1. International Telecommunication Union Connect the World The Future of Voice: Framing the debate ITU New Initiatives Workshop 15-16 January 2007, Geneva Tim Kelly and Jaroslaw Ponder Strategy and Policy Unit International Telecommunication Union

2. 15 January 2007 Connect the World 2 Framing the Debate: Agenda  Trends in traditional voice communication  Revenue and price trends for voice and data  Is the “pricing per minute” business model sustainable?  Some questions for discussion

3. 15 January 2007 Connect the World 3 Local telephone minutes per capita in US still growing 0 2'000 4'000 6'000 8'000 10'000 12'000 14'000 16'000 18'000 199019911992199319941995199619971998199920002001200220032004 France Japan New Zealand Spain Switzerland United Kingdom United States Source: ITU World Information Society Statistics In US continuous growth of local traffic. During last 15 years number of generated local call minutes per capita grew more than 4 times. Tentative US Trend

4. 15 January 2007 Connect the World 4 Local telephone minutes per capita in other countries 0 200 400 600 800 1'000 1'200 1'400 1'600 1'800 2'000 199019911992199319941995199619971998199920002001200220032004 France Japan New Zealand Spain Switzerland United Kingdom Source: ITU World Information Society Statistics General tendency of local fixed-line traffic to fall esp. since end of 1990s Tentative Trend

5. 15 January 2007 Connect the World 5 National telephone minutes per capita (long distance) Source: ITU World Information Society Statistics 0 500 1'000 1'500 2'000 2'500 3'000 3'500 199019911992199319941995199619971998199920002001200220032004 Australia France Japan New Zealand Spain Switzerland United Kingdom United States General tendency of national fixed line traffic to fall since end of 1990s Tentative Trend

6. 15 January 2007 Connect the World 6 International outgoing traffic minutes per capita 0 50 100 150 200 250 300 350 400 1990199119921993199419951996199719981999200020012002200320042005 Australia France Japan Korea (Rep. of) New Zealand Spain Switzerland United Kingdom United States Source: ITU World Telecommunication Indicators Tentative Trend In Korea, international outgoing traffic grew more than 12 times in last 15 years (tendency growing); in USA more than 5 times.

7. 15 January 2007 Connect the World 7 Factors underlying traffic trends?  Overall expansion of user base  The pressure of competition and market liberalisation  Emerging alternative communication platforms (e.g., mobile, VoIP)  Influence of the Internet, esp. Voice over Internet Protocol and peering  Peer-to-peer technologies (e.g., Skype)  Overall migration to the all-IP environment Do people communicate more now?

8. 15 January 2007 Connect the World 8 Long-term telecom revenue trends 0 200 400 600 800 1'000 1'200 1'400 1991199319951997199920012003 Revenue (US$ billion) Domestic PSTN International PSTN Mobile Other (e.g., non-voice) Source: ITU Information Society Statistics Database.

9. 15 January 2007 Connect the World 9 Voice revenues stable as % of total revenue 0 200 400 600 800 1'000 1'200 1'400 1991199319951997199920012003 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Non-voice Voice (inc SMS, dial-up) Voice as % of total Revenue (US$ billion)Voice as a % of total Source: ITU Information Society Statistics Database.

10. 15 January 2007 Connect the World 10 Broadband price trends Source: ITU Internet Reports 2006: Digital.Life.  International survey of broadband prices  Based on 133 economies that had broadband as early as 2004  Methodology  Based on price in US$ per 100 kbit/s  Price trends  Median price has fallen by 41% p.a.  Median speed has risen by 66% p.a.  Faster than Moore’s Law

11. 15 January 2007 Connect the World 11 The trend towards flat-rate pricing 133 145 166 0 20 40 60 80 100 120 140 160 180 200420052006 Number of economies DataTime BothFlat-rate 75% 68% 81%  Broadband pricing  Flat-rate is now preferred to both time- based and data capped  Similar trends towards bundling and flat-rate in voice market too  Voice offered “free” with internet and premium TV services Source: ITU Internet Reports 2006: Digital.Life.

12. 15 January 2007 Connect the World 12 Is the “price per minute” business model sustainable? Yes  Well understood and simple (both for retail and wholesale)  Proven cash generator for telcos  Can accommodate different classes of service No  Pricing per minute is based on scarcity  Users want predictable monthly bills  Pricing per minute hinders take-up of data/content services

13. 15 January 2007 Connect the World 13 Some questions for discussion  Will voice remain a trillion dollar business or will the business model collapse under pressure from VoIP?  How can voice service be profitably extended (e.g., premium quality, chat, integration with other services, universal access, etc)  Will voice drive NGNs? (just like it drove ISDN, freephone, 3G etc)

14. 15 January 2007 Connect the World 14 International Telecommunication Union Connect the World