COMPARATIVE ANALYSIS OF TELECOMMUNICATIONS GLOBALIZATION

by

Yale M. Braunstein
Meheroo Jussawalla
Stephen Morris

Abstract

We begin with an overview of the current state of corporate strategies and government

policies in the international telecommunications sectors of the United States, the European

Union, and Japan. We then survey the major trends in the industry worldwide and analyze the

determinants of the differing rates of growth of telecommunications carriers. In the final

sections we discuss the strategic options available to smaller countries and carriers that could

bring about the benefits from increasing globalization in telecommunications.

Introduction

The domestic telecommunications markets in the United States, the states of the

European Union, and Japan differ in their structures, their rates of growth, and on their reliance

on the inflows associated with terminating international calls. They also differ in their current

level of openness to foreign investment and in the relationship between equipment

manufacturers and carriers. The United States, for example, currently allows 25 per cent

foreign ownership of its domestic telecommunications carriers, while Japan is only just

beginning to open its market to foreign investment and partnering.

The telecommunications firms surveyed here also differ in the nature of their foreign

direct investment (FDI) in telecommunications markets abroad. While carriers in both the EU

and the United States invest heavily in the relatively liberalized cellular markets internationally,

EU-based carriers generally tend to invest in markets to which they have a "natural" cultural or

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historical affinity. U.S.-based carriers, on the other hand, appear to be more motivated by

market opportunities and expectations of growth in their choice of FDI.

Between 1985 and 1995 telecommunications revenues for the countries surveyed have

generally grown at rates faster than the rates of new line activation or increasing call volume.

Throughout the areas of study, tariffs have been restructured, the mix of calls— local, long

distance (trunk), and international— has changed, and leased-line and mobile services have

grown relative to traditional switched, wireline telephony. In all the countries the revenues for

telecommunications carriers has increased dramatically with the liberalization of domestic

markets. Yet we do not see any obvious correlation between a relatively "early" or "late"

opening of domestic markets and overall rates of revenue growth.

Two major trends characterize the international telecommunications industry: rapid

technological advances and the growing realization that liberalizing telecommunications

industries is key to overall industry growth.

As telecommunications markets are liberalized around the world, the role of national

governments is changing from that of a direct player in the industry to that of policy maker and

regulator. At the same time, the nature of international telecommunications trade is evolving

from a bilateral, nation-to-nation framework to a multinational, multilateral company-to-company

paradigm. Major international telecommunications alliances have taken many forms: FLAG, led

by Bell Atlantic-NYNEX provides undersea fiber-optic carriage; Global One is organized with

Deutsche Telekom and France Telecom having equity positions in Sprint and all three owning

the alliance; and World Partners is a complex alliance with a mix of equity and non-equity

investments and agreements. (The Concert alliance is in a state of flux at the time this is being

written.) The alliances have the potential to dominate parts of international telecommunications

as they hope to realize significant market and cost advantages. Nevertheless, the demand will

continue to increase for smaller firms able to provide local presence and technological

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expertise. The recently concluded World Trade Organization (WTO) Agreement on Basic

Services will continue the opening of telecommunications markets to additional foreign

collaboration and entry.

Within such an environment as described above there are various strategic options

available to smaller countries and carriers. We believe that the business model underlying tele-

communications is undergoing fundamental change worldwide. Since this is a time of

transition, there is no single strategy that is a clear and obvious "winner." Nevertheless, we

offer strategy options that, we believe, are likely to be successful candidates. These strategies

range from domestic to regional to international:

• lead the domestic market in phased liberalization

• seek opportunities to integrate vertically

• promote regional opportunities

• capture a major share of a regional market

• expand enhanced services internationally.

It will be necessary for smaller carriers to consider structural changes as they implement

these, and other, strategies. Domestic joint ventures, vertical integration, and multilateral

projects need to be evaluated correctly and, if adopted, supported and nurtured.

PART I: KEY FINDINGS

1. Difference in Environment

The domestic telecommunications markets in the United States, the states of the

European Union, and Japan differ in their structures, rates of growth, and reliance on inflows

associated with terminating international calls. They also differ in their openness to foreign

investment and in the nature of the relationships between equipment manufacturers and

carriers.

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 1.1 Transition to competitive home markets

United States

The domestic telecommunications market in the United States was dominated by AT&T

for most of the twentieth century. GTE, a much smaller local carrier, offered service in isolated

parts of the country, and there were approximately one thousand very small local operating

companies. In 1982, Judge Harold Green approved the Modified Final Judgment (MFJ), settling

an antitrust case first brought in 1974 and breaking up the Bell system into seven large regional

holding companies and their operating company subsidiaries (the RHC's and RBOC's or "Baby

Bells"), a new smaller AT&T with long distance (including international) and manufacturing

divisions, and two smaller companies formed out of the non-wholly-owned Bell subsidiaries of

Cincinnati Bell and Southern New England Telephone. The divestiture of AT&T into the smaller

units formally took place in 1984.

As dramatic as the break-up of AT&T was, it is useful to remember that entry into long-

distance (trunk) carriage, by MCI and Sprint, and into equipment manufacturing, by Nortel,

Ericsson, etc., had been allowed prior to the divestiture. The "new" AT&T had both carrier and

manufacturing arms and kept the strong international presence of the pre-breakup company.

(The manufacturing functions have recently been spun off into Lucent Technologies

Corporation.) From the start, the Baby Bells have sought to expand beyond their local-service

orientation by entering the long-distance business and, in several cases, cable television or

video delivery. Many have invested in operating companies abroad, and all have sought

international roles. As the result of recent mergers, at the time this is being written there are

now five remaining Baby Bells, each with a number of international holdings but no significant

long-distance or international traffic.

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Japan

In Japan, the reform of the telecommunications industry began in 1985. In April of that

year, competition was introduced by privatizing NTT and allowing new common carriers (NCC's)

to operate for domestic long-distance and international telephony. New carriers were also

allowed to operate regionally with mobile telephones and satellites.

During the period from 1985 to 1991, NTT reduced the price of long distance calls. The

NCC's started to compete with NTT in the long-distance market in 1986. It was clear that the

introduction of competition reduced prices. As the NCC's tried to gain market share and NTT, in

trying to keep market share, lowered its prices, a cycle of price wars took place.

Japan's Ministry of Post and Telecommunications (MPT) believed that the monopoly

power of NTT, particularly the bottleneck in access services, was slowing down the

development of the Japanese telecommunications industry. A division of NTT would introduce

more competition and the speed of growth of the industry would be greater. In December 1996,

MPT and NTT agreed upon a plan for restructuring NTT. NTT will be divided into NTT Long-

Distance, NTT East-Japan, and NTT West-Japan. NTT East-Japan and NTT West-Japan will

be heavily regulated by the MPT, while NTT Long-Distance would be allowed to enter into the

international telecommunications market and KDD, the major supplier of international services

in Japan, will be allowed to supply domestic telecommunications services. Divestiture of NTT

should be completed by the end of the 1999 fiscal year, and KDD started to supply domestic

telecommunications services in July 1997.

European Union

One can view the European Union (EU) as a single entity that is only now opening up its

telecommunications markets to competition. An alternative view is that the EU is in the process

of moving disparate countries toward common policies, or at least common policy objectives in

telecommunications. EU telecommunications policy has been driven by two major themes:

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 • First, that telecommunication networks and services are seen as drivers of

organizational and national competitiveness. An efficient, competitive, and innovative

telecommunications industry is fundamental to future economic prosperity.

• Second, liberalized and efficient markets are crucial to better resource allocation,

lower costs, and better service.

The Telecommunications Review of 1992 concluded that monopolies would no longer be

sustainable. The European Commission adopted a Council resolution in 1993 that agreed to the

liberalization of the telecommunications infrastructure with a deadline of accomplishing this by

January 1, 1998.

Individual countries have different policies in completing the transition to a competitive

home market. Countries such as the United Kingdom, Sweden, and Finland have already

liberalized their markets to a considerable extent and are characterized by a competitive

environment in many portions of the market place. By engaging in market liberalization for a

number of years, these three countries have gained expertise in creating and fostering a

competitive telecommunications industry.

The United Kingdom has long had competition in several sectors of the market. Policies

concerning terminal equipment and VANs were liberalized in 1981 and competition in analogue

mobile services was introduced in 1985. Since 1991, over 150 new companies have entered

the fixed-link market. Since 1987, there has been steady deregulation of all market segments in

Sweden. Competition was introduced into the mobile cellular market in 1981, and in the fixed-

link segment in 1991. There has been competition in virtually all market segments since 1993.

Finland has allowed competition in data networks and services since 1988, competition in

cellular services since 1992, and in 1994 began to introduce competition at the local and

international levels.

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 Denmark, Germany, France, and the Netherlands are on schedule to open up their

markets to competition in 1998. These countries are developing regulations for ending their

fixed-link telephony monopolies and each allows competition in the cellular market. Although

de jure monopolies are officially ended, de facto monopolies often remain. France and the

Netherlands have been slow to liberalize their markets so that they could protect the incumbent

from competitive pressures.

Denmark opened up the supply and service of telecommunications equipment in 1990

and the mobile telecommunications market in 1992. Competition was opened for using leased

lines for data communications in 1993, and for using leased lines for voice services in 1994. As

of late 1995, Tele Danmark no longer has exclusive rights to install local area broadband

networks, and direct interconnect traffic between national and mobile operators was permitted.

Full liberalization of the telecommunications industry in Denmark was achieved on July 1, 1996.

Germany separated the regulatory and operating functions of the telecommunications

sector in 1989 with the principle that competition is the rule and monopoly the exception. In the

early 1990’s, terminal equipment, value added networks services, satellite and data and mobile

communications services have been liberalized. As competition is being introduced, the key

issues of interconnection and pricing of network components have been raised.

France introduced competition into its analogue cellular mobile communications in 1989.

Since 1992, there has been competition in the digital cellular services as well. Full scale

competition in network infrastructure and telecommunication services is scheduled for 1998 in

line with the EU deadlines.

In the Netherlands, competition for VANs, terminal equipment and satellite services has

been introduced. Data communication policies were liberalized in 1993, and competition in

mobile services was introduced in 1995. The telecommunications sector was fully opened to

competition on July 1, 1997.

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 Progress towards liberalization has been slow in Italy, Spain, and Portugal, where it has

been necessary to overcome internal vested interests. Competition in digital mobile services

began in 1995 in Italy. Opening up other sectors of the telecommunications industry to

competition is behind the EU guidelines. In Italy, telephony services and infrastructure will open

to competition in 1998. Spain and Portugal have asked for and received extensions to meeting

the January 1, 1998 deadline, and will open their markets on December 1, 1998 and January 1,

2000 respectively.

1.2 Rate of growth of domestic markets

There have been different rates of growth in the domestic markets of the United States,

Japan, and the countries that comprise the European Union. As one can see in Table 1, tele-

communications revenues for the ten-year period from 1986 to 1995 have generally grown at

rates faster than those of activating new lines or of increasing call volume, though the rate of

increase has differed among countries. It is useful to look at the possible determinants of the

different rates of growth across the twelve countries that are studied in the papers in this

volume. Two possible hypotheses are that the differences in the rates of growth are

determined either by the extent and timing of the opening of domestic telecommunications

service markets or by relative level of economic development and rates of average economic

growth.

Before examining the two hypotheses we look more closely at the telecommunications

growth data. While one might expect the growth in revenues to be easily decomposed into the

growth in main lines and the growth in call minutes— where such data are available, this is not

the case. First, the rates— and more importantly, the structures of rates— have been changing

in many countries. Second the mix of local and long distance (trunk) calls also continues to

change. Third, there are many other sources of revenue, such as leased lines that, while

generally small, are growing rapidly in many of these countries. And finally, mobile telephony

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accounts for an increasing share of traffic and has a differential share of the market across

these countries. As we have complete data on main (fixed) lines in operation and total tele-
1
communications service revenues from the ITU, we focus on these measures.

First we look at whether early or late opening of domestic markets appears to affect

growth in telecommunications services. It does not appear that there is a correlation of when

domestic markets were opened and the rate of revenue increases. Furthermore, using new

lines or call rates gives similar results. (Although it is difficult to fix a single date, this discussion

focuses on Europe and uses the dates presented in the papers by Elixmann and by Scanlan,
2
Williams, and Whalley. See Table 2 for a complete listing of these dates.) For example,

Sweden opened its cellular market to competition in 1981 and its fixed-link segment in 1991,

and Sweden’s rate of telecommunications services revenue increased 7% per year,

substantially more than the increase in new lines (1.3%) or the increase in minutes (2.8%). Yet

Finland, which opened its markets in 1992 and 1994 respectively, had revenues increase at a

rate of 8.2% per year with new lines (2.4%) and minutes (3.8%) increasing only marginally over

the rates of increase experienced in Sweden.

France opened its cellular markets in 1992, and just opened its fixed-link segment as of

January 1, 1998. Revenues for telecommunications services increased at a rate (4.7%), close

to the increase in minutes of telephone service (4.5%) and slightly better than the rate of

increase for new lines (3.4%). Yet Italy, which only liberalized its cellular market in 1995 and its

fixed-link segment 1998, had increases in revenues (10.3%) that were far higher than the

increase in new lines (3.5%) and almost 50% higher than the increase in domestic calls (7.4%).

Clearly there are factors which influence telecommunication revenue increases other than when

domestic markets were liberalized or the percentage of new lines installed in the domestic

market.

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 We tested the hypothesis that growth in telecommunications services was related to the

level of development and the rate of overall economic growth using more formal methods.

Given the nature of the data, we chose to employ both non-parametric tests that compare

rankings and linear regression methods. The results from the two approaches gave similar

results, and we found that growth in telecommunications was inversely related to the initial level

of economic development and positively related to the level of growth in the aggregate

economy, although with varying levels of statistical significance. In other words we found that,

in general, the countries that started with the lowest levels of per-capita gross domestic product

(GDP) in 1985 had the highest rates in telecommunications growth over the next nine years.

Additionally, the rate of telecommunications growth was positively correlated with the rate of

overall economic growth. In these analyses we used per-capita GDP, converted to U.S. dollars

at market exchange rates, as the measure of economic development.

The correlations for the rankings of the twelve countries by telecommunications lines

and revenues, on one hand, and economic level and growth, on the other, are shown in Table

3. The telecommunications data used are shown in Table 1 and the values of 1986 GDP per

capita and growth in GDP per capita (both in U.S. dollars) are shown in Table 2. Both sets of

data were taken originally from tables provided by the ITU.

We also used linear regression methods to investigate the relationships between the

telecommunications growth variables and the variables based on aggregate economic data.

The same data set was used. Although one should worry that the small sample size and limited

range of the growth rate variables may lead to violations of the assumptions of the linear

regression model, one can draw modest conclusions from the results. (See Table 4.) We ran

two sets of regressions, one with growth in telecommunications lines as the dependent variable,

the other with growth in telecommunications revenues. Each set consisted of three equations—

one with the level of 1986 GDP per capita as the independent variable, one with the rate of

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growth of GDP per capita, and one with both independent variables. As shown in Table 4,

three of the four single-variable regressions were statistically significant and all the coefficients

in these equations had the expected signs. Only two of the four coefficients from the multiple

regression equations had significant coefficients, and one of the coefficients that was not

statistically different from zero had the wrong sign. Overall, we found that the regression

results confirm the results of the non-parametric tests in that overall growth in tele-

communications services in the twelve countries, by either measure, was inversely related to

the initial level of GDP and— in most cases— positively related to the growth of the overall

economy. Again, to restate these findings in less technical terms: in general we found that the

lower the initial level of economic development, the faster the growth in telecommunications.

Furthermore, growth in telecommunications was usually correlated with overall economic

2
growth. In fact, we see from the R values that the variation in overall aggregate growth (on a

per-capita basis) accounted for approximately 20% - 40% of the growth in telecommunications.

1.3 "Natural" markets for international communications

Countries often have “natural” foreign markets for their goods and services. The criteria

for these “natural” markets include geographic proximity, common language, and former

colonies. There are also high telecommunications traffic destinations that may be influenced by

the presence of multi-national corporation traffic as well as the presence of immigrants within a

country. For investment in international telecommunications, some countries may try to enter

their “natural” markets or markets of high traffic destination. Others may pursue a different

course of action based on other factors, such as experience in a certain technology. Table 5

through Table 16 indicate the “natural” and high traffic destination markets for the countries that

are being discussed

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United States

Many of the telecommunications carriers in the US have invested in telecommunications

carriers in other countries. (This is described in detail in Braunstein.) All five of the outgoing

high traffic destinations are covered by strategic alliances with Concert (MCI), Global One

(Sprint), and World Partners (AT&T).

During the years 1986-1995, main lines that became operational in the US increased an

average of 3.4% per year, while at the same time minutes of telephone service increased 5.6%.

Revenues from telecommunications services increased to 6.3% each year.

Canada ranks highest as a “natural” market, a major trading partner, and in international

telecommunications traffic. Mexico also appears on all three lists, but there is not perfect

commonality across these categories. (See Table 5.) In the case of the United States, it

appears as though telecommunications traffic is more correlated with the volume of trade than

with any notion of “natural’markets, but this conclusion is weak at best.

Japan

Japan passed the 1985 Reform legislation liberalizing telecommunications, and

domestic long-distance competition has emerged. Further competition in its domestic markets

will be seen in 1999 when NTT will be divested. In the period from 1987-1995, a period which

saw several price wars among NTT and the new common carriers, Japan’s telecommunications

sector experienced an annual increase of 3.0% in new phone lines, a 3.4% increase in

telephone minutes, and a 5.8% increase in revenues.

In the case of Japan, it appears as though international telecommunications traffic is

related to both the volume of international trade (United States being the largest trading

partner) and “natural” markets (with China, with its similar ideographic language and cultural

ties, accounting for the second highest level of traffic).

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European Union

The carriers based in the countries that make up the European Union are discussed on
3
a country-by-country basis. These sections draw heavily on Elixmann.

United Kingdom

In the UK, both BT and Cable & Wireless (C&W) have a large number of investments

around the world that cover both cellular and fixed-link ventures. “Comparing the target

countries of BT and C&W’s FDI with the main destinations of outgoing traffic from the UK… BT

is active in four out of five of the most important traffic destinations either by itself or by the

alliance with MCI. In the case of C&W there is, however, only one correspondence, namely in
4
the U.S, (which is the most important outgoing traffic route from the U.K.).” (See Table 7.)

The U.K. has experienced a growth rate of new main lines of only 3.4% in the past ten

years and yet has seen upwards of 150 new entrants into the telecommunications market.

Minutes are more than double the rate of new lines (7.8%) and revenues have almost kept pace

with an increase of 7.3% annually.

Sweden

The Swedish carrier Telia has invested in Eastern and Western Europe and— to a lesser

extent— in other parts of the world. There is a high correlation between FDI investment and the

main destinations of outgoing traffic, with Telia investing in fixed-link ventures in four of the top

five countries (Finland, Norway, Denmark, UK). For Germany, the Unisource alliance links the

two markets. (See Table 8.)

Telia experienced “competition in its home market relatively early (and) has since then
5
developed an… international strategy consisting of FDI and Unisource.” Results of this strategy

may be seen in that Sweden experienced only a 1.3% increase in lines between 1986 and

1995, 2.8% annual increase in minutes of telephone service, yet saw revenues climb 7.0% each

year.

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Finland

Telecom Finland has focused on cellular ventures abroad, in keeping with its own

experience at home. Telecom Finland has invested in Sweden, Estonia, and the UK, all high

traffic destinations, as well as in Latvia where it has close ties. Telecom Finland is not a

shareholder in any strategic alliance nor is it formally allied with any other carrier. (See Table

9.)

Even though growth of new main lines going into operation in Finland averaged only

2.4% each year from 1986-1995 and calls increased slightly more at 3.8%, revenues jumped on

average 8.2% each year.

Denmark

Tele Danmark’s focus of FDI has been on cellular ventures in foreign countries, possibly

due to experience in cellular technologies. Investments by Tele Danmark in other countries

seem to correspond with Denmark’s opening up of the home cellular market in 1992. The high

traffic destination countries of the UK, Norway, and US have not seen any direct investment,

but are covered by the Concert alliance. (See Table 10.) Ameritech, the Chicago-based Baby

Bell, has recently acquired 42% of Tele Danmark and now has operating control.

Although Denmark has experienced the lowest rate of annual percentage revenue

growth of any of the countries studied (4.2%) with a miniscule .4% annual increase in the

number of calls, the 4.2% is almost twice the rate of the number of new lines activated (2.2%).

Netherlands

KPN of the Netherlands has made few investments, and none in the high traffic

destination markets. Those markets are served by the Unisource alliance and the alliance with

AT&T in North America. (See Table 11.)

The Netherlands has seen an increase in lines of 3.4% each year, the number of calls

increasing 5.5%/year, and revenues up 7.9% a year (1986-1995).

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Germany

Foreign direct investments by Deutsche Telecom have concentrated mainly on cellular

ventures in Eastern Europe and Asia, but none are in its five top outgoing traffic destination

markets. (See Table 12.) Those destination markets are served by DT’s Global One partners.

Germany has seen an increase in active lines grow at the rate of 5% a year from 1986-

1995. At the same time, the number of calls increased 7.1% annually, and revenues kept pace

with the increase in calls to grow at the rate of 7.8% annually.

France

France Telecom aligned much of its FDI with its strategic Global One partners and has

recently broadened investments outside that partnership. FT is a major cellular player,

distributes global mobile satellite services, and is setting up its own international data ventures.

(See Table 13.) Activity in high traffic destination markets is covered by Global One in Germany

and the UK, and recent FDI in Italy and Spain.

Telecommunication services revenues, increasing an average of 4.7% for the years

1986 through 1995, have only kept pace with new lines (3.4%) and increased minutes of

telephone service (4.5%).

Italy

Telecom Italia has made a number of foreign direct investments in both fixed-link and

cellular markets. An investment has been made in the high traffic destination of France, but in

no other outgoing high traffic destination country. (See Table 14.) Telecom Italia is “based on a

more or less closed home market, has gained substantial international position as an investor in

markets abroad (but is) still lacking presence in important markets in Western Europe, Asia,
6
and North America… .It is a latecomer with respect to global strategic alliances.”

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 Revenue increases (10.3% annually) have far surpassed the number of new main

operating lines which increased 3.5% a year. Revenues also were higher than the annual

increase in domestic calls (7.4%).

Spain

Spain’s Telefonica has not invested in its major trading partners nor in countries of high

traffic destinations. Rather, Telefonica has invested in some of its natural markets— Spanish-

speaking countries in Latin America. (See Table 15.) The communications needs of

Telefonica’s international business customers are taken care of by its participation in the

Concert alliance, which is active in all five of Telefonica’s top outgoing traffic destinations.

Spain in 1995 opened its cellular market to competition, and is scheduled to open to

competition its fixed-link markets in 1999. Yet, despite the lateness of opening its home market

to competition, Spain has seen an increase of 4.9% a year of new lines activated (1986-1995).

The number of calls increased slightly more than the number of lines installed, reaching a 5.2%

increase per year. During this same period, telecommunication services revenues jumped

12.8% per year, more than 2 ½ times the number of new lines or calls.

Portugal

Portugal Telecom has invested little outside of Portugal and what little it has invested

has remained mostly in the Portuguese-speaking world. (See Table 16.) The high traffic

destinations from Portugal will be served by the Concert alliance, which Portugal Telecom

recently joined. Portugal Telecom has also forged closer ties with Spain’s Telefonica.

Portugal has seen a huge increase in the number of new lines activated from 1986-

1995, roughly 10.1% each year. Telecommunications services revenue likewise have climbed

an average of 17.7% each year.

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2. Strategic Differences

2.1 Reliance on international settlements

International telecommunications settlement flows are determined by the accounting

rates agreed to by correspondent carriers and the traffic volumes (and, especially, any

imbalances). These flows influence the revenues, profits, and strategies of all tele-

communications carriers.

The United States has experienced a steady increase in the number of outgoing calls in

relation to incoming calls. There has been a corresponding growth in the balance of payments

US carriers have made to overseas carriers. As a result, the Federal Communications

Commission (FCC) has endorsed changing the accounting rates among nations so as to more
7
accurately track actual costs. This is discussed more fully in Braunstein’s Section 3.1 .

Japan and Italy have also experienced an increase in outgoing calls over incoming calls,

but overall revenues did not decline. Countries such as France, Denmark, Germany and the

Netherlands have had the ratio of incoming and outgoing international calls remain fairly

constant for the time period 1986-1995. Spain, which has also seen its international call ratio

remain constant, has seen a constant erosion in revenue gains, from an increase of 18.3% in

1991 over 1990 revenues, to only a 6.9% gain in 1995. Increases in revenues in Denmark,

though, remained fairly constant for the same time period. Portugal, which has balked at

opening up its domestic markets to competition, has experienced a much larger number of

incoming international calls than outgoing calls (as much as 229% more in 1986, and still 175%

more in 1995). Portugal would seem to be relying on the favorable international settlements and

is not in a hurry to open its domestic markets.

2.2 Summary of findings— U.S and Europe

Differences in industry structure, history, and regulatory approaches make it difficult to

directly compare the globalization strategies of carriers based in the United States, the

Page 17
countries of the European Union, and Japan. Nevertheless, the large numbers of U.S.- and

EU-based carriers makes it worthwhile to attempt such a comparison, at least for these two

regions.

We have looked at seven different areas in which we find useful comparisons that can

be drawn. (See Table 17 for a summary.) First, the nature of international traffic varies across

the two regions. Most international traffic from the EU countries is to other countries within

Europe. On the other hand, while Canada is the highest-ranking destination from the U.S., the

remaining top countries are located throughout the world (Mexico, U.K., Germany, and Japan,

in order). This is clearly related to the second difference— accounting rate issues appear to be

more important in the U.S. as the imbalance in international traffic leads to massive recurring

cash outflows.

The patterns of foreign direct investments by carriers in each region can also be

compared. It appears as though FDI by EU-based carriers depends, to a degree, on

commonalities of interest— common language or culture, close distances, trading relationships,

etc. By comparison, the foreign investments by U.S. carriers seem to be more motivated by

perceived market opportunities and less by any "natural" affinities. However, both the EU and

U.S. carriers have made major investments in cellular systems in other countries, as this has

been one of the earliest areas of liberalization and openness to foreign investments.

Equipment manufacturers still have close ties to national carriers in several European

countries. These relationships play a role in investment strategies, both domestic and foreign.

The only large firm with a similar link in the U.S. is Motorola. (Smaller firms such as Qualcomm

also combine technology, manufacturing, and carrier divisions; AT&T was another example

before the spin-off of Lucent Corporation.)

Major carriers form and join international alliances for several reasons. It appears as

though carriers in both regions view these alliances as efficient ways of providing high-margin

Page 18
value-added and vertical services to large multi-national corporations. In addition, the

European carriers may consider the alliances as a useful substitute for direct investments while

the U.S. carriers may focus on the possibility of controlling foreign operators in countries that

are major recipients of U.S. calls, thus recapturing some of the settlements outflow.

Finally, while we realize any summary statements risk being too simplistic, we believe

investment strategies by EU firms are more likely to have a technology-driven component. The

most obvious example is the promotion of the G.S.M. digital mobile standard. It promotes a

pan-European technology, provides added-value for the customers of European carriers when

they travel, and generally contributes to the image of a united Europe. On the other hand, the

investments of the U.S. carriers are more driven by expected market return. Using the same

example, U.S. firms appear willing to propose any cellular standard, whether based on specific

regulatory requirements or likely marketing and cost advantages.

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PART II: TRENDS, LESSONS, AND OPTIONS

1. Changing Industry Structure

1.1 Benefits from telecommunication trade liberalization

We now discuss the benefits of telecommunications trade liberalization. Freer trade in

telecommunications promises to deliver at least three economic gains: new and improved

products and services, lower prices, and additional investment. Open trade in

telecommunication services should result in more competition, lowering prices for most

businesses and for many consumers and providing both with a choice of different service

providers.

Probably the clearest evidence comes from the market segment where competition is

currently the most keen: in international telephone services. Those markets where direct

competition is permitted have achieved higher rates of growth than in countries that have

retained a monopoly. For developed economies, this difference is significant; competition has

raised the growth rate of traffic per subscriber from 5.6 per cent to 9.3 per cent per year since

1990. However, for emerging markets the difference is much more striking: over the same

period competitive markets grew their international traffic per subscriber by 11.7 per cent per

year compared with just 5.2 per cent per year in monopoly markets. This suggests that the

potential benefits of trade liberalization might actually be greater for emerging markets than for

developed ones.

Why should this be so? One part of the answer is because of unmet demand. Some 43

million people are on registered waiting lists for telephone connections in emerging markets and

the average waiting time is more than a year. By introducing new investment in the market,

waiting lists can be sharply reduced, as has been the case in developing markets that have

privatized their public telecommunication operators at the start of the 1990s.

Page 20
 What about the potential costs of trade liberalization? Some governments are afraid that

they will lose the ability to control entry and ownership in their domestic markets. The truth is

that, at the international level, governments have practically lost the power to dictate who can

provide services. For example, the development of alternative calling procedures such as call-

back has occurred at a much faster rate than had been expected over the past few years. As a

result, almost all markets are now open to some degree of competition.

By making commitments to open their market, governments are merely acknowledging

what is already happening. In particular, it is necessary to reflect on the changing role of

government, from being a direct player in telecommunications to a policy maker and regulator.

Even though their direct operational influence may be greatly diminished, there will be more

work for governments to do under a competitive market environment than was the case under

monopoly service provision. That is because existing market players as well as potential new

entrants will be looking for clear guidance on what sort of regime will be established for issues

such as interconnection, numbering, universal service obligations and tariff policy.

1.2 Towards a multilateral trade framework

A new paradigm is emerging for international trade in telecommunications. The old

paradigm, which might be loosely described as "inter-national" telecommunications, was based

on bilateral relations between countries. The monopoly operators in those countries

collaborated in the joint provision of international services. This model is now breaking down,

not so much because the system is not working, but rather because it now fails to capture the

full picture. A new pattern based on global competition is emerging. It recognizes that trade in

telecommunication equipment and services now takes place in a multilateral environment in

which the majority of trade relationships include multiple intermediaries between buyer and

seller. We are moving from a world of one-to-one relations to a world of many-to-many. It is not

Page 21
nations that trade with other nations, but companies and individuals that conduct trade with

each other.

What will be the impact of the market opening moves agreed at the World Trade

Organization? The agreements are significant for two main reasons. First, because the

countries which have made offers or commitments account for such a large part of the total

world market. The 69 governments that made offers under the negotiations on basic tele-

communications services (Geneva, 15 February 1997) constitute some 94 per cent of the global

market for telecommunication services. Similarly, the 28 governments that signed the

Ministerial Declaration on Information Technology products (Singapore, December 13 1996)

account for 84 per cent of global telecommunication equipment exports. Second, because the

agreements have been negotiated as part of a multilateral treaty, the offers and commitments

are binding on governments and practically irreversible.

For many telecommunication users, the transition to a multilateral trading system will

bring benefits in terms of greater choice and lower prices. For the majority of carriers, there will

be significant benefits in terms of creating new market opportunities and a more level playing

field. The goal is to extend the multilateral solution in which all countries move forward together

and in which all benefit, not just those carriers with market power. Only then will the benefits of

global competition be extended to all the world's inhabitants.

2. Review of Strategies

To better understand possible strategic options for smaller carriers, it would be

instructive to review strategies of telecommunications carriers in the United States and Europe.

Whether one looks at North America or Western Europe, one is struck by the diversity of

approaches to international and global operations. This is the case whether one looks at carrier

agreements, foreign direct investments, or alliances.

Page 22
 As Braunstein states:

There is no one single strategy behind the globalization of the diverse firms that
are the major U.S. telecommunications carriers. The “Baby Bells” have been
constrained by the terms of the AT&T divestiture, in the past, and currently by
the Telecommunications Reform Act of 1996 from expanding into long distance
and international carriage. As a result, many of them have sought to expand into
growing markets overseas. But even in this case, they have followed different
8
strategies.

Similar he finds different approaches for the integrated carriers, AT&T (formerly) and

GTE (currently):

GTE has majority interests in two of Canada’s provincial carriers and has
recently expanded into Latin America. … AT&T has used World Partners to
affiliate with other carriers and with Unisource without making direct equity
investments and— at the same time— has continued to be a major investor in
9
carriers including, most recently, Telecom Italia.

2.1 Difficulties for smaller corporations

Smaller corporations are at a disadvantage in the move to globalization for several

reasons. The existing international telecommunications alliances have been created by some

of the world’s largest carriers, and they have exhibited a preference for dealing with others of a

similar nature. There is a “learning curve” when it comes to entering new markets

internationally, and often the investments needed are quite large.

The current international carrier alliances can be viewed as an attempt to replace the

former club of national monopoly carriers with a cartel of alliances made up of mixes of former

monopoly carriers and the largest “new” entrants. Regardless of whether the goal of these

alliances is primarily to provide service for the largest multi-national corporations, their effect is

to enable end-to-end control of key international links, providing their members with market and

cost advantages.

The alliances differ in their structure, especially in the mix of equity participation and

looser affiliations on other-than-equity bases. Nevertheless, in all three of the major alliances

the members are either very large telephone carriers with considerable international presence

Page 23
(e.g., MCI, Sprint), or carriers who are dominant in their home countries (e.g., KPN, Telia), or

carriers who are both (e.g., AT&T, BT, etc.). With few exceptions, smaller, non-dominant

carriers appear to be effectively excluded so far.

Fortunately, there are compensating factors. First, regulatory intervention has reduced

the potential payoff from controlling both ends of an international link. Regulations such as

parallel accounting rate requirements and proportionate return have been effective. Second,

although the pressure to lower accounting rates to more closely reflect costs will negatively

affect many carriers from smaller countries, this change will go a long way toward “leveling the

playing field” for new entrants by reducing the financial cushion of many incumbent carriers.

And third, the existence of multiple alliances means smaller firms may be able to play one large

entity off against another to find the best “partners.” This last point may have been illustrated

by Telefonica’s move from Unisource to Concert in 1997.

As additional countries liberalize various parts of their telecommunications sector, there

are many opportunities for international partnerships and consortia to team with local partners

and seek to enter these markets. However, preparing and submitting a competitive bid, or

seeking to enter in any creditable manner, generally requires significant resources and

knowledge. While firms can acquire the resources and knowledge in a number of ways, there

are significant advantages that accrue to those with experience. Thus the process of

competitive entry often presents barriers to the smaller organization. On the other hand, it

should be noted that many smaller firms have proven to be quite good at entering new markets,

and the large number of local consortia provides many opportunities. Furthermore, many

countries are lowering their barriers to foreign ownership or partial ownership by foreign

interests, partially in response to the recent WTO agreement.

The investments needed for new satellite technologies are massive, and very large,

financially stable firms have a competitive advantage in becoming lead partners in satellite

Page 24
consortia. Although the technological and financial hurdles are significant, each satellite carrier

needs “landing rights” in countries (or at least regions) throughout the world. As a result, there

are many opportunities for smaller firms, especially if they have domestic interconnection rights,

in the satellite consortia. The fact that each satellite system will use one or more of

technologies such as CDMA or TDMA for their digital links to user handsets provides

opportunities for firms with experience or expertise in these technologies.

2.2 Lessons learned from the U.S. and European carriers

The most obvious conclusion about the process of globalization one can draw from the

activities of U.S. and European telecommunications firms is that globalization efforts are not

always as logical or as profitable as one might wish. For example, whether one looks at

Ameritech in Poland or U S West in the United Kingdom, it has been difficult at times to directly

apply U.S. experience to operations in other countries. Nevertheless, many of the U.S. carriers’

foreign investments have been quite successful. The U.S. firms seem to be particularly able to

work with complex consortia of investment groups and flexible enough to structure such groups

to meet both the requirements of the host country and the needs of the others in the consortia.

However, the U.S. carriers seem to choose opportunities where they have a controlling role.

Similarly, European carriers have had varying results with international investments. The most

obvious recent case has been BT's problems with its investment in MCI.

The second conclusion is that the U.S. firms appear to be settling for longer pay-back

periods for their international investments than one might expect from all the focus on short-

term corporate earnings. The reasons for this are probably complex, and this conclusion

should be viewed as tentative and in need of confirmation. But if this is true, the reasons

possibly include:

• the foreign investments are relatively very small and therefore early losses have a

minimal effect on reported earnings;

Page 25
 • the expected future growth rates of revenues and earnings from the international

investments are higher than in the home markets;

• a desire to learn about competitive markets from which some of the firms are excluded

in the U.S. outweighs the need for short-term earnings.

The third conclusion is that many telecommunications firms seem either to have a

“portfolio” approach to international investments or a focus on investments that capitalize on

their proprietary technologies and complementary lines of business. Although it takes

significant time and resources to develop and manage interests in a number of countries, such

an approach can markedly reduce the risks of international investments. Similarly, having

experience with a specific technology can help offset the risks from not having country-specific

experience. To cite one obvious example, Motorola has developed supplier relationships with

entities in which it has invested in both the cellular and satellite industries. The practical effect

of this dual relationship is that lower profits from the partnership can be balanced against

additional sales by the parent company. (This is, of course, similar to Korean firms entering

international markets that use CDMA technology.)

It is likely the implementation of the WTO telecommunications agreements will lead to

further lowering of barriers and, therefore, a higher level of international activities by many

firms. A countervailing factor, however, might be the possible entry of the Baby Bells into the

U.S. domestic long distance market, from which they are now effectively barred by regulation.

If such domestic expansion occurs, this might reduce both their interest in foreign markets and

the funds available for foreign investment. Nevertheless, if increased foreign activity by U.S.

firms were to occur, it need not be at the expense of foreign firms as the opportunities for

international partnering and risk-sharing will also increase.

Page 26
 2.3 Value Added Services

Policy makers in many countries protect the incumbent monopoly carrier. For a variety

of reasons, including technological, bureaucratic, and political arguments, competition is

restricted. Multi-national corporate customers are demanding that regulators in many countries

allow competition in the provision of business services in the belief that competition will lead to

lower prices and a wider range of services. Historically, multi-national corporations will move

operations out of countries where access to adequate and reasonably priced

telecommunication services are lacking. Often, agreements are reached where competition is

allowed in the provision of value added services while the incumbent monopoly provides basic

services and keeps the infrastructure intact. As a result there is a hybrid structure where global,

integrated services are provided for multi-national companies by a variety of firms while some of

the monopolistic services of the incumbent carrier are maintained. In the Asia-Pacific region,

one finds a similar situation in Korea. Korea began its domestic market restructuring in 1990.

Since 1994, there has been no restrictions on investment in value added service providers, and

there has been a steady introduction of competition into each telecommunication service.

Page 27
PART III. FUTURE SCENARIOS AND STRATEGIC OPTIONS

1. Telecommunications Services

We now turn to the future and the strategic options for smaller carriers and countries.

There is no doubt that the business and economic model underlying both domestic and

international telecommunications has been changing. Countries around the globe are

witnessing the introduction of new services, the entry and growth of new carriers, and the

changing economics of international traffic. There is pressure for tariff re-balancing in many

countries as the system of subsidizing local service with super-normal profits in long-distance

(trunk) and international services comes under attack from several directions. This is a time of

transition, and there is no one clear strategy that is guaranteed to be the best for any particular

carrier.

The pressure for prices in all aspects of telecommunications to more closely track costs

will continue. Governments and carriers in all parts of the world recognize this fact; it is one of

the key reasons that the adoption of the WTO telecommunications agreement may not be the
10
major cause of drastic change. The result of this more open, more competitive future is that a

firm will have to seek opportunities as they present themselves or risk becoming a slow growth,

low margin operation.

We believe that there are five options that emerge from the analyses in this paper and

the other recent studies cited above. They cover domestic, regional, and international

opportunities and should not be viewed as mutually exclusive. In fact, as times and conditions

change, the preferred mix and exact details will need to be adjusted to reflect the new

environment. Starting with the more domestically oriented ones first, the options are:

(1) Lead the domestic market in an era of phased liberalization.

(2) Seek opportunities to integrate vertically.

(3) Promote regional opportunities.

Page 28
 (4) Capture a major share of regional markets.

(5) Expand enhanced services internationally.

We now cover each of these options in turn.

Lead the domestic market in an era of phased liberalization.

The deliberate, phased introduction of domestic competition planned by many countries

has the problem that, while monopoly telecommunications revenues are protected, it is at the

risk of alienating both the business sector and the growing numbers of telecommunications

subscribers.

Carriers need to develop and maintain a forward-looking plan to rebalance domestic

tariffs and renegotiate international tariffs so that both become both more cost-based and more

robust in the face of competitive and political threats. There are advantages to leading the

transition rather than simply reacting to market and governmental pressures.

This domestic focus can either be the first step in a phased domestic-regional-

international growth strategy or an integral part of realignment as telecommunications markets

become more global.

Seek opportunities to integrate vertically.

At the same time that new carriers enter the domestic market, there will be opportunities

for incumbent carriers to acquire firms in related markets or to form alliances with these firms.

As the telecommunications business becomes more fragmented, many customers seek to

simplify the nature of the choices they are forced to make. By developing new service

offerings, if necessary with outside partners, the incumbent can continue to be the carrier of

choice.

Promote regional opportunities.

As we have seen in Part I, carriers frequently expand into neighboring countries or into

nations with which there is a pre-existing common factor such as language or trade. This is

Page 29
often seen as an intermediate stage between operating solely in the home market and a full

range of international activities. Ideally, one should look for opportunities of high growth as well

as some degree of natural advantage. Obvious examples are the investments by some of the

Scandinavian carriers in the countries of the Baltic region. Although Estonia, Latvia, and

Lithuania are relatively small and there are linguistic differences, there was a history of trade

and there is the belief by many that their rates of growth will accelerate as their economies

complete the transition from socialism.

A parallel opportunity may be found in the situation in Northeast Asia. There are
11
obvious opportunities in the Tumen River Development Area, and existing carriers from the

region are ideally situated to play a primary role in the development of that region's

infrastructure. Any one carrier is likely to find itself both a partner and a competitor with other

carriers as it becomes increasingly active regionally. The regional strategy likely to be most

successful is one that both draws on a carrier's experience in its home market and enables it to

work successfully with carefully chosen partners.

Capture a major share of a regional market.

Even though many countries are pursuing similar objectives in protecting their own

markets— at least temporarily, developing strategies to penetrate those markets is important.

The multi-national business customer wants a telecommunications service provider that can

offer global services. Any one carrier may have to partner with others in global alliances in order

to serve this important segment of the market.

One strategy could be to target companies that are either exclusively or primarily

regional in their operations. Even though there is competition in providing services for these

companies, a carrier might do well by targeting a limited number of vertical market segments for

enhanced business services. Aggressive pricing, high quality of service, and an emphasis on

Page 30
doing business with regional companies might be an effective strategy against the larger global

competitors.

Expand enhanced services internationally.

Areas that one should investigate are those markets where the margin between costs

and prices is likely to remain at above-normal levels. Many believe that in the near future the

greatest profits and profit margins are to be earned in international value added services for

business customers. Enhanced vertical services will become increasingly profitable while the

transmission of raw signals will become an increasingly low-margin business. Next in

profitability to look at may be international gateways and international transmission via satellite.

2. Equipment manufacturing

One international trade strategy for telecommunications equipment is to use the

knowledge of the workforce to maintain a competitive advantage. The employees continually

build upon their knowledge and expertise, staying ahead of their competitors. Simply designing

and building equipment that can be reverse engineered and copied will lead to only a short-term

advantage in the marketplace.

Competitive advantage in telecommunications equipment manufacture is tied to

liberalization in telecommunications services. As an example, Terry Curtis has described the

result of Korea's moves toward liberalization in telecommunications services to be:

… an open network with multiple carriers and, therefore, equipment from multiple
vendors. As the rest of the world’s telecom networks are opened to competition
and interconnection, those manufacturers that have the greatest experience in
providing equipment and software that functions well in multi-vendor, multi-
carrier networks will have a distinct advantage. Having such a network in the
Republic of Korea will ensure that Korean manufacturers are able to produce
12
products suited to such an environment.”

Page 31
 Carriers working closely with the manufacturers will be able to identify and quantify

various aspects of the technology and improve upon it, a process that would normally be done

by the developer of the technology.

3. Conclusion

Carriers have employed a number of strategies in their efforts to globalize their services,

from alliances and multilateral partnerships to foreign direct investment. The partnerships and

investments include entering “natural” markets as well as high traffic destinations. There is no

clear pattern of globalization strategy among different carriers, and revenue growth is

apparently not correlated with strategy.

The early or late opening of domestic telecommunications markets does not appear to

correlate with the rate of revenue increases received by the carriers. However, growth in

telecommunications services revenue is related to the level of development and the rate of

overall economic growth in the carrier’s home country.

There is no "magic bullet" that will guarantee that any carrier will continue to grow and

thrive in the changing world of telecommunications. Choices in strategy are made for a variety

of reasons— choices that may not necessarily result in the highest revenues or growth rate.

There continue to be major changes in technology, domestic policy, international relations, and

the overall economy that present both great challenges and opportunities to the tele-

communications carriers of the world.

Page 32
Table 1: Domestic Telecommunications Markets in 12 Countries

Country Main Main Annual Minutes of Minutes of Annual Calls Calls Annual Revenues Revenues Annual
Lines Lines % Incr. Telephone Telephone % Incr. 1986 1995 % 1986 1995 %
(000) (000) (Lines) Service Service (MTS) (millions) (millions) Increase (billion) (billion) Increase
1986 1995 (Billion) (Billion) (Calls) (Rev)
1986 1995

USA 122,20 164,62 3.4% 1103 1511.5 5.6% $102.93 $178.16 6.3%
3 4

Japan 46,772 61,106 3.0% 185.16 233.28 3.4% ¥5313 ¥8806 5.8%

EU Countries:

UK 21,727 29,411 3.4% 92.973 116.547 7.8% £9.424 £17.528 7.3%

(1992)
Sweden 5,373 5,967 1.2% 23.945 30.711 2.8% 18.366 33.205 7.0%
(1988) Kronor Kronor
Finland 2,272 2,801 2.4% 2707 3735 3.8% 5.489 11.067 8.2%
Markka Markka
Denmark 2,628 3,193 2.2% 4141 4209 0.4% 13.306 19 Kroner 4.2%
Kroner
Netherlands 6,029 8,120 3.4% 5879 9490 5.5% 6.913 13.623 7.9%
Guilder Guilder
Germany 26,189 40,400 4.9% 28520 52500 7.1% 35.327 DM 68.835 7.8%
DM
France 23,911 32,400 3.4% 96.96 104.4 4.5% 90.74 135.58 4.7%
(1989) Franc Franc
Italy 18,253 24,845 3.5% 18.451 35 7.4% 13950 Lira 32598 10.3%
Lira
Spain 9,785 15,095 4.9% 11175 17358 5.2% 468 Peseta 1372 12.8%
Peseta
Portugal 1,511 3,584 10.1% 99.51 429.18 17.7%
Escudo Escudo

SOURCES: ITU Yearbook of Statistics, 1997. (Growth rates calculated by authors.)

Page 33
Table 2: Gross Domestic Product per capita and Growth Rates

Country GDP per capita GDP per capita Annual % Year Market Year
in USD in USD Increase Opened - Market
1986 1995 (GDP per Cellular Opened -
capita in Fixed
USD)

USA 18301 27569 4.7% 1984

Japan 16344 41004 10.8% 1985

UK 9970 19095 7.5% 1984 1985

Sweden 15891 25973 5.6% 1981 1991

Finland 14237 24091 6.0% 1992 1994

Denmark 16075 33013 8.3% 1992 1996

Netherlands 12265 25501 8.5% 1995 1997

Germany 14527 29554 8.2% 1992 1998

France 13168 26504 8.1% 1992 1998

Italy 10548 18962 6.7% 1995 1998

Spain 5969 14260 10.2% 1995 1999

Portugal 3469 9175 11.4% 1992 2000

NOTES: GDP converted from local currency to U.S. Dollars at year's average market
exchange rate. Market opening in all countries has been a process and,
therefore, difficult to assign to a single year. U.S. and Japan dates are for major
policy changes.

SOURCES: GDP, population, and exchange rate data from ITU. Growth rates calculated by
authors. Market opening years for European countries from Elixmann.

Page 34
Table 3: Correlation Coefficients for Rankings

(Measured by Kendall's Tau b)

1986 GDP per capita Growth in GDP per capita

Growth in lines -.485* (.014) .333 (.065)

Growth in revenue -.606* (.003) .212 (.169)

NOTES: Entry in each cell is correlation coefficient, followed by p-value in parentheses.

An asterisk (*) indicates significant at 95% level or better.

SOURCE: Authors' calculations; see text.

Page 35
Table 4: Regression Analysis of Telecommunications Growth Rates

Dependent Variable Independent Coefficients p-values R2

Variable(s)
(all per capita in USD)

Lines growth Growth in GDP .689* .026 .406

Lines growth 1986 GDP -.390* .004 .585

Lines growth Growth in GDP .303 .292 .636

1986 GDP -.300* .041

Revenue growth Growth in GDP .873 .115 .230

Revenue growth 1986 GDP -.740* .000 .761

Revenue growth Growth in GDP -.117 .757 .764

1986 GDP -.780* .001

NOTES: An asterisk (*) indicates significant at 95% level or better.

SOURCE: Authors' calculations; see text.

Page 36
Table 5: United States— Natural Markets, Telecommunications Traffic & FDI

"Natural" Markets Major Trading High Traffic (Telecom) % of Outgoing Traffic

Partners Countries

Canada Canada Canada 19.3%

Mexico Japan Mexico 12.7%
UK Western Europe UK 6.5%
Australia Mexico Germany 4.2%
Philippines Japan 3.6%

NOTE: See Braunstein for detailed lists of foreign holdings of U.S. carriers.

SOURCE: Braunstein, Exhibit 7.

Table 6: Japan— Natural Markets, Telecommunications Traffic & FDI

"Natural" Markets Major Trading High Traffic (Telecom) % of Outgoing Traffic

Partners Countries

China USA USA 21.3%

South Korea Southeast Asia China 12.8%

Philippines European Union South Korea 9.9%

Taiwan Philippines 8.8%
Taiwan 5.4%

13
SOURCE: Oniki, Table 2-1

Page 37
Table 7: United Kingdom— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

BT
Ireland Western Europe USA 15.3% Sweden 1991
Western USA Ireland 9.2% Japan 1991
Europe
Scandinavia Germany 9.0% Australia 1991
USA France 8.9% Spain 1995
Canada Italy 4.7% Germany 1995
Australia Italy 1995
India France 1996
Caribbean Netherlands 1996
Hong Kong Switzerland 1996
Singapore New Zealand 1996
Portugal 1997
Nigeria 1997

C&W
Philippines 1800's
Hong Kong 1983
Japan 1987/91
Australia 1991
Sweden 1991
Yemen 1992
Latvia 1993
Belarus 1993
Indonesia 1994
Vietnam 1994
Russia 1994
Columbia 1994
Israel 1995
Panama 1997
China
France
Germany
Pakistan
South Africa

SOURCE: Elixmann, pages 62-68

Page 38
Table 8: Sweden— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

Norway Norway Finland 14.2% Latvia 1991

Finland Germany Norway 13.8% Estonia 1992/94
Denmark UK Denmark 10.7% Italy 1994
Estonia Denmark Germany 10.6% Ecuador 1994
Latvia USA UK 8.4% Poland 1995
Lithuania France Philippines 1995
Germany Finland Ireland 1996
Poland Netherlands Finland 1996
Denmark 1997
Sri Lanka
UK
Russia
Namibia
China
Norway

SOURCE: Elixmann, pages 54-59

Table 9: Finland— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

Norway Germany Sweden 31.4% Estonia 1991/92

Sweden Sweden Germany 10.0% Latvia 1992/94
Denmark UK Russia 7.6% Hungary 1992/93/94
Russia US UK 6.7% Russia 1993
Estonia France Estonia 5.8% Turkey 1993
Latvia Russia Netherlands 1994
Lithuania Denmark Lebanon 1994
Norway Hong Kong 1996
Netherlands UK
Sweden

SOURCE: Elixmann, pages 11-15

Page 39
Table 10: Denmark— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries Year of FDI

Markets Partners (Telecom) Outgoing of FDI (if known)
Countries Traffic

Sweden Germany Germany 19.3% Lithuania 1991/92

Norway Sweden Sweden 16.6% Ukraine 1991
Finland France UK 10.7% Hungary 1993/94
Germany UK Norway 9.8% Belgium 1995
Belgium USA USA 5.0% Sweden 1995
Norway China 1995
Japan Poland 1996
Switzerland 1996/97
Germany 1997

SOURCE: Elixmann, pages 710

Table 11: Netherlands— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

Belgium Germany Germany 23.3% Ukraine 1992

Germany Belgium Belgium 16.4% Hungary 1993/94
UK France UK 12.3% Indonesia 1994/96
Denmark UK France 7.7% Czech Rep.
South Africa USA USA 6.2% Ireland
Indonesia

SOURCE: Elixmann, pages 38-41

Page 40
Table 12: Germany— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

Denmark France Austria 7.9% Ukraine 1992

Belgium Netherlands France 7.4% Hungary 1993
France Italy Switzerland 7.3% Russia 1993/94
Italy Belgium Turkey 7.2% Netherlands 1994
Czech Republic USA Italy 7.2% Switzerland 1994

Poland UK Indonesia 1995

Austria Austria 1995
Switzerland Israel 1996
Czech Repub. 1996
Poland 1996
China 1996
Malaysia 1996
Philippines 1996
USA 1996

SOURCE: Elixmann, pages 24-30

Page 41
Table 13: France— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

Spain Germany Germany 11.6% Argentina 1990/92

Italy Italy UK 11.3% Mexico 1990
Germany USA Italy 8.6% Poland 1991
Belgium Belgium Belgium 8.1% Greece 1992
UK UK Spain 6.4% Vanuatu 1992
Caribbean Netherlands Indonesia 1994
South Pacific Spain Vietnam 1994
Vietnam Japan Russia 1994
French Africa India 1994
Lebanon 1994
Italy 1995
Belgium 1995
Israel 1996
Slovakia 1996
Ivory Coast 1996
Moldavia 1997
Romania 1997
Cent. Afri. Rep.
Congo
Chad
Djibouti
Equatorial Guinea
Gabon
Madagascar
Mali
Niger
French Antilles
Russia
Japan

SOURCE: Elixmann, pages 16-23

Page 42
Table 14: Italy— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

France USA Germany 15.7% Argentina 1990

Switzerland European Union France 12.5% Greece 1992
Germany Switzerland 9.5% China 1994
Austria USA 8.1% Bolivia 1995
Slovenia UK 7.8% India 1995/96
Croatia Chile 1996
Tunisia France 1996/97
Czech Repub. 1996
Cuba 1997
Columbia 1997
Austria 1997
China
Israel

SOURCE: Elixmann, pages 31-36

Table 15: Spain— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

Portugal Germany Germany 15.7% Argentina 1990

France Italy France 15.4% Chile 1990
UK France UK 14.3% Puerto Rico 1991
Central USA Italy 6.7% Venezuela 1991
America
South America UK USA 4.7% Peru 1994
Caribbean Columbia 1994
Philippines Romania 1994
Mexico 1995
Portugal 1997

SOURCE: Elixmann, pages 46-52

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Table 16: Portugal— Natural Markets, Telecommunications Traffic & FDI

"Natural" Major Trading High Traffic % of Countries of FDI Year of FDI

Markets Partners (Telecom) Outgoing (if known)
Countries Traffic

Spain Western Europe France 21.7% Sao Tome 1990

France USA Spain 15.9% Macao 1993
UK Germany 12.0% Spain 1997
Brazil UK 11.0% Guinea-Bissau
Macao Switzerland 5.4%

SOURCE: Elixmann, pages 42-45

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Table 17: Summary of Findings— EU & U.S.

European Union United States

International traffic primarily within EU U.S.'s top destination is Canada; remaining

traffic highly fragmented

FDI depends on common interests (language, FDI depends more on market opportunities.
distance, etc.).

Heavy investor in cellular. Heavy investor in cellular

Strong role for equipment manufacturers. Manufacturing role only important for Motorola
(and for AT&T in past).

Accounting rate issues not so important. Accounting rate issues very important (due to
large traffic imbalance).

Major reasons for alliances: Major reasons for alliances:

• replace FDI • control both ends
• serve MNCs • least-cost routing
• (lesser interest in controlling both ends) • serve MNCs

Strategies often technology-driven. Strategies often market-driven.

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 FOOTNOTES

1 th
International Telecommunications Union, ITU Yearbook of Statistics, 1997 (24 edition),

Geneva.
2
Dieter Elixmann, “Strategies of Telecom Common Carriers for Expanding Globalization: The

European Union Cases” and Mark Scanlan, Howard Williams, and Jason Whalley, “National

Policy Issues Regarding Globalisation: The European Union Case.” Both are forthcoming in

East-West Center, Globalization of Telecommunication: Korea's Strategic Policy. (Page

numbers are from manuscripts.)

3
Elixmann
4
Elixmann, page 91.
5
Elixmann, page 90.
6
Elixmann, pages 85-86.
7
Yale M. Braunstein, “Strategies of Telecom Common Carriers for Expanding Globalization: The

U.S. Case,” page 6. Forthcoming in East-West Center, Globalization of Telecommunication:

Korea's Strategic Policy.

8
Braunstein, page 28.
9
Braunstein, page 29.
10
Eli Noam, "Comments," Presentation at East-West Center workshop, January 1998 .
11
United Nations Development Program, Planning Report for Tumen River Development Area

(1995).

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12
Terry Curtis, The Race for Globalization in Telecommunication: The United States and the

Republic of Korea Compared (Presentation at East-West Center workshop, January 1998),

page 12.
13
Hajime Oniki, “Strategies of Telecom Common Carriers for Expanding Globalization: The

Japanese Case.” Forthcoming in East-West Center, Globalization of Telecommunication:

Korea's Strategic Policy.

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