1. Global trends in telecom development and Paradigm Shift Saburo TANAKA Seminar in Guatemala City, Nov. 2002 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.int saburo.tanaka@itu.intTim.Kelly@itu.intsaburo.tanaka@itu.int http://www.itu.int/ITU- T/othergroups/tal/index.html

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 Source: ITU World Telecommunication Indicators Database. 0 200 400 600 800 1'000 1'200 1'400 199319951997199920012003 Mobile Users Fixed Lines Fixed Lines vs. Mobile Users,worldwide, Million

4. 0 100 200 300 400 500 600 700 800 900 1000 90919293949596979899000102 Service revenue (US$ bn) Actual Projected Domestic Telephone/fax Int'l Mobile Other: Data, Internet, Leased lines, telex, etc Projection of revenue growth (US$bn) Source: ITU. 43% 8% 36% 13%

5. 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 199519961997199819992000 Capacity (Mbps) Unused Data Basic voice telephony Source: FCC Use of international circuits from the USA

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 telecommunication competition, by country, 2001 Legal status of competition Distribution 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. Teledensity with falling rank

23. Source: ITU World Telecommunication Indicators Database 15.5 13.6 13.2 10.8 9.14 8.2 7.7 6.2 3.6 3.5 024681012141618 Mexico Peru Argentina Chile Average Uruguay Brazil Ecuador Costa Rica Colombia Latin America monthly residential subscription charge, 2000 (in US$)

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

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

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

27. 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. South America Comparative prices for 100 minutes per month use of a mobile phone in selected South American markets (in US$, 2000)

28. Central America and the Caribbean 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. Comparative prices for 100 minutes per month use of a mobile phone in selected Central American and Caribbean markets (in US$, 2000)

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

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

31. Telephone tariffs (2000) Residential (US$)Business (US$) Local call (US$, 3 min) Subscription as % of GDP per capita Connection M. Subscription Connection M. Subscription World 866.31139.80.075.7 Africa 625.0775.70.0812.7 Americas 1058.313417.60.073.1 Asia 1084.41398.00.045.5 Europe 847.81179.70.101.1 Oceania 558.67914.30.133.7

32. Cellular tariffs (2000) ConnectionM. Subscription 3 minutes local call PeakOff Peak World 7516.60.620.42 Africa 7913.30.560.39 Americas 58210.780.57 Asia 8314.90.470.32 Europe 6213.80.590.41 Oceania 9135.71.400.75

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: ? % 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: ? % 33

36. Falling prices

37. X X Traditional regime: Joint provision of service Country ACountry B 37 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. X Emerging regime: Market entry and interconnection XX Country A Country B Jointly provided circuit Circuit provided by operator B 38 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. A C B C B A Operator in A sends traffic to operator in C under an arrangement of exclusivity Operator in A is a partner of operator in C Settlement rates A/B > C/B Origin A Destination B Origin C Destination B Operator in C declares traffic to B on transit through A Operator in B receives traffic at settlement rate C/B instead of A/B Operator in C “re-labels” the traffic as originated in C 1 2 3 4 Refile and other practices using accounting rate system

42. Using AR CALL BACK using Accounting Rates

43. Mobile tromboning (using accounting rate)   Called BCaller A Operator A’s national network Operator B’s mobile network Operator A’s Int’l facility Operator B’s Int’l facility Operator X or Operator A’s facility in another country International boundary High Interconnection charge

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

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

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

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”