The International Telecommunications Regime: Domestic Preferences And Regime Change

By Juan Ratto-Nielsen

This study examines the evolution of the international regime in telecommunications with the main objective of furthering our understanding of the process of regime transformation. The dominant theories of international relations - realism and institutional liberalism specify how states with shared interests use institutions to realize joint gains and to minimize the possibility of defection. But these theories have little to say about when states will attempt to change the objectives that lead them to create the international institution in the first place. The main goal of this book is to investigate and test the assumption that domestic politics by themselves can explain the dynamics of regime creation, evolution and change as it happened within the International Telecommunications Union (ITU).

• Language: English
• Publisher: Lulu.com
• Release date: Apr 5, 2011
• ISBN: 9781447602170

Book preview

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Part I

The Argument and the Analytical Framework

Chapter 1

INTRODUCTION

The Case of the Telecommunications Regime: Domestic Preferences and Regime Change

Whether in the case of developed or developing countries, it is widely recognized that the development of the telecommunications sector is indispensable to socioeconomic progress. As stated by Susan Strange, the terms and conditions of access to telecom services are instrumental in determining who can participate fully in the social, cultural, political and economic life of the society (Strange, 1996: 105).

1.1 Historical Background

For more than a century, since the invention of the telephone in 1876, the international telecommunications order was dominated by implicit economic nationalism. Institutionalized international coordination, in the International Telecommunication Union (ITU), was efficient but very strict as it legitimated the distinct national controls over telecommunications (Cowhey, 1990). As the industry was considered a ‘natural monopoly’ it was perceived unsuitable for competition.¹ Hierarchically structured national telephony networks were the dominant form for the governance of telecommunications and only a limited number of closely monitored gateways allowed interconnection between distinct national networks.

Like other service industries, telecommunications was traditionally oriented toward domestics markets, and competition in both services and equipment was limited. There were three important rationales for the system: it would increase reliability in the performance of tasks central to the public order (such as the provision of communications), would tap economies of scale or scope in the provision of services (the network thesis) and would advance considerations of equity expressed in the ideal of universal service (Cowhey, 1990: 174).

Most countries granted authority over communications to a single monopolist and merged their telephone company and the government ministry that regulated it. In addition, countries often mixed their postal and telephone services under one operation, which was called the postal, telephone, and telegraph authority (PTT). As a rule, telephone operations subsidized postal operations; long distance services subsidized both local telephone services and the post office; and the telephone company services subsidized the national monopolist who made the telephone equipment for them. The system also paid high rents to organized labor.

The old telecommunications order is undergoing transformation which is leading it away from the old forms of economic nationalism. The ‘natural monopoly’ characteristics of the telecommunication sector are increasingly being eroded and competition has become ever more prevalent. The old international regime which respected (and legitimated) the independence of the national telecommunications authorities is now increasingly under challenge.

The scenario that successfully existed for more than a hundred years was promptly challenged by three encompassing sets of factors, i.e. technological change (computers and telecoms integration, digitization, etc.), economic conditions (stagflation, fiscal deficit, public debt, etc.) and globalization issues (communication satellites, TNCs competition, etc). Technological change that was initially set by the appearance of the first communication satellites in the 1960s was followed by the advent of increasing digitalization (fiber optic cables) and computer-related technologies. Nevertheless, many scholars disagree on the fact that only technology was the cause of the regime decline. Eventually, technology innovation was the catalyst that led to a dramatic change in the perception of distribution of gains between the governmental cartel and the most affected group of users: international business and technology-related industries. In this sense, it can be observed that states did not react according to the realist conception of unitary actors. Different coalitions emerged as technology altered who win and lose from the telecommunications systems.

The real challenge stemmed from the necessity of larger firms to gain access to lower cost communication systems, now possible by means of digital technology. This sector constituted only a 5 percent of total users in the developed world but they represented over half of the long distant traffic that was usually subsidizing the local household calls (Cowhey, 1990: 188). This fact and the emergence of new technologies provided the means to access and run private internal communications networks independent of the PTT-owned monopoly. The creation of alternative networks and the leasing of the public network for private use were subject to restrictive regulations but it led to the progressive decline of the natural monopoly principle.

The other group within the state that lobbied for the abolition of market entry regulations was those that wanted their technology-intensive products to compete in the communications services and equipment industry that used to be the domain of the PTTs and their client companies. In this sense the first move toward liberalization and the gradual acceptance of a limited competition norm can be traced to a decision by the FCC in the USA that firms should be allowed to create their own microwave networks independent of the monopoly carrier (Johnson, 1986: 59-69). In addition, in the 1960s telecommunications monopolies in the USA and other Western countries had begun to lease lines to government agencies and national and international business. In the early 1970s, USA also allowed other firms to develop alternative networks.

It was not until when the national phone companies began to compete in each other’s market that the anti competition rule was broken by the implementation of call-back and third-country calling by AT&T in the 1980s. This was the first step that launched a fierce competition among national telecoms to win each other’s market. In the domestic market the growth of new technologies allowed new firms to bypass the monopoly-controlled networks by means of introducing satellite networks. Therefore, the introduction of the limited competition norm gradually led to a broader opening of the market in several countries.

Although the USA was not trying to undermine the national monopoly or basic principles of the international cartel by the early 1980s the American government allowed additional entrants into the telecommunications market and permitted companies that had leased lines to resell excess capacity. Also Britain and Japan began to liberalize their telecommunications markets, in a so called Big Bang, by putting an end to their domestic and international monopolies and permitting the liberalization of both basic and non-basic services, the reselling of capacity on leased lines, the interconnection of leased lines, and in some cases the introduction of private international firms in international cable and satellite markets.²

There is perhaps no other sector which has undergone a process of globalization as extensively and as rapidly as telecommunications. The telecommunications sector has been at the forefront of globalization because it has provided the key elements of transnational relations. Given this role, telecommunications has been one of the leading sectors to be subject to neoliberal policies since the 1980s. A last but not least relevant element that conveys the ideological component of this reform process has been economic neoliberalism. This has been largely achieved through privatization and liberalization of the domestic markets. Both reform strategies have been firmly based in neoliberal ideology, which holds that market forces under minimal government control, will lead to the optimal allocation of resources. Economic neoliberalism has provided the fertile substrate on which the seeds of telecommunications reform policies were sown.

In the late 1980s and early 1990s, the liberalization trend began to spread to several European states, Canada, Australia and New Zealand. While there are some important differences in the degrees of liberalization among these countries, the basic trend is toward allowing competition in all aspects of telecommunications. This trend also spread to Latin America in the 1980s with Chile, in 1988, leading the path towards full privatization of the state-owned telecoms, followed by Mexico and Argentina. East Asia commenced a parallel reform led by the Japanese experience. The European Union was a latecomer to the reform ‘party’, and the first moves to liberalize voice telephony did not come until mid-1993.³

1.2 The Objectives

This study examines the evolution of the international regime in telecommunications with the main objective of furthering our understanding of the process of regime transformation. The objectives pursued in this research can be summarized as follows:

To investigate the implications of the changes of policy preferences of national governments for the changes of the international telecommunications regime.

To understand the role of national governments in the creation, evolution and change of the international telecommunications regime.

To examine the behavior of developed and developing countries and their changing role vis-à-vis the international telecommunications regime.

To evaluate the impact of the international structure on the domestic political and economic actors and vice versa.

The study looks at the reform process initiated in the mid 60s and aims at analyzing the progress of both domestic and international developments in the restructuring of basic telecommunication until the realization of the bulk of liberalization commitments, around 2000, agreed upon at the GATS negotiation in 1997. The acceptance and achievement of the goals indicate the internalization of the new liberal norms by most of the industrialized world.

1.3 International Regime Theory

The study of international regimes has been an important part of the rethinking of intellectual paradigms during the postwar. During the 1970s and 1980s, there was a proliferation of new approaches built on critiques of traditional realist and liberal perspectives. By the mid 1990s the intellectual battle lines appeared to be drawn between approaches that extend or enhance traditional approaches (Keohane, 1986), and those that have become known collectively as post-positivist or knowledge-based theories (Hasenclever et al, 2002). Yet, despite the time that has passed since the emergence of regime theory, it is argued in this dissertation that the theory and practice of international regimes remained characterized by realist and liberal thinking. As a result, there remain many unanswered questions regarding the nature of international regimes: why does a regime emerge in particular forms, how does it interplay with domestic politics, and what role does it play in policy creation and diffusion?

The central purpose of this dissertation is to elucidate the instances of regime transformation in systematic terms by looking both at the domestic policy preferences and the international regime dynamics. In order to explain the major characteristics and dynamics of the telecommunications regime it is necessary to review how international political economy theory has addressed the study of regimes.

As a beginning, I would consider a definition of international regime in order to approach this issue. Stephen Krasner defines regimes as sets of explicit, principles, norms, rules and decision-making procedures around which actors’ expectations converge in a given area of international relations (Krasner, 1983: 2). This definition of regimes includes four main aspects: principles, norms, rules and decision-making procedures around which the actors agree to discuss their conflicting interests.

General theoretical approaches towards the study of international relations are often divided into realist and liberal traditions. The realist tradition is attached to the primacy of the state, power politics and anarchy as the organizing principle of the international system, whereas liberalism is associated with the view that non-governmental actors are increasingly becoming more important on the international scene and that cooperation is still possible without the existence of a hegemonic power.

As new variants of these two schools have emerged, namely neorealism and neoliberalism, new approaches on cooperation have been developed. According to neorealist views, states are the dominant actors and their main goal is their survival and autonomy. The distribution of power exerts the major influence on the pattern of international relations.

On the contrary, neoliberalism, which is centrally associated with the works of Robert Keohane and Joseph Nye, still accepts the states as the dominant actors that seek to maximize their own utility but instead of giving priority to the goal of autonomy and survival they accept the possibility of having mutual interests in cooperation. Cooperation can be promoted by the existence of international organizations. Accordingly, cooperation in this anarchical world is facilitated by the states accepting to enter regimes that constrain their autonomy.

The neoliberal perspective accepts the possibility of cooperation; and growing interdependencies are likely to cause expanding mutual interests. Unlike neorealism, the concern for relative gains is seldom a major obstacle to cooperation. Keohane assumes that there are areas, for instance, most of the current trade and financial issues, where the relative/absolute gains question is irrelevant. He states that this question is implausible when applied to situations in which substantial mutual gains can be realized through cooperation and in which governments do not expect others to threaten them with force (Keohane, 1989: 10).

Yet realism and liberalism do not explain everything, and it would be wise to keep insights from the rival paradigms in mind. Whereas realism and liberalism tend to focus on material factors such as power or trade, constructivist approaches emphasize the impact of ideas. Instead of taking the state for granted and assuming that it simply seeks to survive, constructivists regard the interests and identities of states as a highly malleable product of specific historical processes. They pay close attention to the prevailing discourse(s) in society because discourse reflects and shapes beliefs and interests, and establishes accepted norms of behavior. Consequently, constructivism is especially attentive to the sources of change, and this approach has largely replaced Marxism as the preeminent radical perspective on international affairs (Walt, 1998).

Although power is not irrelevant, constructivism emphasizes how ideas and identities are created, how they evolve, and how they shape the way states understand and respond to their situation. Constructivist theories are quite diverse and do not offer a unified set of predictions on any of these issues. At a purely conceptual level, Alexander Wendt has argued that the realist conception of anarchy does not adequately explain why conflict occurs between states. The real issue is how anarchy is understood - in Wendt’s (Wendt, 1992) words, Anarchy is what states make of it. Another strand of constructivist theory has focused on the future of the territorial state, suggesting that transnational communication and shared civic values are undermining traditional national loyalties and creating radically new forms of political association. Other constructivists focus on the role of norms, arguing that international law and other normative principles have eroded earlier notions of sovereignty and altered the legitimate purposes for which state power may be employed. The common theme in each of these strands is the capacity of discourse to shape how political actors define themselves and their interests, and thus modify their behavior.

1.4 Defining Domestic Preferences towards Telecommunications Reform

Following the privatization of most State Owned Enterprises (SOEs) in many developed and developing economies, telecommunications has become the epitome of state reform.

Reform policies, such as liberalization and privatization, challenging the historical state-run monopolies in telecommunications are now very common, but many important questions regarding these policies remain partially or wholly unanswered. Why did a particular government in a particular country decide to reform its telecommunications sector? Having decided to do so, what determined the selection of the chosen strategy? Moreover, as liberalization and privatization have been considered the main categories of telecommunications reform, initial objectives of these reform policies have been mostly overlooked.

According to Petrazzini (1995: 16-18), three main policies have dominated telecom reform, worldwide: privatization, liberalization, and deregulation. Most authors generally define privatization as the transfer of commercial SOEs, their activities or productive assets from the government to the total, majority, or minority private ownership.⁴ Nevertheless, privatization is not always followed by immediate liberalization of the market, e.g. Latin America. From this point of view, privatization would include the public offering of shares, private sale of shares, or sale of government assets. Liberalization appears as a complement to the privatization process in most cases. Liberalization can be defined as the lowering of entry barriers to all or part of a market, allowing third parties to compete with established - generally monopoly - providers of goods or services (ibid). Liberalization may be gradual, as in most East Asian countries that have kept basic services under monopoly, at least in their initial phases of restructuring, while opening other value-added networks (VAN) and data services to competitive provision. Deregulation is also frequently cited as a third dimension in reform. Interestingly, as Vogel (1996) points out, this phenomenon - conceived as a process through which governments reduce their intervention in the open market - is usually replaced by further government regulation to secure the establishment of a competitive environment for new entrants.

While we can determine how a particular country decides to reform its telecommunication sector, i.e., by privatizing its SOE and/or liberalizing the market entry, we do not know the extent to which the motivations of the political system influenced the particular policy output. Evidently, neither is it possible to classify the different outputs in relation to the chosen strategy, i.e. privatization, liberalization, or a combination of both, by merely looking at the extent to which the policy has been applied. This dissertation proposes a typology of telecommunications reform that considers the motives behind the restructuring initiative and the scope of the program, as defined by the government.

1.5 National Preferences and International Regimes

A major goal of this dissertation is to investigate and test the assumption that domestic politics by themselves could explain the dynamics of regime creation, evolution and change. As domestic preferences in developed countries with the higher stakes in the telecommunications business shifted towards market-oriented reform policies, it is possible to recognize a parallel shift in the ideas and preferences espoused in the international regime for telecommunications, namely the ITU. The creation and diffusion of new ideas and preferences within the organization triggered the occurrence of further changes. Thus, the main idea of this dissertation is that there is a looping effect (Guzzini, 2003) between the construction and diffusion of these ideas at the international level and the subsequent recreation and structuration of them at the domestic level. ⁵ This thesis does not necessarily contradict the realist and liberal postulates of regime formation through hegemonic preferences or concerted cooperation, but synthesizes both theoretical views by adding a constructivist perspective to the analysis.

1.6 Organization of the Study

This study is divided into three parts. The first part contains this introduction, and the methodology and theoretical framework. In chapter 1, I provide a general background about the major transformations within the international regime in telecommunications. A succinct explanation of the theoretical framework and previous literature on the topic are also introduced.

Chapter 2 addresses the theoretical approach that guides the investigation of regime transformation in telecommunications. The current debate between institutional theories, neorealism and neoliberalism is discussed to test if they suffice to explain regime transformation. It is observed that although neoliberal and neorealist perspectives may be valid to approach the formation and persistence of the regime, it is necessary to supplement them with a constructivist perception of the life cycle of norms to allow for linking the national preferences and the changes at the international regime. As there are multiple sources of regime change at the domestic level – economic conditions, technological change, globalization – the aggregation of motives (domestic or international) and the scope of the governments (systemic or tactical) are considered as indicators of national preferences that will affect the international regime. A typology of reform objectives is presented to allocate the countries within different ideal types regarding the motives (international or domestic) and the policy scope of the national governments (systemic or tactical). On the regime level, process tracing is employed as the methodology to explain in a historical fashion the causal mechanisms that spurred change of the regime norms.

The second part contains chapters 3, 4 and 5. Part II presents the reform cases which are divided into different waves of telecommunications restructuring, commencing with the pioneer experiences of the United States, the United Kingdom, and Japan, followed by a cascade of reform initiatives in a second wave taking place in Latin America and East Asia. The latecomers are represented by the European Union states. This chronological division into waves of reform facilitates the tracing of the evolution of states’ policy preferences along time until the completion of the restructuring process. This chapter argues that the standard reform modalities, i.e. privatization, liberalization, or a combination of both, tell very little without considering the political economic environment. In contrast, this study