Britain split on landmark WTO telecoms ruling

New entrants fear that giants will benefit most, writes Chris Godsmark
Britain's telecommunications industry was divided yesterday about the implications of the landmark deal signed at the weekend by 68 countries to free up telecommunications markets.

Aggressive new entrants in the UK market, already one of the most liberal in the world, claimed traditional established carriers like British Telecom, as well as AT&T in the US, faced a serious erosion of business.

However, BT argued it would make up in new trade overseas the business that it lost in the UK. They agreed on one thing, though: the deal was hugely significant.

The countries involved have agreed to allow foreign competitors to move into what were in most cases heavily regulated markets dominated by state monopolies. The "offers" tabled by individual states differ. Japan, for instance, has restricted foreign stakes in NTT and KDD, its two main operators, to 20 per cent. Canada and Mexico refused to allow foreign companies to own majority stakes. Yet the biggest breakthrough may well be the agreement to create enforcement regimes, mirroring the work of Oftel, the UK's regulatory department.

Don Cruickshank, the British regulator, explained: "The key to this is that most people signed up to the principle establishing regulators and abolishing unfair arrangements such as cross-subsidies."

However, he warned: "The next stage is the detail. The possibility of using the WTO's established disputes resolutions procedures is crucial."

The total world telecoms market is already worth $600bn (pounds 371bn) and research in the US suggests it could double to $1,200bn by the year 2000, with much of the growth boost coming from the WTO agreement. The UK alone could see additional business worth pounds 20bn over the next 10 years.

Competition should bring dramatically lower prices on long-distance call routes. Traditionally, the wholesale rates for calls on international routes bore little relationship to the cost of providing the service.

Mr Cruickshank explained: "Just in the short term, interconnect prices between companies will fall sharply. Accounting rates average three to four times the true cost of the calls, money which flowed into local monopolies."

Oftel is likely to abolish accounting rates between the UK and US completely later this year, moving to genuinely transparent wholesale charges.

Yet this will hit revenues for the large incumbent carriers, though in the case of the European Union and the US this trend was already well- established. BT's revenues from international calls fell in the nine months to the end of December from pounds 1.486bn to pounds 1.393bn as prices plunged and the pain is set to to continue.

Mike Grabiner, chief executive of Energis, the telecoms group set up by National Grid and a former senior BT executive, argues operators will have to move into higher-value services such as the Internet to compensate. "I think the plain telephony market is going to be hard to grow in the kind of volume needed to make up the cut in profit margins. It's going to be very tough for incumbents like BT, but at Energis we start from a smaller market share so it is easier to grow."

BT, hardly surprisingly, disagrees, claiming it will be a net beneficiary as foreign opportunities and world growth increase. Larry Stone, BT's head of EU affairs, said: "Incumbent carriers are also new entrants in other markets. With our merger with MCI and stakes in European partnerships we're in a good position to get into new markets."

Manufacturers of telecommunications equipment stand to make huge gains as rival firms scramble to build new networks.

Granger Telecom, a medium-sized UK business exporting to Africa, the Middle East and Eastern Europe, said a recent project was to build a pounds 17m wireless fixed phone network in Ghana where they were opening up their industry.

"Some of the smaller countries in this deal are ideal places for us to sell to, with little or no established infrastructure," a spokesman said.

Hamish McRae, page 20