trade in telecom services - world...

Trade in Telecom Services

Dr Tim KellyHead, Strategy and Policy Unit

International Telecommunication Union (ITU)

World Bank Institute, “Trade in Services and Int’l Agreements”

Geneva, 8 December 2004The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of ITU or its Membership. The author can contacted by e-mail at [email protected].

International Telecommunication Union

2

Agenda: Trade in Telecom Services

! The theory"How to trade telecom services"How it has affected the telecom services market

! The history"A brief introduction to accounting rates"Basic Telecoms Agreement (1997)"Current status of liberalisation worldwide

! The market"Trends in International telecom services"How much has changed since 1997?


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Trade in telecoms! Dual role of telecommunications

"As a facilitator of trade in other sectors (GATS)"As a directly traded product and service (BTA)

! How can telecom services be traded? Modes of delivery"Cross-border (e.g., international calls)"Commercial presence (e.g., Foreign Direct

Investment)"Consumption abroad (e.g., cross-border roaming

of mobiles)"Movement of staff (e.g., consultancy services)


4

International voice traffic (in billions of minutes)

0.01% 0.2% 1.6%

4.8%7.4%

11.8% 13.1%

020406080

100120140160180

1997 1998 1999 2000 2001 2002 2003

VoIP

PSTN

As % of total

Source: ITU / TeleGeography


5

Sources of telecom revenueWorldwide, in US$ billions

0

200

400

600

800

1'000

1'200

1993 95 97 99 01 2003

Domestic fixed telephone

International fixed telephone

Mobile

Data and other

Source: ITU World Telecom Indicators Database.


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General Agreement on Trade in Services (GATS) principles relevant to telecoms

! Most-favoured nation (MFN), Article II! Transparency, Article III! Domestic regulation, Article VI:

" qualification requirements and procedures" technical standards " licensing requirements

! Monopolies and exclusive service supply (Article VIII)

! Market access (Article XVI)! National Treatment (Article XVII)


7

Basic Telecom Agreement! Process initiated in 1994 to extend GATS

commitments to basic telecoms (i.e., voice)! Negotiating Group on Basic Telecoms (NGBT)! Process reached “standstill” in April ‘96. Sticking

points:" Reaching Critical Mass of countries" “One-way by-pass” of accounting rate system" Status of mobile satellite services

! Negotiations re-opened, 15 Jan-15 Feb 1997! Successful conclusion on 15th February 1997

" 69 countries signed agreement" 61 countries committed to Regulatory Reference Paper,

in whole or in part


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Regulatory Reference Paper (1)! Competitive safeguards

" prevention of anti-competitive practices" engaging in anti-competitive cross-subsidisation" withholding information

! Interconnection" provided under non-discriminatory terms" cost-oriented, transparent and timely" additional network termination points on request at

cost-oriented rates" Published terms and rates" Disputes procedure


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! Universal Service Obligations" at discretion of Member State" no more burdensome than necessary

! Licensing criteria" publicly available" transparent process

! Independent regulatory authority! Allocation and use of scarce resources

" objective, timely, transparent and non-discriminatory procedures for allocation

Regulatory Reference Paper (2)

What are accounting and settlement What are accounting and settlement rates?rates?

Collection chargeThe amount charged to the customer by the Public Telecommunication Operator(PTO)

Accounting rateInternal price between PTOs fora jointly-providedservice Settlement rate

Payment from one PTOto another. Normally, half the accounting rate

XInternational

Transmission Facility

International Switching Facility (Gateway)

Call Termination

Country

What the accounting rate coversWhat the accounting rate covers

X X

Traditional regime:Traditional regime:Joint provision of serviceJoint provision of service

X

TradeTrade--based regime:based regime:Market entry and interconnectionMarket entry and interconnection

XX

Accounting rates and international interconnection rates: What differences?

Full-circuit regime (can be unbundled)

Half-circuit regime (not normally unbundled)

Non-discriminatory (same reference interconnect offer offered to all carriers)

Discriminatory (different rates with different correspondents)

Set unilaterally, but subject to trade discipline

Bilaterally negotiated

Asymmetric (charges may vary between countries)

Normally symmetric (accounting rate split 50/50)

International interconnection rates

Accounting rates

35% 46%74% 85%

1990 1995 1998 2005

Mono-poly

Compe-tition

4 14 29 48Number of countries permitting competition in international telephony

Percentage of outgoing international Percentage of outgoing international traffic open to competitiontraffic open to competition

Note: Analysis is based on WTO Basic Telecommunications Commitments and thus presents a minimum level of traffic likely to be open to competitive service provision. Source: ITU, WTO.


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Number of countries allowing competition, by service

0

20

40

60

80

100

120

140

160

1995 1997 2000 2001 2002 2003 2004

Local Long distanceInternational Cellular mobile

Countries

Source: ITU Telecom Regulatory Database.

Number of countries now permitting competition in international services is twice as many as made

commitments in 1997

The international call price squeeze

Swiss call prices. US cents per minute.

Call to USA

Local call

Source: ITU “Trends in Telecom Reform, 2000/01”

76544444551110977

28

43

5858

74

0

10

20

30

40

50

60

70

80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


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International voice traffic trendsRevenue (US$bn) and price per min (cents)

3339

4451

586368

0

10

20

30

40

50

60

70

1997 1998 1999 2000 2001 2002 2003

Revenue (US$bn)

Price per minute (US cents)Source: ITU World Telecom Indicators Database.


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Changing mix of int’l circuitsRise of international private lines

0

1

2

3

4

5

6

7

8

2002 1995

Availability and status of international circuits from the United States (64 kbit/s equivalents, in millions)

Idle circuits

Other

International Private Lines

PSTN circuits

2002, total = 6.7m circuits of which IPL = 29.4%

1995, total = 0.26m circuits of which IPL = 10.6%

Source: ITU, adapted from FCC Circuit Status Report.


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The “third coming” of IP Telephony

! 1995-1999: " “Internet phone”, offered primarily over the public Internet

(e.g. FreeWorld Dial-up, DialPad)! 2000-2002

" “VoIP”, offered as discounted telephony over IP-based networks (e.g. Net2Phone, iBasis)

" Collapse of dot.com bubble left many VoIP companies struggling as incumbent PTOs also offered VoIP services or acquired VoIP operators (e.g. China Telecom, Teleglobe)

! 2003-present" “Voice over broadband”, offered as free or flat-rate chat plus

discounted calls to PSTN/mobile users (e.g. Vonage, Skype)" “Corporate IP”, as users shift both data and voice to a

unified IP platform


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Selected rates for call terminationIn Euro cents per minute

0.017

0.017

0.151

0.022

0.08

0.164

0.251

0.138

0.022

0.08

0.016

0.019

0.180

0.140

0.150

France

Germany

India

China

Mexico Settlement/RIOSkype, MobileSkype, Fixed

Note: Mobile and fixed rates are for SkypeOut (a VoIP service).Settlement is from US and Reference Interconnect Offer is for double tandem.

Source: Skype, FCC, Analysys.

Regulatory status of IP Telephony By region, 2003

146

55

7

8

6

4

4

2

64

1

3 8

9

29

6 21 2

0%

20%

40%

60%

80%

100%

Africa Americas Arab States Asia-Pacific Europe/CIS

No policy forIP Telephony

FullCompetition

PartialCompetition

Prohibited

Restricted

Note: Based on responses from 132 economies. “Prohibited” means no service is possible. “Restricted” means only licensed PTOs can offer the service. “Partial competition” means non-licensed PTOs may use either IP networks or the public Internet. “Full competition” means anyone can use or offer service.Source: ITU (2005, forthcoming): General Trends in Telecom Reform”


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Likely situation in five year’s timeMajor technological and regulatory trends

! IP-based traffic indistinguishable from PSTN" Around 100 bn minutes of IP-based international traffic in

2008, or >50% of total" Many carriers will have all IP-networks" A majority of voice traffic will originate on wireless networks

and much of it will be IP-based! Numbering convergence

" ENUM will allow calls to and from IP voice on multiple different devices

" Numbering plan will allow for non-geographic and device-indendent VoIP numbers

! Voice over IP over mobile" Voice will increasingly travel over data channel in mobile

networks to provide discounted calling prices


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Revisiting the “modes of trade”seven years after 1997 agreement

! Cross-border" Still the primary form of telecom services trade, but

interconnect and VoIP is replacing accounting rates. VoIP will make it more difficult to tax traded services.

! Commercial presence" Although more than half incumbents are privatised, foreign

ownership is probably less now than three years ago for fixed-line PTOs, but much greater for mobile operators

! Consumption abroad" Greatly increased, due to roaming of mobiles. Now subject

to competition policy investigations in EU! Movement of staff

" Has not grown as much as expected, mainly due to outsourcing of call centres, software development etc.


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ITU/WTO Co-operation! Opinion A of 1998 World Telecom Policy Forum

Recommends applying the WTO Regulatory Reference Principles in ITU Member States" Competitive safeguards" Interconnection" Universal service" Licensing" Independent regulators" Allocation and use of scarce resources

! Co-operation agreement between ITU and WTO considered by ITU Plenipotentiary and WTO Trade in Services Council and signed on 22 Nov. 2000

trade in telecom services - world...

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