Sending a Clear Signal: A Case Study in Using International Treaties to Promote U.S. Telecommunications Policy

At the heart of the extensive discussion over the Trans-Pacific Partnership (“TPP”) agreement is the question, “How will this affect my business?” For American telecommunications companies, the TPP represents a codification of the regulatory principles that have been standard in the United States telecommunications market for almost a century. Much of the text of Chapter 13 of the TPP (which addresses trade in telecommunications services) can be seen as an effort to ensure that the telecommunications regulatory environments of trade partners are “up to par” with the competitive marketplace and transparent governance practices that are essentially status quo for U.S. companies. Because U.S. regulatory policy already permits foreign carriers to compete on a level playing field with domestic U.S. carriers, the net effect of the TPP’s telecommunications provisions will be to make market entry easier for U.S. companies wishing to seek out customers in other countries. Although related industries have raised concerns about TPP provisions related to data flows in the financial sector and intellectual property, for telecommunications companies scrutinizing the agreement, there does not appear to be a devil in these details.

Exporting U.S. Regulatory Philosophy

In the United States, competition is viewed as the primary regulator, with governmental entities such as the Federal Communications Commission (“FCC”) stepping in when there appears to be a risk that competitive forces cannot adequately protect the public interest. This pro-competitive “light touch” regulatory environment is common in many other developed telecommunications markets, but it is not universal. Chapter 13 of the TPP seeks to align the regulatory environments of party nations around this principle by affirming a basic set of transparent and open regulatory policies for all competitors, domestic and foreign. Specific measures that are included in Chapter 13 to achieve these goals include:

Independent Regulatory Body and Transparent Procedure. The TPP reiterates the governance best practice that telecommunications regulatory bodies should be separate from, and not accountable to, any supplier of public telecommunications services. (Art. 13.16) Although this is a basic assumption in the United States, the explicit separation of financial and management interest is a useful premise given that some parties to the TPP have a history of nationalized telecommunications.

In addition to maintaining separation between the regulator and telecommunications suppliers, the TPP also directs regulatory bodies to adopt notice and comment rulemaking and consultation procedures similar to the U.S. process under the Administrative Procedure Act. (Art. 13.22) These administrative law principles include codifying a dispute resolution process that will be familiar to U.S. companies, proceeding from administrative reconsideration by the regulator up to judicial review in the courts of the relevant country. (Art. 13.21)

Access to Public Telecommunications Services and Interconnection. At least one major carrier in a nation must offer interconnection to the nation’s voice and information infrastructure under nondiscriminatory terms. (Art. 13.11) This interconnection must be offered at nondiscriminatory rates, technical standards, and service quality. Similarly, at least one major carrier must offer its services for resale to resale providers. (Art. 13.9.1) These provisions together attempt to ensure foreign carriers can compete as new entrants in a market in both facilities-based services and the resale of telecommunications services.

Privacy and Security. Parties are authorized to impose requirements to ensure the security, confidentiality, and privacy of end users, as long as the rules do not have the effect of discriminating against foreign service providers. (Art. 13.4)

Spectrum. Because acquiring access to spectrum is a key prerequisite for any competitive entrant in the market for wireless services, the TPP requires transparency in the spectrum-access process for all parties. National regulators must allocate spectrum pursuant to a transparent process that considers the public interest, including the promotion of competition, which are the key principles in the FCC’s spectrum policy. Spectrum for terrestrial mobile wireless services should be assigned using market-based approaches (e.g., auctions) to assign spectrum. (Art. 13.19.4) National regulators must publish a list of the service allocations and the assignments of spectrum to specific suppliers (excluding government spectrum). (Art. 13.19.2)

Universal Service. A core mandate of U.S. regulation is the drive toward making telecommunications available to all people of the United States. This “universal service” objective is reflected in the TPP, which provides that each national regulator has the right to define universal service obligations that can apply to providers of telecommunications in their country. These requirements must be imposed in a competitively neutral manner so as not to be used as an anticompetitive tax burden on new entrants. (Art. 13.17) The TPP also requires that the universal service obligation be no more burdensome (or costly) than necessary to implement the universal service goals it has outlined.

Open Questions

Not all elements of the TPP are business as usual. Fortunately, these open questions do not appear to present a substantial business risk, although the U.S. telecommunications industry would do well to monitor their implementation.

Unbundling is Back. As part of its drive to remove barriers to fair competition between domestic incumbents and foreign entrants, the TPP provides that national regulators may require at least one major supplier in the country to provide access to its network elements, i.e., physical facilities such as copper phone lines and fiber-optic cables. (Art. 13.10) Note that the TPP does not mandate that regulators actually impose unbundling requirements, only that it be one of the tools available to the national regulator if it chooses.

As a pro-competitive tool, unbundling has a mixed history. In some countries, such as the United Kingdom, this policy has led to a multitude of competing telecommunications providers, many of which ride over the same physical infrastructure. Japan also adopted unbundling in 2000 to reduce the effect of a longstanding monopoly and saw increased competition, higher speeds, lower prices, and greater deployment. In the United States, unbundling was first adopted in 1996 and has recently begun to be phased out in order to allow companies to compete on the basis of their physical facilities, thus incentivizing the construction of more telecommunications infrastructure. Under the TPP, the FCC remains authorized to reinstitute unbundling if it believes that this will serve the public interest, but it is not obligated to, and is unlikely to do so.

The Committee on Telecommunications. A remaining point of concern for U.S. industry is the role of the proposed “Committee on Telecommunications,” which will “review and monitor the implementation and operation” of the provisions of Chapter 13. (Art. 13.26) Some industry observers view this with concern, suggesting that uncertainty in the jurisdiction and role of the Committee may drive up regulatory costs or create ambiguity in the rules applicable to U.S. companies. Such concerns are likely unfounded, however, because the text of the TPP explicitly provides that enforcement of its provisions and resolution of disputes will be the responsibility of the “competent authority” (i.e., national regulator) in each country. (Art. 13.20) For U.S. companies, this means access to the well-understood FCC process in the United States and perhaps—as a result of the TPP’s regulatory provisions—a slightly more familiar system outside the United States.