policy and regulatoryanalysis.

CONCLUSION

Hong Kong forms an important element in theRegion's telecommunications infrastructure. It is thevital hub for much of the Region's financial andbusiness communications. Hong Kong is committedto remaining at the forefront of globaltelecommunications developments and, as a results ofa fundamental review of policy, is expanding its pro-competitive approach to meet that objective. Goodprogress has been made in establishing the newregulatory arrangements. These will be developedfurther to facilitate the introduction of local fixednetwork competition upon the expiry of Hong KongTelephone's exclusive franchise in 1995.

Hong Kong's experience with introducing fixednetwork competition will represent a substantialexperiment in local loop competition. A ratherspecial blend of factors as diverse as topology, highincome levels, technological sophistication, a strongtelecommunications culture which supports HongKong's open, trading economy and the rightconditions for competition may demonstrate how localloop competition can work. Furthermore theseconditions may lead to an acceleration of theconvergence that is evident in telecommunications,cable and broadcasting industries, such that HongKong is propelled into the forefront of the broad-band, interactive "multi-media" world which is nowthe focus of much discussion and conjecture.

26

INFORMATION TECHNOLOGIES - PRESENT AND FUTURE

WARREN E FALCONERCHIEF TECHNICAL OFFICER

AT&T INTERNATIONAL OPERATIONS DIVISIONMORRISTOWN, NEW JERSEY, USA

AT&T has been working since its inception to bringtechnology to the world for telecommunicationsapplications. In 1925, AT&T created Bell Laboratorieswhich is widely recognized as a model industrialresearch and development organization. Bell Labs hasfocused on technology for telecommunicationsinfrastructures for 68 years, ranging from fundamentalbuilding blocks to sophisticated applications.

To bring the world the expanding services thatcustomers and users demand, we have had to delivera multitude of technologies to overcome four barriers:space, time, cost, and language. (See Figure 1). Wecan think of space as having been conquered becausewe can connect one location to another virtuallyanywhere in the world. By storing messages whetherthey be voice, data, or image so they can be sent atthe convenience of the sender, and received at theconvenience of the receiver, we have overcome thebarrier of time. Cost is always an issue. Desirablesolutions may be available, but if they cost too muchthey will not be used There is a constant need tocontinue to drive down the cost oftelecommunications services and applications forglobal business solutions if they are to be widelyused. AT&T accomplishes this through the innovationand application of new technologies. Finally,language is a barrier to communications. It would bewonderful if we could speak all the languages thatexist but we know that is not going to happen.Therefore, we need to rely upon machines to providea real-time translation function. In fact, we even needto convert between the languages (protocols) thatmachines access. This is most straightforward whenwe have the same standards, but a commonalternative is being able to interwork between thestandards of one region or one set of applications tothose of another.

AT&T certainly is not the sole possessor of modemtelecommunications technology. But I do believe weare a technology leader and understand the broadspectrum of applicable technologies forcommunications and information systems, as well as

27

anyone in the world.

In forging new links with developing countries, wemust understand both the immediate needs and thedevelopment pace of the countries. In many cases,accelerated development of infrastructure will requireleap frogging some of the steps that have been takenby the more established telecommunicationsproviders. The fundamental building blocktechnologies: photonics, integrated circuits, andsoftware - are the same for all. But when we examinethe telecommunications needs for developingcountries some things stand out: the need to protectinvestment, that is, to be able to have networkdesigns that are evolvable so that investments madetoday are still valuable throughout the decade ahead.They need low entry costs so that they can get startedquickly, even if not with the most complex systems,and tie into the global communications infrastructurewhich is emerging throughout the world. Standardinterfaces between different vendor equipment,between different regional networks, between the oldand the new, and between those things that are beingdeployed today and those things that exist in othernetworks throughout the world are essential. Veryimmediate is the need for service improvement: bettercall completion, reexamination of network design,high utilization, and improvement in quality.Technologies already exist for meeting these needs.Figure 2 depicts many things that are being requestedby multinational business customers.Telecommunications service providers must providethe interconnectivity and support these needs, or thesemultinational business customers will seek othersolutions. Thus, providers around the world areworking together to provide a worldwide intelligentnetwork. A fundamental need of this network isreliable transport which is being provided on a meshof lightwave systems. A view of the fiber opticsystems that will be in place by 1996 in the PaciftcRegion is shown in Figure 3. AT&T has partownership in most of these cables and also is veryactive in the laying of cable systems and themaintenance of cables when they are in place using a

fleet of state-of-the-art cable ships. The capacity andsophistication of these cables is increasing rapidly.TPC 5, for example, you will note is a loop systemfor service continuity protection which will operatesynchronously at 4.8 Gb per sec. This transportinfrastructure is used to support a worldwideintelligent network, the architecture of which isshown in Figure 4. This architecture featuresintelligent switches, intelligent data bases, andpowerful out-of-band signaling capabilities which tietogether through standard interface capabilities incountries throughout the world. It is crucial that thedeveloping nations design their networks such thatthey too will interface seamlessly into thisarchitecture and, therefore, enrich it and build upon it.

We have a vision of what this kind of structure willdo if we create and manage it properly. AT&T'svision is to bring people and information togetheranytime, anywhere. We see today's communicationsnetworks whether they be land basedtelecommunication networks, national networks,regional networks, cellular networks, pagingnetworks, or international gateways coming togetherinto integrated communications networks that exhibitintelligence, flexibility, and simplicity. Looking aheadto the next tier of technologies beyond the buildingblocks of photonics, integrated circuits, micro-processors, and software, we have to recognize therewill be extensive wireless connections, as well as,wired connections. Messaging will play a major role;visual communication will be far more important thanit has ever been in the past; networked computingwill tie all of these various capabilities together; andvoice and audio processing will be one of the keysthat leads to what I call another fundamental buildingblock area: ease of use. It is the ease of access,distribution, availability, and extracting of informationfrom the masses of data with which we aresurrounded.

Wireless communications depend integrally on signalcompression and processing; low power, high speedprocessors, compact low cost power systems,intelligent networking, and mobility management. Ofcourse, there are other things required as well, butthese are core. Messaging also requires signalcompression and processing; low power, high speedIC's; and, in addition, image and speech recognitionand store and forward network capabilities. Recall theneed for overcoming not only the space but also thetime barrier, Visual communications are at the heartof multimedia communication. They again requiresignal compression and processing but depend

28

strongly upon the global digital networks, thecapabilities for integration and global interoperativestandards. I cannot over-emphasize the importance ofplanning around standards as the developing nationsof the world put their communications networks inplace and interwork them or interconnect them withthe framework which is already beginning globally.

Networked computing depends upon the interworkingof communications protocols and the development ofhigh efficiency protocols. It requires high speedglobal networks and scalable processors. Voice andaudio processing enable us to do to speechrecognition, speaker identification, and languagetranslation. It is strongly founded on digital signalprocessors. These emerging growth applications -wireless, messaging, visual communication,networked computing, and voice and audio processingare summarized on Figure 5 and support the AT&Tvision of bringing people and information togetheranytime, anywhere. There are some key technologieswhich make this increased accessibility and ease ofuse possible. One example is electronic neuralnetworks. Neural networks marry the power ofelectronics, what we can do on a chip and biophysicswith what we do in our brains and our neuralsystems. The result is a new computing architecturewhich is highly fault tolerant and massively parallel.Such chips are especially useful for complexproblems such as speech recognition, imageprocessing, pattern recognition, and so forth.

A second key capability is speech and videoprocessing. If we examine the curves on Figure 6, wesee two very obvious trends. One is that the numberof components on a single chip is increasing by afactor of two every 18-24 months. At the same time,the capability of processing algorithms is improvingat about the same rate. When we get to the pointwhere a function can be performed on a signal chip,or simple circuit board such as speech synthesis onone chip in 1983 or limited capabilities speechrecognition on a signal chip in 1992, then theapplications for these functions begin to becomewidespread and thus more affordable. The issue isgetting this significant functionality on onefunctioning board for a unit cost of about $100.00.

Thus, there are powerful technologies available tosupport the emerging applications. These applicationswill be needed by customers and users in all nationswhether developed or developing. The developednations today are well positioned to take advantage ofthese capabilities but the developing nations can also

32

be well positioned through careful planning, goodnetwork design, planning around standards, andpartnering with technology providers as they buildtheir telecommunications infrastructures. The drivingforce for having universal global network services issummarized on Figure 7 illustrating how we canbring user needs together with business objectives andthe emerging technologies of the 1990's to realize thetheme of this conference, namely, "Forging NewLinks".

2933

FIGURE 1

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VIGURE 5

EMERGING GROWTH APPLICATIONS

WIRELESS COMMUNICATIONS-MESSAGING

VISUAL COMMUNICATIONS

NETWORKED COMPUTING VOICE & AUDIO PROCESSING

TRENDS IN COMPONENT REQUIREMENTSFOR SPEECH PROCESSING FUNCTIONS

SPEECH RECOGNIZER(LIMITED CAPABILITY)

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

YEAR

DRIVING FORCE OFGLOBAL NETWORK SERVICES

33 37

KDD's International Cooperation Activities

Under A Competitive Regime

KUNISHI NOSAKA

Executive Vice PresidentKokusai Denshin Denwa Co. Ltd.

Japan

AbstractThe environment that surrounds the telecommunicationsbuginess is changing at an

ever faster pace. In the future, many corporations from developed countries are likely toincrease international joint projects to improve the telecommunications in developing

countries. These joint projects may be one approach of international cooperation, but theywill not satisfy all of the requirements from developing countries, and it is necessary to rill

the gap with the conventional, development-support approach.

The issue that those engaged in international cooperation activities will likely face inthe future is how to achieve the suitable balance between the joint project approach anddevelopment-support approach and how to offer help that is suited to the communications

situation in the correspondent country.

1. Background of InternationalCooperation Activities

1.1 InternationalTelecommunications realizedthrough InternationalCooperation

Now that the global structure of theEast-West confrontation has collapsed, aharmonious and interdependent growth ofdeveloped and developing countries hasbecome more important in building astable international environment. One ofthe keys to this growth is the creation ofinternational telecommunicationsnetworks that support free distribution ofinformation among countries. In order tomeet this need, it is necessary to bolsterthe developing countries'telecommunications facilities, includingtheir domestic telecommunicationsnetworks, and services to a levelcomparable to that of developed countries.

34

On the other hand, telecommunicationsinfrastructure in developing countries isobviously yet to be developed, as can beseen from the data in Fig.1, which showsthe number of telephone lines for every100 people in principal countries of theworld. In other words, the shortage oftelecommunication infrastructure forconveying information is causing thebottleneck in the economic development ofdeveloping countries. Urgently needed inthese countries are measures to cope withthe fast advancement and diversificationof communication technology,particularly by securing the necessaryfunds and training personnel. Under thecurrent situation, however, developingcountries have no choice but to rely oninternational organizations and developedcountries for financial aid.

38

Under these circumstances, it is anurgent matter for developed countries toprovide technical aid to developingcountries. After all, without improvingdomestic and international networks indeveloping countries, there will be noimprovement in internationaltelecommunications services also for thecustomers in developed countries. Thispaper inspects this vital issue.

1.2 Changing Forms ofInternational CooperationActivities

1.2.1 Conventional CooperationActivities

As described above, internationalcooperation activities are becoming moreimportant to improve internationaltelecommunication in developingcountries, but a form of cooperation mustbe fully examined also by developingcountries.

There seems to be a deeply fixed notionthat international cooperation refers to ahandout given by a developed country to adeveloping country. This may have beentrue in the past, when a great majority ofinternational cooperation was grant aid,or gratuitous cooperation led by agovernment of international organization.Such form of international cooperationcan be considered as a one-way activityfrom developed countries to developingcounties, by the form of supply withequipments, dispatch of experts andinduction of trainees. Such conventionalform of international cooperationactivities shall be referred to in this textas a development-support approach.

35

1.2.2 New Forms of CooperationActivities

Looking the environment oftelecommunications business, the wave ofderegulation and liberalization has spreadin the world. The Asia-Pacific region is noexception, as competition has beenintroduced to the telecommunicationsmarket in a number of countries in theregion. Such trends naturally have had amajor impact on the conventional,development-support approach. Someprivate companies under the competitionin the developed countries may not have asufficient resource to grant an aid. Thosecompanies also tend to get new businessopportunities in the developing countriesto survive the competition.

From the developing countries' point ofview, on the other hand, the conventionaldevelopment-support approach could noteven satisfy their customers basic needs,to develop their communications networkin the past. Therefore, developingcountries need more active support fromdeveloped countries for the supply ofresources such as personnel, goods andmoney.

Such changing needs of developed anddeveloping countries have given birth to anew form of international cooperationactivities. This is the cooperationactivities undertaken as a businessendeavor. For the developed countries'part, they provide, to develop theinfrastructure in developing countries,know-how on technology, operation,development, marketing etc., learnedfrom experience in business operation orfrom competition. Then, in return, thedeveloped countries will obtain a part ofthe business profits from developingcountries.

39

This new form of internationalcooperation activities, which may bereferred to as a joint project approachthrough which both the developedcountries and the developing countriesbenefit, is becuming increasingly active.Some of more common joint projectapproaches to international cooperationactivities are BOT or BTO type and jointventure (JV) type.

BOT type refers to a cooperationactivity where a carrier in a developedcountry builds the communicationsinfrastructure (Build), recovers theinvestment, including profit, by operatingthe system for a fixed period of time(Operate), and then transfers theownership of the system to a developingcountry (Transfer). In recent years, thistype of activity has been widelyintroduced particularly in such SoutheastAsian nations as Thailand and Vietnam.

The JV type is where the developedcountries and developing countries jointlyconstruct, own, and operate thecommunications infrastructure. This typeof joint project requires greaterparticipation and responsibility on thepart of the developed countries than doesBOT or BTO. Consequently, this case islimited by the extent of implementation ofsuch liberalization policies in developingcountries as privatisation, introduction ofcompetition, and deregulation of foreignownership. In recent years, the JV typehas been popular in such fields as mobilecommunications, digital overlay network,and VSAT network as well as in basiccommunications.

The problems with the JV types are along period of time necessary to recoverinvestment, the political risk involvingpolicy change, and currencyconvertibility. Despite these problems,

36

these are win-win cooperation approacheswhere both sides benefit. Consequently,we will undoubtedly see more of this typeof international cooperation activities inthe future.

2. Overview of KDD'sInternational CooperationActivities

2.1. KDD's Basic Philosophy ofInternational CooperationActivities

International telecommunicationsbusiness is extremely significant to thepublic society by providing servicesindispensable to everyone's daily life andeconomic activities. The business alsocarries extremely importantresponsibilities of providing equity ofusage, ensuring service, networkreliability and safeguarding privacy ofusers.

As described thus far, the environmentsurrounding the telecommunicationsbusiness is rapidly changing. It is KDD'sview, however, that the socialresponsibility of carriers basicallyremains the same in pertaining tointernational cooperation activities.

KDD, which has improved Japan'sinternational telecommunications levelup to the present level, fully recognizesour responsibility as a leadinginternational telecommunications carrierofJapan. KDD takes pride in beingexpected to meet its responsibility ofplaying a role in international cooperationfor developing countries.

Furthermore, it may be incident butextremely beneficial for KDD to create a"human network" with carriers andtelecommunications administrations inother countries through internationalcooperation activities.

40

Fig. 1

UgandaBurundi

Sri LankaChina

PhilippinesZimbabwe

SenegalAlbania

El SalvadorJordanAustria

Hong KongJapan

BelgiumNetherlands

NorwayFinland

USACanada

Switzerland

Telephone Line Per 100 Population (1991)

The ten highest and lowest countrieswhich have over 1,000,000 population

0 10 40 50

Fig. 2 Network Image of VTC

an/INTELSAT

op Local CityEMI11 IN I

0=Bo

Vladiostok

3 7 41

60

To//From

the World

2.2 KDD's InternationalCooperation Activities

2.2.1 Example of KDD's JointProject Approaches

To ensure smooth internationaltelecommunications with the Far Easternregion of Russia, KDD, in a joint venturewith a Russian private company,established in Vladivostok aninternational telecommunicationscompany named Vostok Telecom Co,. Ltd.(VTC) in June 1992 and commencedservice in Januai. 1993 By installing asatellite earth station and aninternational switching system inVladivostok and establishing a direct linkbetween Russia and KDD via INTELSATsatellite in the Pacific Ocean Region, VTCprovides primarily business users in theregion with international telephoneservices via dedicated networks (overlay).The network configuration of VTC isshown in Fig. 2.

International telecommunicationsbetween the Far Eastern region of Russiaand Japan have not been satisfactory inthe quality and connectivity. To improvethe situation, KDD andInterdalTelecom(IDT), atelecommunications company in the FarEastern region of Russia, proceeded withpreparations for commencinginternational telephone service throughsatellite linkage.

To meet this requirement promptly itwas concluded that Japanese capital andtechnological cooperation are mostdesirable, and KDD, together with NisshoIwai Corporation and IDT established thejoint venture VTC. This joint venture didnot merely improve thetelecommunications level of one region inRussia, but enabled the Far Easternregion of Russia to communicate with theentire world through Japan. Therefore,

38

KDD is confident that the joint venture isvery significant in terms of promoting theinternational exchange between Japanand Russia.

Based on KDD's experience in the start-up and operation of VTC, the advantagesof the joint project approach of cooperationactivities (joint venture type) aresummarized as follows,

Firstly, our investment was carried outby the effort to achieve the maximumreturn while minimizing the risk sinceboth joint venture partners have a stakein the project. VTC started its serviceonly one year after the beginning of itsfeasibility study. This was made possiblebecause each partner sought the mostefficient solution to each problem based onits experience and knowledge.

Secondly, each partner saw the othersas equal partners, and tried to understandthe others' points of view. This attitudeenabled the partners to reach amicableagreement on any given issue. lastly,since the cooperation activity respectedthe uniqueness of the region and satisfiedthe needs there, it was possible for KDD toeasily put into practice its knowledge andexperience in a foreign country. Theknowledge of service development andsales that KDD has gained in thecompetitive environments in Japan willbe sure to the good use at VTC.

2.2.2 Necessity of Development-Support Approach toInternational CooperationActivities(Lessons Learned from VTC)

The joint project approach does havesome shortcomings. As a consequent, it isnot suitable for all the cases ofinternational cooperation activities.

The first shortcoming of joint projectapproach is that there is little incentive to

42

invest in regions with little businessprospect. Next, it is difficult to undertakedevelopment activities based on a long-term perspective since the joint projectapproach is expected to produce resultsfaster than conventional internationalcooperation activities. This is not to saythat joint project partners are shortsighted. They do plan years ahead in theplanning stage. It is debatable, however,whether an overlay network or a VSATnetwork bypassing outdated facilitieswould be of help in improving thefundamental telecommunicationssituation in that country. Likewise, adevelopment limited to a certain regionmay not necessarily contribute to thedevelopment of the country as a whole.

Consequently, KDD, with itsresponsibility to serve the public, feelsthat the development-support approach tointernational cooperation is still essentialnow and in the future, even when theenvironment surroundingtelecommunications is undergoing rapidchanges and the joint project approachmay seem to be the major approach. KDDintends to step up its efforts in thisapproach of cooperation.

2.2.3 Example of KDD'sDevelopment-SupportApproach to InternationalCooperation Activities

KDD has undertaken much of itsdevelopment-support approach tointernational cooperation activities in theform of cooperation to the OfficialDevelopment Assistance (ODA). Inaddition, KDD began its own activitywhen it invited overseas trainees fromThailand in 1957. This own internationalcooperation activity was on voluntarybase, as it was required for the need toimprove telecommunications services andtheir quality. Therefore, it provided the

39

correspondent country with great help inimportant areas to be served as thefoundation for future development.

KDD's development-support approachto international cooperation activity isbegun by analyzing with thecorrespondent country the particularneeds of that country. After deciding onthe best solutions matching these needs,KDD invites overseas trainees, dispatchesexperts, supplies and lends equipment,exchange personnel based on amemorandum of technical cooperation,and so on.

In the field of consulting, KDD helpsthe correspondent country in such projectsas the construction of improvement of atelecommunications network by providingassistance from a planning to an operationstage. This is how KDD has contributedto the improvement of services in anumber of countries.

A prime example of success with suchactivity is a project that was recentlycompleted in Mongolia. KDD helped toconstruct an international digitaltelephone switching system, an earthstation accessing INTELSAT satellite,and a terrestrial microwave transmissionnetwork connecting the earth station withthe switching system.

In the last ten years, KDD has invitedsome 1,000 trainees, dispatched morethan 400 experts, supplied and lentequipment to 65 projects in 4 countries,exchanged more then 1,000 personnelbased on technical cooperation agreementwith 19 telecommunicationsadministrations and entities of 16countries, and provided consulting in 23countries.

43

3. ConclusionAs the environment surrounding

telecommunications business is changingvery rapidly, many corporations includinginternational telecommunicationscarriers of developed countries tend to puttheir priority of international cooperationon the joint project approach in order toseek for new business and customers.

While the joint project approach mayserve as an effective means of promotingthe improvement of telecommunicationsinfrastructure in a correspondent country,as described above, this approach cannotcover all of the needs for internationalcooperation activities. Therefore, thedevelopment-support approach must beused to supplement those areas thatcannot be covered with the joint projectapproach.

Therefore, the issue for internationalcooperation activities in the future is howto achieve the suitable balance betweenthe joint project approach anddevelopment-support approach and how toengage in activities that are suited to thetelecommunications situation in thecorrespondent country. The businessphilosophy of corporations who are eagerto invest in the joint project oftelecommunication in developingcountries should take into account thisissue.

Ten years hav e already passed sincethe publication of "The Missing Link", areport on the activities by theIndependent Commission for World wideTelecommunications Development led bySir Donald Maitland. Based on therecognition that telecommunicationsinfrastructure is an essential element forthe socioeconomic development of allcountries, it was advocated that developedcountries and developing countries shouldstrive to correct the South-North disparityin telecommunications infrastructure.

40

However, this disparity is greater todaythan it was ten years ago. In the step toanother decade after The Missing Link, itis now time for those involved in thetelecommunications business toreexamine how international cooperationactivities should be.

4 4

TELECOMMUNICATIONS IN THE PACIFIC

IEREMIA T. TABAISECRETARY GENERAL

SOUTH PACIFIC FORUM SECRETARIATFIJI

Chairman, Distinguished Delegates, Ladies andGentlemen:

1. This morning I welcome this opportunity tocontribute to the proceedings of this conference -PTC'94. Like previous meetings, this indeed is a veryimportant gathering that brings together importantplayers in the vital area of telecommunications - anarea that in terminology terms is changing at anunprecedented rate. This is an appropriate time to alsoreflect on the changes that have taken place since therelease in 1984 of the report of the IndependentCommission for World-Wide TelecommunicationDevelopment, better known as the Missing LinkReport. That report had as its basic message the vitalimportance of telecommunications in the developmentprocess and the obvious need to give it a highpriority.

2. This conference is, therefore, an opportunity to seeif this message is receiving adequate focus in thedeveloping economies of the Asia Pacific Region.Coming from an organisation mandated to assist thecountries in their development efforts, I consider itproper then that I reflect on the realities andimperatives of the Pacific part of the Asia PacificRegion.

3. In world terms the Pacific is a region of lowpopulation and low economic growth. Like othergeneralisations, there are exceptions. Papua NewGuinea which joined APEC recently, has apopulation greater than New Zealand and a solidgrowth rate based on a wealth of natural resourceswhich will ensure it will be one of the leadingnations of our region in the next century.

4. There are other smaller countries like SolomonIslands and Vanuatu which have the population andresource base to achieve much better economicperformance in the future, And there are, of course,some very small islands like Tuvalu, Cook islandsand my own country, Kiribati, which can lookforward to a reasonably bright future given sound

41

government policies and the use of external aid todevelop national capacity and to become moreself-reliant.

5. While the countries are generally optimistic aboutthe future, they recognise fully that there are anumber of concerns that need addressing.

6. One concern is the alarmingly high populationgrowth rate in many of the countries and the fact thatthis growth rate cannot be sustained in the long term.In some of the smaller countries and indeed in theurban areas of the region, the governments are underpressure to maintain the present level of services notto mention the need to improve the living standards oftheir people. Controlling the population growth rate,consistent with economic developments and risingstandards of living is the most important imperative.While regional organisations like the ForumSecretariat can play a part - it is recognised theprimary responsibility rests at the national level.

7. Closely related to population are the concernsabout the deterioration of the environment Theconcern about the environment is of course notconfined to the Pacific Island Countries. It is aworld-wide concern, and the Rio Meeting last year isan example of the world coming together in facing acommon threat. For most of the Forum IslandCountries, however, this is a pressing one.

8. While there are aspects that are within thecapacity of the countries to address. there areelements that are obviously outside their control. Themost important one of these is the greenhouse effect.With the expected rise in the sea-level, somecountries may well cease to exist This is theprospectwe fear and since the developed countries areprimarily responsible through their high energyconstunption, it is vital that they take appropriatesteps to arrest the deterioration in the health of theenvironment.

45

9. The concerns, however, are not only confined topopulation and enviromnental issues. There is also therealisation that the benefits of the global economy weaspire to are increasingly dependent on modern andeffective communications. Most of you do not need tobe persuaded of the importance of telecommunication.It is the very life blood of commerce in tfut advancedeconomies of the world. For us in the region, we haveno choice if we are to enhance our economicperformance, but to focus more on developing ourteleconununications network. This must be done insuch a way for it to be affordable to the majority ofour people.

10. Ten years ago Sir Donald Maitland and hisIndependent Commission of Enquiry were absolutelyright when they pointed to the close links betweensocial progress and economic growth on the one handand investment in telecommunication infrastructure onthe other. The "Missing Link" report included in itsimportant findings the need for the developing worldto give:

higher priority to investment in

telecommunications;

greater recognition to the upgrading of theexisting networks;

the development of new and innovativemethods of raising investment capital; and

of an elective catalytic role, perhapsattached to the ITU, to inform and sensitisegovernments to the realities andimperatives of telecommunicationsindustry.

11. That report was released in 19804 and sincethen a lot has certainly happened intelecommunications. The logical question for us to,therefore ask, is how does the South Pacific regionmeasure up to these goals? Put in a more rhetoricalform - is the Missing Link still missing?

12. At about the time that Sir Donald Maitland wasgathering together his Independent Commission ofEnquiry, the Forum Secretariat, with financial helpfrom Australia and New Zealand, put together theSouth Pacific Telecommunications Developmentprogramme (the SPTDP).

13. It was inspired by the realisation that all ourisland countries had at last moved out of their

42

colonial shadows and most had already in place,modern satellite links to connect their fledgling urbantelephone networks with the rest of the world. Thebig gap, or the missing link if you will, was thealmost total lack of telephone penetration into therural and remote parts of out island countries. TheSPTDP vision was for the regional organisation of theForum Secretariat to attract the capital, and, withcooperating constituent countries, build a satellitebased network which could penetrate the rural andremote communities.

14. It is a matter of record, of course. that this grandvision was not achieved. Although much very goodwork was done, the primary goal has proved to beelusive and so 10 years on we .have conducted ourown strategic study to determine what are the presentrealities and imperatives of telecomnumications in ourregion.

15. We have called our study "The Pacific Link".Its main findings are:

That the access gap which inhibits muchof the Pacific Island people fromconnection to a modem telephone serviceremains as large now as it was 10 yearsago. With the notable exceptions in one ortwo of our countries, current strategies arenot working. New ones are required if theideal of universal access to telephoneservice is to be achieved. In this regionUniversal Access does not necessarilymean a telephone in every household, as isthe case in Western countries, hut rather apublicly accessible telephone within notmore thin a one hour walk of anyhabitation;

That there is a basic requirement tobuild institutional capability to enable theresponsible Ministries to take effectivecontrol of national policy making andimplementation of policy for thetelecommunications sector;

That, as many of our countries havemoved to corporatise, and in some cases,even partially privatise theirtelecommunication carriers, there is arecognition that the varying interests ofcarriers and of governments can beaccommodated in an effective way, and

46

That there is a real need for carriers torespond to telecommunications users ascustomers rather than public servicebeneficiaries. In this context there is a realneed for national carriers to plan togetherto meet the needs of business customersfor international private networks. There isno carrier in the region which can properlyserve these customers without cooperatingwith adjacent carriers.

16. Despite the work which has been done in theregion over the last ten years the Missing Link isstill missing. The access gap is still there. Also,while the efficiency of existing networks has beenimproved, and improved substantially in some casesmuch more needs to be done, particularly in thearea of customer service. The problem of capitalfinancing also remains unsolved for many countries.

17. The Pacific Link Study undertaken by theForum Secretariat, has recommended that morecapital finance should be raised from retainedearnings of existing carriers, as well as by privatecapital raisings. However, for many countries thegovernments have become dependent on existingtelecommunications sector cash flow for useelsewhere in the economy. Any change will,therefore, require a change in national priorities.

18. In many cases, however, modest increases intariffs, and the deliberate managed growth in overalltelecommunications business would solve both theGovernments cash requirements and the carrierscapital needs. Unfortunately, in some of ourcountries, the capital investment intelecommunications is often not the result ofstrategic planning at the Government level but islinked to the next available aid package in a looselycoordinated, or even uncoordinated aid enviromnent.In other words, telecommunications developmenthas often occurred in response to the availability ofaid monies.

19. In all of these matters each country's individualsocial, political and economic environments andneeds are unique. Regional solutions at the macrolevel are not possible. National responsibilities, andthe individual country's ability to discharge thoseresponsibilities are the paramount issues and theregional role is to seek and service well thoseopportunities and functions which can deliver realpay-offs if done regionally rather than nationally.

43

20. As in the countries of the Asian rim of thePacific there is a wide disparity between the islandcountries of the Pacific.

21. Our regional telecommunications initiative in theForum Secretariat can and do play a very useful role,but not a definitive one. Its future will depend verymuch on what our constituent countries want it to be,and certainly in the future it must become very muchless dependent on regional aid funding than it hasbeen in the past. The willingness of our constituentsto contribute to its cost will become a determiningfactor.

22. I would like to end this statement by reaffirmingthe importance of telecommunications to developmentin this region. At the Forum Secretariat we havesought to assist our member Governments establishbetter communications links both internationally andbetween rural areas and island group.

23. We have alao seen the important role that can beplayed by the international carriers and what we nowmust . try and achieve is an effective marriage betweennational governments and the carriers to ensure thatexisting services can be sustained and new servicesestablished in the future.

Thank you.

4 7

PTC'94

16 - 20 January, 1994 : Honolulu, Hawaii

THE CO-ORDINATING ROLE OF APT IN PROMOTINGTELECOMMUNICATIONS IN THE ASIA PACIFIC REGION

by Mr. Riluvan ShareefDeputy Executive Director, Asia-Pacific Telecommunity

1. Abstract

Asia Pacific is analogous to economic growth and telecommunications is

accepted to be perhap's the single most important ingredient to fuel theforecast growth trends for the countries into the twenty first century.

APT has to rise up to the expectations of the Ministerial Declaration ofSingapore 1992, and the ITU AS-RDC Resolutions to ensure that APTMembers are aware of their rightful place in the process so that maximumbenefits could be derived.

2. The Asia Pacific Teiecommunity

Founded in 1979 through an intergovernmental Agreement pursuant toResolution 163(XXXII) of the Economic and Social Commission for the Asiaand the Pacific, presently has 26 Members, 26 Affiliate Members and 3Associate embers.

The Member Governments of the APT had recognized the need as stipulatedin Article 32 of the ITU Convention of Malega Torimolinos 1973, andmandated APT to foster regional co-operation in attaining balanceddevelopment of telecommunications in the region, to assist in planning,programming, operations and maintenance of telecommunications networksand services, to promote the timely implementation of regionaltelecommunications networks, to assist Members in Human ResourceDevelopment and management; in application and harmonization oftelecommunications standards in the region, and to assist in the appropriatetransfer of technology in the engineering and management oftelecommunications systems.

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3. The Role of APT

In a relatively short period of 15 years APT has, with the commitment of itsMembers, evolved into an effective Regional Organizations which is providingan extremely useful and practical platform for discussion and co-operation inwide ranging issues relating to telecommunications in the Asia and the Pacific.

The main purpose of APT, as stipulated in the constitution, is to promotebalanced telecommunications development and the skills it demands in orderto attain a high degree of regional self reliance in telecommunications. APTis uniquely placed to serve its Members through a comprehensive program ofwork that is funded primarily by the members themselves. Recently the scopeof this program has broadened through the decision of UNDP to fund APTprojects and programs, and by the enhanced collaboration of APT/ITUactivities in the region.

The core activities of APT are Human Resource Development, Seminars,Study Groups' Activities, and Technical Assistance.

As mandated by the constitution and continually strengthened by the wishesof the Members through decisions made at forums such as the APT MinisterialMeeting in 1992, and the ITU Regional Development Conference in Singaporelast year, APT will continue to be a key regional organization to assist themembers in the development of telecommunications in their respectivenational networks as well as those with a regional dimension and to bringPacific closer to Asia.

In view of the changing scene that is taking place in telecommunications ingeneral, APT has started a new chapter in promoting co-operation betweenusers and services providers, telecommunications equipment manufacturersand academic institutions. APT will attempt to bring together the industry andencourage initial cooperation among and between these different entities.

With the progressive introduction of more service providers in a given networkand with the spread of liberal and competitive policies in telecommunicationsthere would be an even greater need for a dialogue between Users, Regulatorsand Service Providers. APT will offer common ground for these importantconstituents of telecommunications to address current issues and to evolvepractical recommendations.

4. The APT and ITU

With the economic growth trends in this region becoming more and moreapparent, telecommunications development and investment intelecommunications infrastructures would be an area that calls for specificattention by all of us and this effort will extent well into the next century.

45 49

While finding sufficient funds for investment would be one of the mostdifficult issues to address, there are other policy and technical aspects oftelecommunication that need attention very urgently. Amongst them areworkable telecommunications standards, efficient use of the Radio FrequencySpectrum in terrestrial and space applications, transborder communicationsand the merging of telecoms, broadcasting and certain types of services trade.With the recent establishment of the ITU regional office in Bangkok (withinwalking distance of APT headquarters), it has opened the way for closecooperation between the two organizations in fulfilling the wishes of themembers.

More importantly APT could assist ITU in its standardization activities, RadioCommunications aspects, as well as development initiatives in the region.Training and developing human skills still remain the biggest challenge for usin the region. And in part because of the inadequate technical knowhow ina large part of the region.

5. The Focus of APT

While representing the majority of the world's population, having some of thepoorest and some of the richest countries as Members and while addressingmajor telecommunications issues APT has to and does maintain a very specificfocus. It is regional and it is telecommunications specific.

It is very pleasing to note that the Members of APT with a broad spectrum ofeconomies, cultures and beliefs have still maintained this very.essential focus.That is perhaps one of the most .important reasons behind the success andmomentum of APT. APT's seven professional staff with a regular budget ofless than US$ 2,000,000.- is able to implement a tangible and practicalprogram of assistance .and co-operation only because this focus has beenstrictly maintained. We emphasize on practical regional and interregionalprograms. APT's strength also lies in the fact that participation in the decisionmaking process involves practically all the Members through the ManagementCommittee which meets once every year.

The other aspect of APT's collective participation is based on its philosophyof emphasizing on technical co-operation between and amongst the Membersso that regional resources are utilized to their full potential before we lookoutside the region for help.

6. Direction for the Future

The Asian Pacific Region is going through phases of unprecedented chantieand socio-economic evolution. The role of telecommunications cannot be ov..tremphasized, and it is very important that APT assist its Members to ensurethat this process of evolution spells correct results in terms of policies, humanresources development, application of technology and harmony with othernational and regional development targets.

46 50

While there is a greatly enhanced agenda, coupled with more responsibility onthe part of APT, it is becoming more and more apparent that continued closecollaboration is necessary with other regional organizations, institutions andcompanies. We need to move away from some of the traditionalrestrictiveness and open up communication with as many "Partners inProgress" in order to serve the Members in the best possible manner. Thismeans that regional telecommunications programs that are planned byorganizations such as the ESCAP, ITU, UNDP as well as those by NGO's andbusiness organizations should be linked closely with what we do in APT.

We all recognize the scarcity of financial resources available from multi-lateraldonor agencies. UNDP funding alone will not be enough for the huge demandthat will be placed on us. Thus it seems only right that maximum amount ofco-ordination between organizations and other interested parties be attemptedin order to minimize duplication of effort and optimize utilization of availableresources. To this end, APT has initiated the process of consultation and coordination with other key regional organizations such as the SAARC, APECand Forum Secretariat, in addition to the UN Specialized Agencies referred toearlier.

APT will be devoting a lot of energy to promote and improve this co-ordinationprocess within the region.

We are confident that other organizations will also support and assist us inthis effort. Not the least of course is the sincere desire on the part of theMembers of the respective organizations and the management of corporationsand companies to encourage and foster this unity for the ultimateregionalization of co-operation.

47

COMPATIBLE ROLES OF GOVERNMENT ANDTHE PRIVATE SECTOR IN FOSTERING

TELECOMMUNICATION DEVELOPMENT

Derek H. Burney, Chairman, President andChief Executive Officer, BCE Telecom International Inc.

Pacific Telecommunications Conference, Honolulu, January 16-20, 1994

1. ABSTRACT

Government and the private sector will have to co-operate moredynamically and strategically if, in a burgeoning global informationeconomy and society, telecommunications and new informationtechnologies are going to realize their potential for closing gaps indevelopment. Governments cannot get completely out of the way and letthe private sector do its stuff. Governments must, however, do a better jobin (1) establishing telecommunication policies, regulatory structures anddevelopment goals, (2) spending more on the essentials of education,training of workers, and science and technology, and (3) making a greatereffort to update "international rules of the road" to ensure that internationaltelecommunications proceeds on a basis of co-operation, not conflict.The Asia-Pacific region, with great disparities in development butdynamism and creativity that are the envy of the world, should set anexample of co-operation for the rest of the world.

2.. THE CHALLENGE

A formidable challenge faces the world's telecommunication sectorgovernments and the private sector, but also researchers, academics and global andregional organizations and agencies: how, in a burgeoning global informationeconomy and society, to ensure that telecommunications and new informationtechnologies realize their potential for closing gaps in development, and do not havethe unintended effect of perpetuating or even exacerbating gaps between "haves" and"have-nots". There is certainly no conspiracy at play to maintain any communicationsmonopoly. It is not, in fact, naive to declare that, viewed from a perspective detachedfrom the "hurly burly of technological, commercial and geographic rivalries, there is agreat deal of good will, even altruism, in the telecommunications community. Thisgood will, however, must be harnessed in creative ways to foster development. In a

4852

rapidly changing telecommunication environment, this requires government and theprivate sector to play dynamic but compatible roles.

There is a growing recognition, beyond the telecommunication sector, of theessential role of communications, and its facilitative telecommunications component,in opening formerly closed societies and in fuelling economic, social and culturalactivity. Recent trade agreements - the Canada-U.S. Free Trade Agreement (FTA), theNorth American Free Trade Agreement (NAFTA), which includes Mexico, and theproposed General Agreement on Trade in Services (GATS) - recognizetelecommunications not only as a dynamic area of economic activity in its own right butas a sector underlying most economic activity and facilitating all trade. Unfortunately,however, in spite of a growing number of success stories, too many governments andinternational, regional and bilateral development and investment agencies still treattelecommunications in a rather ad hoc fashion and have not yet given it the priority thatit deserves.

Although there is some evidence that the "telecommunications gap" betweenhigh and low income nations has narrowed over time, the low income countries, withabout 55% of the world's population, still have less than 5 % of global telephone lines(1). In the dynamic Asia-Pacific region, there is some convergence between themedium teledensity countries, those with between 1 and 10 telephone lines per 100inhabitants such as Malaysia, the Philippines, Thailand and most of the Pacific andIndian Ocean islands, and the high teledensity countries, those with above 10 linessuch as Japan, Australia, New Zealand, Singapore, The Republic of Korea, Taiwan,Hong Kong and Macau. There is, however, arguably a growing divergence betweenthe medium teledensity countries and low teledensity countries, those with less thanlline. The investment required in the region to reach a teledensity of 10 lines wouldbe almost 400 billion U.S. dollars (2). Only about 5% of the resources required fortelecommunication development can be expected to come from multilateral sourcesand about 25% from bilateral and commercial arrangements. Most investment mustbe generated internally (3). Success will, therefore, be a reflection of a government'scommitment to telecommunication development and of its ability to tailor itstelecommunication policies to its specific requirements.

3.. THE CANADIAN EXPERIENCE

Canada is living proof of the extent to which telecommunications, and amutually- reinforcing partnership of government and the private sector, can contributeto bridging gaps in development. Canadians have always had to be at the leadingedge of new technological developments and practical applications. SucceedingCanadian governments have been committed to "universal service" bringing, to ourvast rural and remote areas, the same high level of services available in ourpopulation centres.

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As someone who has been privileged to serve as Canadian Ambassador in

Washington, I dare to say that the Canada-U.S. communications relationship is the

most complex and sophisticated such relationship between any two countries in theworld. Without an "electronic highway" binding Canadians together, and a core ofdistinctively Canadian services, data, information and cultural products flowing alongthis highway, we would have succumbed long ago to the magnetic pull from our goodneighbour to the South. We have, however, managed to enjoy the benefits of themost advanced forms of telecommunications while preserving a uniquely Canadianquality of service and keeping Canadian companies in the forefront of technological

development.How to remain open to the best that the world has to offer, while preserving

Canada as a viable and distinct country, has been a continuing Canadian challenge.And never more so than today. Canada continues to have an operatingtelecommunication system which is second to none. In an era, however, ofaccelerating global services and alliances, technological advances, digitisation,convergence of technologies, privatization and competition, Canadian companies willbe able to continue to keep pace only if they are allowed to operate at home in aregulatory environment that encourages innovation and entrepreneurship to the sameextent as in other leading countries. My parent company may have been a reluctantdebutante before submitting to the charms of competition. Now that we are ready tocompete enthusiastically, however, we cannot be expected to do so with our handstied behind our backs due to overly restrictive domestic regulations, when eurcounterparts in other countries, as well as our competitors in our own country, will notbe under the same constraints.

In this information age, we increasingly live in a world without walls. Traditionalmeans of preserving "sovereignty" will, therefore, no longer work. Regulatory regimesmust accept and adapt to this reality. In Canada we are fortunate to have newTelecommunication and Broadcasting Acts. Both are "technologically neutral" in thatthey anticipate technological advances and convergence. Both Acts give theGovernment the power to direct the "arm's-length" regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), on questions of generalpolicy and principle, and give the CRTC the power to "forbear" from regulating if thereis sufficient competition. There is a need for further evolution and adaptation of theCanadian communications system and for the Government to join with the privatesector in building a new information highway.

The Government and CRTC could start by removing some outdated obstacles.Why, for instance, should my company not be able to invest in cable in our owncountry as we can in the United States and United Kingdom? The current regulatoryreview in Canada offers an opportunity to correct this kind of anomaly and establish aframework that stimulates rather than retards the production and delivery of innovativeservices and technologies. It is not surprising that the most dynamic environments fornew telecommunication applications also have the most open regimes for regulationand investment.

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4. GOVERNMENT AND THE PRIVATE SECTOR

What are compatible roles of government and the private sector in fosteringtelecommunication development? With thirty years of experience in government andonly one in the private sector, I might not be regarded as the person best qualified tocomment. When I made my plunge into the private sector, I was smart enough tochoose telecmmunications, a dynamic and rapidly expanding field. I did not do so,however, because I was laded by my experience in government. I have not yetbecome so "gung ho" that I believe that government should get completely out of theway and let the private sector do its stuff. To quote Larry Summers, former chiefeconomist at the World Bank and now a senior official in the Clinton Administration:"The 1980s were the decade of getting government out of the activities it cannot dowell; the 1990s will be the decade to let government do well the activities onlygovernments can do".

To foster telecommunication development and create an environment in whichthe private sector can play its full part, what must governments do well, or at leastbetter?:

First: Establishing Goals, Policies and Structures

Governments should establish telecommunication policies, regulatorystructures and development goals and milestones that reflect not only domesticrequirements and aspirations but also regional and global realities. In reaching aconsensus on what these policies and goals should be, the private sector, andbusiness and individual users, should be fully consulted. There is no magic formulaapplicable to all countries. Recent experience in Eastern Europe has shown that"overlay networks" may be a "quick fix" but only as part of coherent long-term policies.The amount of liberalization, competition and privatization introduced should becompatible with national goals of improving service to underserved areas. The degreeof privatization or of allowing state-run service operators to be run as businesses, andof competition in particular services, should reflect the requirements for generatingresources for development. In other words, businesses need to generate profits aswell as services.

Experience in the Asia-Pacific region demonstrates that success is a reflectionof a government's commitment to making progress in telecommunicationdevelopment, and that investment in telecommunication development, as apercentage of revenue generated, should be at least 40% and preferrably muchhigher (4). In many cases, it will be desirable to encourage foreign investment in basicinfrastructure and services. Blanket restrictions on foreign investment only restrict thedevelopment of telecommunication services which are vital to economic growth.National sovereignty, far from being compromised by foreign investment, can beenhanced by the economic stimulus in an increasingly global economy and can besafeguarded by regulation or in the arrangements concerning foreign equity. This

51

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places added importance on having an effective regulatory system. In most situations,

an "arm's-length" regulator will prove more effective, in implementing thegovernment's policy directives, than a regulator more susceptible to political

pressures.

Second: Spending on Essentials

The "entitlement" mentality, which is creating havoc with public expenditures inmany countries, must be replaced by an "essentials" mentality geared to the needs of

the future, not the special interests of the past. Thus, while continuing to reducebudget deficits, governments in both developed and developing countries shouldensure that they do not stop spending on certain essentials, including education,training of workers, and science and technology. Governments should place an

increased emphasis on human resource development so that their citizens will be able

to thrive in the information economy and society. Development of the necessarytechnological and creative skills will, of course, require a continuing partnershipbetween government and the private sector.

The World Bank, in its recent study of "the East Asian Miracle", found that the

eight East Asian "superstars" (Hong Kong, Indonesia, Japan, Malaysia, Singapore,Republic of Korea, Thailand and Taiwan) all invested heavily in education and kepttheir economies more open to foreign technology than most other countries (5).

Third: Updating "International Rules of the Road"

Governments, with the support of the private sector, must make a greater effortto update "international rules of the road" that will ensure that internationaltelecommunications proceeds on a basis of co-operation, not conflict. This is essentialin a global information economy and society where borders are becominganachronisms. The major players are trying to outdo each other in creating bigger andbetter "electronic highways". This competition will be healthy if it leads to an open"network of networks".

The rules should anticipate, not restrict, technological change and be flexibleenough to be effective in an environment of increasing convergence of informationtechnologies. They should establish a "level playing field" that will encourageenlightened "have-not" countries to catch up, rather than perpetuate some countries as"more equal than others". The trade rules should be compatible with the technicalregulations designed to facilitate interconnection and interoperability. To takeadvantage of the dynamism of the private sector in fostering telecommunicationdevelopment, the rules should ensure a hospitable climate for foreign investment, onethat rewards initiative and risk-taking.

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We have all been participating in or marvelling at the growing web ofinternational strategic partnerships and alliances, which is involving an increasingnumber of telecommunication organizations around the world in new and at timesunexpected combinations. I trust that this new phenomenon will turn out to be apositive response to the challenges of globalization and development. Notsurprisingly, however, some are expressing fear that new monopolies, evenoligopolies, may replace the old monopolies (6). The rules must ensure that the"network of networks" that results from the current outpouring of entrepreneurial vigourremains open to all who are prepared to play by the rules and are truly competitive.

Of course, to facilitate the elaboration and updating of these interlocking sets of"international rules of the road", we require effective multilateral intergovernmental andnon-governmental organizations. Since it is unrealistic to envisage the creation of anew "one-stop shopping" international organization to deal with all the main issues ofthe global information society and economy, we have to make better use of existingorganizations.

Are they up to the challenge? There are a number of encouraging signs thatthey are rising to the challenge. One can cite:

the recent restructuring of the International Telecommunication Union(ITU) to adapt itself to the changing environment on a continuing basis;

the Telecommunications Annex to the proposed General Agreement onTrade in Services (GATS) (assuming the successful conclusion of theUruguay Round);

the slow but steady progress of the European Union in liberalizing thetelecommunication policies of its members;

the positive contribution to expanding Asia-Pacific co-operation intelecommunications of regional organizations such as the Asia PacificTelecommunity (APT), the Telecommunications Working Group of theAsia-Pacific Economic Cooperation (APEC) forum, and certainly thePacific Telecommunications Council (PTC); and

the recent upgrading of the Inter-American TelecommunicationsCommission (CITEL) under the Organization of American States (OAS).

But much remains to be done. My far from exhaustive list would include:

Or7

53

enhancing the participation of the private sector and multi-nationalenterprises in the ITU and regional telecommunication organizations -the principle seems to be established but the details remain to be workedout;

getting the existing global and regional organizations, includingdevelopment and financing agencies, to work together more strategicallyto achieve practical goals according to an agreed division of labour - thisis particularly true if these organizations are going to play a catalytic rolein closing gaps in development; and

ensuring that the ITU and GATT, or any World Trade Organization (WTO)that may emerge, work together collegially to keep the trade rules andtechnical telecommunication regulations in harmony. This will beparticularly important in the ongoing negotiations, after the UruguayRound, on trade in basic telecommunication services. By themselves,the ITU International Telecommunication Regulations, approved inMelbourne in December 1988, are so porous that they will not inhibit newinternational monopolies from emerging.

5. AN ASIA-PACIFIC PARTNERSHIP

Is it "pie in the sky to call for a strategic partnership between government andthe private sector, supported by reinvigorated global and regional organizations, torealize the potential of telecommunications to reduce gaps in development? As arelatively "new boy on the block", I have not yet become disillusioned. I can think of nomore promising laboratory for putting this partnership into practice than my area of"first love", the Asia-Pacific region. Here we face great disparities in development butdynamism and creativity which are the envy of the world.

For this region to show the way, however, it will be necessary to transcend thecircumstances that have reduced the collective impact of the main regionalintergovernmental organizations. The United States and Canada, and soon Mexicoand Chile, participate actively in the APEC Working Group on Telecommunications,but are not members of the APT. The APEC Working Group and the APT should worktogether more strategically, and co-operate more closely with the ITU and the mainglobal, regional and bilateral development and financing agencies. The response tothe challenges facing the region should not remain fragmented. We cannot afford tohave these organizations manoeuvring like "ships passing in the night".

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At the APEC meetings held in November in Seattle at the Head of Governmentand Ministerial levels, APEC Ministers recognized the critical importance of moderntelecommunications and information technologies to regional integration andcooperation" . They recommended, inter alia that "the development and expansion ofmodern and compatible telecommunications infrastructure should be given a highpriority in economic planning...", and that "human resource development, being criticalfor the operation and growth of modern telecommunication systems, should be givenprimary focus in the formulation of telecommunications policies and programs" (7).

The PTC - a non-governmental organization which includes the private sector,government representatives, the research and academic communities, andrepresentatives of the main global and regional telecommunication organizations -should ensure that this vision applies not only to APEC participants but to all parts ofthe Asia-Pacific region. In that way we shall set an example of co-operation for the restof the world.

6. REFERENCES

(1) World Telecommunication Development Report prepared for the ITU WorldTelecommunication Development Conference to be held in March 1994 in BuenosAires, Chapter 6, Section 6.1.

(2) ITU Asia-Pacific Telecommunication Indicators, May 1993, pages ix, xii and xxi.

(3) Report of the High Level Committee to review the structure and functioning of theITU, April 1991, pages 14 and 23.

(4) See source cited in (1) above, Chapter 5 (Korea), and source cited in (2), page xxi.

(5) The Economist, 2 October 1993, page 41.

(6) See (i) OECD Working Party on Telecommunication and Information ServicesPolicies, The Changing Role of Telecommunications in the Economy: Globalisationand its Impact on National Telecommunications Policy, distributed 3 June 1993,page 32; (ii) Robin Mansell: From Telephony to Telematics Services,Transnational Data and Communications Report, September/October 1993; (iii)Communications Week International Editorial: Return of the Monopoly, 8November 1993.

(7) Joint Statement, APEC Ministerial Meeting, November 17-19, 1993, Seattle,Washington, page 5, and associated APEC Working Group onTelecommunications Ministerial Statement.

5955

LET'S TAKE A RIDE ON THE INTERNATIONALINFORMATION HIGHWAY

MIKE THURKVICE PRESIDENT, WORLDWIDE COMMUNICATION BUSINESS

DIGITAL EQUIPMENT CORPORATIONUSA

ABSTRACT

While United States is gearing up to implement itsInformation Highway, more and more people areconcerned with how it will impact our daily life.When and how will the changes start? How does itimpact society, commerce and culture in the future?

The Information Highway is a new revolution whichwill impact not only our life, but also the socialstructure, business and cultural norms. Multi-mediainteractive broadband services, such as distancelearning, Telecollaboration for distance jointdevelopment, and Tele Medicine, will be available forpeople on the Information Highway. These newlyavailable services will create new businesses, newchallenges, and new opportunities for us.

Do you go to the library? School? Shopping?Hospital? Work? It is possible, in the future youwill be able to access the information or services youneed any where, any time, and any place. You canstay home to check out a book (Electronic readable).You can attend classes at home and still can enjoy thediscussion with the instructors. These are just someof the benefits of the International InformationHighway.

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Based on Mike's many years of communicationbusiness experience, he will discuss this multi-mediarevolution from the user, content provider, anddistributor perspective.

The success of the information highway depends ona number of factors: regulations, technologies, publicacceptance and the concept of universal access. Let'stake a ride on the International Information Highwaytogether.

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TELECOMMUNICATIONS, CAPABILITIES AND DEVELOPMENT:TOWARDS AN INTEGRATED FRAMEWORK FOR

DEVELOPMENT COMMUNICATION

NIKHIL SINHAASSISTANT PROFESSOR

DEPARTMENT OF RADIO-TV-FILMUNWERSITY OF TEXAS AT AUSTIN

WinnerPacific Telecommunications Council's

1993 Research Prize Competition

1. Introduction

There is a growing perception among developingcountries that the rapid growth and spread oftelecommunications is a vital component in the processof economic development. Many of them haveembarked on the modernization of theirtelecommunication systems either through governmentinitiatives or through the injection of private domesticor international competition. This drive toward sectorexpansion and restructuring is also being encouragedand supported by multi-lateral agencies operating in thedevelopment and telecommunications arena like theWorld Bank, ITU and UNCTAD.

The emerging interest in telecommunications is beingfueled, at least in part, by growing evidence of thebenefits of telecommunications for economicdevelopment. While the empirical evidence is mounting,not much has been done to examine the relationshipbetween telecommunications and development from atheoretical standpoint. If telecommunications are to beplaced at the core of the development process in thirdworld countries, then the challenge totelecommunication scholars is to articulate acomprehensive and substantial theoretical framework torelate telecommunications to development and tospecify the principles that should guide the formationand evaluation of telecommunication policies.

This paper attempts to rcspond to this challenge bydeveloping an analytical framework for relatingtelecommunication policies to the process ofdevelopment. It develops a definition of developmentbased on the emerging focus on the expansion ofpeople's capabilities, and forges a link between thatdefinition and telecommunications through the concept

of capability enhancement. The first part of the paperlays down the intellectual pre-history of the capabilitiesapproach by reviewing the major theoreticaldevelopments in the study of development economicsand development communications. The second partelaborates on the capabilities perspective and identifiesits main components. The paper closes by describingthe commonalties shared between the capabilitiesapproach and emerging trends in theorizing on therelationship between development and communications.The paper recommends that the rapid and extensiveprovision of telecommunication services be a highpriority for developing countries, not just for externallydetermined commercial or economic reasons, butbecause they are essential means for the people ofdeveloping countries to fully participate in thedevelopment process and significantly realize their ownpotential.

2. Economics and Development

Dissatisfaction with the results of developmental effortsin the Third World over the past four decades have led,in recent years, to a re-focusing and redefmition of theproblems and strategies of development economics. Inits earliest formulations, development economics viewedthe problem of development as a problem of growth.The per capita gross national product (GNP/capita) wasconsidered the appropriate measure of the level ofdevelopment and the strategy of development aimed atboosting its growth rate (Henriot,1979). This strategyfocused on the "creation of conditions for self-sustainedgrowth in per capita GNP and the requisitemodernization of economic, social and politicalstructures implicit in the achievement of this goal"(Adelman, 1975, p. 306).

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Consequently, the United Nation's First DevelopmentDecade (1960-1970) set a quantitative target of a fivepercent annual increase of GNP in developing countries.It is important to note that in this strategy forpromoting development, the question of incomedistribution and equality were postponed. It wasexpected that an ever increasing output of goods andservices will in fact mean increased national incomewhich will "trickle down" to the masses. Moreover, theproblems of development were seen to be primarilyinternal to developing countries, the result of localstructures inadequate to the task of increasingGNP/capita. The impact of colonialism and itspresent-day legacy for underdevelopment were largelyneglected. In terms of its own objectives, the strategyof growth-as-development was a remarkable success,achieving the U.N. target of an average GNP growthrate of 5 percent in the developing world (Owens andShaw, 1972).

Yet even as early as the end of the 1960s i hadbecome clear that this "development" was not changingthe lives of ordinary people in terms of any reductionof poverty. Writing of the growth-as-developmentapproach, Adelman (1975) noted, In lot only is there noautomatic trickle-down of the benefits of development;on the contrary, the development process leads typicallyto a trickleup in favor of the middle classes and therich" (p. 302), Problems such as these led to the gradualemergence of an alternate view of how to define theproblem of development. According to this view, theproblem of development was not the pace of growth butthe relationship any increase in GNP had to the poor --especially the poorest 40 percent of the population inthe developing countries. These poorest 40 percent werethe marginals, people who neither contribute to theproductivity of a nation nor share in the benefits ofincreased production (Henriot, 1979).

Growth-with-redistribution, therefore, was the officialstrategy of the Second Development Decade of theUnited Nations (1970-1980). However, even before thatdecade came to end, it had become clear that not muchheadway had been made in most of the developingworld during the 1970s, particularly with regard toimprovements in the quality of life of the vast majorityof the peoples of these countries. Writing in 1979,Norman Hicks and Paul Streeten observed " thedisappointment with GNP per head and its growth hasled to a greater emphasis...on redistribution. But it wassoon seen that...redistribution from growth yielded onlyvery meager results "(p. 568). Moreover, similar to thefirst definition which emphasized growth alone, thisgrowth-with-redistribution strntegy also identified the

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problem of development as primarily internal to thedeveloping countries. No effort was made in theanalysis -- or in the consequent policy responserecommended -- to place the problem of developmentin any kind of international context.

In contrast, a number of analysts, particularly fromLatin American countries, preferred a defmition of theproblem of development which was much morehistorical in its emphasis upon the evolving

relationships between developed and developingcountries. They saw the focus of the problem notlocated principally within the developing world, butrather in the patterns of international economicinteraction.' These scholars focused on the colonialrelationships which have marked the history of thecountries of Latin America, Asia and Africa. Theyargued that outside of an explicit recognition of theconsequences of that relationship no accurateunderstanding of the present situation of these countries,characterized by "dependency" and "underdevelopment,"is possible.

"Dependency" means that "the economy of certaincountries is conditioned by the development andexpansion of another economy to which the former issubjected...Mlle concept of dependence permits us tosee the internal situations of these countries as part ofthe world economy" (Dos Santos, 1970, pp. 289-90)."Underdevelopment" refers to the process whereby adeveloping country steadily becomes integrated as adependent unit into the world market through patternsof trade and/or investment. The production of thatcountry becomes geared to the demands of the worldmarket, in particular the demands dictated by theindustrialized nations, with a lack of integration withinthe country between the various parts of its owndomestic economy. The dependicistas strategy ofdevelopment aimed at reducing dependency by takinggreater control of the functioning of domesticeconomies and insulation from what they saw as thedeleterious effects of external economic relationships.In its most extreme form, the specific policies aimed atthese objectives involved delinking national economiesfrom the world economy. In its more moderatemanifestations this approach called for the reform of theinternational economic order (for example calling for aNew International Economic Order) under therecognition that some degree of integration is essentialfor development.

Despite the ideological appeal of this conceptualizationof the problem of development, efforts to validate manyof the basic postulates of dependency theory,

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particularly as explicators of continuingunderdevelopment have had little success (La II, 1975).The development performance of "export-oriented"countries like Japan, South Korea, Taiwan andSingapore is held out as a telling indictment ofimport-substitution, insulation and self-reliance -- thetactical offshoots of dependency theory. Technologyimportation, export orientation and above all integrationinto the world economy, it is argued, have been theunderpinnings of the performance of these countries,which have been marked by high growth rates.

The failure to substantially improve the condition of thepeople of developing countries over the first twodecades of the development process, encouraged theformulation of alternatives to these traditionaldefinitions and strategies of development. The mainresponses have come from three very differentdirections. The first, which may be termed the basic orminimum needs approach, grew out of the earliergrowth-with-redistribution strategy. The secondapproach, focusing on structural constraints, gets itsinspiration from neomarxist and radical political-economy positions. The third perspective, increasinglyinfluential in terms of deciding the future direction ofdevelopment in general and the development oftelecommunications in particular, emphasizes economicliberalization and deregulation characterized byprivatization, the introduction of competition andreduction of the role of the state in economic affairs.

Within the mainstream of development economics, thefailure of the growth-with-redistribution strategy of the1970s has led to a shift in concerns to the eradicationof absolute poverty, particularly by concentrating onbasic human needs. Meeting these needs in health,education, food, water supply, sanitation and housingprovides the new focus (Hicks and Streetan, 1979;Streetan, et. al., 1981). Basic needs are defined in termsof commodities (goods and services) required toachieve certain results (adequate nutrition, education,etc.; Sen, 1985). Its essential premise is that someneeds can be satisfied only, or more effectively, throughpublic services, through subsidized goods and services,or through transfer payments. Mere redistribution ofincome is not enough to ensure that these needs will bemet and the consequences of not meeting these needsmay be an increase in inequalities in incomedistribution.

Policies should, therefore, be directed toward theprovision of those goods and services which meet basicneeds and the yardstick for measuring the progress andeffectiveness of development should be some index of

the extent to which basic needs are fulfilled. Forexample, indicators of infant mortality, life expectancyand basic literacy have been used as the components ofa composite "Physical Quality of Life Index" (PQLI)that is designed to measure results in the meeting ofbasic needs, rather than inputs such as income (Morris,1979).

Neomarxist analysts of the development process arguethat the process of development, in what are essentiallycapitalist economies, will lead to (and has in fact led to)the exacerbation of economic inequalities (Gurley,1979). Whether due to the deliberate policies ofgovernments controlled by domestic or foreign capitalistinterests or due to the structural constraints imposed bythe existing power structure in societies, the result ofdevelopmental efforts will be to promote the interests ofthe dominant classes to the detriment of the emergingproletariat or extant peasantry. Thus capitalism, or statecapitalism as is usually the case in developingcountries, produces polarization day in and day out(Amin, 1976). The only real path to development, fromthis position, lies in the radical redistribution ofresources within developing societies. The redistributionof income or resources is impossible as long as thestructure of power remains intact and inimical to theinterests of the vast majority of people in thesecountries (Stewart and Streetan, 1979). Only throughsuch "structural" changes can growth and equality beachieved.

The rise of economic liberalization as the primaryengine of growth in developing countries is discussedby Albert Hirschman in an essay titled "The Rise andDecline of Development Economics." Hirschman (1981)argues that development economics, with its emphasison the role of the state in promoting economicdevelopment, is on the decline, at least partially due tothe re-establishment of neoclassical economics, both intheory and in application, at the forefront of nationaland international development. The market, it is argued,has the many virtues that standard neoclassical analysishas done so much to reveal, and state intervention couldbe harmful to the efficient operation of this "natural"domain of economic exchange. Moreover, stateownership, monopolization and/or regulation ofeconomic activities detract from the establishment of amarket equilibriwn, promote inefficiencies in theallocation of resources, underprice capital and overpricelabor, and encourage disguised unemployment (Gurley,1979). Liberalization, deregulation and the promotion ofcompetition (both domestic and international) are,consequently, the key to future development strategy.

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To summarize, the slow pace of development efforts inthe Third World in the '60s and '70s has led to theformulation of three main strategies to improve theireconomic performance: the basic needs approach, thestructural reform approach and the liberalization

approach. Despite their differences, they share acommon weakness: the implicit or explicit exclusion of

the people of developing countries from thedevelopment process. Development goals and objectivesare exogenously determined and the people of thesecountries continue to be treated as objects ofdevelopment rather than participants in the process ofdevelopment. This overall theoretical trajectory is alsoapproximated when we examine theoreticaldevelopments in the subdiscipline of developmentcommunications.

3. Communications and Development

Like the initial formulations of mainstream developmenteconomists, early conununication scholars also tendedto locate the roots of underdevelopment withindeveloping countries. These endogenous causes, towhich communication solutions were considered toexist, included traditional value systems, lack ofinnovativeness, lack of entrepreneurial ability and lackof a national consciousness. The problem was one ofold ideas hindering the process of social change andmodernization. As Rogers and Svenning (1969)asserted, Idlevelopment is a type of social change inwhich new ideas are introduced into a social system."

Consequently, the role of communication in

development was to provi& an inlet for the flow ofideas. And what better way to do this then to utilize therelatively modern technology of mass communication.The role of the mass media was perceived at twolevels. At the individual or community level theyserved, firstly, to introduce new ideas so as toovercome traditional normative and psychologicalbarriers. Secondly, to promote the diffusion ofinnovations which could change traditional modes ofeconomic activity (Rogers and Svenning, 1969).

At the societal level, the mass media were thought toaid in the process of national integration. The massmedia were also considered an important instrument ofsocial change. As Schramm (1964) argued "withoutadequate and effective communication, economic andsocial development will be retarded. and may becounter-productive. With adequate and effectivecommunication, the pathways to change can be madeeasier and shorter" (p. ix).

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With such emphasis being placed on overcomingbehavioral and attitudinal obstacles to developmentthrough the injection of new ideas, it was inevitable thatthe early proponents of development communicationpromoted the growth of the mass media rather thantelecommunications and emphasis was laid on theimplementation of informational and motivationalcampaigns through mass media channels. The failure ofthese early approaches (commonly called the dominantor modernization paradigm) to foster developmentthrough communication has now been fairly welldocumented and the reasons for it outlined in somedetail.2 Its failure triggered three major responses, thatparalleled the responses in development economics: thefirst from within the mainstream of the subdiscipline;the second from a neoclassical or market position; andthe third from a structuralist or neomarxist perspective.

The reformulation of the ma:a tenets and goals ofdevelopment communication, within the mainstream ofthe sub-discipline, was put forward by Rogers andSchramm. Schrarmn (1972) led the way by admittingthat, "Rik Western model did not work as itsproponents had expected." In 1976, Rogers announcedthe passing of the dominant paradigm" and attempted toredefme development as: a widely participatory processof social change in a society, intended to bring aboutsocial and material advancement including greaterequality, freedom, and other valued qualities for themajority of the people through their gaining greatercontrol over their own environment (p. 225).

In its shift in focus to the distributional effects ofdevelopment, this reformulation was not unlike thegrowth-with-redistribution approach in developmenteconomics and its extension the basic-needs strategy.And in similar fashion it was quickly elevated to theposition of the new orthodoxy in the developmentcommunication literature. Thus Hudson (1974)

identifies the two fundamental aspects of developmentas: "provision of services to meet basic human needs,and shifting responsibility for such functions fromtrained outsiders to the people themselves" (p. 35). AndParker (1976) speaks of the reduction of economicdisparities through the provision of increasedopportunities through communications.

However, conceptualization of the role oftelecommunications in development and the relationshipbetween economic growth and development washampered at the outset by the lack of past theorizing inthis area. Though this shortfall in theory was neverquite remedied, there emerged, soon enough, aproliferation of literature on the advantages of

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promoting the growth of telecommunications in thedevelopment process.3 These studies showed thattelecommunications are vital to the ability to providethe "basic needs" that development economists arefocusing upon and are, therefore, a vital infrastructurefor development.

While these scholars take an "activist" stance towardthe development of telecommunications, another set ofscholars, influenced by the resurgence of neoclassicaleconomics, call for the development oftelecommunications in line with the operation of marketforces. In contrast to the "activist" school, whichimplicitly or explicitly recognizes the role of the statein accelerated development of telecommunicationfacilities, this "market oriented" group argues that theintroduction of privatization and competition are themost optimal ways to develop telecommunications andthe growth of telecommunication services should takeplace in response to market demand!

This view suggests that at least the demonstratedmarket demand for telecommunications should be metand that new technical applications should be providedwhen they are demonstrated to be the mostcost-effective way to meet registered demand and toprovide minimum telephone access to more remoteareas (Saunders, et. al., 1983). Here again policyprescriptions take the place of a theoretical discussionbecause of an implicit or explicit assumption thattelecommunications form a vital part of the nationaleconomic infrastructure and result in widespreadbenefits (I11J, 1976). The primary concern here is withthe role of telecommunications as infrastructure for thesuccessful conduct of commercial activities (includingindustrial production, provision of services, and trade)both domestic and international. Under the influence ofthis approach governments across the developing worldare engaged in the process of restructuring theirtelecommunication sectors with aim of injecting marketdiscipline and reducing the role of the State in theprovision of telecommunication services.

Unlike the "activist" and "market-oriented" approachesjust discussed, structuralist approaches are far fromoptimistic about the role of telecommunications indevelopment. Their basic tenet is that communicationprocesses cannot be seen in isolation from the societalarrangements under which they have developed and thestructural constraints which determine both the outcomeand the nature of the process through which they exerttheir influence. Structural constraints are defined associetal obstacles that restrict the opportunities of animportant number of individuals to participate fully and

equitably in the development process and in the sharingof benefits of a given social system (McAnany, 1980).In its more radical manifestations, this approachmaintains that revolutionary structural and institutionalreform must precede the introduction oftelecommunications in developing countries. ThusSchiller (1989) argues that

lilt is a mistake to believe that the changesrequired to overcome the global and localdisparities in human existence will befacilitated by developing telecommunicationsystems...Only after sweeping changes insidedozens of nations, in which ages-old socialrelationships are uprooted and overturned, canthe possibility of using new communicationtechnologies for human advantage begin to beconsidered (p. 112).

A number of these scholars also pay close attention tothe role of communications in the context of thestructure of the asymmetrical relationships betweendeveloped and developing countries. The mainfoundations of the dependency approach in developmentcommunications are generally similar to those indevelopment economics. The main thesis of thesescholars is that the dependency relationship, includingthe communication aspect, has been historicallyimposed on the developing countries and externalstructural factors play a dominant role in determiningunderdevelopment. Therefore, it is necessary to removethe ways in which communication dependency is beingmaintained, as embodied in the call for a New WorldInformation and Communication Order.

The preceding review of the development of theoreticalpositions in the sub-fields of development economicsand development communications has traced how theearlier approaches in both gradually gave way to newperspectives. These perspectives have either extendedthe old orthodoxies or critiqued them from what may betermed radical, liberal or neoclassical perspectives. It isapparent that there is a wide divergence between theseviews as to what constitutes development and thestrategies required to bring it about. The onlycommonalty remains their exclusion of any explicitarticulation of the role the people of the developingworld can play in the process of development andgrowth. The next section presents an alternate view ofdevelopment, which integrates development andtelecommunications within a single analyticalframework. This capabilities centered approach is firstdetailed than compared and contrasted with some of thepreceding and emerging development communication

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paradigms.

4. Capabilities and Development

Despite forty years of developmental efforts in the thirdworld, the tragic fact remains that the lives of most oftie people of these countries fall far short of theminimum quality and standards of living that we shouldexpect them to lead toward the end of the presentmillennium. One reason may well be that the principleswhich have guided the formulation of developmentstrategies have excluded or marginalized the centralparticipants in the development process -- the majorityof the peoples of these countries. After reviewing thedifferent conceptualizations of the process, strategiesand indicators of development, it is argued here that theobjectives of development may fruitfully be seen as theexpansion of people's capabilities. First put forward bythe Indian economist Amartya Sen, the capabilitiesapproach focuses on "what people can do or can be"(Sen, 1981,p. 12) and development is seen as a processof emancipation from the conditions that limit therealization of the full potential of individuals,communities and societies.5

Central to this approach is the Fhift in focus from theexpansion of goods and services to the expansion ofcapabilities. In one form or apother, all the earlierapproaches were concerned with the supply anddistribution of goods and services. In modern consumertheory in economics, the nature of commodities has alsobeen seen in terms of their "characteristics" (Gorman,1956; Lancaster, 1966). For instance, rice has nutritiongiving characteristics, but other characteristics as well,e.g., satisfying hunger, providing stimulation, meetingsocial conventions, offering the opportunity to gettogether, etc. (Douglas and Isherwood, 1979). Contraryto the contention of neoclassicists, not all thesecharacteristics are easily or appropriately valued by themarket, particularly when dealing with public goodssuch as telecommunications. Nor can all thecharacteristics be externally determined or predictedexternally by the central economic planningmechanisms of the interventionist State. The capabilitiesapproach overcomes these limitations by bringing thecharacteristics of the good or service and thecharacteristics of the users of the good or service, intothe equation. In this approach a capability is defined asa feature of a participant in relation to a good or service(Sen, 1982).6 This rather, simple sound, ng definitioncontains within it a number of different aspects.

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There is the notion of a good -- its total anddistributional availability; that of the differentcharacteristics of the good; that of the functionir, of aparticipant -and the limitations placed on it througheither individual of social factors; and lastly, that of thefulfillment of a need (Sen, 1985). Taking the telephoneas an example, the capabilities approach to developmentis concerned with whether or not the service isavailable. It is concerned with its characteristic as aninformation channel (and other characteristics, e.g., asa status symbol). It incorporates the use that participantscan make of the service because of individualcharacteristics (age, gender, class, income, education,social relationships, values and beliefs) and social andcultural factors (community norms, access to otherresources and the nature of the economic environment).And, it considers and incorporates the needs ofparticipants, like the acquisition of desired information.The capabilities approach sees development as theoutcome of the complex interrelationships betweenthese factors. As the United Nations DevelopmentProgram (UNDP) noted in its recent HumanDevelopment Report, 1990:

Human development is a process of enlargingpeople's choices...Human development has twosides: the formation of humancapabilities--such as improved health,knowledge, and skills--and the use peoplemake of their acquired capabilities--for leisure,productive purposes or being active in cultural,social and political affairs. Development must,therefore, be more than just the expansion ofincome and wealth. Its focus must be people(p.10).

However, focusing on capabilities by themselvesprovides little indication of the ways to enhancecapabilities and the relationship between capabilitiesand telecommunication policies. These require thedevelopment of an additional concept, one that wouldlink policies to capabilities in a structured fashion --this concept is termed capability enhancement.

5. Capability Enhancement

Capability enhancement may be defined as the objectiveagainst which development communication policies,plans and programs may be judged. It is, therefore botha prescriptive and an evaluative concept. It provides theguidelines for the formulation of development andtelecommunication policies as well as the criterion fordetermining their success. The following paragraphs

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lead up to a formal enumeration of the basic principlesof capability enhancement.

It has already been discussed how economicdevelopment was thought of in terms of the expansionof the availability of goods and services in a country, asmeasured by the growth of GNP/capita. In fact,GNP/capita remains an important indicator ofdevelopment even today. The World Bank classifiescountries according to this criterion and GNP growthrates are still among the most oft quoted statistics inany discussion of development.

However, as Sen (1984) points out, while goods andservices are valuable, they are not valuable inthemselves. Their value rests on what people can dowith these goods and services. If the capabilities ofeach person were positively related to the nationalavailability of goods and services, then there wouldhave been perhaps no great harm in focusing on thetotal supply of goods and services. But that assumptionis a non-starter simply because, if for no other reason,the distribution of national income ensures that theability to acquire control over those goods and servicesis highly skewed.

Sen (1983), provides the example of nutrition, arguingthat the nutrition of people depends not merely on thenational availability of food per head, but also ondistributional characteristics of the supply of food.Hence the capability of a person to be well nourishedcannot be identified or linked in a straight forward waywith the national availability of food. Similarly, in thecase of communications, the right of individuals to beinformed and their right to access to communicationfacilities cannot be simply satisfied by increasing thenumber of media channels (TV/Radio Stations;Newspapers) or the number of telephones per hundredpersons. Development, therefore, is not a matter,ultimately, of expanding supplies of commodities orservices, but of enhancing the capabilities of people.The capability enhancement approach totelecommunications and development rests, therefore,on two axioms:

Axiom I A participant in the developmentprocess with access to teleconununications has greaterpotential for capability enhancement than one without.

Axiom 2 The realization of that potential isdependent upon the interaction of a) the characteristicsof telecommunication services; b) the characteristics ofthe participant; and, c) the needs of the participant.

These Axioms give rise to Four Principles of CapabilityEnhancement with respect to telecommunicationspolicies. These principles are laid down in aprescriptive manner but, as already ç inted out, are asreadily applicable as evaluative criteria.

I. Telecommunication policies should foster thegrowth of telecommunication services; and do so withthe aim of narrowing differences in access to suchservices among different participants.

II. Telecommunication policies should identify thecharacteristics of the services being developed and theways in which these characteristics may impact uponaccess and use of these services by differentparticipants.

III. Telecommunication policies should identify howdifferences among participants may relate to access anduse of telecommunication services

IV. Telecommunication policies should specify howdifferent services satisfy the needs of differentparticipants.

6. Four Principles of Capabdity Enhancement

I. Telecommunication policies should foster thegrowth of telecommunication services; and do so withthe aim of narrowing differences in access to suchservices among different participants.

Two components of this principle bear elaboration.First, the need to focus on telecommunications and,second, the need to focus on distributional equity. Asalready indicated, most of the theoretical and empiricalresearch in development communication has beenconducted with respect to the impact of mass media ordiffusion of innovations. Consequently, whether thework is in the now much maligned dominant paradigmor whether representative of one of the manyextensions, modifications or critiques of this tradition,the role of communication in development is assessedalmost entirely in relation to information which comesfrom outside of the unit of analysis. In similar fashion,much of the work in the emerging telecommunicationand development field also focuses on the impact oftelecommunication with respect to their ability to bringinformation from distant areas, usually from urban torural areas. Information, information technology andcommunication processes are treated as exogenous tothe development process.

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More recently, some scholars have begun to formulatemodels in which conmunication plays an endogenousrole in development. For example, the convergencetheory of commanication (Kincaid, 1988) viewscommunication as "a dynamic process of convergenceand social systems as networks of interconnectedindividuals who are linked by patterned flows ofinformation" (Kincaid, 1988, p. 209). By extension, thisparadigm enhances the role of interactivecommunication technologies, like telecommunications,in the development process. Kincaid maintains that thelevel of information that a society can support is afunction of the amount of resources and time that it candevote to the processing and sharing of newinformation while maintaining the minimum amount ofcultural cohesion necessary for sustaining the society.Modern telecommunications, which both increase theamount of energy that can be expended for informationsharing and reduce the time, would enable a society tosupport higher levels of information and informationsharing.

The capability enhancement perspective, shares with theconvergence theory the notion of interactive

communication as enhancing the potential fordevelopment. Therefore, it recognizes the importance ofpromoting the availability of telecommunicationsservices in countries. But while the convergence theorytreats the extent of interactive communication within a

society as both necessary and sufficient for

development, the capability approach views theavailability and distribution of telecommunications asnecessary but not sufficient for capability enhancement.That possibi I ity is realizable only whentelecommunication resources are distributed evenlywithin crtuntries. Skewed distributions, whether vertical(e.g., class based) or horizontal (e.g., region based) maylead to the isolation and marginalization of deprivedgroups.

H. Telecommunication policies should identify thecharacteristics of the services being developed and theways in which these characteristics may impact uponaccess and use of these services by different

participants.

Most telecommunication projects treat the technicalcharacteristics of the services being introduced asexogenous and independent of the development process.Issues of technological choice are usually left to

engineers and accountants to determine. Evaluations ofthose projects rarely consider the impact of theparticular technical configuration of thetelecommunication service being examined in their

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analyses. However there is growing evidence that thenature of the telecommunication networks established in

developing countries have a significant role indetermining the trajectory of the development process.

Samarajiva and Shields (1990) point out that in mostrural telecommunications project there is a privilegingof "ft]technologies connecting geographically distantpoints (ititercommunity linkages, usuallymetropolitan-hinterland linkages)" to the neglect of"those that connect geographically proximate points(intracommunity) linkages" (Samarajiva and Shields,1990, p. 94). Hence satellite technology, like geo-stationary communication satellites and the VSAT(Very Small Aperture Terminals) networks areincreasingly being deployed in many developingcountries. By establishing long-distance rather thanlocal telecommunications links, these technologiesfoster a developmental process in which the value andworth of people and what they have to say or do isjudged in relation to their ability and desire tocommunicate outside of their inunediate geographicalcommunities.

In contrast, Samarajiva and Shields (1990) suggest thattechnologies like rural digital exchanges and BasicExchange Telecommunications Radio Service (BERTS)may enhance the self-sufficiency and developmentalpotential of rural communities:

Participation is better served by strengthening localnetworks, enabling people in small communities to talkto each other easily, than by artificially creating

privileged interlocutors through the institution ofunequal and biased patterns of access to communicationchannels. Stronger local networks of communities willbe able to participate more effectively in widerpolitico-economic relationships, a type of participationthat is crucial to achieving equality and equity...(p. 99).

III. Telecommunication policies should identify howdifferences among participants may relate to access anduse of telecommunications services.

This principle locates telecommunications in theeconomic, political and cultural context within whichthey are introduced. This contextualization is critical indetermining the functioning of participants, i.e., theirability to access and use telecommunication services.We can identify three levels of analysis which relate tothe functioning of participants. At the individual levelparticipants can be distinguished along demographic,physical, cognitive and affective characteristics. Forinstance, there is evidence that telephone use in

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developing countries is significantly lower among olderindividuals and among women (Saunders, et. aL, 1983).

At the interpersonal/network level, the constraintsimposed by family links or the opportunities providedby group membership may impact on participants'ability to access telecommunications services. Forexample, caste membership is an important determinantof whether or not individuals can make use of PCOfacilities in four Indian villages (Sinha, forthcoming).At the institutional level, the nature of theorganizational structures and institutional culturesshaping the introduction of telecommunications mayeffect its use and conditions of access. Mody (1985)provides the example of the introduction ofradiotelephones in a Caribbean country with the aim ofgetting inputs and suggestions from extensions workerson a radio station's agricultural programming. Theprogram failed because:

[tate logic of decentralization and an efficientdistortion-free, bottom-up conui Anicationtechnology clearly clashed with the "social"logic of the prevailing bureaucratic powersystems in the country, making the technologyineffective (pp. 135-136).

IV. Telecommunication policies should specify howdifferent telecommunication services satisfy the needsof different participants.

The approach of meeting "basic needs" which hasemerged as an important strategy of development (bothfor economists and for communication scholars), hassome similarities with the capabilities approach. Itviews communication as a part of the process thatensures the "humanization of all human beings by thesatisfaction of their needs for expression, creativity,equality and conviviality and to understand and mastertheir own destiny" (Servaes, 1979, P. 49). But there arealso significant differences between the basic needs andthe capabilities approaches (Sen, 1985). First, "basicneeds" are usually defined in terms of goods or serviceseven though attention is paid to differences in thecommodities needed by different persons to satisfy thesame requirements. Thus the focus remains oncommodities even though the contingent nature ofcommodity requirements is fully acknowledged(Streetan, 1981). But often the requirements for goodsor services may not be at all derivable from a specifiedset of capabilities (Sen, 1985). For example, differentcombinations of media and telecommunication servicesand interpersonal networks, may satisfy the same levelof information needs. It is possible, therefore, that

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though "basic needs" may be fulfilled, basic capabilitiesmay remain unimproved.

Second, the notion of basic needs continues to viewindividuals as passive targets of development. Theobjective of fulfillment of basic needs leads to theasking of the question of what can be done for aperson? While the capabilities approach leads to askingwhat can the person do? In other words it takes thearticulation of needs by the participants in thedevelopment process as the starting point of policyformulation. In Storey's words (forthcoming):

I believe that we, as theorists and practitioners, shouldback away somewhat from our interest in how to dothings to people with communication and train oursights on the roles of communication in people's livesas they struggle with development...Our guidingquestion should perhaps be: How can we help peoplestruggling with their own development to usecommunication for their own purposes and to speakwith their own voices...."

7. Conclusions

The preceding discussion of the principles of capabilityenhancement has revealed how the capabilities approachshares many of the goals and strategies of participatoryand dialogical development communication approachesthat are now being enunciated by a number ofcommunication scholars. Variously called themultiplicity paradigm (Servaes, 1989) AnotherDevelopment (Melkote, 1991) the CommunitarianModel (Tehranian 1990) these approaches a strikinglysimilar in their basic conceptualization of thedevelopment communication process. First, as Storey(forthcoming) points out, they reject the "ahistoricalreductionism of modernization theory as well as thesocial reductionism of dependency theory" toconcentrate on developing mulkilevel theories ofdevelopment communication focusing on "humancommunication within sociocultural, political andeconomic contexts". Second, they view bothcommunication and development as processes aimed atexpanding the opportunities or choices available topeople (Apter, 1987; Narula and Pearce, 1986; Melkote,1988). Third, they consider the ability of people toparticipate in the development process not only as ameans for achieving developmental ends (from whatAscroft and Masilela, 1989, p.I2, call the"participation-as-means approaches") but, moreimportantly as an empowering activity that should beviewed from a "participation-as-an-end approach"(Ascroft and Masilela, ibid.)

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l'hese perspectives have both critiqued and extended theold orthodoxies. While the earlier approaches focusedmainly on growth and modernization through exogenousforces, the more recent approaches are based on theunderstanding that people can, and do, play animportant role in the development process, as long asthey are provided the resources and opportunities tofully participate in the lives of their nations. The role ofgovernments, and by extension of the policiesgovernments formulate to govern various sectors liketelecommunications, must therefore be to ensure thatthe conditions necessary for such participation areavailable. In this context the concept of capabilityenhancement serves as a link-pin between developmentand telecommunications providing a yardstick for theformulation and evaluation of telecommunicationpolicies. The concept of capability enhancement makesa strong argument for locating telecommunications atthe core of development plans and programs, not justfor externally determined economic or commercialobjectives, but for providing the people of developingcountries with the means to realize their own potentialand participate fully in the process of the growth anddevelopment of their societies.

ENDNOTES

1. See Furtado (1972); Frand (1972); Dos Santos(1970) Wailerstein (1974).

2. See for instance Beltran, 1976; Narula and Pearce,1986, Krippendorff, 1988; Hornik, 1988.

3. See for instance, Okundi (1975) Pool (1976) Parker(1978) Hudson (1984) Webber (1980) Kochen (1982).

4. See, for instance, Saunders, et. al. (1983) Nulty(1989) Wellenius (1989) Aronson and Cowhey (1988).

5. See Sen (1979, 1980. 1982, 1983 and 1985): UNDP(1990).

6. Participant refers to an individual, group, community,region or any other form of social and/or economicdivision which participates in the development process.

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