Developments in settlement reform: Developments in settlement reform: Trends in international telecom Trends in international telecom

traffic, coststraffic, costs and pricesand prices

Dr Tim Kelly, International Telecommunication Union (ITU)Workshop on settlement reform and the costing and pricing of

telecom services, Vientiane, 16-18 November 1999

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. Dr Tim Kelly can be contacted by e-mail at Tim.Kelly@itu.int.

2Trends in int’l traffic, costs and pricesTrends in int’l traffic, costs and prices

AgendaAgendaTrends in international traffic

Worldwide Sub-region

Regional breakdown of traffic Market sharesCompetitive marketsCost and price trends

FCC benchmarks ITU Focus Group, indicative target rates

ITU/TeleGeography “Direction of Traffic” publication

143

124

108

94

7262

5448

4438

30

82

0

200

400

600

800

1'000

1'200

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Fix

ed

lin

es

an

d m

ob

ile

su

bs

cri

be

rs

wo

rld

wid

e (

mil

lio

ns

)

0

20

40

60

80

100

120

140

160

Bil

lio

ns

of

min

ute

s o

f in

tern

ati

on

al

tele

ph

on

e

tra

ffic

Fixed main lines

Mobile subscribers

Total int'l traffic

Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

Trends in subscribers and Trends in subscribers and international traffic, international traffic, WorldwideWorldwide

0

10'000

20'000

30'000

40'000

50'000

60'000

70'000

1993 1994 1995 1996 1997 1998

Su

bsc

rib

ers

0

2

4

6

8

10

12

14

16

18

20

Mill

ion

min

ute

s o

f in

t'l t

raff

ic

Fixed-line

Mobile

Outgoing

Incoming

Trends in subscribers and Trends in subscribers and international traffic, international traffic, CambodiaCambodia

Source: ITU World Telecommunication Indicators Database.

Trends in subscribers and Trends in subscribers and international traffic, international traffic, Lao PDRLao PDR

Source: ITU World Telecommunication Indicators Database.

0

5'000

10'000

15'000

20'000

25'000

30'000

1993 1994 1995 1996 1997 1998

Su

bsc

rib

ers

0

2

4

6

8

10

12

14

Mill

ion

min

ute

s o

f in

t'l t

raff

ic

Fixed-line

Mobile

Outgoing

Incoming

Trends in subscribers and Trends in subscribers and international traffic, international traffic, VietnamVietnam

Source: ITU World Telecommunication Indicators Database.

0

500

1'000

1'500

2'000

2'500

1993 1994 1995 1996 1997 1998

Su

bsc

rib

ers

(0

00s

)

0

50

100

150

200

250

300

350

Mill

ion

min

ute

s o

f in

t'l t

raff

ic

Fixed-line

Mobile

Outgoing

Incoming

Europe, 68.0%

North America, 16.8%

Asia-Pacific, 9.7%

LAC, 3.6%Africa, 1.9%

Regional share of International traffic, 1983

By origin, total = 10.2 billion minutes

Europe, 43.0%

North America, 32.5%

Asia-Pacific, 18.5%

LAC, 4.1%Africa, 1.9%

Regional share of int’l traffic, 1997

By origin, total = 81.8 billion minutes

Changing regional shares of global Changing regional shares of global international traffic, 1983 & 1997international traffic, 1983 & 1997

Note: LAC = Latin America and the Caribbean.Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

21.7%

21.6%

17.1%

16.1%

16.0%

12.3%

N. America

Asia-Pacific

LAC

World

Africa

Europe

Compound annual growth rates in Compound annual growth rates in outgoing traffic, 1983-1997outgoing traffic, 1983-1997

Note: LAC = Latin America and the Caribbean.

Trends in Trends in outgoingoutgoing traffic, traffic, bn minutesbn minutes

-

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997

Developed countries

Developing countries

Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

Trends in Trends in incomingincoming traffic, traffic, bn minutesbn minutes

Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997

Developed countries

Developing countries

0

5

10

15

20

1993 1994 1995 1996 1997 1998

Payments Receipts Net settlement

Trends in settlement payments and Trends in settlement payments and receipts,receipts, Developing countries, US$bnDeveloping countries, US$bn

Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

35%46%

74% 85%

1990 1995 1998 2005

Mono-poly

Compe-tition

4 14 29 48

Number of countries permitting more than one operator for international

telephony

Percentage of outgoing international Percentage of outgoing international traffic open to competitiontraffic open to competition

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.

Level of competition in international Level of competition in international services in WTO basic telecoms services in WTO basic telecoms agreementagreement

CompetitionMonopoly

Source: ITU Telecommunication Regulatory Database.

Countries permitting int’l competitionCountries permitting int’l competition

1990 1998 20 Israel1 Japan 1 Australia 21 Italy2 New Zealand 2 Austria 22 Japan3 UK 3 Belgium 23 Korea (Rep.)4 USA 4 Brunei D. 24 Malaysia

1995 5 Canada 25 Mexico1 Australia 6 Chile 26 Netherlands2 Canada (partial) 7 Colombia 27 New Zealand3 Colombia 8 DPR Congo 28 Norway4 Chile 9 Denmark 29 Peru5 Denmark 10 Dominican Rep. 30 Philippines6 Finland 11 El Salvador 31 Russia7 Japan 12 Finland 32 Somalia8 Korea (Rep.) 13 France 33 Spain (after Dec. 1998)9 Malaysia 14 Germany 34 Sweden

10 New Zealand 15 Ghana 35 Switzerland11 Philippines 16 Guatemala 36 Uganda12 Sweden 17 HK-China (after Dec 1998) 37 Ukraine13 UK 18 Indonesia 38 UK14 USA 19 Ireland (after Dec. 1999) 39 USA

Top 10 PTOs by outgoing int’l trafficTop 10 PTOs by outgoing int’l trafficPTO 1998 Bn Mins % change 97/98

AT&T (97 data) 10’331 8.2%

MCI WorldCom (97) 7’313 17.6%

Deutsche Telekom 4’711 -2.1%

France Telecom 3’400 9.7%

Sprint (97) 2’759 0.5%

BT 2’710 4.5%

Telecom Italia 2’339 5.9%

SwissCom 1’901 -2.9%

Telefonica 1’803 15.1%

Hongkong Telecom 1’718 -2.1%

Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

1.1%

21.2%

0.6%

2.2%

-14.3%

-16.4%

-17.3%

-2.7%

BT

FT

Sprint

MCI WorldCom

AT&T

Telecom Italia

SwissCom

DT

4.5%

9.7%

0.5%

8.2%

5.9%

-2.9%

-2.1%

17.6%

% change in traffic% change in traffic % change in int’l rev.% change in int’l rev.Selected PTOs, performance 1997/98Selected PTOs, performance 1997/98

Note: Based on 1998 international outgoing traffic and revenue from international operations.For Sprint, MCI WorldCom and AT&T, data relates to 1997. The definition of international revenue (gross, net or retail) is tat used by each individual operator.

Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

Note: Traffic shares relate to minutes of outgoing traffic from members of each alliance.Source: ITU/TeleGeography Inc. “Direction of Traffic, 1999: Trading Telecom Minutes”

AT&T/BT, 17.2%

GlobalOne, 14.3%

MCI WorldCom,Telefonica, TP,

11.1% Cable & Wireless, 4.7%

Others, 47.3%

Total, 1997: 81.2 bn minutes

Unisource, 5.4%

Emerging global alliances, Emerging global alliances, shares of shares of int’l traffic marketint’l traffic market

18Trends in int’l traffic, costs and pricesTrends in int’l traffic, costs and prices

Emerging global alliances:Emerging global alliances:Recent developmentsRecent developments

WorldCom merges with MCI, bids for SprintFollowing collapse of BT/MCI merger, BT & AT&T join

forces in “Concert”AT&T and Telefonica withdraw from Unisource GlobalOne on point of collapse following purchase of

Sprint by WorldComDeutsche Telekom’s bid for Telecom Italia fails;

Olivetti’s succeedsCable & Wireless re-positioning itself as supplier of

data servicesTelia and TeleNor merge

0

0.2

0.4

0.6

0.8

1

87 88 89 90 91 92 93 94 95 96 97 98

1987-92, -2% p.a.

1992-96, -4% p.a.

1997-98, -14% p.a.

D.140 approved

D.140 revised

Global average settlement rates,Global average settlement rates, US$ per minuteUS$ per minute

Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

00.20.40.60.8

11.21.41.6

1993 1995 1997 1999

Italy

France

UK

Germany

Convergence: Accounting rate to US in Convergence: Accounting rate to US in US$ per minute, US$ per minute, four European countriesfour European countries

Source: FCC. Data for year-end except 1999 = September 1999

0

1

2

3

4

5

1995 1996 1997 Jun-98 Dec-98 Jun-99 Nov-99

Volume-based rates

Vietnam

Cambodia

Lao PDR

Accounting rates with USA,Accounting rates with USA, US$ per minuteUS$ per minute

Source: FCC (Ken Stanley).

Where do you fit in?Where do you fit in?Incomegroup

TeledensityLess Than

One

Low Income(less than

$726)

Lower MiddleIncome

($726-$2,895)

Upper MiddleIncome($2,896-8,955)

High Income($8,956 or

more)

Benchmarkrate

23¢ 23¢ 19¢ 19¢ 15¢

Deadline 1/1/2003 1/1/2002 1/1/2001 1/1/2000 1/1/1999

Countries AfghanistanBangladesh

BhutanCambodiaLao PDRMyanmar

Nepal

ChinaIndia

MongoliaPakistanSri LankaViet Nam

FijiIndonesia

IranKiribati

Korea, DPRMaldives

MicronesiaP. N. GuineaPhilippinesThailandTonga

VanuatuW. Samoa

Korea, Rep.Malaysia

N. Caledonia

AustraliaBrunei

Fr. PolynesiaHong Kong

JapanMacao

New ZealandSingapore

Taiwan-China

FCC Benchmarks: Examples from FCC Benchmarks: Examples from Asia-Pacific regionAsia-Pacific region

Focus Group Recommendations on Focus Group Recommendations on “indicative target rates” by Teledensity (T) “indicative target rates” by Teledensity (T) Band, in SDR (and US cents) per minute.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

0.327SDR

0.251SDR

0.210SDR

0.162SDR

0.118SDR

0.088SDR

0.043SDR

43.7¢ 33.5¢ 28.0¢ 21.6¢ 15.8¢ 11.8¢ 5.7¢

Low income Lower middle Uppermiddle

High income

Note: The correspondence between teledensity band and income group shown in the bottom row is intended to be approximate, not precise. Source: ITU Focus Group Report. 1 SDR = US$1.39.

23

24Trends in int’l traffic, costs and pricesTrends in int’l traffic, costs and prices

Benchmarks & Focus Group target Benchmarks & Focus Group target rates in sub-regionrates in sub-region

Country/currentrate

FCCbenchmark

% changep.a.

FocusGrouptarget

% changep.a.

Cambodia 23 UScents byend 2002

-38% 44 US centsby end2001/04*

-15%

Lao PDR 23 UScents byend 2002

-43% 44 US centsby end2001/04*

-19%

Vietnam 23 UScents byend 2001

-46% 33.5 UScents byend 2001

-34%

Note: For Cambodia and Lao PDR, the target year will depend upon net settlements as a % of total telecom

revenue. For the % change, a target year end of 2004 is assumed. Rates are to US, per minute.Source: ITU.

0

2

4

6

8

10

12

1990 1991 1992 1993 1994 1995 1996 1997

300 minutes, local calls

3 mins Int'l call to US

Monthly line rental

Tariff rebalancing trends, in US$Tariff rebalancing trends, in US$ Average of 39 major economiesAverage of 39 major economies

Source: ITU World Telecommunication Indicators Database.

0

2

4

6

8

10

12

1995 1996 1997 1998 1999

Vietnam

Lao PDR

Price of a 3 minute call to USA,Price of a 3 minute call to USA, US$ per minuteUS$ per minute

Note: Price data for Cambodia unavailable.Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

27Trends in int’l traffic, costs and pricesTrends in int’l traffic, costs and prices

International traffic trends:International traffic trends:ConclusionsConclusions

Voice traffic continuing to grow, but the main action is now elsewhere

Mobile and the Internet will be the major demand drivers for the future

Competitive markets will be the norm, monopolistic markets the exception in the future

Alliances will continue to be formed, but partnerships are still unstable

Price trends in Cambodia, Lao and Vietnam are out of line with international trends

For more information ...For more information ... Publication launch:

10 October 1999(TELECOM ‘99)

Available on paper and on-line (PDF format)

Also available withdatabase on CD-ROM

Website:

http://www.itu.int/ti

Other reports launched at TELECOM ‘99Other reports launched at TELECOM ‘99 World Telecom Development Report 1999: Mobile Cellular

Trends in Telecom Reform 1999: Convergence & Regulation

Internet for Development (updated with latest data)