The telecoms trade war the united states, the european union, and the world trade organisation

The Telecoms Trade War:
The United States, The
European Union and the
World Trade Organization

Mark Naftel
Lawrence J. Spiwak

HART PUBLISHING


THE TELECOMS TRADE WAR



The Telecoms Trade War
The United States, The European Union
and the World Trade Organisation

by

MARK NAFTEL
Partner, Norton Rose, London
&

LAWRENCE J. SPIWAK
President, Phoenix Center for Advanced Legal and
Economic Public Policy Studies, Washington D.C.

Foreword by
Professor Lucien Rapp

University of Toulouse, France
Partner, Serra, Michaud et Associés, Paris

OXFORD – PORTLAND OREGON
2000


Hart Publishing
Oxford and Portland, Oregon
Published in North America (US and Canada) by
Hart Publishing c/o
International Specialized Book Services
5804 NE Hassalo Street
Portland, Oregon
97213-3644
USA
Distributed in the Netherlands, Belgium and Luxembourg by
Intersentia, Churchillaan 108
B2900 Schoten
Antwerpen
Belgium

© Mark Naftel and Lawrence J Spiwak 2000
Mark Naftel and Lawrence J Spiwak have asserted their rights under the
Copyright, Designs and Patents Act 1988, to be identified as the authors of
this work
Hart Publishing Ltd is a specialist legal publisher based in Oxford, England.
To order further copies of this book or to request a list of other
publications please write to:
Hart Publishing Ltd, Salter’s Boatyard, Folly Bridge,

Abingdon Road, Oxford OX1 4LB
Telephone: +44 (0)1865 245533 or Fax: +44 (0)1865 794882
e-mail:
WEBSITE: http//www.hartpub.co.uk
British Library Cataloguing in Publication Data
Data Available
ISBN 1 901362–014–1 (hardback)

Typeset by Hope Services (Abingdon) Ltd.
Printed and bound in Great Britain on acid-free paper by
Biddles Ltd, www.biddles.co.uk


To our wives for their unconditional love and support,
and to our children, who must live tomorrow
in the world we create today.


“Those who love both laws and sausages
shall inquire how neither are made.”
Otto Von Bismark

“. . . it is always from a minority acting in ways different from what the
majority would prescribe that the majority in the end learns to do better.”
F. A. Hayek


Foreword
by Mark Naftel and Lawrence J. Spiwak is a truly
revolutionary—and indeed unique—book. Rather than attempt to provide

yet another hornbook on US and European telecoms law, the authors instead contribute to the public dialectic by seeking to expose the recent “cynical” attempts
to substitute political trade policies for sound legal and economic telecommunications policy. Since both authors bring to this work of great scope a convinced
obstinacy of demonstration and a real intelligence of all political, legal, economical and industrial matters relating to international telecommunications, their
work demands respect. I sincerely recommend this book to all governments, regulators, competent international organisations officials, and also all concerned
citizens who should not remain strangers to this important subject.
With restructuring and liberalisation of telecommunications markets during
the past few years, it should be considered whether commercial conflicts among
nations have disappeared and been replaced by competition among companies.
Does the World Trade Organisation Agreement on Basic Telecommunications,
effective from February 1998, appear, despite its insufficiencies, as a peace treaty
concluded to permit the development of wide open relationships among the signatories? Are telecommunications markets really now free and competitive on
an international basis?
Moreover, how does this growing trade war impact the growth of the
Internet? The Internet explores obviously new spaces of liberty, but poses, crucially, the question of how to organise the conditions of its usage so that it does
not constrain liberty itself. What difference exists between the prehistoric man
setting up new tools for hunting or for war and the show given nowadays by our
societies, confronted by the excesses of the Internet—from spamming to misuse
of personal data, violations of intellectual property rights and so forth?
Apparently none. So, where is progress?
The question could remain philosophical if it has not been already influencing social and international relations. This raises the question of whether and
how we should regulate the Internet.
This question is where the debate takes an international dimension—in the
absence of international conventions, nations create their own policy on the
basis of national sovereignty, and this in turn remains the legal basis of international law and society.
This goes beyond telecommunications networks. Already we see circulation
of black lists, denouncing States whose regulation is obviously insufficient, just
as the worst times in history when informing was considered as proper. But how
different could it be, considering there are no adapted rules in this area?

T

HE TELECOMS TRADE WAR


viii Foreword
It is precisely these assertions, very generally expanded, that Naftel and
Spiwak strongly challenge. In other words, Naftel and Spiwak convincingly
illustrate that the market is neither free nor competitive—it is perverted by an
approach denounced by the authors as “neo-mercantilism” in the meaning given
by Adam Smith. The necessary protection of consumers is neglected by this neomercantilist policy.
The work of Naftel and Spiwak reminds us all that fundamental questions
still need to be answered regarding telecommunications restructuring and competition.1 What is competition in the domain of telecommunications? The fundamental scope of any restructuring policy in this sector of activity, being
primordial in the economic order, must search for the erosion of the beneficiary
margins or monopoly rents. Prices will thereby align with costs and permit the
maximum circulation of the technical improvements. It stakes out the widest,
domestic or international, opening of the market.
As the authors amply demonstrate and prove through many examples in this
book, however, the on-going “telecoms trade war” turns these first principles on
their collective head. Neo-mercantilism leads to statutory policies essentially
marked by the protection of national interests. Market openings imply accessibility from the outside. National regulation today produces entry barriers—
technical barriers to the intra-operability of infrastructures by a restrictive
interconnection plan, economic barriers by a dissuasive system of settlement
rates, exclusively made for the protection of the State’s sovereign interests, legal
barriers by a regulation of foreign investments, all the more inadequate since the
telecommunications systems tend to become general and therefore, ignore frontiers.
Naftel and Spiwak make their points through comparing US and EU policies
and mistakes. This is one of the virtues of the work, in addition to the mastery
of the subject matter the authors demonstrate. The analysis escapes being too
“American centric,” and is placed somewhere in the Atlantic Ocean, half way
between the political turbulences of the old and the new continent. By attempting to find uniform examples and principles, for example by reviewing EU and

US approaches in similar areas, the authors contribute an innovative and significant perspective to the public dialectic.2
The first three sections of the book set the stage of the telecoms trade war in
painstaking detail. To drive their points home, the fourth section of the book
1 The method employed should be the same as the primordial questions marked out by the masterpiece of Siéyès’ “What is Third Estate?” written on the eve of the French Revolution (1789). The
immediate questions were: “1. What is Third Estate? Everything. 2. What role has it been playing in
the economic order until now? None. 3. What is it asking for? Becoming something.”
2
Emmanuel Kohnstamm, vice-president of Time Warner Inc. in Brussels, perhaps gave the best
characterisation of the traditional differences which separate the European people from their NorthAmerican counterparts in the approach of the legal problem of State and liberty: “In Europe, people
don’t trust companies, they trust government; in the US, it’s the opposite way around: Citizens must
be protected from actions of the government.” Stephen Baker et al., “Europe’s Privacy Cops”,
Business Week, 2 Nov. 1998 at 21.


Foreword ix
provides a series of case studies illustrating policies that are so outlandish that
neophytes would believe to be fiction, rather than accepting them as a tragic
reality. Given my personal significant background in the satellite industry, I
found the authors’ exegesis on the FCC’s international spectrum policies particularly compelling. Indeed, after reading Naftel and Spiwak’s case study, how
could we not be astonished by the difficulties encountered by all the operators
of the satellite systems (Iridium, ICO and in a lesser level, Skybridge or
Teledesic)? Beyond the costs of purchasing frequency rights through auction
and actually deploying their satellites and services, the operators had to contend
with regulatory barriers and interference, to the extent of incurring re-location
costs for other operators. This is in addition to burdens such as limiting “foreign” ownership to 20 per cent, extraordinary licensing costs and so forth.
Unfortunately, the same mistakes seem to be occurring with the grant of third
generation mobile licenses in the United States and Europe.
In addressing such problems, Naftel and Spiwak’s work is infused both with
an energy of conviction yet a sadness at the present state of affairs. Although the
current wind of “political cynicism” may try to drown out the authors’ impassioned cry, all of is must strain to listen and accept their message. Although it is

not too late to pay attention, this may be our last chance to affect meaningfully
the emerging market structure of the telecoms industry and to maximise consumer welfare. I sincerely hope that many will be convinced and join their cause
before the current “telecoms trade war” ruins any chance of progress towards
peace.
Lucien Rapp
Professor of Public Law, University of Toulouse (France).
Partner, Serra, Michaud et Associés, Paris.



Preface
Given the lightning pace of change in the the telecoms industry, writing a book
on the current status of the relevant laws and regulation is virtually an impossible (and, moreover, probably useless) task. Indeed, given personal experience, we are confident that some major regulatory initiative from either
Washington or Brussels will no doubt come out just after we have submitted
this manuscript for publication and before the ink is dry on the first print edition of this book.
For this reason, we decided not to write a strict hornbook of international
telecoms law and regulation. Rather, we decided to take an alternative
approach to this topic, and instead explore the respective efforts of the United
States (US) and the European Union (EU) to implement the World Trade
Organisation (WTO) Basic Agreement on Telecommunications Services, and
how these initiatives to open up local markets affect markets for international
telecoms services. As such, because economic theory is not bound by geographic
borders, we will switch, as appropriate, between US and EU law as circumstances merit.
As we researched and wrote this book, we hoped to be able to tell our readers an uplifting story on about how the world was marching over the “bridge to
the 21st Century” and into the “information society.” Instead, we discovered
two disturbing trends in recent telecoms regulation and competition law
enforcement: (1) a growing telecoms trade war that is dangerously close to spinning out of hand; and (2), given the first point, a growing politicisation of, and
cynicism towards, the regulatory process generally. Under both scenarios, therefore, we find that many regulatory initiatives post-WTO harm—rather than
appropriately maximise—consumer welfare.
To explore these issues in detail, this book is divided into four parts.

In Part I, we set forth the analytical framework we use to analyse the growing
telecoms trade war specifically and growing cynicism of the regulatory process
generally.
In chapter 1, “Telecoms Policy for a New Millennium,” we explore the growing telecoms trade war and show that trade has no place in regulatory decisionmaking. Moreover, we show that many policy-makers have no real desire to
promote tangible competition. Instead, they are more interested in creating
“fair, competition-type outcomes accompanied by the benevolent use of
‘market-friendly regulation.’ ” As such, because many policy-makers perceive
erroneously competition as a “zero-sum game” (i.e., the discredited notion that
one firm can be made better off only if another firm can be made worse off),
there is little opportunity or incentive to maximise consumer welfare.


xii Preface
In chapter 2, given the analysis in chapter 1, we ask the basic question: Why
restructure in the first instance? Is it really to maximise consumer welfare, or
are we just interested in reallocating rents from one party to another? As we
explain, if the ostensible goal of restructuring is to move from a market characterised by monopoly (i.e., one firm) to a market characterised by competition (i.e., many firms), then policy-makers must affirmatively and aggressively
promote new facilities-based entry. To help illustrate this point, we set forth
the “Entry Condition” as an analytical framework to help determine whether,
given a particular set of circumstances, new firms will find it profitable to enter
and competition to occur. As we see once again, however, many regulators
have been averse to promoting new entry to the detriment of consumer welfare.
In chapter 3, we set forth what we believe to be the appropriate analytical
framework to assess the expanding restructuring process. Indeed, we try to go
beyond the rhetoric and—in this era of convergence—explore how we should
think about the market given the current technological developments. Among
other things, we recommend that policy-makers should not only take a static
review of the market as they currently find it but, as telecoms is an industry characterised by rapid technological change, also undertake a dynamic approach.
Moreover, given such potential for change, we also caution against the use of
overly broad—and, more importantly, overly narrow—market definitions and,

a fortiori, exaggerations of the relevance of the Herfindahl-Hirschman Index
(HHI) as a measure of market power. Finally, we outline what we believe is the
appropriate role of regulation and competition law in this process, and examine
the various tools government has at its disposal to make this restructuring
process a success.
In chapter 4, “Evaluating Competition in a Post-WTO World,” we return to
first principles and examine some of the salient economic characteristics of various telecommunications markets using the Structure-Conduct-Performance
(“SCP”) paradigm of industrial organisation economics as an analytical “checklist.” In so doing, we can attempt to glean an accurate picture of where these
markets are currently and are likely to go in the future.
Section I of this book concludes with chapter 5, in which we explore the specific provisions of the WTO and the Basic Agreement on Telecommunications
Services and, in particular, how the “telecoms trade war” fits into the larger
trade skirmishes now raging among the community of nations. In addition,
given many people’s misconception of how the WTO process actually works,
we briefly examine what the WTO does and, just as importantly, what it does
not. Finally, in light of the specific provisions of the WTO, we seek to explore
exactly what policy goals the WTO intended originally to achieve and the
resulting market structure it hopes to produce.
From this analytical predicate, parts II and III of this book examine the
respective efforts of the US and the EU to implement the WTO and promote
international telecommunications competition.


Preface xiii
Part II examines US efforts to promote both domestic and international telecoms competition. Chapter 6 begins with an analysis of the Federal
Communications Commission’s (FCC’s) International Carrier Paradigm, which
was nothing more that the FCC’s introduction of its domestic “Competitive
Carrier” paradigm to the international market. This decision marks the first
clear statement by the FCC that, with proper regulatory incentives and constraints, it was possible to promote competition for international service—in
addition to domestic long-distance service. Despite this constructive start,
however, this Chapter concludes with an analysis of the FCC’s “Effective

Competitive Opportunities” analysis for international service applications.
Although the FCC claimed that this policy would both promote entry by US carriers on the foreign end and also promote foreign entry into the US market, in
reality this decision marked the debut of naked (of course, relative to the commonly accepted, historically implicit) trade concerns—rather than consumer
concerns—as the top priority for FCC international policies.
In chapters 7 and 8, we discuss probably the most contentious battle in the
growing telecoms trade war—the FCC’s unilateral decision to impose settlement rate benchmarks on the rest of the international community. Claiming
that such “competitive safeguards” were necessary because it did not trust the
rest of the WTO community to meaningfully enforce their respective Member
Commitments, the next two chapters show that both the FCC’s economic rational behind these actions and the legal justification upholding the FCC’s orders
were at best flimsy. We also show the naked politicisation of the American legal
system by demonstrating that the judicial decision upholding the FCC’s action
not only ignored numerous areas of well-settled jurisprudence, but also lacked
the professional courtesy of even citing the International Telecommunication
Union’s charter and name correctly.
In chapter 9, which we call “Do as I Say, Not as I Do”, we examine the FCC’s
efforts to promote local competition in US markets. As we show in this chapter,
the FCC’s actions since the passage of the US Telecommunications Act of 1996
reveal that it has absolutely no vision of an efficient, long-term industry market
structure. Instead, all we see is a cynical regulatory quid pro quo between
incumbents and new entrants, leaving the maximisation of consumer welfare
out of the question entirely. To facilitate this analysis, we explore in this chapter the underlying theory of unbundling, and examine how the FCC has perverted this theory to such a significant degree as to make tangible facilities-based
competition a far-off ephemeral dream. To further give some context to the
FCC’s recent actions, we also compare the FCC’s actions today to the FCC’s
successful efforts to restructure the US long-distance markets in the early 1980’s.
In part III, we cross the Atlantic and examine whether EU telecommunications policies have promoted competition. This part III begins with chapter 10,
where we look at the foundations and institutions of the EU, as well as its
important competition policy. Telecommunications competition in Europe
happened largely through application of EU competition law to the sector so a

xiv Preface
thorough understanding of EU law and policy—particularly regarding findings
of dominance and the curious EU essential facilities doctrine—is necessary for
an appreciation of how the EU arrived at where it is today regarding telecommunications competition and regulation.
In chapter 11, we look at the EU’s first efforts towards promotion of telecommunications competition, beginning with a judicial examination of competition,
continuing through the European Commission’s seminal Telecommunications
Green Paper, and the first wave of Directives mandating competition in telecommunications equipment and services.
In chapter 12, we examine how well the EU framework is working. Real-life
examples are closely examined in: the European Commission’s efforts to bring
down international calling prices through the promotion of international interconnection, the European Commission’s and the European Court of Justice’s
application and interpretation of the concept of “special and exclusive rights”;
the EU’s Telecommunications Access Notice and finally the European
Commission’s on-going efforts to force incumbent telecommunications operators to unbundle local loops for competitor use.
In chapter 13, we look at the EU’s approach to the Internet, contrasting
the EU’s Information Society outlook with the US-styled Information
Superhighway. Europe lags behind the US in terms of Internet penetration and
use, a matter of great concern to Europe’s political leaders. What, if anything,
governments can or should do about this situation is problematic, but policies
designed to promote Internet penetration are coming to the fore in the EU nevertheless. This chapter examines the EU’s Internet policies to date, specifically
regarding possible regulation of Internet telephony, data protection (an area
where the EU leads the world), and e-commerce initiatives.
In chapter 14, we examine the future of EU telecommunications regulation as
expressed in the 1999 Telecommunications Review. This policy document
makes many of the right noises in favour of consumer welfare, but the proof will
be in what actually emerges from the political process over the following
months.
In part IV, we examine various “hot spots” of contention in the growing
“Telecoms Trade War,” such as universal service, cable landing petitions, international spectrum issues, and regulatory and competition law authority review
of international mergers, acquisitions and joint ventures.
In chapter 15, we compare and contrast the United States’ and the European

Union’s approach to universal service, an area where the worst regulatory cynicism on the part of US officials may be observed. The actions of US regulators
in imposing a huge tax in the name of universal service, in the form of the socalled e-rate, on all US interstate telecommunications providers, constitutes a
huge dead-weight loss on the market. This is an expense that must be paid by all
market participants and therefore consumers, all for the sake of a few politicians
to score points by having their pictures taken with “kids ’n computers.” More
importunately, however, we also show that the improper politicisation of US


Preface xv
universal service policies significantly deter new entry, thus rendering the entire
process of universal service a self-defeating exercise. In contrast, the EU understands what universal service is all about, and has taken effective steps to reduce
its application to what is essential. The result is that only one EU nation, France,
even has a universal service fund today. This is a chance for the EU to steal a
march on the US, whose telecommunications markets are now weighed down
with an expensive universal service tax that in reality has nothing to do with universal service.
In chapter 16, we examine US international satellite spectrum policies. This
chapter seeks to address a very simple and direct question: if the community of
nations has made a collective decision that a vibrant global commercial satellite
market is in the public interest, then why is the US, via the FCC, threatening to
kill this industry (including America’s own significant private space industry) by
forcing new entrants into international satellite markets to pay spectrum relocation fees just as new entrants had to pay in the US domestic PCS context. Such
a “cookie-cutter” approach to spectrum management is per se arbitrary and
capricious, however, because what is good for the US domestic wireless industry is not a fortiori good for the international commercial satellite industry as
well. While it is true that there are certain valuable lessons that can be learned
from the US domestic experience and applied to the international market,
because the domestic and international markets (as the FCC often readily
admits) have very different structural economic characteristics, these markets
therefore do not warrant homogeneous regulatory treatment.
In chapter 17, we examine how something as seemingly innocuous and ministerial as undersea cable landing petitions can become a major battleground in
the growing telecoms trade war. Among other case studies, we examine the

recent case of the Japan US Cable Consortium’s petition to land a cable upon
US shores. This case represents a textbook example of regulatory cynicism, not
because of the merits of the case, but because it represents the epitome of how
political connections and the “revolving door” are becoming more important
than the law, economic theory, or even the facts.
In chapter 18, we examine how international mergers and acquisitions have
become favourite forums to advance trade concerns. It appears impossible for
enforcement officials in both the US and the EU to avoid the temptation to regulate through merger review. Given the incredible number of recent mergers in
the telecommunications industry, enforcement officials are like children in a
candy store. Although some mergers may alter market conditions so as to call
for restructuring mergers or radical regulatory remedies, often enforcement officials engage in the worst forms of mercantilist aggression against foreign interests. This chapter gives a detailed look at how recent significant attempts at
global, multi-national mergers in the telecommunications industry have fared
under multi-jurisdictional review.
We realise that some readers may meet our analysis with incredulity. Readers


xvi Preface
should note, however, that the criticisms levelled in this book are not intended
to be partisan in any way. Instead, we are just trying to report accurately recent
developments as they occurred.
In a similar vein, nothing contained in this book should be read to mean that
we think all people working in government service are regulatory megalomaniacs who could care less about the outcome of their actions. Both of us have had
the privilege of working closely with regulatory staffers during the events
described in this book (in fact, one of us worked for over five years in the FCC’s
now defunct Competition Division) and we know of many people in government who are trying to do the right thing in the face of intense political pressure.
In sum, given the huge societal implications raised by telecommunications
restructuring, any discussion of these complex issues must be approached with
the solemnity and seriousness they deserve. Indeed, the issues we talk about in
this book literally affect the lives of billions of people around the globe and,
therefore, cannot be taken lightly by any of the stakeholders in the debate. For

these reasons, we intend this book to be provocative, because we do not like
what we see. Certainly, we do not believe our story to be a pleasant tale, but we
do believe it to be an accurate one. We hope that in exposing this growing cynicism, policy-makers will return to their prime directive and original mandate—
the maximisation of consumer welfare.


Contents
Acknowledgements
Table of Abbreviations

xxix
xxxi

PART I: ANALYTICAL AND LEGAL FRAMEWORK
CHAPTER 1: Telecoms Policy for the New Millennium
3
I. Introduction
3
II. Why Regulation and Trade Policy Just Don’t Mix
4
III. The Growing Regulatory Cynicism Has No Place In Policy-Making 9
IV. So Where Do We Go From Here?
14
V. Case Study: The United States’ International Telecoms Policy
18
CHAPTER 2: Why Restructure?
I. Why Restructure?
II. Identify Optional Long-Term Market Structure
A. Case Study: The US versus the European Mobile Industry
B. The Structure/Conduct/Performance Paradigm

C. The Concept of Transaction Cost Economics
D. Public Policy Should Seek to Promote Good Market
Performance
E. Many Policy-Makers Have Neither Articulated a
Long-Term View of Industry Structure nor Sought
Aggressively to Improve Market Performance (and Eventual
De-Regulation) of Telecoms Markets
III. Policymakers Must Seek to Promote Entry Aggressively
A. Case Study: Terminal Equipment
B. Case Study: Customer Premises Equipment (CPE)
IV. The Economics of Entry: “The Entry Condition”
A. Case Study: Utility Entry into Telecoms
V. Aggressively Promoting Entry is the Sine Qua Non of this Entire
Exercise
A. Case Study: The New Zealand Residential Market
VI. So Why are So Many Regulators Really Against New Entry?

23
23
23
25
27
29

CHAPTER 3: Analytical Framework
I. A Time to Change Perspective
II. Basic Economic Characteristics of Dynamic Versus Static Markets
III. Importance of a Dynamic Perspective

47

47
47
49

31

32
33
35
35
37
39
41
43
44


xviii Contents
IV. Case Study: Dynamic Change and the Need for the 1996 US
Telecoms Act
V. Understanding the Role of Government
A. Defining the Roles: Who Does What?
1. The Role of the Antitrust and Competition Law
Enforcement Agencies
2. The Role of Administrative Agencies Responsible for
Economic Regulation
B. Harmonising Economic Regulation and Competition Law
VI. Defining the Rhetoric: What Do We Mean?
A. “Competition”
B. “Antitrust Policies”

C. “Other Public Interest Factors”
1. Case Study: A Tale of Two Footnotes
VII. How Should We Move Forward?
A. Price Regulation
B. Conduct Regulation
C. Structural Regulation
CHAPTER 4: Evaluating Competition in a Post-WTO World
I. Structural Market Conditions in the Post-WTO World—
Generic Analytical Framework
A. Domestic Markets
1. Products and Producers
2. Market Definitions
3. Relevance of Market Share
4. Residual Regulation
B. International Markets
1. Relevant Markets
2. Supply and Demand Elasticities
3. Major Endogenous Regulatory Factors
C. Getting a Grip on “Convergence”
II. Potential Conduct in the Post-WTO World
III. Market Performance in the Post-WTO World
CHAPTER 5: The WTO and the Reference Paper: An Ostensible
Blueprint for Entry
I. Introduction
II. A Brief History of the WTO Telecoms Treaty and the GATS
A. The GATS
1. Analytical Construct
2. Most Favoured Nation
3. Market Access
4. The Big Rub: Monopolies and Exclusive Service Suppliers

52
53
53
54
54
56
59
59
61
61
65
66
67
69
70
73
73
73
73
74
75
77
78
78
79
80
82
86
89

91
91
92
93
93
93
93
94


Contents xix
III. WTO Disputes and Resolution Procedure
IV. WTO Resolution: Illustrative Cases
A. Kodak Versus Fuji Equals United States Versus Japan
B. Is it a Computer, a Telephone or a TV?
C. Meat on the Table
D. Yes, We Have a Banana War
V. The WTO Telecoms Treaty
A. The Inclusion of Telecommunications Under GATS
B. General Framework
C. The Reference Paper
1. Definitions
2. “Comparative Safeguards”
3. Interconnection
4. Cost Determination
5. Universal Service
6. Transparency
7. Allocations of Source Resources
D. Apparent International Policy Objectives

VI. The Future of the WTO Telecoms Treaty?
A. The Future of the WTO: The Debacle in Seattle

95
98
98
99
100
100
102
102
103
106
108
109
110
112
113
113
114
114
117
118

PART II: US EFFORTS TO PROMOTE TELECOMS COMPETITION
CHAPTER 6: From International Competitive Carrier Paradigm to
Effective Competitive Opportunities: The FCC’s
International Policies Pre-WTO
I. International Competitive Carrier
A. Relevant Product Markets

B. Relevant Geographic Markets
C. Definition of Market Power
D. Merits
II. The FCC’s First Attempts to Control Foreign Carriers
A. Statutory Authority
B. The FCC’s Foreign Affiliate Rules
III. The FCC’s Foreign Carrier or “ECO” Order
A. The Rise of Naked Trade Concerns
B. The Improper Redefinition of Market Power
C. The New ECO Standard
D. Other “Public Interest” Factors
E. Accounting Rate Issues
F. Joint Marketing Agreements
G. Trade and the “Public Interest”
IV. Questions of Dominance and Effective Competitive
Opportunities

123
123
124
124
124
125
126
126
126
129
130
131
132

132
132
134
135
138


xx Contents
A. Generic Worldwide Dominance: The AT&T International
Non-Dominant Petition
B. Does the FCC View Competition/Antitrust Laws as Effective
as Regulation? The Telecom New Zealand ECO Case
V. Who Needs Market Power to Apply ECO? The MAP and APC
PCS ECO Orders
VI. Settlement Rate Disputes: The Telintar Trade War
VII. Summary and Analysis

138
139
142
143
144

CHAPTER 7: US Policies Post-WTO Part I—Benchmarks and Entry
Fees
147
I. Exactly How Open Are the US Markets Post-WTO?
147
A. The FCC’s Benchmarks Final Order
147

1. Pricing Methodology and Application
148
2. Timing and Implementation
151
3. Enforcement
153
II. The FCC’s Foreign Participation Order (WTO Implementation
Proceeding)
156
III. Summary and Analysis
165
A. Problem No. 1: “Mercantilism Rising”—that is Arguably
More Difficult to Enter US Markets Post-WTO Than it Was
Under ECO
165
B. Problem No. 2: Despite Rhetoric, FCC Orders Reveal that
the United States Apparently Has Little Desire to Move to a
Full-Circuit World and Eliminate the International
Settlement-of-Accounts Regime
166
C. Problem No. 3: Bringing Settlement Rates in Line with
“Costs” Does Not a fortiori Mean that Either (a) Prices will Decline,
or (b) Telecom Providers’ Revenues Will Increase
168
D. Problem No. 4: In the FCC’s View, What is Good for the
Goose Apparently Does Not Necessarily Have to be Good
for the Gander—Even When the Goose Refuses to Lay Any
Eggs
170
CHAPTER 8: US Policies Post-WTO Part 2—The Naked

Politicisation of the American Legal System
I. Cable & Wireless Decision
A. The Court’s Decision
B. The Demise of US Ratemaking Law
1. Jurisdictional Issues
2. Tariff Components Price Methodology
3. The Evisceration of the Mobile-Sierra Doctrine
II. How Politics Now Trumps Law, Economics and Facts
A. The FCC Apparently Believes that the Mere Potential for
Foreign Carriers To Think “Evil Thoughts” is Sufficient

173
173
173
174
174
178
180
184


Contents xxi
Justification to Impose Stringent Regulation as a
Precondition of Entry
1. Price Squeeze-Type Conduct
2. Posing a “Very High Risk” to Competition
B. Evisceration of International Law
C. Implications for the Future
III. So What’s Really Going on Here?
CHAPTER 9: “Do As I Say, Not As I Do”—US Efforts at Promoting

Local Telecoms Competition
I. Introduction
II. Unbundling
A. The “Micro-Level”
1. What Should We Unbundle?
2. How Much Should it Cost?
3. Co-location
4. Have the FCC’s Unbundling and Collocation Policies
Worked to Date?
B. The “Macro-Level”
III. Incumbent Reconcentration
A. Analytical Framework
B. Statutory Authority
C. The FCC’s Approach to Mergers Under the Clinton/Gore
Administration
D. So Should the FCC Review Mergers at All?
IV. Line Sharing
A. The FCC’s Decision
B. Broader Policy Implications Raised by Line Sharing
V. Vertical Re-Integration
VI. Conclusion

184
184
185
189
193
194

197

197
199
200
201
203
205
206
207
211
211
213
214
218
222
222
224
226
231

PART III: EUROPEAN EFFORTS TO PROMOTE
TELECOMS COMPETITION
CHAPTER 10: EU Foundations, Institutions and Policies
I. Introduction
II. The Birth of a New Kind of Nation
III. EU Institutions, Law and Policy
A. The Council and the European Commission
B. EU Legislation
C. Parliament
D. The Court
E. Remaining Policies

IV. EU Competition Policy and the Concept of Dominance

235
235
235
236
236
236
237
237
238
239


xxii Contents
A. Competition Law Provisions of the Treaty of Rome
B. Dominance
1. High Level Definition of Dominance
2. Market Share Definition
a. The Relevant Product Market
b. The Relevant Geographic Market
c. The Relationship of Market Shares to Dominance
3. Joint Dominance
4. Telecommunications
5. State Monopolies
6. Other Evidence of Dominance
C. Essential Facilities
1. EU Law of Essential Facilities
2. The Bronner Case
a. The Advocate General’s Opinion

b. The ECJ’s Bronner Judgment
D. Merger Regulation
IV. Conclusion
CHAPTER 11: Europe’s First Steps Towards Telecoms Competition
I. Introduction
II. International Traffic Exchanges and the British Telecom
Judgment
III. The European Commission’s Telecommunications Green Paper
IV. The Equipment Directive and Member State Challenge
V. The Services Directive
A. Liberalised Services
B. The Full Competition Directive
VI. ONP Directives
A. The Leased Lines Directive
B. The ONP Voice Telephony Directive
C. The Interconnection Directive
D. The Licensing Directive
E. The Number Portability Directive
VII. One Last Directive
VIII. Conclusion
CHAPTER 12: Does the EU Regulatory Framework Work in the
Market?
I. International Interconnection
A. The European Commission Recommendation
B. The Accounting Rates Regime
C. International Interconnection?

239
239
240

241
241
242
243
245
248
249
250
252
253
254
254
260
264
265
267
267
267
269
271
273
274
276
277
277
277
278
279
280
282

283

285
285
286
287
289


Contents xxiii
D. World Trade and WTO Telecommunications Treaty
Considerations
What are “Special and Exclusive Rights?”
A. Court Cases
The EU’s Telecommunications Access Notice
A. Relevant Markets
1. Product Markets
2. Geographic Markets
B. Access Principles
1. The Tetra Pak Case
2. Market Power and Market Shares
3. Issues of Refusal to Deal
C. Other Abuses
D. Excessive Pricing
E. Predatory Pricing
F. Price Squeeze
G. Discrimination and Exclusivity
H. Permissible Prices
I. The Access Notice and Market Realities
Shared Access: Leapfrogging to the Next Generation of Local

Loop Unbundling
A. Legal and Regulatory Principles
1. Soft Law
B. The European Commission’s Unbundling Working
Document
1. Three Unbundling Possibilities
a. Full Physical Unbundling
b. Shared Access
c. Bit Stream (Wholesale) Unbundling
2. Collocation
C. Subsequent European Commission Unbundling
Communication and Recommendation: Unbundling Comes
to Europe at Last?
1. The Unbundling Communication
2. The Unbundling Recommendation
3. The Proposed Unbundling Regulation
Conclusion

312
312
318
320
322

CHAPTER 13: The EU Approach to the Internet and Data Protection
I. Introduction
II. The Information Society
III. The Internet Telephony Notice
IV. Data Protection and Privacy
A. Why Privacy Issues are so Important

323
323
323
324
326
326

II.
IV.

V.

VI.

290
291
293
296
297
297
298
299
300
300
301
302
303
304
304

304
305
305
306
306
307
308
309
309
309
311
311


xxiv Contents
B. The Telecommunications Data Protection Directive
1. Rights of “Natural” and “Legal” Persons
2. State Actions
3. Personal Data and Digital Concerns
4. Interceptions: Wiretapping and Recording
5. Provider Processing of Telecoms Data—Consent
6. Billing and Caller ID
7. Telemarketing: The Right to be Left Alone
8. Administrative Details
V. EU E-Commerce Regulation
A. Taxation
B. Regulation and Freedom of Movement
C. Ban Spam!
D. e-Contracts
E. Limitation of Liability and Jurisdiction

VI. Europe: Blueprint for the Future of the Information Society?
VII. Conclusion

327
328
329
329
331
332
333
336
337
337
338
339
339
340
340
342
344

CHAPTER 14: The EU’s 1999 Telecommunications Review
I. Introduction
II. The Convergence Green Paper
A. Analytical Framework
B. Back to Unbundling
C. Regulatory Solutions
III. The 1999 Review
A. Convergence and Policies
B. Legislative Simplification: A New Regulatory Approach

C. New Directives
1. Access and Interconnection
a. Access Pricing Issues
b. Access Summary
2. Universal Service
3. Numbering, Naming and Addressing
C. Regulatory Structure and Standards
1. A Central European Regulator?
2. The Future of EU Soft Law
IV. Conclusion: The Death of Regulation?

345
345
345
345
347
348
348
349
349
350
352
355
356
356
357
358
358
359
360

PART IV: CASE STUDIES IN REGULATORY CYNICISM
CHAPTER 15: Case Study: Comparing the US and EU Approaches to
Universal Service
I. Introduction
II. The US Approach
A. Statutory Requirements

363
363
363
363