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