RESTRICTED
GENERAL AGREEMENT S/NGBT/W/4
24October 1994
ONTRADE INSERVICES
(94-2126)
Negotiating Group onBasic Telecommunications Original: English
COMMUNICATION FROM AUSTRALIA
Telecommunications: Termination Services
The attached communication iscirculated attherequest ofAustralia tomembers ofthe
Negotiating Group onBasic Telecommunications.S/NGBT/W/4
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TELECOMMUNICATIONS: TERMINATION SERVICES
Background
1. Exchange oftelephone traffic orcross-border trade intelecommunications termination services
accounts forthegreatest proportion ofexisting trade inbasic telecommunication services. Estimates
oftheannual turnover intrade oftermination services ranged between US$35 billion andUS$42 billion
in1993.
2. Telecommunications termination services aretheservices which network operators provide
each other with when they allow access totheir networks through interconnection.
3. Telecommunications termination services comprise three distinct elements:
- Thetransport ofthetraffic from theoriginating telecommunications network tothe
terminating (destination) network;
- Thegateway switch orentry point where thetraffic isdelivered totheterminating
network; and
- Theextension, within theterminating network, from thegateway switch tothefinal
destination.
4. Tradeintelecommunicationsterminationservicesisusuallyundertakenunderagreementsbetween
operators which aremade inaccordance with Article 1,paragraph 1.5oftheInternational
Telecommunications Regulations andother recommendations oftheInternational Telecommunications
Union (ITU). Under these Regulations, operators orservice providers make agreements as
"administrations orrecognized operating agencies". Administrations andrecognized operating agencies
aredefined bytheConstitution oftheInternational Telecommunications Union asbeing agovernmental
department (Annex 1002) oranagency designated byagovernmental department (Annex 1008)
respectively. Those agreements include equal revenue sharing through anaccounting ratetodetermine
payments when there isanimbalance between inwards andoutwards traffic.
5. Thenature ofthetermination service provided isthesame (apart from transport, which isa
small costelement) forinwards calls regardless oftheir origin, domestic oroverseas. However, the
charge forthatservice (determined bytheaccounting rateintheoperator-to-operator agreement or
other charge forthetermination service) varies. Moreover, many accounting rates bearlittle relationship
tocosts andinmany cases reflect theexercise ofmonopoly power. Consequently thetreatment of
service providers from different countries varies.
6. Trade intelecommunications termination services ischaracterized by:
. Apredominance ofmonopoly traders;
. Trading entities thatarefrequently owned orcontrolled bygovernments;
. Asmall number oftraders incountries where there iscompetition; and
. Where there iscompetition, national laws andregulations thatfrequently limit price
competition andtraffic volumes available toparticular operators incross-border supply
oftelecommunications termination services.S/NGBT/W/4
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7. Given theimportance oftermination services totrade inbasic telecommunications, andgiven
thefactthattrade intermination services isgoverned byagreements between operators, theNGBT
could usefully examine some important questions:
. TheextenttowhichtheGATScoversagreementsbetweenoperatorsandthusthecurrent
management oftrade intermination services;
. How Articles oftheGATS might affect agreements between operators; and
. How commitments ontrade intermination services might bescheduled orotherwise
dealt with.
GATS coverage oftrade intelecommunications termination services
8. TheDecision onNegotiations onBasic Telecommunications, paragraph 2,provides thatno
basic telecommunications (telecommunications transport networks andservices) shall beexcluded a
priori from thenegotiations. This paragraph seems torefer tosubsectors ofbasic telecommunications.
Trade intermination services isnotaseparate subsector inthesense thatithasaUNCPC number
orislisted inthemodel schedule. However termination services areinherent intheprovision ofservices
under modes (1),(2)and(3)oftheGATS. Trade intelecommunications termination services is
recognized bythetelecommunications industry andtheITU asabasic element intheoperation of
telecommunications systems. Countries andtheITU have chosen totreat thiselement (termination
services) asadiscrete sector oftelecommunications services. Toexclude trade intelecommunications
termination services from thework oftheNGBT would therefore notbepossible.
9. Moreover, theagreements between operators that regulate trade intelecommunications
terminations services would appear tobe"measures bymembers affecting trade inservice" andthus
within thescope oftheGATS. Operator agreements are"measures" asdefined byArticle I3(a),
since theoperators areeither State-owned carriers, which are"central governments" or"authorities"
(3(a)(i)) orprivately-owned carriers exercising "powers delegated" by"governments orauthorities"
(3(a)(ii)). Asmentioned above, ITU arrangements require carriers tobe"designated" bynational
governments.
Dealing with telecommunications termination services under thegeneral provisions oftheGATS
10. Asnoted above, operator agreements typically result indifferent prices fortelecommunications
termination services according totheir country oforigin, notwithstanding thecommon nature ofall
telecommunications termination services. This isprima facie inconsistent with MFN. This implies
thatcountries thatwish tomaintain such agreements would need toseek MFN exemptions after
30April 1996 when thesuspension ofArticle IIforthebasic telecommunications sector ends.
11. Measures ofgeneral application affecting trade intelecommunications termination services
would need tobepublished, tomeet thetransparency requirements ofArticle III,except where the
disclosure ofconfidential information would becontrary tothepublic interest orwould prejudice
legitimate commercial interests, (Article IIIbis).
12. Telecommunicationterminationservicesarrangementsinvolvingmonopolytelecommunications
service providers aresubject toArticle VIIIwhich provides thatmembers shall ensure thatmonopoly
service suppliers donotactinamanner inconsistent with obligations under Article IIandspecific
commitments. Assuggested above theresult ofsome agreements between operators areinconsistent
with Article II.TheCouncil forTrade inServices would thusbeabletorequest thatmembers whereS/NGBT/W/4
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amonopoly telecommunications service supplier isacting inthismanner provide specific information
onagreements between operators.
13. Where business practices, other than those falling within Article VIII, restrain competition
andtrade inservices, Article IXprovides forconsultations between members withaview toeliminating
those practices. Where thequality ofservice provided byarecipient operator tosending operators
differs, such asbythrough theprovision ofadditional coding orother enhancements totheservice,
thismay constitute arestraint ontheability ofsome service providers tocompete. Ifso,Article VIII
would apply.
Specific commitments
14. Asitappears thattrade intelecommunications termination services andthemeans ofregulating
itarecovered bytheGATS, thequestion arises ofwhether specific commitments onmarket access
andnational treatment canbescheduled.
15. Some practices ofadministrations orrecognized operating agencies designated bygovernments,
such asproportional return requirements foragiven quantity oftraffic ornumerical limits onoperators,
constitute measures, legislation etc., including measures ofthekind described inArticle XVI Market
Access.
16. Where there aremultiple national basic telecommunications service providers thisraises national
treatment issues. Where foreign carriers payhigher charges forinterconnection toanational market
thannational carriers do,thisis,prima facie,"less favourable treatment" under Article XVII, National
Treatment. Similarly, where foreign suppliers have lessfavourable rights regarding theplaces atwhich
they candeliver traffic fortermination, compared tonational carriers, thiswould prima facie bea
limitation onnational treatment.
17. Inthecase ofArticles XVI andXVII, itwould bepossible toschedule commitment fortrade
intelecommunications termination services. This could bedone directly, bycreating asubsector in
telecommunications termination services. Anexample ofhow commitments forsubsectors might be
scheduled inthisway isattached. Itcould alsobedone indirectly byagreement oftheNGBT that
themodes ofsupply 1(cross-border supply) andinsome cases, 2,(consumption abroad) would by
definition cover termination services.
18. Formeasures relating totrade intelecommunication termination services, suchaspricing related
measures, which donotappear tofallunder Articles XVI orXVII, commitments may benegotiated
andscheduled under Article XVIII, Additional Commitments.
How tohandle measures relating totelecommunications termination services iftheyarenotscheduled
19. Thegeneral provisions oftheGATS, asdiscussed above, would apply totelecommunications
termination services even ifnocommitments arescheduled. Butwithout thescheduling ofspecific
commitments, itwould bedifficult toargue thattheNGBT haddealt adequately with thiscrucial aspect
ofbasic telecommunications services. Ifitisnotpossible tocover trade intelecommunications
termination services andagreements between operators intheschedule ofspecific commitments, the
NGBT might need toconsider what other measures itcould taketofulfil itsmandate toachieve, through
negotiations that are comprehensive inscope, "the progressive liberalization oftrade in
telecommunications transport networks andservices".Modes ofsupply: 1)Cross-border supply 2)Consumption aborad 3)Commercial presence 4)Presence ofnatural personsS/NGBT/W/4
Page 5Sector orSubsector Limitations onmarket access Limitations onnational
treatmentAdditional commitments
Termination ofbasic
telecommunications traffic(1) e.g., Limitations ontheplaces ofentry orexit from the
market (border frontier), such as:
- gateway switch
- national extension
- international telecommunications transport
(national boundary, mid-point ofundersea
cable, satellite half circuit);
Limitations onthenumber offoreign service providers
national service providers caneither sellterminations services
(orparts oftermination services) to,orbuy service from;
Limitations onthenumber ofnational services providers
foreign service providers caneither selltermination services
(orparts oftermination services) to,orbuy service from;
Limitations onthequantity orvalue ofservices intheform
of:
- quotas derived from a"proportional return"
requirements
- minimum ormaximum required volumes or
values
- requirements toimport services foraperiod of
time before supply isallowed
(2)(1) e.g., Preferences given todomestic
suppliers such aspricing orconditions
ofinterconnection with oraccess to
networks ofnational service providers
including licensing, regulatory
approval;
Measures providing forpreferential
provision ofenhancements or
differential quality ofbasic services to
domestic suppliers.
(2)(1) e.g., Measures providing forpreferential
ordiscriminatory provision of
enhancements ordifferential quality of
basic services and technical standards.
Pricing related measures, which enable
thefixing ofprices orwhich enable a
tax, duty ortariff (actual oreffective) to
beimposed (advalorem orperunit) on
topofcosts ofsupply
- viaanagency with delegated
powers from thegovernment, or
- byregulations, e.g. parallel
accounting rates,
- viaagovernment approval
process.
Measures relating tointerconnection
orconditions ofinterconnection to
other service providers including
licensing, regulatory approval and
competition laws.
(2)Modes ofsupply: 1)Cross-border supply 2)Consumption aborad 3)Commercial presence 4)Presence ofnatural persons
Sector orSubsector Limitations onmarket access Limitations onnational
treatmentAdditional commitments
Termination ofbasic
telecommunications traffic
(cont 'd)(3)e.g., Limitations ontheplaces ofentry toorexit from the
market (border frontier), such as:
- gateway switch
- national extension
- international telecommunications transport
(national boundary, mid-point ofundersea
cable, satellite half circuit);
Limitations onthequantity orvalue ofservices intheform of:
- quotas derived from a"proportional return"
requirements
- minimum ormaximum required volumes or
values
- requirements toimport services foraperiod of
time before supply isallowed;
Limitations ontheinstallation, operation, ownership oruseof
facilities ortheuseofcertain technologies:
- totransport services
- forswitching orprocessing
- geographical limits
- radio (fixed ormobile)
- wireline;
Restrictions orrequirements regarding thetype oflegal entity
permitted tosupply theservices;
Limits onforeign equity participation.
(4)Limitations/needs testapplied tothetotal number ofnatural
persons that may beemployed(3) e.g., Preferences given todomestic
suppliers such aspricing orconditions
ofinterconnection with oraccess to
networks ofnational service providers
including licensing, regulatory
approval, access tonatural resources
such asradio frequencies, access to
land, rights ofway.
Measures providing forpreferential
provision ofenhancements or
differential quality ofbasic services to
domestic suppliers;
Restrictions onforeign ownership of
facilities.(3) e.g., Restrictions onability offoreign
suppliers toinstall, own oroperate
infrastructure;
Restrictions ontheability offoreign
suppliers torights ofway, access toland
and compliance with planning and
environmental laws.S/NGBT/W/4
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