Telecommunications And Information Policy Research Paper

In terms of regulation, these networks are unique because they are based fundamentally on shared resources. In the case of telephone service, it would make little economic sense for each individual subscriber to connect separate cables to every other subscriber in order to make a telephone call, even though it is technologically feasible. Individual subscribers do not make enough telephone calls to warrant investment in hundreds of cables. Instead, phone calls made by individual subscribers are routed through a local exchange, where using a common connection the calls are connected to a bigger regional exchange that uses high-capacity connections that link major exchanges in order to distribute calls. The value of this network grows as each additional user joins the network, precisely because it spreads the fixed costs around a larger number of users and because it expands the numbers of people each already existing subscriber can contact. Economists argue that because the network can enhance social benefits beyond the members of the network, telecommunications should be seen as a ‘public good’ because of ‘positive externalities’ (Garnham 2000). Putting this into practice, public policy experts contend that the telecommunications network should therefore be seen as a ‘club’ based on members with mutual interests, as opposed to a market. These ‘members’ generally include different government bodies, domestic and transnational firms, labor unions, consumer organizations, and public interest groups. The problem in regulating both broadcasting and telecommunications networks is what happens when this ‘coalition of mutual interest breaks down’ (Noam 1987). The conventional wisdom was that telecommunications networks functioned most efficiently as a ‘natural monopoly’ because of the enormous fixed costs required to build and upgrade the network. The rationale for monopoly in telephone manufacturing and services was based on the understanding that centralization of operations would ‘increase reliability’ and that monopolies could best tap economies of scale and scope to better ‘advance considerations of equity’ with the objective of universal service provision (Aronson and Cowhey 1993). Given this economic logic, regulators and policy makers have been historically concerned with how to best achieve universal access at the most reasonable prices. Between the 1920s and the mid-1970s, there was little technological change that directly affected the telecommunications sector. In this period, telecommunications networks were regulated at the national level through a system of cross-subsidy, whereby urban areas subsidized rural areas, long-distance rates subsidized local rates, large (corporate) users subsidized residential users, and telecommunications revenues subsidized the postal system. With the exception of the American system of state-regulated private monopoly of AT&T, most other nations relied on government ownership and/or operation of their Post and Telecommunications Operator (PTO).

In the 1980s, advances in technology coupled with political changes dramatically challenged the logic and scope of national regulation of the telecommunications network. Technological advances stemming from research in the defense-related electronics sector introduced new satellite, cellular radio, fiber optic, and digital exchange technology that would suddenly transform telecommunications services into the new ‘nervous system’ of the global economy (Mansell 1995). The telecommunications network could now transmit all types of information through these new technologies, and thus became an increasingly vital component of all sectors of economic activity. Expansion and modernization of the telecommunications network was seen as crucial in facilitating transnational production and distribution of goods and services, including the proliferation of financial markets and new media technologies. Experts in national and multilateral agencies like the International Telecommunications Union (ITU) therefore began to expand their scope by considering questions of regulation for telecommunications and information policy. The convergence of different kinds of communications technologies has introduced a new set of problems for regulators both domestically and globally. Whereas regulation of the telecommunications or broadcast network has been seen as legitimate in most societies, regulation of content or the messages passing through the network is often seen as illegitimate, raising concerns about privacy, freedom of expression, and censorship. Equally important as the technological changes, political changes in the era of Reagan and Thatcher led to the ‘liberalization’ of regulation over national telecommunications policy. Traditionally, national networks were joined together at the borders by international gateways. In the 1980s, however, transnational corporations began to demand ‘seamless networks’ in order to facilitate the transactions of these firms across national borders (Hills 1998). The deregulation of AT&T in 1984 and the privatization of the state telecommunications network in the UK introduced a distinctly new logic of competition in the global marketplace by policy makers. Most significantly, traditional concerns for establishing ‘fair’ prices and maximum access to services was replaced by a new turn to neo-classical economics where the concern for the global success of home-based transnational corporations was measured by sales, profits, and a favorable balance of payments (Melody 1994).

With the end of the Cold War and the changing ideological climate, policy makers around the world began to reconsider the legitimacy of the state’s role in economic development. Reformers argued that telecommunications policy should be an instrument that encourages market competition within and across national borders, driving down prices for consumers while simultaneously expanding the pace of technological innovation.

In a sense, as telecommunications and information policy became a greater concern for governments and large corporations, expertise in policy was increasingly cultivated in Business and Law Schools, most often in the US (Singh 1999). This created a strategic consensus about the failure of state-operated monopolies, promoting instead global integration and staying clear of nonmarket intervention in setting the terms of network operations. As a result, the rhetoric of the ‘information revolution’ in the early 1990s relegated policy-making to creating conditions for market reforms of the old public PTO networks.

Today, the dominant approach in terms of the scholarship on telecommunications and information policy is prescriptive, assuming that the market and technology are inherently neutral forces. Robin Mansell contrasts this ‘idealist model’ of policy analysis to a more critical ‘strategic model’ that takes into account institutional and economic power. The dominant model espouses an ‘evolutionary process of technological innovation in telecommunication and computing technologies … left to the forces of the competitive market’ (1993, p. 6). William Melody, one of the most prolific communications scholars writing from this ‘strategic’ perspective, explains that although the national telecommunications model failed to meet anywhere near universal service objectives in most places, competition cannot be seen as an ‘adequate substitute to regulation or public ownership.’ Despite the proliferation of new communications technologies, without effective and independent regulation we are replacing a tradition of state-owned monopoly with private monopolies and oligopolies across national borders (Melody 1997).

Although the spread of new communications technology has been astonishing since the 1980s, the expansion has been extremely uneven. Policy makers today are finally talking about the ‘digital divide’ which includes recognizing the fact that some 75 percent of the world’s population has yet to gain access to basic telephone service (ITU 1997). The Internet, hailed by many enthusiasts as the ultimate technological equalizer, is the least accessible communications technology in the world.

It should be clear from the preceding discussion that changes in technology and politics have transformed the telecommunications and information policy process as a result of ‘digitalization’ and ‘globalization.’ The second half of this research paper will examine in greater detail the ‘globalization’ of telecommunications and information policy, focusing on the growing importance of this issue for nations in Africa, Asia, and Latin America.

2. Telecommunications And Information Policy Reform In The ‘Developing World’

Telecommunications was not recognized as an economic priority in the so-called developing world until the 1980s. This was reflected in very low rates of telephone density (between 1 and 10 percent) and very slow absorption of new technologies. In most nations, the state owned and operated the PTO, and the network was regulated based on the cross-subsidy principles discussed above. Although nearly all states advocated universal service (meaning access to a community telephone as opposed to residential telephones), other more pressing economic priorities relegated the telecommunications network to low levels of penetration especially in rural and low-income areas and long waiting lists. As telecommunications and information technologies became an increasingly strategic input for transnational corporations and governments in the 1980s, policy reform became a dominant concern for states throughout the developing world.

In 1985, the International Telecommunications Union (ITU) released its influential Maitland Commission Report entitled The Missing Link?, which condemned the extreme inequalities of telephone access between rich and poor nations. Although the report drew global attention to the question of information disparity, its recommendations pressed for the need to reform inefficient national public monopolies and promote the transfer of technologies from advanced to developing nations (ITU 1985). The ITU’s report argued that investment in telecommunications should no longer be seen as a luxury service for corporate and national elites, but rather as an essential service that directly leads to economic growth. In fact, teledensity penetration was correlated with tangible growth in gross domestic product. This approach is referred to as the ‘telecommunications for development’ perspective and posits that investment in the newest telecommunications technologies would allow developing countries to actually ‘leapfrog’ stages of development. For example, instead of having to replace copper cables with fiber optic technology, developing countries would bypass that stage in development altogether and adopt the most advanced technologies. Similar arguments are made today about wireless and satellite technologies.

In this period, the ITU along with the World Bank began to urgently promote the liberalization of infrastructure and the privatization and commercialization of services through a series of multilateral and bilateral conferences and seminars on telecommunications reform. Both multilateral institutions began promoting the expanded role of the private sector in telecommunications development, with transnational equipment manufacturers like Alcatel, NEC, Ericsson, British Telecom, US West, and others eager to enter new markets offering to provide direct foreign investment on attractive financial terms (Lee 1996). While the first phase of reforms in developing countries consisted of the liberalization of the equipment market, the World Bank in particular began to push for the liberalization of national telecommunications networks.

The argument was that the poor performance of state-operated telecommunications networks throughout Africa, Asia, and Latin America significantly impeded economic growth. The solution was to implement a comprehensive reform process that would enable competition and technological modernization and balance the concerns of equity between those of efficiency. This would include the deregulation of the state-operated network with the ultimate goal of privatization, liberalization of the supply of services, and the separation of the government’s policy and regulatory arm from its responsibilities as a network operator (Saunders et al. 1994). In the midst of the African and Latin American Debt crises of the 1980s, the World Bank’s policy perspective was particularly influential wherever its sister lending agency, the International Monetary Fund (IMF), financed new loans (Hills 1998).

Between 1980 and 1997, some 40 states engaged in the partial or total privatization of their national telecommunications operators raising $140 billion worldwide. Unlike their Western counterparts, states in the developing world have privatized national telecommunications monopolies primarily as a means to reduce debt burdens and invite foreign capital and expertise. In many nations, the transfer of public resources into private, especially foreign hands, has raised political opposition and public protest (Noam 1998). However, this kind of politicization of what is seen as a technical issue has been brushed aside as imminent concerns about the dangers of missing out on the ‘information age’ subsumes policy debates.

While ‘telecommunications for development’ quickly became the dominant perspective among policy makers, communications scholars pointed out that the value of access to telecommunications was contingent on issues of power, between national and global interests, urban and rural interests, and intracommunity class interests (Samarajiva and Shields 1990).

These critics concede that the public service monopoly model failed to achieve the objectives of both efficiency and broad universal access, and in most cases they agree that the introduction of fair competition is a pressing concern for most developing states (Melody 1997). States did not adequately fund the public telecommunications operators and these bureaucracies were largely unaccountable to the public they were supposed to serve. Thus, bureaucratic reform is high on the agenda for these critics (Mody 1993). However, unlike the proponents of ‘telecommunications for development,’ these critics point out that the only way to avoid a tradeoff between efficiency and equity is to create effective political institutional arrangements that lead to sustainable development (Melody 1997, Samarajiva and Shields 1990). Demand for telecommunications policy reform in the developing world came from the biggest users of services, which were mostly business users based nationally as well as internationally. Critical communications scholars have argued that the pace and institutional structure of telecommunications and information policy reforms tends to privilege the interests of these corporate actors (Dunn1998). To put it most simply, the new market principles shape policy along ‘the more you spend the less you pay’ principle, generally benefiting the biggest spenders, in most cases corporations. For countries with very low rates of telecommunications penetration—ranging from 1 to 10 percent—who picks up the tab for the low-income majority leads to serious concerns about widening the digital divide. This is a valid concern for most nations in the developing world where 80 percent of the revenue is generated from 20 percent of the customer base and demand for most advanced services that require larger network capacity is confined to transnational corporate users.

The paradox of telecommunications liberalization around the world is that the moral superiority that competition is supposed to ensure is undermined by the alarming rate of consolidation of global firms. The justification for domestic markets opening their doors to private firms is that competition brings down prices for consumers and offers more and better services for less. However, today a handful of global giants dominate the telecommunications industry worldwide and have the resources to buy out and raise barriers to entry to smaller competitors when they choose. Moreover, the merger of traditional telecommunications companies with producers of content (software) further reinforces concentration as opposed to competition in overall services. Finally, the economic centrality of telecommunications services for business in today’s global economy puts pressures on national governments to separate the needs of corporate users of high-speed networks and services from the public networks, thereby creating new levels of information disparity (Sussman 1997).

In the developing world, the pressure to privatize and commercialize networks often precedes the creation of effective regulation. Consequently, these analysts point to the absolute necessity of effective independent regulatory regimes to ‘protect infant industry, control private monopoly power, offset the tendency to concentration, protect employment, and achieve macro-balance’ (Mody 1993). However, these domestic concerns often conflict with global pressures as trade in telecommunications and information services becomes increasingly important in a global network society. Domestic policy is increasingly coordinated by regulatory agreements like the ‘Global Telecom Pact’ and the ‘International Technology Agreement’ through the World Trade Organization (WTO). These new global rules clearly prioritize the liberalization of markets and protection of intellectual property as opposed to ensuring effective regulation of competition and establishing accountable regulatory procedures.

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