Download Towards the future: What next for Telecom Businesses?

Towards the future: What next for
Telecom Businesses?
Dr Tim Kelly, ITU
Wednesday Session 1
CTO Senior management
seminar: Telecoms
restructuring and business
change
Malta, 17-21 May, 1999
The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or
its membership. Dr Kelly can be contacted at [email protected].
Agenda
 The current international telecoms market
 Forecasting by projection of current trends
 Market trends
 Price trends
 Infrastructure trends
 Forecasting by identifying discontinuities
 Rise of the Internet
 Mobile / Fixed substitution
 Erosion of the accounting rate system
 The international telecoms market in 2005
International traffic by origin, 1997
Global total, 81.8 billion minutes
LAC, 4.1%
Africa, 1.9%
Asia-Pacific,
18.5%
Europe, 43.0%
North America, 32.6%
Note: “LAC” = Latin America & Caribbean. Source: ITU/TeleGeography “Direction of Traffic” Database.
Top ten international telecom
carriers, 1997 (billions of minutes)
AT&T
MCI / WorldCom
Deutsche Telekom
BT
France Telecom
Sprint
Telecom Italia
Swisscom
C&W Comms
Stentor
Source: ITU/TeleGeography Inc.
US
US
Germany
UK
France
US
Italy
Switz.
UK
Canada
10.3
7.3
5.3
3.7
3.5
2.8
2.4
1.9
2.1
1.8
Major alliances, ranked by billions of
minutes of outgoing int’l traffic, 1997
14.0
10.4
7.3
4.4
AT&T/BT
Source:
DT/TI/
Sprint
ITU/TeleGeography Inc.
3.8
MCI/
Unisource C&W
WorldCom
(UK)/HKTI
Top 8 international carriers, 1996/97
Growth in traffic
Change in int’l revenue
AT&T
8.8%
MCI
10.3%
4.6%
BT
13.8%
FT
7.7%
11.8%
0.8%
DT
18.3%
11.2%
-10.6%
5.0%
-14.3%
-39.7%
Sprint
1.3%
T. Italia
12.5%
SwissCom
-19.0%
Source: ITU, TeleGeography Inc.
Note: Revenue change is based on dollar figures and may be different if expressed in local currency.
Projection of growth trends, fixed and
Subscribers (million)
1'500
1'250
300
Fixed main lines
250
Mobile subscribers
1'000
Total int'l traffic
200
750
150
500
100
250
50
0
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: ITU.
Billions of minutes of int’l traffic
cellular subscribers and int’l traffic, 1995-2005
Projection of revenue growth (US$bn)
1000
Service revenue (US$ bn)
900
800
700
Actual Projected
Other: Data, Internet,
Leased lines, telex, etc
600
500
Mobile
Int'l
400
300
200
100
Domestic Telephone/fax
0
90 91 92 93 94 95 96 97 98 99 00 01 02
Source: ITU.
Percentage of outgoing international
traffic open to competition
Monopoly
74%
35%
85%
Competition
46%
4
14
29
48
1990
1995
1998
2005
Number of
countries
permitting
more than
one operator
for
international
telephony
Note: Analysis is based on WTO Basic Telecommunications Commitments and thus presents a minimum level of
traffic likely to be open to competitive service provision. Source: ITU, WTO.
Infrastructure capacity and costs,
TransAtlantic cables, 1983-2000
Cost per voice path (US$)
10'000
Capacity (voice
paths), growing by
64% p.a.
100'000'000
10'000'000
1'000'000
100'000
1'000
10'000
100
10
1'000
Cost per voice path
(US$), declining by
41% p.a.
100
10
1
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)
100'000
Infrastructure capacity, TransAtlantic &
TransPacific, in millions of voice-paths
60
Actual
Projected
50
TransAtlantic
40
Bandwidth glut?
TransPacific
30
20
Bandwidth shortage
10
Bandwidth glut
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: ITU, TeleGeography Inc., FCC.
Note: Voice-path numbers assume a compression ratio of 5:1 to number of circuits.
Price projections: price per minute of
international call from US (in US$)
1.2
Actual
1
Projected
0.8
Retail price
0.6
0.4
Wholesale price
0.2
0
90
92
94
96
98
00
02
04
Source: ITU, FCC. Note: “Retail price” calculated as actual revenue per billed minute of international traffic.
“Wholesale price” calculated as weighted average of settlement rate to all US destinations.
Discontinuity 1: The Internet
Internet hosts (million)
50
43.5
Telephone
6%
lines
40
29.7
Cellular
subscribers
30
52%
Internet
hosts
0.4
0.7
20
16.1
87%
1.3
2.3
9.4
10
4.7
0
90
91
92
93
94
95
96
97
Source: ITU “Challenges to the Network: Internet for Development, 1999”, Network Wizards.
98
Distribution of Internet hosts,
January 1998
Australia,
Japan & New
Zealand
7.0%
Canada &
US
64.1%
Other
4.6%
Europe
24.3%
Developing
Asia-Pacific
2.9%
LAC*
1.2%
Africa
0.5%
Source:
ITU “Challenges to the Network: Internet for development, 1999”.
“IP is to communications what
the PC was to computing … it’s
that fundamental a shift”
Dan Schulman,
AT&T WorldNet Services,
Quoted in
Tele.Com, May 1998
The Economist
May 2nd 1998
Internet telephony:
Different modes
 Computer to computer Since 1994
 Conversation between two similarly
equipped computer users via Internet
Internet
Phone Gateway
Computer
 Computer to telephone Since 1996
Internet
 Internet user interconnecting with Public
Telephone Network via an intermediary
service provider (e.g., call-back
company) or a service provider’s
Website
Phone Gateway
Computer
Public Switch
 Telephone to telephone Since 1997
 Telephone carrier routes telephone or
fax message via a data network
(Internet, frame relay) rather than via
the Public Telephone Network
Phone Gateway
Computer
Telephone
Internet
Phone Gateway
Computer
Telephone
Phone Gateway
Computer
Public Switch
Telephone
Discontinuity 2: Mobile / Fixed
Substitution
Most mobile users currently also have a fixed
line telephone. But, in the longer term:
 Substitution of traffic
 Users making calls from mobile instead of from
fixed-line telephone
 Mobile users making calls to other mobile users
 Substitution of subscriber base
 New users (e.g., teenagers) choosing mobile
connection without buying fixed line
 Users with both mobile and fixed line giving up
fixed line to save on monthly costs
When will mobile calls be cheaper than fixed-line?
Cross-over point. Fixed lines and mobile
subscribers in Finland, 1990-98
Subscribers, thousands
3,500
3,000
Fixed line network
2,500
August
1998
2,000
1,500
Mobile network
1,000
500
0
1990
1991 1992
1993
1994 1995
Source: ITU “World Telecommunication Indicators Database”.
1996 1997
1998
Mobile/fixed line substitution
Cellular subscribers as % of total
telephone subscribers
35
Finland
Philippines
30
Lebanon
Thailand
Israel
Japan
25
Iceland
Venezuela
N. Zealand
20 Sri Lanka
Italy
South Africa
15 Gabon Jamaica Korea
Germany
(Rep.)
10
Colombia
Greece
Uganda
France
5
SUBSTITUTE
0
0
SUPPLEMENT
10
20
30
40
50
60
Main lines per 100 inhabitants
 In some countries,
wireless is already
substituting for
wired service
 Characterised by
low levels of fixedline density with
competitive
wireless markets
 Also where fixedline network
damaged
Discontinuity 3: Erosion of the
accounting rate system
 Accounting rate system has prevailed for more
than 100 years
 Based on revenue-sharing between operators
 New market entrants prefer to pay domestic
interconnect charges
 Pressure towards cost-oriented rates
 Internet has no end-to-end settlements
 BUT, developing countries highly dependent
on net settlement payments
 Transfers worth some US$7-10 billion per year,
much of which is used for equipment purchases
Two alternative scenarios:
ITU Focus Group targets, by teledensity
(T), to be achieved by 2001 (2004)
T<1
1<T<5 5<T<10
$0.45
$0.35
$0.29
10<T<20
20<T<35 35<T<50 T>50
$0.23
$0.16
$0.12
$0.06
FCC Benchmarks, by income group
Low income,
T<1
Low
income
Low-mid
income
$0.23
$0.23
2002
2001
Source: ITU Focus Group Report, FCC.
High
income
$0.19
Uppermid
income
$0.19
2000
1999
1998
$0.15
Traffic already shifting to the Internet.
Usage of int’l circuits between US & UK, 199597
60'000
50'000
40'000
Idle circuits
30'000
Public telephone
20'000
10'000
Source:
0
1995
ITU, adapted from TeleGeography, FCC.
International private
lines (mainly Internet)
1996
1997
Forecasting to 2005 by projecting
forward current trends
 By 2005, there could be:
 1.4 billion telephone lines
 950 million cellular telephone subscribers
 400-500 million Internet users
 These could account for:
 250 billion minutes of int’l voice/fax traffic
 2.5 trillion minutes of total voice/fax traffic
 1’000’000 Gigabits (1 Petabit) per second of
Internet traffic
 Services market of around US$1.1 trillion
 Equipment market of around US$400 billion
“The death of distance
as a determinant of the
cost of communicating
will probably be the
single most important
factor shaping society
in the first half of the
next century.”
Frances Cairncross, “The Death of
Distance”, 1997
Forecasting to 2005 by
identifying discontinuities
 By 2001, less than 10% of int’l traffic will use
accounting rate system
 Domestic interconnect fees will be dominant mode
 Major price cuts in international calls after
2002/2003
 Availability of new infrastructures
 Impact of Internet pricing model (distance and
duration independent)
 Mobiles exceed fixed-line phones in OECD
countries by 2004/2005
 Introduction of “third generation” mobiles after 2000
 Generational shift, as new users reject fixed-lines
The int’l telecoms market in
2005: Some educated guesses
 The premium of an international call over a
domestic call (currently >300%) will be <20%
 Internet-like pricing structure
 Traffic flows will be dictated by a small number of
hubs connected to multiple fat pipes
 Major hubs in New York, London and Hong Kong?
 Major alliances will own a smaller share of the
market as infrastructure owners resell capacity
 Market significantly bigger by volume, but only
slightly bigger by revenue
 Telecom development gap will grow
 Gap between middle income countries and LDCs