United States: Capitalizing On A Window Of Opportunity For Reform Of Telecommunications Regulation In The Russian Republic ~ Part 3

Until 1990, the public telecommunications network in France was under the control of the Ministry of Posts, Telecommunications, and Space, which organized, planned, and regulated the sector. France Telecom, the dominant supplier of services, was part of the Ministry. Legislation adopted in July 1990 made France Telecom formally separate from the state, in the sense that it was responsible for its own budget. The Ministry was charged with (1) ensuring that telecommunications regulation and network operation were performed independently; (2) ensuring that services that were not provided exclusively by France Telecom were operated in a fair competition environment; and (3) promoting access to the public network under objective, transparent, and non-discriminatory conditions. Not surprisingly, given the close relationship between France Telecom and the Ministry, implementation often fell short of aspiration from the perspective of competing service providers.

Within the Ministry, the Directorate General of Posts and Telecommunications ("DGPT") was the regulatory body for the telecommunications sector, responsible for applying government policy by creating an appropriate regulatory framework, negotiating and implementing international telecommunications agreements, establishing rules for interconnection and arbitration in markets open to competition, and managing spectrum allocations. The DGPT is composed of two divisions and four departments.

Along with the Ministry of Economy and Finance's General Directorate on Competition, Consumption and Fraud Control, the sixteen-member Competition Counsel implements the government's competition policies. The Competition Commission, created in 1987 to help enforce a new law prohibiting anti-competitive practices, can impose fines and issue injunctions in competition cases, and may investigate and advise the on any proposed merger affecting competition among companies that jointly control more than 25% of the domestic market or that generate annual sales above a certain level. Although the government normally takes the Commission's advice regarding proposed mergers, it is not obliged to do so. In addition, competition authorities at the EC level also have jurisdiction over mergers involving significant assets.

The High Commission for Public Service contributes to oversight of the development of the telecommunication sector. It may advise on licensing criteria for networks and services and may also suggest legislative and regulatory modifications which it believes will encourage technological, economic, and social evolution. The High Commission may make recommendations to the government to ensure fair competition and must support public service principles, in particular universal service requirements.

This regulatory regime changed on January 1, 1997, with the creation of the Authorite Reglement de Telecommunications ("ART"), the new, independent regulator of the telecommunications industry. The ART consists of five members: three (including the Chairman) appointed by the French executive branch, one by the Senate, and one by the National Assembly. They serve staggered terms ranging from two to six years. Among the ART's most important functions are the following:

• proposing rules to implement laws and Ministry decrees and enforcing the application thereof (proposed and final rules to be published in an official journal);
• allocating telephone numbers and radio frequencies;
• authorizing independent networks and establishing conditions under which they will be interconnected to a public network;
• participating in the preparation of the French position in international negotiations on telecommunications issues; and
• arbitrating disputes over interconnection and network access issues.

The ART will also be responsible for processing applications for public network operator licenses, establishing rules for competitive bidding for those licenses, and forwarding its licensing decisions to the Ministry for formal approval. In addition, the ART will have the power to collect information and documentation from service providers to ensure compliance with applicable laws and regulations, and to impose administrative and financial penalties, including partial or total license revocation, for those who violate the rules. Complaints contesting decisions issued by the Ministry denying entry to a new public network are subject to arbitration before the ART, with an appeal lying within the Competition Counsel.

Even after this new regime is fully implemented, the Ministry will continue to perform many of the most important functions in the telecommunications sector. It will retain responsibility for actually licensing service providers, authorizing companies to furnish telephone service to the public and to create new public networks, leading international and EC negotiations, proposing laws and decrees, verifying universal service financing, and determining overall telecommunications policy. Since the statute provides ART with little if any staff, it will be dependent upon personnel from the Ministry for both information and manpower. It remains to be seen whether the new agency can truly operate independently under such conditions.

ART will be responsible for allocating frequencies to civil telecommunications users, including public mobile telephony, radio paging, local mobile radio, wireless local loop, VSAT networks, and independent microwave networks. ART will also be represented on the board of directors of the new National Radio Frequency Agency ("NRFA"), which was also created effective January 1, 1997, to bring together representatives from all ministries and authorities that play a role in allocating frequencies in order to consolidate and better coordinate spectrum-related decisions. Establishment of the NRFA will not change the current responsibilities of various institutions for spectrum management. However, any network using radio frequencies allocated by an authority other than the Ministry, ART, DGPT, or the broadcasting authority (CSA) to provide a telecommunications service must secure a second license from the Ministry after NRFA approval. NRFA will also represent France in international matters relating to spectrum management.

For a number of years, DGPT was moving toward the use of comparative tenders for allocating spectrum. This process has not always gone smoothly. For example, in the 1994 tender for a single national PCS license, the fact that senior politicians became involved in the selection process in the closing weeks led to the appearance that the final decision was influenced by political considerations rather than the stated tender criteria. The ART's greater independence should help prevent such difficulties from arising in future allocations.

The EC has issued a series of pronouncements that reflect a consensus on the key elements of universal service policy. In particular, the EC has identified the scope of universal service as basic telephony and a network access supporting that voice service, fax and low speed data access , touch-tone dialing, call blocking, and itemized billing. The Commission also adopted an obligation of affordability for services, and has chosen a "net cost" approach for determining costs of universal service. In addition, to the extent member states determine that the burden of providing universal service is more than minimal, the EC described two possible methods for funding such service: either a universal service fund at a national level or a system of supplementary charges collected directly by the operator providing universal service from organizations interconnecting with its network.

The French have responded to these EC directives by mandating universal service obligations for providers of basic telephony. The objective is to provide quality telephone service to all at affordable rates, free emergency calls, directory assistance services, public pay phone services, and universal directory services. This implies averaged rates across France and, where applicable, pricing measures in favor of certain disadvantaged users. The specifics of the system have yet to be established by the ART.B. Telecommunications Market Overview

French law currently distinguishes between services on the one hand and network infrastructure on the other. This distinction results in very different regulatory treatment for the two classes of telecommunications.

As a general rule, there is no regulation of services unless they are provided to the public at large (as opposed to closed user groups). Services to the public are open to competition, with the exception of voice telephony as discussed below. Basic data transmission and simple resale of capacity to the public require a license; such licenses were formerly issued by the DGPT and now fall under the jurisdiction of the ART. Value added services offered to the public formerly required a license if the services made use of leased circuits having a capacity of 34 Mbps or more. This licensing requirement will be removed under the new regulatory regime. Basic voice telephony service offered to the public is currently reserved to France Telecom alone. Under both EU and WTO commitments, that monopoly is scheduled to terminate effective January 1, 1998, with the introduction of competitive providers licensed by the Ministry upon the recommendation of the ART.

Network infrastructure is regulated separately. If a competitive service provider leases circuits from France Telecom, open network protocol rules require that the tariffs and interconnection charges be cost-oriented. A provider that believes that the tariffs being charged are not cost-based may bring a claim before the ART and/or the European Commission. A provider may also use cable networks to carry all telecommunications services other than voice telephony, and may also be able to use capacity on other sources of alternative infrastructure, such as those licensed to the railroad or electrical utilities, for non-voice-telephony service. The ART may also issue licenses to independent networks that offer services among members of the same closed user group. Thus, an independent network operator cannot offer the range of services available from an operator leasing circuits from France Telecom, since it cannot provide voice telephony service from the closed user group to users outside the group.

At present, the French telecommunications market is dominated by France Telecom, the state-owned company that operates the only existing public voice telephony network. It is organized as an industrial and commercial public establishment that employs civil servants and uses property belonging to the public domain. The French government recently corporatized France Telecom, which allowed the company to hold title to the property it uses and hire private employees. The government also partially privatized France Telecom by selling approximately 38% of the company in October 1997. France Telecom's unionized employees, fearing that competition and privatization may result in wage and benefit cuts and downsizing of the work force, have protested the planned offering and conducted a number of strikes against the company. As a result, and in order to avoid a conflict with this summer's presidential election, the sale came several months later than originally scheduled. The French government sold about 20% of the company to institutional and individual investors, 7.5% to Deutsche Telekom (its German partner), 6% to other telecom groups, and about 4% to France Telecom employees, while retaining about 62%.

France Telecom's monopoly over voice telephony and its associated wireline infrastructure officially ended on January 1, 1998. Competition in basic telephone service will be introduced through a competitive tender process, with licenses becoming effective on January 1, 1998. The number of wireline licenses is potentially limitless. However, the grant of a license may be refused because of national security concerns, insufficient technical and financial guarantees by the applicant, or penalties incurred by the applicant for prior breaches of license conditions and/or violation of relevant regulatory provisions.

A number of likely challengers to France Telecom's basic telephony service have already emerged. Cegetel, the new telecommunications arm of the French utility conglomerate Compagnie Generale des Eaux, recently signed a deal with the French railway operator, SNCF, that will provide access to both the existing cable system already operated by SNCF as well as the rights of way along SNCF's extensive rail network necessary for laying fiber optic cable throughout the country. The venture, named Telecom Developpement, has already been licensed to provide service. British Telecom, Manesmann AG (a German conglomerate), and SBC Communications (an American RBOC) have minority stakes in Cegetel, further strengthening this potential entrant. Other likely new entrants include France 9 Telecom, a joint venture of Bouygues SA, Telecom Italia and Veba AG; Colt Telecommunications France SA, a subsidiary of Fidelity Investments of the U.S.; France Manche, a subsidiary of Eurotunnel; MFS Communications SA, a subsidiary of U.S. carrier Worldcom; and Omnicom, an independent start-up company. Subscribers will be able to access each of these competitors by using a specified single digit access code.

No license is required to operate a private network, even for voice telephony. A private provider can lease lines from France Telecom under a tariff system established by DGPT under which France Telecom is required to reduce its tariffs by almost 40% between 1995 and 1998.

As mentioned above, France Telecom is part of the Global One alliance with Sprint and Deutsche Telecom. Prior to liberalization in January 1998, it was the only source for international facilities-based telephony. However, alternative arrangements -- such as call-back service -- provided competition even before that date. Liberalization effective January 1, 1998 can be expected to lead to the rise of a number of carriers competing for international business on a facilities basis.

There are currently three mobile operators in France: France Telecom through France Telecom Mobiles; Société Française du RadioTéléphone ("SFR"), part of the Cegetel group; and a consortium led by the construction group Bouygues, which also includes Cable & Wireless, US West, JC Decaux, and Paribas. France Telecom launched an analog cellular service in 1986 and SFR followed in 1989. These two operators also won competitive tenders for nationwide PCS licenses and have been operating digital mobile services for several years, each offering service throughout most of France and, through roaming agreements, around the world.

In October 1994, the French government used a comparative tender process to assign a third PCS license for use of the competing DCS 1800 technology. It limited non-European ownership to 20%. The selection criteria included the stability of the consortium, likelihood to create competition with the existing cellular operators, creation of French jobs, speed of network roll-out, mobile network operating experience, and realistic business plan and financing options. The Bouygues group, the winner of this tender, now enjoys a near monopoly in DCS 1800 services, with exclusive access to DCS 1800 facilities for the entire fifteen-year license term. It launched its service in May 1996.

Unlike the United States, France and the rest of the EU have chosen to mandate that wireless licensees all use the same technical standard -- the GSM technology. This choice, along with other factors, has catapulted France into the digital age. In the United States, only 15% of wireless phones sold in 1996 were digital. In Europe, the corresponding number was 90%. This discrepancy likely demonstrates that choosing a technical standard early can facilitate quick market penetration of a new technology. But choosing too early can also forestall development in the long run. If standards are allowed to compete, market penetration may occur more slowly, but the most effective and efficient standard will likely prevail in the long run. Hence, although the U.S. system is still largely analog and the French digital, in a few years time, the U.S. may have in place a digital network using a technology superior to GSM. In fact, at present there are two alternative digital standards competing with GSM in the U.S. France could of course adopt a different technology if it proves superior to GSM, but there will be much resistance to change due to nationwide reliance on the earlier regime. Thus, it remains to be seen whether France's decision to choose a standard for wireless services will benefit consumers in the long run.

In an effort to extend the area covered by mobile phone services, the ART has exempted operators from a component of the interconnection fees charged by France Telecom in exchange for their commitment to use the savings to build out their networks. Under the agreement, the companies will also ensure communication between wireless networks on the ground and at least one satellite system when those become operational, and in sparsely populated areas they will share infrastructure in order to minimize their impact on the environment. The ART hopes to find similarly innovative solutions to other issues in the telecommunications sector.

Since January 1, 1993, data transmission services have been totally open to competition. Six operators have been authorized, including foreign firms such as British Telecom and Sprint. DGPT also issued three paging licenses in 1993. At present, France Telecom offers service through a subsidiary under at least three trade names. There are also a number of providers of ERMES service, which allows users to receive alphanumeric messages of up to 1,000 characters on pocket-sized receivers. Infomobile, a venture controlled by the Bouygues group, launched the first ERMES system in Paris in October 1984. Societe Francaise de Transmission de Donnees par Radio, part of the Generale des Eaux group, launched a competing service in Paris in March 1995, and has expanded its area to cover the urban areas of France. In September 1995, France Telecom also began offering this service.

France Telecom currently operates four communications satellites capable of providing audiovisual and corporate communications, which it offers through its Transpac subsidiary. France Telecom is also a participant in the Globalstar worldwide mobile telephony satellite system headed by Loral Aerospace Corporation and Qualcomm, Inc. of the United States.

VSAT services are entirely open to competition, whether within a closed user group or open to the public, for voice, data, or image transmission. France Telecom launched its Irisat private VSAT network facility in 1992, offering point-to-multipoint voice, video, and data transmission. Its subsidiary, France Cables et Radio, offers a full range of satellite services in France, including international telecommunications and corporate communications services. France has lifted most restrictions on VSAT satellite terminals and also gives private VSAT operators open access to satellite hub stations owned by France Telecom. As a result, France has licensed a number of two-way VSAT operators in addition to France Telecom, including PanAmSat, BT France, British Aerospace, and Teleport Europe.

France is a signatory to the world's major satellite organizations -- INTELSAT, EUTELSAT, and INMARSAT. In October 1994, the EC adopted a Directive abolishing special and exclusive rights for the provision of satellite services and equipment. An operator may lease space segment from any satellite operator, but it must obtain an earth station license from the ART to operate the ground segment of its system.

On March 3, 1997, the Ministry issued a Decree on Interconnection which lays out a system of open access to the networks of France Telecom and other facilities-based carriers. Under the Decree, carriers with more than a 25% share of the market must publicly file standard interconnection offers, which must be approved by the ART. These offers must include technical conditions and tariffs, which should be based on long run incremental costs causally linked to the interconnection service provided. On April 9, 1997, France Telecom initiated the new competitive era by publishing its first standard interconnection offer. Bouygues Telecom immediately complained that the rates would make it nearly impossible to compete on local calls, although competition would be possible for long distance.

In addition, parties may reach interconnection agreements. Operators must provide interconnection under non-discriminatory conditions, offering competing carriers access on the same terms and conditions as are offered to affiliated parties. They must also institute separate accounting systems that will allow an independent auditor designated by the ART to conduct periodic reviews of the basis for the rates charged. The Decree also mandates that, beginning in 1998, operators must implement number portability and carrier selection on a per-call basis (using a simple access code) so as to guarantee equal access to all competing carriers.

The Decree also establishes an Interconnection Committee, to be chaired by the ART but involving the carriers subject to interconnection obligations. After consulting with this committee, the ART may request that any operator revise its standard interconnection offer if necessary to safeguard the principles of non-discrimination and cost orientation of interconnection rates. Although the Decree establishes an interim method for setting interconnection rates, it also directs the ART, in consultation with the Interconnection Committee, to establish a new method for determining interconnection tariffs that may differ from the principles adopted in the Decree.

At present, opportunities for foreign direct investment in French telecommunications firms is somewhat limited. The dominant telecommunications services provider in France -- France Telecom -- is owned by the government. In addition, France has imposed a 20% cap on non-EU foreign ownership of mobile services providers, although this ceiling can be lifted through either bilateral or multilateral agreement. There are, however, no limits on foreign access and ownership applicable to non-public networks and value added services.

As part of the WTO process, France has committed to allow market access and national treatment for all services -- with some notable exceptions. While indirect investment is unlimited, there remains a 20% direct investment limit for radio-based networks. In addition, although the government will offer 30% now (and up to a total of 49% in the near future) of France Telecom to the public, foreign investment will be limited to a maximum of 20%.

Like most European countries, France has a long tradition of monopoly telecommunications service from a national champion provider. Yet the encouraging steps that the French have taken toward competition and privatization show that the forces sweeping the global telecommunications industry are strong enough to overcome even the most deeply entrenched statist instincts. Of course, the international aspirations of national providers such as France Telecom, Deutsche Telecom, and British Telecom may have had as much to do with liberalization as did anything else by driving the EC to mandate changes necessary to spur development on a regional and international scale.

All of the signs are encouraging. France has in short order put in place an independent regulator and a detailed interconnection regime, and has committed to liberal access and entry rules for foreign interests. Competition has already been introduced in wireless delivery systems and in services provided to closed user groups. It remains to be seen whether the regime really changes as advertised, however, as the real challenge will not come until January 1998 when France Telecom must face direct competition and must offer its network for interconnection by competitors. The ART has been staffed predominately by personnel taken from the DGPT, which for years acted as both operator and regulator. It will be interesting to see whether that mindset will affect the ART's ability to guide the market through these fundamental changes.

Compared to the United States and France, India is a poor country with an antiquated telecommunications system. In 1993, India had only one telephone line per 112 people, compared to one line per 1.8 people in the U.S. and France. Over two million people are currently waiting for installation of a telephone line. It is estimated that the country will require over $100 billion in telecommunications infrastructure investment over the next ten years to add the 80 million fixed lines required. Recognizing these facts, the government has in the last five years abandoned outmoded ways of thinking about and providing telecommunications services and has undertaken several initiatives to introduce competition and attract the private -- especially foreign -- investment necessary to provide the huge sums required for build out. One important aspect of this effort, which was long delayed and only recently achieved, was the creation of an independent regulator for the telecommunication sector. As discussed below, these reforms have moved on an uncertain path, which has led to international concern and even threatened to derail the process. India's experience demonstrates the interrelationship between privatization, liberalization, and independent regulation, and the need for a committed and long-term effort to bring about such fundamental changes in an entrenched system.

The Ministry of Communications ("MOC"), a cabinet-level office in the executive branch of the Government of India, has overall responsibility for telecommunications policy. Responsibility for regulating the telecommunications industry, however, is in a state of transition. Prior to March 1997, the MOC’s Department of Telecommunications ("DOT") implemented the MOC’s policies, and was responsible for licensing service providers through The Telecommunications Commission. The Secretary of DOT also serves as Chairman of the Telecom Commission, where he is joined by other DOT officials, the Finance Secretary, the Electronics Secretary, and the Member-Secretary of the Planning Commission. The Telecom Commission is responsible for administering value-added services, issuing operating licenses, collecting license fees, and determining tariffs. The Wireless Planning and Coordination Wing of the MOC has jurisdiction over licensing any commercial use of spectrum for wireless and satellite services, and also issues licenses to government departments and public sector undertakings. And the DOT's Telecommunications Engineering Center ("TEC") evaluates new telecommunications products and issues specifications for standardization.

In January 1996, the President of India issued an ordinance that initiated the process of establishing an independent regulator -- the Telecommunications Regulatory Authority of India ("TRAI"). Critics argued that the ordinance was too limited in scope, and that only a statutorily constituted regulator would have the requisite independence from DOT. For example, the ordinance was interpreted as excluding government operators from the ambit of "service providers" over which TRAI would have jurisdiction, and thus essentially limited it to regulating and adjudicating disputes between private companies. The ordinance thus lapsed after several months, was reissued and lapsed again, and then was repromulgated in a similar form as a bill in Parliament. Unfortunately, neither the opponents nor the proponents of the bill were willing to bring it to a vote until after the general elections in the fall of 1996. In the meantime, the bill was referred to a Parliamentary Standing Committee on Communications for review, which was completed in November 1996. In general, that committee concluded that the TRAI should have greater autonomy to implement the government’s telecommunications policy. The government issued a new ordinance that extended the TRAI’s jurisdiction to both government and private operators and included provisions intended to deter corruption by facilitating removal of TRAI members for malfeasance and restricting the activities of TRAI members after they leave office. Finally, on March 20, 1997, the Parliament adopted a new TRAI bill which incorporates the Standing Committee’s suggestions.

As established by the statute, the TRAI will regulate all service providers, both government owned (i.e., DOT and MTNL) and privately held. It will have three to five Members appointed by the central government. The Chairman will be either a serving or retired Judge of the Supreme Court or a serving or retired Chief Justice of a High Court. The two to four other Members of the panel will have the status of Secretary of the Government of India. Members are appointed for five year terms, although only the Chairman is not required to step down if he reaches the age of 62 before the expiration of his term. Absent insolvency, conviction of an offense involving moral turpitude, or physical or mental incapacity, a Member of the TRAI can be removed solely on the recommendation of the Supreme Court on the basis of a specific inquiry held concerning a Member's alleged misconduct. The salary and other conditions of service cannot be varied to the Member's disadvantage after he or she has been appointed. In order to enhance the TRAI's autonomy from other branches of government, the statute also establishes a TRAI General Fund from all grants, fees, charges, and other sums received by the TRAI, and exempts the TRAI from income or wealth tax.

Among the TRAI's functions are the following:

• ensuring technical compatibility and effective interconnection between different operators/service providers;
• forming revenue sharing arrangements between different service providers;
• ensuring compliance with license conditions;
• fixing tariffs for telecommunications services and implementing price regulation;
• resolving disputes between service providers;
• protecting consumer and national security interests; and
• levying fees.

The statute gives the TRAI the power to undertake investigations into any matter involving the public interest and to seek information on all aspects of a private operator's activities, including the inspection of facilities, books, and records of service providers. The TRAI is also authorized to adjudicate matters relating to technical compatibility, effective interconnection, revenue sharing arrangements, and quality of service that fall within its jurisdiction, and to impose sanctions on those who fail to comply with its adjudicative orders. The subordinate civil courts have no jurisdiction over matters within the jurisdiction of the TRAI. Any person aggrieved by any decision or order of the TRAI may file an appeal to the High Court within thirty days from the date the action is communicated to him. The TRAI is directed to implement a transparent decision making process, giving adequate opportunity to all affected before making decisions, recording all decisions and publishing them in an Annual Report.

The Indian government has appointed a former chief justice of the Allahabad High Court to be the first Chairman of the TRAI. It has also appointed as vice-chairman a former ambassador to the General Agreement on Tariffs and Trade, and appointed the current Chairman and Managing Director of MTNL as the third member. The three members of the TRAI have embarked upon a series of meetings with industry associations to acquaint themselves with the issues facing the telecommunications services and equipment sectors. The Chairman has also announced that the TRAI will have a secretariat, with some staff drawn from the government but also inducting outside personnel after the first year of operation in order to establish an independent identity for the agency. Even as the TRAI was still in the process of formation, it had already received its first complaint -- a challenge by the Cellular Operators Association of India ("COAI") against the charge imposed by DOT for calls from fixed networks to cellular customers in non-metro areas. COAI had previously brought its claim in court, but the Delhi High Court referred the claim to the TRAI as the forum with the appropriate expertise to resolve such a technical issue.

Even after formation of the TRAI, the MOC will continue to have primary responsibility for establishing overall policies and regulating spectrum, and it will retain the power to license the operators of basic telephone services. The Central Government may issue to the TRAI binding directions on questions of policy in the interest of national sovereignty and integrity, state security, friendly relations with foreign states, and public order, decency, or morality. These limitations have raised the possibility that the MOC will be able to compromise the TRAI’s independence by framing policies that favor its own DOT service providers. The TRAI also will lack jurisdiction to deal with matters falling under the purview of the Monopolies and Restrictive Trade Practices Act, or the complaint of an individual consumer maintainable under the Consumer Protection Act. And while the TRAI will have the authority to enforce standards, TEC would remain responsible for setting them.

In India, all spectrum use is reserved for the government (particularly the Department of Defense), and any proposed commercial use must accordingly be cleared by MOC's Wireless Planning and Coordination Committee, in which the Department of Defense has significant input. Even after receiving a license to operate a wireless or satellite service, an operator must obtain a separate license for spectrum use before beginning operations. Recently, the Indian security agencies have raised the concern that there is not sufficient spectrum to accommodate their needs. Operators of cellular, trunk radio, and VSAT services have faced significant bureaucratic barriers in getting spectrum space even after receiving operating licenses.

The National Telecom Policy of 1994 established the objective of achieving universal service covering all villages as early as possible, meaning the provision of access to all people for certain basic telecommunications services at affordable and reasonable prices. At the time, telephone density in India was approximately .8 lines per hundred people (compared to the world average of 10 lines per hundred), 2.5 million people were on the waiting list for installation, and only a small percentage of the villages in the country were covered by telephone services at all. The Policy set the goals of making telephones available on demand and extending coverage to all villages by 1997. Even after providing 7.5 million new telephone lines during the five years from 1992 to 1997, there are still 1.7 million people on the waiting list, and DOT’s Economic Research Unit has determined that there will be a demand for construction of 45.4 million new lines between 1997 and 2007.

Clearly, the telecommunications infrastructure in India is not sufficiently developed to support the kinds of universal service requirements that have been adopted by more developed countries such as the United States and France. India must first extend the reach of its telecommunications networks to reach most of its citizens before it can establish a baseline level of service available from that network. Striving for near ubiquitous coverage is the first stage of providing universal service and a prerequisite any further obligations. The Indian government has accelerated that process by authorizing private carriers to provide service in designated areas called telecom circles. Such public-private symbiosis offers a promising strategy for extending service to unserved and underserved areas. In addition, the government has proposed to fund universal service programs from license transfer fees, and the TRAI may adopt obligations, such as rural service, as the industry matures. However, it will be many years before the focus shifts from providing mere access to the network to mandatory specific services that the network must include.

Prior to 1991, all communications services in India were provided by the government itself or by enterprises in which the government owned a majority interest. DOT was the monopoly provider of all domestic services, both local and long distance, throughout India (except in Bombay and Delhi, where MTNL, a government-controlled firm, operates the local telecom network). Providing and maintaining international telecommunications facilities was the exclusive province of Videsh Sanchar Nigam Ltd. ("VSNL"), a mostly government owned enterprise. Resale of international circuits leased from VSNL was (and is) not generally permitted.

In July 1991, the Indian government issued a Statement of Industrial Policy in which it recognized the need to improve competitiveness both domestically and globally, principally through opening to foreign investment and technology collaboration and by the abolition of monopolies. One year later, in order to improve service standards to internationally accepted levels, the government opened the following eight value added telecommunications services to private investment: e-mail; voice mail; VSAT data services; audiotext services; videotext services; video conferencing; radio paging; and cellular mobile telephone service. Companies registered in India are permitted to operate these services under license on a non-exclusive basis. In May 1994, the government announced its National Telecommunications Policy in which it recognized that the government could not alone bear the huge costs of building the communications infrastructure necessary to establish world-class telecommunications services. Following this pronouncement, the government took additional concrete steps toward implementing a more liberal and competitive market in India.

In late 1994, the government announced its plan to introduce competition in the provision of basic wireline services by awarding fifteen-year licenses through a competitive tender process. For purposes of the process, the country was divided into 21 telecom circles, each of which corresponded roughly to an Indian state. The basic services tender -- actually conducted in three separate rounds of bidding -- concluded in August 1995, with the wealthiest regions receiving the highest number of bids and some poorer regions receiving none. During the tender, the government changed the rules to impose minimum bids in certain circles. The result remained in doubt for several months after the close of the tender. After the winners had been announced, DOT modified the rules of the tender to restrict ownership in the more desired regions to three licenses, which required some reshuffling of the winning consortia in a manner that many felt favored those with ties to the Minister of Communications. In particular, the after-imposed cap (combined with a rule that the highest bidder in each circle would not be allowed to pull out of that circle) allowed one bidder -- promoted by Himachal Futuristic Company Limited ("HFCL") -- to get a license for one of the larger, more desirable circles while being released from expensive commitments to provide service in a number of other, less desirable circles. Moreover, not until February 1996 were legal challenges to the tendering process dismissed by the Indian Supreme Court, clearing the way for issuance of the basic telecom licenses. Unfortunately, two developments further delayed final licensing of the winning bidders.

First, the new entrants strongly objected to the terms and conditions proposed for interconnecting to the existing DOT facilities, which will set the terms for revenue and traffic sharing between DOT's nationwide network and the regional networks of private operators. The chief objections centered around charges for connecting to DOT's network and the requirement that private operators pay for upgrades to that network -- which is a direct competitor of those private licensees. Conflict between a monopoly provider and new private entrants is to be expected, but until the Government of India committed to place jurisdiction over interconnection disputes in the TRAI -- rather than allowing DOT to bring, defend, and judge such disputes -- this conflict had an additional and nearly insurmountable dimension. Second, allegations of corruption in the process used in connection with the basic services bidding and other telecommunications-related tenders threatened to call into question the validity of the licenses.

A series of concessions have put basic licenses back on track. DOT offered lower interconnection charges, using a flat rate for each port for the first three years and a provision for the TRAI to review those rates in the future. DOT also agreed to assignability of the license, which will make them much more attractive for financing and foreign investment. The revised license will also include a clause referring disputes to be arbitration under the Indian Arbitration and Conciliation Act. In addition, providers will be allowed to pay the license fee over a period of years. After initial resistance, six of the winning bidders agreed to sign amended license agreements. However, to date only two have actually done so, and the government has threatened to reopen bids for those circles not yet licensed. None of the licensees has yet begun to offer service.

In another effort to make the Indian telecommunications market more attractive to investors, the Finance Ministry recently decided to treat telecommunications projects as infrastructure, thereby making them eligible for fiscal benefits that include a five year tax holiday. In addition, in the Indian Infrastructure Report issued in January 1997, a government-appointed expert group recommended a number of steps designed to promote further liberalization, including: (1) opening up inter-circle long distance service to competition by 2001; (2) charging fees for the transfer of license to create an infrastructure fund that would subsidize telecommunications projects; and (3) the corporatization of DOT as a holding company with regional subsidiaries, along the lines of AT&T. The Report also projects total funds necessary for sector development through 2006 at US$54.71 billion.

Even under the liberalized regime, VSNL will remain the sole provider of international services, although the government has committed to review opening this market to competition in 2004. The government recently launched an offering of U.S.$700 million worth of VSNL global depository receipts on global trading markets, privatizing about 35% of the company. It also planned to sell about 14% of MTNL to the public in the near future, decreasing government ownership to about 52%.

Following the 1991 Statement of Industrial Policy, the government decided that in light of spectrum scarcity in the areas of radio paging, mobile radio trunking, and cellular mobile telephone service, it would grant licenses using a system of tenders. It conducted its competitive tenders for cellular service in two phases. The first phase invited tenders for two licenses in each of four metropolitan areas (Delhi, Bombay, Calcutta, and Madras) in 1992. The eight winning bidders were licensed in November 1994 and service started in all four cities by the latter half of 1995.

Beginning in late 1994, the government announced a competitive bidding process for awarding a second round of cellular service licenses, with one license available in each of 20 telecom circles. This second phase tender concluded in August 1995, awarding 33 licenses covering 18 telecom circles, with no bids received for the remaining two circles. Commercial cellular service is now available in most of the telecom circles, and nine of the providers have formed a consortium to offer nationwide roaming capabilities within the next year. DOT has mandated the use of digital GSM technology for these cellular services. The government also recently reduced another price barrier by cutting import duties on mobile phones from 50% to 30%.

Similar tenders were conducted for radio paging service licenses in 27 major cities in May 1992, and service is currently available from one or more operators in each of those cities. In a second phase, the government invited tenders for radio paging licenses in the telecom circles (excluding the 27 cities previously licensed) in February 1994. Thirty-one licenses have been awarded to eleven companies, and service is likely to begin in all of the circles this year.

VSAT services have proliferated in India, due largely to the inadequacy of business-oriented services provided by DOT, especially in remote and dispersed sites across the country. They are available from private providers for private user groups. DOT recently authorized single-hop transmissions for closed user group voice communications and high-speed links, giving hope to those who wish to use VSATs as an alternative infrastructure for these services. However, the size of receive antennas is restricted by regulation, adding to the expense of operating a VSAT system. VSNL won its bid for a contract to operate a satellite access node for ICO Global Communications, a global satellite system that proposes to deliver a new generation of seamless worldwide mobile phone service to pocket-sized phones.

As discussed above, the interconnection regime has been a subject of intense negotiation in recent months as winners of the basic telephony tenders have sought to create a workable regime for access to DOT's existing network. It appears that those negotiations have been successfully concluded, thanks in large measure to the creation of TRAI and its role as arbiter for interconnection disputes.

Recognizing that upgrading its telecommunications facilities would require a massive infusion of foreign capital, the Indian government announced in September 1994 that foreign equity of up to 49% would be permitted for private telecom operators and value added services. Recently, foreign equity for most value added services (other than radio paging and cellular) has been raised to 51%. During the basic services tender, DOT amended its rule in mid-stream to enable a foreign interest to circumvent the limitation by holding 49% of operating company (licensee) and also 49% of holding company of that operator, so long as Indians retain 51% equity and management control of the licensee. Curiously, India's WTO commitment guarantees only 25% foreign ownership of telecommunications licensees. Among the winning licensees were consortia involving Hughes Electronics, Bell Canada, Bell Atlantic, Moscow Telecom, and NTT.

For many years, foreign investments required the approval of either the Reserve Bank of India ("RBI") or the Secretariat for Industrial Approvals ("SIA") in the Ministry of Industry. Under current policy, the RBI grants automatic approval for equity investments of up to 74% in certain industries -- notably excluding telecommunications. Instead, telecommunications projects specifically require approval of the SIA for foreign investment of up to 49%. As the need for foreign investment and participation has grown, the number of projects able to fit within the parameters of RBI or SIA approvals has decreased markedly, as has the number of approvals granted.

In an effort to streamline and speed up the approval process for foreign direct investment, the government established the Foreign Investment Promotion Board ("FIPB") to consider projects falling outside the RBI/SIA framework or those deemed "politically sensitive." Most significant telecommunications investments fall within these categories. The FIPB is a specially empowered board in the Office of the Prime Minister which is headed by the Principal Secretary to the Prime Minister and has as its members the Finance Secretary, the Commerce Secretary, and the Secretary of Industrial Development. Secretaries of the other ministries concerned with specific investment proposals are also invited as appropriate. The FIPB has the flexibility to examine all proposals in totality, free from predetermined parameters or procedures that would inhibit RBI or SIA approval. The Empowered Committee of the FIPB, chaired by the Finance Minister, issues approvals on total investments of up to 3 billion Rupees (about $85 million) that do not involve major policy issues. Larger projects and/or those that involve major policy issues go to the Cabinet Committee on Foreign Investment, which is headed by the Prime Minister. Applications are usually processed through the FIPB in 45 days. In January 1997, the government issued the first ever composite guidelines for FIPB approval of foreign direct investment, which should improve the transparency of the approval process and continue the opening of previously protected sectors of the Indian economy.

India should be applauded for a number of the steps it has taken to liberalize and modernize its telecommunications sector, beginning the transition from protectionism and central planning to competition and market-driven development. However, it could have avoided many of the problems it has encountered had it established the TRAI at the inception of its modernization effort. The Indian experience demonstrates that regulatory processes must change first in order to instill confidence in the system, and an independent regulator provides the linchpin by serving as an impartial referee among all market participants -- especially enforcing interconnection obligations against the dominant state-owned providers. It also shows the need for long term commitment to the liberalization process, consistently applied, with vigilance to guard against those who would manipulate the process to their own financial benefit. India's experience with the wireline license tender demonstrates that the regulator must not only be independent, but also must appear independent to outside participants and observers.

Delays in implementing licensing for both cellular and basic service as well as the imposition of new rules, limits, and restrictions, particularly for basic services, have slowed progress and created an environment that is likely to inhibit rapid growth in India's telecommunications infrastructure. Irregularities tend to raise questions about the stability of the market, making long-term telecommunications planning and investment far less palatable for those who have opportunities to invest their energy and money elsewhere. The Indian experience demonstrates that transparent and publicly stated procedures and criteria enforced by an independent regulatory authority provide the cornerstone for development opportunities in the modern telecommunications environment.

At first blush, Chile may seem to have little to teach a potential reformer in the Russian Republic. In fact, however, the two countries share a number of important attributes. For example, Chile faces geographic challenges in constructing a modern telecommunications infrastructure. Thousands of kilometers separate the northern and southern extremities, and topographical features such as the Andes Mountains present additional challenges for nationwide telecommunications systems. In Chile as in Russia, alternative technologies will be used to leapfrog wireline networks to afford greater coverage and better service. There are countries with larger potential telecommunications markets, but Chile is the only country in Latin America -- and one of the few in the world -- with a completely liberalized telecommunications market which it managed to achieve after years of neglect under an authoritarian political regime.

Until 1970, Chile relied on private ownership and rate-of-return regulation to meet its telecommunications needs. This system could not keep up with demand for services. In the mid-1970s, the government became more involved in the telecommunications sector, and as in most other developing countries, acted as both a monopoly provider and a regulator. This sector was viewed as another type of utility in which monopoly could be presumed as the norm. In fact, at that time telecommunications fell within the ambit of the Electric Utilities Law as there was no section-specific law yet enacted. During this phase, the telecommunications sector grew even more slowly than before.

Beginning in 1982, Chile introduced a series of deregulatory reforms and a return to private ownership. Chile is now widely acknowledged as having the most liberal telecommunications sector and most technically advanced telecommunications networks in Latin America. The state retains no significant ownership of any telecommunications company, and new entrants including foreign-owned entities are encouraged to compete in the market. These accomplishments are the result of a fifteen year commitment to liberalizing regulation and upgrading infrastructure that has led to falling prices, expanded infrastructure, and improved quality of service. As a result of the liberalization process, Chile today has a modern telecommunications system and more telecommunications companies per capita than any other nation in the world.

Within the Ministry of Transportation and Telecommunications ("MTT"), which has responsibility for supervising and regulating all telecommunications services in Chile, the Office of the Undersecretary of Communications ("SUBTEL") is the primary authority for day-to-day supervision and regulation of the industry. SUBTEL is responsible for issuing franchises, licenses, and concessions for telecommunications services; establishing technical standards for equipment; supervising the country's service providers, including setting rates (where there is insufficient competition); and developing national and international telecommunications policy. SUBTEL also has sole authority in allocating radio frequency spectrum, and usually represents the Chilean government in international telecommunications affairs. SUBTEL, however, is neither financially nor administratively independent from the MTT.

The Chilean Congress passes laws on telecommunications matters, but the executive branch has sole responsibility for adopting regulations and, through SUBTEL, implements the policies embodied therein. Both SUBTEL and Congress regularly invite the telecommunications industry to comment on proposed regulations and legislation.

The Anti-Monopoly Commission ("AMC") also plays an important role in Chile's regulatory regime. Its general mandate is to foster competition in Chile's economy and to prevent monopoly abuse, and it is further authorized to issue legally-binding resolutions on a wide variety of subjects related to competition. The AMC also has telecommunications-specific responsibilities, including the obligation to determine periodically whether Chile's telecommunications markets are competitive. If AMC finds that a sector is not competitive, SUBTEL and the Ministry of the Economy set the tariffs based on formulas that remain in effect for five years.

Since 1982, Chile's General Telecommunications Law has permitted competition in all telecommunications markets. Competition did not emerge, however, until 1994 because of legal disputes between the dominant local and long distance carriers over market entry issues. In 1994, the Chilean legislature adopted Law 3A which significantly modified the country's General Telecommunications Law, most notably by introducing a multicarrier system for interexchange carriers, including mandatory rules for interconnection. Under the new law, providers of local telephone service are required to provide all interexchange carriers equal access to their networks and to provide customers the option to select the interexchange carrier of their choice each time they make a long distance call. Law 3A also authorized vertical integration of local and long distance telephony so long as the service is provided by separate, non-affiliated firms structured as open stock companies, which avoids the possibility of cross-subsidization. The new law also authorized resale of lines by competing carriers. The dominant or incumbent local and long distance carriers must publish their interconnection rates in El Diario Official. Subsequently, SUBTEL imposed the requirement that providers of local service must provide interconnection within three months of receiving a request.

Over the last several years, there has been discussion about replacing SUBTEL with a new agency, to be called the Superintendencia de Telecommunicaciones ("SUPERTEL"), that would be independent from the executive branch in a manner similar to the FCC in the United States. Those in favor of this step argue that creating an independent regulator separate from the Ministry would further reassure potential investors -- especially foreign investors -- that regulatory decisions will not be based on political considerations. However, SUBTEL has to date given investors little cause for concern, and thus the SUPERTEL movement had not yet proceeded beyond the discussion stage until recently. In November, the Minister announced that he would send a draft bill to the President by the end of the year that would allow creation of SUPERTEL.

The MTT, through SUBTEL, has responsibility for managing spectrum allocation issues. When spectrum availability limits the number of licenses available, SUBTEL makes allocation decisions through the use of public tenders. Competitive bids are evaluated based not only on monetary considerations, but also based on geographic coverage, time to market, and other public interest factors.

Chile has taken an innovative approach to universal service. Law 3A established the Telecommunications Development Fund, which is designed to further develop telephony in the rural and low income urban areas of Chile. The Fund, administered by SUBTEL, provides direct and transparent subsidies to companies that submit proposals to provide public payphone service in underserved areas. It is funded not by a system of cross-subsidies, but rather from general tax revenues.

SUBTEL allocates Fund resources through a competitive bidding process in which the winner is the company that proposes to achieve the goal using the least amount of public money. In order to prepare a prioritized list of subsidized projects to be carried out during the following year, SUBTEL consults with regional and local governmental entities until September of each year. Each project requires that a certain number of public payphones be installed in a given rural or low income area. The projects are technology neutral, and in fact encourage the use of alternatives to traditional wireline services. SUBTEL assigns a specific subsidy to each project and issues a public notice calling for technically qualified companies to submit bids for one or more projects. Bids are opened during a public meeting, and the bidder that proposes the lowest subsidy for each project wins. Companies can use proceeds from the Fund to subsidize between 25% to 33% of the initial investment cost of such projects. Although they do not receive any exclusive market rights for the areas they serve, winning companies are encouraged to enjoy a "multiplier" effect by using the network built for the subsidized project to provide non-subsidized services to residential and business subscribers as well.

In the first two years of the Fund's operations, only two companies -- CTC and Chilesat Telefonica Personal -- presented proposals for a share of the Fund. Nonetheless, the success of the Fund has exceeded SUBTEL's expectations, dramatically increasing payphone service in previously underserved areas and enabling a growing number of people previously bypassed by the telephone companies to become subscribers. In general, the bids for these projects required little subsidization, leaving most of the Fund available to help finance development projects for areas in which the private sector has not expressed an interest. Thus, while SUBTEL allocated a total of approximately U.S.$2.84 million from the Fund in 1995 and 1996, it anticipates that in 1997 alone it will allocate over U.S.$11 million to subsidize telecommunications development. The drive to increase market share has also led to substantial private investment to increase the number of lines available throughout Chile even outside of the subsidy process.

Chile was the first Latin American country to eliminate the state monopoly on telecommunications services and initiate privatization and competition. All of the telecommunications sectors -- the provision of telecommunications services, the construction of facilities, and the sale of terminal equipment -- are open to competition, and no company enjoys an exclusive franchise. It was not until the introduction of the multicarrier system in 1994, however, that the competitive environment allowed the Chilean market to reach its full potential.

The Chilean telecommunications market has historically been dominated by two firms, both of which were once state-owned monopolies that have since been almost completely privatized and had their markets opened to competition. Compania de Telefonos de Chile ("CTC") is the dominant provider of local telephone service in Santiago and the central part of the country, where it faces limited competition for local service from several carriers in some urban areas. Two smaller, private companies serve the southern part of the country. Telefonica de Espana, the Spanish telephone company, acquired a controlling interest in CTC from the government in 1987. This privatization accelerated the modernization of Chile's infrastructure, and the local telephone network is unique in that it is completely digitized, employing some of the most advanced equipment available anywhere in the world. Local service providers are currently engaged in a vigorous competition to capture new residential subscribers, offering free installation of a first or second line and even the free use of a telephone unit.

Empresa Nacional de Telecommunicaciones S.A. ("ENTEL") is the dominant provider of long distance and international services. It was created to provide long distance facilities to CTC and other local companies, and until very recently it remained a carrier's carrier as individual customers could not access it directly. Telefonica de Espana also once had a significant interest in ENTEL. In April 1992, however, the AMC ordered Telefonica to divest its holdings in either CTC or ENTEL because it found that these investments could undermine the emergence of competition in Chile's telecommunications markets. The AMC order was upheld in 1993 by Chile's Supreme Court. Forced to choose, Telefonica decided to divest its interest in ENTEL in order to retain control of the local services market. At present, Stet Societa Finanziaria Telefonica S.p.A, Italy's state-owned telephone company, Samsung, a South Korean manufacturer, and Chilquinta SA, a large Chilean electric utility, hold the most significant interests in ENTEL.

The Chilean telecommunications market is no longer segmented between local and long distance/international services. With the enactment of Law 3A, the Chilean government allowed CTC the right to compete with ENTEL in the long distance and international markets through a subsidiary company, enabling CTC to avoid ENTEL's access charges and high tariffs. A year later, the Chilean government issued a decree that permits subsidiaries of long distance carriers to compete in the local network, which is dominated by CTC. With the introduction of the multicarrier system for interexchange and international traffic, up to 12 carriers entered the market and engaged in a fierce price war. At the height of this price war, a call to the United States cost as little as U.S.$.02 per minute. Prices have since drifted back to settle at about 40% of what they had been before competition began. There are now eight long distance companies operating in Chile -- including a subsidiary of CTC, a subsidiary of BellSouth, a U.S. RBOC, and VTR, which is 40% owned by SBC, another RBOC -- and others are authorized to do so. ENTEL's market share, which had been nearly 100% prior to 1994, has declined to approximately 36% for international service and 41% for domestic long distance.

The result is a small, manageable, and fast-growing market with 100% digitized local telephone network -- not available even in the U.S. -- and a relatively free regulatory climate. Long distance and international phone rates are the cheapest in the world, having decreased by 50% from August 1994 to January 1996. Over that same period, long distance volume grew by more than one third, while international service more than doubled.

Since 1987, the country's telephone lines have increased from 6.7 phones per 100 inhabitants to 15 per 100 in November 1996. All of the providers of basic telephone service have embarked on long term investment plans designed to put more lines in service and expand areas of operation at a total cost estimated at U.S.$7.4 billion between 1997 and 2000. Taken together, these investment projects are expected to increase the number of phone lines by more than half, to nearly three million, over the next four years.

While the multicarrier system has undeniably spurred competition, it has not been without its problems. For example, a number of carriers have complained about the billing practices for long distance calls. Long distance carriers frequently are not paid in a timely manner because, while local providers include long distance charges on a single phone bill, they often finance or allow delayed payment. In addition, the large number of carriers and the ease of switching among them enables some customers to avoid paying for long distance service. SUBTEL is in the process of adopting regulations that would require that phone bills be paid in full each month and would enable long distance carriers to cut off services to non-paying customers.

Long distance and international telecommunications companies now pay CTC an access charge for traffic over its local networks. For some reason, however, CTC charges almost twice as much for inbound international traffic as it does for outgoing international traffic. This large discrepancy between incoming and outgoing international access charges has led foreign carriers to complain that the regime is unjustified and discriminatory.

Chile was also a pioneer in the area of wireless technology. In 1988, it was one of the first countries to introduce cellular technology. For licensing purposes, the country was divided into twelve service regions with concessions granted to two providers in each area. Until recently, there were four cellular firms operating in Chile. However, in June 1996, two providers -- CTC-Cellular (a subsidiary of CTC) and VTR Cellular -- announced a merger to form Startel, the only mobile service with a national network. After initially protesting the merger, the two remaining competitors -- Cidom Cellular (a subsidiary of BellSouth) and Telecom Chile negotiated a deal to provide a similar nationwide footprint. Cellular has became a popular alternative to complement deficiencies in the wireline network. Prices are not regulated, but have remained fairly low due to competition with other service providers and the desire to expand networks as quickly as possible. However, some providers still prefer the traditional mode of service. For example, VTR recently sold its interest in Startel to CTC, in order to concentrate its capital on the local wireline telephone business.

Chile has decided to introduce digital wireless PCS to increase competition in wireless services. SUBTEL has established that there will be up to three nationwide concessions awarded. Rather than a mandated standard, the specific technology for providing service is left to the operators, so long as it is digital. Where there is mutual exclusivity among competing applicants, SUBTEL will use public bidding to assign the available concessions. The four cellular providers managed to delay the bidding process for almost a year by seeking clarification of rules they claimed were not sufficiently transparent. Finally, eight companies submitted preliminary bids in November 1996. SUBTEL will assess the bids based primarily on three criteria: (1) time to market, (2) service pricing, and (3) geographic coverage. SUBTEL has also raised the possibility of barring cross ownership of cellular and PCS concessions, but has not yet reached a decision on that matter. There is no fee for the PCS license, but a winning bidder must provide a $55 million bond which will be refunded if the operator meets the roll-out date submitted in its winning proposal. Two subsidiaries of Entel (Entel PCS and Entel Movil) recently received licenses to offer PCS service using GSM technology.

One potential problem facing both existing cellular providers and PCS bidders was that under the existing system, in any call connecting a wireline customer and a wireless customer, the wireless customer always paid. SUBTEL recently adopted the so-called "calling party pays" rule, which imposes on the originating party the cost of a call using both wireless and wireline network facilities, and implementing regulations should go into effect by mid-1998. This may spur even faster growth in wireless services, since wireless customers should be less reluctant to give their phone numbers out to others.

Chile allows competitive provision of both domestic and international earth and space stations, subject to approval by SUBTEL. The number of concessions is limited only by the availability of spectrum. There are no regulatory distinctions between data and voice telephony services. Companies may access licensed private satellite operators directly, but ENTEL, Chile's INTELSAT signatory, is the sole gateway for INTELSAT services. Law 3A provides that all telecommunications service providers shall have access to the use of satellite systems under equal technical and economic conditions according to the terms of the concession permit.

In 1992 in an effort to finally end the feuding between CTC and ENTEL and promote fair competition, the AMC issued a series of controversial rules on interconnection. The Chilean legislature, which did not approve of the proposed rules, passed its own new and improved interconnection rules in Bill 3A. The establishment of these fair and pro-competitive interconnection rules proved to be the pivotal event in the development of Chilean telecommunications. Although the country had previously taken steps -- such as privatization, liberalized competition, and establishment of a semi-independent regulator -- intended to lead to a boom in the sector and attract international capital, the number of telephone lines had not significantly increased, prices had not come down, and international investors had not flocked to the market. However, with the introduction of fair and transparent interconnection rules making the entrance of new operators feasible and profitable, Chile achieved the fastest growing telecommunications sector in the world. Within six months there were six long distance operators, and in a year there were a dozen. Prices declined by half and the number of main lines increased dramatically.

Local service providers are required to interconnect with all new entrants. Interexchange carriers, however, are required to interconnect with new entrants only if they have a monopolistic geographic presence and as such are subject to regulated tariffs. Interconnection rates are currently deemed by the AMC to be monopolistic and are thus subject to tariffing. The procedures for setting rates are openly disclosed and are available from SUBTEL. The dominant or incumbent local and long distance carriers must publish their interconnection rates in El Diario Official.

There are virtually no restrictions on foreign investment in the telecommunications sector in Chile, with 100% foreign ownership of service providers and manufacturers allowed. Foreign companies may construct and operate their own networks and enjoy the same protections and operating conditions as do local firms. SUBTEL has no role in implementing foreign investment policies. Foreign investors generally register with the Foreign Investment Committee ("FIC"), which is responsible for authorizing foreign investments and expansions of more than U.S.$5 million. In addition, foreign direct investment in public service sectors -- including communications -- generally require approval no matter what the level of contribution. The FIC is part of the Ministry of the Economy, and the Minister acts as its chairman. Other committee members are the Ministers of Finance, External Affairs, and National Planning, as well as the minister of the sector in which the proposed investment will be made. The president of the Central Bank of Chile is also a member. The FIC very rarely turns down an investment proposal, and the approval process normally takes no more than a few months.

Under the WTO Agreement, Chile committed to market access and national treatment for long distance and international wireline and wireless services (including satellites), but did not make a similar commitment on local service. Thus, the regime actually in place today is more liberal than it is required to be under Chile's commitments to the WTO.

The Chilean experience offers a very vivid illustration of the power of market forces once unleashed by a system that imposes minimal regulation that is transparently applied, encourages competition among private firms in all sectors, and welcomes foreign investment and entry. Chile achieved this turnaround from an authoritarian regime in 15 years even though the rest of the world was not yet following the deregulatory, pro-competitive course. The interconnection regime of the multicarrier system was the real catalyst in this transformation.

The sequencing of telecom reform in Chile may provide a model to others. First, it created an effective and independent-minded regulator for the sector which inspired confidence that new entrants would have a fair arbiter in dealing with dominant incumbents. Second, it enacted pro-competitive laws that further encouraged and empowered new entrants. Finally, Chile enacted interconnection provisions that were sufficiently detailed and precise to be meaningful -- the final step in ensuring that seamless service for competing providers and their customers. And throughout the process, competition authorities (the AMC) played a key supporting role in development of the telecommunications industry. Chile's experience with its universal service program also demonstrates the role an effective government regulator can play in protecting the interests of those not adequately served, even by a dynamic market.