1. Price restructuring and implications for achieving Universal Service/Access
Dr Tim Kelly, ITU
“Workshop on Trends in Regional Telecom Prices in Asia-Pacific” Bangkok, Sept 2000
The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or its Membership. Dr Kelly can be contacted by at

2. What is Universal Service / Access?
Agenda
What is Universal Service / Access?
Changing notions of universal service
Quantifying universal service obligations
International comparisons
The dilemma
Price restructuring tends to lead to higher prices for monthly subscription charges and local calls
Residential customers are the most affected
Getting the balance right …
… between affordability and sustainability
… between cross-subsidy and cost-orientation

3. Universal access Availability ... Accessibility ... Affordability ...
of basic telephone service
“to promote the extension of the benefits of the new telecommunication technologies to all the world’s inhabitants”
ITU Constitution, Article 1

4. Universal access and Universal service
Universal service: telephone in every home
Universal access: telephone within reasonable distance for everyone

5. Teledensity disparities
27.8 to
68.3
(46)
8.3
1.3
(47)
(48)

6. The scale of the problem (global)
200
400
600
800
1'000
1'200
1'400
1'600
1'800
2'000
<1
1-5
5-10
10-20
20-30
30-40
40-50
>50
72% of world’s population live in economies with less than 10 main lines per 100 inhabitants
Population, million
Teledensity band
Source: ITU World Telecommunication Indicators Database.

7. Teledensity transition
< >50 10 20 30 40 50
No. of
countries:
Average
Best 1
Tele-
density:
Years
Source: ITU World Telecommunication Development Report 1998: Universal Access.

8. The scale of the problem (national)
Urban/rural divide
12 % of Thailand’s population lives in Bangkok
50 % of Thailand’s fixed-line subscribers in Bangkok
Teledensity: 36.1% in Bangkok; 4.7% in rest of Thailand
Churn
In a competitive market, carriers will attempt to win rich, credit-worthy subscribers and to lose loss-making ones
Mobile/fixed divide
Younger, richer subscribers have mobiles only or both
Older, less wealthy subscribers have fixed lines

9. Estimates of the cost of meeting USOs: As a percentage of total sector revenue
Payphone
Argentina %
Australia 2.0%
Chile 0.2%
Colombia 4.3%
France 3.0%
Norway %
Peru 1.0%
Sweden %
Switz %
UK %
USA 5.0%
losses 4%
Tariff
imbalances
41%
Geographic
price
averaging
32%
Social
Programmes
23%
Estimated breakdown of USOs in transition to competition in France, Total = 4.9B FF
Source: World Bank.

10. Universal service dilemmas
In Thailand, there is geographically-averaged prices and a local call costs 3 Baht (untimed)
BUT, in Bangkok, more than 2 million consumers live within local call zone
In rural areas only a few hundred consumers live within local call zone
THEREFORE, consumers in rural area are cross-subsidising those in Bangkok!
SO, geographically averaged prices do not always assist with Universal Service …

11. Measures of Accessibility: South AfricaNo
access
18%
Have telephone
29%
Teledensity:
10.7
Cellular density:
3.7
Total telephone
Nearby 5%
Not Near-
by 6%
Another phone
South Africa
9 million
households
density:
14.4
Household
telephone
penetration:
29%
Neigh-
bours 6%
Universal access
Nearby
Public phone
36%
penetration (% of
households with
access to
telephone):
82%
Source :
Statistics South Africa .
<
statssa .
gov . za
/>

12. New concepts of Universal service: Mobile overtaking fixed lines in Finland
Penetration rate,
per 100 inhabitants 80 70
Household penetration,
in % 60
Fixed-line
100 50 40
Fixed-line 80 30 60 20 10
Mobile 40 90 91 92 93 94 95 96 97 98 99 20
Mobile 90 91 92 93 94 95 96 97 98 99

13. Pre-paid mobile and Universal Service
Pre-paid mobile cellular subscribers, 1998, as % of total
Total
pre-paid (m)
15.2
2.0
1.6
1.3
0.4
0.8
0.7
0.6
74%
60%
53%
50%
40%
37%
35%
Italy
Mobile can enhance access
Pre-paid has given access a major boost, esp. in Europe
Pre-paid allows subscribers to receive incoming calls (under calling party pays regimes)
Mexico
Portugal
S. Africa
Indonesia
Austria
Greece
Philippines
Source: ITU World Telecommunication Indicators Database.

14. The “myth” of subsidised access
It is commonly argued that telephone access should be priced at a low rate so that as many people as possible can afford it
But,
this may result in ‘subsidies’ from non-telephone users to telephone owners, who are typically business, government and richest 1% of population
if revenues do not cover costs, then the waiting list will grow

15. “Socially desirable” pricing
Rates are kept artificially low
Affordable price, maybe < break-even
Initial group of telephone users are clustered in the largest city and are not poor
May not generate enough revenue for network expansion
Source: OSIPTEL.

16. Defining affordability
Relative affordability, e.g., <5 per cent of average family income
BUT, initial telephone users are are not necessarily “average
In low income countries, costs for network installation may be high, but incomes are low
“Best practice” cost of operating a network
Methodology must be refined for residential and business users
Costs must be split between one-time & recurring

17. Telephone charges relative to household income, 1995
100
Percent of households with
telephone 80 60 40 20 - 0% 2% 4% 6% 8%
10%
Telephone charges as % of household expenditure
Note: The annual telephone charges data are a basket based on one tenth of the installation charge, annual subscription in the largest local network, 700 local calls and 130 long-distance calls. Taxes are included. Source: TU World Telecommunication Development Report 1998: Universal Access.

18. Methodology for determining average and best practice costs
Source: TU World Telecommunication Development Report 1998: Universal Access.

19. Average & best practice residential costs
Note: Based on study of 10 operators from different regions and income groups. “Best practice” is the lowest % of operating costs discounted by 20 per cent (covered by higher business subscription charge. 2. Actual connection charge, divided by seven. 3. Assuming telephone charges represent 5% of income. Source: ITU World Telecommunication Development Report, 1998: Universal Access.

20. Global measures of Affordability
Source: ITU World Telecommunication Development Report, 1998: Universal Access.

21. Pricing strategies for extending Universal Access
Installation charges initially high, but coming down over time
Residential subscription charges should reflect cost of servicing line (typically US$5-10 per month)
Set separate charges for residential and business subscribers
Lower prices for payphone or community telephone access
Tariff options, e.g., for low-volume users

22. Installation charges and teledensity in Argentina and Brazil, US$
Installation charge (left scale)
Teledensity (right scale)
$2'500 20
$2'000 15
$1'500 10
$1'000 5
$500 $0
'92
'93
'94
'95
'96
'92
'93
'94
'95
'96
Telecom Argentina
TeleBrás
Source: ITU World Telecommunication Development Report, 1998: Universal Access.

23. … lead to faster growth rates
Higher monthly subscription charges ...
Monthly residential subscription
charges, US$
$10
Uruguay
Malaysia $8
Hungary $6 $4
Percentage of households with
Morocco
telephone 70 $2
Malaysia 60
Hungary $-
Uruguay
… lead to faster growth rates 50
1990
1991
1992
1993
1994
1995
1996 40 30
Morocco 20 10
Source: ITU World Telecommunication Development Report, 1998: Universal Access.
1990
1991
1992
1993
1994
1995
1996

24. Demand-side measures for extending Universal Access
Tariff cross-subsidies
Traditional method, but may not benefit those for which it is intended
Universal Service Fund
Targeted assistance for special needs (e.g., rural areas, disabled), but may create administrative burden
Direct Financial Assistance to users
Targeted assistance using non-telecom-specific criteria, but may be difficult to control abuses
Community-wide initiatives
e.g., Payphone in every village, community

25. Supply-side measures for extending Universal Access
Market liberalisation
e.g., allowing new suppliers to enter market, liberalising equipment market, giving financial autonomy to PTO, encouraging foreign investment, Build/Transfer/Operate concessions
Payphone liberalisation
e.g., permitting private installation and ownership of payphones, community telephone shops, telecentres
Technical solutions
e.g., Mobile cellular, Wireless Local Loop, GMPCS, combined cable TV/telephony

26. Pricing strategies to achieve Universal Service
Targeted tariff options
e.g., for low-volume users, the elderly, the disabled, foreign migrants
Prepaid calling cards
for fixed-line and mobile networks
Support for incoming calls
e.g., to allow families to receive calls from family members working abroad, for instance through voic , , telecentres, call-turnaround, foreign sales of calling cards etc

27. Achieving Universal service
Percentage of households with a telephone 0%
20%
40%
60%
80%
100%
1960
1970
1980
1990
1996
France
Japan
Sweden
Canada
Australia
USA 0%
20%
40%
60%
80%
100%
1970
1980
1990
1998
Mauritius
South
Africa
Botswana
SADC*

28. Achieving Universal service

29. Year 2010 Goals Goal: Provide reasonable access to telecommunications
for all of humanity by the year 2010
WORLD
Developing >
Low income >
excluding China
Teledensity
Household
telephone
penetration
Payphones per 1’000 people
Source: ITU World Telecommunication Development Report, 1998