Much of the drama around the Administration’s negotiation of new trade deals like the USMCA has distracted from an important fact: the required updating of telecom trade provisions for the 21st century. The telecom provisions of NAFTA, over a quarter century old, are woefully obsolete. The iPhone was introduced eight years ago, and the apps that followed revolutionized how Americans – and our trading partners around the world – communicate and consume services. A trade deal more than three times that age is understandably not going to be able to address the core market challenges facing the U.S. communications industry in foreign markets.
The USTR webpage calls USMCA – the acronym rebranding NAFTA – the “most modern, up-to-date, and balanced trade agreement” ever. While that might be more descriptive for the Digital Trade chapter, it is not the case for the Telecom Chapter, which seems stuck in the ‘90s.
The Telecom Chapter does not even address the most high-profiled debate in telecom policy over the last decade – the regulation of internet access, or Net Neutrality. USTR has traditionally attempted to encapsulate current U.S. regulatory policy in trade agreements. With the continuing back-and-forth on what regulatory regime applies to internet access, USTR can be excused for not trying to capture a stability that Congress won’t deliver. The Clinton and Bush Administrations’ FCC’s treated internet access as an information service. The Obama Administration’s FCC reversed that precedent and classified internet access as a telecom service, applying the title from the Communications Act for telephone common carriers, Title II. The Trump Administration’s FCC went back to treating internet access as an information service, lightly regulated under Title I.
But whether internet access is a telecom service, or an information service (or “value-added service”, in trade speak), it appears in neither USMCA definition. Instead, the Telecom Chapter generally has obligations on major suppliers of “public telecommunications services”, which are a dwindling percentage of the overall communications market.
“Major suppliers” in the Telecom Chapter are suppliers of public telecommunications that, due to market share or control over “essential facilities”, have the ability to materially affect the price and supply of public telecommunications. In turn, public telecommunications are defined as telecommunications that a Party requires to be offered to the public that typically involve the transmission of customer-supplied information without an end-to-end change in the form or content of the customer’s information. That same text was in NAFTA, agreed in 1992. In the ‘90s, before the internet was commercialized, that language clearly meant voice. A quarter century later, it could mean Direct Messaging, perhaps, but not web browsing, or social media apps. The updated USMCA adds that “public telecommunications” may include telephone and data transmission – but it is silent on internet access, as is the definition of “value-added” services.
When the Obama FCC reclassified internet access as common carrier - or public - telecommunications, NAFTA’s “public telecommunications” language could theoretically be seen as applying to internet access. But since the current administration provides no clue in USMCA’s definitions or substantive provisions, readers remain in the dark.
Instead, USMCA’s Telecom Chapter reads as if the voice carriers of the ‘90s are still “major suppliers” of telecommunications. It refers to unbundling network elements – a core provision of the 1996 Telecommunications Act – the implementation of which over the intervening decades has been streamlined by the FCC. But whether internet access is public telecom or information service, proponents of Title II (common carrier telecom) classification of internet access have never advocated for unbundling network elements for internet access.
Furthermore, the Telecom Chapter’s access obligations for submarine cable landing stations, which apply exclusively to major suppliers of public telecom, seem unaware that today, 80% of new submarine capacity is built by the Over-the-Top (OTTs) edge providers like Google, Facebook, Amazon Web Services and Microsoft, that generate Zettabytes of data with their digital platforms. And while these “content” providers are the dominant force in new subsea capacity, they control more than 50% of global bandwidth today, in any segment. And that number is estimated to be over 80% by 2027. Yet because these subsea cable owners do not sell their excess capacity, but swap it as necessary, they are not considered telecommunications services providers and regulated as carriers.
Concern has been growing in Europe and with Congressional Democrats over these companies’ position in the markets for search, social media, and other web services platforms. Fortunately for these companies, that concern does not appear to be shared by our near neighbors to our north and south. One could expect such concerns – absent from USMCA’s Telecom Chapter - might find their way into the Digital Trade Chapter. But instead, that Chapter does not use the term “Major Supplier”, as if there can be no “Major Suppliers” in digital trade. Instead, that chapter focuses on consumer privacy and data security, and calls for self-regulation that may not even satisfy our current Congress, let alone partners to future trade agreements that adhere to Europe’s General Data Privacy Regulation (GDPR), or GDPR-like privacy regulation.
Some of the obsolescence of the Telecom Chapter and the narrow focus of the Digital Trade Chapter may be due to the loss of transparency in trade negotiations since transnational activism disrupted negotiations of the Anti-Counterfeiting Trade Agreement (ACTA) on internet copyright infringement during the Obama Administration. Prior to such transnational activism’s success in getting Europe, Mexico and others to walk away from ACTA, draft negotiating texts used to be more publicly available, so a broader swatch of the public had an opportunity to weigh-in.
The provisions of USMCA are fine for the U.S., home to the world’s major OTTs owning communications infrastructure like subsea cables and other bandwidth. But when we negotiate with China, with its growing internet behemoths Tencent and Alibaba, to craft a trade deal that benefits U.S. suppliers of communications in all sub-sectors, we will truly have to negotiate “the most modern, up-to-date, and balanced trade agreement” for telecom and digital trade.
Perhaps if proponents of Title II internet access regulation lose the current appeal in the D.C. Circuit, or if the President wins another term in 2020, Congress will finally negotiate legislation to prevent blocking and throttling of internet traffic, and USTR can enshrine in future trade agreements these protections. If so, then telecom and digital trade provisions will finally be “up-to-date”.
Ms. Paoletta was formerly the Director of Telecom Trade at USTR and worked on the negotiation and implementation of NAFTA, the Information Technology Agreement, the WTO Basic Telecom Agreement, and enforcement of the telecom provisions in these trade agreements.