IP Telephony
case studies
Ben Petrazzini
Strategies and Policy Unit
ITU
Agenda
 Introduction
 Cases
1. China
2. Colombia
3. Peru
4. Thailand
 “Lessons”
Why case studies?
 In depth examination of a particular market
and/or policy process
 Concrete experience on the regulatory
response to market challenges
Why these ones?
 Countries with interesting regulatory
developments related to IP Telephony
 Solved similar problems in different ways
 Developing countries face the hardest
problems to integrate IP Tel to their tel agenda
China’s telecom market profile
Population:
1,255 million(99)
GDP per capita:
US$ 734 (98)
Teledensity:
6.96 (98)
Cel subscribers:
1.90 (98)
Ownership of incumbents:
Public
Competition in LD & int.:
As of 1999
China’s Internet market profile
Internet hosts x 10,000 people:
0.14 (98)
Users x 10’000 people:
16.7 (98)
Nro. of ISPs:
200 (98)
PCs x 100 people:
0.89 (98)
Began:
1988
Int. capacity:
351 Mbps (1/00)
Internet hosts in China
4000
3500
3000
2500
2000
1500
1000
500
0
Jul-97
Jul-98
Jan-99
Jul-99
Jan-2000
China’s Internet subscribers
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1994
1995
1996
1997
1998
1999
Promoting the Internet
Gov. cut twice in 1999 the cost of IP access
 switching stations rental: from 600 to 280 yuan p/month
 nat. LD digital lines: from 431,000 to 80,000 yuan p/mth.
 Digital data line fees: reduced by 45%
 2 Mbp/s nat. connection to an international digital line
US$26,579 p/mth.Europe 99: 2 km=US$ 750; 200 km=US$ 5,000 p/mth]
 US$2.5 billion investment in broadband during 2000
 US$24 billion by 2005:
transmission systems = US$15 billion,
access networks = US$6 billion
data communications hardware = US$3 billion.
The Chen brothers
 Chen brothers begun offering IP phone service in
1998 at half of China Telecom’s rate
 China Telecom succeeded in getting them to jail
 The Chen’s lost their original hearing at the court of
first instance, but won on appeal.
 For the judge the activity was not covered by criminal
law, and was at most an administrative matter.
 Local court officials found no administrative rules or
regulations that prohibited IP telephony
China’s IP Tel market
 MII licensed 3 operators in April 1999 for a 6
month trial in 26 cities
 These licenses ended a de facto long distance and
legal international monopoly by China Telecom
 Four IP Tel licenses granted in March 2000
China Telecom
China Unicom
Jitong Communications
China Netcom
 Forthcoming IP Tel license to China Mobile.
China Telecom’s IP Tel
 First to launch services in April 1999
 Initial roll-out 25 cities
 US$ 2 million network (100 E1s - each E1 = 2.048
Mbps) [US$ 6 million if circuit-switched].
 Set up time = 60 days [1.5 year if circuit].
 IP Telephony cards: only one sales counter and
very limited number of IP cards.
 Over 500 people per day sign up after the
announcement [previously about 20 telephone
subscriptions per day].
Unicom’s experience
 According to Unicom: US$ 241 million invested in
12 cities. Plan to expand to 90 additional cities.
 Between June and November, Unicom acquired
nearly 700’000 customers for its IP Tel services.
 The network reached full capacity in only 80 days,
instead of the 180 days initially.
 By Nov. 99 Unicom was generating several million
minutes in monthly China/US traffic and internat.
calls accounted for 50% of its IP business.
Jitong’s IP Tel business
 More than 2,000 people lined up from 2:00 am to
buy IP telephony cards on the first day of sale.
 Sold some 50,000 IP Tel cards in just five cities.
 From June to August 1999 the total revenue from
sales of IP phone cards stood at US$ 35 million.
Netcom’s IP Tel developments
IP telephony trials in 15 cities since October 1999
 20Gbps fiber-optic network backbone
 More than 6,000 miles and 15 Chinese cities
 Ready for operation by late-2000.
 Linking corporate and government buildings in
major cities directly to the IP backbone
 Providing 2-10 Mbps to the desktop – enough to
download video in real time.
 Become a wholesaler of broadband capacity.
MII’s IP Telephony tariffs
Services
Telephony (nonIP) tariffs
IP telephony
tariffs
Domestic long
distance
0.9-1.1 Rmb/min
0.3 Rmb/min
(US$.04)
International
12-15 Rmb/min
4.8 Rmb/min
(US$.58)
Where is the market going
 MII predicts that China's IP market will reach
US$12 billion by the end of 2000
 IP Tel operators predict:
international calls over the Internet
10% by 2000 - 35 % by 2003
 Post trial business plans:
Unicom and Jitong to deploy 300 E1s each
China Telecom to deploy 1,000 E1s
A questionable future
December 1999 MII mandated to China Telecom
once again lower international tariffs for non-IP
services in its 16 major routes:
 Rmb 4.8/minute (peak time)
the same price as IP phone tariffs
 Rmb 2.9/minute (off-peak time)
40% cheaper than comparable IP calls
The three competitors are questioning the viability of the
IP Telephony business
Colombia’s telecom market
Population:
41.5 million (99)
GDP per capita:
US$ 2’844 (98)
Teledensity:
16.04 (98)
Cel subscribers:
7.54 (98)
Ownership of incumbents:
Public
Competition in LD & int.:
As of 97
(effective 99)
Colombia’s Internet market profile
Internet hosts x 10’000 people:
4.41 (98)
Users x 10’000 people:
46.3 (98)
Nro. of ISPs:
63 (1/00)
PCs x 100 people:
2.79 (98)
Began:
May 1994
Int. capacity:
100 Mbit/s
80% sat. - 20% fiber
Internet policy & regulation
 Comision de Regulation de Telecomunicaciones
(CRT) in charge of Internet regulatory matters
 Government launched “Connectivity Agenda”
 Ministry’s policy: not to regulate Internet
 CRT launched study on Internet prices
 USO: Compartel 2 to focus on Internet services
 E-commerce: Law 527 of August 1999
Celcom’s IP Tel services
 Began December 1998 jointly with a VAS operator
 Prosecuted by three state agencies
 Services were stopped 9 months after launch
 Celcom’s tariffs were not much cheaper than the
licensed long distanced operators.
 Possible reasons for Celcom’s adventure:
increased int. traffic & no compensation
 Two agencies have imposed fines and other
penalties.
Prosecuting other IP Tel operators
 In the second half of 1999, more than 20 valueadded services were closed down.
 Charges and detention orders against Presidents,
CEOs, and general managers have been issued.
 These cases have not yet been resolved
 Traffic to the USA reported to increase as much as
50% after the 20 VANS were closed.
 ITU estimates: bypass traffic 160 million minutes
losses at 1998 settlement rates = US$ 60 million
Traffic bypass in Colombia
400
Traffic on US / Colombia
route (million minutes)
300
Total traffic
Estimated
bypass traffic
200
US
outgoing
100
Colombia
outgoing
Estimated call-turnaround
0
1990
1992
1994
1996
1998
Where is the market going
 Orbitel & ETB to offer LD & int. IP Tel in 2000
 Telecom likely to launch similar service soon
 Tvcable, start local voice service offerings that
might include IP Tel
 AT&T acquired Firstcom: good infrastructure in
Bogota and other large cities but no IP Tel plan
announced yet. Quite likely in the short run
 Value added operators have capacity but are
limited by the US$ 150 million license fee and the
requirement of 150’000 lines in service.
Peru’s telecom market profile
Population:
25.2 million (99)
GDP per capita:
US$ 2’530 (98)
Teledensity:
6.69
Cel subscribers:
3.92
Ownership of incumbent:
Private
Competition in LD & int.:
1998
28 new LD & int. and 2 local licenses (7 local pending)
Peru’s Internet market profile
Internet hosts x 10’000 people:
1.93 (98)
Users x 10’000 people:
80.6 (98)
Nro. of ISPs:
54 (99)
PCs x 100 people:
1.81 (98)
Began:
1991 (94 .com)
Int. capacity:
na.
The Aplio challenge
 Is not a phone, is not a PC, it is an IP Tel devise.
 Red Cientifica Peruana offers Aplio (others too)
 Telefonica del Peru complains to OSIPTEL
 First instance: selling Aplio is not a com. service
 OSIPTEL: Appeal --> same time RCP got a license
 TdP dropped the proceedings avoiding any
resolution on the matter
 No clear jurisdiction to resolve the matter
 No definitive policy position on the matter
Leased lines prices in Peru (US$)
Speed of
circuit
TdP:
TdP:
Variation FirstCom
Before
After
%
FirstCom FirstCom (2)/(1)
64 Kbps
650
455
-30%
450
512 Kbps
2665
1866
-30%
1840
2048
Kbps
6815
4771
-30%
4720
Accounting rates in an open market
Rate variations for
traffic termination in
Peru (US$ cents/min)
Less than 10
% of new
long-distance
companies
Peru’s
settlement
rates:
40%
TdP:
Between 10 and 20
More than 20
20%
40%
US$ 0.31
Some others:
US$ 0.06
Where is the market going
 RCP: US$60 million investment in 2000/01 on IP
network for IP Tel. Prepaid cards - 50% discount
over PSTN LD calls. National telecenters project
(US$12 million) own satellite network
 Net2Phone Peru: no license (Telecom Act) largest
IP Tel provider
 Firstcom/AT&T began operation in 1999
 BellSouth Peru controls Tele2000 (cable TV firm)
and acquired license for local, LD, and int.
IP Tel rates: Net2Phone Peru
Origin of
call
Peru
Destination
of call
USA
Net2Phone
Tariffs
Time of day
0.15/min
PC to phone
Peak
(7am-7pm)
[TdP 0.66/min]
USA
Peru
0.21/min
PC to phone
Any time
(Lima)
USA
Peru
0.31
Any time
phone to phone
(Lima)
Thailand’s telecom market profile
Population:
60.3 (98)
GDP per capita:
2’478 US$ (97)
Teledensity:
8.35 (98)
Cel subscribers:
3.25 (98)
Ownership of incumbents:
Public
Competition in LD & int.:
monopoly (BOT)
Thailand’s Internet market profile
Internet hosts x 10’000 people:
3.40 (98)
Users x 10’000 people:
33.1 (98)
Nro. of ISPs:
18 (1/00)
PCs x 100 people:
2.16 (98)
Began:
na.
Int. capacity:
na.
The TOT proposal
 Telephone Authority of Thailand (TOT): monopoly
in international communication
 Domestic: 2 fixed line, 5 mobile, 18 ISPs, etc.
 Y-Tel 1234: domestic long distance mid-2000
 Competition with cellular and USO-related low
price to provinces
 Available from any phone (including public). No
need of prepaid cards, only extra digits (1234)
 QoS: no more than 100 ms delay
 BOT concesionaries yet to develop IP Tel services
The CAT proposal
 Communication Authority of Thailand (CAT):
monopoly in international communication
 Increasing competition, declining revenue
 PhoneNet: 75 countries, prepaid calling cards,
access from any phone including cellular and pub.
 Tariffs are 21% to 40% lower than peak tariffs
 PhoneNet no price variation with time of day
 Likely customers: business users.
TOT Y-Tel tariffs (Bahts)
Time
0-50 km
101-200 km
More than
200 km
2
6
8
1
3
4
.75
2.25
3
7am-6pm
[working
days]
6pm-10pm
[working
days]
10pm-7am
[working
days]
1 US$ = 38 Baht
CAT Phone Net tariffs (Bahts)
Destination
Standard Econ.
(1)
(2)
%
%
Phone
Net discount discount
from 1 from 2
East Asia
[Japan, Korea,
Taiwan]
36
29
24
33.3
17.2
[excl. UK]
42
34
28
33.3
17.6
USA/Canada
24
20
20
16.7
0.0
Europe
1 US$ = 38 Baht
Lessons from the cases
 New technologies bypass regulation…(inevitable)
 Pre-existing national legislation is a strong
determinant on the evolution of IP Tel
 Made it clear that market evolution is strongly tied
to policy decisions and criteria
 Degree of government commitment is key
 In gral. positive attitude to the adoption of IP Tel
 Like with privatization and competition divergent
position within each administration
Lessons from the cases
 Accelerates the liberalization process
 Prosecution of “illegal” services chills the market
 Incumbents reluctant to take up IP Tel services
 Raised questions on service definition & others
 “Back door” for large foreign carriers (i.e AT&T)
 Effects:
Tariffs: some 30-50% lower than PSTN int.
Network deployment: shorter time / lower cost
ITU case study series
* IP Telephony: China, Colombia, Peru,
Thailand - www.itu.int/iptel
* Interconnection: India, Mexico, Finland,
China - www.itu.int/osg/sec/spu/ni/
* Internet diffusion: Nepal, Uganda,
Egypt, Bolivia, Hungary
www.itu.int/ti/casestudies/
Canada, Argentina, and others coming soon...