Ladies and Gentlemen.

In 1848, John Stuart Mill wrote that "it is hardly possible to overrate the value of placing human beings in contact with modes of thought and action unlike those with which they are familiar. Such communication has always been, and is particularly in the present age, one of the primary sources of progress." I am sure that you will agree with me that what Mill saw to be true 150 years ago is even more true today. That is what makes this conference so important, and I congratulate the ITU and BDT for organizing it. I would like to say a little about how we at the World Bank view the role of telecommunications in development, and how we believe we can work with the developing countries who are our clients to encourage growth in the sector.

The World Bank’s mission is to alleviate poverty and foster sustainable development, and we see telecommunications as central to that mission. As this year’s World Development Report will illustrate, knowledge and information flows play a vital role in economic growth and poverty relief. An efficient telecoms sector has a huge part to play in this. It creates markets where they did not function before, it creates opportunities for education and training, for health provision, for the expansion of business and for attracting large quantities of private investment. In Bangladesh, for example, poor women in rural areas are setting up public call centers with mobile phones, phones that are being used to contact family members, find out crop prices and order goods. In Kuna, Panama, the local cooperative is selling clothes all over the World via their own Internet site.

The World Bank is supporting the Kuna initiative and many like it as part of a large telecoms project portfolio. My colleagues Emmanuel Forestier and Carlos Braga will give more details tomorrow, during a session on the Bank’s activities, but I want to suggest to you the scale of our commitment to the sector. The Bank itself is active in 47 countries. We had an outstanding telecoms portfolio of over $2 billion invested in sixteen different projects at the end of 1997. Another four investment projects are currently being prepared. The IFC, the private sector arm of the World Bank Group, is involved in a further 40 projects --a total commitment of over $1 billion. infoDev is a new initiative that provides grants for pilot projects, as well as technical assistance, in the area of telecoms and information technology. It is just 3 years old, but it is already supporting more than 30 different projects.

I don’t have to tell you that the sector is changing rapidly. From multi-gigabit earth-spanning cables to wireless local loop, technological advance has completely altered the way we look at telecommunications: creating new products, restructuring networks and fast eroding the concept of natural monopolies in the sector. We at the World Bank recognize that this throws up constant new challenges for our client countries, challenges that our programs should help to address.

One challenge that I know is a concern to many of us here today is that of changes in the accounting rates regime. Competitive pressure in open telecommunications markets combined with technological advances such as callback service, international simple resale and Internet telephony have created huge, rapidly rising traffic imbalances and the widespread ability to bypass the settlements regime altogether. The implementation of the WTO agreement on telecommunications services, encompassing 72 countries and 90 percent of the global market, will add to pressures on the present settlements system.

While there is little doubt that the decline in accounting rates will, in the end, benefit all consumers in the developing world, it will also translate into significant revenue losses for some of our client countries. In many developing countries, settlement payments are a significant proportion of telecommunications company revenues. The ITU’s recent case studies, which infoDev helped finance and will help disseminate, suggest how large a problem rapid payments declines might pose in some of these countries. We estimate that net settlements equal more than ten percent of total telecoms revenue in at least 35 countries and more than 40 percent of revenues in nine countries. For some of our client countries, a decline in receipts will both have a fiscal impact and lead to balance of payments difficulties.

We believe that in most cases there is a link between heavy reliance on settlement revenue and the need for restructuring in the telecoms sector. In some of the most vulnerable countries, we see distorted pricing structures, ineffective sector policies and monopoly providers. In these cases, we at the World Bank see the possibility to turn the threat of the decline of the accounting rates system into an opportunity for sector reform. What we propose today is to help developing countries formulate a strategic answer to the challenge of declining accounting rates. For this, we are ready to provide technical assistance and financial support to help cover the cost of transition to competitive markets.

Broadly, we see our role having two parts. First, infoDev would expand its program of technical assistance. infoDev is already supporting awareness-raising initiatives, studies, and developing country participation in the debate over the course of accounting rates reform. In the future, it will also provide grants for an expanded program of technical assistance to telecoms authorities and operators. These will be designed to improve understanding of the effects of accounting rates reform. Regional seminars, organized in collaboration with the ITU, could play an important role in launching these efforts.

Second, the World Bank is in a position to provide funding, within the framework of the relevant Country Assistance Strategy. This funding might include sectoral adjustment loans to countries most vulnerable to balance of payments shocks from declining accounting rates. These loans would support a commitment to reform. They could finance temporary fiscal costs associated with reduced accounting rates while countries open up their telecommunications sector to private participation and competition. In the medium run, the increased efficiency gains and traffic volume fostered by reform should more than offset lost revenues from accounting rates.

The Bank is also in a position to provide support where the effects on the balance of payments is limited, but state operators still face a precipitous decline in revenues --of 10 percent or more. World Bank loans would again be predicated on a commitment to reduced government involvement in ownership and management. They would be made available to finance the development of networks and could also cover associated restructuring costs.

To sum up, we believe that the inevitable decline of accounting rates provides several developing countries with a major opportunity to reap the benefits from sector reform. We stand ready to play a significant role to assist them in that process and to finance the temporary cost of transition to competitive markets. At Wednesday’s morning session, the Bank will be available to discuss individual cases with representatives of developing countries.

Ladies and gentlemen, a century and a half ago, John Stuart Mill also wrote that, with some exceptions, "the business of society can be best performed by private and voluntary agency." Despite a continuing and vital role for government in the sector, advances in technology have made Mill’s dictum ever more applicable to telecommunications. Because of this, we are committed to assisting our client countries in the reform and development of the business of telecommunications.

Thank you.