TIJARA PROVINCIAL ECONOMIC GROWTH PROGRAMpdf.usaid.gov/pdf_docs/PNADS987.pdf · USAID Tijara...

TELECOMMUNICATION SERVICES IN IRAQ AND

GATS NEGOTIATIONS RECOMMENDATIONS AND IMPACT

TIJARA PROVINCIAL ECONOMIC GROWTH

PROGRAM

May 2009 This report was produced for review by the U.S. Agency for International Development (USAID). It was prepared by The Louis Berger Group, Inc./AECOM International Development Joint Venture. Contract No. 267-C-00-08-0050-00

USAID TIJARA PROVINCIAL ECONOMIC GROWTH PROGRAM MAY 2009 TELECOMMUNICATION SERVICES IN IRAQ AND GATS NEGOTIATIONS

RECOMMENDATIONS AND IMPACT

DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

Telecommunication services in Iraq and GATS negotiations May 2009

USAID Tijara Provincial Economic Growth Program / Contract No. 267-C-00-08-0050-00 i

Table of Contents

1. INTRODUCTION AND METHODOLOGY .......................................... 1

2. SUB-SECTOR CONTEXT IN GATS .................................................. 3

2.1 WTO DEFINITION AND FRAMEWORK .......................................................................3 2.1.1 Content of the Annex on Telecommunications ...............................................................3 2.1.2 Definition of Basic Telecommunication Services ............................................................5 2.1.3 Scope and Coverage of the Fourth Protocol ..................................................................5 2.1.4 Reference Paper on Telecommunications .....................................................................5 2.1.5 WTO Classification ......................................................................................................11 2.1.6 Four Modes of Supply ..................................................................................................12

2.2 WTO MEMBERS AND THE AGREEMENT ON TELECOMMUNICATION SERVICES ......................................................................................................................12

3. THE TELECOMMUNICATIONS SECTOR....................................... 13

3.1 DEFINITIONS. ................................................................................................................13 3.2 TELECOMS IN THE WORLD ECONOMY AND AT THE WTO ...............................14

3.2.1 Telecommunications Data............................................................................................14 3.2.2 Telecommunications Market Trends ............................................................................19 3.2.3 Role of Telecoms in Economic Development...............................................................21 3.2.4 Linkages between Telecommunication Services and Other Sectors ............................22 3.2.5 WTO versus Liberalization/ Privatization of Telecommunication Services....................22 3.2.6 Regulation and Its Importance: Elements to Consider .................................................23 3.2.7 Infrastructures ..............................................................................................................27

3.3 EXAMPLES OF WTO MEMBERS ...............................................................................28 3.3.1 1st Sub-Sector: Voice Telephone Services (A) ............................................................28 3.3.2 2nd Sub-Sector: Packet-Switched Data Transmission Services (B).............................29 3.3.3 3rd Sub-Sector: Circuit Switched Data Transmission Services (C) ..............................30 3.3.4 4th Sub-Sector: Telex Services (D)..............................................................................31 3.3.5 5th Sub-Sector: Telegraph Services (E).......................................................................31 3.3.6 6th Sub-Sector: Facsimile Services (F) ........................................................................31 3.3.7 7th Sub-Sector: Private Leased Circuit Services (G)....................................................31 3.3.8 8th Sub-Sector: Electronic Mail (H) ..............................................................................31 3.3.9 9th Sub-Sector: Voice Mail (I) ......................................................................................32 3.3.10 10th Sub-Sector: Online Information and Database Retrieval (J) .................................33 3.3.11 11th Sub-Sector: Electronic Data Interchange (EDI) (K) ..............................................33 3.3.12 12th Sub-Sector: Enhanced/Value-Added Facsimile Services

(Incl. Store and Forward, Store and Retrieve (L)..........................................................33 3.3.13 13th Sub-Sector: Code and Protocol Conversion (M) ..................................................33 3.3.14 14th Sub-Sector: Online Information and/or Data Processing

(Incl. Transaction Processing) (N)................................................................................33 3.3.15 15th Sub-Sector: Other (O) ..........................................................................................33 3.3.16 State of Play of the Telecommunication Sector in the Benchmarked Countries ...........35 3.3.17 GATS Commitments on Telecoms vs. Services Efficiency...........................................41

4. THE IRAQI TELECOMMUNICATIONS SECTOR ............................ 42

4.1 ECONOMIC, SOCIAL AND REGULATORY ENVIRONMENT ............................. 42 4.2 THE IRAQI TELECOMMUNICATIONS SECTOR................................................. 42

4.2.1 Background..................................................................................................................42 4.2.2 Legal Framework .........................................................................................................43 4.2.3 Communications and Media Commission of Iraq .........................................................43 4.2.4 Equipments and Networks in Iraq ................................................................................44


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4.2.5 The Iraqi Telecommunications Market .........................................................................44 4.2.6 Role of the Iraq’s Private Sector...................................................................................47

5. RECOMMENDATIONS ON IRAQI POSITIONS ON GATS / TELECOMMUNICATIONS SERVICES NEGOTIATIONS................ 48

5.1 RECOMMENDATIONS ON TELECOMMUNICATION SECTOR UNDER GATS..48

5.2 TELECOMMUNICATIONS SERVICES: REFERENCE PAPER ..............................54

5.3 PRECONDITIONS TO TELECOMMUNICATIONS LIBERALIZATION ...................57

6. IMPACT OF GATS / TELECOMMUNICATION SERVICES IN IRAQ……………………………………………………………………..59

6.1 ECONOMIC IMPACT.....................................................................................................59 6.2 SOCIAL IMPACT............................................................................................................60 6.3 ENVIRONMENTAL IMPACT ........................................................................................61

BIBLIOGRAPHY………………………………………………………………………………….…62 ANNEX: NATIONAL COMMITMENTS OF BENCHMARKED COUNTRIES ………………..64


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ACRONYMS ADSL Asymmetric Digital Subscriber Line ASCCI American Standard Code of Information Interchange CMC Communications and Media Commission CSD Circuit Switched Data COSIT Central Organization for Statistics and Information Technology CPA Coalition Provisional Agency CW Continuous Wave EDI Electronic Data Interchange EU European Union FDI Foreign Direct Investment FOG Fiber Optic Gulf GATS General Agreement on Trade in Services GATT General Agreement on Trade and Tariffs GDP Gross Domestic Product GOI Government of Iraq HSPA High Speed Packet Access ICT Information and Communication Technologies IMF International Monetary Fund IQR Iraqi Dinar ISP Internet Services Provider IT Information technologies ITPC Iraqi Telecommunication and Post Company ITU International Telecommunications Union KRG Kurdistan Regional Government LTE Long Term Evolution MFN Most Favored Nation MENA Middle East and North Africa MoU Memorandum of Understanding MVNO Mobile Virtual Network Operators NRA National Regulatory Agency OECD Organization for Economic Co-operation and Development PCN Personal Communication Systems PSTN Public Switched Telephone Network PTN Public Telecommunications Network PTO Public Telecommunications Operator RIO Reference Interconnection Offer SME Small and Medium Enterprise TDMA Time Division Mobile Access TRIPS Trade Related Intellectual Property Rights UAE United Arab Emirates UK United Kingdom UNCTAD United Conference on Trade and Development USAID United States Agency for International Development USD US Dollar VoIP Voice over Internet Protocol VSAT Very Small Aperture Terminal WCDMA Wide band Code Division Multiple Access WLL Wireless Local Loop WTO World Trade Organization


USAID Tijara Provincial Economic Growth Program / Contract No. 267-C-00-08-0050-00 1

1. INTRODUCTION AND METHODOLOGY The purpose of this series of documents on various sub-sectors under services is to prepare the Government of Iraq (GOI) for the submission of the services chapter to the World Trade Organization (WTO). It also seeks to assist the GOI to better understand the context in which each sub-sector operates in the economy. WTO accession is hardly an end in itself. Instead, WTO Accession is the beginning of a process of serious economic reform. Accession to the “club” of WTO requires serious commitments to liberalization, as well as an understanding of the impact of these commitments on the economy at large and its broader benefits. Each of the sub-sector reports is broken into five parts:

1. Introduction and methodology – the key analytical elements applicable to the sub-sector;

2. Sub-Sector Context within the General Agreement on Trade in Services (GATS) and Value Chain Development – the sub-sector in the context of GATS, international best practices, and value chain development of the sub-sector;

3. Iraq and the role of the specific sub-sector, including the regulatory environment, data, and the role of the private sector in WTO negotiations;

4. Recommendations for Iraq in the negotiations of the sub-sector;

5. A general discussion of the impact of the proposed liberalization commitments on Iraq in the sub-sector.

Section 2 describes the framework, or the “lens” through which the Iraqi Government Services Committee should consider in the analysis of their sector. The WTO framework, its modes, horizontal commitments and value chain underpin the essence of preparation, and are the main content of impact analysis. Sections 3-5 provide a more detailed analysis of the sub-sector itself and its role and overall impact on the Iraqi economy. There are five key methodological tools and concepts used to analyze the role of services in Iraq. These include:

a. WTO framework (definition of “modes”);

b. International best practices;

c. Regulation;

d. Mode analysis;

e. Most Favored Nation (MFN) status, National Treatment and Market Access. In each case we need to make sure that the GOI clearly understands the framework and context of the sub-sector analyzed and its relationship to the Four Modes contained in GATS. Iraq applied for WTO accession in December 2004 and submitted a Memorandum on the Foreign Trade Regime in September 2005. The Working Party met for a second time in April 2008 to continue the examination of Iraq’s foreign trade regime, however Services negotiations did not commence.



This study has been prepared as a background paper supporting Iraq’s accession to the WTO. As part of the WTO accession process, Iraq must negotiate offers/commitments for Trade in Goods and for Trade in Services. The Iraqi Services sector is likely to be of particular interest to WTO members, due to its significant economic potential. An extensive consultation process underpins this study, which involved attending relevant meetings to make presentations and exchange information, meeting with experts in the government and civil society, and undertaking dialogue in an electronic discussion. This study will be presented at various meetings of the GOI Services Committee. In addition to this paper, there are several lengthy presentation materials prepared by the Trade Division that will discuss various aspects of this paper in greater detail. Working Committee meetings will include members of civil society, as well as trade negotiators from Iraq. In the writing of this paper, consultation was undertaken in the form of face-to-face meetings with a range of stakeholders representing national and regional organizations.



2. SUB-SECTOR CONTEXT IN GATS 2.1 WTO DEFINITION AND FRAMEWORK

The telecommunications sector presents a unique case in GATS negotiations, due to its dual role as both a backbone for other services and as a service in itself. WTO Negotiations on telecommunications have started in 1986 and lasted for 11 years until 1997. During the Uruguay Round, the telecommunications sector became one of four services sectors where an agreement has not been reached by the Round’s closing deadline in 1994. The WTO members reached only an ‘in principle’ agreement for freer market access and liberalization of basic telecommunication services. A number of individual commitments were made in the supply of value-added or enhanced services, but only a few members, such as the United States, were willing to make specific commitments in basic telecommunications services.1 Extended negotiations on basic telecommunications services continued in 1994-1997, primarily through the specially created Negotiating Group on Basic Telecommunications, Since then, new commitments have been made either by new WTO members upon accession, or in a unilateral fashion by existing Members. The following three documents currently comprise the core texts relating to trade in telecommunications services: 1. The Annex on Telecommunications2 – signed April 1994, at the conclusion of the

Uruguay Round. This annex deals with specific issues pertaining to trade in telecom services – most importantly with access to public networks. It provides a guarantee that a supplier of any service would have the right to use public telecommunications networks and services within a given member country. (See section 2.1.1 for discussion.)

2. The Fourth Protocol to the General Agreement on Trade in Services3 – signed on April 30, 1996 and entered into force on February 5, 1998. This document provides the legal basis for the annexation of new basic telecommunications schedules to the Uruguay Round services schedules. (See section 2.1.3 for discussion.)

3. The Reference Paper on Telecommunications4 – adopted during the negotiations of the Fourth Protocol in 1996. The paper provides a set of regulatory principles and commits Members to market policies that promote competition.

2.1.1 Content of the Annex on Telecommunications

The key aim of the Annex on Telecommunications is to establish the right of a service supplier to use telecommunications networks and services. The Annex guarantees that suppliers of all liberalized commercial services – financial, professional, or any others falling 1 Within GATS, telecommunications services are broken into two categories. “Basic services” are understood to include all telecommunication services, both public and private, that involve end-to-end transmission of customer and supplier information. “Value-added services” are understood to denote telecommunications for which the supplier “adds value” to the customer's information by enhancing its form or content, or by providing for its storage and retrieval. Examples of value-added services include: e-mail; voice mail; facsimile and database retrieval, electronic data interchange; enhanced facsimile services (including store and forward, store and retrieve fax); code and protocol conversion; online information and/or data processing (including transaction processing). 2 More information available at: www.wto.org/english/tratop e/serv e/12-tel e.htm 3 More information available at: www.wto.org/english/tratop e/serv e/4prote e.htm 4 More information available at: www.wto.org/english/tratop e/serv e/telecom e/tel23 e.htm



within the GATS ambit – have reasonable and nondiscriminatory access to public telecommunication networks within the borders of WTO Members that made telecommunications commitments. The access is guaranteed for all communications and commercial purposes.5 This guarantee translates into the ability of a foreign service provider to enter the country and connect to its public network for the purpose of offering a service to consumers in that market. The Annex is a document balancing user rights and regulatory rights. Access to telecommunication networks is guaranteed regardless of whether the networks are privately or publicly owned and regardless of whether they are monopolies. Access is conditioned in certain prudential circumstances, such as for the purposes of protecting the public operator, restraining companies from illegal competition or preserving network integrity.6

• Obligations

The Annex broadens the scope of the obligations required from GATS members, with regard specifically to telecommunications. It includes commitments regarding transparency, access to public networks, and treatment of developing countries. However, by the terms of the Annex, these obligations apply only to services for which Members have scheduled a market access commitment.

• The transparency provision outlines what telecommunications information should be made publicly available: all tariff and non-tariff conditions of service, licensing requirements, conditions for interconnection, technical interconnection specifications, and standards affecting access and use of public networks.

• The provision on access to public telecommunications networks involves the right to buy and use equipment needed to connect to the network, to connect private circuits with the public system or with other circuits, and to use the public network to transmit information, including information from computerized databases, both within the country concerned and to or from any other WTO member. Such access should be granted on the basis of the Most Favored Nation (MFN) and national treatment.

• Other provisions call for Members with more developed telecommunications systems to share technical information and use special consideration with developing countries.

• Exceptions

In line with a government’s right to regulate its domestic basic telecommunications market, it may need to put certain limitations on its obligations so that it is able to ensure the security and confidentiality of message content, to protect the technical integrity of the public network, to provide or continue to provide universal services, and to maintain efficient technical operations.

• Relation to International Organizations

The Members recognize that there are several international organizations that set telecommunications standards. Most of the standard-setting is regulatory in nature,

5 The Annex offers a definition which essentially incorporates access to the public telecom infrastructure which permits services offered to the public, generally e.g. telegraph, telephone, telex and data services 6 Rights under the Annex apply to all available public services such as telephone, telegraph, telex and data transmission, but do not apply to measures affecting the cable or broadcast distribution of radio or programming television.



addressing the need for interconnectability among different types of information, such as voice, video and data, and over different types of networks, such as land-line, satellite and radio. For instance, the International Telecommunication Union (ITU)7 sets standards for shared telecommunications resources such as radio frequencies and the geostationary stationary orbit for satellites. Additionally, the Members “recognize the role played by intergovernmental and non-governmental organizations and agreements in ensuring the efficient operation of domestic and global telecommunications services, in particular the International Telecommunication Union.”

2.1.2 Definition of Basic Telecommunication Services

After the Uruguay Round, negotiations on telecommunications continued, with a focus on basic telecommunication services. These negotiations led to the adoption of the Fourth Protocol in April 1996 (in force February 1998). Basic telecommunication services include all telecommunication services, both public and private, that involve end-to-end transmission of customer and supplier information. They are defined as “voice and non-voice services consisting of the transmission of information between points specified by a user in which the information delivered by the telecommunications agency to the recipient is identical in form and content to the information received by the telecommunications agency from the user.” Examples of such services include voice telephone services, packet switched data transmission services, circuit-switched data transmission services, telex services, telegraph services, facsimile services, privately leased circuit services, or mobile services.

2.1.3 Scope and Coverage of the Fourth Protocol

Schedules of Specific Commitments and Lists of Exemptions from Article II of the GATS concerning basic telecommunications are annexed as the Fourth Protocol (also known as the Basic Telecommunications Agreement.) The Fourth Protocol encompasses members’ commitments on basic telecommunication services in three areas: • Provided through cross-border supply, • Provided through the establishment of foreign firms, or • Provided through commercial presence, including the ability to own and operate

independent telecom network infrastructure.

2.1.4 Reference Paper on Telecommunications

The key goal of the Reference Paper on Telecommunications, adopted simultaneously with the Fourth Protocol in 1996, is to ensure that Members adopt policies that permit competition. The signing of the Reference Paper was a response to Members’ concern during the Uruguay Round that commitments to competitive telecommunications market will be hard to enforce when monopolistic national telecommunications providers (generally government-owned) are dominant. Adopting the Reference Paper was an attempt by the Members to address some of the specific domestic barriers most frequently faced by service providers when they attempt to access the network of domestic Public Telecommunications Operators8. 7 See the International Telecommunication Union website: www.itu.int. 8 Taunya L. McLarty: “Liberalized Telecommunications Trade at the WTO: Implications for Universal Service Policy,“Federal Communications Law Journal, Vol. 51, 1998.



The Reference Paper, which could be added onto a Member’s schedule, allowed the member to adopt “additional commitments” to competitive regulatory principles. This approach is very flexible, allowing each country the option to freely undertake additional commitments. The Reference Paper is a short document with 3 main characteristics: 1. It does not have any legal status and is not considered a binding agreement. Its primary

purpose is to provide WTO members with a framework for defining additional commitments on regulations. However, additional commitments made by members as part of services schedule become part of the national commitment lists and are binding.

2. The document is general: it contains principles on sector regulation but no detailed rules. 3. It describes results to obtain but not the means to be implemented. By doing so, it

provides some flexibility in its implementation. The Reference paper includes some definitions and principles on key issues on telecommunication regulation: • Competitive safeguards, meaning disposals to prevent abuse of dominant position • Interconnection to public networks • Universal service • Licenses delivery • Independence of the regulator • Allocation of scarce resources • Transparency

A comprehensive approach to regulatory reform was needed, in part, because laws and regulations covering telecommunications in most countries tend to be anticompetitive in nature, due to the fact that the telecommunications market has historically been monopolized by the state. Additionally, telecommunications services are different from goods that require little interaction between the provider and the country’s regulators beyond the country’s borders. In the case of telecommunications, the service provider continues to have significant interaction with regulators once inside the borders of a country. Over 75 countries that have signed the WTO agreement also accepted the “Reference Paper” on regulatory principles in February 1997.9 Some of the Members adopted the Reference Paper in whole, while others specified certain exceptions to elements of the Paper, which were also attached in their schedules.

• Competitive safeguards

To avoid anticompetitive effects, the Members are to ensure competitive safeguards, by preventing the dominant supplier from (1) engaging in anticompetitive cross-subsidization; (2) using information with anticompetitive results; and (3) withholding technical information that is necessary for an entrant to compete. Nondiscrimination safeguards are supposed to be implemented by Members. Safeguards are rules that prevent the dominant carrier from abusing its market power against potential entrants. Abusive actions would include: the cross-subsidization of competitive service with revenues from noncompetitive public network services; the overcharging of competitors for

9 Patrick XAVIER, Swinbure University of Technologies, Melbourne: International Benchmarking in the context of WTO Commitments, ITU Workshop, February 2008



access to the Public Telecommunications Network (PTN); and discrimination in giving access to or information about the PTN. Additionally, interconnection regulations control the access to the network for the origination or termination of telecommunications services. Interconnection may be network-to-network or network-to-service provider. If the terms of interconnection are subject to private party negotiations, the interconnection policies must force the dominant carrier to negotiate in an open, economical, and cost-based manner. Some countries are taking a sector-by-sector approach for these commitments. The Reference Paper sets out the general prohibition on cross-sector subsidization, but it does not set the specific initiatives that have to be taken in order to ensure competition. However, a fully competitive policy would require service providers to keep separate accounts and would allow tariff rebalancing.

• Interconnection to public networks

Facilities competition exists when new entrants, who can meet a reasonable and objective set of standards, are allowed to interconnect to the public network and provide services to end users in competition with Public Telecommunication Operators. To have full facilities competition, however, new entrants must be given interconnection rights broader in scope than simply interconnection to the public networks. Optimal market access depends on multiple options: interconnecting to private and public networks, leasing available circuits, sharing leased circuits, interconnecting between leased and switched networks, and reselling transmission capacity. Additionally, the terms of interconnection must provide adequate technical interface, provide adequate usage and supply conditions, and be based on competitive tariffs. These liberalized interconnection rules are especially important to the international cellular market, which has had an appreciable impact on communications technology. Cellular service providers, which provide radio-based services, depend heavily on local exchange carriers and interexchange carriers to connect the land line system with the cellular system. The Reference Paper sets the interconnection framework. Interconnection is a mixture of legal and technical rights and obligations. The Reference Paper deals with the fundamental interconnection matters that should be included in telecommunications legislation and sets forth some details for a legal model of legislation in the area. Interconnection must be done on nationally-based MFN principles. Interconnection with a major supplier will be ensured at any technically feasible point in the network. Such interconnection is provided as follows:

• On a non-discriminatory basis and at cost-based rates. The quality of interconnection provided to third parties should be no less favorable than that provided by the operator for the country’s own similar services, or for similar services of non-affiliated service suppliers, or for its subsidiaries or other affiliates;

• In a timely fashion, on terms, conditions (including technical standards and specifications) and cost-oriented rates that are transparent, reasonable, having regard to economic feasibility, and sufficiently unbundled so that the supplier need not pay for network components or facilities that it does not require for the service to be provided; and

• Upon request, at points in addition to the network termination points offered to the majority of users, subject to charges that reflect the cost of construction of necessary additional facilities.



The procedures applicable for interconnection to a major supplier will be made publicly available. It is ensured that a major supplier will make publicly available either its interconnection agreements or a reference interconnection offer (RIO). The interconnection regime should also provide a right of arbitration to the regulatory authority to resolve disputes regarding interconnection, with the right to appeal to ordinary courts against the decisions of the regulator. On dispute settlements, a service supplier requesting interconnection with a major supplier will have recourse, either (a) at any time, or (b) after a reasonable period of time (which has been made publicly known), to an independent domestic body (which may be a regulatory body) to resolve the disputes regarding appropriate terms, conditions and rates for interconnection within a reasonable period of time, to the extent that these have not been established previously. Finally, important but often overlooked provisions in a national telecommunications law, which is key for realizing interconnection, are provisions regarding inter-operability.

• Universal service

A common reason cited for failure to liberalize the telecommunications sector is that some goals of universal service, such as providing basic telephone services to rural or low-income areas, would not be met in a fully competitive environment. Under the Reference Paper, each country can define its own objectives for universal service. Conceivably, steps taken to implement an aggressive universal service program that has the government taking the lead role could run contrary to most of the commitments in the Reference Paper, including licensing, interconnection, allocation of spectrum, and independence of the regulatory body. The Member can take action, however, to implement such a program and the action will not be considered anticompetitive per se, as long as it is administered in a neutral manner and is “not more burdensome than necessary.” If necessary is interpreted in the same way it has been interpreted for the GATT, Article XX exceptions, then the universal service exception will rarely be used successfully. Under GATT’s Article XX test of necessary, the means of implementing a domestic universal service policy could not be inconsistent with the underlying GATS principles of MFN treatment, transparency, national treatment, and market access. Presumably, though, the strict GATT test would apply only to the restrictive trade measures inconsistent with a general obligation of GATS that has not been exempted in a Schedule or with a specific commitment that has been included in a Schedule. Universal service is one of the most significant issues driving domestic basic telecommunications policy. It is an especially pressing goal for developing countries. One of the most significant challenges faced by developing and emerging countries is their lack of comprehensive infrastructure that will provide, at a minimum, basic services. There are traditional ways of addressing this hurdle, namely, maintaining government operation of the infrastructure or subsidization of the services. Alternatively, there are some newly emerging ways to address the need for basic services, such as encouraging multinational conglomerates to finance telecommunications projects in developing countries or allowing revenue from liberalized international trade in services to finance the developing country’s domestic market need for telecommunications infrastructure. Countries are essentially on their own when they keep policies in place that make the government the sole provider of basic telecommunications services. In order to implement a universal service program domestically, a government could take a variety of approaches, but most of these will not be consistent with the spirit of GATS or the 1997



Telecommunications Commitments. For instance, owning the telecommunications infrastructure and cross-subsidizing the economically disadvantaged classes in society is not consistent with the Reference Paper, and socializing a private market through tax-funded subsidies may not be consistent with future negotiations on subsidies under GATS. Another option is for foreign conglomerates to finance the infrastructure costs. To address the financial hurdle faced by such projects, the International Telecommunication Union10, in partnership with the private sector, established WorldTel11. WorldTel functions much like an international development bank that finances telecommunications and information technology projects. Equity partners of the bank are other financial organizations, the private sector, and institutional investors. However, these resources are not widely available to the majority of countries, and WorldTel projects will not set the stage for a comprehensive telecommunications policy to meet consumer demands for basic and enhanced services. A third option is to deregulate the market domestically, while negotiating market access and nondiscrimination internationally. Essentially, counting on market supply to meet the broad spectrum of technical and social demands will result in more universal service of basic telecommunications by promoting economic efficiency and technological advancement. Generally speaking, universal service will be provided by a designated operator. That operator will have, as part of its license, an obligation to provide universal service as defined by the government. Usually the obligation to provide universal service is funded through a common fund to which all operators who offer “a public service” contribute. The method by which those other operators contribute to the fund should be set forth in the law. The amounts contributed to the universal service fund may not be the same from each operator, as long as any terms of contributing to the fund by each operator are fairly applied and are transparent. It could be expected that newly-formed regulators will need training in the area of basic accounting in order to manage the universal service fund. While this is not addressed specifically by the Reference Paper, it is an important feature for the successful provision of universal service.

• Licenses delivery

In the licensing process, new entrants often face both technical and procedural barriers. The technical barriers are loosely addressed in GATS. Article VI requires Members to ensure that “measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner”; to ensure that licensing schemes or other such qualification requirements are administered in a manner that is fair to the applicants and are based on standards that do not nullify specific sectoral commitments; and to put in place, when practicable, a mechanism for review of administrative decisions that affect a provider’s ability to supply services. The Recognition provision of GATS, Article VII, says that the domestic body with the authority to review a license application should not use technical or nontechnical criteria as a “disguised restriction” on trade in services. The Reference Paper further requires the domestic regulatory body to provide the criteria, terms and conditions, and reasons for the denial of a license application. 10 http://www.itu.int 11 http://www.world-tel.com



This GATS Article on “recognition” distinguishes between the substance of the criteria and the procedure by which the criteria are implemented. Article VII does not attempt to dictate what the specific criteria or standards for operation must be, so it is less strict than the technical barriers to trade limits under the GATT. The Article allows Members to impose autonomously their standards and criteria for denying certifications or licenses. Thus, the substance of the policies can be discriminatory if the discriminatory policies are included in the Member’s Schedule. After ten years, when these discriminatory practices are to be phased out, the discriminatory policies potentially could be refashioned into a statement of “technical integrity” for the Members’ services. Article VII encourages Members to recognize as sufficient the criteria already met by a service supplier under another Member’s standards. Preferably, Members should agree, in a multilateral forum, to use internationally recognized criteria for licensing. However, where this option is not practical, Members may enter into bilateral arrangements for mutual recognition criteria, or a Member may continue to set its standards unilaterally. Procedurally, however, the criteria for the licensing or certification of a service supplier cannot be applied in such a way that would discriminate between countries or that would constitute a disguised restriction on trade.

• Independence of the regulator

There needs to be independence between the telecommunications regulators and the telecommunications service providers. While the rules must be accessible to the private sector, the regulators must be detached, that is, have no economic or political interest in the outcome of making rules, granting and renewing licenses, reviewing supplier agreements, resolving disputes, and applying sanctions. The Reference Paper further requires “the regulatory body [to be] separate from, and not accountable to, any supplier of basic telecommunications services.” GATS requires the Members to “maintain or institute as soon as practicable judicial, arbitral or administrative tribunals or procedures which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services.” The Reference Paper requires that an effective appeal procedure be in place and that the decisions be “impartial with respect to all market participants.”12

• Allocation of scarce resources

In many cases, newly formed regulatory bodies have little if any experience in the area of frequency management. While the responsibilities of the regulator regarding frequency are well known, and include spectrum planning (including liberating and allocating specialty services, licensing of spectrum and monitoring compliance with spectrum use), new regulatory agencies may not necessarily have the capacity, either in terms of knowledge or experience, to meet these demands. While it may not be necessarily included in a telecommunications law, an important factor regarding frequency management is ensuring the technical capacity of the regulator in order for it to meet its mandate. This provision is intended for allocations of resources such as radio spectrum. The commitments of the Reference Paper, including licensing and interconnection, apply to all sectors, including spectrum management, but this paragraph will allow Parties to make their initial decisions about spectrum allocation apart from the underlying principles of GATS, that is, they can be discriminatory.

12 Patrick XAVIER, International Benchmarking in the context of WTO commitments, ITU workshop



Thus, the management of scarce public resources, such as the radio spectrum, public rights of way, poles and masts, numbers, domain names, facility sights, and co-location premises must be:

• Non-discriminatory, • Transparent, and • Provided in objective and timely manner.

• Transparency

Members must make available to the public:

• Laws, regulations and administrative guidance

• All licensing criteria

• Information concerning access to and use of the public telecommunication network (including relevant license or concession provisions)

• Tariffs and all terms and conditions of service

• Conditions regarding attachment of terminal equipment

2.1.5 WTO Classification

Telecommunication services are addressed in a GATS Chapter named “Communication Services”, which also includes Postal and Courier services as well as Audiovisual services. The classification system used in the GATS by WTO members divides Telecommunication Services (2C) into the following categories: C. Telecommunication services

a. Voice telephone services b. Packet-switched data transmission services c. Circuit-switched data transmission services d. Telex services e. Telegraph services f. Facsimile services g. Private leased circuit services h. Electronic email i. Voice mail j. On-line information and data base retrieval k. Electronic data interchange (EDI) l. Enhanced / value added facsimile services, incl. store and forward, store and retrieve m. Code and protocol conversion n. On-line information and /or data processing (incl. transaction processing) o. Other



2.1.6 Four Modes of Supply

Trade in services is defined by reference to four modes of supply, as follows:

• Mode 1: Cross-border supply. The service but not the service supplier crosses the national border (e.g., international calls)

• Mode 2: Consumption abroad. The service is consumed abroad (e.g., US resident uses his/her domestic phone while traveling in Iraq)

• Mode 3: Commercial presence. A supplier from one country establishes commercial presence in the jurisdiction of another country. (E.g., a foreign company establishes an agency, branch or subsidiary in Iraq to supply telecommunication services in Iraq.)

• Mode 4: Presence of natural persons. The services are supplied by providers through the (temporary) presence of natural persons. (E.g., telecommunication executives or managers travel from the parent telecommunication company in the United States to the company’s branch or subsidiary in Iraq.)

2.2 WTO MEMBERS AND THE AGREEMENT ON TELECOMMUNICATION SERVICES

The Basic Telecommunications Agreement was negotiated among 69 countries – both developed and developing – that account for over 99% of the total revenues from telecommunications for all WTO Members. To date, over 100 countries took commitments on telecommunications. The range of services and technologies covered by this Agreement is very broad, spanning technologies from submarine cables to satellites, from wide-band networks to cellular phones, and from business intranets to fixed wireless for rural and underserved regions. For market access, many Members did not list limitations for cross-border supply and consumption abroad. However, some Members, especially developing countries, did include phase-in periods for their commitments. Most of the Members included limitations on commercial presence by limiting foreign investment levels. By the conclusion of the negotiations, 47 countries had committed to at least phase-in authorization for 100% foreign ownership or control of most telecommunications services and facilities; 10 countries opened up to foreign investment in certain sectors; and another 10 countries would not permit foreign control. As in the 1994 Schedule of Commitments on enhanced services, the basic services commitments on market access for presence of natural persons are generally unbound except as stated in the horizontal section. There are very few limitations on national treatment for the four modes of supply. A few countries, however, require board members of public telecommunications operators (PTOs) to have a domestic nationality for commercial presence and reference the horizontal commitments for presence of natural persons. Additional commitments for basic telecommunications are substantial. Most Members made a commitment to undertake the obligations contained in the “Reference Paper,” which they attached to their Schedules without reservation. A number of WTO members have registered exemptions to the Most Favored Nation treatment principle in the telecommunications sector: there are a number of exemptions in particular as regards satellite services and accounting rates. It may be argued that the first ones are not only allowing unfair discrimination, but that they actually prevent the most efficient development of cross-border telecommunications. Full liberalization of telecommunications markets should solve this issue.



3. THE TELECOMMUNICATIONS SECTOR 3.1 DEFINITIONS

Telecommunication is the assisted transmission of signals over a distance for the purpose of communication. The public switched telephone network (PSTN) is the network of the world’s public circuit-switched telephone networks – a function similar to that of the Internet, which is the network of the world's public IP-based packet-switched networks. Originally a network of fixed-line analog telephone systems, the PSTN is now almost entirely digital, and includes mobile as well as fixed telephones.

• The PSTN is largely governed by technical standards created by the ITU. The Internet is a global system of interconnected computer networks that interchange data by packet switching using the standardized Internet Protocol Suite (TCP/IP). It is a "network of networks" that consists of millions of private and public, academic, business, and government networks of local to global scope that are linked by copper wires, fiber-optic cables, wireless connections, and other technologies. Conventional cellular radio and landline telephony use circuit switching. Services like Cellular Digital Packet Data or CDPD, by contrast, employ packet switching. General Packet Radio Service GRPS, Bluetooth, and some aspects of 3G, also use packet switching. Circuit switching dominates the Public Switched Telephone Network or PSTN. Network resources set up calls over the most efficient route. Circuit Switched Data (CSD) is the original form of data transmission developed for the time division multiple access (TDMA)-based mobile phone systems like Global System for Mobile Communications (GSM). CSD uses a single radio time slot to deliver 9.6 kbit/s data transmission to the GSM Network and Switching Subsystem where it can be connected through the equivalent of a normal modem to the PSTN, allowing direct calls to any dial-up service. Mobile phone handsets must be made to operate on one of two dominant types of mobile phone frequency networks. The most common type of air link technology is the Global System for Mobiles (GSM) network, which was developed by the European Group Special Mobile (the original source of the network’s acronym) in the early 1990s to replace the different national standards and unify the continent in one Europe-wide system. Today, the GSM network has expanded around the world and currently serves over 75% of mobile phone users, or approximately two billion people in 50 countries. But some countries, like Japan, do not have a GSM network and instead operate on a Code Division Multiple Access (CDMA) network or Wide-band CDMA (WCDMA). CDMA technology is used in approximately 14% of mobile phones. However, the industry’s leading companies are beginning to produce third generation (3G) systems, such as Universal Mobile Telecommunications Systems (UMTS), that can operate on either frequency network and are making older technologies obsolete. The next big innovation in handset technology, fourth generation (4G), is expected to produce phones for the market in 201213. 4G mobile communications will have higher data transmission rates than 3G (20 megabits per second for 4G compared to 300 kilobits/second for 3G).

13 Datamonitor, “Global Mobile Phones: Industry Profile,” December 2005



Telex remains one of the most reliable, universally available forms of electronic data communication, with approximately one million users worldwide. By operating within its own physical network, Telex provides a legal and secure transmission standard, regardless of origin or destination. Still leading the way in the Global Telex market are the Finance, Shipping, Oil and Gas industries.

Telegraphy is the long-distance transmission of written messages without physical transport of letters. Radiotelegraphy or wireless telegraphy transmits messages using radio. Telegraphy includes recent forms of data transmission such as fax, email, and computer networks in general. A telegraph is a machine for transmitting and receiving messages over long distances, i.e., for telegraphy. The word telegraph alone now generally refers to an electrical telegraph. Wireless telegraphy is also known as CW, for continuous wave (a carrier modulated by on-off keying).

Private leased circuit service is the service of providing permanent transmission connection between two customer premises for the exclusive use by a customer. This service may be provided by facilities owned or operated by an operator or by transmission capacity sold or leased by a non-facilities-based telecommunications provider, or reseller, and may use terrestrial or satellite facilities. It generally does not involve central office switching operations.

Electronic mail, often abbreviated to email is any method of creating, transmitting, or storing primarily text-based human communications with digital communications systems. Historically, a variety of electronic mail system designs evolved that were often incompatible or not interoperable.

Voicemail (sometimes called messagebank) is a centralized system of managing telephone messages for a large group of people. The term is also used more broadly, to denote any system of conveying voice message, including the answering machine.

Electronic Data Interchange (EDI) refers to the structured transmission of data between organizations by electronic means. It is more than mere E-mail; for instance, organizations might replace bills of lading and even checks with appropriate EDI messages. It also refers specifically to a family of standards, including the X12 series. However, EDI also exhibits its pre-Internet roots, and the standards tend to focus on ASCII (American Standard Code for Information Interchange) -formatted single messages rather than the whole sequence of conditions and exchanges that make up an inter-organization business process. EDI can be formally defined as 'the transfer of structured data, by agreed message standards, from one computer system to another without human intervention'. Most other definitions used are variations on this theme. Even in this era of technologies such as XML web services, the Internet and the World Wide Web, EDI is still the data format used by the vast majority of electronic commerce transactions in the world.

3.2 TELECOMS IN THE WORLD ECONOMY AND AT THE WTO

3.2.1 Telecommunications Data

Telecommunication is an important part of the world economy. The contribution of the telecommunication industry was estimated to be USD 1.2 trillion in 2006. The dynamic nature of the global telecommunications market is widely attributed to rapid technological development and an increasingly liberal policy environment.



Fixed-line market penetration remains comparatively low in most developing countries, at an average of 13% at the end of 2007, even though the developing world accounted for 58% of the world’s 1.3 billion fixed-telephone lines in that year. This segment of the market showed a decline in developed countries and just a slight increase in some developing countries. On the whole, fixed-line penetration worldwide stagnated in 200714. Mobile penetration, however, continued to show high growth rates and reached an estimated 61% of the world’s population (or 2.67 billion subscriptions) at the end of 2008. More than 70% of the world’s mobile subscribers were in developing countries at the beginning of 2008. Africa remains the region with the highest growth rate (32% between 2006 and 2007). Its mobile penetration of 28% is comparable with the 37% in Asia, 72% in the Americas, and 110% in Europe at the end of 2007. Despite high growth rates in the mobile sector, major differences in mobile penetration rates still exist between regions and within countries, particularly between urban and rural areas. The impressive growth in the number of mobile subscribers is mainly due to developments in some of the world’s largest markets. The so-called BRIC countries – Brazil, the Russian Federation, India and China – are expected to have an important impact in terms of population, resources and global share of GDP. These countries alone accounted for over 1.3 billion mobile subscribers at the end of 2008. Nearly 90% of the population of Western Europe has access to a mobile phone. Growth in fixed lines, mobile cellular subscribers and internet users, in billions, world, 1996-2006

0

1

2

3

4

5

6

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Internet usersMobile suscribersFixed lines

Source: ITU World Telecommunication/ ICT indicators database

14 ITU World Telecommunication/ ICT indicators, November 2008



Worldwide mobile subscribers 2000-2008

61%

48%41%

34%28%23%

19%16%12%

0%

10%

20%

30%

40%

50%

60%

70%

2000 2001 2002 2003 2004 2005 2006 2007 2008est

Source: ITU World Telecommunication/ ICT indicators database Mobile subscribers per 100 people, 2007

28

37

49

72

78

110

0 20 40 60 80 100 120

Africa

Asia

World

Americas

Oceania

Europe

Source: ITU World Telecommunication/ ICT indicators database ITU’s Internet and broadband data suggest that more and more countries are going high-speed. By the end of 2007, more than 50% of all Internet subscribers had a high-speed connection. Dial-up is being replaced by broadband across developed and developing countries. Already, in Chile, Senegal and Turkey, over 90% of all Internet subscribers have broadband. However, major differences in penetration levels remain. While fixed broadband penetration stood at less than 1% in Africa, it had reached much higher levels in Europe (16%) and the Americas (10%) by the end of 2007. The difference is also reflected in the regional distribution of total broadband subscribers.



Number of economies with broadband commercially available

81

113

133

145

166

0 20 40 60 80 100 120 140 160 180

2002

2003

2004

2005

2006

Source: ITU/ UNCTAD/ KADO Digital Opportunity Platform The number of mobile broadband subscribers reached 167 million at the end of 2007, driven by 18% growth since 2006. There is intense competition among technologies, such as 2.5G and 3G, as well as the emerging high-speed packet access (HSPA), WiMAX, and long-term evolution (LTE). Recent estimates indicate that HSPA subscribers worldwide have topped the 50 million mark, rising from just 11 million in 2007. Equipping customers with functional and affordable handsets will help boost the adoption of mobile broadband. For example, Apple's introduction of the 3G iPhone has shown that consumer habits and expectations are shifting, and a new generation of customers has emerged for whom always-on, high-bandwidth connectivity is the norm. From simple Internet browsing and e-mail to mobile banking, mobile shopping, mobile VoIP and mobile television – broadband applications are likely to revolutionize the mobile marketplace. The rise of voice-over-Internet-protocol (VoIP) services is probably the best example of the move to an “all-IP” environment. VoIP services have continued to grow strongly over the past two years, although at a slower growth rate than in 2005. More importantly, it is steadily replacing traditional public switched telephone network (PSTN) lines in many developed, and in some developing, countries. The global number of VoIP subscribers reached 80 million in 2008, of whom business users constitute an increasing share. The regional distribution of subscribers varies, depending on the cost of traditional fixed-line communications as well as the regulatory treatment of VoIP and of the international gateway for PSTN long-distance calls. Skype, the most frequently cited example of a global VoIP provider, had 196 million registered users in March 2007, up from 95 million in 2006. On World predicts that by 2011, there will be 100 million mobile VoIP users. And Skype is expected to have 25% of the world’s VoIP market. Regulatory tools are needed to help fine-tune market conditions so that VoIP can grow to its full potential. Some of the issues which regulators and policy-makers can address include peering arrangements among VoIP providers, interconnection agreements with other voice service providers, numbering reform (including number portability) and legalizing both VoIP provision and use where these are banned.



ICT per status, 2006, %

0102030405060708090

100

Basic

servi

ces

Lease

d lines

Mobile ce

llular

(2G)

Internet

servi

ces

Wireles

s loca

l loop

VSAT

Cable

TVDSL 3G

Monopoly Competition

Source: ITU and UNCTAD: World Information Society Report 2007 The first wave of telecommunication reform in developing countries, starting in the late 1990s, aimed to create more transparent and stable legal and regulatory frameworks, with an emphasis on establishing national regulatory authorities and opening certain market segments, such as mobile voice, to competition. The goal was to attract investment and make progress towards universal access to basic telecommunication services. Drastic changes in the sector have since flowed from technological innovation, convergence of services, and growing competition. These changes may now require a further regulatory shift in order to open more market segments to competition, as well as to update licensing and spectrum management practices and foster growth in broadband networks and converged services. A rise in competition and new service providers will also require an enhanced focus on dispute resolution. As of October 2008, 152 countries had created national regulatory authorities for their ICT and telecommunication sectors. Africa now has the highest percentage of countries with a separate sector regulator (93%) followed by the Americas (89%), Europe (80%), Asia-Pacific (66%) and the Arab States (62%). Regulatory agencies, world (cumulative)

14

43

86106

124137

148 152

020406080

100120140160

1990 1995 1998 2000 2002 2004 2006 2008




Percentage of regulators in each region

93% 89%80%

66% 62%

0%

20%

40%

60%

80%

100%

Africa Americas Europe Asia-Pacific Arab States

Source: ITU World Telecommunication/ ICT indicators database By mid-2008, some 125 ITU Member States had one or more privately-owned, or partially privatized, national fixed-line incumbent. The regions with the highest percentage of private ownership are Europe (some 78%), the Americas (74%), and Asia-Pacific and Africa both at some 58%. Markets are steadily opening to competition, with those for Internet and mobile services being the most competitive. Only 40 countries had authorized competition in the provision of basic telecommunication services in 1997, but a decade later the number had risen to about 110 countries. Continued reforms in the Arab States have led to more liberalization in the sector. Qatar opened its telecommunication market to competition in 2008. In Oman, the regulatory authority launched a process in August 2008 to license a second fixed-line national operator. The future licensee will be granted broadband wireless spectrum rights (for 15 years) in addition to authorization for national, local access and international network facilities (submarine cable and landing station rights) for the next 25 years. Egypt also plans to license its second fixed-line operator by early 2009. Privately-owned fixed-line incumbents, in percentage by region, October 2008

77.80%

57.90%

74.30%

47.60%58.10%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

Europe and CIS Asia Pacific Americas Arab States Africa


3.2.2 Telecommunications Market Trends

The telecommunications sector has exhibited one of the highest growth rates over the last ten years – around 7% a year – and these growth rates are expected to continue. With more than 2 billion potential users still unconnected to telecommunication networks, developing



and emerging markets are likely to be the main drivers of growth in subscribers and revenues over the next few years. Even if the financial downturn slows down the deployment of new networks and the transition to more advanced technologies, the growth of subscribers is expected to continue15. Global IT spending will continue to outpace global economic growth over the next years16 as companies continue to upgrade their corporate networks worldwide. Primary drivers will include the increased demand from small and medium-sized enterprises, particularly in Asia; continued network equipment and service upgrades across the business sector; and steady demand from both the corporate sector and consumers for innovative, converged electronic devices with Internet access. Sales growth of the PC will slow over the forecast period. From strong double-digit figures of the past few years, global PC shipments will grow by just 4.3% per annum between 2007 and 2011. This growth will be driven by emerging markets and Western Europe where penetration levels are lower. Purchasing and owning a mobile phone will continue to be a worldwide obsession, but the rate of growth will moderate from nearly 10% this year to 5% in 2010. Average revenue per subscriber will decline in the period, as operators compete more aggressively for customers on price. Worldwide demand for broadband internet connections will grow in double-digits the next years for the world's sixty largest economies to 585m subscribers by 2011. Revenues from broadband services will leap from USD137bn in 2007 to USD207bn in 2011, accounting for nearly 40% of total fixed line revenue worldwide. World Telecoms and technology industry (60 countries covered):

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Telephone, main lines (m*) 931.4 980.7 1,028.6 1,073.0 1,114.1 1,150.1 1,174.5 1,186.7 1,200.4 1,217.0

per 100 people 19.5 20.4 21.1 21.8 22.5 23.0 23.2 23.3 23.3 23.5

Mobile subscribers (m) 1,071.2 1,289.0 1,587.6 1,954 2,247.3 2,482.6 2,668.0 2,824.8 2,970,1 3,113.9

per 100 people 22.5 26.8 32.6 39.8 45.3 49.6 52.8 55.4 57.8 60.0

Internet users (m) 543.1 648.5 762.8 841.1 926.2 1,030.6 1,143.1 1,258.2 1,376.8 1,503.0

per 100 people 11.4 13.5 15.7 17.1 18.7 20.6 22.6 24.7 26.8 29.0

Broadband subscriber lines (m) 68.5 107.8 159.9 217.1 284.3 351.3 415.0 475.3 532.6 585.9

per 100 people 1.4 2.2 3.3 4.4 5.7 7.0 8.2 9.3 10.4 11.3

Personal computers (per 1000 people) 126.2 144.4 159.5 175.1 198.3 212.1 225.7 239.5 252.9 265.7

Source: Economist Intelligence Unit * m - millions

15 International Telecommunication Union: A snapshot of the ICT market 16 Global Technology Forum: World telecoms and IT Outlook, Always on. July 2007.



Personal computers (stock per 1000 people)

0100200300400500600700800900

1000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

NorthAmericaWesternEuropeAsia andAustralia LatinAmericaMiddle Eastand AfricaWorld

Source: Economist Intelligence Unit Broadband subscribers (per 100 people)

05

10152025303540

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

NorthAmericaWesternEuropeAsia andAustralia LatinAmericaMiddle Eastand AfricaWorld

Source: Economist Intelligence Unit

3.2.3 Role of Telecoms in Economic Development

Telecommunications infrastructures, as the backbone for other sectors, have important economic, societal, and national security implications. Telecommunications infrastructures are as significant to the competitiveness of services today as the railroads were to manufacturing during the industrial age. Telecommunications infrastructures are also key to the maintenance of a technologically advanced military; thus, the national security implications of trade in telecommunications are higher than in many other services. Additionally, the importance of telecommunications infrastructures is compounded by technology upgrades that affect the reliability and scope of their use. A competitive telecommunications market brings many benefits to businesses and consumers including lower costs, efficient and innovative services, and expanded opportunities and choices. Network expansion has been a key driver of economic growth for many countries, and private investment has been the main catalyst for such expansion;



much of it in the developing world. According to the World Bank, the private sector invested USD 230 billion in telecommunications infrastructure in the developing world between 1993 and 2003, with the greatest investment in those countries that were open to competition. Indeed as more markets become competitive, expansion into other markets will become essential. Thus, all countries seeking to benefit from the gains of a competitive global telecommunications market have a stake in seeing market opening commitments in this sector17. Deloitte undertook a regression analysis using a cross-section of developing countries18. The analysis estimated that a 10% increase in telecoms penetration could increase the GDP growth rate of a country by 1.2%.

3.2.4 Linkages between Telecommunication Services and Other Sectors

The competitiveness of telecommunication impacts all sectors, as the use of a phone is very much needed by any economic sector. The same can be said for Internet tools. Many sub sectors are relevant to and affected by the liberalization of telecoms:

• Customer sits down at computer – computer services

• Logs onto Internet – communications services

• Goes to website with ads – advertising services

• Orders a product – distribution services

• Pays for the product – financial services

• Downloads product or has it delivered – delivery services Telecoms are also linked to intellectual property rights and data protection (related to TRIPS).

3.2.5 WTO versus Liberalization/ Privatization of Telecommunication Services

To take GATS commitments means to open up market to competition and to liberalize a sector. Privatization is a process of state intervention that literally sells a state enterprise such as a state telephony company. Privatization takes many forms, depending on the percentage of shares to be sold off, the extent to which any foreign ownership is permitted, the length, if any, of a phase-in period, and the specific form of ongoing state ownership. Two main approaches to privatization/liberalization emerge:

1. Privatization with full competition. Both developed and developing countries have followed this model.

2. Privatization with phase-in competition. In this model, privatization of national carriers is accompanied by a sustained period of exclusivity rights or limited competition. Two main reasons can be cited for opting for this model: • Governments want to maximize the sale of value of their national carrier; • Countries want to retain market share and accumulate income prior to sale.

17 Office of the United States Trade Representative, Services Facts www.ustr.gov. Trade in Services Policy Brief – March 2006. 18 Harriet E. Berg, “Economic Contribution of Mobile Communications”, WTO Symposium on Telecommunications, February 2008.



GATS model does not distinguish between liberalization and privatization, as these processes have taken place in tandem globally, with liberalization facilitating the process of privatization. Liberalization was introduced to increase the rapid entry of other competitors in the market and has often consisted of the privatization of the incumbent operator in the sector. Three issues related to privatization are noteworthy: 1. Competition is a key economic force and should be managed by regulation. 2. An independent regulator is needed to enforce competition, reduce monopolies and

promote private and foreign investment. The regulator should be an independent arbitrator.

3. Privatization creates the change of ownership from government entities (partially of fully) to private business entities.

This raises the question: does the kind of ownership – public or private – makes a difference? What about the Universal Service obligations? Liberalization in itself seeks to increase the number of participants in the market. In telecoms markets, liberalization often occurs when the telecommunication framework is based on a monopoly system. The aim of government intervention is to expand the number of communication service providers or lower the entry barriers to all or part of the market, through policy amendments. However, liberalization is the slowest form of introducing reforms, as competition is allowed in slow increments starting often with the introduction of new entrants in the mobile services, such as cellular and paging.

3.2.6 Regulation and Its Importance: Elements to Consider

Key regulatory policies vital in these reforms include:

1. Introduction of competition

2. Privatization of incumbent operator

3. Establishment of an independent regulator Telecommunications liberalization is a complex and relatively new process for developing countries. Choices have to be made regarding the privatization of state-owned telecommunications operators, the introduction of competition, the opening of markets to foreign investment and the establishment of pro-competitive regulations. While there is growing consensus that each of these elements is desirable, it is rare for countries to simultaneously go all the way on all fronts19. Telecom regulations call for the issuance of additional detailed administrative rules, catalogues and notices required to implement the general principles set forth in the regulations. The regulations also provide some clues to several critical administrative areas, including a licensing system that distinguishes between value-added and basic telecom operations, rules to govern the interconnection of telecom networks, and telecom rates.

19 Carsten Fink, Aaditya Mattoo and Randeep Rathindran: An Assessment of Telecommunications Reform in Developing Countries. The World Bank Development Research Group, October 2002.



• Key regulatory issues

Among key regulatory issues, the World Bank20 recommends that regulators should consider the following:

• Licensing: Who can do what? • Competition (especially interconnection): Who can reach subscribers and distribute

content? • Spectrum management: Which bands of spectrum can be used for what service, and

under what conditions? • Universal service: Who pays, for what, and subsidizes whom? • A related issue is the institutional framework: are we seeing more ‘converged

regulators’? • Other issues relate to numbering, market dominance, content regulation,

accessibility, privacy and piracy.

• Regulator’s objectives

To be successful, the Regulator’s function21 should be based on a well-defined set of objectives, which typically would include:

• Attracting investment • Infrastructure planning and development • Sector efficiency improvement • Quality of service improvement • Encouragement of competition • Eliminating barriers to market entry for new operators • Protection and empowerment of the consumers and promotion of the general socio-

economic well being The functions of an independent regulator include, for example:

• Issuing and compliance monitoring of licenses • Setting minimum interconnection terms • Arbitrating disputes between operators or between operators and customers • Designing and monitoring compliance with a national numbering plan • Monitoring the fairness of infrastructure sharing as provided in the law • Regulating tariffs • Managing frequencies, and • Generally enforcing rules and regulations of the sector.

• Adequate funding

Without adequate funding a regulatory body cannot be effective. 20 World Bank: CITEL Doc. STE-356/07 21 Ernest C. Ndukwe, Chief Executive Officer, Nigerian Communications Commission: Lessons from implementation of market reform and competition, WTO Telecoms Symposium, February 2008.



Some National Regulatory Agencies (NRAs) are starved of basic funds essential for operational effectiveness, training and manpower development.

• The NRA must be well funded and financially strong to be effective. • NRA’s must be operationally and financially independent of network operators and

service providers and must never depend on such entities for favors or handouts.

• Licensing criteria

Licensing criteria must be well articulated and publicly available. • Terms and conditions of individual licenses must be investor-friendly and also ensure

consumer rights. • Licensing Processes must be transparent and timely. • Exclusivity, where considered necessary, must be for a determined optimum number

of operators and must ensure adequate competition and availability of choice. • Anticipation and Prevention of anti-competitive conduct by dominant operators is

crucial.

• Interconnection

A clear and transparent interconnection regulatory framework is key to a sustained competitive environment. Providing public access to reference interconnection offers, agreements, and prices is one tool regulators can use to promote transparency, raise competitor awareness and ensure a level playing field among competitors.

• The regulatory environment should be such that new entrants are guaranteed seamless interconnection with the incumbents and dominant operators.

• Regulatory institutions must be strong enough to be able to enforce interconnection. • Interconnection must be on non-discriminatory basis with respect to technical

standard and specifications, rates and quality. • Interconnection must be assured on a timely, transparent and reasonable manner; • Interconnecting parties must have access to quick and independent dispute

resolution process.

• VoIP regulation

Voice over Internet Protocol (VoIP) subscribers continue to grow, fuelled primarily by the demand for lower cost services as well as the fact that VoIP is being integrated into a number of new services offered on IP networks. Despite obvious benefits, VoIP also challenges traditional telecommunication business models, leading some countries to try to ban or limit VoIP. In many countries, incumbents have resisted offering VoIP services to protect their lucrative long-distance and international call revenues. In the process they have tried to convince regulators and policy-makers to ban or restrict other service providers from doing so. Today, however, the number of countries in which VoIP has been legalized is greater than the number of countries where it is banned.

• Important duty and fiscal incentives

• ICT equipment and systems are highly capital-intensive. Duty rates for a developing country, therefore, must be such that will encourage fast rollout of networks and services that are generally affordable.



• Countries with high import duty regimes should therefore review such duty rates on ICT goods.

• Government should depend on other sources of revenue such as company tax, value added tax and other taxes rather than import duty on equipment that could limit rate of expansion of ICT infrastructure.

• Simplification of procedures for importation of ICT equipment and development of related software is essential.

• Granting of incentives such as pioneer status to qualified investors especially those involved in local manufacture or local software development is desirable.

• Investor expectations

• Most major investors around the world, especially financial institutions, take the independence of the National Regulatory Authority very seriously because it is seen as a guarantee for regulatory transparency and consistency.

• Technology neutrality and level playing ground for all operators must be maintained. • Allocation of scarce resources such as frequency, numbering plan, and rights of way

must be objective, timely, transparent and non-discriminatory. • NRA must be fair and firm in the enforcement of rules and regulations.

• Human capacity development

• There must be conscious effort made towards skills development intervention through training and retraining of technical and managerial personnel of the NRA.

• Also for the sector generally, the expansion of a nation’s telecommunications facilities must go side-by-side with a plan for the development of the human resource skills to support the industry.

• Establishment of national or regional training institutions is therefore essential.

• Attraction of international experts

• Establishing a good investment climate ultimately provides the platform for attracting skilled manpower as well as repatriation of the knowledge and expertise of indigenous ICT professionals who are excelling overseas.

• Conclusions

Critical success factors for implementing market reform include: • A well articulated National Sector Policy for market liberalization and competition • Government unwavering commitment to reform at the highest level • Enactment of good Enabling Laws, regulations and guidelines • The establishment of strong, well funded and independent National Regulatory

Authority. The key to success of the WTO in developing markets is the practical implementation of the Reference Paper22 through concrete legal and regulatory reforms. These are the link 22 David Satola, Counsel, World Bank Legal Department, Legal Reform and Private Sector Development Unit, delivered at London, 28 October 1997.



between creating an investor-friendly environment in developing markets and allowing stakeholders in developing markets to gain access to and share in global telecommunications revenues.

3.2.7 Infrastructures

Providing telecommunications services, however, usually requires much more interaction with other private sector individuals and government officials. For instance, in the supply of telecommunications services, the supplier might have to construct or obtain access to an international communications network for its client. In the event that the service provider has its own network, it must buy from product suppliers the necessary infrastructure components, such as integrated circuits, cable wires, and radio and satellite-based equipment. The voice and non-voice information is then sent over such a backbone network, which can be an interconnection of various modes, including mobile radio, cellular, personal communications systems (PCS), paging, satellite, wireline, and fixed wireless. To provide such a network of services, the supplier, unlike an individual exporter of goods, has to adapt its corporate face to respond to the inherent multinational demand. Supplier alliances that have become the most competitive are those that cross borders, combine multiple types of services, and interconnect the many modes of transmission. The potential benefits of such diversified alliances are diminished substantially, though, if these suppliers are unable to enter a foreign market and access the domestic infrastructures that are already in place and that reach the consumers.



3.3 EXAMPLES OF WTO MEMBERS

Five WTO member countries have been chosen for the purposes of this benchmarking study. The reasons for choosing them are summarized in the table below.

Country Neighborhood New WTO member

Transition countries Advanced countries

Jordan ● ●

Oman ● ● ●

Saudi Arabia ● ●

Ukraine ● ●

Vietnam ● ● Date of accession of the benchmarked countries:

Country Date of Accession

Jordan 11 April 2000

Oman 9 November 2000

Saudi Arabia 11 December 2005

Ukraine 16 May 2008

Vietnam 11 January 2007 Among the benchmarked countries, all are new WTO members and have undertaken large commitments on telecommunications. Jordan, Oman, Ukraine and Vietnam undertook the obligations contained in the Reference Paper as additional commitments; Saudi Arabia did not. On Mode 4, all benchmarked countries put “unbound except as indicated in the horizontal section.”

3.3.1 1st Sub-Sector: Voice Telephone Services (A)

• Under Mode 1, most of the benchmarked countries took full commitments (‘none’). Some of them specified a short transition period after the date of accession – between 1 and 3 years for Jordan (only on international call back), Oman and Saudi Arabia. For Ukraine, the commitment went into effect immediately upon accession.

Vietnam stated “none” with the following exceptions: • Wire-based and mobile-terrestrial services: services must be offered through

commercial arrangements with an entity established in Vietnam and licensed to provide international telecommunication services.

• Satellite-based services: subject to commercial arrangements with Vietnamese international satellite service suppliers duly licensed in Vietnam, except satellite based services offered to: o Upon accession: off-shore / on-sea-based business customers, government

institutions, facilities-based service suppliers, radio and television broadcasters,



official international organization’ representative offices, diplomatic representatives and consulates, high tech and software development parks who are licensed to use satellite-earth stations

o 3 years after accession: multinational companies which are licensed to use satellite earth stations

All the countries defined ‘none’ on limitations on national treatment under mode 1.

• Under Mode 2, all the benchmarked countries took full commitments.

• Under Mode 3, Ukraine took immediate full commitments (‘none’). Jordan and Oman chose a short transition period to maintain exclusive rights to the National Telecommunications Company, followed by ‘none’. Oman added a transition period for subsidiaries to be wholly foreign owned, followed by ‘none’. Other countries opened up their markets but defined limitations mainly on foreign equity (Saudi Arabia and Vietnam). Positions are summarized in the following chart:

Mode 3 A: Voice Telephone Services Limitations on market access

Jordan Exclusive rights to the Jordan Telecommunications Company (4 years) then ‘none’

Oman Exclusive rights to the GTO (4 years). Wholly foreign owned subsidiaries permitted after 5 years from accession. Then ‘none’

Saudi Arabia None except services offered as public telecoms services must be provided by a joint stock company. Foreign equity should be limited to 49% upon accession, to go to 51% two years later and 60% three years later.

Ukraine None

Vietnam None except: • Non-facilities-based services: upon accession, joint ventures with telecommunications

services suppliers duly licensed in Vietnam will be allowed. Foreign capital contribution shall not exceed 51% of legal capital of the joint ventures. 3 years after accession: joint venture will be allowed without limitation on choice of partner. Foreign capital contribution shall not exceed 65% of legal capital of the joint ventures.

• Facilities-based services: upon accession, joint venture with telecommunications service suppliers duly licensed in Vietnam will be allowed. Foreign capital contr bution shall not exceed 49% of legal capital of the joint venture.

In the telecommunications sector, foreign investors will have the possibility to renew current arrangements or to convert them into another form of establishment with conditions no less favorable than those they currently enjoy.

3.3.2 2nd Sub-Sector: Packet-Switched Data Transmission Services (B)

• Under Mode 1, most of the benchmarked countries – Jordan, Saudi Arabia and Ukraine – took full and immediate commitments (‘none’). Oman selected a short transition period after the date of accession.

Vietnam stated “none” with the following exceptions: • Wire-based and mobile terrestrial services: services must be offered through




• Satellite-based services: subject to commercial arrangements with Vietnamese international satellite service suppliers duly licensed in Vietnam, except satellite-based services offered to: o Upon accession: off-shore / on-sea-based business customers, government

institutions, facilities based service suppliers, radio and television broadcasters, official international organization’ representative offices, diplomatic representatives and consulates, high tech and software development parks who are licensed to use satellite-earth stations


All the countries defined ‘none’ on limitations on national treatment under Mode 1.

• Under Mode 2, all the benchmarked countries took full commitments.

• Under Mode 3, Ukraine took immediate full commitments (‘none’). Jordan chose a short transition period to maintain specific rights to the National Telecommunications Company, then ‘none’. Oman maintained exclusive rights for a certain period as well as a transition to permit subsidiaries to be wholly foreign-owned, then ‘none’. Other countries opened up their markets but defined limitations mainly on foreign equity (Saudi Arabia and Vietnam). Positions are summarized in the following chart:

Mode 3 B: Packet Switched Data Transmission Services

Limitations on market access

Jordan A 4-year transition for services provided only over circuits leased from JTC, then ‘ none’

Oman Exclusive rights to the GTO (4 years). Wholly foreign owned subsidiaries permitted after 5 years from accession. Then ‘none’


Ukraine None



• Facilities-based services: upon accession, joint venture with telecommunications service suppliers duly licensed in Vietnam will be allowed. Foreign capital contr bution shall not exceed 49% of legal capital of the joint venture.


3.3.3 3rd Sub-Sector: Circuit Switched Data Transmission Services (C)

For this sub-sector, commitments of all the benchmarked countries are similar to those taken under the 2nd Sub-sector: Packet-switched data transmission services (B).



3.3.4 4th Sub-Sector: Telex Services (D)


3.3.5 5th Sub-Sector: Telegraph Services (E)


3.3.6 6th Sub-Sector: Facsimile Services (F)

For this sub-sector, Ukraine took full and immediate commitments (‘none’) under Mode 1, and Jordan, Saudi Arabia and Oman chose a short transition period after the date of accession, then “none.” On Mode 2 and 3, commitments of all the benchmarked countries are similar to those taken under the 1st Sub-sector: Voice telephone services (A).

3.3.7 7th Sub-Sector: Private Leased Circuit Services (G)


3.3.8 8th Sub-Sector: Electronic Mail (H)

• Under Mode 1, Ukraine, Jordan and Saudi Arabia took full and immediate commitments (‘none’), and Oman after a short transition period after the date of accession.

• Under Mode 2, all the benchmarked countries put ‘none’.

• Under Mode 3, Ukraine took full and immediate commitments (‘none’). Jordan put a short transition period to maintain specific rights to the National Telecommunications Company, then ‘none’. Oman maintained exclusive rights for a certain period as well as a transition to permit subsidiaries to be wholly foreign-owned, then ‘none’. Other countries opened up their markets but defined limitations mainly on foreign equity (Saudi Arabia and Vietnam). Positions are summarized in the following chart:

Mode 3 H: Electronic Mail



Oman Exclusive rights to the GTO (1 year). Wholly foreign owned subsidiaries permitted after 5 years from accession. Then ‘none’


Ukraine None



Vietnam None except: • Non-facilities-based services: upon accession business cooperation contracts or joint ventures

will be allowed. Foreign capital contribution shall not exceed 51% of legal capital of the joint ventures. 3 years after accession: Foreign capital contribution shall not exceed 65% of legal capital of the joint ventures.

• Facilities-based services: upon accession, business cooperation contracts or joint ventures with telecommunications service suppliers duly licensed in Vietnam will be allowed. Foreign capital contribution shall not exceed 50% of legal capital of the joint venture.


3.3.9 9th Sub-Sector: Voice Mail (I)

• Under Mode 1, Ukraine and Jordan took full and immediate commitments (‘none’) and Oman and Saudi Arabia after a short transition period after the date of accession.



Mode 3 I: Voice Mail




Saudi Arabia None except foreign equity should be limited to 49% upon accession, to go to 51% two years later and 60% three years later.

Ukraine None

Vietnam None except: • Non-facilities-based services: upon accession, business cooperation contracts or joint

ventures will be allowed. Foreign capital contribution shall not exceed 51% of legal capital of the joint ventures. 3 years after accession: Foreign capital contribution shall not exceed 65% of legal capital of the joint ventures.

• Facilities-based services: upon accession, business cooperation contracts or joint ventures with telecommunications service suppliers duly licensed in Vietnam will be allowed. Foreign capital contr bution shall not exceed 50% of legal capital of the joint venture.




3.3.10 10th Sub-Sector: Online Information and Database Retrieval (J)

On this sub-sector, commitments of all the benchmarked countries are similar to those taken under the 8th Sub-sector: Electronic mail (H).

3.3.11 11th Sub-Sector: Electronic Data Interchange (EDI) (K)


3.3.12 12th Sub-Sector: Enhanced/Value-Added Facsimile Services (Incl. Store and Forward, Store and Retrieve (L)


3.3.13 13th Sub-Sector: Code and Protocol Conversion (M)

On this sub-sector, commitments of all the benchmarked countries –except Saudi Arabia who did not take any commitments under this component- are similar to those taken under the 8th Sub-sector: Electronic mail (H).

3.3.14 14th Sub-Sector: Online Information and/or Data Processing (Incl. Transaction Processing) (N)


3.3.15 15th Sub-Sector: Other (O)

Benchmarked countries put different sub-sectors under the Title ‘others’.

Mobile Voice and Data Services

• Under Mode 1, Ukraine, Saudi Arabia and Jordan took full and immediate commitments (‘none’), and Oman after a short transition period after the date of accession.

Vietnam under Mode 1 stated “none’ except: • Wire-based and mobile terrestrial services: services must be offered through


• Satellite-based services: subject to commercial arrangements with Vietnamese international satellite service suppliers duly licensed in Vietnam, except satellite-based services offered to: o Upon accession: off-shore / on-sea-based business customers, government

institutions, facilities based service suppliers, radio and television broadcasters, official international organization’ representative offices, diplomatic representatives and consulates, high tech and software development parks who are licensed to use satellite-earth stations






Mode 3 O: Other – Mobile voice and data services


Jordan A 3-year to maintain duopoly + commercial presence is subject to 51% foreign equity limitation then ‘ none’


Saudi Arabia None except foreign equity should be limited to 49% upon accession, to go to 51% two years later and 70% three years later.

Ukraine None



• Facilities based services: upon accession, joint venture with telecommunications service suppliers duly licensed in Vietnam will be allowed. Foreign capital contr bution shall not exceed 49% of legal capital of the joint venture.


Paging Services On this sub-sector, commitments of all the benchmarked countries are similar to those taken under the previous one under the title ”others” (O) Sub-sector: mobile voice and data services, except under Mode 3 for Jordan where it defined: ”the total number of services suppliers is subject to an economic needs test during 3 years then ‘none’”.

Other Sub-Sectors under the Title “Other” Jordan and Saudi Arabia have been undertaking commitments on “Global Mobile Communication by Satellite” (GMPCS), Jordan and Oman on “Public payphone services”, Saudi Arabia and Vietnam on “Internet services”, Ukraine and Vietnam on “Tele or Video-conferencing” and “Integrated telecommunication services excluding broadcasting”, Vietnam on “Virtual Private network” and “Trunking” (see Annex with full commitment schedules).



3.3.16 State of Play of the Telecommunication Sector in the Benchmarked Countries

• Middle East Countries

Governments throughout the Middle East have now embraced de-regulation23 as a means to increase service options and reduce prices for consumers, and to provide businesses with communications that enable them to compete on a global level. In almost all cases, the Governments are following the tenets of the World Trade Organization Basic Telecommunications Agreement following their respective signings or accessions to the WTO. By fostering a competitive telecommunications environment, and in many cases opening the door to overseas investment, the Governments are stimulating their national economies in much the same way as seen in Europe during the 1990s. Recent times have brought dramatic changes, with the creation of regulatory authorities, the issuing of a host of new licenses and the launch of new services. Mobile service provision has typically been the first sector to be deregulated in each market. Most Middle Eastern countries now operate a duopoly, and a number have licensed three mobile carriers. Among the regulatory authorities, Jordan’s Telecom Regulatory Commission (TRC) became one of the first to award an MVNO (Mobile Virtual Network Operators) license to i2, a Saudi Arabian based operator. The TRC is expected to benefit from the entrance of an MVNO, receiving 10% of operating revenues. i2 will share the mobile sector with four other operators: Zain, Orange, Umniah and Xpress. More recently, Oman’s Telecommunications Regulatory Authority (TRA) awarded five MVNO licenses in July 2008, allowing operators to lease capacity from state-owned Oman Mobile Telecommunications and rival operator Nawras. Incumbents are working on expanding their service portfolios, particularly with new data services, either in anticipation of competition or in order to remain competitive. New fixed market entrants have also appeared or are in the process of being licensed. Broadband and data services offer each a way to maximize returns from their new fixed-line assets and to either protect or grow their customer base, as well as promising a wider range of potential service offerings. Delivery of an integrated set of voice, data and video services over a single connection offers regional operators the means not only to compete more effectively, but also to offer an alternative to the satellite-dominated home entertainment market. Until recently, broadband has been very slow to take off in the region. Whilst growth in Middle East internet users has greatly exceeded that in the rest of the world over the last five years (266.5% compared with 144.4%, according to the Internet World Stats website), this still only represents a small percentage (less than 10%) of the population, with only a very small proportion using high-speed connections. Regional operators have started 2005 with a resolute drive to enlarge their broadband customer base. Tariffs are being cut, higher-speed connections are being offered and greater efforts are being made to increase awareness and promote usage of broadband services. Providers of Arab language content are also becoming more numerous and more active. As a result, broadband subscriptions are expected to multiply rapidly in many of the countries of the Middle East.

23 http://www.flagtelecom.com : De regulation of Middle East Telecoms… shaking the markets up



Mobile Internet access and content services are also starting to become available in the region, and will increase with the deployment of 3G networks. Bahrain was the first to award a 3G license, and others such as Oman, UAE and Saudi Arabia, have already followed. The rollout of next-generation mobile networks will heighten the importance of data services as part of the service mix.

• Jordan

Jordan has a Telecommunications Regulatory Commission24. The number of fixed lines in Jordan declined by an estimated 9% in 2007, following a more modest decline of 2.2% in 2006. The accelerated decline in the number of fixed lines reflects the increased impact that mobile and broadband services are having on the market. Service has improved recently with increased use of digital switching equipment; microwave radio relay transmission and coaxial and fiber-optic cable are employed on trunk lines; growing mobile-cellular usage in both urban and rural areas is reducing use of fixed-line services; Internet penetration remains modest and slow-growing25. Jordan had just over 95,000 broadband subscribers at the end of 2007 and, by the end of June 2008, this figure had risen to 130,000. The majority of the country’s broadband subscribers (97% of the total) use ADSL connections; Jordan Telecom had almost 126,000 ADSL connections at the end of June 2008, a figure that includes wholesale connections sold to other Internet Services Providers and to Jordan Telecom’s own retail internet business Orange Jordan. According to figures published by Jordan Telecom’s parent company, France Telecom, Orange had 85,000 internet customers at the end of June 2008. Around 60% of these were ADSL customers, with the remainder being dial-up users. Based on these figures, Orange currently serves almost 41% of Jordan’s retail ADSL market. Recent quarters have seen the increased growth of WiMAX and other non-DSL broadband services, and this trend will probably accelerate over the next few years. In June 200826, Jordan saw the arrival of its second WiMAX network operator, ACT Jordan, which will operate in the country under the Witribe brand. ACT first announced plans to launch WiMAX services in January 2008, after being awarded a 3.6GHz fixed broadband wireless license at the start of 2007. Jordan’s own telecoms market score is now just above the regional average. The country continues to have one of the highest scores in the region for regulatory independence.

• Oman

Oman has a Telecommunications Regulatory Authority27. In July 2008, Oman launched the sale of a 25% stake in Oman Telecommunications (Omantel)28, in a deal which the government hopes will boost the state-controlled firm's competitive position. Omantel remains the sole operator in the country’s fixed-line market, with its monopoly also extending to the provision of internet and broadband sectors. Oman’s regulator has suggested that there were 273,997 fixed lines in operation at the end of March 2008, up from 268,065 at the end of 2007. The recent fixed-line growth may be related to Omantel’s emphasis on expanding the availability of fixed wireless services – especially in previously

24 http://www.trc.gov.jo/ 25 CIA: World Factbook 2008. 26 Business Monitor International: Jordan telecommunications report 27 http://www.tra.gov.om/ 28 Business Monitor International: Oman telecommunications report



underserved rural areas. The total number of fixed lines will see moderate growth in 2008, with the expansion of fixed wireless services accounting for most of this growth. Meanwhile, broadband growth continues to be steady, with the number of ADSL subscriptions rising by over 26% in the first three months of 2008 to reach 23,969. In June 2008, Omantel indicated that it would invest USD 26 million on expanding its broadband network to meet rising demand. The company has set an ambitious target of 75,000 broadband subscribers by the end of 2008. In June 2008, Dubai-based Friendi Mobile won a license to operate as a third mobile service provider in Oman. Friendi will operate in the country as an MVNO by renting space on existing networks. In July 2008, it was revealed that Oman’s telecoms regulator had issued mobile reseller licenses to five additional companies – Injaz International, Kalem Telecom, Majan Telecom, Mazoon Mobile and Arab Link. The new licenses will allow the five companies to launch MVNO services in a move which the regulator hopes will lead to cheaper calls. By the end of March 2008, there were 2.731mn mobile subscribers in Oman, giving the sultanate a mobile penetration rate of 84.7%. Business Monitor International currently envisages a 2008 growth rate of over 30% for Oman’s mobile subscriber market.

• Saudi Arabia

Saudi Arabia has a Communications and Information Technologies Commission29. According to the Saudi regulator30, the number of mobile users in the Kingdom had reached 28.4mn at the end of 2007. This was after having grown by over 44% during the year. Mobile penetration at the end of 2007 stood at just over 116%. By the end of March 2008, the number of Saudi mobile subscribers had grown to 30.7mn. Estimates show the growth of the sector by over 27% in 2008, lifting the official mobile penetration rate to 144%. The launch of commercial services by new entrant Saudi Zain in the second half of 2008 will further stimulate the market. Meanwhile, regulatory figures indicate that Saudi Arabia had 4mn operational fixed lines at the end of 2007. Although the number of fixed lines serving business customers increased in 2007, the number of residential lines decreased from 3mn at the end of 2006 to 2.9mn at the end of 2007. The slight decline in residential fixed lines has been attributed to the growth of mobile substitution. In April 2007, Saudi Arabia licensed three new fixed-line operators. In 2007, Saudi Arabia’s regulator has suggested that the number of broadband subscribers grew to reach 623,000. Of these, 595,000 (95.5% of the total) were DSL lines. Although the predominance of DSL is expected to continue in 2008 and the first part of 2009, the deployment of wireless broadband networks by three new national fixed-line consortia will improve choice and help to drive increased broadband growth. In 2008, Business Monitor International predicts a further 158% increase in the number of broadband connections, during which time the number of broadband connections to rise to around 1.6mn (equivalent to 6.4% penetration).

• Ukraine

Ukraine's telecommunication development plan emphasizes improving domestic trunk lines, international connections, and the mobile-cellular system31. The 2003 Law on

29 http://www.citc.gov.sa/ 30 Business Monitor International: Saudi Arabia telecommunications report 31 CIA: World Factbook 2008



Communications established the National Communication Regulation Commission32, which regulates the IT and telecommunications market. Under this law, telecommunications operators require a license before starting activity. With the present government, telecommunications and the Internet enjoy a high degree of freedom. Internet activity is not subject to licensing or other forms of regulation. Liberalization of the market has led to a rapid increase in the number of Internet Services Providers, which numbered 260 in 2006. In recent years, Ukraine's telephone network has been upgraded and new equipment installed. Digital telephone exchanges are used extensively in large cities and suburban areas. Telephone connections are not good in rural areas and smaller towns. There are five cellular telephone operators in Ukraine operating with GSM. Citizens of Ukraine enjoy an unfettered access to telecommunications. The country has an Internet infrastructure oriented toward European providers, and thus the ISPs are not influenced by the policies of Russian providers. However, the country has built up an intricate system of bodies and regulations that could be geared to surveillance of information carried on telecommunications networks, including the Internet. The mobile sector remains the most interesting aspect of Ukraine’s telecommunications market33, with three of the four principal network operators having made substantial reductions to their subscriber bases. Consequently, the total number of mobile subscribers as of June 2008 was 55.2mn. In this environment, it seems increasingly unlikely that mobile virtual network operators (MVNOs) will emerge for some time. The market has also been waiting for a clear statement of intent from the government regarding the licensing of 3G services. Ukrtelecom is the only formally-licensed 3G UMTS operator and the others are being left to deploy next-best solutions in an attempt to fill the market with 3G-like services while they petition the authorities to compete on an equal basis with the incumbent. The cellular operators were set back significantly in July 2008 when a Kyiv court overturned a previous ruling that had called for the government to issue 3G licenses with alacrity. It seems that the court has been persuaded that licenses and spectrum cannot be allocated until the relevant frequencies have been vacated by existing users, such as the military. This process is an expensive and technically complex one, requiring finance that is earmarked from the planned sale of Ukrtelecom sometime in 2008-2009. Even if the privatization of Ukrtelecom is completed on schedule, it could still take several years to make spectrum available. Thus, the Ukrainian 3G market is set to remain the sole domain of Ukrtelecom for the foreseeable future and the incumbent is likely to benefit financially as rival operators reluctantly agree to interconnect with its network just to ensure that they can offer some kind of full 3G service to their customers. Ukrtelecom’s slow progress in growing its 3G customer base to date also suggests that 3G take-up would be slow to gain momentum in any case.

• Vietnam

The Socialist Republic of Vietnam is attempting simultaneously to promote the development of information communications technology (ICT) and e-commerce while struggling to limit access to content that might destabilize the communist state and undermine its control. Vietnam is putting considerable effort into modernization and expansion of its telecommunication system, but its performance continues to lag behind that of its more modern neighbors34. 32 http://www.kmu.gov.ua/ 33 Business Monitor International: Ukraine telecommunications report 34 CIA: World Factbook 2008



Vietnam’s Internet system is growing and changing rapidly, and it is difficult to describe the situation “on the ground” with complete accuracy. From 2005 to 2006, the number of Internet users reportedly jumped from 9.2 mn to 14.5 mn, yielding an Internet penetration rate of 17%. State regulation determines how Internet connectivity in Vietnam is organized and managed, and facilitates Internet content filtering by limiting external access points that must be controlled. Vietnam’s legal regulation of Internet access and content is multilayered and complex and can occur at the level of National Assembly legislation, ministerial decisions, or through VNPT rules created for the management of the Internet infrastructure. By the end of June 2008, the number of mobile customers in Vietnam had risen to over 51.6mn35. Viettel, which is owned by the Vietnamese military, continued to lead the Vietnamese mobile market with a market share of around 38%. Viettel has a clear lead over the next largest mobile operators, MobiFone and VinaPhone, which had market shares of approximately 26% and 24%, respectively. Estimates envisage a growth rate of almost 80% for 2008. By the end of the year, the subscriber base should have risen to over 64mn, and the mobile penetration rate would have reached 73%. Competition and growth in Vietnam’s mobile sector has been boosted by the recent wave of tariff cuts, which have been introduced by the various operators. Further cuts may follow in the near future, possibly resulting in a price war. Looking ahead, Vietnam will surpass the 100% penetration threshold in 2010. Continued customer growth will be supported by a steadily expanding population, as well as the arrival of increased competition and new investment. Meanwhile, according to Vietnam’s Internet Network Information Centre (VNNIC), the number of broadband subscribers rose by 37% in the first eight months of 2008. Recent months have seen accelerated efforts to increase the level of investment in broadband technologies and to encourage further take-up. Broadband subscriber growth will be strong over the next five years. By the end of 2008, the market is estimated of almost 2.57mn broadband subscribers (equivalent to a penetration rate of 2.9%).

• Data

Quality of telephone and fax infrastructure: new telephone lines for business are: 1= scarce and difficult to obtain; 7= widely available and highly reliable; 2006

6.25.8

6

4.7

6.66.4 6.5

5.6

4

4.5

5

5.5

6

6.5

7

Egypt SaudiArabia

Turkey Ukraine UAE US UK Vietnam

Source: World Economic Forum. Note that the figures for Oman and Jordan are not available.

35 Business Monitor International: Vietnam telecommunications report



Telephone lines: main telephone lines per 100 inhabitants

14.3 15.725.4 26.8 28.1

55.6 56.1

32.2

0

10

20

30

40

50

60

Egypt SaudiArabia


Source: World Economic Forum. Note that the figures for Oman and Jordan are not available. Mobile phone subscribers per 100 inhabitants, 2006

23.9

7897

78 71106.5 118.5

80.3116.6

18.2

0

50

100

150

Egypt Jordan Oman SaudiArabia


Source: World Economic Forum. Note that the figures for Oman and Jordan are not available. Oman and Jordan: Annual report of Telecommunication Regulators Internet users per 100 inhabitants 2006

8 13.73

18.7 17.7 19.636.7

69.8 63.2

17.2

0

20

40

60

80

Egypt Jordan Oman SaudiArabia


Source: World Economic Forum. Note that the figures for Oman and Jordan are not available. Oman and Jordan: Annual report of Telecommunication Regulators



3.3.17 GATS Commitments on Telecoms vs. Services Efficiency

The direct impact of the WTO accession is not that clear, as most of the benchmarked countries have entered the WTO within the last 4 years. However, within a given country, the correlation between telecom liberalization and telecom sector performance is well established36. Services liberalization in general results in: • Increased competition, including through FDI • Falling prices • Increased efficiency • Better access and better quality Among the 5 countries benchmarked in this study, the most advanced in terms of telecommunication liberalization and performance is Saudi Arabia. Investments in Saudi Arabia’s telecommunications sector were high, access largely promoted, and a clear regulatory environment has been established. The Jordanian mobile market is, however, by far the most competitive among all MENA mobile markets37. Jordan effectively has four licensed mobile operators.

36 ITU 37 MTC Report: The Socio-Economic Impact of Mobile Phones in the Arabic World, February 2006.



4. THE IRAQI TELECOMMUNICATIONS SECTOR

4.1 ECONOMIC, SOCIAL AND REGULATORY ENVIRONMENT

The past five years have been extremely difficult for the Iraqi economy, but over the course of 2007, some encouraging signs of improvement started to emerge. The levels of violence decreased, accompanied by a number of successes on the economic front. The authorities responded with a policy package including exchange rate appreciation, monetary tightening, and fiscal discipline. These policies, together with measures to reduce fuel shortages, brought inflation down to less than 5% by December 2007. Core inflation – which excludes fuel and transportation prices – fell to about 12% in 2007, from 32% in 2006. Despite the achievements in 2007, much remains to be done to consolidate macroeconomic stability and put the economy on a higher growth path. Public confidence remains very low and violence is still widespread. Corruption and governance problems continue to impede the functioning of the public and private sectors.

4.2 THE IRAQI TELECOMMUNICATIONS SECTOR

4.2.1 Background

Iraq’s wire line network had suffered severe damage due to the recent wars. The growth rate of the number of active lines remained extremely slow and the quality of the network deteriorated over the years. In urban areas, in the difficult times immediately after the war, demand for basic telephone services was met by unlicensed operators who used a multitude of wireless technologies to provide the last mile, as well as by Internet access to the business and residential community in Iraq. Prior to the conflict, 1.2 million Iraqis subscribed to landline telephone service and much of the telecommunication network was centralized in Baghdad. However, many of the network’s switches were damaged during the conflict and services were disrupted. In Baghdad, 12 telephone exchange switches (out of 38 total), serving 240,000 out of 540,000 telephone lines, were out of service. These switches connect the main telephone trunk lines to individual consumer lines. As part of USAID’s effort to restore critical infrastructure and services38, USAID’s partner worked with the Iraq Telecommunications and Postal Commission (ITPC) to restore the 38 See USAID information: www.usaid.gov/iraq/accomplishments/telecom.html

Iraq Key Indicators:Population: 28 million GDP in 2006(PPP): USD 94.1 billion GDP real growth rate 2007: 5% (est.) GDP per capita (PPP) 2007: USD 3,600 (est.)

GDP, Composition by sector: • Agriculture: 5% • Industry: 68% • Services: 27%



national fiber optic telecommunications network, repair the telephone switching system in Baghdad, and restore international telecommunications capability. USAID relied on Iraqi Telecommunication and Post Company (ITPC) personnel to perform much of the reconstruction activities and handed over operation and maintenance of all switch sites.

4.2.2 Legal Framework

Voting on Iraq’s draft Telecommunications Law is expected to take place in the parliament in 2009, together with two related laws concerning the sector. A draft Law is designed to give extra power and independence to the existing Communications and Media Commission, and a third draft amendment deals with the functions of the Ministry of Communications. The legislation package is expected to be released for consultation with the private sector ahead of the parliamentary vote. The current regulatory regime, which has been called inadequate, is administered by the Ministry of Communications, the Communications and Media Commission, and a cabinet committee established to oversee mobile phone licensing. It is hoped that the new laws will bring clearer regulation that more closely resembles best international practices. However, there is concern over reports that the Telecommunications Law will allow a 6-month period for the newly constituted regulator to review existing contracts and licenses to ensure fairness to all parties. Foreign investors operating in the country under existing licenses could potentially find themselves having to renegotiate their concession terms. The new laws will guide the establishment of an independent telecom regulator and a separate competition, and/or an anti-trust Commission. Among the important elements will be a measure to permit private companies to lay cables across public land. Private companies will be able to get access to government infrastructure at near-to-cost price under the new laws. There is a copyright law in Iraq but its provisions present a barrier to entering the market39. This Law is currently being reviewed. The draft law is compliant with international treaties and TRIPS agreement, and it should also be approved by the parliament in the upcoming months.

4.2.3 Communications and Media Commission of Iraq

The Communications and Media Commission of Iraq40 (CMC) was established in 2004 to monitor media and communications in Iraq. The Iraqi law governing the telecommunications sector, establishes the right of the Commission to grant licenses for telecommunications operations, to receive fees and tariffs, and to manage resources such as spectrum frequencies, right of way, international communications, in addition to carrying out activities in support of the universal access. CMC is committed, through its Spectrum Management Department, to establish a clear and consistent approach to the regulation and management of radio spectrum in accordance with best international practices as determined by the multilateral sector developmental organizations, such as the UN-chartered International Telecommunications Union (ITU), and the European Conference of Postal and Telecommunications Administrations (CEPT).

39 Trevor Lloyd Jones, Business Intelligence Middle East: Report from the Iraq Defense, Security and Communications Summit, February 2008. http://www.bi-me.com 40 Communications and Media Commission of Iraq: http://www.cmc.iq/english/index.htm



The department is also responsible for outlining the future strategies of the radio spectrum through studying and analyzing the interferences of the frequencies to avert their occurrence subsequently.

4.2.4 Equipments and Networks in Iraq

Iraq requires the full range of telecom equipment, infrastructure and mobile GSM products. The Iraqi authorities have already issued GSM mobile licenses, creating significant demand for phones and other mobile network technology, telecom equipment such as infrastructure products41 (including cables and connections, masts and antennae), public phone networks, repair equipment and PABX systems, as well as communication software, software consultants and engineers. The electromagnetic spectrum is a scarce national resource. The system is comprised of a central monitoring station at the CMC Headquarters in Baghdad. This system includes: four full-service operator stations with graphics user interfaces (including digitized maps for the entire Iraq); a frequency allocation and assignment system containing tools for accessing a large database; query management system; and data entry forms. The central monitoring station has the necessary equipment for the monitoring of the wide spectrum, including the bands for most commercial satellite communication systems. The frequency management system also includes three vehicle-borne spectrum monitoring units to complete the process of monitoring the frequencies. NCMC plans to further enhance the network in the future to include regional monitoring stations and additional mobile units. Iraq uses VSAT system. It consists of a central terrestrial station (HUB) connected with small terrestrial sub-stations designated for satellite communication – receiving and transmitting. These sub-stations are installed in geographically-separated locations. Emirates Telecommunications Corporation (ETISALAT), Iraqi Telecommunications and Post Company (ITPC) and Saudi Telecom Company (STC) have commenced the groundwork to lay a submarine cable connecting UAE, Saudi Arabia and Iraq by signing the Construction and Maintenance Agreement (C&MA). This follows a Memorandum of Understanding (MoU) that was signed between the three telecom operators in June 2005. FOG2 is the second generation of the Fibre-Optic Gulf (FOG) cables and upon this terabit capacity system, initially equipped with 80 Gbps capacity over two fibre-pairs, will enable its participants to meet their growing requirements for internet, data, voice, etc.

4.2.5 The Iraqi Telecommunications Market

• Data

Preliminary statistics indicate that the communications revenues in Iraq represent about 5% of GDP. The tele-density in Iraq in 2005 amounted to over 20% compared to that of 2004, with growth rates exceeding 100%. • Fixed lines

The reconstruction of Iraq’s fixed line network has been proceding at a slower pace than had been anticipated due, partially, to the security situation and the lack of available funds. By January 2006, the number of fixed lines amounted to around 1.2 mn, with a penetration rate 41 Project Rebuild Iraq 2008



of 4.4%42. The bulk of fixed lines subscribers are based in Baghdad, which has close to 40% of the total lines in the country. In regards to the cellular market, the total number of subscribers in Iraq is forecasted at around 13 mn subscribers, by 200843. Consequently, on September 30, 2006, the cellular penetration rate in Iraq stood at around 31.4%. • Mobile

Traditionally, Iraq Telecommunications and Post Company (ITPC), a government-owned monopoly and a part of the Ministry of Communications, had been responsible for the provision of telecommunications services and Internet access with heavy monitoring from security and intelligence departments. The Iraqi regime was reluctant to introduce mobile networks in Iraq, as they were considered a security risk. However, a change of attitude hap-pened in the late 1990’s and early 2000’s. During those years, the ITPC tried relentlessly to acquire a mobile cellular system, but failed for reluctance of international companies to break the international sanctions imposed on Iraq. A much delayed approval of the UN for a contract with a Chinese company never saw the light. The Chinese company declined its offer for fear of US threats. In 2003, Iraq was the only country in the region without a mobile cellular network. In October 2003, three contracts were awarded for three regional GSM mobile networks. Technically, as well as economically, the need to go ahead with mobile cellular networks in Iraq was a must. First, the landline network was in a bad shape; reconstruction and/or construction of a new network was costly. Second, the teledensity in Iraq, at its best before 1991 was about 5% – hardly a suitable penetration rate compared for 2003. Third, numerous success stories spoke of successful usage of wireless networks in similar situations around the world. Fourth, the convergence of the Internet and mobile communication has undoubtedly become a future trend line that should not be undermined. However, these were fixed two-year term licenses. It was clear that these licenses lack many regulatory aspects and conditions that determine the appropriate procedures for the cellular phone companies, because the licensing terms did not include the timely provision for extension, nor the right to refuse the extension after the expiration of the two-year period. Also, the initial licenses divided Iraq into geographic regions, with Asiacell getting the Kurdish northern part of the country; Iraqna the central region, including Baghdad; and Atheer the Shia-dominated south. The regulations stipulated that after one year all three companies would be allowed to compete nationally. Each company would have to open up its network and allow its competitors to tap into that network, permitting real competition by allowing a subscriber of one network to make calls to subscribers of one of the other two networks. This provision was seen as particularly important to Asiacell and Atheer, because more than half of Iraq's potential (and actual) cellphone subscribers are in the central region. However, the open access envisioned in this strategy was never implemented44, and interconnection between operators does not function. In 2004 the Iraqis were able, for the first time, to acquire their own mobile numbers. The growth in mobile subscribers was unprecedented in the region. Despite low income and security hazards, the Iraqis rushed for the prepaid cards for mobile numbers, reaching around 1.3 mn by the end of 2004 and ten times than number (13 mn) in 2008. 42 Arab Advisors Group's Telecoms Strategic Research Service: “Iraq Communications Projections Report”, February 13, 2007. 43 Hottelecom: Middle East, mobile subscribers statistics and forecasts by country, 2007 44 Glenn Zorpette: Iraq goes wireless



Iraqis that held bank accounts in hard currency outside Iraq were able to subscribe as post-paid. However, that rate is very limited, standing at approximately 0.9%. The number will certainly increase once the banking system in Iraq is improved and ordinary Iraqis are motivated to open bank accounts and acquire credit cards. The high insecurity situation in present-day Iraq has proved to be the best promoter for mobile services.

• Internet and VSAT

Internet was made accessible in Iraq in 1999. The total number of Internet users in 2002 was estimated at around 25,000. Immediately after April 2003, Iraq went through “free-for-all” services for international access of voice and data via satellite. In the months that followed, Thuraya Satellite Telecommunications had many customers. By July 2003 there were about 45,000 subscribers, which constituted about 30% of Thuraya total number of subscribers. Other satellite operators were also encouraged to enter the Iraqi market, but demand sharply declined after the start up of the GSM networks during 2004 in the three regions of Iraq. In the insecure, yet free, communication haven of new Iraq, the Internet also witnessed an unprecedented growth. VSAT stations started to appear in many cities and towns in Iraq. The number of users immediately increased from the low 25,000 in 2002 to 50,000 in 2004. The estimated number in 2005 is around 150,000. • New licenses

To date (April 2009), the following licenses are delivered: • One license GSM and WLL (national) • Three licenses for GSM (national) • Three licenses for WLL (national – including one for ITPC) • Three licenses for WLL (regional)

In June 2005, the CMC announced its intention to commence the process of granting long-term licenses (of 15 - 20 years) for cellular telephone services. On September 6, 2006, the Iraqi Communications and Media Commission announced the successful conclusion of its fixed licenses tender. Hitherto, the state-owned Iraqi Telecommunications and Posts Company was the sole provider of telephone and postal services in Iraq. The CMC awarded licenses for the provision of local telecommunications services through the deployment of wireless local loop (WLL) technologies. The new operators started to launch their services during 2007. On the cellular front, there are currently three national operators and two provincial operators (in the Kurdistan region). Asiacell is considered the largest private Iraqi company and the first GSM mobile telecommunications company to offer service coverage for all of Iraq. Kalimat Telecom, Iraq's national telecom network, launched the first WiMax network in Baghdad. The project, valued at USD 500 mn, is the national Fixed Wireless Local Loop (WLL) Telephony and Data provider aiming to serve 28 mn Iraqi citizens. With the improving security situation, Kalimat Telecom is poised to take off and plans to secure 60% of Iraqi subscribers in the next two years. Kalimat Telecom won the 10-year wireless license from Iraq's Communication and Media Commission in September 2006. The company is currently based in Kuwait.



Iraqis can have wireless phone and internet through Itisaluna and Aumnia. Itisaluna Iraq is an emerging nationwide telecommunications operator. Primary telecommunication services include the provision of fixed-line voice services, broadband, and VAS. Itisaluna is currently deploying a nationwide WLL network based on the latest CDMA technologies, where the 1X architecture will be used to support voice services, and the 1x-EV-DO Rev. A will be used for the provision of high-speed data services. Itisaluna offers its fixed wireless services in Baghdad, Basra, Karbala and Najaf and is currently expanding to provide total coverage of Iraq. • Education on Communications/ IT

Communication and IT specialists are still missing in Iraq. A Communications Institute has been established with cooperation from Portsmouth University in the UK and the first batch of IT graduates under a program with Portsmouth and Brunel universities will graduate this year.

4.2.6 Role of the Iraq’s Private Sector

The liberalization process of the telecommunication sector requires consultation and coordination with various constituencies, domestic and foreign, public and private. In the telecommunication sector, these include trade negotiators, the regulatory and supervisory authorities and representatives from the private sector. The private sector should monitor the implementation of fair competition principles and the delivery of licenses.



5. RECOMMENDATIONS ON IRAQI POSITIONS ON GATS / TELECOMMUNICATIONS SERVICES NEGOTIATIONS

The twin processes of opening up telecommunication markets to foreign competition and of carrying out domestic reform should be pursued in tandem. Indeed, it is essential that opening be seen as part of the domestic reform effort.

5.1 RECOMMENDATIONS ON TELECOMMUNICATION SECTOR UNDER GATS

Commitments to telecommunications are needed in areas where further investment is required from trading partners, such as large companies, or where access to high quality services is required by other sectors. In WTO terms, a commitment of “none” is necessary to free up investment potential in Iraq (see below.) The chart below has several parts to it that are necessary to understand for ease of reading.45

● Modes: • Mode 1: Cross-border supply • Mode 2: Consumption abroad • Mode 3: Commercial presence • Mode 4: Presence of natural persons

● Commitment Categories:

• “Unbound”: No commitment is defined by the country, giving it the right to change its domestic policy at any time.

• “None”: The country fully opens its service to foreign competition at the multilateral level, without specifying any limitations.

Important options when scheduling GATS commitments include the opportunity to phase in the obligations over time, such as over a period of 5-10 years. This gradual phasing-in gives both the foreign and the domestic investors sufficient time to prepare and adapt, while fully indicating the seriousness of government policy intentions. Other possible GATS options include limiting the number of foreign suppliers.

45 For a full explanation on reading the services charts expanded across five sectors see: Lewarne, Stephen, Iraq Services Liberalization Study, USAID/Iraq IZDIHAR, November 2007



Position defined by the sub-committee on Telecoms services, April 2009

Sector or Sub-sector Limitations on Market Access Limitations on National Treatment Additional Commitments

IRAQ 2C.Telecoms

− International telecommunications services should be done through IGW (International gateways) that belong to the Ministry of Communication.

− ITPC has exclusive rights on national fiber optic backbone. − SCIS has exclusive right on national IP backbone.

a. Voice telephone services (CPC 7521)

1) None except; International callback is not allowed. 2) None 3) None except; ITPC has exclusive rights on fixed lines. 4) Unbound except as indicated in the horizontal section.

1) None except; International callback is not allowed. 2) None 3) None except; − Foreign companies have to provide training to

their Iraqi national staff. − ITPC has exclusive rights on fixed lines. 4) Unbound except as indicated in the horizontal section.

b. Packet switched data transmission services (CPC 7523**)

1) None except; International callback is not allowed. 2) None 3) None except; ITPC has exclusive rights on fixed lines. 4) Unbound except as indicated in the horizontal section.

1) None except; International callback is not allowed. 2) None 3) None except; − Foreign companies have to provide training to

their Iraqi national staff. − ITPC has exclusive rights on fixed lines. 4) Unbound except as indicated in the horizontal section.

The Republic of Iraq adopts additional commitments listed in the reference paper on regulatory principles (attached)




c. Circuit switched data transmission services (CPC 7523**)

1) None except; International callback is not allowed.

2) None

3) None except; ITPC has exclusive rights on fixed lines.

4) Unbound except as indicated in the horizontal section.

1) None except; International callback is not allowed.

2) None

3) None except; − Foreign companies have to provide training to

their Iraqi national staff. − ITPC has exclusive rights on fixed lines.


d. Telex services (CPC 7523**)

1) None

2) None



1) None

2) None




e. Telegraph services (CPC 7522)

1) None

2) None



1) None

2) None







f. Facsimile services (CPC 7521**+7529**)

1) None

2) None

3) None


1) None

2) None

3) None


g. Private leased circuit services (CPC 7522**+7523**)

1) None

2) None



1) None

2) None



h. Electronic mail (CPC 7523**)

1) None except; SCIS has exclusive rights on national internet gateways.

2) None




2) None

3) None except; − SCIS has exclusive rights on national internet

gateways. − Foreign companies have to provide training to

their Iraqi national staff.





i. Voice mail (CPC 7523**)

1) None

2) None

3) None


1) None

2) None

3) None


j. On-line information and database retrieval(CPC 7523**)

1) None

2) None

3) None 4) Unbound except as indicated in the horizontal section.

1) None

2) None


k. Electronic data interchange (EDI) (CPC 7523**)

1) None

2) None


1) None

2) None

3) None except; foreign companies have to provide training to their Iraqi national staff. 4) Unbound except as indicated in the horizontal section.

l. Enhanced/ value-added facsimile services, incl. store and forward, store and retrieve (CPC 7523**)

1) None

2) None


1) None

2) None

3) None except; foreign companies have to provide training to their Iraqi national staff. 4) Unbound except as indicated in the horizontal section.




m. Code and protocol conversion (N. A.)

1) None 2) None 3) None 4) Unbound except as indicated in the horizontal section.

1) None 2) None 3) None except; Foreign companies have to provide training to their Iraqi national staff. 4) Unbound except as indicated in the horizontal section.

n. On-line information and/ or data processing (incl. transaction processing) (CPC 843**)



o. Other



Representatives from the Ministry of Trade, Ministry of Communications, Ministry of Science & Technology, Communications and Media Commission, ITPC are part of the sub-committee on Telecoms services.



5.2 TELECOMMUNICATIONS SERVICES: REFERENCE PAPER

• 24 April 1996 NEGOTIATING GROUP ON BASIC TELECOMMUNICATIONS The following are definitions and principles on the regulatory framework for the basic telecommunications services. • Definitions Users are service consumers and service suppliers.

Essential facilities are facilities of a public telecommunications transport network or service which:

(a.) Are exclusively or predominantly provided by a single or limited number of suppliers; and

(b.) Cannot feasibly be economically or technically substituted in order to provide a service.

A major supplier is a supplier who has the ability to materially affect the terms of participation (having regard to price and supply) in the relevant market for basic telecommunications services as a result of:

(a.) Control over essential facilities; or

(b.) Use of its position in the market.

1. Competitive Safeguards 1.1 Prevention of anti-competitive practices in telecommunications Appropriate measures shall be maintained for the purpose of preventing suppliers who, alone or together, are a major supplier from engaging in or continuing anti-competitive practices. 1.2 Safeguards The anti-competitive practices referred to above shall include in particular:

(a.) Engaging in anti-competitive cross-subsidization;

(b.) Using information obtained from competitors with anti-competitive results; and

(c.) Not making available to other services suppliers on a timely basis technical information about essential facilities and commercially relevant information which are necessary for them to provide services.

2. Interconnection

2.1 This section applies to linking with suppliers providing public telecommunications



transport networks or services in order to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier, where specific commitments are undertaken. 2.2 Interconnection to be ensured

Interconnection with a major supplier will be ensured at any technically feasible point in the network. Such interconnection is provided.

(a.) Under non-discriminatory terms, conditions (including technical standards and specifications) and rates and of a quality no less favourable than that provided for its own like services or for like services of non-affiliated service suppliers or for its subsidiaries or other affiliates;

(b.) In a timely fashion, on terms, conditions (including technical standards and specifications) and cost-oriented rates that are transparent, reasonable, having regard to economic feasibility, and sufficiently unbundled so that the supplier need not pay for network components or facilities that it does not require for the service to be provided; and

(c.) Upon request, at points in addition to the network termination points offered to the majority of users, subject to charges that reflect the cost of construction of necessary additional facilities.

2.3 Public Availability of the Procedures for Interconnection Negotiations

The procedures applicable for interconnection to a major supplier will be made publicly available. 2.4 Transparency of interconnection arrangements

It is ensured that a major supplier will make publicly available either its interconnection agreements or a reference interconnection offer. 2.5 Interconnection: dispute settlement

A service supplier requesting interconnection with a major supplier will have recourse, either:

(a.) At any time, or

(b.) After a reasonable period of time which has been made publicly known, to an independent domestic body, which may be a regulatory body as referred to in paragraph 5 below, to resolve disputes regarding appropriate terms, conditions and rates for interconnection within a reasonable period of time, to the extent that these have not been established previously.

3. Universal Service Any Member has the right to define the kind of universal service obligation it wishes to maintain. Such obligations will not be regarded as anti-competitive per se, provided they are administered in a transparent, non-discriminatory and competitively neutral manner and are



not more burdensome than necessary for the kind of universal service defined by the Member. 4. Public Availability of Licensing Criteria

Where a license is required, the following will be made publicly available:

(a.) All the licensing criteria and the period of time normally required to reach a decision concerning an application for a license, and

(b.) The terms and conditions of individual licenses. The reasons for the denial of a license will be made known to the applicant upon request. 5. Independent Regulators The regulatory body is separate from, and not accountable to, any supplier of basic telecommunications services. The decisions of and the procedures used by regulators shall be impartial with respect to all market participants. 6. Allocation and Use of Scarce Resources Any procedures for the allocation and use of scarce resources, including frequencies, numbers and rights of way, will be carried out in an objective, timely, transparent and non-discriminatory manner. The current state of allocated frequency bands will be made publicly available, but detailed identification of frequencies allocated for specific government uses is not required.



5.3 PRECONDITIONS TO TELECOMMUNICATIONS LIBERALIZATION

Telecom market liberalization is commonly developed in two stages:

1. The first stage is to articulate a telecommunications law and to create an independent regulatory authority. This is typically coupled with the corporatization (dissociation of the incumbent operator from Ministry of Telecommunications and setting up an independent commercial operation) and partial privatization of the incumbent telecom service provider.

2. The second stage is implementation of the telecommunications law by the regulatory authority, deregulating and liberalizing the telecommunications market. This is achieved through the issuance of telecommunications licenses and the monitoring of further privatization activities by the incumbent.

In any economy, managing the transition from monopoly to competition is fraught with challenges. In telecommunications, as in other fields, technological development, in particular digitalization, is a driving force. Digitalization in telecommunications will allow developing markets to “leap frog” whole generations of technology and as such can provide countries with a basis for competing for a share of worldwide telecommunications revenues46. In this case, the challenge is to put in place dynamic and flexible legal and regulatory regimes which are on the one hand attractive for investors, and which also can respond to rapid changes in technology. Among the developments which will challenge the existing orthodoxies and redefine the industry are satellite telecommunications and internet voice telephony. Satellite telephony, using low satellites orbiting the Earth, will redefine what is now conventionally referred to as roaming in the cellular context. As competition is introduced and prices for handsets and services decline, consumers will be posed with more choices of wireless telephony. Again, as technology improves, voice telephony over the internet will render the debate concerning international accounting rate reform moot. The first concrete step towards implementing the reforms in the telecommunications sector is passage of a telecommunication law, reflecting a regulatory regime that embraces competition47. Some key components of telecommunication laws include the structural, operational and financial separation of the regulator, the former state operator, and the government policy maker. In elaborating a new telecommunications legal regime, it is important that the respective roles of both the policy maker and the regulator are clearly set forth. The telecommunications law will also establish the licensing and interconnection regimes in the sector. Clear and certain provisions regarding which services will be subject to licensing, as well as which services will not be subject to licensing or authorization, by the regulator and the modality if issuing licenses are essential. Other areas to be addressed by a telecommunications law include confidentiality of transmissions, competition concerns (whether these are stated in the telecommunications law or in a separate competition law), basic property rights, and penalties for offenses or breach of license conditions, to name a few.

46 David Satola, Counsel, World Bank Legal Department, Legal Reform and Private Sector Development Unit, delivered at London, 28 October 1997. 47 David Satola, Counsel, World Bank Legal Department, Legal Reform and Private Sector Development Unit, delivered at London, 28 October 1997.



Iraq has been facing regulatory, reconstruction and development challenges. Beyond security, Iraq particularly needs to strengthen governmental institutions, restore infrastructure and provide core human services. The rehabilitation and development of the infrastructure is a necessary condition for the improvement of quality of service and enhancement of the country’s economic competitiveness. Much remains to be accomplished in capacity building in information and communication technology, particularly at the educational and professional training level.



6. IMPACT OF GATS / TELECOMMUNICATION SERVICES IN IRAQ

It must be noted that the impact of telecommunications in the MENA region is much broader than in developed countries in improving general business activities across many sectors in the economy. Due to the low fixed line and internet penetration rates, the development of mobile telecommunication deeply impacts nearly all countries in the region that have never experienced such a widespread communication facilitator48. Good regulation of communications results in benefits to the consumers, operators, vendors and governments, whice as a result would help to creating job opportunities, encourage foreign and local investment and democratize access to communications services. The telecom and mobile sector carries the potential to be the missing link towards regional integration and competitiveness, due to its characteristics of pecuniary market externalities, positive technological spillover effects, employment generation, poverty alleviation, education enhancement, and E-learning initiatives, in addition to its ability to provide a solid information base and a high level of technical infrastructure with low transaction costs. Satellite technology can provide governments with independence and immediate connectivity in times of disaster is are an essential communications back-up tool for ensuring national telecom network continuity in cases of disruptions to terrestrial lines.

6.1 ECONOMIC IMPACT

The impact of mobile market competition on economic growth, rural development and global integration is pronounced. As licenses are issued, direct foreign investment is attracted, with a significant source of funding. The entrance of new operators in telecommunication markets brings about a new wave of services and products. This stimulates the incumbent operator to innovate its network, in order to compete with newer technologies and services. The development of telecommunication markets results in the growth and development of the overall economy. Competition reduces service prices, and thus promotes the accessibility of these services and lessens the barriers to information flow. Price reductions also enable the release of personal income for savings and investment expenditures. In addition, price reductions, alongside the resulting service improvements, decrease the cost of doing business and thus promote investment. All of the above effects have a positive impact on economic growth by increasing GDP. Telecommunication liberalization also creates additional jobs. Therefore, the incentive to introduce new technologies increases with competition. This modernizes the economy and encourages the development of other technology-dependent sectors.

48 MTC Report: The socio-economic impact of mobile phones in the Arabic World, February 2006



In addition, if the new mobile operators are granted an international gateway, it impacts international call service prices and promotes the global integration of the country. Telecommunications liberalization benefits all other businesses: taxi drivers are receiving pickup orders from customers on their mobiles; hairdressers are booking appointments; and many groceries and open market businesses are exchanging price data via the mobile, to name a few benefits. Telecommunications have become an intrinsic part of the business life today and help simplify matters for businesses. For enterprises, the ability to be reached anywhere, anytime should induce greater efficiency, simplifying administration, improving logistical efficiency, reducing costs (traveling costs for example), and broadening the reach, as far as the circle of contacts is concerned. Competitive domestic market and healthy environment for innovation drives a country’s growth in the sector and generates efficiencies that spill into other sectors as well. Satellite drives the development of new services such as high-definition TV and mobile TV and new cheap satellite broadband services.

6.2 SOCIAL IMPACT

International experience illustrates that competition, or a credible threat of competition, leads to lower prices. The resultant price reductions and service improvements generally lead to growth in consumer demand. The liberalization and regulatory reform of the GATS framework and the subsequent 1997 commitments in basic telecommunications will increase benefits to domestic consumers by allowing more cooperation and opening up competition between the cross-sectors of the telecommunications industry. Provided that the antitrust laws are enforced, preventing anticompetitive behavior and supporting new entrants, technological innovation and development should surge. The universal service goal is limited to ensuring that basic services are provided to those without them, not to ensuring that the most advanced services are provided to those who already have the basic services. A domestic legal framework that incorporates, as a part, some cost sharing for the furtherance of socially beneficial domestic policy will increase universal access benefits for some. Any detriment to those bearing the costs will be offset by the benefits that are obtained from GATS commitments on telecommunications that reduce the trade barriers. Thus, this domestic/international arrangement could increase access to basic and enhanced services for some without decreasing universal service to any. Ultimately, it will increase both enhanced and basic telecommunications services for all49. In terms of labor resources, the telecom sector has a one-to-eight job spillover effect to other sectors and hence has the potential to slash the economy’s unemployment and poverty rates50. Competition, especially of mobile communication, results in the growth and development of the rural regions which are usually neglected. The relatively cheap rollout of mobile 49 Taunya L. McLarty, “Liberalized Telecommunications Trade at the WTO: Implications for Universal Service Policy” 50 MTC Report, “The Socio-Economic Impact of Mobile Phones in the Arabic World,” February 2006.



networks, in contrast to fixed networks, results in the rollout of mobile networks in some rural areas before fixed networks. In addition, and in a bid to widen their subscriber base with increased competition, both incumbent and new mobile operators widen their coverage. This should introduce telecommunications services to these areas and enhance their development. Creating jobs in the mobile industry and the telecom sector in general, with good pay, will create incentives for combating the illiteracy problem. This can be done through E-learning initiative. The developmental impact through human capital accumulation can be highly significant. The mobile has emerged in Iraq as an essential security device for families for checking on the safety of their members when they are outside their homes or are late in returning after curfew hours. Foreign operators are often the bearers of key applications such as tele-education and tele-medicine or the initiators of novel local projects that enable otherwise unconnected communities to develop51.

6.3 ENVIRONMENTAL IMPACT

Telecommunications can also make a significant contribution to ameliorating climate change. It limits transportation by allowing people to work from home. Less transport means less dioxin and carbon.

51 European Satellite Operators Association: Global Communications via satellite, February 2008



BIBLIOGRAPHY: Arab Advisors Group's Telecoms Strategic Research Service: “Iraq Communications Projections Report”, February 13, 2007. BERG Harriet E., Telenor: Economic contribution of mobile communications, WTO Symposium on Telecommunications, February 2008 Business Monitor International: Jordan telecommunications report Business Monitor International: Oman telecommunications report Business Monitor International: Saudi Arabia telecommunications report Business Monitor International: Ukraine telecommunications report Business Monitor International: Vietnam telecommunications report Central Organization for Statistics and Information Technology: http://www.cosit.gov.iq CIA World Fact book 2008 Coalition Provisional Authority in Iraq: http://www.cpa-iraq.org/ Communications and Media Commission of Iraq: http://www.cmc.iq/english/index.htm Datamonitor, “Global Mobile Phones: Industry Profile,” December 2005 European Satellite Operators Association: Global Communications via satellite, February 2008 FINK Carsten, MATTOO Aaditya and RATHINDRAN Randeep: An assessment of telecommunications reform in developing countries. The World Bank Development Research Group, October 2002. Flagtelecom: http://www.flagtelecom.com : De regulation of Middle East Telecoms… shaking the markets up Global Technology Forum: World telecoms and IT Outlook, Always on. July 2007 Hottelecom: Middle East, mobile subscribers statistics and forecasts by country, 2007 International Telecommunications Union: http://www.itu.int International telecommunication Union: A snapshot of the ICT market JONES Trevor Lloyd, Business Intelligence Middle East: Report from the Iraq Defense, Security and Communications Summit, February 2008. http://www.bi-me.com Jordan Telecommunication Regulatory Commission: http://www.trc.gov.jo/ Lewarne, Stephen, Iraq Services Liberalization Study, USAID/Iraq IZDIHAR, November 2007



NDUKWE Ernest C., Chief Executive Officer, Nigerian Communications Commission: Lessons from implementation of market reform and competition, WTO Telecoms Symposium, February 2008. McLarty Taunya L.: liberalized telecommunications trade at the WTO, implications for universal service policy MTC Report: The socio-economic impact of mobile phones in the Arabic World, February 2006 Office of the United States Trade Representative, Services Facts www.ustr.gov Trade in Services Policy Brief – March 2006 Oman Telecommunication Regulatory Authority: http://www.tra.gov.om/ Organization for Economic Co-operation and Development: http://www.oecd.org SATOLA David, Counsel, World Bank Legal Department, Legal Reform and Private Sector Development Unit, delivered at London, 28 October 1997. Saudi Arabia Communications and Information Telecommunication Commission: http://www.citc.gov.sa/ Ukraine Communication Regulatory Commission: http://www.kmu.gov.ua/ USAID Iraq: http://www.usaid.gov/iraq United Nations Conference on Trade and Development: http://www.unctad.org XAVIER Patrick, Swinbure University of technologies, Melbourne: International Benchmarking in the context of WTO Commitments, ITU Workshop, February 2008 WILDE Joseph and DE HAAN Esther: ‘the high cost of calling, critical issues in the mobile phone industry’, November 2006 World Bank: CITEL Doc. STE-356/07 World Economic Forum WorldTel : http://www.world-tel.com World Trade Organization: http://www.wto.org ZORPETTE Glenn: Iraq goes wireless



ANNEX A: NATIONAL COMMITMENTS OF BENCHMARKED COUNTRIES

• Jordan • Oman • Saudi Arabia • Ukraine • Vietnam



JORDAN



SAUDI ARABIA



OMAN



UKRAINE 3. Telecommunication services The following general conditions apply: Commitments undertaken by Ukraine are based on the principles of compilation of schedules covered by the following documents: "Notes for Scheduling Basic Telecom Services Commitments" (S/GBT/W/2/Rev.1) and "Market Access Limitations on Spectrum Availability" (S/GBT/W/3)

Basic Telecommunications Services:

(a) Voice telephone services (CPC7521)

(1) None. (2) None. (3) None. (4) Unbound, except as indicated in

the horizontal section.



The attached Reference Paper on regulatory principles is incorporated as additional commitments by Ukraine



(b) Packet-switched data transmission services

(CPC7523**)





(c) Circuit-switched data transmission services

(CPC7523**)





(d) Telex services (CPC7523**)





(e) Telegraph services (CPC7522)





(f) Facsimile services (CPC 7521**+7529**)







(g) Private leased circuit services (CPC 7522**+7523**)





(o) Other - Mobile voice and data services (CPC 75213) - Paging services (CPC 75291) - Teleconferencing services (CPC 75292) - Integrated telecommunication

services, excluding broadcasting52

(CPC 7526)





Value-added Telecommunications Services

(h) Electronic mail (CPC 7523**)





(i) Voice mail (CPC 7523**)





52 Broadcasting is defined as the uninterrupted chain of transmission required for the distribution of TV and radio programme signals to the general public, but does not cover contribution links between operators.



(j) On-line information and database retrieval

(CPC 7523**)





(k) Electronic data interchange (EDI)

(CPC 7523**)





(l) Value-added facsimile services, including store and forward, store and retrieve

(CPC 7523**)





(m) Code and protocol conversion (1) None. (2) None. (3) None. (4) Unbound, except as indicated in




(n) On-line information services and/or data processing (including transaction processing)

(CPC 843**)







VIETNAM

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