-1-
Council Working Group for the
Elaboration of the Draft Strategic Plan
and the Draft Financial Plan, 2008-2011
Document:
WG-SP-FP-06/28 Rev. 1
14 August 2006
English only
6TH MEETING, GENEVA, 14-15 SEPTEMBER 2006
Draft Financial Plan for 2008-20111
Ratio of the unit payable by Sector Members
1.
The main sources of ITU’s income are the contributions from Member States, Sector Members and
Associates, made under a free choice system. The value of the contributory unit (currently CHF 318’000) is
established by Council when setting the budget, bearing in mind the upper limit established by the
Plenipotentiary Conference. However, the ratio between the value of the Unit paid by Member States and that
paid by Sector Members (one-fifth) has not been changed since 1982.
2.
The draft Financial Plan for 2008-2011 (document C06/23) foresees a significant shortfall between
income and expenditure. This is partly a result of the new tasks that ITU has been asked to take on, for instance
as a result of the outcomes of WTDC-06 and RRC-06, which are over and above existing resources. In addition,
other new requirements, such as WSIS implementation require additional resources. Financial options available
to meet this income shortfall include an increase in the value of the contributory unit, an increase of the total
number of contributory units and a change in the ratio of the contributory unit payable by Sector Members.
3.
At the 2006 Session of Council, Council set the provisional value of the contributory unit at
CHF 318’000 (zero nominal growth) and requested more information on the ratio of the Sector Member
contributory unit. Under PP-02 Resolution 110, a Council Working Group had reported in 2005 (C05/40),
recommending that the minimum level of the contributory unit be linked to objective measurement of costs. The
Group did not reach consensus on changing the ratio. However, as noted above, circumstances have changed
since 2005. A new cost analysis methodology, based on time tracking, is now available. Furthermore, the
financial burden imposed on the Union has risen.
4.
The proposal in the Financial Plan to modify the ratio of the contributory unit payable by Sector
Members from one-fifth to one quarter is based on the following six main arguments:
A. The changes in the Sector since 1982. The information and communication technologies (ICT) Sector
has changed unrecognizably since 1982 when the unit ratio was last reviewed. In 1982 only two
incumbent public telecommunication operators (PLDT and AT&T prior to break-up) were privatelyowned. Now the vast majority of operators, accounting for more than 98 per cent of telecommunication
revenue, are privately-owned. Other changes since 1982 include the rise of mobile communications and
the Internet; neither of which were ever dominated by state ownership in the way that the incumbent
fixed-line operators were. Insofar as the ITU’s work helps to create new market opportunities, to reduce
costs (e.g. through standardization) and thereby raise profits, then the balance of the benefits of ITU’s
work now accrues more to privately-owned Sector Members than to governments.
B. The free choice system is not working among Sector Members. The financial structure of the Union
is based on the principle of voluntarism rather than assessed contributions. For Member States, some
78.6 per cent of contributions in 2006 are from payments above the statutory minimum level (1/16 for
LDCs and 1/2 for other countries: See Figure 1). In 1983 (the year after the 1/5 ratio was established),
some 38.6 per cent of Sector Member’s contributions came from payments above the minimum (some
Sector Members paid as many as five units: or ten times the minimum). However, with the trends
towards private sector participation and market competition (see above), voluntary payments have been
1
This document has been revised, based on comments and additional inputs made by Member States at the 5th meeting of
the Council Working Group, held 27-28 June 2006.
-2progressively reduced to the minimum. In 2006, only 5.1 per cent of the income from Sector Members
came from contributions above the minimum level of 1/2 and no Associate paid more than the
minimum. If Sector Members were as generous in 2006 in volunteering payments above the minimum
contributory unit as they had been in 1983, the income from Sector Members would rise by 160 units at
1/5, or CHF 45.6m over the 2008-2011 period.
C. Sector Members contributions are not even covering the direct costs of their participation in
Sector activities. Although it is difficult to make a precise estimate of how the benefits of the Union are
allocated between Sector Members and Member States, as a rough rule of thumb, one can say that the
Sector Member’s benefit mainly from those activities in which they participate directly, in particular
Study Groups and Sector Advisory Groups, as well as the dissemination of Recommendations. The
Council Working Group on Res 110 had recommended that these costs be used as an objective measure
for the setting the ratio of the Sector Member unit. Since the introduction of time tracking and the
approval by Council in 2005 of the new financial allocation methodology, it is now possible to measure
these costs more accurately (including the relevant staff costs). Figures 2 and 3 shows that even if
Sector Member and Associate contributions were made exclusively for the Study Groups and Sector
Advisory Groups, the percentage of coverage of these costs is only around 40 per cent for the 20082011 Financial Plan.
D. Overall income would need to be increased to meet the shortfall from sales of ITU-T
Recommendations. ITU Council, at its 2006 session, took a decision to offer unrestricted access to
ITU-T Recommendations free of charge online in .pdf format to the general public. It is anticipated that,
if confirmed by Council in 2007, this will lead to an income loss of up to CHF 3.5 million per biennium,
or CHF 7 million over the course of the 2008-2011 Financial Plan. The pressure to make
Recommendations free of charge has been strongly supported by private Sector Members of the ITU-T
who see this move as essential to improve the competitiveness of the Sector. They were also unhappy
with the current arrangements that provide them with only single-user access to Recommendations free
of charge online. Raising the ratio of the Sector Member contributory unit would help to offset the
anticipated loss of income, the burden of which would otherwise fall on Member States.
E. Sector Member rights have increased substantially since 1982. At that time, when the ratio was
raised from one-sixth to one-fifth, the rights of Sector Members and their roles in ITU work were very
limited. Changes since 1982 include the establishment of Sector Advisory Groups (where Sector
Members work alongside Member States in developing the budget and operational plans of the Sectors);
the accelerated approval procedure; access to all working documents via TIES; and observer status in
Council and PP. It is logical that these enhanced rights should also bear enhanced financial
responsibilities.
F. Participation in ITU work remains much cheaper than in comparable fora.. For ITU-D, it can cost
as little as CHF 2,000. The minimum cost of ITU-T and R Sector Member participation is CHF 31’800.
At current exchange rates, this amounts to US$26’000 which is a fraction of that for other standards
development organisations. For a large company with active participation, Sector Membership of ITU
costs only around half that of IETF, one third that of W3C and one-eighth that of ETSI, even though the
operating costs of these other standards development organisations are lower because they work in
English only. No other standards development organization has the free class of contribution which ITU
allows and several, including ETSI, are based on assessed revenues. It is also worth noting that the
“entry level price” for private companies is now much lower in real terms than it was in 1982 because of
the creation of the new category of Associate, which appeals in particular to small and medium-sized
enterprises (SMEs) or those companies interested in only limited aspects of ITU’s work. Membership
can cost as little as CHF 2’000 for Associates in ITU-D.
5.
For these six main reasons stated above, it is recommended that PP-06 review the ratio of the
contributory unit payable by Sector Members, with the ratio being modified from one-fifth to one-quarter. The
additional cost per Sector Member would be an extra CHF 7’950 per year and it would generate, in total, some
CHF 21.2 million over the four year period, helping to reduce, but not eliminate the income shortfall. Although
-3such cost increases would ideally be avoided, the lack of other options for meeting the income shortfall suggest
that it should be seriously considered by PP-06.
Figure 1:
Comparison of payments made above the minimum, in 1983 and 2006.
0.0%
100%
38.6%
86.3%
5.1%
1983
2006
78.6%
80%
Voluntary
payment
60%
Minimum
payment
100.0%
94.9%
40%
20%
21.4%
61.4%
13.7%
0%
Sector
Members
Note:
Member
States
Associates
Sector
Members
Member
States
Analysis is based on payments made above the “minimum” level set out in the ITU Constitution and Convention.
Figure 2:
Cost and income analysis for the Sectors, 2008-2011 Financial Plan
(in CHF ‘000s)
ITU-R
ITU-T
ITU-D
Number of Sector Members
Number of Associates
Total costs for Sectors (a)
Costs of outputs in which Sector
Members participate directly (b) 3
Income from Sector Members and
Associates (c) (based on current
ratio of 1/5)
Sector Member contribution to
overall Sector costs (c / a)
Sector Member contribution to
covering direct costs (c / b)
Total
237
298
278
651 1
25
104
4
121 1
242’844
128’485
184’064
555’393 2
67'279
99’777
36'324
203'380
32’606
44’520
7’871
84’997
13.4%
34.6%
4.3%
15.3%
48.5%
44.6%
21.7%
41.8%
Note:
1
Based on projections in revised Financial Plan draft (5 July).
2
The totals for Sector Member and Associates sums to less than the number of Sector Member units because it excludes those that are
members or associates of more than one Sector.
3
The costs of the Sectors shown here exclude the costs of inter-sectoral outputs (e.g., PP, Council etc).
-4Figure 3:
Detailed breakdown of costs directly attributable to Sector Member and Associates, in the
2008-2011 Financial Plan
(in CHF ‘000s)
Income
Income from Sector Members (a)
(based on current radio of 1/5)
Forecast income from sales of
publications (b)
ITU-R
ITU-T
ITU-D
Total
32’606
44’520
7’871
84’997
31’056
11’380
1’052
43’488 1
Costs of publications (c)
Costs of promotion/private sector
partnerships (d)
Costs of Advisory Groups (RAG,
TSAG, TDAG) (e)
48’984
28’910
6’448
84’342 2
0
2’707
7’660
10’367
3’762
4’137
5’178
13’077
Cost of Study Groups (f)
45’589
75’403
18’090
139’082
Cost recovery
Total costs directly attributable to
Sector Members and Associates
(c+d+e+f) - b = g
67’279
99’777
36’324
203’380
Percentage cost recovery (a / g)
48.5%
44.6%
21.7%
41.8%
Expenses
Note:
1
Excludes forecast income of CHF 512’000 from sale of inter-sectoral publications (General Secretariat).
2
Excludes forecast costs of CHF 6’572’000 for production of inter-sectoral publications.
Figure 4:
Comparative costs of Sector Membership in selected standards development organisations
(in Swiss Francs per year)
Annual
cost in
CHF
Organisation
Type of membership fee
ITU Sector
Member
ITU Associate
(ITU-T, ITU-R)
ITU Associate
(ITU-D
Minimum level, plus a free
choice above the minimum
31'800 Membership of a Sector
Minimum level
10'600 Associate membership
ETSI
Minimum level
Based on annual electronic
communications related turnover
IETF
Based on meeting fees
ECMA
WorldWideWeb
Consortium
(W3C)
Mandatory payment
Mandatory payment, based on
country of origin of company
Comments
3'675 For developed countries
1'975 For developing countries
241'000 Maximum level for company with
revenue >8 bn Euro
72'750 Average level for company with revenue
of 1 bn Euro
9'375 Minimum level for SME
55'000 Based on 30 people in three meetings per
year
51'400 Lower payments for SMEs and not-for
profits
101'500
Lower payments for smaller companies
and those from developing countries