Trade Issues

Burnham: Telecommunications Signalling

Distance and location are rapidly diminishing in economic importance. This globalization of the economy means that businesses anywhere may compete to serve customers everywhere.

Technological innovation and deregulation of telecommunications are driving this trend. Telecommunications is the transportation system for information -- and its global costs are falling rapidly.

  • A typical phone call from the United States to London, England, declined 90 percent from 1987 to 1997, while the consumer price index rose over 43 percent.

  • Due to technological advances, the cost of fiber optic cable has fallen by a factor of 30 over the past 10 years.

  • By the year 2005, it is estimated that the cost of an hour for a trans-Atlantic high resolution video call will possibly fall to 3 cents.

Deregulation is eliminating the last major barriers to international trade:

  • In February 1997, 70 countries accounting for more than 95 percent of global telecom revenues signed a World Trade Organization agreement to open up domestic markets and adopt pro-competitive regulatory principles.

  • Charges on inbound international calls -- frequently five to 10 times the underlying costs -- are being reduced under pressure from the U.S.

  • The Information Technology Agreement by 40 countries accounting for 90 percent of world trade in telecommunications equipment and software will reduce all tariffs on such products to zero by 2000.

Providing services via the telecommunications "highway" is also becoming a substitute for migration to higher income countries. For example, call centers in Ireland are providing customer service and technical support for all of Europe and Africa; programmers in India are earning billions of dollars writing code for U.S. software; and data entry operators in China and Indonesia batch process work for European firms.

Source: James Burnham, "The Growing Impact of Global Telecommunications on the Location of Work," Contemporary Issues #87, October 1997, Center for the Study of American Business, Washington University, Box 1027, One Brookings Drive, St. Louis, MO 63130, (314) 935-5630.

For full text http://csab.wustl.edu/papers/global/ci87.htm

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