Download Asia Telecom forum opening speech

Market trends in Tariff and
Accounting
Saburo TANAKA
WTSA preparatory meeting for Africa,
Victoria Falls, June 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: [email protected] [email protected]
Agenda
 Market trends
 Network evolution
 Paradigm shift
 Tariff evolution
 Challenges for developing countries
 IP Telephony
 Mobile services
 Interconnection, cost
 Internet issue
 Some solutions studied in ITU-T 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%
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
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
X
Country B
X
9
Emerging regime:
Market entry and interconnection
10
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

Voice is packetized = data transmission
Telephone regulations do not apply
IP Telephony
Te r
m
na t
i
ng
i
Ne t
wor
k
PSTN/
I SDN
P
/ LM
N
ADSL
I PNe t
wor k
I
W
F
Loc a or
l di
sb
i
r
t ut
ed
unc t
f
on
i
Loc a or
l di
sb
i
r
t ut
ed
unc t
f
on
i
I
W
F
PSTN/
I SDN
P
/ LM
N
Cal
ni
i
l
at
t
e df
r om
PSTN/
I SDN/
PLM
N
o PSTN/
t
I SDN/
PLM
N
Or Call initiated by ADSL
Og
i i
r
na t
ng
i
Ne t
wor
k
T 0 2 0 8 5 0
1 0 6 1 4 7
(
)
Call from International Telecommunication Network
(ITN) to another ITN via IP-based Network
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

Caller A
Operator B’s
mobile network
High
Interconnection
charge

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 aa
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 m inute call to USA.
$2.00
Source: ITU adapted from FCC and
national data (34 countries).
$1.50
Forecast
Mark-up
$1.00
$0.50
Settlem ent
$0.00
90
92
94
96
98
00
02
04
Falling Price (2):
SwissCom, price per minute of local call and call to US
Sw iss call prices.
US cents per minute.
74
58
Source: ITU.
58
Call to USA 43
28
Local call
7
5
5
5
4
4
4
4
3
95
96
97
98
99
00
2001
Infrastructure capacity and costs,
TransAtlantic cables, 1983-2000
10'000
Capacity (voice
paths), growing by
64% p.a.
100'000'000
10'000'000
1'000'000
100'000
1'000
10'000
100
10
1'000
Cost per voice path
(US$), 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?
 Bill for network connection
 Increasing integration of monthly telephone
subscription and Internet subscription prices
 Bill for privacy/advertising
 Privacy-protected customer pays premium
 Customer agreeing to receive advertising pays less
 Bill for quality of service
 Differentiated by transmission quality, waiting time,
bandwidth on demand, value-added secretarial
support, mail functions etc.,
 Bill for Billing
 Customising of billing: by service, by user, by site
Internet, price and service trends
 Towards a flat-rate price structure
 All you can eat for US$20.00
 Towards lower service quality
 “Best efforts” service delivery at lowest price
 Death of distance
 Message to other side of earth costs same as a
message sent next door
 Cross-promotion of Internet and other services
 “Free PC” with three year’s ISP subscription
 “Free Internet” with residential local loop charges
 Tendency towards industry concentration
 AOL’s subscriber base > next ten ISPs added together
Challenges for developing countries
 Service, tariff and technical issues
 Alternative calling procedures
 Public switched network to IP based network
 Challenges related to mobile service
 Regulatory issues
 Interconnection rules
 Implementation of USO
 Tariff Rebalancing
 Internet connectivity in developing countries
 Guideline for negotiating IIC
 Traffic based negotiation
The influence of IP Telephony on price
 IDC forecasts that “Web Talk”
revenues will reach US$16.5 bn by
2004 with 135 billion mins of traffic
(skype.com,
 Gartner Group forecast that IP
Telephony and competition in Europe
will reduce prices by 75%
 Telegeography; in 2002 VoIP incresed
by 80%, and comprised about 10.8% of
all int’l call traffic (8 trillions mins)
 IP Telephony as % of all
int’l calls in 2004
 Tarifica forecast 40%
 Analysys forecast 25%
 In developing countries, the majority
of IP Telephony calls are incoming
16.5
“Web Talk”
revenues,
US$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”
Cultivate the high-spenders
Source: Price Waterhouse Coopers, based on Canadian data.
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
Dispute resolution
An independent entity (which may be the
regulator) must be available to resolve
interconnection dispute within a reasonable time
frame
Regulatory and technical issues
 Policy makers must resolve such basic questions as:
 which carriers are required interconnection
 How the costs will be calculated and recovered, and
 At what points in the PSTN interconnection should occur
 Regulatory issues
 Establishing guidelines in Advance (without it, interconnection
negotiation are frequently protracted, delaying the introduction
of competition)
 Introducing competition require “dominant carriers” to
interconnect with other carriers
 Cost orientation: excessive prices deter market entry, hinder
competition, end user suffer and can provide a pool of revenue
 Technical issues
 Points of interconnection: incumbent operators permit interconnection with their networks at any technically feasible point
 Dialling Parity and Pre-selection: Call-by-call customer
selection or Operator pre-selection by pre-subscription
 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
 How can interconnection costs be measured?
 Theoretical Frameworks (Historica, Fully Distributed costs,
LRIC)
 Cost study Approaches (Top-Down, Bottom-Up, Outside-In)
 Interconnection charge





Cost based charges
Retail-based charges
Price Caps
“Bill and Keep” or “Sender Keeps All”
Revenue Sharing
Main study items in ITU-T SG3
 Accounting rate reform




Transitional arrangements
Action to facilitate negotiations
Cost Methodologies
Network externalities
 Mobile termination charge
 Differences with fixed network services
 Level of termination charges
 International Internet Connectivity
 Implementation of Recommendation D.50
 Improving connectivity in LDCs
 Other studies
 International Telecommunication Regulations
Solutions & difficulties
 New Remuneration system (adopted)
 Termination charge system
 Settlement rate system
 Special arrangement
 Difficulty to quickly implement those systems
 Condition is to reach cost-oriented rate, but
 No cost data or model for some administrations ⇒ SG3
developed principles and TAF, TAS, TAL cost models
 Transitional arrangements (review at WTSA)
 To facilitate staged reduction to cost based rate
 to avoid sudden fall of revenue (smooth transition)
 SG3 developed:
 Guidelines for negotiation
Global trends, challenges and solutions
INTERNATIONAL TELECOMMUNICATION UNION
ITU-T
TELECOMMUNICATION
STANDARDIZATION SECTOR
OF ITU
D.600R
(10/2000)
SERIES D: GENERAL TARIFF PRINCIPLES
Recommendations for regional application – Recommendations
applicable to the African Region
Cost methodology for the regional tariff group for Africa
applicable to the international automatic telephone service
3
3
33
Inter-regional Internet connectivity
0.4 Gbit/s
USA /
Canada
Asia /
Pacific
Europe
Latin
America
Africa,
Arab
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.
Results of SG3 meeting
(May/June2004)
①Adoption of Appendix to facilitate
implementation of D.50
② Self-help by smaller networks with
limited traffic
③Continuation of work on Traffic
Measurement
Network Externality
 Universal Service Obligation Fund = Cross Subsidy
 Not recognized as cost
 Network extremity = increase utility of a network to
users
 operators to provide incentives for users to join the
network = this can be added to the usage price or to the
monthly subscription fee
 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
 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 Telecommunication Regulations (ITRs)
 ITRs elaborated in 1988
 Monopoly situation
 Basic services only (Telephony)
 New Market situation
 Competition
 New services (Mobile, Internet)
 Need for new ITRs?
 Redraft ITRs
 Integrate into Constitution and Convention
 Study Group 3 starts reviewing ITRs
 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-2
Coordinator-1
Coordinator-3
Dr. Mufungahema
Mr. Affleck, UK
Mr. Marks, USA
Tanzania
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