Coalition of Service Industries

Statement
on the
World Trade Organization
Group on Basic Telecommunications Reference Paper

October 1997

INTRODUCTION

On February 15, 1997, a landmark Telecommunications Agreement was reached by some 68
members of the World Trade Organization to liberalize basic telecommunications services. As an
underpinning for economic development in virtually every industry sector, this agreement in
telecommunications was both vital and precedent setting in two aspects. First, it represents a
successful single-sectoral negotiation. All of the commitments which were made benefited the
telecommunications sector. Second, the agreement contained commitments to implement a set of
pro-competitive regulatory principles known as the "Reference Paper." This inclusion of regulatory
principles in a trade agreement was a significant development.

The dependence of essentially every business activity on telecommunications has focused the attention
of the world on the costs and methods of delivering this service medium. The negotiations which were
concluded under the auspices of the World Trade Organization's Group on Basic Telecommunications
(GBT) will have tremendous impact on the cost and delivery of telecommunications services
worldwide.

The Reference Paper, many people believe, lies at the very heart of the agreement. The regulatory
principles committed by the various governments outline not so much what will be done, but rather
how it will be done. Being a trade agreement, however, the principles are understandably high-level
and general. The purpose of this document and of the Coalition of Service Industries is to provide our
interpretation of this extremely important document.

THE COALITION OF SERVICE INDUSTRIES

The Coalition of Service Industries (CSI) was established in 1982 to represent the interests of the
largest segment of the U.S. economy, the service sector. Since its founding, CSI has directed its
efforts toward increasing public awareness of the major role services play in our national economy,
and to shaping domestic and foreign policies that affect the interests of that sector.

The broad range and diversity of the service economy is reflected in the Coalition's membership which
includes major international companies from the banking, insurance, telecommunications, computer
and information services, maritime transport, travel and tourism, accountancy, transportation and
logistics, and diversified management services sectors. CSI's member companies conduct business in
all fifty states and in over 150 countries. In addition, the Coalition of Service Industries is active with
equivalent organizations in other countries.

The Telecommunications Services Working Group of CSI was formed in July, 1996, specifically to
ensure that the business users' voice was heard in the discussions leading to an agreement in the GBT.
As such, it represents the interests of service industry corporations that use telecommunications
services to conduct their business, both in the United States and around the world. Within the working
group there are companies that require access to basic telecommunications services in order to serve
their customers, as well as companies that require advanced telecommunications services to meet the
internal needs of their foreign subsidiaries. Following the agreement, the group received a charter to
continue to advocate telecommunications and information technology policies and positions globally
which were beneficial to the service industries.

BACKGROUND

During the course of the negotiations, CSI argued that, above all, business users need, and are
committed to, the establishment of a completely open and competitive international
telecommunications regime through the successful completion of the GBT negotiations. Although
telecommunications has brought considerable benefits to individuals, schools, and public
administrations, and the future promises to revolutionize those uses even further, the infrastructure that
will drive the expansion will primarily be developed to fulfill the needs of business users and will be
employed by them first. Businesses are moving aggressively into new markets and need to be
supported by competitive telecommunications users services. Specifically, business users need:

Effective International Telecommunications

To be competitive, business often works under tight deadlines to respond to changing market
demands and priorities. If a market opportunity suddenly opens or becomes more active in a particular
location or region, telecommunications can make it possible to make the most of that opportunity.
Likewise, opening international telecommunications to marketplace competition will result in increased
commercial trade. Changing conditions, new priorities, and flexible business strategies all contribute to
the constant need to reconfigure and add telecommunications capabilities.

Low-Cost Telecommunications

Telecommunications prices, as well as the underlying laws and public policies regarding competition
and investment, then, have an enormous impact on the health of any country's economy. All other
factors being equal, those countries that are better able to provide competitively priced
telecommunications services will attract foreign investment. Moreover, efficient telecommunications
infrastructures will make users more efficient and internationally competitive.

Good Quality Telecommunications

Today's businesses are more self sufficient in the management of their information systems than ever
before. The integration of technologies and services required to support internal operations, product
and service delivery, and customer satisfaction has become the responsibility of each business.
Unreliable telecommunications services have no part in the business system. Those who provide
low-quality telecommunications services will be avoided by business and eliminated as service
providers by the market. If that provider happens to be a monopoly provider in some country, then
that entire country will be largely bypassed by business.

ROLE OF THE REFERENCE PAPER

The acceptance of the Reference Paper (in whole or in substantial part) by 65 World Trade
Organization ("WTO") member countries has rightly been recognized as one of the most significant
aspects of the landmark WTO agreement on February 15, 1997. Its near-universal acceptance by the
WTO member countries making market access commitments in the negotiations evidences the
widespread recognition among the participants that such commitments have little value unless service
providers also obtain the ability to compete in other WTO member countries on a full and fair basis,
which requires, among other things, access to the public telecommunications transport networks of
incumbent suppliers under non-discriminatory terms and at cost-oriented rates.

The definitions and principles in the regulatory framework for basic telecommunications services set
forth in the Reference Paper also reflect a global consensus on the key regulatory requirements to
ensure non-discriminatory market access, including competitive safeguards, non-discriminatory
interconnection, competitively neutral universal service obligations, independent regulators, and
non-discriminatory procedures for the allocation and use of scarce resources. In a few countries, many
of these safeguards already exist by statute or by regulation. Indeed, the requirements of the Reference
Paper are the direct product of the experience of those countries that have already opened their
markets to competition.

The Reference Paper establishes definitions and principles for these key requirements, but does not
always explain how they should be applied. The purpose of this document is to provide additional
clarification from the perspective of business users in order to assist their global application in a
consistent manner, and to help ensure that the non-discriminatory market access that individual WTO
members have committed to provide is not undermined by anticompetitive practices or by unequal
treatment. The paper provides a section-by-section explanation of the Reference Paper, with each
section of the Reference Paper printed in bold italicized text. The Coalition of Service Industries
believes that business users will derive substantial benefits from an appropriate application of these
principles.

THE REQUIREMENTS OF THE REFERENCE PAPER
"Definitions

Users mean service consumers and service suppliers.
Essential facilities mean facilities of a public telecommunications transport network or
service that

(a) are exclusively or predominately provided by a single or limited number of suppliers; and

(b) cannot feasibly be economically or technically substituted in order to provide a service.

A major supplier is a supplier which has the ability to materially affect the terms of
participation (having regard to price and supply) in the relevant market for basic
telecommunications services as a result of:

(a) control over essential facilities; or

(b) use of its position in the market."

Essential Facilities: The public telecommunications transport networks of incumbent suppliers are
examples of essential or "bottleneck" facilities that no other supplier can feasibly duplicate in any
reasonable timeframe. While new entrants may construct portions of transport networks, they will
seldom, if ever, have the economic resources necessary to replicate the entire network of the
incumbent supplier to obtain the ubiquitous access to users that is required to provide basic
telecommunications services. Consequently, suppliers and users will not receive the benefits of the
WTO market access commitments in basic telecommunications unless they also obtain timely access
to the networks of incumbent suppliers under non-discriminatory terms and conditions and at
cost-oriented rates. However, to the extent that the duplication of a public telecommunications
transport network does take place, then the incumbent's facility is no longer an essential facility.

Major Suppliers: The Reference Paper defines major suppliers as those suppliers that have "the
ability to materially affect the terms of participation (having regard to price and supply) in the relevant
market for basic telecommunications services" as a result of either their "control over essential
facilities" or their "position in the market." Major suppliers must therefore be able to exercise market
power in the relevant market, either as a result of their control of essential facilities, or as shown by
their ability to raise price and restrict output in the relevant market.

Where a supplier does not control essential facilities, it cannot be classified as a major supplier without
a competitive analysis to determine whether it can exert market power in the relevant market. This
requires consideration of the supplier's market share in that market, entry conditions, elasticities of
supply and demand, and other competitive conditions. Market shares, by themselves, are not the sole
determining factor of whether a firm possesses market power.

"1. Competitive safeguards

1.1 Prevention of anti-competitive practices in telecommunications
Appropriate measures shall be maintained for the purpose of preventing suppliers who,
alone or together, are a major supplier from engaging in or continuing anti-competitive
practices.

1.2 Safeguards The anticompetitive practices referred to above shall include in particular:

(a) engaging in anticompetitive cross-subsidization;"

Preventing Anticompetitive Cross-Subsidization: The non-competitive activities of the major
supplier, such as its operation of essential facilities, should be kept separated from the major supplier's
competitive operations, either structurally or through accounting separations. Structural separation
through the creation of fully separated subsidiaries is the most effective way to prevent anticompetitive
practices when a major supplier engages in both competitive and non-competitive activities.
Separation may also be achieved through non-structural accounting separations, provided that the
method of separation is open to public scrutiny and comment, and that any methodological differences
or inconsistencies are resolved by an independent regulatory authority.

The major supplier's competitive services should be required to deal with its non-competitive services
on an "arm's-length" basis. Structural or accounting separations will help ensure that the major supplier
does not obtain products and services from the non-competitive arm of the major supplier under more
favorable terms and conditions than those available to non-affiliated suppliers, or otherwise engage in
anticompetitive cross-subsidization by shifting competitive costs to its non-competitive services.

Structurally separated subsidiaries should operate independently from the major supplier in the
provision of competitive services, maintain its own books of account, have separate officers, directors,
and employees who may not also serve as officers, directors or employees of the major supplier,
secure its financing in a manner that will not permit creditors recourse to the assets of the major
supplier, and not jointly own or share the use of any property with the major supplier. Accounting
separations should use a predetermined system of accounts, clearly identify pre-separated revenues,
investments and expenses, and employ cost allocation procedures developed by the regulatory body
in consultation with national accounting standard-setting bodies. Reporting requirements may include
balance sheets, income statements, joint cost reports, detailed revenue, investment and expense
reports by entity, tax reports by entity, network usage reports by entity, and the studies conducted to
develop cost allocators. All such information should be made publicly available, with competitively
sensitive data protected via non-disclosure agreements.

Separate commercial activities should also be required. The major supplier should not be allowed to
market its competitive and non-competitive services jointly through either shared advertising,
telemarketing and sales support, or the packaging of competitive and non-competitive services into
combined offerings. The sharing of marketing and sales resources also allows the major supplier to
assign competitive marketing or sales costs to its non-competitive operations. Such misallocations
artificially lower the cost of competitive services while inflating the cost of non-competitive services.

"b) using information obtained from competitors with anti-competitive results;"

Protecting Proprietary Information: A major supplier should be required to protect all information
obtained through its operation of non-competitive services against unauthorized disclosure. Protection
should be afforded to all information, such as competitors' business and marketing plans, trunking
configurations, peak usage, network architecture, and equipment types, obtained through the provision
of facilities to unaffiliated suppliers. Statutory or regulatory measures supported by adequate penalties
should prohibit any unauthorized release to the major supplier's own competitive arm or to any third
party, and major suppliers should be required to take affirmative steps to protect against such
disclosure.

In addition, a major supplier should also be prohibited from utilizing its unique access to customer
information acquired through the provision of non-competitive services in targeting specific users for its
competitive service offerings. Nor should the non-competitive arm of the major supplier be permitted
to influence a user's decision to select its competitive sector supplier.

Protecting Information Service Provider Information: When a major supplier with market power
has its own affiliated provider of information services, an appropriate separation between the two
entities is important. Network requirements often reveal potential customers and characteristics of the
proposed solution. Thus, the major supplier may potentially convey sensitive business information to its
affiliate or provide its affiliate more favorable terms, prices, and connections.

In this case structural separation is required. The affiliate should be required to operate independently
from the major supplier in the provision of competitive services, maintain its own books of account,
have separate officers, directors, and employees who may not also serve as officers, directors or
employees of the major supplier, secure its financing in a manner that will not permit creditors recourse
to the assets of the major supplier, and not jointly own or share the use of any property with the major
supplier.

Additionally, all transactions between the major supplier and any such separate affiliate should be
required to be reduced to writing and available for public inspection, and conducted on an
arm's-length basis in the same manner as the major supplier conducts business with unaffiliated
persons. A major supplier should not be permitted to discriminate between its separate affiliate and
any other person in the provision or procurement of goods, services, facilities and information or in the
establishment of standards.

"c) not making available to other services suppliers on a timely basis technical information
about essential facilities and commercially relevant information which are necessary for
them to provide service."

The Timely Disclosure of Technical and Commercial Information: Major suppliers are required
to make timely disclosure of the technical and other relevant commercial information that other service
suppliers or users need to provide services. Thus, all information regarding the provisioning of
interconnection, such as standards, forthcoming changes, additions, or deletions to interconnection
standards, processing requests, timing changes and billing arrangements, should be made available to
all suppliers.

This information should be made available in a medium commonly available to the telecommunications
industry. Publication should be in a timely manner, in order to ensure that other service suppliers and
users are not disadvantaged and have adequate time to respond to complete any modifications
required.

"2. Interconnection

2.1 This section applies to linking with suppliers providing public telecommunication
transport networks or services in order to allow the users of one supplier to communicate
with users of another supplier and to access services provided by another supplier, where
specific commitments are undertaken.

2.2 Interconnection to be ensured

Interconnection with a major supplier will be ensured at any technically feasible point in the
network. Such interconnection is provided:

i. under non-discriminatory terms, conditions (including technical standards and
specifications) and rates and of a quality no less favourable than that provided for [the major
supplier's] own like services or for like services of non-affiliated service suppliers or for its
subsidiaries or other affiliates;"

Non-Discriminatory Terms and Conditions for Interconnection at Any Technically Feasible
Point in the Network: In order for new market entrants to provide service, they must be able to
interconnect with the networks of major suppliers. In most countries, the major supplier controls
ubiquitous network infrastructure and is the only economically feasible and timely means by which
other service suppliers may obtain access to end users. To be able to compete effectively, a new
entrant must be assured of interconnection equal in all respects to that which major suppliers provide
to themselves and to other service suppliers.

The obligation of major suppliers to allow other service suppliers to interconnect "at any technically
feasible point in the network" applies to their entire networks. Major suppliers should therefore
provide interconnection under non-discriminatory, cost-oriented terms and conditions for all types of
services and suppliers at all technically feasible points from international cables and satellite earth
stations through to local cellular and wireline switches. This enables other service suppliers to avoid
unnecessary costs by interconnecting with the major supplier in accordance with their own capabilities
to provide switching and transport.

Non-Discriminatory Technical Standards and Specifications: The technical ability to
interconnect under non-discriminatory terms and conditions requires interoperability among networks
implemented through standardized, open interfaces. Such interoperability allows a new entrant to build
only as much infrastructure as it requires at any particular stage of growth and to utilize major
suppliers' networks to fill in any missing pieces. With open interfaces, all specifications are readily
available on a non-discriminatory basis to all suppliers and users.

Non-Discriminatory Rates: Interconnection should be made available at the same rates to all
interconnecting service suppliers, including the major supplier's affiliates and subsidiaries. Similarly, the
principle of non-discrimination requires that the same rates apply to all equivalent interconnection
arrangements irrespective of the type of service that is offered or the nature of the interconnecting
service supplier.

Non-Discriminatory Quality: The quality of interconnection should be equivalent for each
interconnecting service supplier and equal to that which the major supplier makes available to itself. It
should conform with all the conditions of technical/operational quality and reliability established by
relevant standards bodies, including, for example, signal clarity and strength, restoration intervals, and
signaling functions.

Non-Discriminatory End-User Access: Non-discriminatory interconnection that "allow[s] the users
of one supplier to communicate with users of another supplier" also requires that dialing procedures be
exactly the same for all suppliers so that the new entrant's users can communicate on the same terms
as the major supplier's users. If interconnection arrangements result in existing or potential users being
unable to reach the interconnecting service supplier as easily as they can reach the major supplier, the
major supplier will have an unfair competitive advantage.

Dialing parity for all suppliers requires either the selection of a supplier on a call-by-call basis or
supplier pre-selection with optional dial-around capabilities. Supplier pre-selection with optional
dial-around, the better alternative, provides that users choose in advance the primary supplier they
wish to use. However, users may wish to use a different supplier for some calls to test a competitive
alternative, or to take advantage of another supplier's special offer. They should therefore be able to
"dial around" their pre-selected primary supplier on a call-by-call basis by entering a supplier code
before dialing the phone number.

The pre-selection process asks users to choose the supplier they wish to use. Call-by-call supplier
selection, in which users choose the supplier they wish to use every time they make a call by dialing the
chosen supplier's code and then the number they wish to reach is less preferable than supplier
pre-selection. Call-by-call supplier selection requires all users to learn a new dialing procedure,
whether they prefer to use the major supplier or a new entrant, and to dial more digits than they
currently do.

If call-by-call selection is used, an affirmative choice must be required, even to access the incumbent's
network. In the rare case where dialing parity is not yet technically feasible, interconnection rates
should be adjusted to compensate for this disadvantage.

The terms, conditions, and service areas provided by a major supplier to itself and to other service
suppliers should be equivalent in all respects including, but not limited to, the following areas: location,
information, ordering procedures, ordering intervals, provisioning intervals, billing arrangements,
maintenance and testing, physical characteristics of interconnection, protocol characteristics of
interconnection, credit terms, and warranties or guarantees.

"(b) Provided in a timely fashion, on terms, conditions (including technical standards and
specifications) and cost-oriented rates that are transparent, reasonable (having regard to
economic feasibility), and sufficiently unbundled so that the supplier need not pay for
network components or facilities that it does not require for service to be provided."

The Timely Provision of Interconnection: Major suppliers have many opportunities and strong
incentives to delay the provision of interconnection to other service suppliers, and delays can
significantly inhibit the development of competition. To avoid these results, a strict timetable should be
established for the provision of interconnection, including the conduct of negotiations and the
implementation of interconnection arrangements. A maximum of six to eight months would appear to
be reasonable for the entire process.

Cost-Oriented Rates: Interconnection rates set at above-cost levels provide major suppliers with an
unwarranted strategic advantage in markets where other service suppliers must rely on them for the
provision of interconnection services. For example, in providing domestic long distance or international
service, a major supplier could price its retail competitive offerings at below-cost rates,
cross-subsidizing them through higher interconnection charges. Under these circumstances, the major
supplier could eventually drive other service suppliers from the market. Interconnection rates should
therefore be set at cost-oriented levels.

Cost oriented rates should not include historic costs associated with establishing the major supplier's
existing network. Rates charged to interconnecting service providers should reflect forward looking
economic cost. Detailed transparent standards should be adopted by regulatory authorities to be used
in determining cost attributable to specific features and functions as well as common costs. Cost
oriented rates encourage the efficient use of, and investment in, network infrastructure and best
promote the interests of users while providing major suppliers the opportunities that would exist in a
competitive market to recover the costs of providing interconnection.

Unbundling: Unbundling is the identification and disaggregation of physical components of the
network into a set of "piece parts" that can be individually provided, costed, priced, and utilized to
provide any service offering, including those offered by the major supplier. This requires that other
service suppliers be able to access selectively only those components of the major supplier's network
actually needed and to be charged only those components' cost-oriented rates. Unbundling removes
the burden of purchasing unneeded or redundant feature functionality.

Uniform, consistent unbundling requires the development of criteria for the identification of network
disaggregation points. Unbundled network elements should allow for uniformity across networks; be
consistent with existing network architectures; allow for the identification of stand-alone, modular
components; utilize interfaces between components that exist and are specified for vendor use; and be
easily supplemented as new architectures are deployed. Each should have a clearly identified and
standard interface for access or egress with a voice, data, video, or other information path, be
measurable and billable, and utilize transmission protocol and physical interconnection standards,
either existing or under development, that are recommended by an acknowledged industry body.

"(c) Upon request, provided at points in addition to the network termination points offered
to the majority of interconnecting service suppliers, subject to charges that reflect the cost of
construction of necessary additional facilities."

Additional Network Points: Any identified set of unbundled network components should not be
viewed as static. Further unbundling requirements will emerge in response to supplier needs, future
market developments and technological change. To ensure uniformity and consistency, the
identification of future disaggregation points should be based on the same criteria as currently identified
points: each should have a clearly identified and standard interface for access or egress with a voice,
data, video, or other information path, be measurable and billable, and utilize transmission protocol
and physical interconnection standards, either existing or under development, that are recommended
by an acknowledged industry body.

The major supplier should be compensated by the requesting supplier for the additional expenses
entailed in additional unbundling, such as infrastructure expansions, software modifications, ordering,
billing, and maintenance systems development, as identified through the use of cost-oriented rates.

Detailed procedures should also be established for the processing of requests for additional
unbundling. These procedures should specify request formats, establish time frames for review,
response and implementation, and provide for regulatory recourse if the request is not dealt with in a
fair and timely manner.

"2.3 Public availability of the procedures for interconnection negotiations

The procedures applicable for interconnection to a major supplier will be made publicly
available."

The Public Availability of Interconnection Procedures: Clearly defined procedures set forth by
the responsible regulatory authority are essential for non-discriminatory interconnection. Such
procedures should, at a minimum, establish the following: how a supplier seeking interconnection is to
initiate negotiation; any specific information required to request and conduct negotiations; when the
major supplier should respond to the request for interconnection; whether the major supplier can
require additional information and any requirements concerning the interconnecting service supplier's
response; how long parties should continue to negotiate if they are unable to agree; the recourse to
regulatory authorities available in such circumstances; how the interconnecting service supplier should
seek such recourse; when the regulator should respond; the period in which the regulator should
prescribe the terms and conditions of interconnection in cases of continued disagreement between the
parties; when the major supplier should complete interconnection; the binding or non-binding nature of
arbitration of the regulator; and whether suppliers seeking interconnection have additional recourse
through the judicial process.

Such procedures will be successfully utilized only if all interested parties have the opportunity to avail
themselves of their rights and opportunities. The information described above should therefore be
published in media readily accessible to other service suppliers.

"2.4 Transparency of interconnection arrangements

It is ensured that a major supplier will make publicly available either its interconnection
agreements or a reference interconnection offer."

Publicly Availability of Interconnection Agreements or Reference Interconnection Offer: The
public availability of all prices, terms and conditions for interconnection to the networks and services
of the major supplier promotes non-discriminatory treatment by ensuring that all suppliers have access
to the information they require to design services and to plan market entry and expansion strategies.
Whether this information is made publicly available in the form of copies of all existing agreements or
as a reference offer, public disclosure of the arrangements should include, at a minimum, the following
matters: pricing schedules; ordering and provisioning processes; unbundled network elements; support
functions, such as routing to directory assistance, operator and repair services and access to line
information data bases; service functions, such as work order processes, service ordering and
provisioning, maintenance, provision of user usage data, service/operation readiness testing, and billing
for service; arrangements for prior notification of changes in services provided, such as the
introduction of new services, features, or functions; and requirements for specific services and custom
features.

Where this information is provided in the form of copies of interconnection agreements, these should
be made publicly available as soon as they are finalized. Where a reference interconnection offer is
used to provide this information, it should be sufficiently comprehensive to include all material terms
and conditions from the interconnection arrangements entered into by the major supplier and should be
updated on a regular basis to include any different features from new interconnection arrangements.

"2.5 Interconnection: Dispute Settlement

A service supplier requesting interconnection with a major supplier will have recourse,
either:

a) at any time; or
b) after a reasonable time period which has been made publicly known,
before an independent domestic body, which may be a regulatory body as referred to in
paragraph 5 below, to resolve disputes regarding appropriate terms, conditions, and rates for
interconnection within a reasonable period of time, to the extent that these have not been
established previously."

Recourse to Dispute Settlement: Procedures for the swift resolution of disputes by an independent
arbiter are also essential to ensure non-discriminatory interconnection with the networks of major
suppliers. Other service suppliers should have such recourse at a specific point after the beginning of
negotiations with the major supplier. The arbiter should be required to prescribe the disputed terms,
conditions or rates normally within a specific time period in a public, written decision setting forth, in
detail, the reasons for the prescription.

The Need for an Independent Regulator: The most effective independent domestic body to
resolve such disputes is an independent regulator. In addition to providing timely and efficient dispute
resolution, the regulator should be authorized to prescribe remedies for anti-competitive conduct and
to establish and enforce other regulatory requirements, such as licensing procedures. It should also be
empowered to impose sanctions such as license revocations or fines (subject to legal recourse).

"3. Universal Service

Any Member has the right to define the kind of universal service obligation it wishes to
maintain. Such obligations will not be regarded as anti-competitive per se, provided they are
administered in a transparent, non-discriminatory and competitively neutral manner and
are not more burdensome than necessary for the kind of universal service defined by the
Member."

Transparent, Non-Discriminatory, Competitively Neutral Universal Service Obligations
That Are Not More Burdensome Than Necessary: The social objective of universal service has
traditionally meant making basic voice service affordable to all consumers. While this has traditionally
been accomplished through cross-subsidies, such subsidies are difficult to administer in competitive
markets without distorting competition. The Reference Paper requires these social objectives to be
achieved in a competitively neutral, non-discriminatory manner that is not more burdensome than
necessary.

The threshold consideration is to define what is included in "universal" service. Only essential features,
such as basic voice service with tone signaling, should be part of the social objective. While what is
deemed essential may well change and expand over time, the scope of universal service should not be
expanded based only upon predictions that certain services will become essential. Adding additional
features increases the costs of making them available as well as the chance of prematurely mandating
services or features that are ultimately shown to be commercially undesirable. Once this threshold
consideration is resolved, the achievement of that basic level of service universally concerns two
separate issues: the obligation to build facilities; and the mechanism for ensuring affordability.

The obligation to build facilities for the provision of universal service should apply only to the major
supplier providing local service, where there is a major supplier, as only the network of that supplier
will be sufficiently ubiquitous that mandatory expansion to a new user would be not be overly
burdensome. However, if a competitive provider has already undertaken to provide those facilities,
such as by wiring a new housing development, then the major supplier should have no universal service
obligation with regard to these already-served users. Over time, as new suppliers build up a larger
presence within a particular geographic area, competition for users will obviate the need for the
government or regulator to compel a supplier to construct facilities to serve a particular user. Instead,
the suppliers will vie with each other for the user's business. Coverage requirements for the provision
of mobile services should be based upon the location of customers to be served and not upon the
scope of the geographic area.

To ensure that the cost of universal service is not more burdensome than necessary, any universal
service subsidy should cover only the shortfall between what the user can afford to pay and the cost to
provide the basic level of service. Universal service should not mean universal subsidy. Broad
subsidies introduce economic inefficiency into the system because most users willing and able to pay
the full cost are also subsidized. Only users who cannot afford the basic level of voice telephone
service should receive subsidies. These narrowly-targeted subsidies for low-income users should be:
(1) based on clearly defined individual economic means tests; (2) given to the individual user's supplier
of choice as competitive service options develop; and (3) provided, if at all possible, through
mechanisms already established by the government for the distribution of other similar funds in order to
minimize administration costs.

Subsidies for all users may be appropriate in remote, high-cost areas where few users, regardless of
income level, could afford to pay the full cost of basic service. Any supplier serving a user in such an
area should be eligible to receive the subsidy monies allocated for that user. This provides the incentive
for competition to enter high-cost as well as low-cost areas.

The cost of universal service should be cost-based and allow for a reasonable return on investment.
The regulator should stipulate the accounting and costing methodology to be used in identifying these
costs. The regulator should then require the major supplier to place its cost and allocation data on the
public record and allow for public comment, thus assuring the regulator the benefit of additional
analysis and receipt of sufficient information needed to establish accurate funding requirements.

The collection and distribution of the subsidy fund should be performed in a competitively neutral
manner. In many cases, universal service obligations have been paid for either through the inclusion of
subsidies in interconnection charges (where competition exists), or through direct cross-subsidies from
one service to another. These methods, however effective in the generation of funds, have detrimental
effects on the growth of telecommunications competition and efficient network design and
implementation. Such blanket subsidies hinder rate rebalancing to bring usage rates toward the costs
of providing service, create incentives to bypass the public switched network and undermine the true
objective, which is the provision of affordable basic service.

Competitive neutrality also requires the funding of universal service obligations, if not provided under
government social programs, to be borne by all service suppliers. This can be achieved through a
percentage surcharge on the retail services of all suppliers reflected as a separate line on the retail
user's bill. Such an approach guarantees that all subscribers make a fair and equitable contribution.

Subsidy funds should be managed at the national level by a neutral third party. This party would
determine which users should benefit from the subsidy, administer the subsidy fund to ensure sufficient
monies are collected (including resetting the value of the surcharge each year), and direct payments
from the pool to the user's supplier of choice. Alternatively, in some instances, vouchers could be
provided to eligible users for their own use in the purchase of services.

"4. Public availability of licensing criteria

Where a license is required, the following will be made publicly available:

(a) all the licensing criteria and the period of time normally required to reach a decision
concerning an application for a license and

(b) the terms and conditions of individual licenses.

The reasons for the denial of a license will be made known to the applicant upon request."

Publicly Available Licensing Criteria: A transparent licensing process requires the publication of
details of the characteristics of the license to be issued, the information required from applicants, all
criteria to be considered in the licensing decision, and the evaluation process itself, and the period of
time required to reach a decision. Disclosure of all such information will put all applicants on an even
footing and allow them to submit their applications with full knowledge of the terms on which their
applications are to be reviewed.

Approval of the licensees by the regulator should be accompanied by a written, public decision
together with a statement of the reasons for the choice of the successful applicants. An applicant
denied a license should, upon request, receive a written statement from the regulator detailing the
reasons for the denial.

"5. Independent regulators

The regulatory body is separate from, and not accountable to, any supplier of basic
telecommunications services. The decisions and the procedures used by regulators shall be
impartial with respect to all market participants."

An Independent Regulator: The establishment of an empowered, independent regulator is
necessary to develop, implement and enforce licensing procedures, interconnection arrangements, and
competitive safeguards. In order to ensure the impartiality in its decisions and procedures that is
required by the Reference Paper, the regulator should have sufficient authority and resources to act on
a fully independent basis.

Separation between the regulator and all suppliers is necessary to ensure that no unfair advantage is
bestowed on any supplier through regulatory actions. Without sufficient separation, there is the
potential for regulatory actions to be taken that favor particular suppliers, or that give the appearance
of such favored treatment. This is especially so where any supplier is owned, entirely or in part, by the
government. In such circumstances, the required impartiality cannot be achieved unless the regulatory
body is separate not only from all suppliers but also from the ministry responsible for the management
of those suppliers.

"6. Allocation and use of scarce resources

Any procedures for the allocation and use of scarce resources, including frequencies,
numbers and rights of way, will be carried out in an objective, timely, transparent and
non-discriminatory manner. The current state of allocated frequency bands will be made
publicly available, but detailed identification of frequencies allocated for specific
government uses is not required."

Frequency allocation: Radioelectric spectrum is a highly valuable, but limited, public resource with
unique characteristics and an ever-increasing array of possible uses. Careful public planning and
management, including effective international coordination, are therefore required to assure efficient
utilization of the resource and to limit interference and interception.

The right to use spectrum for public or private services should be granted pursuant to a fair and
transparent licensing process, in which opportunity should be afforded to all qualified suppliers to
obtain and exploit licenses on reasonable terms and conditions. Conflicting applications for the same
spectrum within the same geographic areas should be resolved by a competitive process, in which the
criteria for award are publicly-announced and transparent and the decision among multiple applicants
is reasonable and non-discriminatory.

License terms should be for extended periods in order to encourage investment in facilities or other
assets, and there should be a reasonable expectation that licenses will be renewed for comparable
periods, so long as all reasonable conditions of the original license are met. License holders of
allocated spectrum should be accorded reasonable flexibility within the terms of their original license to
utilize technologies and provide services as the demands of users may justify. Spectrum channelization
should be flexible enough to accommodate a variety of technologies.

In those cases where substantial fees are charged for the receipt of a license to provide particular
services or subject to other specific conditions, regulators should take care not to permit other
spectrum licenses to be used to provide those or similar services without comparable charges being
levied. Likewise, new entrants into a given market should not be accorded other license terms and
conditions, or provided with substantially greater allocations of spectrum frequencies, such that existing
suppliers would be unfairly disadvantaged.

Within the geographical limits of their licenses, licensees should normally be free to disaggregate their
allocated spectrum and to partition their service areas to facilitate maximum efficiency in the use of
spectrum. The resale of services using allocated spectrum should also be permitted.

To the extent feasible, and consistent with the coordination processes of international organizations,
similar frequencies should be allocated for the provision of similar services in each national jurisdiction.
Regulators should also take such other reasonable steps as may encourage "roaming", which is the
handing-off of calls from one network to another in different geographic locations.

Numbering Procedures: Numbers are the means by which usersbusinesses gain access to the public
switched network. The importance of numbering resources will become even greater as additional
telephone numbers are required to accommodate increasing demand for existing services, as well as
the expected demand for new services. Numbering resources should be administered in a fair and
non-discriminatory manner with numbering policies developed by a neutral body whose composition
includes representatives from all segments of the telecommunications industry. Administration of the
numbering plan in conformance with the approved numberingand related policies should be by a
neutral, non-government third party. A mechanism for dispute resolution for controversies not resolved
by the Number Administrator, should be established and administered by the independent regulator.

The non-discriminatory use of existing numbering resources also requires number portability. Users are
frequently reluctant to change suppliers where this requires a change in telephone number. For users, a
change of number brings inconvenience and expense. For many businesses, which may have significant
investments in advertising, stationery, and brand-awareness related to their telephone number, the
expense is much greater. Ensuring that existing numbers do not impede market entry by new suppliers
requires that users be able to maintain their local telephone and free-phone numbers when they change
to a different supplier.

Rights of Way: A significant potential barrier to new infrastructure suppliers seeking to construct their
own facilities is the inability to access the rights of way required to place their facilities in conduits,
poles, and transmission towers on public or private lands. Non-discrimination in the provision of rights
of way requires that market entrants be afforded the same rights, accesses, privileges, and economic
incentives that were provided to the major infrastructure supplier during the acquisition and
development of its rights of way.

New infrastructure suppliers should be granted maximum flexibility in obtaining rights of way. They
should be allowed to enter into any commercially feasible arrangement for the delivery of their
services, whether developing new rights of way, using existing ones, or if practical, cooperating with
other providers for the joint installation and maintenance of rights of way.

Even when it is technically and economically feasible for new infrastructure suppliers to develop their
own rights of way, they may still be hampered by limited capacity for underground conduits and
above-ground pole lines. Thus, to obtain non-discriminatory market access, new infrastructure
suppliers should be assured fair access to rights of way controlled by major suppliers at reasonable
terms and conditions.

Access to existing rights of way, whether public or private, should be made available to all
infrastructure suppliers on a first-come, first-served basis, on a space-available allocation, and in
accordance with all previously negotiated terms and conditions as well as the environmental,
ecological, and public-safety regulations applicable to the major supplier. Charges for existing rights of
way should consist of any relevant application, processing, or registration fees, as well as reasonable
compensation for access to, and use and enhancement of, the infrastructure. The price for using the
right of way should be made publicly available, be cost-based and should not exceed the cost the
major supplier imputes to its own services.

Any cost for access and use of new public rights of way controlled by a government body should be
covered by license or franchise fees assessed equitably among all infrastructure suppliers using the
right of way. The exception would be for development costs, such as surveys, environmental studies,
road repairs, and temporary traffic rerouting. Access to private property for the development of new
rights of way should be obtained through private negotiation.

CONCLUSION

The introduction of competition into the telecommunications sector is a complex process which
requires close and constant attention by an independent and knowledgeable overseer. However, the
potential benefits are too great not to expend the necessary time and resources required.

The Coalition of Service Industries hopes that this view provides a useful framework for further
discussion of the implications of implementing the WTO agreement. We look forward to participating
and sharing our views further in these discussions.