Global trends in telecom development and Paradigm Shift Saburo TANAKA

1. Global trends in telecom development and Paradigm Shift Saburo TANAKA Seminar in Guatemala City, Nov. 2002 http://www.itu.int/ITU-T/othergroups/tal/index.html The original document was elaborated by Dr Tim Kelly, ITU/SPU. It has been 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: Tim.Kelly@itu.intsaburo.tanaka@itu.int

2. Global trends in telecom development • The state of the industry • Fixed-lines • Mobile • The Internet • The state of the market • Increasing competition • Private sector participation • Independent regulation • Situation in the Regions • Paradigm shift • Examining market reality

3. 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 1999 2001 2003 Source: ITU World Telecommunication Indicators Database.

4. Projection of revenue growth (US$bn) 1000 Actual 900 800 Other: Data, Internet, 13% Leased lines, telex, etc Projected 700 600 Mobile 36% 500 Int'l Service revenue (US$ bn) 400 8% 300 200 43% Domestic Telephone/fax 100 0 90 91 92 93 94 95 96 97 98 99 00 01 02 Source: ITU.

5. Use of international circuits from the USA 180,000 160,000 140,000 120,000 100,000 Unused Capacity (Mbps) Data 80,000 Basic voice telephony 60,000 40,000 20,000 0 1995 1996 1997 1998 1999 2000 Source: FCC

6. Bursting the Telecom Bubble • Total market value of telecom operators down from US$6.3 trill. to US$3.8 trill. • More than 400’000 redundancies announced in telecoms since Oct 00 • On average, a major telephone operator goes bust once every six days Source: www.ft.com Share price trends in the US “Technology Media and Telecoms (TMT)” sector

7. Nevertheless, the Internet continues to grow …Internet users, million, and growth rate in % Source: ITU.

8. The state of the market • Increasing competition • Around two-thirds of telecom subscribers now have a choice of operator • More than 99 per cent of mobile and Internet subscribers now have a choice of operator • Dominantly private-ownership • 19 out of top 20 top public telecom operators are partially or fully private-owned • Of the top 20 mobile operators, 16 are fully-private, 3 are partially private, 1 is state-owned • Independent regulators • There are currently 112 independent regulators (only 12 in 1990)

9. Private, competitive, mobile and global Status of telecommunication privatization , by country and by share of global revenue, 2001

10. Legal status of competition Distribution by country, 2001 Legal status of telecommunication competition, by country, 2001

11. Mobile as the new global network Mobile and fixed telephone subscribers worldwide, 1982-2005

13. Total telephone users (fixed plus mobile) per 100 inhabitants

14. Mobile as percentage of total telephone subscribers, 2001 Source: ITU World Telecommunication Indicators Database

15. Distribution of population, main telephone lines, mobile cellular subscribers and Internet users by country economic classification, 2001

16. Growth in fixed line teledensity, Chile and Argentina, 1986-2000

17. Growth in mobile teledensity, Hong Kong SAR and Singapore, 1988-2000

18. Teledensity with rising rank

19. Rank Rank Country 2000 1990 2000 1990 Change 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 Canada 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 Comoros 1.0 0.8 171 149 -22 Ukraine 22.7 13.6 87 66 -21 Teledensity with falling rank

23. Latin America monthly residential subscription charge, 2000 (in US$) Colombia 3.5 Costa Rica 3.6 Ecuador 6.2 Brazil 7.7 Uruguay 8.2 Average 9.14 Chile 10.8 Argentina 13.2 Peru 13.6 Mexico 15.5 0 2 4 6 8 10 12 14 16 18 Source: ITU World Telecommunication Indicators Database

24. Caribbean monthly residential subscription charge, 2000 (in US$) Source: ITU World Telecommunication Indicators Database

25. Residential installation charge (in US$) Source: ITU World Telecommunication Indicators Database

26. Residential monthly subscription (in US$) Source: ITU World Telecommunication Indicators Database

27. South America Comparative prices for 100 minutes per month use of a mobile phone in selected South American markets (in US$, 2000) Note: The ‘100 minutes of cellular use’ is based on the lowest charge (among different operators in a country) payable for a basket of 50 peak and 50 off-peak minutes of calls per month.

28. Central America and the Caribbean Comparative prices for 100 minutes per month use of a mobile phone in selected Central American and Caribbean markets (in US$, 2000) Note: The ‘100 minutes of cellular use’ is based on the lowest charge (among different operators in a country) payable for a basket of 50 peak and 50 off-peak minutes of calls per month.

29. Central America Dial-up Internet tariff (in US$), 2001Monthly cost of 30 hours Internet use, including PSTN usage for selected Central American countries Note: Generally tariffs of leading ISPs. Countries with * indicate an unlimited Internet access.Source: ITU

30. South America & the Caribbean Dial-up Internet tariff (in US$), 2001Monthly cost of 30 hours Internet use, including PSTN usage for selected South American and Caribbean countries Note: Generally tariffs of leading ISPs. Source: ITU

31. Telephone tariffs (2000)

32. Cellular tariffs (2000)

33. 33 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: ? %

36. Falling prices

37. Traditional regime:Joint provision of service 37 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.

38. Emerging regime:Market entry and interconnection 38 Jointly provided circuit Country B Country A X X X Circuit provided by operator B Cross border interconnection and the trading of international traffic minutes

39. Delivering international voice traffic in 2002

40. The value chain of the international telecommunications industry

41. Refile and other practices using accounting rate system Operator in A sends traffic tooperator in C under anarrangement of exclusivity Operator in C declares traffic to B on transit through A 3 A 1 A Origin CDestination B Origin ADestination B Operator in B receives traffic at settlement rate C/B instead of A/B C C • Operator in A is a partner of operator in C • Settlement rates A/B > C/B 2 Operator in C “re-labels” the traffic as originated in C 4 B B

42. CALL BACK using Accounting Rates Using AR

43. 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 Operator B’s mobile network High Interconnection charge   Caller A Called B

44. International simple resale (ISR) (By-passing accounting rate) Country A Country B PSTN Operator B Operator A Interconnect IWF Leased lines Once a foreign carrier accepts the benchmark rate, it can negotiate ISR arrangements with US carriers

45. Telephone service using data transmission (By-passing accounting rate) Country A Country B VSAT Operator A Inter-connection PSTN  Voice is packetized = data transmissionTelephone regulations do not apply

46. IP Telephony (by-passing accounting rate) Call from International Telecommunication Network (ITN) to another ITN via IP-based Network

47. Conclusion and Recommendation • Erosion of traditional system of accounting rates for exchange of international traffic • Domestic interconnect fees will be dominant mode • Major price cuts in international calls • Availability of new infrastructures • Impact of Internet pricing model (distance and duration independent) • Mobiles exceed fixed-line phones worldwide • Introduction of “third generation” mobiles after 2001 • Generational shift, as new users reject fixed-lines “ Interconnection and tariff rebalancing”