Price comparisons: Purpose and Practice An introduction to the OECD Tariff Comparison Model Dr Tim Kelly, ITU “Workshop on Trends in Regional Telecom Prices in Asia-Pacific” Bangkok, Sept 2000 The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Tim Kelly can be contacted at

In the beginning, defining telecommunication performance indicators was relatively simple...

But then life got complicated...

In 1988, OECD launched a new work programme on comparative costs of telephone calls. In 1989, the programme was extended to cover other telecommunication performance indicators In 1990, OECD report published: “Performance Indicators for Public Telecommunication Operators” Original OECD report available online at:

Performance Indicators for PTOs OECD Communications Outlook ITU World Telecoms Indicators Database ITU World Telecom Development Report OECD/Teligen Tariff Comparison Basket Development of Asia- Pacific Tariff Comparison Basket? Product evolution

6 Price comparisons: Purpose and Practice Objectives of OECD Tariff Comparison Model Methodology should be internationally neutral (not favouring traffic pattern of any one country) Tariff comparisons should be based on a “basket” which covers a mix of fixed and usage charges Basket should be dynamic, allowing for changes in underlying assumptions and reflecting trends over time International call comparisons use a different methodology, based on call pairs Comparisons expressed in comparable currency unit (e.g, US$) using Purchasing Power Parities

Performance Indicators: Then and now... Performance indicators mainly concerned with tariffs, networks & Quality of Service Indicators mainly used by PTO managers and regulators Indicators mainly presented historical trends Operators happy to share data Indicators needed to define market opportunities, for policy evaluation and regulation Indicators also used by users, shareholders, consultants, investors & journalists Major interest is in forecasts, company valuation and market opportunities Operators regard much data as commercially confidential

Tariff comparisons: Then and now... Similar tariff structure applied to all customers Most countries had only one supplier Telephony service relatively simple (vanilla flavour only) Tariff changes introduced infrequently Most tariffs were post-paid Limited options for international service Many users eligible for some type of discount scheme Many countries have multiple suppliers Many optional features available (e.g. itemised billing, call forward etc) Tariff changes and new options introduced regularly Pre-paid very popular Multiple options for international service (e.g. calling cards, IP Telephony)

Tariff baskets: Then and now... Six baskets defined: Business telephony Residential telephony International telephony Mobile communications X.25 data communications Leased lines at 9.6 kbit/s, 56/64 kbit/s and 1.5/2.0 Mbit/s Comparisons between countries Additional telephony baskets to take account of usage discounts (e.g. small businesses, multinationals, elderly) Combined national and international telephony basket Additional baskets for Internet, ISDN, digital mobile (roaming), Comparisons between operators within countries, and comparisons over time

National telephone tariff basket: Then and now... November 1989: Business basket = US$931, 2 ’ 634 calls Residential basket = US$346, 920 calls Business basket: Iceland, 1st Sweden, 2nd France, 10th Italy, 11th UK, 13th Japan, 14th Germany, 17th Spain, 18th USA, 19th May 2000: Business basket = US$1 ’ 071, 3 ’ 600 calls Residential basket = US$480, 1 ’ 200 calls Business basket Iceland, 1st Sweden, 4th, France, 10th Germany, 12th UK, 15th Spain, 20th Japan, 22nd Italy, 23rd USA, 24th

Greater range of baskets (e.g., old and new, composite and individual, Internet-oriented etc) Fixed number of calls as well as variable fixed/usage component International calls introduced into domestic call basket Calls to mobiles, Internet, national dial numbers, directory enquiries, fax Volume discounts Multiple operators in each country User-definable baskets Innovations introduced since 1990 include:

National business basket, May 2000

13 Price comparisons: Purpose and Practice Data requirements: National Tariff Basket Fixed charges Installation charges Call price sampled by:  Distance (3, 7, 12, 17, 22, 40, 75, 110, 135, 175, 250, 350, 490+km)  Time of day/week (Weekdays at 11.00, 15.00, 20.00, 03.00, Saturdays at 11.00, Sundays at 15.00) Call set-up charges and meter units Taxes

14 Price comparisons: Purpose and Practice Additional information Call patterns  Old OECD pattern,  New OECD pattern, 2000 onwards  Pattern specific to individual country Ratio between fixed and usage charges  Old OECD: fixed at 33/67 for business and 20/80 for residential  New OECD: fixed number of calls, 3’600 for business and 1’200 for residential Exchange rates: Actual and Purchasing Power Parities (PPPs)

15 Price comparisons: Purpose and Practice Extending the OECD tariff comparison model Original OECD model: 24 Member States  North America, Western Europe, Australia, Japan, New Zealand, Turkey Current OECD/Teligen model: 29 Members  As above plus Mexico, Rep. of Korea, Poland, Hungary, Czech Republic Developing a tariff comparison basket for TOT  Defining similar operators in other countries  Data collection and input

Quality of service indicators: Then and now... Six main indicators selected covering: waiting lists, payphones, call failure rates, faults per line, fault repair time, and operator service Additional features: customer satisfaction, transmission quality, account queries, accuracy of directory services Key measure is customer satisfaction, measured by level of “churn” between operators Technical network quality important as data compression grows (esp. mobile) Bundling of features in basic price Low probability/high magnitude events (e.g. fire, software crash)

17 Price comparisons: Purpose and Practice Information requirements of regulators For policy analysis Comparisons before and after policy change Aggregation of national statistics to allow comparison with other countries For regulatory purposes Tariff rebalancing including facilities charges to other service providers Market share, growth rates For customers Quality of service indicators Handling of account queries

18 Price comparisons: Purpose and Practice Purpose and practice of price comparisons Price comparisons provide a means of evaluating the performance (benchmarking) of public telecommunication operators  By comparison with other similar operators in other countries  For TOT, over time Price comparisons allow for analysis of tariff levels and tariff structures Purpose of this workshop is to develop a price comparison basket for TOT and for Asia-Pacific