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Tariff policies for achieving Universal Service / Universal Access Dr Tim Kelly, International Telecommunication Union (ITU) Workshop on settlement reform.

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Presentation on theme: "Tariff policies for achieving Universal Service / Universal Access Dr Tim Kelly, International Telecommunication Union (ITU) Workshop on settlement reform."— Presentation transcript:

1 Tariff policies for achieving Universal Service / Universal Access Dr Tim Kelly, International Telecommunication Union (ITU) Workshop on settlement reform and the costing and pricing of telecom services, Vientiane, 16-18 November 1999 Note: The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Dr Tim Kelly can be contacted by e-mail at Tim.Kelly@itu.int.

2 Universal Service / Universal Access Pricing Strategies to achieve Universal Service / Universal Access What is Universal Service / Universal Access? The myth of subsidised access Defining affordability Pricing strategies For universal access For universal service Targets for the year 2010

3 Universal Service / Universal Access Universal access Availability... Accessibility... Affordability... of basic telephone service to promote the extension of the benefits of the new telecommunication technologies to all the worlds inhabitants ITU Constitution, Article 1

4 Universal Service / Universal Access Universal access and Universal service Universal service: telephone in every home Universal access: telephone within reasonable distance for everyone

5 Universal Service / Universal Access Teledensity disparities 27.8to68.3(46) 8.3to27.8(46) 1.3to8.3(47) 0to1.3(48)

6 Universal Service / Universal Access 0 200 400 600 800 1'000 1'200 1'400 1'600 1'800 2'000 <11-55-1010-2020-3030-4040-50>50 Teledensity band Population, million The scale of the problem Source: ITU World Telecommunication Indicators Database. 72% of worlds population live in economies with less than 10 main lines per 100 inhabitants

7 Universal Service / Universal Access Teledensity transition Source: ITU World Telecommunication Development Report 1998: Universal Access.

8 Universal Service / Universal Access Telecoms transition, from 10 to 30 lines per 100 inhabitants, Asia-Pacific 1935195519751995 New Zealand Australia Japan Hongkong Singapore Taiwan-China Korea (Rep.) 10 lines per 100 inhabitants 30 lines per 100 inhabitants Source: ITU World Telecommunication Development Report 1998: Universal Access.

9 Universal Service / Universal Access 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

10 Universal Service / Universal Access 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 Source: OSIPTEL. May not generate enough revenue for network expansion

11 Universal Service / Universal Access 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

12 Universal Service / Universal Access - 20 40 60 80 100 0%2%4%6%8%10% Telephone charges as % of household expenditure Percent of households with telephone Telephone charges relative to household income, 1995 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.

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

14 Average & best practice residential costs Note:Based on study of 10 operators from different regions and income groups. Best practice is the lowest 1. 40% 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.

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

16 Universal Service / Universal Access Have telephone 29% No access 18% Nearby Public phone 36% Neigh- bours 6% Nearby 5% Not Near- by 6% Another phone South Africa 9 million households Source:Statistics South Africa. <http://www.statssa.gov.za/> Teledensity:10.7 Cellular density:3.7 Total telephone density:14.4 Household telephone penetration:29% Universal access penetration (% of households with access to telephone):82% Measuring Accessibility

17 Universal Service / Universal Access 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

18 Residential installation fee, in US$: Selected countries plus World average, 1998 Source: ITU World Telecommunication Indicators Database. 225.57 210.00 202.79 181.00 171.31 124.00 91.00 81.00 61.35 34.80 22.03 17.77 8.20 China Cambodia Indonesia Vietnam Russia Average Lao Thailand Hongkong Sar South Africa India Malaysia Philippines

19 Business installation fee, in US$: Selected countries plus World average, 1998 Source: ITU World Telecommunication Indicators Database. 582.44 274.97 225.57 210.00 181.00 165.00 91.00 81.00 61.35 34.80 22.03 17.77 6.86 Russia Indonesia China Cambodia Vietnam Average Lao Thailand Hongkong Sar South Africa India Malaysia Philippines

20 Universal Service / Universal Access 0 1 2 3 '75'77'79'81'83'85'87'89'91'93'95 Waiting list (millions) - 1 2 3 4 5 6 7 8 Wait list Wait time Advance Deposit Scheme introduced Average waiting time (years) Waiting lists and average waiting times, India, 1975-96 Source: ITU World Telecommunication Development Report 1998: Universal Access.

21 Monthly residential subscription, in US$: Selected countries plus World average, 1998 Source: ITU World Telecommunication Indicators Database. 15.00 10.05 9.50 8.99 8.91 7.22 7.11 6.20 5.23 3.43 3.19 1.88 1.50 Cambodi a South Africa Average Philippine s Hongkong Sar Indonesi a Malaysi a Vietnam Indi a Russi a Thailan d Chin a La o

22 Monthly business subscription, in US$: Selected countries plus World average, 1998 Source: ITU World Telecommunication Indicators Database. 20.51 18.84 15.00 14.80 14.08 12.44 11.62 10.66 6.20 5.23 3.00 2.90 2.40 Philippines Russia Cambodia Average Hongkong Sar Malaysia South Africa Indonesia Vietnam India Lao China Thailand

23 … lead to faster growth rates Monthly residential subscription charges, US$ $- $2 $4 $6 $8 $10 1990199119921993199419951996 Uruguay Malaysia Hungary Morocco Percentage of households with telephone 0 10 20 30 40 50 60 70 1990199119921993199419951996 Malaysia Hungary Uruguay Morocco Higher monthly subscription charges... Source:ITU World Telecommunication Development Report, 1998: Universal Access.

24 Local call charge in US cents per 3 mins: Selected countries plus World average, 1998 Source: ITU World Telecommunication Indicators Database. 11.0 9.0 7.0 3.8 3.2 2.2 1.4 0.0 n.a. Vietnam Cambodia Average Thailand South Africa Indonesia Malaysia India China Lao Hongkong Sar Philippines Russia

25 International 3 min call to US, in US $: Selected countries, 1998/99 Source: ITU World Telecommunication Indicators Database. 9.40 7.39 6.65 4.36 4.00 3.58 3.28 2.76 2.63 2.49 1.18 0.63 Vietnam Russia China India Lao PDR Thailand Indonesia Brazil Hongkong Sar South Africa United Kingdom Australia

26 Universal Service / Universal Access 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

27 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Jan- 88 Jul- 88 Jul- 89 Nov- 90 Oct- 91 Feb- 92 Sep- 93 Jun- 94 Aug- 95 Dec- 96 01- Nov- 97 11- Nov- 97 Local Medium Long distance Rebalancing in action: Iceland Telecom, price of 3 minute, peak-rate call, includ. tax Source: Iceland Telecom, OECD.

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

29 Universal Service / Universal Access Pricing strategies to achieve Universal Service Targeted tariff options e.g., for low-volume users, the elderly, the disabled, foreign migrants Special tariffs for phoneshops, telecentres 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 voicemail, email, telecentres, call-turnaround, foreign sales of calling cards etc

30 Universal Service / Universal Access Achieving Universal service Percentage of households with a telephone

31 Universal Service / Universal Access 199620101996201019962010 WORLD12.8034.41.55 Developing5.071016.3>500.842 Low income2.4458.5>200.571 excluding China 1.224.10.21 Teledensity Household telephone penetration Payphones per 1000 people Year 2010 Goals Goal: Provide reasonable access to telecommunications for all of humanity by the year 2010 Source: ITU World Telecommunication Development Report, 1998

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