Trouble South Of The Boarder
     Mexico, in particular, has been singled out by industry giants such as MCI WorldCom and AT&T, which complain that Mexico hasn't adequately deregulated its telecom market. MCI WorldCom has long accused Mexico of breaking its WTO telecom obligations, charging that the government has allowed Telmex to unfairly raise interconnection rates Telmex charges to other carriers for access to local phone networks.
     Telmex is Mexico's largest local, long-distance and cellular operator and the nation's biggest Internet service provider. In January, the Federal Trade Commission ordered Telmex's U.S. unit to pay $100,000 for refusing service to competing carriers.
     "Competitive carriers in Mexico have essentially been mugged by Telmex…," MCI WorldCom said in a statement.
     In response to U.S. threats, Mexico's transport and communications minister Carlos Ruiz Sacristan said last week that he would further widen Mexico's phone market to foreign competition. But Telmex officials also have said the company does comply with Mexican regulations and would file countersuits if the United States brought the cause to the WTO.

Ringing In A New Fight
     Mexico and other countries listed in the USTR report on trade aren't the only ones fingered for sluggish telecom reform. The report said China's development of Internet services has been hindered by high connection rates. But perhaps no where is the drumbeat on telecom reform louder than on the issue of Japan's telecom costs. U.S. administration officials are now threatening to bring a WTO case against Japan if the issue isn't solved by the end of July, when President Clinton will visit Japan for the G-8 economic summit.
     The flap over Japan's telecom costs centers around complaints by U.S. telecommunications companies that Nippon Telegraph and Telephone (NTT), which controls more than 90 percent of local lines connecting Japanese homes, has high interconnection rates. The United States has fervently pushed for the rates to be slashed by nearly half in the next two years. Tokyo has countered, saying it cannot offer more than a gradual 22.5 percent reduction over four years and maintaining that it's doing its best to cut telecom rates.
     Japan's Ministry of Posts and Telecommunications repeatedly has said that slashing rates quickly could lead to worker-layoffs, an argument that resonates in a nation whose economy is struggling. Talks between the two sides have failed, and Japan has said it has made its best offer. Japan's Ministry of Posts and Telecommunications has indicated it would move forward with cuts, even if they don't meet Washington's demands.
     If a deal isn't reached by the USTR's deadline, there's still hope that the issue can be resolved, said Steven Vogel, an associate political science professor at the University of California, Berkeley. Vogel said that former Prime Minister Keizo Obuchi, who suffered a stroke on April 2 and is now in a Tokyo hospital, was slower to push reform. A change in leadership could make a difference in the debate, and he said it's likely the next prime minister would be more pro-reform on telecom issues.
     Vogel, who specializes in regulatory reform in industrialized countries, argues that many in Japan are in favor of cutting telecom interconnection fees, but want to see it done at a slower pace. To steer Japan towards the U.S. position, he says the Unites States should take "the high road" in the debate and frame the issue as something that will benefit the Japanese economy. He says that many government officials believe NTT's dominance has hurt the country's technological and economic growth. Still, resolution before a new government steps in is unlikely, he said, because the debate over interconnection rates has become an election issue.
     Ian Hillman, a researcher at the Japan Information Access Project, agreed with Vogel's argument that many in Japan want to see cuts in the nation's interconnection fees.
     "We have to keep emphasizing that in the long-term, this is something of interest to Japan," he said, adding that a lot of Internet start-ups in Japan were also interested in seeing deeper cuts.
     While Japan eventually could head towards the U.S. position, many nations like Japan might promise to open telecom markets, but former monopoly incumbents will still play a large role in shaping the next generation of technology, a report by Legg Mason Precursor Research found.
     The study highlighted Japan, Germany, France, Italy, Spain, South Korea, Mexico, Belgium, Portugal and Greece as countries that talk a good game on opening markets, but don't deliver. The report says these nations continue to favor the former monopoly and that the telecom incumbents will loom large in the new economy.
     MCI WorldCom spokesman Manuel Wernicky echoed this sentiment, saying that although these nations no longer have telecom monopolies, problems persist.
     "Just because these markets open does not mean that it's working out," he said.
- by Caroline Broder