Global trends in telecom
development and
Int’l Interconnection
Seminar in Arusha, April 2002
The original document is elaborated by Dr Tim Kelly, ITU/SPU. It has completed by Saburo Tanaka and by Pape-Gorgui Toure. The
views expressed in this presentation are those of the authors, a nd 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 gorgui.toure@itu.int.
Global trends in telecom
development
l The state of the industry
l The state of the market
l Situation in the Regions
l Paradigm shift
l Examining market reality
l ITU-T SG3 activities
ð Transitional arrangements
ð New remuneration systems
l Int’l Interconnection with mobile network
l Internet Interconnection – IP Telephony
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
Projection of revenue growth (US$bn)
1000
Actual
900
Service revenue (US$ bn)
800
700
Other: Data, Internet,
Leased lines, telex, etc
600
500
13%
Projected
Mobile
36%
Int'l
400
8%
300
200
100
Domestic Telephone/fax
43%
0
90 91 92 93 94 95 96 97 98 99 00 01 02
Source: ITU.
Telecommunications revenue Africa/World
(1994, 1996, 1998, 2000)
M. US$
1'000'000
513'013
620'196
722'548
(180%)
100'000
10'000
925'074
7'208
9'381
12'193
16'391
(227%)
1'000
1994
1996
1998
2000
Internet users, millions
Annual rate of change
109%
Change
67%
59%
498
66%
55%
230
311
35%
37%
149
34
1995
Source: ITU.
54
1996
90
1997
1998
1999
2000
2001
Inter-regional Internet
connectivity
0.4 Gbit/s
/s
bit
7G
0.7
Asia /
Pacific
162Gb
it/s
USA /
Canada
14
Gb
it /s
/s
t
i
b
G
8
41.
Latin
America
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.
The state of the market
l Increasing competition
ð Around two-thirds of telecom subscribers now have a
choice of operator
ð More than 99 per cent of mobile and Internet subscribers
now have a choice of operator
l Dominantly private-ownership
ð 19 out of top 20 top public telecom operators are partially
or fully private-owned
ð Of the top 20 mobile operators, 16 are fully-private, 3 are
partially private, 1 is state-owned
l Independent regulators
ð There are currently 112 independent regulators (only 12 in
1990)
Private, competitive, mobile and global
By
country
2%
13%
39
Status of
telecom
Ot
privatization
h
2001
113
85%
Fully or
partly private
incumbent
Other private
operators
(e.g. mobile)
No private
operators
49
By telecom
revenue
Status of telecommunication privatization , by country and by share of global revenue, 2001
Legal status of competition
Distribution by country, 2001
37%
38%
43%
Long
distance
Int'l
Local
Legal status of telecommunication competition, by country, 2001
Monopoly
Competition
78%
86%
Mobile
Internet
Mobile as the new global network
Telephone subscribers, world,
2'000
1'500
1'000
Fixed
500
Forecast
Mobile
0
82
84
86
88
90
92
Mobile and fixed telephone subscribers worldwide, 1982-2005
94
96
98
00
02
04
More mobile countries
Countries with more mobile than fixed telephones (97), 2001
Mobile as % of total telephone subscribers, LDCs, 2001
D.R. Congo
Cambodia
Uganda
Rwanda
Tanzania
Madagascar
Guinea
Benin
Eq. Guinea
Chad
Togo
Mozambique
Senegal
Lesotho
Burkina
Gambia
S.Leone
Zambia
Haiti
CAR
Angola
Malawi
Bangladesh
Burundi
75.1
74.2
71.6
68.6
67.8
67.8
66.7
66.4
65.5
62.2
59.8
56.6
55.1
54.2
53.5
53.4
52.4
52
50.7
50.3
50
87.2
87
83.5
Total telephone users (fixed plus mobile) per 100 inhabitants
4.0
3.5
3.0
2.5
2.0
1.5
It took 35 years to
increase telephone
density by a factor
of 3.
Togo
In just 6 years,
telephone density
increased by a
factor of 6.
Benin
Uganda
Madagascar
1.0
0.5
0.0
1960
65
70
75
80
85
90
95
2000
Distribution of population, main telephone lines, mobile
cellular subscribers and Internet users by country economic
classification, 2001
Distribution by economic classification, 2001
100%
80%
60%
Low
Low er Middle
Upper Middle
High
40%
20%
0%
Population
Telephones
Mobile
Internet
Growth in fixed line teledensity,
Chile and Argentina, 1986-2000
Teledensity, in Chile and Argentina
25
20
1990: Privatization w ith 7-year
exclusivity in Argentina
15
Exclusivity
extended by 3
years in
Argentina
10
5
1988: Privatization and
competition in Chile
0
1986
1988
1990
1992
1994
1996
1998
2000
Growth in mobile teledensity,
Hong Kong SAR and Singapore, 1988-2000
Mobile penetration rate, per 100 inhabitants
90
Six additional PCS licences
awarded in 1996
80
70
60
50
40
Hongkong
SAR: Mobile
competition
introduced in
1988 for
analogue
30
Additional
competition
introduced w ith
digital mobile in
1993
Singapore:
Mobile
competition
delayed until
April 1997
20
10
0
1988
1990
1992
1994
1996
1998
2000
Teledensity with rising rank
Country
China
2000
17.8
1990
0.6
Rank
2000
95
V iet Nam
4.2
0.1
141
189
48
Botsw ana
21.6
2.1
91
129
38
El Salvador
21.8
2.4
90
125
35
Jamaica
34.1
4.5
71
106
35
Hungary
67.4
9.6
43
78
35
Mauritius
38.6
5.4
67
100
33
Chile
44.4
6.7
61
93
32
Philippines
12.4
1.0
112
143
31
Morocco
13.3
1.6
107
136
29
Paraguay
20.7
2.7
92
120
28
Cambodia
1.2
0.0
167
194
27
17.2
2.4
98
125
27
137.0
31.4
5
31
26
45.6
8.6
60
85
25
Cape Verde
Taiw an, China
Poland
Rank
1990
159
Change
64
Teledensity with falling rank
Country
2000
1990
Rank
2000
Armenia
15.6
15.7
102
60
-42
Iraq
2.9
3.9
149
109
-40
Tajikistan
3.6
4.5
143
105
-38
Uzbekistan
6.9
6.9
128
92
-36
Kyrgyzstan
7.9
7.2
125
90
-35
Angola
0.7
0.8
177
146
-31
Liberia
0.2
0.4
190
162
-28
DPR Korea
4.6
3.8
138
111
-27
96.1
58.6
33
6
-27
Turkmenistan
8.4
6.0
123
97
-26
Cuba
4.4
3.1
140
115
-25
Moldova
16.5
10.6
99
74
-25
Kazakhstan
12.5
8.0
111
87
-24
1.0
0.8
171
149
-22
22.7
13.6
87
66
-21
Canada
Comoros
Ukraine
Rank
1990
Change
Total (fixed-line + mobile) telephone subscribers per 100
inhabitants, LDCs
Mobile
1.4
Fixed-line
Total
1.2
1
0.8
0.6
0.4
0.2
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Outgoing telephone traffic 1995-2000
1,000,000
1995
211%
Million minutes
100,000
10,000
167%
168%
160%
2000
182%
160%
1,000
100
10
1
Africa
Americas
Asia
Europe
Regions
Oceania
World
Telephone tariffs (2000)
Residential (US$)
Business (US$)
Local call
(US$)
Subscription
as % of GDP
per capita
Connection
M.
Subscription
Connection
M.
Subscription
World
86
6.3
113
9.8
0.07
5.7
Africa
62
5.0
77
5.7
0.08
12.7
Americas
105
8.3
134
17.6
0.07
3.1
Asia
108
4.4
139
8.0
0.04
5.5
Europe
84
7.8
117
9.7
0.10
1.1
Oceania
55
8.6
79
14.3
0.13
3.7
Cellular tariffs (2000)
Connection
M. Subscription
World
75
Africa
3 minutes local call
Peak
Off Peak
16.6
0.62
0.42
79
13.3
0.56
0.39
Americas
58
21
0.78
0.57
Asia
83
14.9
0.47
0.32
Europe
62
13.8
0.59
0.41
Oceania
91
35.7
1.40
0.75
Accounting rates trend
2.5
World average
TAF average
2.12
2.08
2
US average
2.04
2
1.96
Benchmark L
1.9
Benchmark H
1.83
Accounting rates (in SDR)
1.73
1.69
1.61
1.5
1.34
1.16
1
1
1.19
1.08
1
0.95
0.9
0.8
0.768
0.855
0.75
0.68
0.61
0.735
0.788
0.55
0.5
0.5
0.685
0.46
0.39
0.31
0.338
0.28
0.26
0.22
0.25
0
1988
1989
1990
1991
1992
1993
1994
1995
Years
1996
1997
1998
1999
2000
2001
2002
2
5
Telephony : Some DATA(2000)
Intern’l Telephone revenue : 54 billion US $
Settlement transaction : 27 billion US $
Net Settlement payment to developing
countries amount to around : 5 billion US$
Int’l Infrastructure costs reduction: < 20 %
Annual average traffic increase : 8 %
Average Settlement rate reduction: ? %
18%
19%
18%
17%
Global international telephone calls
Billions of minutes
and Growth rates
101
94
86
79
17% 17%
17%
16%
71
15%
15%
15%
15%
15%
15%
64
14%
13% 57
13%
Annual change
12%
12%
12%12%
49
11%
11%
43
38
9%
8%8%
33
28
24
21
18
14 16
13
11
10
9
8
4 5 5 6
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
USA Net settlement payments and
Average settlement rates movement
(in US$)
0.8
0.68 0.675
6
0.7
0.64
0.6
0.575
5
0.515
0.48
4
0.5
0.455
0.405
0.4
0.365
3
0.315
0.3
0.27
2
0.215 0.175
0.2
0.16
1
0.1
0
0
8
198
9
198
0
199
1
199
2
199
3
199
4
199
5
199
Years
6
199
7
199
8
199
9
199
0
200
1
200
US average settlement
rates
Net Settlement Payments
.
7
Net Settlement
payments
Settlement rates
movement
Falling prices
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
$0.00
90
92
94
96
98
00
02
04
Traditional regime:
Joint provision of service
2
9
Country A
Country B
X
X
Two different national operators jointly establish an
international circuit and decide the revenue they wish to
obtain. They then divide that revenue fifty-fifty split.
Emerging regime:
Market entry and interconnection
3
0
Jointly provided circuit
Country A
Country B
X X
X
Circuit provided
by operator B
Cross border interconnection and the trading of international traffic
minutes
Refile and other practices using
accounting rate system
Operator in A sends traffic to
operator in C under an
arrangement of exclusivity
1
C
in A
Orig nation B
i
Dest
Operator in C declares
traffic to B on transit
through A
A
C
• Operator in A is a partner
of operator in C
• Settlement rates A/B > C/B
B
3
A
C
B
igin ation
r
O tin
s
De
Operator in
B receives
traffic at
settlement
rate C/B
instead of
A/B
2
Operator in C
“re-labels” the
traffic as originated
in C
B
4
Alternative
CALL BACK
calling
usingprocedures
Accounting Rates
Using AR
Call-Back
Country A
Call-Back
1.2$
1.0$
0.8$
1.5$
2.0$
Country B
4.5 $
Country C
3.5$
Interconnection of two outgoing calls in country A
7
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
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 (by-passing accounting rate)
Terminating
Network
PSTN/ISDN
/PLMN
IP Network
IW F
Local or distributed
function
Local or distributed
function
IW F
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
PSTN/ISDN
/PLMN
Originating
Network
Call from International Telecommunication Network
(ITN) to another ITN via IP-based Network
T0208500-00
(106147)
ITU–T SG-3 Major achievements
l New Remuneration system
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 Group
3 is developing cost methodologies
l SG3 is now developing cost methodologies
l Transitional arrangements
ð To facilitate staged reduction to cost based rate
ð to avoid sudden fall of revenue (smooth transition)
Annex E to Recommendation D.140
“indicative target rates” by Teledensity (T)
Band, in SDR (and US cents) per minute.
T<1
A
1<T>5 5<T<10 10<T<20 20<T<35 35<T<50 T>50
B
C
D
E
F
G
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)
3
8
(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.
Annex E Recommends also
l That transit Administrations move towards the
indicative target rate (upper limit) of 0.05SDR
(0.07US $) per minute.
l To negotiate asymmetrical accounting rate (other
than 50/50) if both administrations agree to move to
below the indicative target rate.
Example:
Operator A belong to teledensity band E
Operator B belong to teledensity band F
A and B agree to achieve TAR 0.2SDR (<0.118x2)
ð A can request settlement rate of 0.09 SDR
ð B accepts to pay 0.11SDR to A
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
Accounting rates and Termination Charges
What’ s the difference
Accounting rate
Termination charge
Normally symmetric(50/50)
Not necessarily symmetric
(if cost differ)
Bilaterally negotiation
In theory, set unilaterally
(need agreement to
implement)
Non-discriminatory (same
rate for all correspondents)
Discriminatory (different
rates negotiated with
different correspondents)
Half-circuit regime (would
Full-circuit regime (could be
not normally be unbundled) unbundled)
International call terminating on
mobile network
l SG3 revised D.93 in year 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 (3 – 5 times)
ð A review is now going on in the SG3
Interconnection Rates in selected European
countries under CPP (in US $ / minute)
Fixed-to-mobile
interconnect rate
Mobile-to-fixed
interconnect rate LOCAL
Mobile-to-fixed
interconnect rate SINGLE
TRANSIT
Mobile-to-fixed
interconnect rate DOUBLE
TRANSIT
Austria
0.23
0.017
0.017
0.022
Belgium
0.18
0.008
0.014
0.018
Denmark
0.17
0.008
0.011
0.016
Finland
0.21
0.013
0.013
0.024
France
0.20
0.006
0.012
0.018
Germany
0.24
0.008
0.017
0.021
Greece
n.a.
0.018
0.018
0.025
Italy
0.23
0.009
0.015
0.021
Ireland
n.a.
0.010
0.015
0.021
Luxembourg
n.a.
0.015
0.015
0.015
Netherlands
0.18
0.009
0.013
0.016
Portugal
n.a.
0.009
0.015
0.024
Spain
0.20
0.009
0.015
0.028
Sw eden
0.22
0.008
0.011
0.015
UK
0.16
0.005
0.007
0.016
Switzerland
0.30
n.a
n.a
0.020
Norway
0.156
n.a
n.a
0.018
Average
0.21
0.010
0.014
0.020
In 2001, there is an estimate indicating that the average of Fixed-mobile decreased to 0.136
and mobile to fixed has not changed
Internet Interconnection
l Internet Interconnection has slightly different meaning.
Historically Internet interconnection has involved
simply different Internet networks.
l This Internet Interconnection policies have proved
increasingly inappropriate in a commercial industry.
ð Many operator with larger networks often charge smaller ISPs
a traffic-based interconnection fee
ð Many backbone providers have begun offering transit service
networks.
l Different type of Interconnection Arrangements
ð ISP Relationships with customers: usually via a dial-up
ð ISP-ISP Interconnection: peering or bilateral agreement
ð Multiple ISP Exchanges when several ISPs need to
interconnect in a same city (use of an IXP)
l International Regulatory Development
Recommendation D.50
The ITU-T,
recognizing
the sovereign right of each State to regulate its telecommunication, 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.
Internet vicious circle
No growth in
infrastructure,
limited
Internet
connectivity
Low
international
Internet
connectivity
No exploitation of
economies of scale
Low bargaining
power of ISPs
Lack of competition
Little
interest of
private
investors
High
connectivity
charges for
ISPs
Low demand
of Internet
services
High end-user
charges
Virtuous circle
ITU IP Connectivity Project
Higher
international
Internet connectivity
Interest in investing
Lower costs
Market growth
Bargaining power
of ISPs
Economies of scale
Liberalisation
of the Internet
market
Higher
demand
IP-Telephony
Telephone to
telephone (fax to
fax) via Internet
Internet
Phone Gateway
Computer
Telephone
Phone Gateway
Computer
Public Switch
Telephone
l Any telephone/mobile user to any other
l Main motivation: Accounting rate bypass, market
entry for non-facilities-based carriers
l Potential service providers include any PTO with
settlement payments deficit (e.g., US = US$5.7bn)
l Market potential: 1.3 billion telephone/mobile users
IP Telephony
Opportunities and challenges
l Opportunities
ð Reduce prices to consumers and the costs of market
entry for operators
ð In terms of volume of traffic carried and level of
investment committed
l Challenges
ð Undermine the pricing structure of the incumbent
Public Telecommunication Operators (PTOs)
ð Transition to IP-based networks also poses significant
human ressource development challenges
Challenges
Revenue gain and revenue loss
Accounting Rate
IP-Telephony
PTO in
Developed
country
Collect
US$ 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$
How the operators in developping
countries stop IP-Telephony
Operator check
only this line
PSTN
Operator
Switch
ISP
Users can call ISP but ISP is
unable to call users
Conclusion and Recommendation
l Erosion of traditional system of accounting rates
for exchange of international traffic
ð Domestic interconnect fees will be dominant mode
l Major price cuts in international calls
ð Availability of new infrastructures
ð Impact of Internet pricing model (distance and duration
independent)
l Mobiles exceed fixed-line phones worldwide
ð Introduction of “third generation” mobiles after 2001
ð Generational shift, as new users reject fixed-lines
“ Interconnection and tariff rebalancing”