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December 17, 2012

Mr. Jonathan McHale,

Office of Services and Investment

ATTN: Section 1377 Comments

Office of the United States Trade Representative

1724 F Street, NW

Washington, DC 20508

VIA ELECTRONIC TRANSMISSION

Re: USTR Section 1377 Request for Comments Concerning Compliance with Telecommunications Trade

Agreements

Dear Mr. McHale:

The United States Council for International Business (USCIB) is pleased to have this opportunity to submit

comments on the operation and effectiveness of U.S. telecommunications trade agreements pursuant to Section

1377 of the Omnibus Trade and Competitiveness Act of 1998 (19 U.S. C. Section 3106).1 The effective

implementation of telecommunications trade agreements is of concern to all of our members.

USCIB has worked closely with the Office of the U.S. Trade Representative and others in the Executive Branch

on many U.S. trade initiatives addressing telecommunications, and we greatly appreciate your efforts on behalf

of U.S. industry. USCIB is unique in that it represents all facets of the telecommunications and information

services industry – including international carriers, long distance carriers, incumbent local exchange carriers,

competitive local exchange carriers, wireless carriers, broadband providers, Internet and value-added service

providers, satellite service providers and manufacturers, equipment manufacturers, software companies and

business users. The comments submitted herein represent common concerns in the effective implementation of

the World Trade Organization (“WTO Basic Telecoms”) Agreement, the GATS Telecommunications Annex

and the GATS schedule of commitments on value-added services, and other agreements regarding

telecommunications products and services of the United States.

USCIB submits comments on Canada, China, Colombia, El Salvador, Germany, Ghana, Guinea, India,

Indonesia, Jamaica, Mexico, Pakistan, South Africa, Thailand, Tonga, and Vietnam. Please note throughout the

importance that our members place on the establishment of a strong independent regulator with effective

enforcement powers.

The fact that many of the country-specific segments of our 1377 comments differ little in substance or emphasis

from last year’s submission seems to indicate a general trend – a relative ‘stand-still’ on several issues

1 Office of the United States Trade Representative, Request for Comments Concerning Compliance With

Telecommunications Trade Agreements, 77 Fed. Reg. 70527 (2012).

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impacting the telecom trade environment for U.S. companies’ overseas operations. USCIB encourages USTR to

use all available avenues to address these barriers.

We are particularly encouraged by the efforts of the partners in Trans-Pacific Partnership (TPP) to develop a

consensus on 21st century trade issues and commercial realities. USCIB strongly supports the Administration’s

efforts under the TPP to work with member economies to establish new and meaningful market access in their

national markets and establish mechanisms and to ensure enforcement of market access commitments.

CANADA

In 2012, Canada took important action to address the foreign ownership restrictions that have been a

longstanding concern for USCIB members. As USCIB has noted in its comments submitted in many prior

Section 1377 reviews, Canada’s Telecommunications Act, enacted in 1993, and the Canadian

Telecommunications Common Carrier Ownership and Control Regulations, which came into force in 1994,

established rules restricting foreign investment of facilities-based telecommunications service providers

operating in Canada to a maximum of 46.7% for all services, with exceptions for the ownership and operation of

international submarine cables or earth stations that provide telecommunications services via satellite. This

foreign ownership restriction prohibited U.S. and other foreign investors from controlling facilities-based

telecommunications carriers, preventing open competition and inhibiting innovation and price competition.

Canada has since changed the rules on foreign investment in Canadian telecommunications markets effective

June 30, 2012, and has set the stage for the country’s upcoming 700 MHz and 2500 MHz wireless spectrum

auctions, commencing in 2013.

The Telecommunications Act has been amended to remove current restrictions on foreign ownership or control

from all but the largest Canadian telecommunications carriers. The amendments permit non-Canadian-owned

entities to start up or acquire telecommunications carriers that control less than 10% of total Canadian

telecommunications services revenues, as determined by the Canadian Radio-television and

Telecommunications Commission (CRTC). The CRTC’s 2011 Communications Monitoring Report sets total

2010 telecommunications market revenues at CAD $41.7 billion. It is therefore presumed that this exemption

will likely apply to all Canadian carriers other than Bell Canada, TELUS Corp., and Rogers Communications

Inc.

Subject to the foregoing change, non-Canadians are barred from owning more than 20% of the voting shares of

a Canadian telecommunications carrier and 33 1/3% of the voting shares of a carrier’s parent company. Eighty

percent of the board of directors of a carrier must be resident Canadians, and arrangements non-Canadians have

with the carrier cannot constitute “control in fact” over the carrier, as determined by the CRTC and Industry

Canada.

The restrictions do not prevent non-Canadians from holding non-voting equity or debt in a carrier, provided the

control-in-fact test is met. These rules no longer apply to carriers under the 10% threshold described above. A

non-Canadian owned or controlled entity will be authorized to establish or to acquire a telecommunications

carrier business that is under this threshold. Qualifying businesses may therefore expand operations through

organic growth, mergers or acquisitions, until the carrier reaches the 10% market share threshold. Subsequently,

a carrier may continue to grow organically, but may not expand further through acquisitions of other Canadian

carriers, or through acquisitions of assets used by other Canadian carriers to provide telecom services.

The new laws do not change the Canadian ownership requirements for licensees under the Broadcasting Act.

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These restrictions, which are essentially the same as the current telecommunications ownership restrictions,

continue to apply to all broadcasting licensees, including telecommunications carriers that hold broadcasting

licenses. The new rules apply to both wireless and wireline telecommunications carriers.

In March-April, 2012, Industry Canada made a series of announcements related to the planned auction of

wireless spectrum in the 700 MHz band. The auction will generally harmonize with the U.S. 700 MHz band

plan to promote economies of scale in equipment development and to facilitate cross-border roaming and

frequency arrangements. The auctioned blocks of spectrum will be offered in Industry Canada’s 14 “Tier 2”

service areas across the country (i.e., most provinces comprise a single tier; Ontario and Quebec contain three

tiers each). Seven blocks will be auctioned in each tier, for a total of 98 licenses. Unlike the 2008 AWS

spectrum auction, there will be no set-aside of spectrum that can be bid on only by new market entrants. Instead,

there will be a spectrum cap (i.e., rules regarding the maximum amount of 700 MHz spectrum that can be held

by a licensee and its affiliates). The cap is also subject to affiliated and associated entity bidding rules in the

case of attractive blocks that appear to permit bidding strategy by incumbent large wireless service providers

(and HSPA network co-investors) Bell Canada and TELUS. Network rollout obligations will apply to all

licensees (by population coverage and time frame). The utility and effectiveness of the new rules on foreign

direct investment (FDI) in stimulating competition may be tested in the 2013 spectrum auction.

Vertical integration by the larger telecoms and cable operators over the 2010-2012 period has resulted in a

concentration of media and broadcast distribution assets in the hands of these same oligopoly

telecommunications providers (and principally, BCE Inc., parent of Bell Canada). While the CRTC has taken a

first step in blocking further concentration of media and broadcast ownership in the hands of these oligopolies,

the current concentration of media and telecommunications assets in the same hands may further delay

additional required removal or relaxation of foreign ownership restrictions in telecommunications (where

cultural content concerns endemic to Canada are irrelevant, and where Canadians continue to suffer from a non-

competitive market)

USCIB is also concerned that, notwithstanding these continuing restrictions on foreign-owned operators,

Canada now requires all telecommunications service providers meeting certain revenue requirements, including

foreign-owned operators, to pay telecommunications fees. Prior to 2010, fee requirements applied only to

operators filing tariffs with the CRTC (which do not include resellers). Canada has thus increased the

disproportionate burdens on foreign-owned operators by imposing additional costs while continuing to deny

them the benefits resulting from full facilities-ownership.

The experience of more than a decade since the WTO Agreement on Basic Telecommunications has

demonstrated that foreign ownership and control restrictions are generally unnecessary and stunt the growth of

the telecommunications sector. By contrast, competitive telecommunications markets and pro-competitive

telecommunications investment policies have been shown to foster broader economic growth.

Thus, while USCIB welcomes Canada’s decision to adopt this legislation exempting telecom companies with

less than 10 percent of total Canadian telecom market revenue from foreign ownership restrictions, we view this

as a as a first step. Canada demonstrates to other countries that retain foreign ownership restrictions that a

country that wishes to maintain FDI restrictions for an incumbent or other large operator still can take

significant steps to reduce inefficiencies and increase competition in its market by removing FDI restrictions for

smaller operators.2

2 Other countries also maintain foreign ownership restrictions in their telecom trade commitments impeding market entry, competition

and economic growth, including China, India, Indonesia, Korea (subject to implementation of revisions agreed in the Korea-US Free

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Nevertheless, the fact remains that the removal or further relaxation of Canada’s foreign investment restriction

for non-sovereign investors and operators would greatly increase telecommunications market entry and

investment in Canada, open broad access for Canadian carriers to international capital markets, and encourage

sustainable facilities-based competition in the Canadian telecommunications industry. We, therefore, once again

urge USTR to emphasize to the Canadian Government that the recommendations to remove these restrictions

should be implemented in full as soon as possible.

CHINA

Since its accession to the World Trade Organization (WTO) in 2001, China has conducted a comprehensive

reform of its services trade policy, which has opened key services sectors to foreign participation, improved its

policy predictability, and made China subject to the global WTO trade regime. Important progress has been

made in revising existing laws and passing new laws and regulations to open service sectors to foreign

competition. China’s decision to open its economy to foreign capital has benefited both China and its trading

partners. Over the years, China has experienced a remarkable period of rapid growth, shifting from a centrally-

planned to a market-based economy. This growth remained strong even during the global financial crisis in

2008. Nevertheless, China’s WTO compliance record in services is hurt by incomplete implementation of its

accession commitments and by remaining services trade barriers, including those in telecommunications. With

its accession, China promised to abide the WTO’s basic principles of non-discrimination, pro-trade, pro-

competition and so on. However, China’s narrow interpretation of value added services, high capitalization

requirements for basic telecommunications services, lack of an independent regulator, and restrictions that

specifically apply to the non-Chinese companies for provision of value-added services remain key outstanding

issues.

Market entry opportunities for U.S. telecommunications providers in China are limited by several factors,

including China’s overly narrow definition of value-added services (VAS) for value added network service

licensing in the Telecommunications Value-Added Services Catalog published by the Ministry of Industry and

Information Technology of the People’s Republic China (MIIT). Furthermore, this document has not been

revised since 2003, despite rapid advancements in technology as well as the mass market adoption of previously

‘high-tech’ products and services. China has adopted a conservative approach with the concept of basic versus

value added services since WTO accession, maintaining some very important value-added services in the highly

protected basic category. The narrowing of the scope for value added services is a counter-liberalization trend

inconsistent with China’s WTO commitments. Replacing these conservatively applied vertical service

classifications with more objective and transparent guidelines for Type I (facilities-based) and Type II (non-

facilities based) services would allow more foreign carriers to invest in China which eventually would stimulate

economic growth in the Chinese market. As long as the narrow VAS and basic classifications persist, we urge

the USG agencies to encourage China to take the following steps to remove barriers to the development of

value-added services in China:

Remove onerous, non-transparent licensing regime for value-added services, opening the market to any

company with competitive products and services in accordance with international norms, including

eliminating equity caps for foreign companies.

Trade Agreement), Malaysia, Mexico, South Africa, Thailand, Turkey, and Vietnam. USCIB urges USTR to use all potential

opportunities to press for the removal of these continuing telecom barriers to provide broad economic benefits to customers, service

providers, and carriers in all countries.

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Lift the prohibition on resale of the underlying telecommunications services used in the provision of

value-added services, thereby enabling both incumbent and new entrant carriers to acquire capacity at

wholesale rates and interconnect their networks to deliver services to a broader customer base.

In 2008, the Chinese government announced a reduction in the capitalization requirement for a basic service

license from 2 billion RMB (approximately US$291 million) to 1 billion RMB (US$145.9 million).3 While the

reduction in the capitalization requirement for a basic service license is a step in the right direction, China’s

requirement is still extremely high and continues to be a significant barrier to entry. The reduced capitalization

requirement is 100 times the capital requirement for value added service licensees, which is itself many times

the actual level of capital investment needed to build a national, non-facilities-based value added network. The

reduced capitalization requirement in basic services continues to be excessively burdensome and unjustified

restriction that violates the GATS. A narrowly tailored performance bond would be sufficient to address any

existing concerns. China should take additional steps to reduce the capitalization requirement to a reasonable

level, and can consider other monitoring methods such as a tailored performance review to determine an

enterprise’s qualifications to provide telecom services.

The requirement that a foreign company select a state-owned and licensed telecom company as a joint-venture

partner should be eliminated under the Basic Service license regime. This requirement is a significant market

access barrier. Incumbent licensees have only limited incentive to partner with foreign competitors. It is not an

ideal model for promoting competition to require foreign telecom service providers to partner with a company

that may also be a horizontal competitor of their joint venture. We urge the USG agencies to encourage China to

remove this provision and allow foreign companies to partner with any legally operating telecom entity they

find suitable.

The FDI restrictions of 49% and 50% respectively for a basic service license and VAS license also constitute a

significant market access barrier from an operational and economic perspective. The lack of operational control

by a foreign operator in a joint venture with ownership of 50% or less not only affects its ability to protect its

brand but also constitutes an impediment to achieving a service that is seamlessly integrated in the foreign

operator’s global network offerings.

China also has not implemented its WTO Reference Paper commitment to establish an independent regulator.

The Chinese Government still owns and controls all major operators in the telecommunications industry, and

the MIIT, which is a newly established industry regulator through a regulatory reform in 2008, still regulates the

sector, and the State-owned Assets and Supervision Administration directly controls the three major operators.

The regulatory reform in 2008 was however a good starting point only. USCIB encourages USTR to place a

high priority on working with China to establish an independent regulatory body that is separate from, and not

accountable to, any basic telecoms supplier, and that is capable of issuing impartial telecom decisions and rules.

Specifically, it is important that the regulatory body adopt the following: transparent procedures for drafting,

finalizing, implementing and applying regulations and decisions; appropriate measures, consistent with the

WTO Reference Paper to prevent dominant suppliers from engaging in, or continuing, anti-competitive

practices.

Since 1999, China has tried to promote network convergence between its telecom, Internet and broadcast

networks without success. Conflicts between the broadcast and cable television regulator, State Administration

of Radio, Film and Television (SARFT), and the telecom regulator, MIIT, have not been resolved despite

3 State Council, Decisions on Amending the Regulations for the Administration of Foreign-invested Telecommunications Enterprises

(FITEs), issued on September 10, 2008.

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guidance from the State Council under the Three-Network Convergence plan. We encourage China to explore

business models that merge resources between broadcasting and telecommunications and Internet networks that

create new markets and allow end-users to realize that network’s full potential. We recommend that China

create a converged ICT regulator merging the functions of SARFT and MIIT to eliminate and resolve the

disruptive conflicts that have occurred. We also encourage the converged regulator, or an entity of the State

Council, to formulate and publish a national blueprint for ICT and broadband development.

Further, finalizing and adopting the pending Telecom Law should be a top priority. USCIB commends the

Chinese government for releasing a draft of the Telecom Law for industry comment. The draft Telecom Law is

a significant step in establishing a legal framework for the telecom sector that would offer more certainty to

investors. However, USCIB recommends that the draft Telecom Law should go much further than codifying

existing rules. Specifically, China should update its law consistent with global norms by allowing unrestricted

foreign investment and a regulatory framework that will be flexible enough to adapt to technological advances

and changes in the market. In addition, it would be helpful to industry if the Telecom Law would clearly define

what constitutes the “competent telecommunications authorities” and the areas of policy responsibility with

respect to the telecommunications sector. The draft Telecom Law leaves many of the issues raised by industry

in the Section 1377 filings unanswered.

The Chinese government also imposes strict limitations on non-Chinese companies that wish to offer Voice over

Internet Protocol (VoIP) services in China. No non-Chinese company may offer any kind of VoIP service in

China, as VoIP requires a VAS license, which foreign companies may obtain only through a joint-venture

company. Connection to the public switched telephone network (PSTN) requires a basic service license.Only a

few small pilot VoIP projects -- involving the dominant Chinese telecom operators -- are allowed to offer

PSTN-interconnected VoIP services to Chinese consumers. USTR should urge the Chinese government to

remove restrictions in the efficient use of IP technologies, including voice applications and to allow China

telecom carriers to freely select 3G and 4G technologies based on their business interests, e.g. TD-LTE vs. LTE

FDD.

In addition, China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce

(MOFCOM) jointly issued a revised Catalogue for the Guidance of Foreign Investment Industries that places

some Internet services under the prohibited foreign investment industries category. More specifically, the

revised foreign investment catalogue indicates that foreign investment in “[n]ews websites, Internet-based video

and audio program services, Internet services establishments, and Internet cultural operations” is prohibited. At

this time, it is unclear to what extent the new classification of these Internet services will impact the ability of

foreign investors to offer Internet services in China. What is clear is that these policies create additional barriers

to market entry in the telecom sector and discourage foreign investment.

COLOMBIA

Over the past decade, Colombia has demonstrated policy leadership at the telecommunications Ministry and

Regulator, in establishing policies to advance investment in the market for the benefit of end users. In so doing,

Colombia also has grown as an influential regional policy-making leader, often being early in the Americas

region to adopt new pro-growth policies. Because of the sound policy framework, Colombia has grown steadily

as an important trading partner with the United States.

Given this strong record of policy formulation, a recent regulatory decision raises uncharacteristic concern with

Colombia’s telecom policy and its impact on trade commitments. In early 2013, the Colombian government is

scheduled to auction highly desirable 1.7 GHz spectrum for use by providers of 4G mobile wireless services.

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Current auction rules would permit only the two government-invested carriers to bid for this spectrum, while

excluding Colombia’s wholly foreign-owned mobile provider.4 The precedent and impact of this restriction are

of concern for two reasons. First, the restriction would discriminate against wholly foreign-owned service

suppliers and favor government-invested market participants, despite prior trade and investment commitments

to the contrary.5 Second, it would deprive an important market competitor and its customers of access to the

spectrum they need in order to handle accelerating demand for high-bandwidth mobile broadband services. And

it would do so even where the total spectrum held by any one carrier would not exceed the per-carrier spectrum

caps established to avoid undue control over scarce resources. In short, the government is poised to favor the

market participants in which it has a substantial ownership interest and penalize another foreign-owned

company for having succeeded in winning consumer business. This policy decision is cause for concern and

would create a bad precedent for other U.S. trading partners.

EL SALVADOR

In 2008, El Salvador increased international termination rates by approximately 100 percent by imposing a $US

0.04 per minute tax on those calls to fund domestic social programs. The tax is paid by domestic operators in El

Salvador that receive inbound international traffic and is passed through to U.S. and other non-El Salvador

carriers sending traffic to that country in the form of higher termination rates. The El Salvador legislation

imposing this tax, Decreto No. 651, expressly seeks to shift the funding costs for these domestic social programs

away from domestic end users in that country and to impose these costs on U.S. and other foreign consumers.

The introductory paragraph to the legislation states: “Charges for interconnection services for inbound calls

from outside the country are paid for outside the country and therefore have no impact on the cost of calls made

by domestic end-users because these charges are not made part of the domestic charges.”

The impact of this tax has been severe. According to FCC data, in 2008, the United States sent 959,600,176

minutes of traffic to El Salvador.6 In 2010, however, the number of minutes dropped to only 411,062,438, a

decline of 57%.7 Additionally, payouts to El Salvador’s carriers declined by 38%, from $85,325,664 in 2008 to

$52,639,767 in 2010.

The tax violates El Salvador’s international trade commitments under both the WTO and CAFTA agreements.

First, because El Salvador does not apply the tax to calls from other Central American countries, the tax violates

El Salvador’s Most-Favored-Nation (MFN) obligations under Article 2 of the GATS. Second, Section 2.2 of El

Salvador’s WTO Reference Paper commitment is titled “”[i]nterconnection to be ensured” and states that, with

respect to commercial telecommunications services, “[i]nterconnection with a major supplier will be” provided

at “cost-oriented rates.” Since there is no relationship between the domestic social programs funded by the tax

4 The wholly foreign-owned competitor is Claro Colombia, which is owned by América Móvil (in which AT&T is a 10% shareholder).

The other two competitors are Movistar Colombia, in which the Government of Colombia owns approximately 38%, and Tigo

Colombia, in which two Colombian State-owned enterprises own approximately 49%. 5 For instance, the U.S. – Colombia Trade Promotion Agreement contains both non-discrimination provisions and specific provisions

related to government investments. See, e.g., U.S.-Colombia TPA, Art. 14.7.2 (“Each Party shall ensure that the decisions and

procedures of its telecommunications regulatory body are impartial with respect to all interested persons. To this end, each Party shall

ensure that any financial interest that it holds in a supplier of public telecommunications services does not influence the decisions and

procedures of its telecommunications regulatory body.”); U.S.-Colombia TPA, Art. 14.7.3 (“No Party may accord more favorable

treatment to a supplier of public telecommunications services or to a supplier of information services than that accorded to a like

supplier of another Party on the basis that the supplier receiving more favorable treatment is owned, wholly or in part, by the central

level of government of the Party.”). 6 See FCC International Traffic Report for 2008 , Table A1.

7 See FCC International Traffic Report for 2010 , Table A1. In contrast, total U.S. outbound international traffic declined by only 17%

between 2008 and 2010.

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and the costs of interconnection services provided to cross-border suppliers, the new tax fails to be cost-

oriented.8 Accordingly, by imposing this tax, El Salvador is preventing its major supplier carrier, CTE, from

charging cost-oriented rates for inbound international calls, and fails to comply with its WTO commitment

under the Reference Paper that, for the types of international service covered by Section 2.2, interconnection

with its major supplier at cost-oriented rates is “to be ensured.”

Third, Section 5 of the WTO Annex on Telecommunications requires El Salvador to “ensure that any service

supplier of any other member is accorded access to any use of public telecommunications transport networks

and services on reasonable and non-discriminatory terms and conditions.” The increased rates for access to

public telecommunications transport networks in El Salvador resulting from the new tax are also contrary to the

WTO Annex on Telecommun-ications. The WTO Dispute Settlement Body has found that “access to and use of

public telecommunications transport networks and services on ‘reasonable’ terms includes questions of pricing

of that access and use.”9 The tax has increased international termination rates by approximately 100 percent

without any demonstration of increased costs. These increased rates fail to provide the reasonable terms for

access and use required by the Annex.

The tax also violates similar requirements of the CAFTA entered into by the United States, El Salvador, Costa

Rica Guatemala, Honduras, Nicaragua, and the Dominican Republic. Article 13.4 (5)(a) of the CAFTA requires

the provision of wireline interconnection services with major supplier carriers at cost-oriented rates. Further,

Article 13.2 (1) of the CAFTA requires that “enterprises of another Party have access to and use of any public

telecommunications service . . . on reasonable and non-discriminatory terms and conditions.”

USTR has raised concerns regarding the consistency of this tax with El Salvador’s commitments under the

GATS and CAFTA agreements in the 2012 Section 1377 Review as well as in several prior reviews. USCIB

encourages USTR to continue to press El Salvador to comply with its WTO and CAFTA commitments by

removing this tax immediately.

GERMANY

Germany remains a difficult market for new entrants. USCIB urges USTR to continue to urge Germany to

comply with its WTO commitments.

The absence of an independent and effective regulator has had a negative impact on the development of

competition. The German Federal Network Agency, BNetzA, continues to be subject to inappropriate political

pressure. The German Government still holds a direct and indirect ownership interest of 31.7% in Deutsche

Telekom AG (“DTAG”), the incumbent.

Under German law, BNetzA itself is a subordinated authority of the Federal Ministry of Economics. Although

the decisions of its ruling chambers cannot be overruled by the Ministry, BNetzA remains bound by the

Ministry’s directives. It should be noted that other agencies, such as the Federal Competition Authority (FCO),

are not bound by direction from the Ministry. Thus, market players under the oversight of the FCO are able to

enjoy the competitive benefits of a more independent and effective regulator.

In addition, we are concerned that the lack of opportunities for U.S. companies to participate in the majority of

proceedings that could have a direct and substantial impact on their business plans. Due to the Administrative

8WTO, El Salvador, Schedule of Specific Commitments, Supplement 1, GATS/SC/29/Suppl.1, Apr. 11, 1997.

9 WTO, Mexico – Measures Affecting Telecommunications Services, WT/DS204/R, Apr. 2, 2004, ¶ 7.333

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Court’s rules of procedure, with the exception of last year's interim proceedings on mobile termination rates, competitors have little or no opportunity to participate as third parties in the court’s proceedings, and therefore

have no opportunity to closely follow regulatory developments in court. In contrast, DTAG always is a party to

the cases and can therefore influence decision making at the court level.

Furthermore, BNetzA’s decisions must be made in a timelier manner to eliminate market uncertainty. The

German Telecommunications Act requires cases on the abuse of market dominance to be decided within four

months from the commencement of proceedings. BNetzA, however, has exceeded this time frame in numerous

instances (e.g., two years for market analysis reviews and more than 4 months for administrative proceedings).

This delay could be longer, given that all major decisions are appealed by the incumbent. USTR should continue

to monitor BNetzA’s progress in this area and encourage BNetzA to make its methodology clear and consistent

and improve the (electronic) publication of its reasoning.

GHANA

Ghana enacted legislation on December 31, 2009 requiring network operators to charge a minimum rate of

US$0.19 per minute for all incoming international electronic communication traffic.10

U.S. carriers had

previously negotiated rates below US$0.07 for termination on fixed networks and below US$0.14 for

termination on mobile networks.

Ghana has attempted to justify the $0.19 rate as being necessary to curb fraud and the use of “grey market”

termination. However, commentators have noted that the measure is more likely to encourage the increased use

of alternative routes. FCC data also demonstrate that reductions in international termination rates have

stimulated huge increases in inbound and outbound international calling to and from Ghana, all providing

significant benefits to the consumers in the U.S. and Ghana who make and receive those calls, and to carriers in

Ghana through increased termination payments.

In 1997, the year before Ghana’s WTO basic telecom commitments became effective, U.S. carriers paid carriers

in Ghana an average per minute termination rate of $0.39, resulting in 50,269,789 minutes of U.S.-Ghana

calling and total payments to carriers in Ghana of $19,638,574.11

In 2009, more than ten years after Ghana’s

WTO commitments became effective, U.S. carriers paid carriers in Ghana an average per minute termination

rate of $0.12, resulting in 325,582,418 minutes of U.S.-Ghana calling and total payments to carriers in Ghana of

$39,298,038.12

Thus, the 69% reduction in the level of Ghana’s termination rate between 1997 and 2009

resulted in an approximate 550% increase in call volumes from the U.S. to Ghana and an approximate 100%

increase in U.S. termination payments to carriers in Ghana.

Similarly, lower termination rates have significantly increased call volumes to the U.S. from Ghana, while also

reducing payments by carriers in Ghana. The FCC International Traffic reports show that between 1997 and

2009, per minute termination rates paid by carriers in Ghana to U.S. carriers were reduced by approximately

90% to $0.054, resulting in a more than 535% increase in Ghana-U.S. calling from 5,240,219 minutes in 1997

10

Electronic Communications (Amendment) Act, 2009, Act 786, December 31, 2009 Network operators that charge a lower rate are

subject to a penalty of “twice the difference between the specified rate and the rate actually charged.”. Id., Sect. 1 (2). The statute

requires that 32 percent of this required interconnection rate is “kept by the Authority.” Additionally, a portion of the increased rate

reportedly is paid to a third party entity providing call monitoring services to the Ghanaian government. See Ghana Business News,

June 2, 2010, Vodafone raises Red Flag Over calls Monitoring by Foreign Company,

http://www.ghanabusinessnews.com/2010/06/02/vodafone-raises-red-flag-over-calls-monitoring-by-foreign-company/ 11

See FCC International Traffic Report for 1997, Table A1. 12

See FCC International Traffic Report for 2009, Table A1.

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to 33,234,907 minutes in 2009.13

At the same time, termination payments by Ghanaian carriers to U.S. carriers

were reduced from $2,620,511 in 1997 to $1,799,684 in 2009.

The Ghana rate increase, like the El Salvador tax described above, has drastically impacted U.S.-outbound

calling volumes to Ghana. FCC data show that U.S. carriers sent only 185,677,422 minutes to Ghana in 2010, a

reduction of 43% from 2009 volumes.14

Additionally, U.S. carrier payouts to Ghana’s carriers declined by 30%

between 2009 and 2010, from $39,298,038 to $27,316,048.15

At the same time, however, call volumes from

Ghana to the U.S. from Ghana have continued to increase, from 33,234,907 minutes in 2009 to 41,361,381

minutes in 2010.16

Ghana’s measure raising negotiated rates not only adversely impacts U.S. calling volumes to Ghana benefiting

consumers at both ends of this route but, as USTR has noted in prior Section 1377 reports, is also contrary to

this country’s WTO commitments under the Annex on Telecommunications. This requires the provision of

access to telecommunications networks and services in Ghana on reasonable terms and conditions. This measure

also is contrary to commitments under the WTO Reference Paper requiring, for the types of international

services covered by Section 2.2, the provision of interconnection services with major supplier carriers at cost-

oriented rates.17

The new tax has increased rates for termination on fixed networks by more than 200% and rates

for termination on mobile networks by approximately 50%, without any demonstration of increased costs. These

increased rates fail to provide the reasonable terms for access and use required by the Annex or, as applicable,

the cost-oriented rates required by Ghana’s Reference Paper commitment.

GUINEA

The government of Guinea ordered national carriers to increase the mobile and fixed international termination

rate to $0.28 per minute in 2009. Prior to this rate increase, the termination rates negotiated with the Guinean

carriers covered a wide range, with prices at the high end significantly lower than the $0.28 per minute. The

new rate has no relationship to the underlying cost of providing the service and discriminates against

international carriers terminating traffic in Guinea. Non-cost oriented rate increases to international termination

rates by foreign governments to fund national projects harm U.S. consumers. The negative impact is magnified

when the rate increases are significant and the revenues generated are directed at projects that are not related to

universal service and lack transparency.

Guinea is a member of the WTO with commitments under the Annex on Telecommunications requiring the

provision of access to telecommunications networks and services in Guinea on reasonable terms and conditions.

Section 5 of the WTO Annex on Telecommunications requires Guinea to “ensure that any service supplier of

any other member is accorded access to any use of public telecommunications transport networks and services

on reasonable and non-discriminatory terms and conditions.” Guinea’s significant rate increase on inbound

international calls does not qualify as a reasonable term or condition and therefore fails to comply with these

requirements. The WTO Dispute Settlement Body has found that “access to and use of public

telecommunications transport networks and services on ‘reasonable’ terms includes questions of pricing of that

access and use.”18

The rate increase has increased international termination rates significantly without any

13

See FCC International Traffic Reports for 1997 & 2008. 14

See FCC International Traffic Report for 2010, Table A1. In contrast, total U.S. outbound international traffic declined by only 14%

between 2009 and 2010. 15

See FCC International Traffic Reports for 2009 & 2010. 16

Id. 17

WTO, Ghana, Schedule of Specific Commitments, Supplement 1, GATS/SC/35/Suppl.1, Apr. 11, 1997. 18

WTO, Mexico – Measures Affecting Telecommunications Services, WT/DS204/R, Apr. 2, 2004, ¶ 7.333

11

demonstration of increased costs. These increased rates fail to provide the reasonable terms for access and use

required by the Annex.

Guinea should not be allowed to burden international carriers and their customers by requiring them to finance

domestic programs unrelated to telecommunications services and their underlying cost.

INDIA

India has made great strides in opening its telecom market to competition by liberalizing the FDI cap from 49%

to 74% in 2007. USCIB urges USTR to commend India for these pro-competitive reforms. The additional

competition in India’s telecom markets resulting from these far-sighted measures will benefit Indian businesses

and consumers and the economy as a whole by ensuring lower prices, new and innovative products and services

and expanded customer choice. Indeed, telecom has become one of the major catalysts in India’s growth story.

Continuing this trend, India’s regulator, the TRAI, should be recognized for taking important steps in 2012 to

reduce access and collocation charges at India’s submarine cable landing stations, as described below.

However, since the Indian Government took this very positive step five years ago, there has been only minimal

further positive reform initiated. In some respects, India has even taken backward steps in relation to foreign

entrants and their ability to operate competitively in the local Indian telecommunications environment. USCIB

members are of the view that India now needs to be strongly encouraged to continue along the path it started in

the year 2007 by removing barriers that inhibit the growth of foreign investment in India. USTR therefore

should continue to urge India to develop, implement, and enforce laws and regulations that provide new,

foreign-owned entrants the assurance that they can compete on a fair and equitable basis in India.

As India has finalized and released its 2012 National Telecom Policy (NTP-2012) and will soon be

implementing the various objectives mentioned in the policy, it becomes ever more important to keep

encouraging the Indian government to support further market liberalization and remove remaining market

access barriers. Delhi must be urged to continue its efforts to provide legal and regulatory certainty both in the

development of a body of clear and consistent laws and regulations, and in the transparent and equitable

application and enforcement of those laws and regulations. In order for India to fully obtain the benefits of

telecommunications services, it is important that regulatory changes be promulgated through a clear and

systematic consultative process with all stakeholders, consistent with India’s democratic tradition and

international best practices.

(1) Preferential Market Access Policy (PMA) and Policy for Preference to Domestically Manufactured Telecom

Products in Procurement Due to Security Considerations

One area in which the Indian Government has regressed is in the development of the draft Telecommunications

Gazette notification for the “Policy for preference to domestically manufactured telecom products in

procurement, due to security considerations – Notifying Telecom Products due to security consideration in

furtherance of the Policy” (the Draft Notification). This was circulated by the Department of

Telecommunications (DoT) for stakeholder comment in late October 2012 in the form of a draft notification. It

is still under discussion with the industry.

As background, on February 10, 2012, the Ministry of Communications and Information Technology (MCIT)

issued a final notification imposing local content requirements for electronic procurements. This new

“Preferential Market Access” (PMA) policy mandates domestic preferences “in procurement of those electronic

12

products which have security implications for the country and in Government procurement….” (emphasis

added)

In other words, the new rules apply to ICT procurements for both the government and private sector entities in

certain sectors, including telecommunications. The notification itself specifically identifies “Managed Service

Providers” as falling under the scope of the new requirement, as well as “Telecom Licensee[s]”, which is cited

in the policy’s Annex. Draft implementation regulations, published in April and July respectively, confirm the

application of the mandate to private sector procurements. Specifically, Section 4.5 of the July guidelines state

that “It shall be mandatory for all organizations, public or private, procuring electronic products notified under

this clause to provide preference to domestically manufactured electronic products in terms of the policy.”

The Draft Notification, issued on October 30, goes beyond the implementation of the PMA policy by extending

the PMA policy for all private sector procurements by telecom companies. Government of India officials have

confirmed that other Departments will soon be issuing similar guidelines applying these local content

requirements to sectors including banking and financial services and utilities. Imposing these requirements on

private sector entities represents an unprecedented interference in the operations of private sector companies and

calls into question India’s WTO commitments, including Article III of the General Agreement on Tariffs and

Trade.

We are deeply concerned about the Draft Notification. PMA notification should not be mandated in the private

sector. Instead the same should be left open to market forces to embrace domestic procurement depending upon

the technological/innovation development in country.

Telecom Service Providers (TSP) are neither manufacturers nor suppliers of the telecom products, but is the

user of the telecom products being manufactured by the vendors. Therefore, TSPs are not somehow responsible

for ensuring indigenization of domestic telecom manufacturing and hence they should not be held responsible

for adhering to the policy on PMA. There should not be any case for imposition of penalty on failure to achieve

stipulated PMA percentages.

This is quite concerning from the perspective of global telecom operators who need consistent standards for

operating their networks. The procurements in such cases do not happen to be country specific. If there is a

requirement as mentioned in the draft, wherein there is a need to use one set of equipment procurement in each

country we operate, this will significantly hamper our ability to have a maintainable and operable network.

In order to have sound network security it is imperative to deploy the same set of equipment all across and apply

consistent policies and security updates. The equipments are tested, certified, and specific provisioning

guidelines applied in order to put the equipment in production. Monitoring, maintenance, and management is

much easier since the operations teams at the global networks are well trained on the equipment that is proposed

to be deployed. Deploying separate equipment specifically for a country (for e.g. India) may perhaps defeat the

purpose and probably weaken or make the network security more vulnerable due to various issues including

interoperability/compatibility.

The government must encourage Indian manufacturer/vendors to develop telecom equipments to ensure

conformance to global telecom standards to meet the ever-evolving technological innovations and suit the

requirement of Indian Service Providers. If the products of same quality/technology and at same prices are

available domestically by indigenous manufacturer, TSPs would happily buy the products from them as per the

government’s intent. However, the same should not be mandated and left to market forces.

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DoT’s amendments to the license agreement dated 31st May, 2011 have already mandated to comply with the

conditions relating to equipment/network security and their certification. These are quite exhaustive and have

placed the entire onus on service providers to take care of their network security. So any further obligation via

compulsory PMA levels are not required to be mandated as the TSPs are already certifying for 100 % security

of their networks. Therefore the issue of security needs to be delinked with PMA. We are equally concerned

with the statements made under clause 3.4 of the draft notification which seems to suggest that May 31, 2011

amendment does not addresses the network/equipment security requirement adequately.

In this regard, it is also worth mentioning that DoT in its letter dated December 2, 2011 has clarified that even a

smallest element of the network can cause the biggest harm to the entire network so that other elements that

have security implications should be tested and certified. Under such stringent license conditions, TSPs cannot

deploy any product in the network if it is not certified by the certification agency. Therefore, no further security

concerns can be attributed to the network of TSP’s. Hence imposing PMA to private telecom service providers

is unnecessary. More so if the above clarification is true, then the significance and basis of selecting the 24

items listed in the draft may perhaps needs to be explained We understand that DoT is clarifying that only these

24 items need to be certified and that the draft notification once finalized will replace the December 2, 2011

clarifications (in terms of specifying equipments). Industry needs clarification that this is the correct assessment.

The clause 4.3 of the draft notification relates to the penalty provisions on default if any, to reflect their

obligations to procure domestically manufactured telecom products. As penalty clauses are already there in the

May 31, 2011 amendments, this clause should not be in the Draft Notification. More so as requested in the point

above, TSPs are users of the equipment and buy equipment from vendor partners. So it is not appropriate to

penalize TSPs when they do not control the level and quality of manufacturing.

We would request that the US Government address this matter in a similar manner to that used to address the

transition to IPv6. The transition to IPv6 has been left to market forces instead of a mandate. In addition, IPv4

and IPv6 have been allowed to continue in parallel. It is also stated that a lot of private operators have

implemented a Government solution on monitoring related to Internet services. It is a clear fact that no one is

opposed to Government intent, but the implementation should be left to market forces and not mandated.

USCIB therefore urges USTR to press the Government of India to suspend implementation of the PMA

Mandate for private sector procurements, and specifically the October 30th

Department of Telecommunications

Draft Guidelines. Use of Indian equipment in the telecom networks should not be regulated or mandated, but

determined by market forces. This mandate constitutes unprecedented interference in the private sector and

would severely undercut the business models of international ICT competitors and reduce the competitiveness

of India’s own ICT sector. Moreover, this policy carries with it the potential for a contagion effect, encouraging

other governments to implement similar, restrictive policies.

(2) National Telecom Policy (NTP-2012)

While the USTR can certainly congratulate the Indian Government on completing the NTP-2012, there are also

some concerns to be raised. NTP-2012 establishes some laudatory goals. It recognizes the importance and role

of Enterprise Data Services, cloud computing, and M2M in significantly speeding up the design and roll-out of

services and stresses the importance of formulating appropriate policies to fuel the growth of the ICT sector in

India.

However, how the government intends to achieve some of these goals, particularly with respect to promoting

local manufacturing through trade-restrictive preference programs and through its security policies with respect

14

to ICT equipment are concerning. It cannot be emphasized enough that the direction the implementation of these

policy goals takes could severely undermine the ability of foreign entrants to operate efficiently and effectively

in the Indian market – as it could inhibit any ability to manage a network on a global basis. Once efficiencies are

lost on the global scale, service quality, delivery and costs effectiveness will be negatively impacted, not just in

India, but in whatever markets service providers operate.

Specifically, in order to fully harness the power of cloud computing, India will need to undertake a review of

existing laws, especially as they relate to data privacy, data security, and standards, that takes into account

industry recommendations and international best practices. USTR should counsel India to enact privacy

regulations that foster the cross-border flow of data, so that these technologies can be offered at globally

competitive prices in India. Light touch, minimal regulation will be necessary to facilitate cloud services.

Similarly, as India considers the formation of a Unified License regime under its draft National Telecom Policy,

USTR should recommend that the Indian government ensure that the migration path for existing licensees does

not create any undue burdens or discriminatory conditions or discourage the growth of broadband services in

India. USTR should encourage TRAI to undertake a public consultation to determine the finer details of the

Unified Licensing Agreement, including fee structure, before finalizing the new license framework as well as

the terms of migration to the new regime by existing licensees. It will be important to take into consideration the

licenses held by existing license holders and how they will be treated if they do not currently hold all of the

licenses being considered for consolidation under the Unified License regime or wish to continue only with their

current line of service provisioning.

(3) Telecommunications Network Security

USCIB’s members are grateful for the significant improvements that are reflected in the May 31, 2011

amendment to the telecommunications service provider licenses, and we urge USTR to recognize the Indian

government’s efforts in this regard. We believe the intent of these revised regulations is to create a more flexible

approach that is more consistent with global practice and the realities of the market. The removal of the

mandatory technology transfer requirements, the mandatory 3rd party escrow requirements, and the mandatory

contractual terms represented a much-needed step forward in improving the regulatory approach to improving

the security of India’s telecommunications networks in line with global best practices and standards.

While the revised license amendment represents an important improvement, we would draw USTR’s attention

to the fact that certain elements of the revised regulations are concerning due to their deviation from global

practice, while others require clarification to understand how they will be implemented to ensure that these do

not become barriers or have unintended consequences. Of primary concern to USCIB’s telecom service provider

members is the expected implementation of mandatory in-country security assurance testing beginning April 1,

2013. As this deadline is fast approaching, with potentially significant consequences for the flow of investment

and construction of infrastructure in India, we urge USTR to suggest that the Indian government to examine

these issues carefully and establish close consultation with industry stakeholders to find a practical and flexible

approach.

USTR should emphasize to the Indian government that there is no evidence that the geography of development

or testing of a product corresponds with the level of security assurance provided by the product. Thus, the

government’s insistence on having products tested locally will not provide greater security assurance.

Furthermore, USTR should underscore with the Indian government that this requirement is broadly impractical

and inconsistent with globally-accepted standards. For example, India’s Department of Information Technology

Department for Standards, Technology, and Quality Certification acknowledges the mutual recognition

15

provisions of the CCRA in its Common Criteria Portal for India. USTR should emphasize that there are

longstanding internationally accredited/recognized laboratories conducting testing in this area, and that the

location where the testing is performed, in accordance with global best practice, has no bearing on the accuracy

of the test in question, as long as the laboratory has achieved the appropriate certification.

USTR should ask the Indian government to allow private sector entities, such as telecom service providers

(TSPs), to determine which of their vendors’ products require formal testing and certification and to decide how

to most effectively procure certified products. USCIB recommends that USTR ask the Indian government to

allow the TSPs this flexibility under the revised license amendments. While in some cases, it may be desirable

for a vendor to test its product in a laboratory located in India, USTR should highlight that such testing may be

unnecessary and impractical in those cases where the same product is already being tested and a security

certificate obtained from an internationally accredited laboratory. Providing flexibility in terms of where

products are tested is critical for maintaining a trusted global market for ICT products.

USTR should urge the Government of India to continue to work closely with all stakeholders, including global

telecommunications service providers and equipment vendors to ensure that implementation of the

telecommunications security provisions do not undermine the ability of service providers to deploy the best and

most appropriate security tools and practices, nor create obligations outside of global norms that inhibit

commerce and the expansion of India’s telecommunications networks. To this end, USTR should commend the

work of the Telecommunications Security Council of India, which allows government and industry to exchange

information, develop best practices, and effectively manage emerging security risks.

(4) Submarine Cable Landing Stations (CLS) Access & Collocation Charges

A significant positive development in 2012 has been the decisions by the TRAI to issue two consultation papers

on access facilitation and collocation charges at submarine cable landing stations in India and to amend its

regulations to provide for the determination of these charges by the TRAI.19

The current CLS access charges

were established in Reference Interconnect Offers (RIOs) approved by TRAI in October 2007. These charges

were based on the then prevailing utilization of international capacity and cost elements at the respective CLS.

Since that time, there has been a major increase in capacity utilization on submarine cable systems. With the

entry of so many new players in the ILD segment either accessing their own cable capacity in cable consortiums

or leasing from other international long-distance operators (ILDOs,) the charges for access to cable landing

stations in India are high compared to charges in other countries. There is therefore an urgent need to reduce

existing CLS access facilitation charges to reflect market-based levels.

In its most recent consultation paper, the TRAI proposes a methodology to reduce these charges to more

reasonable and cost-based levels that is supported by virtually all parties that have filed comments in the TRAI

proceeding on this issue other than the two largest cable station operators. As requested by most parties in this

proceeding, USCIB urges USTR to press TRAI to amend its proposed methodology to ensure that these charges

do not include costs for equipment that is not required for most access arrangements, and to officially publish

the new revised fees as soon as the consultation process with industry is complete.

Importantly, however, USTR also should applaud TRAI for recognizing that access barriers to these facilities

19

See TRAI, Consultation Paper No. 08/2012 on Access Facilitation Charges and Co-location Charges at Cable Landing Stations,

Mar. 22, 2012; Consultation paper No. 14/2012 on Estimation of Access Facilitation Charges and Co-location Charges at Cable

Landing Stations, Oct. 19, 2012; & Notification, International Telecommunication Access to Essential Facilities at Cable Landing

Stations, (Amendment) Regulations, 2012 (No. 21 of 2012), Oct. 19, 2012.

16

can constrain the competitiveness of telecom operators and harm the growth of the international telecom market

and for taking these important steps in 2012 to remedy this situation.

(5) Other NTP Policy Issues

There is a need for consistency between the proposed Unified License regime proposal (ULR) and the

objectives of the NTP-2012. Industry has participated and provided detailed responses to the “Guidelines for

Unified License/Class License and Migration of Existing Licenses,” as issued by TRAI on 10th

February 2012.

The following areas are of concern under this proposed unified license regime:

(a) Proposed Entry Fees for Different Categories of Licenses

TRAI has recommended that there should be a one-time, substantial and non-refundable entry fees for different

categories of Unified Licenses under the proposed Unified Licensing regime. This proposal will pose major

financial problems for existing, standalone, vertically non-integrated operators who only have NLD/ILD and

ISP licenses and have already paid the stipulated entry fee when securing licenses. While it is important to have

an entry fee to deter non-serious players, it is equally important to ensure that the existing service providers

(who plan to ensure the status quo) are not disadvantaged. There will also be licensees who, post migration,

would like to maintain the status quo by offering only existing services without choosing to offer any

additional/new services from the portfolio of services available under ULR. Upon migration, the stipulated entry

fee for such licensees should not be imposed. There should be at best a very nominal processing charge to cover

the administrative effort required to migrate after fully considering the entry fee already paid for existing

licensees. The entry fee should be paid by new telecom entrants.

Therefore-:

a) No Entry fee for existing operators who wish to renew as Unified License post expiration of their current

licenses.

b) No Entry fee for existing operators who wish to migrate to the ULR and maintain the status quo.

c) New service providers (those who will be acquiring a telecom license for the first time) to be charged

entry fee as determined by DoT.

(b) Convergence of Service/Networks/Devices

USCIB notes that the proposed technology neutral approach under the ULR framework has been qualified with

specific restrictions on PSTN and VoIP/IP Telephony networks in general and more specifically extending to

the Closed User Group (CUG) environment.

“5.1 (d) “Unified Licensee is permitted to provide leased circuit within its licence area. Interconnection with

PSTN/PLMN/Internet Telephony Network is not permitted with leased circuits/CUGs.” (Emphasis Supplied)

The concerns stem from TRAI’s recommendations dated 16th

April 2012:

“2.32 Regarding restriction on the interconnectivity between public network / PSTN and leased circuits

/CUGs, the Authority is of the opinion that in view of the security requirements and to prevent the possibility of

carriage of international traffic through leased circuits, the present restrictions proposed in the guidelines are

required.”

17

This move would impact the transition towards achieving the stated objectives of convergence of

networks/services/devices as stated in the National Telecom Policy 2012. To realize the true potential of

converged services, network and devices; and to achieve the stated objectives for convergence, the present

restrictions and barriers between different PSTN/IP/CUG-PSTN networks should be removed under the Unified

License to ensure seamless interconnection.

(c) ILD and NLD Licensing

USTR should highlight that India’s international long distance (ILD), national long distance (NLD), and

Internet (ISP) services licenses have not been modified to appropriately reflect policy considerations for the next

generation of services (e.g. enterprise data services) and service providers, and that certain aspects of India’s

ILD and NLD licensing processes and procedures continue to impose barriers that impede carriers’ ability to

fully operationalize these licenses. As presently written, many of the regulations cover policy concerns solely

appropriate for mass market consumer voice telephony and have not been updated to reflect enterprise data and

IP services, or the considerations of business enterprise customers. USTR should note that the Draft National

Telecommunications Policy currently under consideration in India would require a review of the current

licensing structure (and that DoT has undertaken some work already in this area) and encourage DoT to

continue to engage stakeholders as this effort proceeds.

USTR should note that the scope of resale authority by licensed facilities-based operators is still unclear – as are

the processes, timelines and criteria for processing of clearance and approvals under both the ILD and NLD

licensing regimes and emphasize to the Indian government that this lack of clarity stands to undermine the

competitive reforms made thus far by both TRAI and DoT. USTR should commend DoT and TRAI for forming

a senior level committee to examine these issues, and urge this committee to work diligently with industry to

devise guidelines that achieve the twin objectives of affordability and competition in the sector. Similarly,

USTR should support proposal under the Draft National Telecommunications Policy to facilitate resale at the

service level – both wholesale and retail for voice.

USTR should recommend that India undertake a reform of its current carrier license terms and conditions to

address the needs of data services providers. USTR should urge DoT to refer this issue to TRAI to initiate a

consultation paper to review ILD and NLD licenses.

(d) Remote Access

USCIB would like to highlight for USTR that its global enterprise service provider members continue to be

concerned over the Indian government’s continuous modification of ILD/NLD and ISP licensing terms and

conditions to impose of additional restrictions on their ability to remotely access and manage their networks.

These modifications adversely affect all global service providers offering international connectivity and cross-

border services, including cloud, in India. Global service providers serving multi-national corporations and

Indian multi-site office locations require the ability to conduct remote access management of networks in India

from centralized Global Network Operations Centers (GNOCs) outside India (e.g., in the U.S.).

In April 2009, DoT reversed its current interpretation of licensing terms and conditions relating to remote access

(RA) in two areas -- disallowing 24-hours/7 days-a-week access and prohibiting customer provisioning for

global accounts using remote access. This impacted various pending RA approvals for ISPs and also new RA

approvals under the ILD/NLD licenses. Subsequently, global service providers reached an agreement with DoT

and India’s security agencies for a clarification in this regard. Since that time, DOT’s Carrier Services Cell

18

(which handles NLD and ILD licenses) has steadfastly followed the existing policy and given ready clearances

for RA approvals, including 24x7 usage and RA applications for customer/network provisioning.

However, the DOT’s Data Services Cell (which handles ISP licenses) has refused to give approval on the

customer/network provisioning aspect of RA so far, in spite of the fact that the security and FDI conditions

relating to RA are exactly the same in all three licenses – NLD, ILD and ISP – and have been incorporated word

by word from the FDI guidelines, according to Press Note 3 of 2007. Presently, the Data Services Cell continues

to hold-up RA applications that include a provisioning functionality, either via an outright denial of applications

or, when approved, via a delay anywhere from 6-months to a year.

We recognize that DoT took steps by forming a committee made up of representatives from the Ministry of

Home Affairs (MHA), DoT and ACTO to develop uniform RA compliance requirements. We understand that

the committee had some meetings to discuss and finalize the compliance requirements wherein the group

members presented and deliberated various suggestions. The Industry has submitted the draft uniform

requirements to DoT for further deliberations with MHA. We understand that DoT is now discussing these

uniform requirements with MHA, and that DoT would issue a revised uniform compliance requirement and

grant the approvals on the pending RA applications.

However, we are concerned that pending finalization of the uniform compliance requirements, the approval of

recent RA applications have been delayed, severely affecting the expansion plans of companies and further

jeopardizing investment in India.

The approvals and applications of the companies who have filed under the existing RA policy have been kept in

abeyance, in some cases for the last 2 years, and have been linked to the finalization of these requirements. This

has significantly hampered the ability of our members to fully operationalize their licenses and needs to be

resolved at the earliest possible time:

i. The applications have been filed under the existing RA policy prescribed under Press Note 3 of

2007, and which have been part of all telecom licenses. Any additional compliance requirements

currently being deliberated are outside the purview of existing RA policy. When the policy is

changed, the applications will be made and dealt with in accordance with the revised policy. At this

time, the same RA policy which was enunciated in 2007 and subsequently formed part of all the

telecom licenses prevails.

ii. We understand that the mandate of the Committee was to discuss and arrive at uniform RA

compliance requirements. We do not believe that the group has the authority to put the RA

applications and corresponding approvals on hold until the finalization of draft requirements. Our

members continue to comply with the existing RA policy. It is not appropriate for their approvals to

be held up by a process that has seen little to no progress for years now.

iii. Our member companies have made significant investments in India and have long term growth

plans. The refusal to grant RA approvals impedes companies’ ability to implement these plans. Our

member companies will continue to work with the government to identify and help address any

concerns based on a logical approach that balances technological and commercial feasibility.

19

The security of networks is of utmost importance to all our members, and we stand fully committed to

collaborate and work with the Indian Government on how best to address the RA requirements in a manner

acceptable to all.

(6) Foreign Ownership Restrictions

USTR should commend the Government of India on its increase of its foreign direct investment (FDI) limitation

to 74%. However, in order to further maximize the investment potential in the telecommunications sector,

USTR must urge India to eliminate the FDI limit and permit 100% foreign direct investment in

telecommunications services. This will provide a significant increase in foreign investment that can be used to

expand infrastructure deployment, speed the development and adoption of new technologies, introduce new

competition and promote multilateral R&D collaboration.

Moreover, in light of convergence, we encourage the Government of India to rationalize FDI caps across all of

the different communications infrastructures, including cable and satellite/DTH.

In this regard, USCIB welcomes the recent recommendation of the Deepak Parekh Panel on infrastructure

funding, which has been mandated by the Indian government to review existing policies and suggest necessary

changes in the investment framework, particularly in a high-priority infrastructure sector such as telecom. It has

recommended 100% FDI in the telecom sector, linking it to the need for increased private investment. It has

recommended removing regulatory uncertainties and creating a more predictable investment environment in the

telecom sector. USTR should encourage the Indian government to leverage these recommendations and engage

with the Planning Commission in view of the fact that these recommendations would have an impact on future

investment avenues which are being considered for investment projections for the 12th five-year plan.

(7) Rationalization of Taxes

Clause 12.3 of NTP-12 states” To rationalize taxes, duties and levies affecting the sector and work towards

providing a stable fiscal regime to stimulate investments and making services more affordable.”

The Indian telecom sector continues to grapple with multiple levies. The present taxation structure in telecom

services sector needs to be made simpler by rationalizing taxes. The taxes and levies paid by the Indian telecom

sector are the highest when compared to other economies. Presently, the sector is paying multiple levies to the

Government. In this scenario, rationalization of the existing taxes is of utmost importance, which would help

various players to maintain their competitiveness. The Government should be urged to consider rationalizing

levies for applicable to the telecom sector.

(8) IP-Enabled Services

USTR should applaud the path-breaking TRAI recommendations of August 2008 to liberalize internet telephony

and encourage DOT to reconsider the benefits of liberalizing VoIP. Currently, India’s regulations only permit

VoIP within closed user groups – VoIP users are not permitted to connect to the PSTN within India. USTR

should emphasize with the Government of India that these restrictions on VoIP have a negative impact on trade

and investment and create a barrier to cross-border service deployment. Use of VoIP significantly reduces costs

while offering important technical benefits for BPO services, an important industry in India. VoIP is also an

engine of growth for other parts of the communications sector.

20

(9) Annual License Fees

USCIB also urges India to take a closer look at the methodology it currently uses to calculate the annual license

fees for both ILD and NLD operators to ensure that India’s license fee regime does not frustrate the goals of

promoting competition, creating a level playing field among all service providers, and reducing the sales price

of services to consumers.

Under the current methodology, license fees for ILD and NLD operators are based on revenues from both

licensed and unlicensed activities, which make the calculation of such fees unnecessarily burdensome.

In addition, we believe that the license fee should not operate as a multi-stage and cumulative assessment. The

fact that input costs (such as charges for interconnection or local loops which themselves already reflect the

license fee) are not deductible from the adjusted gross revenue on which the license fee is calculated, results in

the double assessment of license fees in some cases. Whereas facilities-based operators using their own

networks need only pay the license fee once, wholesale inputs that operators such as ILDOs, NLDOs, MVNOs

and potentially ISPs buy from other operators as part of their own infrastructure-based service offerings are

subject to the license fee twice – once when they are sold from the first network owner to the second operator,

and then again when the second operator sells them to the end user. The same applies to operators who

interconnect to facilities-based operators’ facilities. As a consequence of levying a license fee at every point in

the supply chain, a telecom operator who buys wholesale inputs from other licensed operators is placed at a

competitive disadvantage with those who do not need to buy these inputs.

To avoid this double assessment, India could clarify that such license fees apply only to revenues from retail

sales transactions where the service is provided to an end user. Intermediate or wholesale transactions where the

purchaser is another carrier would not be counted. In this instance, revenues of a telecom operator from services

sold as inputs to another carrier would not be subject to a license fee. Since the service fee charged by the first

telecom operator would not need to recover any license fee, all operators would be able to compete on a true

level playing field. There is an opportunity for removing the existing anomaly under the licensing regime given

the fact that DoT is in the process of finalizing the Unified Licensing regime, and we suggest that USTR should

impress upon the Indian government the importance of seriously considering this long-standing request.

(10) Encryption

Companies support the freedom of business and consumers in India to use strong encryption to protect their

corporate and personal information. Strong encryption uses robust encryption algorithms. The freedom to use

strong encryption is a global standard for securing information online, such as confidential business

information, financial information, online transactions and internal government communications, from intrusion

by hackers, thieves, competitors and other wrongdoers. Strong encryption also enables India’s rapidly growing

IT and business processing industries, which rely on strong encryption to secure their global clients’

confidential information.

We continue to note that India’s encryption standards have not been updated in India’s telecom regulations to

appropriately reflect the needs of next generation data and IP services providers or the considerations of their

business enterprise customers.

Citing the needs for Law Enforcement Agencies (LEAs) of the Government to have access to unencrypted data

for security purposes, the Government of India is contemplating an interpretation of Section 84(a) of its 2008 IT

Act Amendments that would require providers to provide LEAs with either plain text translations of the data

21

that traverses their networks or access to encryption keys as a condition on the use of 128-bit encryption levels.

According to best practices in some countries, e.g., Australia and the U.S., however, providers are obligated to

provide LEA with an encryption key or plain text for data that they encrypt themselves.

ISPs should not be responsible for decrypting or ensuring the government’s ability to decrypt any

communication encrypted by a subscriber or customer, unless the encryption was provided by the ISP and the

ISP possesses the information necessary to decrypt the communication.

For these reasons, U.S. telecom companies have urged India to modify its encryption policies to resolve these

inconsistencies and to protect the freedom to use strong encryption online.

We welcome the steps initiated by DOT to convene an industry consultation to address and identify possible

technical solutions for interception and monitoring of encrypted communications. USCIB hopes that USTR will

continue to encourage DOT and India’s national security agencies to follow policies that are consistent with

commonly-accepted or best practices, and to continue its ongoing partnership and dialogue with industry on this

matter, so a technically-feasible and practical solution can be devised.

USTR should draw the attention of the Indian government to the NTP-2012 announcement, which rightfully

recognizes the need to adopt best practices to address the issues (like encryption, privacy, network security, law

enforcement assistance, inter-operability, preservation of cross-border data flows etc.) related to cloud services,

M2M and other emerging technologies, and to promote a global market for India. USTR should urge the Indian

government to formulate and release the much awaited encryption policy on which industry inputs and

suggestions have already been provided, especially on issues related to interception and monitoring of encrypted

communications.

We look forward to the final encryption policy, which we believe will be in line with industry stakeholder input.

Industry associations and their members have been working with the Department of Information Technology

(DIT) for the last several years, and have contributed meaningfully by sharing not only international best

practices but also bringing in international experts on encryption for face-to-face meetings with the government.

We look forward to being of further assistance if it will be helpful, and learning of the results of this

committee’s efforts.

(11) Resale of International Bandwidth

We understand that the DOT accepted the recommendations of TRAI to permit the resale of international

private leased circuits (IPLCs) in India. Guidelines and license conditions were issued by DOT on 24 September

2008.

Whereas we applaud the efforts of India to promote competition by allowing non-facilities based operators to

resell IPLs pursuant to a Reseller License, we are concerned about its application.

It would appear that ILDOs wishing to resell IPLCs of other ILDOs are equally required to obtain an IPCL

Reseller License. If the intent of opening up the IPLC reseller market (like any other reseller market of telecom

services) is to promote competition in the sector, India should ensure that the IPLC reseller licensing

requirements are only applicable to entities without a facilities-based license (i.e. non-ILDOs) wishing to resell

IPLCs. In other words ILDOs are properly licensed facilities based operators. The license conditions under the

IPLC reseller license do not go beyond those which ILDOs are already subject to under their current ILD

license. The sole apparent purpose of requiring ILDOs to obtain a reseller license is to subject the ILDOs to a

22

further entry fee for the reseller license which is in the same amount as that for an ILD license.

We continue to encourage India to instill further competition in all segments of the telecoms market by creating

a reseller’s licensing regime for all services (not only for IPLCs under the IPLC reseller license or for mobile

services currently contemplated under the MVNO consultation paper). However in the meantime India should

clarify that duly licensed facilities-based operators are allowed to resell under their existing licenses.

INDONESIA

Indonesia imposes local content requirements in the telecom sector that are not consistent with this country’s

WTO obligations and is currently considering further such requirements. The Indonesian Ministry for

Communications and Information Technology issued two decrees, a wireless broadband decree and a

telecommunications decree, that place restrictive local content requirements and sourcing requirements on

service providers.

The “wireless broadband decree” requires local content of 30 to 50 percent in the wireless broadband sector.

The “telecommunications decree” requires all service operators to spend 35 percent of their capital expenditures

on domestically manufactured equipment. Currently, at least 40 percent of the equipment must be locally

sourced, but within the next five years it is expected to increase to 50 percent. These provisions are reiterated in

Article 6 of the 2011 decree on the use of the 2.3 GHz Radio Frequency Band (19/PER/M.KOMINFO/09/2011).

These restrictions do not appear consistent with Indonesia’s obligations under the WTO Agreement on Trade-

Related Investment measures and may also raise concerns under Article III of the General Agreement on Tariffs

and Trade (GATT). USCIB supports the actions taken by USTR in conjunction with the European Union to

raise these concerns in the WTO Committee on Trade-Related Investment Measures and urges USTR to

continue to press Indonesia to remove these restrictions.20

Another important development is the Indonesian government’s issuance of Government Regulation No. 82 of

2012 on Electronic System and Transaction Operation (“GR 82/2012”), which was stipulated on October 12,

2012 and enacted on October 15, 2012. This Decree creates significant barriers to e-commerce for US firms.

In particular, Article 17 of GR 82/2012 requires an Electronic System Operator (“ESO”) for public services to

place a data center and disaster recovery center in Indonesia for the purpose of upholding justice, safeguarding,

and upholding state sovereignty towards its citizen’s data. While the term “public services” is not defined in the

bill, it is defined elsewhere in Public Services Law (Law No. 25 of 2009), despite that this is not clearly

mentioned in GR 82/2012. A public services provider can be in the form of a corporation (i.e., company);

however, that company must be considered carrying out “public services.” The Public Services Law provides

various categories of public services activities, which are all carried out for the benefit of the public and not

solely for commercial purposes. Importantly, the government is also reviewing the definition to expand it to

include all services provided in Indonesia.

A local data center requirement would prevent providers from leveraging the economies of scale from existing

data centers and discourage future investment in Indonesia. Furthermore, such a requirement inhibits the global

data flows that are essential to e-Transactions. In practice, the increased costs that necessarily accompany a

local data center mandate could diminish incentives to offer services in Indonesia.

20

See WTO, Committee on Trade-Related Investment Measures, Communication from the European Communities and the United

States, G/TRIMS/W/61, May 8, 2009.

23

Other aspects of GR 82/2012 erect significant barriers to entry, including disclosure of encryption used in

providing e-services and providing the encryption key to the government.

Indonesia’s Trade Ministry released a draft Trade Bill, which in its present state, lacks sufficient clarity and

detail and could potentially give a legal basis for barriers to trade not compliant with Indonesia’s international

trade commitments, especially the General Agreement on Tariffs and Trade 1994 (GATT). In particular, USCIB

has concerns about lack of equal treatment for imported and domestic goods; potential restrictions or

prohibitions on trade in goods; licensing, standardization and use of the Indonesian National Standard (SNI)

over international standards; and provisions permitting protection of the domestic industry. Use of the draft

Trade Bill in sectors such as telecommunications where development and production of equipment and services

are global in nature may hinder Indonesia’s national competitiveness.

Finally, Indonesian regulators have allocated spectrum in a non-internationally harmonized manner to benefit

domestic manufacturers. This calls into question Indonesia’s commitment to technology neutrality under the

TBT Agreement. Recently, Indonesian regulators have relaxed such rules associated with the 2360 – 2390 MHz

band ((19/PER/M.KOMINFO/09/2011).

JAMAICA

Jamaica maintains a discriminatory and unreasonably burdensome “universal service” levy introduced in June

2005 to fund broadband Internet access for schools and libraries in Jamaica. The levy of $0.03 cents per minute

for fixed-terminated calls and $0.075 cents per minute for mobile-terminated calls applies only to international-

inbound traffic terminating in Jamaica. Notably, the regulator increased the mobile termination rate for inbound

international calls from US$0.02 to US$0.075 in July 2012, so the situation has only worsened. Additionally,

the levy is no longer earmarked for the Universal Access Fund, but is being used to as government revenues to

cover general expenses.

Because this levy does not apply to international-outbound calling from Jamaica or to domestic calling within

Jamaica, it imposes the entire burden of subsidizing this Jamaican universal service program and general

governmental expenses on U.S. and other non-Jamaican carriers and their customers. In announcing this levy,

Jamaica’s Minister of Commerce, Science and Technology “emphasized that the levy would not be a charge on

the Jamaican consumer, as it would only be applied to incoming international calls.”21

The WTO Reference

Paper states that universal service “obligations will not be regarded as anti-competitive per se, provided they are

administered in a transparent, non-discriminatory, and competitively-neutral manner and are not more

burdensome than necessary for the kind of universal service defined by the Member.”22

The FCC has noted that

“universal service obligations that are levied disproportionately on foreign-originated calls clearly violate these

principles.”23

Since 2006, USTR has expressed its concerns in its Section 1377 Reviews that Jamaica is funding this program

on the basis of fees on foreign operators and regarding the lack of transparency in the program to determine the

need for this large surcharge.24

Jamaica should adopt a more equitable and transparent approach to funding its

21

Government of Jamaica, Ministry of Commerce, Science and Technology, News Stories, Government Imposes Levy on Incoming

International Calls, http://www.mct.gov.jm/call_levy.htm. 22

WTO, Jamaica – Schedule of Specific Commitments Supplement 1, at 10. 23

International Settlement Rates, 12 FCC Rcd. 19,806, ¶ 87 (1997). See also, id., ¶ 148 (“We disagree with commenters

who argue that foreign carriers are entitled to require that universal service requirements be financed disproportionately

through settlements revenues. . . . [W]e believe that universal subsidies must be nondiscriminatory and transparent”). 24

See, e.g., Results of the 2009 Section 1377 Review of Telecommunications Trade Agreements at pp. 5-9.

24

universal service program that collects such funds from a broader base of users (i.e., not exclusively foreign

operators) to ensure that the program does not adversely affect access to the Jamaican market nor constitute a

program that is more burdensome than necessary to achieve Jamaica’s program goals.

USCIB notes that Haiti this year instituted a similar price floor and “surcharge” on incoming ILD to fund

education. This confirms the concerns outlined by USTR in last year’s report of an emerging “troubling trend

whereby some foreign operators are increasing termination rates due to measures implemented by their

governments.” In light of this, USCIB urges USTR to step up its advocacy against such practices, lest other

countries follow suit. In the past, USTR has recommended that the surcharge should be eliminated in its present

form and that Jamaica should find a means to fund the program in a more equitable manner. USCIB urges

USTR to continue press Jamaica to adopt this approach.

MEXICO

Mexico continues to maintain a ceiling of 49% on foreign direct investment in wireline carriers authorized to

own and operate basic telecommunications facilities. This restriction constitutes a major impediment for foreign

carriers interested in entering and investing in the market. There have been reports of interest among

government officials in eliminating this prohibition on foreign participation in the Mexican market, but there

has been no material progress in the legislature. USCIB urges USTR to explore all avenues for encouraging the

Government of Mexico to address this market access barrier as soon as possible.

Mexican regulations also impose unduly onerous limitations on non-Mexican companies that wish to offer

Voice over Internet Protocol (VoIP) services in Mexico. Connection to the public switched telephone network

(PSTN) requires a basic telecom concession in Mexico, and, as stated above, such an authorization has a 49%

foreign direct investment limit. Because Mexican regulation makes no regulatory distinction between traditional

voice and VoIP, the foreign ownership restriction has a significant harmful impact on service competition.

COFETEL’s authority has recently been strengthened, but further reforms would be useful. In May 2011, the

Mexico Supreme Court approved a resolution that bars federal judges from suspending the effects of rulings by

the country's telecommunications regulator while they are being challenged in court. This has had the notable

effect that COFETEL's decisions regarding interconnection rates remain effective even if they are appealed.

However, interconnection rates are one of the few areas over which COFETEL has direct regulatory authority.

COFETEL's authority over other matters, such as the imposition of sanctions when telecommunications

operators violate the telecommunications law or fail to comply with regulatory obligations is limited to only

issuing recommendations to the Ministry of Communications and Transportation (SCT). Upon receipt of

COFETEL's recommendations, the SCT has the sole authority to implement or reject the sanctions. In addition,

COFETEL does not have the power to issue licenses or concessions, but again, only issue its recommendations.

Because of overlapping responsibilities between COFETEL and the SCT, delays have occurred in obtaining

licenses. For example, although the law states that licenses should be issued within 120 days, this has rarely

occurred.

Mexico’s government continues to limit significantly the provision of pay-television (i.e., cable) services. In the

United States and most other countries, fixed-line telecommunications carriers can offer “triple-play” services

(voice, television, and Internet), and that competition has led to lower prices, more consumer options, increased

investment, and greater broadband adoption. In Mexico, because of a long-standing regulatory dispute unrelated

to the video service market, the government refuses to authorize Mexico’s largest fixed-line telecommunications

carrier (América Móvil) to provide pay-television services. This line-of-business restriction insulates Mexico’s

cable providers from competition and has contributed to Mexico’s low pay-TV penetration rates: only 40.5

25

percent of Mexican households have pay-TV, compared to 50 percent for all of Latin America.25

The restrictions on the Mexican pay-TV market hurt U.S. equipment manufacturers, software developers, and

content providers that sell goods and services to Mexican pay-TV providers or their customers. U.S. companies

that supply goods and services in those sectors would benefit from increased competition, as new competitors

purchase inputs from these U.S.-based suppliers. In addition, permitting the leading fixed-line carrier to enter

the pay-TV market would encourage massive facilities upgrades needed to transmit high-quality video

programming in competition with cable providers. As illustrated by experience in other markets that have

fostered video competition, those upgrades to the core and access networks would simultaneously support faster

broadband Internet speeds as well. This would benefit the global Internet community in general and U.S.-based

content and applications providers in particular.

PAKISTAN

Pakistan has acted contrary to its WTO commitments by raising termination rates to unreasonably high levels.

On August 13, 2012, Pakistan’s Ministry of Information Technology (“MIT”) issued a directive supporting an

“International Clearing House” (“ICH”) agreement under which fourteen Pakistani carriers assigned to the

Pakistan Telecommunications Company Limited (“PTCL”), the incumbent carrier, the exclusive right to

terminate inbound international calls in Pakistan at the “approved settlement rate” of the Pakistani

Telecommunications Authority (“PTA”). The Competition Commission of Pakistan sent a policy note to the

PTA and the MIT on August 28, 2012 warning that the ICH plan was an illegal price fixing and market

allocation agreement and therefore contrary to Pakistan’s Competition Act. Nonetheless, on October 1, 2012, as

a result of the ICH agreement, U.S. termination rates to Pakistan were increased from approximately US$ 0.02

per minute to US$ 0.088 per minute,

Pakistan is a member of the WTO with commitments under the Annex on Telecommunications requiring, under

section 5, the provision of access to telecommunications networks and services in Pakistan on reasonable terms

and conditions. The WTO Dispute Settlement Body has found that “access to and use of public telecommun-

ications transport networks and services on ‘reasonable’ terms includes questions of pricing of that access and

use.”26

Pakistan’s 400% rate increase on inbound international calls without any demonstration of increased

costs fails to provide the reasonable terms for access and use required by the Annex.

SOUTH AFRICA

Although a second national network operator in South Africa’s PSTN market is operational and licenses that

allow for operators to self-provision telecommunications infrastructure have been issued, Telkom SA Limited

remains dominant. The value-added network services industry remains of the view that Telkom continues to

abuse its dominance through margin squeezes in horizontal participation and competition with its wholesale

market. To this extent, various complaints have been lodged and are under investigation at the South African

Competition Commission. However, some of these complaints were lodged as far back as 2002, and the

investigation has not yet been finalized.

Furthermore, the authority of the independent regulator, the Independent Communications Authority of South

Africa (ICASA), has not been particularly effective. Its authority has been limited through a cumbersome dual

jurisdictional structure with the Department of Communications (DOC), and the Government’s mistrust of

25

http://www.lamac.org/america-latina-ingles/publications/investigation/half-of-the-population-in-latin-america-has-access-to-pay-tv 26

WTO, Mexico – Measures Affecting Telecommunications Services, WT/DS204/R, Apr. 2, 2004, ¶ 7.333

26

ICASA’s independence has resulted in efforts to control it. The DOC itself has a structural conflict of interest as

both the policy-maker for the sector and the custodian of the state’s considerable shareholding in Telkom. As a

result, policy in the sector has unfolded in fits and starts, marked by many controversial incidents and abrupt

reversals of strategy, including the cancellation of some ICASA regulations by the Minister.”27

Additionally, a proceeding worth noting is the Discussion Document on Ownership and Control that ICASA

released in November 2009 and for which it held public hearings in May 2010. Section B of the document seeks

input on the appropriate level of ownership and control for both foreign and historically disadvantage persons.

The discussion draft specifically asks whether or not ICASA should regulate foreign direct invest in electronic

communications.

Moreover, this past September ICASA released a Findings Document on the matter, noting their intention to

investigate the national perspective on foreign ownership and control based on views from the DOC and the

Trade & Industry and National Treasury (NT) relative to the policy formulation. As ICASA has not finalized

this, and the imposition of limits on foreign ownership of telecom operators has not been ruled out, USCIB

encourages USTR to follow this proceeding closely to ensure foreign direct investment is not constrained, and

to monitor the overall telecommunications market to ensure there is a level playing field for operators.

The Minister of Communications had decided to abandon attempts to overturn a High Court judgment that

allows VANS operators to self-provide their own networks, and ICASA has commenced began issuing network

licenses to existing VANS operators. However, on July 18, 2012, the Ministry introduced an Electronic

Communications Act (ECA) Amendment Bill that would only permit certain ECNS licensees to self-provide

their own networks. In particular, whereas Section 20 of the existing ECA applies to infrastructure build-out by

all ECNS licensees, the ECA Amendment Bill proposes to limit the application of infrastructure build-out to

“specific” ECNS licensees. In the Memorandum on the Objects of the ECA Amendment Bill, the Minister

referenced the Altech judgment as the reason for the proposed limits on self-provisioning by VANS licensees.

Public comment on the ECA Amendment Bill closed on September 14, 2012 and the bill is currently under

consideration by the government.

USCIB urges USTR to continue to monitor this situation and to encourage South Africa to take the necessary

steps to ensure that competitors can operate on a level-playing field in the telecommunications sector in South

Africa.

THAILAND

In December 2007, Thailand brought its domestic telecommunications regulatory regime, Telecommunications

Business Act (TBA), into compliance with its 1997 GATS Schedule of Commitments, including a new licensing

framework. The National Broadcast and Telecommunications Commission (NBTC) was created to oversee

implementation of the regulations. Despite these positive steps, the new licensing framework offers limited

market opportunities for U.S. telecommunications services providers in Thailand.

The existing licensing regulations provide for three types of telecommunications licenses. The Type I license is

for non-facilities-based telecommunications services and is subject to no foreign ownership restrictions.

However, types of business in this category are very limited as set forth in the Telecommunications Business

27

See Another instance where privatization trumped liberalization: The politics of telecommunications reform in South Africa—A ten-

year retrospective, Robert B. Horwitz, Department of Communication, University of California-San Diego, and Willie Currie,

Association for Progressive Communications, published by Science Direct Telecommunications Policy 31 (2007), pp. 445–62.

27

Act. Type II and Type III licenses restrict foreign ownership to less than half of registered capital (i.e. 49.99%)

in companies seeking to provide advanced telecommunications services, whether facilities-based or non-

facilities-based, to businesses (Closed User Groups) and consumers. At present, no large-scale

telecommunications service operator in the Thai telecommunications market is wholly owned by a foreign

investor.

In 2010, the NBTC has released a draft notification on business takeover by a non-Thai person. The Notification

prohibits any “business takeover” of a Thai telecommunications business by a “foreigner,” which is defined as

allowing non-Thai persons or entities to exercise controlling power or influence, whether directly or indirectly,

to formulate policy, and/or to manage or administrate important business that may affect a telecommunication

business's management or operation. Under existing law, non-Thai persons and entities are already prohibited

from holding a majority of shares in such a business. If this draft becomes effective, Thai telecommunications

market should be less attractive to foreign investments comparing with the current regulatory regime.

In 2011, the NBTC published a Notification on August 30, 2011, in the Royal Thai Government Gazette that

restricts "foreign domination" of the country's telecommunications businesses.28

The Notification applies to all

current and future telecommunications licensees and severely restricts foreign investments in Thailand’s

telecommunications sector. It came into full force on July 23, 2012. In particular, NBTC prohibits the following

acts by non-Thai persons and entities:

Direct or indirect shareholding by foreigners or foreigners’ agents;

Use of apparent agents;

Holding of shares with special voting rights;

Participation in appointing or having control over the board of directors or senior officers of the

licensee;

Any financial relationship such as having a corporate guarantee or a loan with a lower-than-market

interest rate;

Licensing or franchising;

Management or procurement contracts;

Joint investments (by a licensee and foreigners);

Transactions involving transfer pricing; and

Any other behavior which provides direct or indirect control to a foreigner over a licensee.

In October 2012, Thailand’s 2100MHz 3G mobile license auction was approved by the NBTC, giving local

concessions to AIS, DTAC and True. The approval was endorsed in November 2012, despite a petition made by

a group of senators to the Administrative Court, alleging that the auction is illegal. Although adding 3G to the

mobile market can be considered a positive step in opening up more competition, there is no change on controls

imposed on foreign investors.

USTR should urge Thailand to further broaden the list of telecommunications services that can be provided by

foreign carriers and eliminate the restriction on foreign ownership of telecommunications businesses. Expanding

market access would increase competition and stimulate new investment in the Thai telecommunications

market. As is the case with China, restrictions on FDI are a significant disincentive to investment by U.S.

service providers seeking to provide seamless, global services to their multinational enterprise customers.

28

Wendy Zeldin, Thailand: Notification Restricting Foreign Takeovers of Telecom Businesses, Library of Congress Global Legal

Monitor, http://www.loc.gov/lawweb/servlet/lloc_news?disp3_l205402837_text.

28

At the 2007 ASEAN Summit, the leading countries in the region declared their strong commitment to accelerate

the establishment of an ASEAN Economic Community (AEC) by 2015. The main purpose of the AEC is to

make ASEAN a more dynamic and competitive economic force by making it a single market and production

base by applying the principles of an open, outward-looking, inclusive, and market-driven economy. As

envisioned, the single market would be based on five core elements: (1) free flow of goods; (2) free flow of

services; (3) free flow of investment; (4) freer flow of capital; and (5) free flow of skilled labor.

Regarding the free flow of services, it is notable that the ASEAN member countries have so far negotiated eight

packages of commitments under the ASEAN Framework Agreement on Services (AFAS). The “free flow of

services” covers the liberalization of:

•Business services

•Professional services

•Construction

•Distribution

•Education

•Environmental services

•Healthcare

•Maritime transport

•Telecommunications

•Tourism

Thailand has entered into the 7th package of the AFAS, pledging commitment to allow for higher foreign equity

ownership, but has not ratified the protocol itself. Regardless of whether the ratification is yet done by Thailand

or not, USTR may not be directly benefited by the AFAS because this aims to make it opened for ASEAN

members only. However, entering into the Thai market through other ASEAN countries may enable investors

from outside ASEAN to indirectly get involved in Thailand’s telecommunication businesses, if the laws of such

other ASEAN countries are less restrictive.

Thailand’s market entry restrictions are a significant disincentive to investment by U.S. service providers

seeking to provide seamless, global services to their multinational enterprise customers. USCIB therefore urges

USTR to encourage Thailand to broaden the list of telecommunications services that can be provided by foreign

carriers.

TONGA

Although the Tongan government has removed its former requirement that all international traffic must pay a

minimum rate of US$ 0.30, that country’s major supplier, Tonga Communications Corporation (“TCC”),

refuses to negotiate cost-oriented and reasonable termination rates and continues to block the circuits of U.S.

carriers that refuse to accede to its unreasonable rate demands. Tonga thus continues to act in blatant violation

of its recently-made WTO Reference Paper and Annex commitments to ensure that termination rates are both

cost-oriented and reasonable. Additionally, Tonga’s failure to prevent TCC’s disruption of U.S. carrier circuits

violates Tonga’s Annex commitment to “ensure that service suppliers of any other WTO Member have access

to and use of any public telecommunications transport network or service offered within or across the border of

Tonga.”29

29

Annex on Telecommunications, Sect. 5(b).

29

Tonga joined the WTO on July 27, 2007 pursuant to commitments that it would, among other things, ensure that

interconnection rates for the termination of international traffic with TCC, its major supplier carrier, are both

“cost-oriented,” as required by the WTO Reference Paper, and “reasonable,” as required by the WTO Annex on

Telecommunications.30

Tonga also made the further Annex commitment described above that to ensure that

carriers from WTO member countries would have access to and use of its cross-border circuits. At that time,

U.S. carriers terminated international calls with TCC at rates of approximately US$ 0.13 per minute.

Subsequently, under one U.S. carrier’s most recent agreement with TCC, international termination rates were

further reduced to approximately US$ 0.09 per minute for the period July 1, 2008 through August 31, 2008.

Notwithstanding its recent WTO commitments, the Tongan government issued a ruling on August 11, 2008

requiring all international traffic terminated in Tonga to pay a minimum rate of US$ 0.30.31

The ruling provided

no explanation or justification for the rate increase, which raised rates to more than three times the previously-

negotiated level. Tonga has therefore provided no evidence that the rate increase reflects increased costs, as

required by its WTO obligations. Indeed, the near-contemporaneous agreement of Tonga’s major supplier, TCC,

to the rate of US$ 0.09 per minute for the period July 1, 2008 through August 31, 2008 is compelling evidence

that there is no cost justification supporting this increase.

Furthermore, on June 15, 2009, the FCC issued the Settlements Stop Payment Order on the U.S.-Tonga Route

which found that the actions taken by TCC to disrupt the U.S. international networks of AT&T and Verizon, for

purposes of trying to force these carriers to agree to higher termination rates, are anticompetitive and require

action to protect U.S. consumers in accordance with FCC policy and precedent. The FCC Order requires that all

U.S. carriers with FCC authorizations permitting the provision of facilities-based international switched voice

services on the U.S.-Tonga route to suspend immediately all U.S. carriers’ payments for termination services to

TCC. Neither TCC nor the Tongan government have responded favorably to the FCC Order and have refused to

modify the rates and exchange traffic directly with U.S. carriers. On November 16, 2009, the Federal

Communications Commission extended its stop payment order to include all U.S. carrier payments for

termination services to Digicel Tonga Limited. The Order remains in effect as of November 2012.

Also, as USTR reported in the 2011 and 2012 Section 1377 reports, the government of Tonga has instituted a

new requirement that its carriers must pay the government US$0.051 for each minute of international incoming

calls, which will maintain termination rates above cost-based levels. USCIB supports continued action by USTR

to strongly press Tonga to take immediate action to ensure that TCC negotiates cost-oriented and reasonable

rates in compliance with Tonga’s WTO commitments and to require TCC to restore all U.S. carrier circuits.

VIETNAM

In April 2011, Vietnam’s Ministry of Communications issued Decree No.25/2011/ND-CP implementing the

new telecommunications law to comply with its WTO commitments. While the new law purportedly complies

with Vietnam’s minimum WTO commitments, it still fails to allow full competition in the Vietnam market.

In particular, Decree No. 25 limits foreign investment to 49 percent for providing telecom network service, and

65 percent for value added services. USCIB applauds Vietnam for its efforts in implementing its WTO

commitments, including seeking comments from the private sector, but urges USTR to encourage Vietnam to

eliminate all barriers to entry, including the FDI restrictions.

30

WTO, Report of the Working Party on the Accession of Tonga, T/ACC/TON/17/Add.2, Dec. 13-18 2005. 31

Tonga Government Gazette, Aug. 11, 2008.

30

LIMITATIONS OR BANS ON THE USE OF VOICE OVER INTERNET PROTOCOL (VOIP)

Government policies around the world that restrict or prohibit voice over Internet protocol (VoIP) and other

forms of Internet telephony create obstacles to continued Internet innovation and have a negative impact on

trade and investment. Since VoIP is a key application that drives broadband deployment, such prohibitions on

VoIP can also easily deter cross-border service deployment and negatively impact a broad range of other

information flows. VoIP restrictions also effectively limit access to, and distribution of, video applications, such

as video conferencing, that incorporate real-time voice traffic.

Requirements to separately engineer service deployments in line with national rules, and/or comply with sui

generis national licensing requirements, are costly and greatly impede if not mitigate against deployment of

VoIP and Internet telephony services to a market. For example, both China’s and India’s32

policies restrict the

use of VoIP by non-basic service licensees to closed user groups (CUGs) that do not allow for origination or

termination of IP phone calls on the PSTN.

Government restrictions, such as those in Kuwait33

and Ethiopia, that block VoIP services in their entirety,

require VoIP providers to partner with the major supplier, and impose onerous licensing regimes for the

provision of VoIP unnecessarily restrict trade and investment. In some cases, such restrictions create other

problems, such as gray or black markets for those goods and services. For example, in Belarus, China, Qatar,34

Rwanda,35

United Arab Emirates,36

Uzbekistan,37

and Vietnam,38

Egypt,39

and Saudi Arabia40

VoIP is

permitted; however, foreign companies are required to partner with the state-owned operator for local, long

distance and international fixed line VoIP services. Beltelecom is also the only operator licensed to provide IP

32

Following DoT’s rejection of the TRAI’s recommendation to allow VoIP to connect to the PSTN, the current policy still only allows

VoIP to be used in closed user groups (CUGs), or just among sites. Consequently, companies with multiple offices in India are not

allowed to use VoIP to connect via the PSTN. This causes companies to maintain separate systems for internal and external

communications, increasing establishment costs. 33

VoIP is explicitly banned in Kuwait. 34

VoIP is permitted in Qatar; however, it may only be provided through the two existing licensees, QTel and Vodafone Qatar. 35

VoIP is not legal in Rwanda; however, MTN Rwandacell and Rwandatel are permitted to offer VoIP services because their licenses

are “all-encompassing” (i.e., they have bundled licenses for domestic and international fixed and mobile telephony, as well as Internet

services.). Thus, other types of licensees are not permitted to offer VoIP services. It is unclear if a new applicant (or an existing

licensee seeking to upgrade) could apply for an “all encompassing” license. Consequently, foreign operators would most likely need to

partner with one of the incumbent operators. 36

VoIP is permitted in the United Arab Emirates; however, only four local firms are permitted to provide the service: mobile operators

Etisalat and Du as well as satellite companies Thuraya and Yahsat. A general telecommunications license is required to operate a VoIP

network. International VoIP companies are not currently allowed in UAE, unless they establish a partnership with one of the local

operators. Licensees are allowed to block unlicensed VoIP traffic on their networks. 37

VoIP is permitted in Uzbekistan: however, services are strictly controlled by the state-owned operator Uzbektelekom (UT). There

are four ISP providers offering VoIP services in the country and all are directly or indirectly owned by the UT, and UT sets high VoIP

tariffs. Consequently, it is unlikely that foreign operators would be able to provide a new VoIP service in Uzbekistan under the current

regulatory and market conditions. CUG VoIP would be categorized as a data transmission network service and would not be exempted

from licensing requirements. 38

VoIP is permitted in Vietnam; however, foreign companies are prohibited from providing such services. The Vietnamese

Government recently passed a new Telecommunications Law which clarifies that VoIP services, including those offered on a CUG

basis, are considered Internet Telephony services and categorized as a Telecommunications Value-Added Service (Telecom VAS).

Pursuant to Vietnam’s WTO commitment, foreign companies are not permitted to obtain a license to provide such services. Instead,

foreign companies are required to enter into a joint venture with a locally licensed telecommunications service provider and cannot

receive more than 65% of the total revenues flowing from the joint venture. 36

VoIP services are provided through, or in partnership with, Telecom Egypt. 40

International VoIP services are permitted to a limited extent in Saudi Arabia, and are restricted to closed user groups that may not

interconnect to the PSTN.

31

telephony in Belarus.41

USTR should encourage governments to permit the use of VoIP to enable U.S. companies to gain the economies

and efficiencies of global platforms, reduce the cost of doing business in foreign countries, and promote

investment and vigorous information flows.

RESTRICTIONS ON CROSS-BORDER DATA FLOWS

The ability to send, access and manage data remotely across borders is integral to global services, including

converged and hybrid services such as cloud services. However, the tremendous increase in cross-border data

flows has raised concerns on the part of many governments. Given that cross-border services trade is, at its

essence, the exchange of data, unnecessary restrictions on data flows have the effect of creating barriers to trade

in services. In recent years, due to increased concerns over the security of global telecom network infrastructure,

U.S. companies and government agencies have worked closely with governments around the world to ensure

that service providers are given the flexibility that the multi-national businesses they serve demand, so as not to

impede the growth of converged and hybrid services such as cloud services.

In India, for example, restrictions on foreign providers’ ability to remotely manage their networks impede

converged and hybrid services such as cloud services. Similarly, restrictions on the use of strong encryption by

the Indian government limit the ability of global service providers to protect customer data and privacy across

borders. The economic benefit of innovative cross-border services that are in high demand, such as cloud

services, is diluted when countries impose policies which fragment these services into nation-based solutions

lacking the economic benefits of scale, high resource utilization rates and demand aggregation, and the legal

certainty and consistency necessary to provide a truly global service.

Government policies around the world that restrict or prohibit cross-border service deployment, including cloud

services, VoIP, and other information flows limit competition, create obstacles to continued Internet innovation,

and have a negative impact on trade and investment. USTR should strongly urge governments to work with

industry on appropriate solutions that balance the requirements of security agencies with the secured

communication needs of trade, commerce and industry, consistent with global practice.

Sincerely,

Peter M. Robinson

President and Chief Executive Officer

41

In Belarus, there is no exemption for CUG VoIP generally, and it is likely that closed CUG services generally would require a

license in addition to partnering with Beltelecom if offering in-country services (i.e., not simply an international partner).