Honolulu, 16 January 1994
	

THE MISSING LINK:  STILL MISSING?

THE CONTINUING ROLE OF THE ITU IN 
TELECOMMUNICATIONS DEVELOPMENT


Dr Pekka Tarjanne
Secretary-General, International Telecommunication Union (ITU)

16th Annual Pacific Telecommunications Conference, 16-20 January 1994

Ladies and Gentlemen,

	It is a pleasure and an honour for me to address this distinguished 
conference on a subject which is close to the heart of the International 
Telecommunication Union, namely the telecommunication development gap.  This 
year, 1994, marks the tenth anniversary of the Maitland Commission Report 
entitled "The Missing Link" and this conference provides an opportune moment to 
revisit the main theme of that report, particularly as we have Sir Donald 
Maitland himself as one of the speakers.  

The Maitland Commission report revisited

	In 1982, the ITU Plenipotentiary Conference called for an Independent 
Commission for Worldwide Telecommunications Development to recommend ways in 
which telecommunications development could be improved. The Commission released 
The Missing Link report in December 1984.  The title of the report referred to 
the unbalanced development of the worldwide telecommunications network due to 
the large gap between developed and developing countries and the fact that 
access to basic telephony is not possible for substantial parts of the world's 
population.  For example, the report found that three quarters of the world's 
telephones were in just nine industrial countries and there were more telephones 
in Tokyo than the entire African continent. 

The report made a number of specific recommendations for remedying the situation 
that fell into four areas:

1.	Governments and development agencies should give a higher priority to 
investment in telecommunications. 
2.	Networks in developing countries should be made commercially viable. 
3.	Financing arrangements should take into account the scarcity of foreign 
exchange in developing countries.
4.	The ITU should play a more catalytic role.

Progress towards meeting these recommendations since the release of the report 
has been mixed.  Strong government commitment to the telecommunications sector 
has been a factor in most of the success stories of the last decade, though the 
support of development agencies has been uneven.  "On paper" most developing 
country networks are profitable; however there are a number of internal and 
external factors which affect profitability and network development.  Foreign 
exchange problems in many developing countries turned worse during the 1980s due 
to the international debt crisis.  However, there are signs at the start of the 
1990s that some of these problems have been resolved with a substantial net 
inflow of foreign direct investment, particularly in Latin America and in 
Central and Eastern Europe.  The ITU itself has gone through a reorganisation in 
response to the changing telecommunications environment and now reflects better 
its co-ordinating role in telecommunications development.



Is the gap narrowing?

	The year 1994 will also mark the first World Telecommunications Development 
Conference to be held in two months time in Buenos Aires.  As part of our 
preparations for that conference, ITU has prepared a World Telecommunication 
Development Report which reviews progress made in the intervening decade since 
the Maitland Commission Report.  The new report clearly shows that  the 
development gap between high and low income nations still persists in 
telecommunications.  Nevertheless, there is some evidence that it has narrowed 
over time.  For instance, as Figures 1 and 2 show, those countries with a GDP 
per capita of less than US$10'000 have increased their share of global telephone 
mainlines from 22 per cent in 1983 to 30 per cent in 1992.  They have also been 
growing at a much faster rate: more than 13 per cent per year in the low income 
countries, which is almost three times the global average.  However, the low 
income countries still have less than a 5 per cent share of global telephone 
mainlines whereas they are home to some 55 per cent of the world's population 
(Figure 3).  This disparity is unacceptably high in economic, social and 
humanitarian terms and the gap is narrowing too slowly.  

Figure 1:  Is the development gap narrowing?
Trends in teledensity and in share of global telephone main lines, by income 
group, 1983-92
Source:	ITU World Telecommunication Development Report (forthcoming 1994).


Figure 2:  Telephone mainlines, teledensity and growth rates, by income group, 
1983-92 
Source:	ITU World Telecommunication Development Report (forthcoming 1994).


Figure 3:  Unequal shares
The distribution of population and telephone main lines worldwide, 1/1/93
Source:	ITU (Forthcoming, 1994) "World Telecommunication Development Report".

	An alternative way of considering the telecommunication development gap is 
in terms of the distribution of the world's population compared to the 
distribution of telephone main lines.  In Figure 4 a Lorenz curve is used to 
show how, over the past decade, there has indeed been a slow convergence between 
the two indicators.  However, this process is occurring at a much slower rate 
than the authors of the original Maitland Commission report would have hoped.

Figure 4: Slow convergence
Distribution of world population and main telephone lines, 1983 and 1992
Source: ITU World Telecommunication Development Report (forthcoming 1994).

	The growth in telephone lines has not kept pace with new applications for 
lines. Some 44 million people are on "official" waiting lists for a telephone 
line; the average wait has been constant over the last decade at just over one 
and half years. Almost all these "waiters" are in developing countries. The 
actual or latent demand for telephone lines is probably much higher since many 
people have not bothered to register because of long waiting times. The number 
of waiters is higher in lower-and upper-middle income countries than in low-
income ones because the prospect of getting a line soon is probably better in 
the former countries. Also growing service availability often results in a 
larger waiting list since potential users perceive that they may eventually 
obtain a connection. 

Figure 5: The long wait
World waiting list and waiting time for main line by income group
Source: ITU World Telecommunication Development Report (forthcoming, 1994).

	At the end of 1992, almost 50 countries accounting for over half the 
world's population had a teledensity of less than 1. At their current growth 
rates, many of these 50 countries are not likely to pass this threshold by the 
end of the century. As long as half the world's population suffers from low 
levels of telecommunications development, the vision of a global electronic 
village remains a dream.

	The telecommunications development gap exists not only in quantitative 
terms but also in qualitative terms.  While it is true that the gap has narrowed 
in terms of the provision of basic telephone services, there is some evidence to 
suggest that the gap has widened in other areas, notably in the provision of 
advanced telecommunication services.  Some advanced services -- such as cellular 
radio, fax terminals, Internet-based electronic mail -- are already widely 
available in developing countries.  But in each case, this represents mainly a 
consumer investment in terminal equipment rather than a public investment in 
infrastructure.  Where a major public investment is required -- for instance to 
provide high-capacity leased lines or a data communications network -- then the 
developing countries are currently lagging far behind the OECD nations.  The so-
called "Information Super Highways", which could become the growth engine for 
the post-industrial age and a key element in national competitive advantage, are 
likely to be constructed first in the OECD nations.

The experience of the Asia-Pacific region	

	The Asia-Pacific region, which is the main focus of this conference, has 
probably gone further than any other in narrowing the telecommunications gap and 
consequently has much to teach us in extending this experience to other 
developing regions of the world.  This region experienced the highest telephone 
main line growth rates in the world (11.9 per cent a year over the last decade) 
led by the dynamic economies of East Asia such as the Republic of Korea or 
Singapore, whose teledensity has now converged with that of OECD countries of 
the region (Australia, Japan and New Zealand).  Other countries such as 
Indonesia and Thailand have encouraged private participation through Build-
Operate-Transfer schemes (BOT) as a way to speed network development. 

	One of the most encouraging trends in this region is the fact that the 
transition from a low to high teledensity (from 10 to 30 lines per inhabitant) 
is apparently becoming easier and quicker over time.  The first country in the 
region to achieve this was New Zealand (1938-73), but it took 35 years to do so.  
As of the early 1990s, six other economies in the region have also made the 
transition and others will follow suit shortly.  The evidence presented in 
Figure 6 appears to show that:

*	The telecommunications gap between the developed and the developing economies 
can be closed given the right pre-conditions for growth. 

*	The transition phase between low and high teledensity economies is becoming 
quicker and easier over time.

Figure 6:  The telecommunications transition  
Examples from the Asia-Pacific region, 1935-95
Source:  Asia-Pacific Telecommunication Indicators (ITU, 1993).

	These two trends represent good news for other developing countries further 
down the growth trajectory.  It is interesting to ask why the growth process 
appears to be speeding up.  There would seem to be a number of possible reasons:

*	Technological change, and in particular the introduction of digital 
switching, has made rapid development of capacity much easier.  The dynamic 
Asian economies have been able to jump straight from manually-operated to 
digital exchanges, thus by-passing  the semi-automatic stage of network 
development.  In Hongkong and Malaysia, for instance, exchange line 
digitisation is above 75 per cent;

*	The dynamic Asian economies already had an industrial structure that depended 
heavily upon telecommunications-intensive activities such as consumer 
electronic manufacturing or services whereas the OECD Member countries were 
still largely agricultural, resource-based economies when they started the 
transition;

*	There is a learning curve whereby the "lessons" of a successful investment 
strategy in one country can be applied in others, given the right economic 
preconditions and policy framework.  There is also strong consumer demand for 
some new technologies such as mobile phones or fax terminals and this demand 
has been spurred by advertising and by tourism.

However, the experience of the "four dragons" is not representative of the 
region as a whole.   Many of the countries of the region (including Afghanistan, 
Cambodia, Laos, Mongolia and the Philippines) are growing at a slower rate than 
the regional average, which means that they are being left behind.  Furthermore, 
the "official" waiting list for telephone connection in these countries is more 
than 7 million, even before taking into account the latent demand that would be 
released if the waiting list were reduced from the current 3-4 years.  This 
suggests that the development activities of organisations concerned with the 
economic development of the region should be targeted at the very poorest 
countries.

	One way to illustrate this transition is to take a series of countries at 
different stages of development and to examine their experience of growth.  
Figure 7 show how it is possible to make the transition from just one main line 
per 100 inhabitants to almost 40 within 30 years drawing upon the experience of 
three Asia-Pacific countries: Thailand, Malaysia and the Republic of Korea.

Figure 7:  From 1 to 40 in thirty years
The telecommunications transition exemplified in Thailand, Malaysia and Republic 
of Korea, 1983-92
Source:  Mike Minges, Presentation to Asia-Pacific Telecommunication Summit, 
November 1993.


How can ITU help?

	As the United Nations specialised agency for telecommunications, the ITU 
has been involved in telecommunications development for over 30 years.  In the 
early 1960s the Technical Co-operation Department (TCD) was established to 
provide technical assistance and to execute United Nations Development Programme 
(UNDP) financed telecommunications projects. In the 1980s, as a result of one of 
the Missing Link recommendations, the Centre for Telecommunications Development 
(CTD) was established with the mandate to improve telecommunication development 
worldwide. 

	The 1989 ITU Plenipotentiary Conference created the Development Sector as a 
separate "sector" of the ITU responsible for telecommunications development.  
The other sectors are Telecommunication standardisation and Radiocommunications.  
The Development Sector subsequently absorbed the CTD and the TCD. By giving 
telecommunications development an equal status with the other sectors, it 
elevates its importance in the ITU positioning the ITU Development Sector to 
assume a leading role in the 1990s. 

So what are the policy priorities for the coming decade and how can the 
International Telecommunication Union help?

*	One world, one network.  The great strength of the telecommunications network 
is the ability to call virtually any subscriber in the world, all 575 million 
of them, from virtually any telephone.  Contrast this with other information 
industries such as computing, broadcasting or publishing where the 
multiplicity of different standards, formats and languages in use makes 
communication very difficult.  The ITU has played a pre-eminent role in 
global standardisation and inter-operability.  In a world of competition, 
deregulation, multi-media networks  and rapid technological change, the co-
ordination role of the ITU is all the more important.  Telecommunication 
policy-makers should work to ensure that the right of connection -- between 
countries, between networks and between individual users -- continues to be 
afforded the highest priority in network and service development.  This will 
require working for standards which are truly global.

*	Market competition. The fastest growing parts of the telecommunications 
market -- mobile communications, trans-Atlantic and trans-Pacific traffic, 
data communications, private networks -- are generally those areas in which 
there is competition.  On the other hand the slowest growing parts of the 
market -- fixed-link subscribers in the local loop, local calls, telex 
services -- are those areas in which competition has been limited and where 
monopoly service provision is still the norm.  While it is possible to 
achieve growth under monopoly conditions, this is not necessarily the 
quickest or most efficient route.  The adoption of network development 
strategies based on market competition has been shown to work well for mobile 
communications and this model might now be applied more widely in the fixed-
link network.  Regulators will need to gain more experience in the procedures 
of licensing and interconnection, and in defining regulatory safeguards 
against anti-competitive behaviour.  The ITU provides an appropriate forum 
for such information exchange and policy discussion, notably through the 
world and regional Telecommunications Development Conferences, through the 
world and regional TELECOM exhibitions and fora and through the Regulatory 
Colloquia, initiated in 1993.

*	Bringing down prices in line with costs.  The threat and the impact of 
competition in telecommunications has done more to reduce prices in the last 
five years in those services where competition has been permitted than all of 
the regulatory price-setting agreements in the previous fifty years.  And 
yet, over the same period, the profits of public telecommunications operators 
have risen by 19 per cent per year, suggesting there is still more scope for 
price reductions.  Arguably, there are still a few regulatory safe havens 
where competition is limited or where operators experience little pressure to 
bring prices down in line with costs.  One example is the local loop which 
telecommunication operators have tended to regard as an unprofitable natural 
monopoly and have resisted the introduction of competition.  A second area 
which would benefit from the influence of more market competition on prices 
is international call charges.  The system of international accounting rates 
has served the world well for many years, but it is in need of reform.  
Growing imbalances and call-back schemes are some of the signs of its 
failure.  Reform that works to reduce prices to consumers, while at the same 
time assisting those countries which are truly dependent on settlement 
payments to finance their network development should be pursued.  This may 
involve transitional measures but the urgency of reform should not be 
ignored.  It must be ensured that both regulators and operators are 
represented in the discussions which take place at the ITU, the GATT, the 
OECD and elsewhere.  

*	Private sector involvement.  A growing number of developing countries have 
embraced private sector involvement in their telecommunication 
infrastructures, generally with positive results.  These schemes have ranged 
from sub-contracting of network installation (e.g., through Build-Operate-
Transfer) to the licensing of value-added and cellular radio services to new 
market entrants and, in some cases, to the privatisation of the PTO.  Many of 
the developing countries have been cautious to allow private sector 
involvement.  Because the telecommunications sector is so profitable, even in 
the low income countries, there should be little problem in attracting 
private sector investment providing the regulatory and financial environment 
is secure and transparent.  A majority of the top 40 public telecommunication 
operators worldwide with revenues greater than US$1.5 billion are now 
privately owned.  But the majority of the next 40 are still state-owned.  
Over the next decade this situation will change quite considerably.  But 
privatisation is a long-term, on-going process rather than a one-off 
opportunity for governments to realise some of their assets.  Furthermore, 
the privatisation of a monopoly, in the absence of competition or a strong 
regulatory framework, is a very unwise route to take.  Here again the ITU can 
help by providing a forum for information exchange and policy discussion, and 
through its programme of technical co-operation.

*	Resource allocation.  The traditional model of telecommunications industry 
regulation has been one of managing the demand to fit the available supply.  
This has been done through waiting lists, through high peak rate call charges 
and through volume-based usage charges.  This model is no longer appropriate 
now that the industry, at least in the developed countries, is heading 
towards over-capacity.  But the regulator still has an important role in 
allocating other scarce resources, notably the frequency spectrum and the 
numbering plan.  The demands on each will grow significantly during the next 
decade as many parallel networks, for mobile, satellite and cable 
distribution, are developed.  Again this is an area where the experience of 
the ITU in international co-ordination is unparalleled.  Many of the problems 
of scarce resource allocation demand a global solution rather than merely a 
national or regional solution.  

*	Governmental and multi-lateral commitment to investment programmes.  The 
mismatch between supply and demand which has created the large gap between 
developed and developing country networks needs to be reduced.  In a growing 
number of countries where private sector funds have been attracted or where 
competition has been encouraged, the market will find the best solution to 
this problem.  But many other developing countries require assistance in 
understanding, planning and implementing a reform process.  In some cases, 
even though the operator may be keen to reform, it is unable to do so because 
of a lack of commitment from government.  The ITU needs to work with other 
multi-lateral development agencies (who often have more influence at the top 
levels of government) to raise the level of awareness of the need for reform 
and investment in the telecommunication sector.  The ITU can also encourage 
the development agencies themselves to become more involved in 
telecommunication sector reform, especially in those countries that, for 
reasons of risk or indebtedness, have little immediate possibility of 
attracting private sector investment or introducing competition.

	Across the world as a whole, the telecommunications industry is prosperous, 
profitable and fast-growing.  The supply side of the industry has benefited over 
the last decade from technological change and from sector restructuring, notably 
where private sector participation has been introduced.  But not all of these 
benefits have been passed on to the user.  Furthermore, where benefits have been 
passed on, they have been unequally shared between users.  The large, 
commercial, sophisticated user has benefited much more than the residential 
user.  Also, there is a growing mismatch between a relative over-supply of 
telecommunication services in the advanced industrial nations and an under-
supply in the developing countries.  The gap has been slowly narrowing in 
quantitative terms but not necessarily in qualitative terms.

	In conclusion, the year 1994 will mark the tenth anniversary of the 
Maitland Commission report on the telecommunications development gap.  It will 
be a chance to assess the achievements and failures since that report was 
written.  This will no doubt be a focus of discussion at the two major ITU 
conferences which will be held during 1994: the World Telecommunication 
Development Conference to be held in Buenos Aires in March and the ITU 
Plenipotentiary Conference to be held in Kyoto in September/October.  The year 
1994 will also mark the tenth anniversary of two other seminal events: the 
break-up of AT&T in the US, and the privatisation of British Telecom in the UK.  
These two events have triggered changes in many other countries around the 
world: in Europe, in Asia, in the Pacific, in Latin America and spreading now to 
Africa.  A new model of telecommunications development has been launched which 
is based on entrepreneurship, competition and private sector participation.  As 
noted earlier, not all countries are yet ready to adopt this new model.  Many 
preliminary steps need to be taken to establish regulatory frameworks, to 
separate the functions of the regulator and the operator, and to create an 
environment which is attractive to investment.  Nevertheless, it is important 
that the developing countries are given every encouragement and opportunity to 
participate in this new model.  For this new model presents a genuine hope that 
the development gap can now be narrowed in qualitative as well as in 
quantitative terms.



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