Global trends in telecom
development & new challenges
for developing countries
Saburo TANAKA
Seminar in Paramaribo, May 2004
The original document is elaborated by Dr Tim Kelly, ITU/SPU. It has completed by Saburo Tanaka. The views expressed in this
presentation are those of the authors, and do not necessarily reflect the opinions of the ITU or its membership. Authors can be
contacted by e-mail at: Tim.Kelly@itu.int saburo.tanaka@itu.int
Agenda
l Market trends
Ø Network evolution
Ø Paradigm shift
Ø Tariff evolution
l Challenges for developing countries
Ø Service issues
Ø Regulatory issues
Ø Network issues
Ø Internet issue
l Some solutions studied in SG3
A Mobile Revolution
Fixed Lines vs. Mobile Users, worldwide, Million
1'400
Mobile Users
1'200
Fixed Lines
1'000
800
600
400
200
0
1993
1995
1997
Source: ITU World Telecommunication Indicators Database.
1999
2001
2003
5.0%
5.0%
Calling opportunities worldwide
0.3%
7.5%
89.7%
19.9%
1993
52.7%
26.7%
19.9%
1998
Mobile-tomobile
Mobile-tofixed
25.0%
Source: ITU Fixed-Mobile Interconnect website: http://www.itu.int/interconnect
2003
23.4%
Fixed-tofixed
Fixed-tomobile
25.0%
Global trends, challenges and solutions
Growth rate in phone subscribers
50
45
World
TAL
40
35
33.1
30
In %
25
21.0
10.4
13.6
12.6
15.0
6.0
8.0
7.0
22.4
18.0
12.0
10
5
22.4
21.0
20
15
29.3
14.0
11.0
9.0
0
1993
5
1994
1995
1996
1997
Years
1998
1999
2000
2001
5
Mobile and Internet: Identical twins born
two years apart?
Users (millions) and penetration per 100 pop.
1,000
18
Mobile subscribers
16
Internet users
800
14
Mobile penetration
12
Internet penetration
600
10
8
400
6
4
200
2
0
0
1992 93
94
95
96
97
98
99 2000 01
Asia-Pacific international
communications capacity, Gbit/s
70
65
60
Internet
Telephone
50
40
30
20
10
0
11
14
8
9
0
0
0
0
1992
1993
1994
1995
16
18
20
23
30
26
31
8
0.1
1996
2
3
1997
1998
1999
2000
2001
Growth In DSL Subscribers-Regional Division (000s)
1999-2003
20,000
19,000
18,000
17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Asia-Pacific
North America
Western Europe
South & South East Asia
Latin America
Eastern Europe
Middle East & Africa
1999
2000
2001
2002
2003
Distribution of mobile and Internet
users by region, 2002
Estimated Internet
users, 600 million
Americas,
28%
Africa,
3%
Asia-Pacific,
38%
Europe,
31%
Americas,
37%
Asia-Pacific,
32%
Europe,
29%
Mobile phone users
1’154million
Africa, 1%
Revenue growth (US$bn)
1000
900
Service revenue (US$ bn)
800
700
600
500
14%
Other: Data, Internet,
Leased lines, telex, etc
Mobile
39%
Int'l
400
8%
300
200
100
Domestic Telephone/fax
39%
0
90 91 92 93 94 95 96 97 98 99 00 01 02
Source: ITU.
Traditional regime:
Joint provision of service
Country A
Country B
X
X
11
Emerging regime:
Market entry and interconnection
12
Jointly provided circuit
Country A
Country B
X X
X
Circuit provided
by operator B
International simple resale (ISR)
(By-passing accounting rate)
Country A
Operator A
Country B
PSTN
Operator B
Interconnect
IWF
Leased lines
Once a foreign carrier accepts the benchmark rate, it can negotiate ISR
arrangements with US carriers
Telephone service using data transmission
(By-passing accounting rate)
Country A
Country B
VSAT
Operator A
Interconnection
PSTN
É
Voice is packetized = data transmission
Telephone regulations do not apply
IP Telephony
Terminating
Network
PSTN/ISDN
/PLMN
ADSL
IP Network
IW F
Local or distributed
function
Local or distributed
function
IW F
PSTN/ISDN
/PLMN
Call initiated from P S T N / I S D N / P L M N
to P S T N / I S D N / P L M N
Or Call initiated by ADSL
Originating
Network
Call from International Telecommunication Network
(ITN) to another ITN via IP-based Network
T0208500-00
(106147)
Refile and other practices using
accounting rate system
Operator in A sends traffic
to
operator in C under an
arrangement of exclusivity
1
C
in A
Orig nation B
i
Dest
Operator in C declares
traffic to B on transit
through A
A
C
• Operator in A is a partner
of operator in C
• Settlement rates A/B >
C/B
B
C
B
igin ation
r
O tin
s
De
A
Operator in
B receives
traffic at
settlement
rate C/B
instead of
A/B
2
Operator in C
“re-labels” the
traffic as originated
in C
3
B
4
Mobile tromboning (using accounting rate)
Operator X or Operator A’s
facility in another country
International
boundary
Operator A’s
Int’l facility
Operator B’s
Int’l facility
Operator A’s
national network
É
Caller A
Operator B’s
mobile network
High
Interconnection
charge
È
Called B
Delivering international voice
traffic in 2002
Traditional
Traditional bilateral
bilateral
settlement
settlement rate
rate
system
system
Via
Via aa
wholesale
wholesale
carrier
carrier
30%
15%
20%
Originating
international
voice traffic
Direct
Direct dealing
dealing
with
with the
the
terminating
terminating
country
country
70%
65%
Refile
Refile via
via a
third
third country
country
Sender
Sender keeps
keeps all
all
exchange
exchange of
of traffic
traffic
Via
Via aa point
point of
of
presence
presence in
in the
the
terminating
terminating country
country
Falling prices (1)
Average retail price of one minute call to USA.
$2.00
Source: ITU adapted from FCC and
national data (34 countries).
$1.50
Forecast
Mark-up
$1.00
$0.50
Settlement
$0.00
90
92
94
96
98
00
02
04
Falling Price (2):
SwissCom, price per minute of local call and call to US
Sw iss call prices.
US cents per minute.
74
58
Source: ITU.
58
Call to USA 43
28
Local call
7
5
5
5
4
4
4
4
3
95
96
97
98
99
00
2001
Infrastructure capacity and costs,
TransAtlantic cables, 1983-2000
10'000
Capacity (voice
paths), growing by
64% p.a.
100'000'000
10'000'000
1'000'000
100'000
1'000
10'000
100
10
1'000
Cost per voice path
(US$), declining by
41% p.a.
1
100
10
1
TAT-7 TAT-8 TAT-9 TAT-10 T-11 T-12/13 Gemini TAT-14
1983 1988 1991 1992 1993 1995 1998
2000
Source: ITU, TeleGeography Inc., FCC.
Note: Voice-path numbers assume a compression ratio of 5:1 to number of circuits.
Capacity (voice paths)
Cost per voice path (US$)
100'000
If distance is dead,
and bandwidth is
infinite …
What do we bill
for?
What do we bill for?
l Bill for network connection
Ø Increasing integration of monthly telephone
subscription and Internet subscription prices
l Bill for privacy/advertising
Ø Privacy-protected customer pays premium
Ø Customer agreeing to receive advertising pays less
l Bill for quality of service
Ø Differentiated by transmission quality, waiting time,
bandwidth on demand, value-added secretarial
support, mail functions etc.,
l Bill for Billing
Ø Customising of billing: by service, by user, by site
Internet, price and service trends
l Towards a flat-rate price structure
Ø All you can eat for US$20.00
l Towards lower service quality
Ø “Best efforts” service delivery at lowest price
l Death of distance
Ø Message to other side of earth costs same as a
message sent next door
l Cross-promotion of Internet and other services
Ø “Free PC” with three year’s ISP subscription
Ø “Free Internet” with residential local loop charges
l Tendency towards industry concentration
Ø AOL’s subscriber base > next ten ISPs added together
Challenges for developing countries
l Service, tariff and technical issues
Ø Alternative calling procedures
Ø Public switched network to IP based network
Ø Challenges related to mobile service
l Regulatory issues
Ø Interconnection rules
Ø Implementation of USO
Ø Tariff Rebalancing
l Internet connectivity in developing countries
Ø Guideline for negotiating IIC
Ø Traffic based negotiation
The influence of IP Telephony on price
l IDC forecasts that “Web Talk”
revenues will reach US$16.5 bn by
2004 with
135 billion mins of traffic
l Gartner Group forecast that IP
Telephony and competition in
Europe will reduce prices by 75%
l IP Telephony as % of all
int’l calls in 2004
Ø Tarifica forecast 40%
Ø Analysys forecast 25%
l In developing countries, the majority
of IP Telephony calls are incoming
16.5
“Web Talk”
revenues,
US$bn
0.208
2000
Source: IDC.
2004
Challenges
Revenue gain and revenue loss
Accounting Rate
IP-Telephony
PTO in
Developed
country
Collect
US$ 1.00 from user
Pays US $ 0.55
settlement.
Retains US $ 0.45
Collect
US$ 1.00 from user
Pays US$ 0.30 to ISP for
terminating call.
Retains US$ 0.70
PTO in
Developing
country
Receives US $ 0.55
settlement.
Receives US $ 0.02
local call charge.
-0.53 US$
0
Receives 0.30 US $ for
terminating charge
Pays 0.02 US $ for local
call.
Retains 0.28 US $
+0.28 US$
ISP in Developing
country
Difference
+0.25
US$
Declining prices for mobile access,
global average, in US$, 1992-2000
Monthly subscription, in US$
Connection charge, in US$
CAGR, 1992-2000 = -9.2% p.a
CAGR, 1992-2000 = -32.1% p.a.
44.9
38.1
547
34.2
410
31.3
20.2
16.6
231
180
86
1992
1994
1996
1998
1999
75
2000
1992
1994
1996
1998
1999
2000
Note:
CAGR = Compound Annual Growth rate.
Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”
Expenditure per month
Cultivate the high-spenders
14 per cent of highspending customers
generate 53% of
revenue
Average revenue
per user (ARPU)
14%
53%
22%
36%
24%
8%
40%
3%
Customers
Source: Price Waterhouse Coopers, based on Canadian data.
40 per cent of lowspending customers
generate 3% of
revenue
Mobile and Fixed-line ARPU in Japan
Yen 100
300
278
250
252
265
275
284
Fixed line
272
Mobile
230
200
158
150
100
98
98
97
98
99
1990
1991
1992
1993
1994
100
98
96
134
94
127
92
141
91
152
88
160
87
50
0
1995
1996
Years
1997
1998
1999
2000
2001
2002
Key Interconnection Rules in the WTO
Reference Paper
Interconnection
with “Major
Supplies”must be
available
- At any technical feasible point in the network
- In a timely fashion
- At cost orientated rates
- On non discriminatory and transparent terms
- On an unbundled basis
- At non-traditional interconnection points if
requester pays charges
Procedure
Procedures for interconnection to major
suppliers must be made public
Transparency
Agreements of major suppliers’ model
interconnection offers must be made public
An independent entity (which may be the
Dispute resolution regulator) must be available to resolve
interconnection dispute within a reasonable time
frame
Regulatory and technical issues
l Policy makers must resolve such basic questions as:
Ø which carriers are required interconnection
Ø How the costs will be calculated and recovered, and
Ø At what points in the PSTN interconnection should occur
l Regulatory issues
Ø Establishing guidelines in Advance (without it, interconnection
negotiation are frequently protracted, delaying the introduction
of competition)
Ø Introducing competition require “dominant carriers” to
interconnect with other carriers
Ø Cost orientation: excessive prices deter market entry, hinder
competition, end user suffer and can provide a pool of revenue
l Technical issues
Ø Points of interconnection: incumbent operators permit interconnection with their networks at any technically feasible point
Ø Dialling Parity and Pre-selection: Call-by-call customer
selection or Operator pre-selection by pre-subscription
Ø Quality of Interconnection Service
Economic issues
The economic issues involved in interconnection largely come
down to question of cost: cost definition, cost measurement, cost
allocation and cost recovery
l How can interconnection costs be measured?
Ø Theoretical Frameworks (Historica, Fully Distributed costs,
LRIC)
Ø Cost study Approaches (Top-Down, Bottom-Up, Outside-In)
l Interconnection charge
Ø
Ø
Ø
Ø
Ø
Cost based charges
Retail-based charges
Price Caps
“Bill and Keep” or “Sender Keeps All”
Revenue Sharing
SG3 is unique
IO
SIO
Administrations
ROAs
l Because of its composition
Ladies
Gentlemen
Developed
countries
Developing
Countries
Dealing purely with non-technical
standards and …
l Tariff/regulatory/Policy related issues
l There are 4 Regional Tariff Groups
Main study items
l Accounting rate reform
Ø
Ø
Ø
Ø
Transitional arrangements
Action to facilitate negotiations
Cost Methodologies
Network externalities
l Mobile termination charge
Ø Differences with fixed network services
Ø Level of termination charges
l International Internet Connectivity
Ø Implementation of Recommendation D.50
Ø Improving connectivity in LDCs
l Other studies
Ø International Telecommunication Regulations
Solutions & difficulties
l New Remuneration system (adopted)
Ø Termination charge system
Ø Settlement rate system
Ø Special arrangement
l Difficulty to quickly implement those systems
Ø Condition is to reach cost-oriented rate, but
Ø No cost data or model for some administrations ? SG3
developed principles and TAF, TAS, TAL cost model s
l Transitional arrangements (review at WTSA)
Ø To facilitate staged reduction to cost based rate
Ø to avoid sudden fall of revenue (smooth transition)
l SG3 developed:
Ø Guidelines for negotiation
Termination charge
l Destination operator (or Government) set the charge
l Charge should be established based on costs
l Termaination Charge includes
Ø
Ø
Ø
Ø
International exchange
National extension, including local loop
And if appropriate, international circuit
Other costs imposed on carriers by the national
regulation
l Those components should be separately identified
(Unbundled)
l Charge applies to all traffic from any source
l However if significant variation in costs, charge may
vary (volume discount)
l Termination charge may be introduced on bilateral
agreement basis
3
9
Annex E to Recommendation D.140
“indicative target rates” by Teledensity (T) Band, in SDR/min
(see also : http://www.itu.int/itudoc/itu-t/com3/ focus/80500. html)
T<1
1<T<5 5<T<10 10<T<20 20<T<35 35<T<50 T>50
0.327
SDR
0.251
SDR
0.210
SDR
0.162
(
SDR
0.118
SDR
0.088
SDR
0.043
SDR
43.7¢
33.5¢
28.0¢
21.6¢
15.8¢
11.8¢
5.7¢
(end 2001)
(end 2001)
(end 2001)
Low income
FCC : 23 ¢
(January 2002/2003)
(end 2001)
Lower middle
FCC : 19 ¢
(January 2001)
end 2001)
Upper
middle
19 ¢(J.2000)
(end 2001)
(end 2001)
High income
FCC : 15 ¢
(January 1999)
Note: The correspondence between teledensity band and income group shown in the bottom row is intended to be
approximate, not precise. Source: ITU-T SG3 Report. 1 SDR = US$1.39.
Cost model resolves every things?
l Accounting rate is established by negotiation
Ø Rates need to be agreed upon negotiation
Ø Market-determinde prices put pressure upon
negotiation
l Need to back up its claim for a charge
Ø By showing the price of a comparable competitively
offered service
Ø Or for monopoly by providing relevant cost data
l “Costs” = tools for negotiation, “costs” do
not fix automatically the level of prices
Guidelines to facilitate the negotiation
The following non-binding guidelines could be applied when negotiating
accounting rates and accounting rates share in the international service:
1. Each party should ensure that; i.e., all information to be given to the
other party should be credible in order to lead the negotiations into right
direction.
2. The parties should negotiate freely and make agreements voluntary,
any kind of coercion should be avoided.
3. Each party should act constructively, any offer, proposal, action, etc.
should be directed towards reaching an agreement. Complex concepts
should be simplified as much as possible.
4. Each party should act time-saving, any delay should be avoided.
5. Regular re-negotiations and future amendments should be possible.
6. Until such time as an appropriate dispute settlement arrangement
may be approved by the ITU with respect to accounting rates, both
parties should have the possibility to consult a person or institution for
mediation.
Network Externality
l Universal Service Obligation Fund = Cross Subsidy
Ø Not recognized as cost
l Network extremity = increase utility of a network to
users
Ø operators to provide incentives for users to join the
network = this can be added to the usage price or to the
monthly subscription fee
l the network externality effect has a solid basis in
economic analysis and had successfully – at least
with some regulators – been brought to bear by
mobile operators on their case for higher termination
rates
Ø Can be used by the developing countries to enhancing
take-up and roll-out of the network
International externalities
Country A
Customers A
(Calling)
Access network A1
Accounting
Access network A2
International operator A
rate
International operator B
Access network B1
Country B
(Called)
Access network B2
Customers B
Do Customers in A
derive benefit from
more Customers in B?
If so, how much?
Is benefit to calling
operators in A
enough incentive to
agree prices above
cost?
How can we be sure
that an externality will
be passed through to
connect more
customers in B?
International calls terminating
on the mobile network
l SG3 revised D.93 in 2000, allowing to
negotiate
Ø a separate rate for traffic terminating on a mobile
network
Ø however, this is by bilateral negotiation and when the
rate is cost orientated
Ø The difference between the two rates should be as small
as possible
l Many countries now request very high
settlement rates (ten times)
Ø SG3 revised this situation in modifying D.93
TAL, TAF and TAS average
interconnection charges
TAF
Aver
age
Year
MobileMobile
FixedMobile
MobileFixed
FixedFixed
2003
0.162
0.091
0.145
0.142
2004
-
0.103
0.077
2002
0.155
0.141
0.054
0.027
2003
0.141
0.135
0.046
0.025
2004
0.049
0.136
0.038
0.014
TAL
Aver
age
TAS
Modification to Recommendation D.93
3.2
The accounting rates for international traffic originating or terminating at a
mobile station should be cost oriented and should be applied on a nondiscriminatory
basis to all relations.
3.7
Where 3.3 b) applies but the difference between the two rates cannot
objectively be justified on the basis of costs, the following could be considered:
a) The difference between the rates for calls terminating on fixed networks
on the one hand and calls terminating on mobile networks on the other (arrived at by
deducting the lower from the higher) should be no greater than the
corresponding difference between the average of the available interoperator rates for national fixed to fixed calls on the one hand and the
average of available inter-operator rates for all national calls terminating
on a mobile network on the other.
b) If such a comparison is not possible, the difference should be no greater
than the corresponding difference between the average of retail rates for a
national fixed to fixed call on the one hand and the average of retail rates
for a national fixed to mobile call on the other hand.
Inter-regional Internet connectivity
0.4 Gbit/s
Latin
America
/s
bit
7G
0.7
Asia /
Pacific
14
Gb
it /s
it/s
b
8G
.
1
4
162Gb
it/s
USA /
Canada
Europe
Africa,
Arab
5
4
.
0
/s
t
i
Gb
0.1 Gbit/s
Note: Gbit/s = Gigabits (1’000 Mb) per second.
Source: ITU adapted from TeleGeography.
Typical ISP cost comparisons
<<<Developing countries
Commercial
& operational
costs
International
connectivity
International
connectivity
National
connectivity
National
connectivity
OECD countries >>>
Commercial
& operational
costs
ITU-T Recommendation D.50 International
Internet Connection
The World Telecommunication Standardization Assembly (Montreal, 2000),
recognizing
the sovereign right of each State to regulate its telecommunications, as
reflected in the Preamble to the Constitution,
noting
a) the rapid growth of Internet and Internet protocol-based international
services;
b) that international Internet connections remain subject to commercial
agreements between the parties concerned; and
c) that continuing technical and economic developments require ongoing
studies in this area,
recommends
that Administrations involved in the provision of international Internet
connections negotiate and agree to bilateral commercial arrangements
enabling direct international Internet connections that take into
account the possible need for compensation between them for the
value of elements such as traffic flow, number of routes, geographical
coverage and cost of international transmission amongst others.
Greece and the United States of America have expressed reservations and will not apply this Recommendation.
Rapporteur Groups meeting in Brussels
(April 2004) and SG3 meeting (May/June2004)
?
study of the effects of peering
?
Self-help by smaller networks with
limited traffic
?
development of general principles in
Recommendation D.50
ANNEX A
GUIDELINES FOR INTERNATIONAL INTERNET
INTERCONNECTION NEGOTIATIONS
When Parties involved in the provision of international Internet connections
negotiate interconnection between their respective networks, interconnect
prices and other commercial arrangements between two correspondent
Parties should take account of the following:
1)
2)
3)
4)
5)
6)
7)
8)
Network connectivity:
Traffic flows and peak link capacity:
Cost of international link capacity and its apportionment:
Additional customer revenues:
Service support commitment:
Service performance:
Interconnect and other fees:
Legal liability:
International Telecommunication Regulations (ITRs)
l ITRs elaborated in 1988
Ø Monopoly situation
Ø Basic services only (Telephony)
l New Market situation
Ø Competition
Ø New services (Mobile, Internet)
l Need for new ITRs?
Ø Redraft ITRs
Ø Integrate into Constitution and Convention
l Study Group 3 starts reviewing ITRs
Ø Rapporteur Group on ITR review (tsg3itr)
Council Working Group on ITR
(See: http://www.itu.int/itr)
Chairman
Mr. Alaa Fahmy
Secretary
S. Tanaka
Secretary
R. Hill
Coordinator-1
Coordinator-2
Coordinator-3
Sub-Group-1
Sub-Group-2
Sub-Group-3
Sub G1: Analyze past work and contributions submitted
Sub G2: Examine current ITR
Sub G3: Examine need for new provisions