Will telecom pact keep its promise?

If U.S. telecommunications reform serves as a guide, the future of the global telecom agreement may be unclear at best.

Mike Yamamoto Staff Writer, CNET News.com
Mike Yamamoto is an executive editor for CNET News.com.
Mike Yamamoto
3 min read
A landmark telecommunications pact promises to break down market barriers, increase competition, and lower costs for consumers.

Sound familiar?

The telecommunications pact signed Saturday by the United States and 67 other countries under the watchful eye of the World Trade Organization seems strikingly similar to the Telecommunications Act of 1996, except on a global scale.

So it stands to reason that some of the fallout from the U.S. law can portend the future of the international pact--and that may not bode well for consumers, at least in the near future.

"This is something we'll still be talking about five or ten years from now," said Brian Adamik, who follows the industry for the Yankee Group in Boston. "You don't make these kind of changes too quickly."

While trade negotiators crowed over their success at the table in Geneva, analysts cautioned that any benefits likely will be extended to the lucrative business market before reaching consumers.

Analysts likened the situation to airline deregulation, where the foreign airlines still are struggling to adjust to changes in the U.S. marketplace. But even in that industry, key factors such as operating costs make a clear comparison difficult.

"The difference is you can buy an airplane for a couple of million dollars--it's not the kind of resources you need to do business in head-to-head telecommunications competition," said Jeffrey Hops, government relations manager for the Alliance for Community Media, a consumer group in Washington. In addition, he said, "what the airline industry indicates is, after a period of price deregulation, multiple competitors set prices in lockstep with one another."

In the year since President Clinton signed the domestic telecommunications law, it largely has had the opposite of its intended effect. Companies have proposed mergers, creating new monopolies in some regions of the country, and consumers have seen their phone and cable bills rise, not fall as promised.

The reasons: To compete in the newly deregulated environment, companies argue, they must combine their resources and expertise in different markets, such as telcos merging with cable operators. And some firms have raised rates for consumers partly to amass warchests for the impending battles.

While legislators and industry executives say this is a necessary "shaking out" period that precedes any market deregulation, it is too early to tell what kind of effect that U.S. telecommunications reform will have on consumers. On an international scale, things are even less certain.

Witness the recent $20 billion buyout of MCI Communications by British Telecom. It stands to reason that the market will see even more such global mergers after the World Trade Organization pact goes in effect January 1 next year.

Although the agreement is "a step in the right direction" from a policy standpoint, Adamik said, liberalizing telecommunications laws may prove difficult for some countries, because it will affect their tax base and employment levels.

Many countries may resist the intrusive march of foreigners into their markets once the true effects of the trade agreement begin to hit home. In addition to crucial infrastructure, the newcomers will face such challenges as billing and customer service.

On the other hand, there are benefits that could be realized down the road. Efficiencies could translate into savings of more than $1 trillion by 2010, according to one estimate. Moreover, new alliances could help developing countries upgrade their phone networks with technologies from the United States and Europe.

"Today's agreement will bring clear benefits to American workers, businesses, and consumers alike--new jobs, new markets, and lower prices--and will spread the benefits of a technology revolution to citizens around the world," President Clinton declared loftily in a statement issued the day the agreement was reached.

As with most revolutions, however, this one will be expensive. And in business, such costs are traditionally passed along to consumers, many of whom may not necessarily benefit directly from the higher rates.

The key question remains: When will the advantages of this international free market trickle down to those who will be paying the bills? If the U.S. law is any indicator, consumers may not want to hold their breath.

"What we've seen is megamergers and contraction of industry, rather than expansion," said Audrie Kraus, executive director of the non-profit NetAction. "There are very few examples of communities with real competition."