activities of study group 3

Activities of Study Group 3Activities of Study Group 3

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.

Saburo TANAKACouncellor, TSB/ITU

http://www.itu.int/ITU-T/othergroups/tal/index.html

Seminar in Guatemala City, November 2002

2Activities of ITU-T Study Group 3Activities of ITU-T Study Group 3

AgendaAgenda

Is SG3 different from other SGs? SG3 is unique But not different

What are the hot issues studied in SG3? For Int’l Telephone services For INTERNET For Mobile Termination Service

What are the concerns of administrations and how do they react?


International International Telecommunication UnionTelecommunication Union

A UN Specialized Agency Intergovernmental organization, governments

represented through their telecommunication Administrations (constitutional Members)

Other entities (Recognized Operating Agencies, Scientific Industrial Organizations, regional and international organizations) admitted as Sector members

“Basic Law” = Convention and Constitution, to be modified by Plenipotentiary Conferences


ITU-T Membership (End 2001)ITU-T Membership (End 2001)

Member States: 189

Sector Members: 179 ROAs234 SIOs39 others (including ISOC,

regional, International organizations, etc.)

30 Associates

New applicants: 2001: 712000: 66

1999: 171998: 57


ITU-T missionITU-T missionITU-T's mission is to ensure an efficient

and on-time production of high quality standards covering all fields of telecommunications.

Standardization work is carried out by the ITU-T Study Groups in which representatives of the ITU-T membership develop Recommendations for the various fields of international telecommunications.

More than 2800 Recommendations currently in force.

Task Force

IETF

IntergovernmentITU

(ITU-T and ITU-R)

NGOsISO,IEC,

IEEE, ETIS,ETSI, ECMA,TTC,Committee T1,ARIB, TIA, SCTE

Forums & Consortia

1394TA 3GPP 3GPP2 AIM AMF AMI-CAOEMA AOW ATMF BINTERMS Bluetooth Cable ModemsCBOP CDG CIF CII CommerceNet

CommerceNet JCOS CTFJ DHF DISA DOPG DSLFECE ECHONET ECOM ECTF EDIFICE EEMAEIDX EMA EMF ERTICO EWOS FCIAFCIA-J FIPA FRF FSAN GSM Assoc. HNFHome API HomePNA HRFWG IDB Forum IFIP IFSAIMTC IMWA IrDA ITS America ITS UK JAVAJCTEA JECALS JEDIC JEMA JICSAP JIMMJMF LONMARK MCPC MDG.org MITF MMCFMobile Web MOPA MPLSF MSForum MWIF OASISODVA OIF OMG OSGi PCCA PCISIGPCMCIA PHS MoU PICMG POF Salutation SCFSDR SSIPG STA TINA-C TMForum TOGTSC UMTS USBIF UWCC W3C WAPWDF Web 3D WfMC WIN Forum WLIF XTP Forum

ITU positioning

………


SG3 is uniqueSG3 is unique

Because of its composition

ROAsAdministrations

SIOIO

DevelopingCountries

Developedcountries

Ladies

Gentlemen


Dealing purely with non-technicalDealing purely with non-technicalstandards and …standards and …

Tariff/regulatory/Policy related issues

There are 4 Regional Tariff Groups


ITU–T SG 3 Major achievementsITU–T SG 3 Major achievements

New Remuneration system Termination charge system Settlement rate system Special arrangement

Difficulty to quickly implement these systems Condition is to reach cost-oriented rate, but No cost data or model for some administrations

Regional Tariff Groups developed cost models SG3 is now developing cost principles and

guidelines for negotiation Transitional arrangements

To facilitate staged reduction to cost based rate to avoid sudden fall of revenue (smooth transition)

Annex E to Recommendation D.140 Annex E to Recommendation D.140 “indicative target rates” by Teledensity (T) “indicative target rates” by Teledensity (T) Band, in SDR (and US cents) per minute.Band, in SDR (and US cents) per minute.

T<1 A

1<T<5 B

5<T<10 C

10<T<20 D

20<T<35 E

35<T<50 F

T>50 G

0.327 SDR

0.251 SDR

0.210 SDR

0.162 SDR

0.118 SDR

0.088 SDR

0.043 SDR

43.7¢ 33.5¢ 28.0¢ 21.6¢ 15.8¢ 11.8¢ 5.7¢

Low income Lower middle Upper middle

High income

Note: The correspondence between teledensity band and income group shown in the bottom row is intended to be approximate, not precise. Source: ITU-T SG3 Report. 1 SDR = US$1.39.

10

FCC : 23 ¢(January 2002/2003)

FCC : 19 ¢(January 2001) 19 ¢(J.2000)

FCC : 15 ¢(January 1999)

(end 2001) (end 2001) (end 2001) (end 2001)

(

end 2001) (end 2001) (end 2001)


Annex E Recommends alsoAnnex E Recommends also That transit Administrations move towards the

indicative target rate (upper limit) of 0.05 SDR (0.07US $) per minute.

To negotiate asymmetrical accounting rate (other than 50/50) if both administrations agree to move below the indicative target rate. Example: Operator A belongs to teledensity band EOperator B belongs to teledensity band FA and B agree to achieve TAR 0.2SDR (<0.118x2)

A can request settlement rate of 0.09 SDR B accepts to pay 0.11SDR to A

T<1 A

1<T<5 B

5<T<10 C

10<T<20 D

20<T<35 E

35<T<50 F

T>50 G

0.137 SDR

0.130 SDR

0.128 SDR

0.117 SDR

0.107 SDR

0.081 SDR

0.025 SDR

43.7¢ 33.5¢ 28.0¢ 21.6¢ 15.8¢ 11.8¢ 5.7¢

Low income Lower middle Upper middle

High income

Resolution 41Resolution 41

Updated “indicative target rates” by Updated “indicative target rates” by Teledensity (T) (Year 2002)Teledensity (T) (Year 2002)


Termination chargeTermination charge Destination operator (or Government) sets the charge Charge should be established based on costs Termination Charge includes

International exchange National extension, including local loop And if appropriate, international circuit Other costs imposed on carriers by the national regulation

These components should be separately identified (Unbundled)

Charge applies to all traffic from any source However if significant variation in costs, charge may

vary (volume discount) Termination charge may be introduced on a bilateral

agreement basis

Accounting rateAccounting rate Termination chargeTermination chargeNormally symmetric(50/50) Not necessarily symmetric

(if cost differs)

Bilaterally negotiation In theory, set unilaterally (need agreement to implement)

Discriminatory (different rates negotiated with different correspondents)

Non-discriminatory (same rate for all correspondents)

Half-circuit regime (would not normally be unbundled)

Full-circuit regime (could be unbundled)

Accounting rates and Termination Charges

What’ s the difference


International call terminating on International call terminating on mobile networkmobile network

SG3 revised D.93 in year 2000, allowing to negotiate a separate rate for traffic terminating

on a mobile network however, this is by bilateral negotiation

and when the rate is cost orientated The difference between the two rates

should be as small as possible

Many countries now request very high settlement rates (3 – 5 times) A review is now going on in SG3


Interconnection with mobile Interconnection with mobile networksnetworks

key regulatory issues involving interconnection with mobile networks. These issues include:

The role played by market structure and competition in setting mobile interconnection rates;

The asymmetry of retail prices for fixed-to-mobile and mobile-to-fixed calls, stemming in part from asymmetrical interconnection rates;

Difficulties in obtaining technical interconnection, including quality-of-service problems;

The lack of transparency in setting prices for fixed-to-mobile and mobile-to-fixed calls; and

The design of appropriate interconnection arrangements for Short Messaging Services (SMS) and General Packet Radio Service (GPRS)—and emerging mobile Internet access in general.

Countries with an Interconnection regulatory framework, by region

Source: ITU Telecommunications Regulatory Database.

0

5

10

15

20

25

30

35

40

Africa Americas ArabStates

Asia-Pacific

Europe

Countries

Countries imposing regulatory obligations

Source: ITU Telecommunications Regulatory Database.

0

10

20

30

40

50

60

Incumbent(fixed) only

Fixedoperators

SMP

All fixedoperators

All mobileoperators

Mobileoperators

SMP

Other

Countries

Interconnection in EuropeInterconnection in Europe

Existing regulatory frameworkMany different sector-specific directives, notably

Interconnection Directive (97/33/EC)Two parts: Recommendations on Interconnection pricing

and accounting separationMethodology for identifying “best practice” pricing

Lowest 20% of published interconnection offers in 15 EU Member States at local (0.9 €/100), single transit (1.5 €/100) and double transit (1.8 €/100)

New technologically-neutral regulatory frameworkAccess to, and interconnection of, electronic

communications networks and associated facilitiesFirst reading in European Parliament on 4 July 2001Amended proposal available at: http://europa.eu.int/information_society/topics/telecoms/regulatory/new_rf/com2001-369en.pdf

http://europa.eu.int/information_society/topics/telecoms/regulatory/new_rf/com2001-369en.pdf

Fixed-to-mobile interconnect rate

Mobile-to-fixed interconnect rate LOCAL

Mobile-to-fixed interconnect rate SINGLE

TRANSIT

Mobile-to-fixed interconnect rate DOUBLE

TRANSIT

Austria 0.23 0.017 0.017 0.022

Belgium 0.18 0.008 0.014 0.018

Denmark 0.17 0.008 0.011 0.016

Finland 0.21 0.013 0.013 0.024

France 0.20 0.006 0.012 0.018

Germany 0.24 0.008 0.017 0.021

Greece n.a. 0.018 0.018 0.025

Italy 0.23 0.009 0.015 0.021

Ireland n.a. 0.010 0.015 0.021

Luxembourg n.a. 0.015 0.015 0.015

Netherlands 0.18 0.009 0.013 0.016

Portugal n.a. 0.009 0.015 0.024

Spain 0.20 0.009 0.015 0.028

Sw eden 0.22 0.008 0.011 0.015

UK 0.16 0.005 0.007 0.016

Sw itzerland 0.30 n.a n.a 0.020

Norw ay 0.156 n.a n.a 0.018

Average 0.21 0.010 0.014 0.020

Interconnection Rates in selected European countries under CPP (in US $ / minute, end year 2000)

In 2001, there is an estimate indicating that the average of Fixed-mobile decreased to 0.136 and mobile to fixed has not changed

Range of Interconnection rates in EU, US$ per Range of Interconnection rates in EU, US$ per minuteminute

0 5 10 15 20 25 30

Mobile-to-fixed LOCAL

Mobile-to-fixed SINGLE

TRANSIT

Mobile-to-fixed DOUBLE

TRANSIT

Fixed-to-mobile

Lowest

Best-practice(20%) guidelineHighest

Source: ITU, compiled from ECTA/Analysys, EU Interconnection Tariffs in Member States, ITU Regulatory Survey 2000.

Selected European interconnect and Selected European interconnect and settlement rates, settlement rates, US cents per min, 2000US cents per min, 2000

0

2

4

6

8

10

12

14

Spain Italy France Germany Nether-lands

UK

Double transitinterconnect

SettlementRate to USA

Sources: ITU, EU, FCC.

InterconnectionInterconnectionRegulatory and technical issuesRegulatory and technical issues

Policy makers must resolve such basic questions as: which carriers require interconnection How the costs will be calculated and recovered, and At what points in the PSTN interconnection should occur

Regulatory issues Establishing guidelines in advance (without it, interconnection

negotiations are frequently protracted, delaying the introduction of competition)

Introducing competition requires “dominant carriers” to interconnect with other carriers

Cost orientation: excessive prices deter market entry, hinder competition, end user suffers and can provide a pool of revenue

Technical issues Points of interconnection: incumbent operators permit inter-

connection with their networks at any technically feasible point Dialling Parity and Pre-selection: Call-by-call customer

selection or Operator pre-selection by pre-subscription Quality of Interconnection Service

Key Interconnection Rules in Key Interconnection Rules in the WTO Reference Paperthe WTO Reference Paper

Interconnection with “Major Supplies”must be available

- At any technical feasible point in the network

- In a timely fashion

- At cost orientated rates

- On non discriminatory and transparent terms

- On an unbundled basis

- At non-traditional interconnection points if

requester pays charges

Procedure Procedures for interconnection to major suppliers must be made public

Transparency Agreements of major suppliers’ model interconnection offers must be made public

Dispute resolution

An independent entity (which may be the regulator) must be available to resolve interconnection dispute within a reasonable time frame

Economic issuesEconomic issues

The economic issues involved in interconnection largely come down to question of costs: cost definition, cost measurement, cost allocation and cost recovery

How can interconnection costs be measured? Theoretical Frameworks (Historica, Fully Distributed costs,

LRIC) Cost study Approaches (Top-Down, Bottom-Up, Outside-In)

Interconnection charge Cost based charges Retail-based charges Price Caps “Bill and Keep” or “Sender Keeps All” Revenue Sharing

OBJECTIVES

BUSINESS DECISIONSUPPORT

•Pricing and Product Planning

•Investment evaluation

•Economics of direct/transit routing

FINANCIAL CONTROL

•Monitor actual performance and compare with plan and past trends

•Cost control

•Identify Cross Subsidy

REGULATORYCOMPLIANCE

•Set D.140 as globally acceptable standard

•Rationalize tariff charges

•Derive TAR, USO

MARKETING

•Minimize opportunity for arbitrage

•Generate more revenue by increased traffic

TECHNOLOGY

•Enhancement towards global technology

•Long term cost/benefit of technology and options

•Impact of technology on global relations

Cost Model

Costing Methodologies

METHODOLOGIES

ACCOUNTING CONVENTION

COSTING APPROACH

HISTORICALCOST

ACCOUNTING

CURRENTCOST

ACCOUNTING

FULLYDISTRIBUTED

COST APPROACH

INCREMENTALCOST

APPROACH

•Actual costs incurred

•Cost of today of providing service

•Mirrors competitors potential cost

•All costs areallocated to services

•Incremental costs only

•Often long-run incremental costs only


Not many differences if…Not many differences if…Current cost accounting is used

FDC=Historical Cost is no more relevant Costs of efficient services provision are used

this should be the aim of all operators spare capacity (legitimate if transparency) Disagreement on time horizon to achieve this

Principle of cost causality is applied (ABC) Common cost must be attributed to the service on

the basis of the causality priniple However an exhaustive application of an ABC

approach may be very costlyNeed for cost recovery realised appropriately

IC approach should contain a markup

Principle of open availability of information: The open availability of information used in the cost deviation process used to substantiate rate claims. Alternatively, if prices from competitive environments are used as guides/proxies for actual cost data, the open provision of this price data and information (regarding the competitiveness of these market environments).

Principle of practicability : The ability to implement a costing methodology with reasonable demands being placed on data availability anddata processing in order to keep the costing exercise economical, yet still useful.

Principle of cost causality : The demonstration of clear cause-and-effect relationship between service delivery on the one hand and the network element and other resources used to provide it on the other hand, taking into account the relevant underlying cost determinants.

Principle of contribution to common costs : Costing methodologies should provide for mutually agreed reasonable contribution to common cost as defined in Recommendation D.140.

Principle of economic provisioning : The use of a costing methodology that reflects the principle of economic provision of services taking into consideration all the reasonable circumstances that affect the conditions in each country, for instance, macro-economic conditions, network size and teledensity levels, etc. and recognizes the need for a better combination and use of resources over time.

Agreed General principles

Los cinco principios :Los cinco principios :Cualquier metodología para la fijación de costos propuesta debería incorporar, como mínimo, el siguiente conjunto de principios:

Principio de libre disponibilidad de la información; La libre disponibilidad de la información utilizada en el proceso de cálculo de costos para justificar las pretensiones de tasas. Alternativamente, si se utilizan precios aplicados en entornos competitivos como guía u orientación para los datos de costos reales, la provisión libre de estos datos e información de precios (en relación con la competitividad de estos entornos de mercado).

Principio de practicabilidad: Aptitud para aplicar una metodología de cálculo de costos, imponiendo exigencias razonables en lo que respecta a la disponibilidad y el procesamiento de datos, para que el ejercicio de fijación de costos siga siendo económico y útil.

Principio de causalidad: Demostración de una relación clara de causa y efecto entre la prestación del servicio, por un lado, y los elementos de la red y otros recursos utilizados en dicha prestación, por otro, considerando los factores pertinentes que determinan los costos implícitos.

Principio de la contribución a los costos comunes: Las metodologías de cálculo de costos deben asignar una contribución razonable a estos costos, tal que se definen en la Recomendación D.140.

Principio de prestación de servicios económica: Utilización de una metodología de cálculo de costos que refleje el principio de prestación de servicios económica teniendo en cuenta todas las circunstancias razonables que afectan a las condiciones en cada país, por ejemplo las condiciones macroeconómicas, el tamaño de la red y los niveles de densidad telefónica, y reconozca la necesidad de una mejor combinación y utilización de los recursos en el tiempo.

Top Down(Total Company costs)

Bottom UP(Facility, operating cost

inputs)

Outside In(Proxy inputs results)

Service Unit cost

Results

Cost Study Methodologies


Cost model resolves everything?Cost model resolves everything?Accounting rate is established by negotiation

Rates need to be agreed upon in negotiation Market-determinde prices put pressure upon

negotiation

Need to back up its claim for a charge By showing the price of a comparable

competitively offered service Or for monopoly by providing relevant cost data

“Costs” = tools for negotiation, “costs” do not fix automatically the level of prices


Guidelines for negotiation of Guidelines for negotiation of Accounting rates and Code of Accounting rates and Code of conductconduct

See Recommendation D.140, Annex CSee TAL Temporary Document, Section 2

The importance of interconnectionThe importance of interconnection Key to developing competitive markets

Interconnection is the main driver of growth and innovation in telecom market, it promote efficient infrastructure development

But constructing a sound interconnection framework is no easy task

Approaches to Interconnection Policy National approach – by 2000 101 countries had established

interconnection regulatory framework Regional Approach – European Union (interconnection directive),

CITEL (Guidelines and Practices for Interconnection Regulation), APEC (Recommended Principles for interconnection), TRASA(proposed interconnection guidelines)

WTO Reference Paper on Regulatory Issues Puts forward a series of interconnection commitments:

- provide interconnection at any technically feasible point

- non discrimunatory terms, conditions and rates

- in a sufficiently unbundled and timely fashion

- calls for transparency

Internet Interconnection Internet Interconnection

Internet Interconnection has slightly different meaning. Historically Internet interconnection has involved simply different Internet networks.

This Internet Interconnection policies have proved increasingly inappropriate in a commercial industry.

Many operator with larger networks often charge smaller ISPs a traffic-based interconnection fee

Many backbone providers have begun offering transit service networks.

Different type of Interconnection Arrangements ISP Relationships with customers: usually via a dial-up ISP-ISP Interconnection: peering or bilateral agreement Multiple ISP Exchanges when several ISPs need to

interconnect in a same city (use of an IXP) International Regulatory Development

Inter-regional Internet Inter-regional Internet connectivityconnectivity

Asia /Pacific

LatinAmerica

USA / Canada

Europe

Africa,Arab

162Gbit/s

0.1 Gbit/s

0.77 Gbit/s

Note: Gbit/s = Gigabits (1’000 Mb) per second.Source: ITU adapted from TeleGeography.

41.8Gbit/s

0.4 Gbit/s

14 G

bit/

s

0.45 Gbit/s

Recommendation D.50Recommendation D.50

The ITU-T,recognizingthe sovereign right of each State to regulate its telecommunication, as

reflected in the Preamble to the Constitution,notinga) the rapid growth of Internet and Internet protocol-based international

services;b) that international Internet connections remain subject to commercial

agreements between the parties concerned; andc) that continuing technical and economic developments require ongoing

studies in this area,Recommends that administrations involved in the provision of international Internet

connections negotiate and agree to bilateral commercial arrangements enabling direct international Internet connections that take into account the possible need for compensation between them for the value of elements such as traffic flow, number of routes, geographical coverage and cost of international transmission amongst others.

The TAL region Digital DivideThe TAL region Digital Divide

1.0%

1.4%

1.7%

2.7%

5.3%

8.0%

11.9%

20.0%

39.0%

0% 10% 20% 30% 40% 50%

Cuba

Paraguay

Guatemala

Colombia

Venezuela

Argentina

Urguay

Chilie

Bermuda

Internet users as % of population2001

Source: ITU.

Typical ISP cost comparisonsTypical ISP cost comparisons

Commercial & operational

costs

National connectivity

International connectivity

Commercial & operational

costs

National connectivity

International connectivity

<<<TAL countries

OECD countries >>>

Internet retail pricing Internet retail pricing

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100

Av. America

GuyanaColombia

Mexico

Trind & TobEl Salvador

Nicaragua

St VincentArgentina

ISP chargeTelephone usageTelephone rental

30 hours of Internet access, US$, End 2001Source: ITU adapted from ISPs / PTOs

OECD average

Lowinternational

Internetconnectivity

Littleinterest of

privateinvestors

Highconnectivitycharges for

ISPs

Low demandof Internet

services

No growth ininfrastructure,

limitedInternet

connectivity

No exploitation ofeconomies of scale

Low bargainingpower of ISPs

Lack of competition

High end-usercharges

Internet vicious circle

ITU IP Connectivity Project

Liberalisationof the Internetmarket

Market growth

Bargaining powerof ISPs

Economies of scale

Interest in investing Lower costs

Higherdemand

Higherinternational

Internet connectivity

Virtuous circle

IP-TelephonyIP-Telephony

Telephone to Telephone to telephone (fax to telephone (fax to fax) via Internetfax) via Internet

Any telephone/mobile user to any otherMain motivation: Accounting rate bypass, market

entry for non-facilities-based carriersPotential service providers include any PTO with

settlement payments deficit (e.g., US = US$5.7bn)

Market potential: 1.3 billion telephone/mobile users

Telephone TelephonePublic Switch

Internet

Phone Gateway Computer

Phone Gateway Computer


IP TelephonyIP TelephonyOpportunities and challengesOpportunities and challenges

Opportunities Reduce prices to consumers and the costs of market entry for

operators In terms of volume of traffic carried and level of investment

committed

Challenges Undermine the pricing structure of the incumbent Public

Telecommunication Operators (PTOs) Transition to IP-based networks also poses significant human

ressource development challenges

Accounting Rate IP-Telephony Difference

PTO in Developed

country

Collect US$ 1.00 from user

Pays US $ 0.55 settlement.

Retains US $ 0.45

CollectUS$ 1.00 from user

Pays US$ 0.30 to ISP for terminating call.Retains US$ 0.70

+0.25 US$

PTO in Developing

country

Receives US $ 0.55 settlement.

Receives US $ 0.02

local call charge.-0.53 US$

ISP in Developing

country0

Receives 0.30 US $ for terminating charge

Pays 0.02 US $ for local call.

Retains 0.28 US $

+0.28 US$

ChallengesChallenges

Revenue gain and revenue loss

ISP

PSTN

Operator

Switch

How the operators in developping countries stop IP-Telephony

Operator check only this line

Users can call ISP but ISP is unable to call users


For additional informationFor additional information

Please visit:Please visit:http://www.itu.int/ITU-T/studygrhttp://www.itu.int/ITU-T/studygroups/com03/index.aspoups/com03/index.asp

Or contact:Or contact:[email protected]@[email protected]@itu.int

activities of study group 3

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