International Charging

Arrangements for Internet Services

Ben A. Petrazzini

International Telecommunication

Union

UIT - ITU

AgendaAgenda

Evolution of the Internet

The North South gap

IP-based vs. PSTN networks

The challenge of Internet settlements

ITU-T Recomendation D. 50

Strengths and weaknesses

Alternative approaches

Is there a solution?

Countries onlineCountries online

818 22

34 4360

81

121

165

200211 214

191

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Nro. of countries connected to the Internet

Source: ITU.

Internet PenetrationJanuary 2001

> 5%

1 - 5%

0 - 1%

(59)

(37)

(99)

The online landscapeThe online landscape

0%10%

20%30%

40%50%60%

70%80%

90%100%

Internetusers

Mobile users

Telephone lines

Popul-ation

High income

Upper-mid income

Lower-mid income

Low income

280 million

490 million

912 million 6 billion

82 %69 %

58 %

15 %

User distribution, by income group, Jan 2000User distribution, by income group, Jan 2000

Source: ITU World Telecommunication Indicators Database.

Digital divide = Telecoms divideDigital divide = Telecoms divide

The digital divide is shrinkingThe digital divide is shrinking

18%Jan. 1995

Share of low and lower-middle income countries in:

Telephone main lines

Mobile subscribers

Estimated Internet Users

Jan. 2000

Source: ITU World Telecommunication Indicators Database.

28%

5%

1.1%

14%

7.6%

Catching up in the AmericasCatching up in the Americas

1996Share of Latin America & Caribbean (LAC) in Americas:

Telephone main lines

Mobile subscribers

Internet host computers

2000

Source: ITU World Telecom Indicators Database.

20% 25%

10% 29%

2.0% 2.7%

North America LAC

We prefer to walk while we talk! We prefer to walk while we talk!

0

2

4

6

8

10

12

1990 1991 1992 1993 1994 1995 1996 1997 1998

Main lines

Mobile subscribers

Latin America & Caribbean region, millions

Cellular overtaking fixedCellular overtaking fixed

57% [99]

80%

40% [99]

50%

38% [99]

Venezuela

Paraguay

Peru

Mexico

Brazil

Mobile as a percentage of total telephone subscribers

100%43%

57%

10%

90%

19%

81%

13%

86%

0% 20% 40% 60% 80% 100%

Europe

Arab States

Asia

Americas

Africa

Monopoly Competition

% of countries with Net competition% of countries with Net competition

ENTEL Internet

60%

CTC Internet

35%

Others5%

ChileTotal=100

Others50%

Uninet (Telmex)

50%

MexicoTotal=300

Concentration of market powerConcentration of market power

Argentina Venezuela170 ISPs; Arnet-Advance = 34% 165 ISPs; CANTV = 35%

Internet market controlled by incumbents, Jan 2000

IP backbone: IP backbone: limited competitionlimited competition

0%

5%

10%

15%

20%

25%

30%

1 2 3 4 5 6 7 8 9 10Ranking of the company

mm

ark

et

sa

hre

IP backbone providers

Int'l PTOs

IP: 4 largest = 80%Tel: 4 largest = 30%

Top backbone providers, Top backbone providers, spring 99spring 99

Backbone providers

Connections to ISPs

As % of total

C&W USA (ex MCI) 1’944 29.3%

WorldComm 1’496 22.5%

Sprint 1’407 21.2%

GTE Internetworking 354 5.3%

Source: Adapted from BoardWatch, ISP Directory, Spring 99.

GlobalGlobal Internet Bandwidth Internet Bandwidth

Asia /Pacific

LatinAmerica

USA / Canada

Europe

Africa

56 Gbps

0.1 Gbps

0.5 Gbps

Note: Gbps = Gigabits (1’000 Mb) per second. Source: ITU adapted from TeleGeography.

18 Gbps

0.4 Gbps

3 G

bps

0.2 Gbps

20002000

Global Internet BandwidthGlobal Internet Bandwidth

USA &Canada

Europe

13’258 Mbit/s

Asia-Pacific

5’916 Mbit/s

LatinAmerica &Caribbean

949 Mbit/s

Arab States, Africa

170 Mbit/s

152 Mbit/s

63 Mbit/s

69 Mbit/s

Fuente: TeleGeography Inc., Global Backbone Database. Data valid for Sept. 1999.

19991999

Note: Based on usage of circuits between the US and the rest of the world. Source: FCC.

0

50

100

150

200

250

300

1995 1996 1997 1998

PSTN circuits

International Private Lines(Internet)

IPL, 42%

PSTN, 58%

Central America

South America

IPL, 54%

PSTN, 46%

CaribbeanIPL, 18%

PSTN, 82%

World

Replacing PSTN with IP:Replacing PSTN with IP: Int’l circuits (‘000s)Int’l circuits (‘000s)

Dial-up Internet traffic as % of Dial-up Internet traffic as % of total traffic minutestotal traffic minutes

38%

27%19.5%

8.5%

18%12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1998 1999

Telia (Sweden)

Telecom Portugal

Telenor (Norway)

Source: PTO annual reports. Note: For Telia, Internet traffic as % of local minutes. For others, as % of total

0.0% 0.2%

1.6%

5.5%

3.2%

0

1'000

2'000

3'000

4'000

5'000

6'000

7'000

1997 1998 1999 2000 2001

As percentage of int'l outgoing traffic

Total international VoIP traffic,Total international VoIP traffic,In millions of minutesIn millions of minutes

Source: ITU Internet Report 2001: IP Telephony

The The ggeography ofeography of the the IP IP world world

Investment in IP networks is still highly US-centric More than 95 per cent of inter-regional IP bandwidth

connectivity is to/from North America Accelerating returns to scale means: big gets bigger

Europe catching up fast Major investment in fibre-based networks since

opening up of EU markets in late 1990sDeveloping countries lagging behind

Geneva has more bandwidth than the whole of Latin America and the Caribbean together

Latecomers disadvantaged by high prices Insufficient demand to force down prices Non-liberalised telecom markets and obligation to pay

both cost of both half-circuits of Int’l Private Line

PTO A

Collectsrevenues

Collectstraffic

PTO B

Retainsrevenues

Terminatestraffic

Delivers traffic

Pays settlement fees

User 1 User 2 User 3 User 1 User 2 User 3

For accounting rate traffic, a direct bilateralrelationship is established between the origin and

termination operators. Intermediate transit operatorsare compensated from the accounting rate which is

usually split 50:50. PTO B retains net settlement.……...

PTO = PublicTelecommunicationsOperator

PTOs A & Bsplit the cost ofthe int’l circuit

Settlements-based traffic

ISP A

Exchangestraffic

ISP B

Collectsrevenues

Requestsand terminatestraffic

One-way (thick pipe)

User 1 User 2 User 3

For Internet Peering traffic, ISP B pays forboth halves of the International circuit(s) which areused for peering with ISP A. ISP B also pays for traffic exchange.ISP B may pay for the circuit directly, or in conjunction with one or more PTOs.

ISP = InternetServicesProvider

PTO B pays the full cost ofthe int’l circuit

Two-way (thin pipe)

Web 1 Web 1 Web 1

Internet Peering traffic (Web)

Developing country concernsDeveloping country concerns

They must pay both half-circuits of the International Private Line to overseas backbones and foreign ISPs Even though traffic flows in both directions over the

circuit, once it is established Interconnection costs are rising as IP traffic

continues to grow exponentially

Developing countries receive no international settlement payments for IP traffic Increasingly, incoming IP traffic includes IP

telephony and fax traffic which they must terminate

Telephone and fax traffic shifting to the Internet What will replace the US$7 bn from settlements?

ITU-T Rec. D.50: ITU-T Rec. D.50: Int’l Internet ConnectionInt’l Internet Connectionrecognizing

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/ROAs 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.

Recommendation D.50Recommendation D.50

The ITU-T, 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.

VirtuesVirtues of of Rec. Rec. D50D50

Raises global awareness of the problem

Timing is in sink with the digital divide

waveLittle opposition to the initiativeSupport from several industrialized

nationsOpens the door for negotiating

alternative solutions to the problem

WeaknessWeaknesseses of of Rec. Rec. D50D50

ITU Recommendations are not mandatoryITU Rec have weight with national

administrations, much less with Internet access providers

Rec D50: no precise def. of terms, ways of measuring traffic, establishing costs, etc. [cost est. 3% or 60%?]

Consolidates the USA as a global hub for Internet traffic and undermines incentives for regional IP backbones

Tends to consolidate current oligopolistic nature of the IP backbone market

Is it inevitable?Is it inevitable?

It is a comercial arrangement in a liberalized marketplace

Responds to the current global infrastructure lay out

High cost of leased lines in LDCs and lower in the US

A considerable amount of content is in the north

Countries in the south gain a global presence

People on the NetPeople on the Net

30 47 83513 7 13 25

180

232

77

124

28%

21%

15%

9%6%

4%

1.6%1.0%0.5%0.3%0.1%0.1%

0

50

100

150

200

250

300

350

1995 1996 1997 1998 1999 2000

Pene-tration

Number of Internet users, millions

Source: ITU.

Developed

The America’s digital divide The America’s digital divide (Jan. 2000)(Jan. 2000)

Americas region

Users per 10’000 inhab.

Hosts per 10’000 inhab.

PCs per 100 inhab.

North 3’533 2’711 57

Central 245 43 4

South 267 38 4

Alternative approachesAlternative approaches

Effective competition in the leased line

market of developing nations

Development of regional IP backbones

Establishment of local and regional IXPs

Leverage for negotiating better conditions

with backbone providers in the north

Project Capacity Developer Ready

Atlantica 1 1.28 Tbps 360 Networks Sept 2000

South America Crossing

40 Gbps Global Crossing

Early 2001

Emergia 1.92 Tbps Telefonica, Tyco, IDT

2001

Arcos 1

Americas 8

15 Gbps

720 Gbpse

New World Network

2001 - 2002

Americas 3 4 Tbps Embratel, Sprint, C&W

and Teleglobe

2002

Mercus 1.5 Tbps Bias End 2001 - 2002

Growing regional bandwidthGrowing regional bandwidth

Fuente:Kessler Marketing Intelligence.

TransAtlantic cables, 1988-2001TransAtlantic cables, 1988-2001

Source: ITU, adapted from FCC.Note: Circuit costs assume a usage level of 18%, a compression level of 5:1 and a life-time of 20 years.

1

10

100

1'000

10'000

TAT-81988

PTAT-11989

TAT-101992

TAT-12/131996

AC-11999

TAT-142000

FlagAtlantic2001

Cir

cu

it c

ost

p.a

. (U

S$

)

1

10

100

1'000

10'000

100'000

Cir

cu

it c

ap

ac

ity

(64

kb

it/s

, 00

0s)

Circuit capacity, rising by 89% p.a.

Circuit costs, falling by 72% p.a .

InternationalInternational capacity and costs capacity and costs

IXPs around the world, Sept. 2000IXPs around the world, Sept. 2000

Americas region

IXPs Other regions

IXPs

North 109 Africa 2

South 6 Asia/Pacific 38

Europe 78

A task for the “Digital Divide” A task for the “Digital Divide” movement?movement?

Problem with the digital divide initiatives: too many issues no clear sense of priorities

One priority: reduce cost of Internet services to make them commercially self-sustainable

Opportunity to get the political and financial support of international aid agencies, multilateral lending institutions, G8 governments, and multinationals to build IP infrastructure to concentrate traffic regionally

Unión Unión

Internacional deInternacional de

TelecomunicacionesTelecomunicaciones

http://www.itu.int/http://www.itu.int/