Trade in Telecom Services

Trade in Telecom Services Dr Tim Kelly Head, Strategy and Policy Unit International Telecommunication Union (ITU) World Bank Institute, “Trade in Serv...
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Trade in Telecom Services Dr Tim Kelly Head, Strategy and Policy Unit International Telecommunication Union (ITU) World Bank Institute, “Trade in Services and Int’l Agreements” Geneva, 8 December 2004 The 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

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? 2

International Telecommunication Union

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) 3

International Telecommunication Union

International voice traffic (in billions of minutes) 180 160

VoIP

140

PSTN

120

As % of total

100 11.8%

80 60

7.4%

40

4.8%

20 Source: ITU / TeleGeography

4

0

13.1%

0.01% 0.2% 1997 1998

1.6% 1999

2000

2001

2002

2003

International Telecommunication Union

Sources of telecom revenue Worldwide, in US$ billions 1'200 1'000 Data and other 800 600

Source: ITU World Telecom Indicators Database.

5

Mobile

400

International fixed telephone

200

Domestic fixed telephone

0 1993

95

97

99

01

2003

International Telecommunication Union

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

6

! Monopolies and exclusive service supply (Article VIII) ! Market access (Article XVI) ! National Treatment (Article XVII)

International Telecommunication Union

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 7

International Telecommunication Union

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

8

International Telecommunication Union

Regulatory Reference Paper (2) ! 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

9

What are accounting and settlement rates?

Accounting rate Internal price between PTOs for a jointly-provided service

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

Settlement rate Payment from one PTO to another. Normally, half the accounting rate

What the accounting rate covers

Country

International Transmission Facility

X

International Switching Facility (Gateway)

Call Termination

Traditional regime: Joint provision of service

X

X

Trade-based regime: Market entry and interconnection

X X

X

Accounting rates and international interconnection rates: What differences? Accounting rates

International interconnection rates

Normally symmetric Asymmetric (charges may (accounting rate split 50/50) vary between countries) Bilaterally negotiated

Set unilaterally, but subject to trade discipline

Discriminatory (different rates with different correspondents) Half-circuit regime (not normally unbundled)

Non-discriminatory (same reference interconnect offer offered to all carriers) Full-circuit regime (can be unbundled)

Percentage of outgoing international traffic open to competition Monopoly

85% Competition

74% 46%

35% 4

14

29

48

1990

1995

1998

2005

Number of countries permitting competition in international telephony

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.

International Telecommunication Union

Number of countries allowing competition, by service Countries

Local International

Long distance Cellular mobile

160 140 120 100 80 60 Source: ITU Telecom Regulatory Database.

Number of countries now permitting competition in international services is twice as many as made commitments in 1997

40 20 0

16

1995

1997

2000

2001

2002

2003

2004

The international call price squeeze 80 70

74

60

58

Swiss call prices. US cents per minute.

58

50 43

40 30

Call to USA 28

20

Local call

10

5

0

5

4

4

4

7 4

11 7

10 6

9 5

7 4

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: ITU “Trends in Telecom Reform, 2000/01”

International Telecommunication Union

International voice traffic trends Revenue (US$bn) and price per min (cents) 70 60 50

68

63

40

58 51

30

44

39

20 10 Source: ITU World Telecom Indicators Database.

18

33

Revenue (US$bn) Price per minute (US cents)

0 1997

1998

1999

2000

2001

2002

2003

International Telecommunication Union

Changing mix of int’l circuits Rise of international private lines 8

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

7

Other

6 5

Idle circuits

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

4 3 2 Source: ITU, adapted from FCC Circuit Status Report.

1 0

International Private Lines

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

PSTN circuits

19

2002

1995

International Telecommunication Union

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

20

" “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

International Telecommunication Union

Selected rates for call termination In Euro cents per minute 0.150 Mexico

0.08 0.08

Settlement/RIO Skype, Mobile

0.140 China 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.

21

Skype, Fixed

0.022 0.022 0.180 0.138 0.151

India 0.019 Germany

0.251 0.017 0.016

France

0.164 0.017

Regulatory status of IP Telephony By region, 2003 100%

1 6

80%

3

No policy for IP Telephony

8 9

6 60%

2

2

4

29

4

Partial Competition

8 40%

Full Competition

6

4 Prohibited

20%

1 2

5

14

5

6

7

Restricted

0% Africa

Americas

Arab States

Asia-Pacific

Europe/CIS

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”

International Telecommunication Union

Likely situation in five year’s time Major 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 deviceindendent VoIP numbers

! Voice over IP over mobile 23

" Voice will increasingly travel over data channel in mobile networks to provide discounted calling prices

International Telecommunication Union

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 24

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

International Telecommunication Union

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 25

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