Termination charges for Traffic Delivered
over Mobile and fixed Networks
Saburo TANAKA
Councellor,
Seminar in Prague,
9 – 11 September 2003
Note: The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its membership.
Termination charge / mobile – fixed networks
Agenda
l What is ITU-T Study Group 3?
ð What is SG3 doing
ð Main activities of SG3
l What is Termination charge
ð Difference between revenue sharing and
Termination
l Termination charges for fixed network
l Termination charges for Mobile Service
l What are the concerns of administrations
and how do they react?
2
Termination charge / mobile – fixed networks
3
International
Telecommunication Union
l In the ITU there are 3 Sectors
(Radiocommunication,Telecommunication
and Development) + General Secretariat
l In the ITU-T, there are 14 Study Groups and
TSB to support the works of SGs
l SG3 is in charge of developing tariff
principles, including telecommunication
related ecomomic and policy related issues
l SG3 has 4 Questions to study, has two
Working Parties and several Rapporteur
Groups
Termination charge / mobile – fixed networks
4
Termination charge / mobile – fixed networks
5
IO
SIO
SG3 is unique
Administrations
ROAs
l Because of its composition
Ladies
Gentlemen
Developed
countries
Developing
Countries
Termination charge / mobile – fixed networks
6
Dealing purely with non-technical
standards and …
l Tariff/regulatory/Policy related issues
lThere are 4 Regional Tariff Groups
Termination charge / mobile – fixed networks
Main study items
l Accounting rate reform
ð Transitional arrangements
ð Action to facilitate negotiations
ð Network externalities
l Mobile termination charge
ð Cost elements
ð Level of termination charges
l International Internet Connectivity
ð Implementation of Recommendation D.50
ð Improving connectivity in LDCs
l Other studies
ð International Telecommunication Regulations
7
Termination charge / mobile – fixed networks
8
So, what’s the problem?
l Competition is everywhere but..
ð Incumbents, New-comers and Regulators are not ready
l Accounting rates are the traditional way of sharing
revenues from int’l services
ð BUT, creates incentives among recipient countries to
sustain rates at high level
ð Accounting rate system not well-adapted to competitive
market environment
l Strong pressure to move towards a cost-oriented
system
ð BUT, a cost-oriented system would be asymmetric
ð US want cost-oriented but reject asymmetric charges for
call termination
l How to calculate cost ?
ð How interconnection charge should be determined
Termination charge / mobile – fixed networks
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Solutions & difficulties
l New Remuneration system (adopted)
ð Termination charge system
ð Settlement rate system
ð Special arrangement
l Difficulty to quickly implement those systems
ð Condition is to reach cost-oriented rate, but
ð No cost data or model for some administrations ? SG3
developed principles and TAF, TAS, TAL cost models
l Transitional arrangements (adopted at WTSA 2000)
ð To facilitate staged reduction to cost based rate
ð to avoid sudden fall of revenue (smooth transition)
l SG3 developed:
ð Guidelines for negotiation
0.35
Movement of settlement rates
0.327
T>50
(as per Recommendation D.140, Annex E)
35<T<50
0.3
20<T<35
10<T<20
Settlement rates (SDR)
0.25
5<T<10
0.245
0.251
1<T<5
0.225
0.2
0.21
0.05
0.142
0.139
0.088
0.043
0.183
0.165
0.171
0.15
0.1
TAL
0.206
0.162
0.118
T<1
0.215
0.137
0.115
0.116
0.122
0.099
0.108
0.083
0.074
0.039
0.115
0.038
0.102
0.061
0.038
0.148
0.113
0.114
0.104
0.101
0.085
0.058
0.039
0
1998
1999
Years
2000
2001
2002
Annex E to Recommendation D.140
“indicative target rates” by Teledensity (T)
Band, in SDR (and US cents) per minute.
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)
1
1
(end 2001)
Low income
FCC : 23 ¢
(January 2002/2003)
(end 2001)
(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.
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.
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.
Addition to Recommendation D.140
1 accountingnrates for international telephone
services should be cost-orientated and should
take into account relevant cost trends;
2 each Administration should apply the above
principle to all relations on a non-discriminatory
basis; Accordingly, international calls should not
be treated any less favorably than comparable
national calls.
Alternative proposal from Vietnam:
Accordingly, under normal circumstances (where
tariff rebalancing has been effectively achieved)
international calls should be treated any less….
Termination charge / mobile – fixed networks
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Termination charge
l Destination operator (or Government) set the charge
l Charge should be established based on costs
l Termaination Charge includes
ð
ð
ð
ð
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
Termination charge / mobile – fixed networks
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What is revenue-sharing?
“An agreement to divide the revenues
gained from the end-to-end provision of
a jointly-provided service between the
parties involved in providing that
service, according to a negotiated set of
percentage shares.
Revenue-shares may vary according to
the volume or direction of traffic”
Revenue-sharing in international networks:
Accounting rates
Accounting rate
Internal price
between PTOs for
a jointly-provided
service
Collection charge
The amount charged to the
customer by the Public
Telecommunication Operator
(PTO)
Settlement rate
Payment from one PTO
to another. Normally, half
the accounting rate
Termination charge / mobile – fixed networks
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Sender-keeps-all: A special kind of
revenue-sharing
Sender-keeps-all (also called “bill and keep”)
implies that each party in a jointly-provided
service keeps the revenue they collect:
ð e.g., in mobile networks under “receiving party
pays”, both call origination and call termination
are charged separately
ð e.g., in international networks, without transit,
where traffic is more or less in balance, neither
side will pay settlement fees
ð e.g., in Internet backbone networks, “peering” of
traffic between domains of approximately equal
size and similar usage pattern
Termination charge / mobile – fixed networks
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What is Termination charge and
Interconnection charge?
“A termination charge is levied by a
facilities-based services provider in
exchange for use of its facilities, for
instance to terminate a call.
Termination charge => Interconnection
between two Networks
Interconnection and termination charge are
usually charged on a per-minute basis, but
can also be charged according to use of
network capacity”
Termination charge / mobile – fixed networks
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Interconnection between networks of
same type (Europe)
l Old regulatory framework
Ø Many different sector-specific directives, notably
Interconnection Directive (97/33/EC)
Ø Two parts: Recommendations on Interconnection pricing
and accounting separation
l Methodology for identifying “best practice” pricing
Ø Lowest 20% of published interconnection offers in 15 EU
Member States at local (0.9 €/100), single transit (1.5 €/100)
and double transit (1.8 €/100)
l New technologically-neutral regulatory framework
Ø Access to, and interconnection of, electronic
communications networks and associated facilities
Ø Reference Interconnection Offers (RIO) must be published
by all carriers with significant market power
Interconnection between different types of
network (e.g. fixed-to-mobile)
Calling
Party
(FIXED)
Call Origination
Transit service
Orig.
Orig. Access
Access
Switching
Switching
Authentication
Authentication
Source: Adapted from ECTA.
Core
Core
Network
Network
Switching
Switching
Call Termination
Locating
Locating the
the
Customer
Customer
Switching
Switching
Term.
Term. Access
Access
Called
Party
(MOBILE)
Termination charge / mobile – fixed networks
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Revenue-sharing and interconnect:
What’s the difference?
l
l
l
l
Revenue-sharing
Based on a division of
total revenue
Unrelated to
underlying costs
Rates are negotiated
bilaterally and rarely
regulated
Rates cannot be
compared over time or
between countries
l
l
l
l
Interconnection
Based on a per-minute
charge
Directly related to cost
of facilities used
Charges are set by
operator, within a
regulatory framework
Rates can be
benchmarked, over
time and between
countries
Termination charge / mobile – fixed networks
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Countries with an Interconnection
regulatory framework, by region
Countries
40
35
30
25
20
15
10
5
0
Africa
Americas
Arab
States
AsiaPacific
Source: ITU Telecommunications Regulatory Database, 2001.
Europe
Termination charge / mobile – fixed networks
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What are the advantages?
l
l
l
l
l
l
Revenue-sharing
Relatively easy to
understand
Relatively easy to
negotiate
Relatively stable
Some benefits to all
parties
Can be used for
franchise agreements
(e.g., in Thailand)
Symmetrical
l
l
l
l
l
l
l
Interconnection
Transparent (if rates are
published)
Non-discriminatory (if
rates applied equally)
Directly cost-oriented
Easy to implement
Easy to compare
between countries
Flexible
Puts downward
pressure on prices
Termination charge / mobile – fixed networks
What are the disadvantages?
l
l
l
l
l
l
l
Revenue-sharing
Not transparent
Discriminatory
Not cost-oriented
Favours the “stronger
player” in negotiations
Can’t be benchmarked
Leads to disputes
over traffic/revenue
No downward
pressure on prices
Interconnection
l May lead to disputes
over:
ð setting rates
ð points of
interconnection
ð underlying costs
l Not “reciprocal” or
symmetrical
l Costs may be inflated
(e.g. mobile call
termination in Europe)
24
Termination charge / mobile – fixed networks
International calls terminating
on the mobile network
l SG3 revised D.93 in 2000, allowing to
negotiate
ð a separate rate for traffic terminating on a mobile
network
ð however, this is by bilateral negotiation and when
the rate is cost orientated
ð The difference between the two rates should be as
small as possible
l Many countries now request very high
settlement rates (ten times)
ð A review is now going on in SG3
25
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
Interconnection Rates in Selected European
Countries
Calling Party Pays (CPP). In US $ per minute.
European fixed-to-mobile interconnect charges, (US$/min)
Norway
0.156
UK
0.16
Denmark
Fixed-tomobile
0.17
Netherlands
0.18
Belgium
0.18
Spain
0.20
France
0.20
Finland
Mobile-tofixed DOUBLE
TRANSIT
0.22
Austria
0.23
Italy
0.23
Sw itzerland
Lowest
Best-practice
(20%) guideline
Mobile-tofixed SINGLE
TRANSIT
0.21
Sweden
Germany
EU, range of interconnect rates, (US cents per min.)
Highest
Mobile-tofixed LOCAL
0.24
0.30
0
5
10
15
20
25
30
Interconnection rates in selected
non-European countries
Calling Party Pays (CPP) vs. Receiving Party Pays (RPP). In US$ per minute.
China
RPP countries
0.0096
0.0012
0.007
0.000
0.008
HK SAR
0.008
0.008
Singapore
Canada
Mobile-to-fixed
interconnect rate
Malaysia
Fixed-to-mobile
interconnect rate
Guatemala
Mexico
0.000
0.009
Sri Lanka
0.000
USA
Costa Rica
Cambodia
0.020
0.020
Dom. Rep.
Philippines
RPP
CPP
CPP countries
0.017
0.017
Mobile-to-fixed
interconnect rate
0.034
0.034
0.047
0.047
0.026
0.20
0.050
0.070
0.042
0.078
0.051
0.205
Average
0.010
0.005
Botswana
0.056
0.105
Antigua
Fixed-to-mobile
interconnect rate
0.052
0.208
0.293
0.293
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, and international calls should be treated no less favorably than
comparable national calls.
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 inter-operator 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.
Termination charge / mobile – fixed networks
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Network Externality
l Universal Obligation Fund = Cross Subsidy
ð Not recognized as cost
l Network extremity = increase utility of a network to
users
ð 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
ð Can be used by the developing countries to enhancing
take-up and roll-out of the network