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Economic aspects ofEconomic aspects offixed-to-mobilefixed-to-mobileinterconnectioninterconnection
The views expressed in this paper are those of the authors and do not necessarily reflect the opinions of the ITUor its Membership. The author can contacted by e-mail at [email protected].
Dr Tim Kelly, Head, Strategy& Policy Unit, ITUITU Workshop on
Interconnection, Sanya City,17-19 August 2001
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International Telecommunication Union
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Agenda! A mobile revolution
"Worldwide"Asia-Pacific
! Fixed-mobile interconnection"Calling Party Pays vs. Receiving Party Pays"The problem of the “market of one”" Interconnection rate comparisons
! Country case studies" India, Hongkong SAR
! Looking ahead" Interconnection issues with 3G Mobile
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A Mobile RevolutionA Mobile Revolution
Source: ITU World Telecommunication Indicators Database.
0
200
400
600
800
1'000
1'200
1'400
1993 1995 1997 1999 2001 2003
Mobile UsersFixed Lines
Fixed Lines vs. Mobile Users, worldwide, Million
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International Telecommunication Union
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Relationship between teledensityand mobile density, Asia, 1/1/01
Source: ITU World Telecommunication Indicators Database.
0
10
20
30
40
50
60
70
80
90
0 10 20 30 40 50 60 70 80 90Fixed-lines per 100 inhabitants
Mob
ile p
er 1
00 in
habi
tant
s
More mobiles
More fixed-lines
Japan
Macau, SAR
Taiwan, China Hongkong SAR
Singapore
Korea (Rep.)
Malaysia
ChinaThailand
Philippines
Viet Nam, Indonesia India
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Calling opportunities worldwide
89.7%
5.0%5.0% 0.3%
199352.7%
19.9%
19.9%
7.5%
1998
23.4%
25.0%25.0%
26.7%
2003
Fixed-to-fixed
Fixed-to-mobile
Mobile-to-fixed
Mobile-to-mobile
Source: ITU Fixed-Mobile Interconnect website: http://www.itu.int/interconnect
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Average retail prices
$9.74
$10.87
$14.30
$16.26
$21.69
$23.59
$25.00
$26.07
$35.34
$38.15
$41.40
$45.20
$48.11
$50.20
$61.91
Indonesia (Satelindo)
China (China Telecom)
India (Max Touch)
Philippines (Globe)
Hong Kong SAR (HKT)
Canada (Bell Mobility)
USA (Bell South)
Chile (Entel PCS)
Brazil (Telesp)
World Average
UK (Orange)
Argentina (Miniphone)
Egypt (Click)
Spain (Plan 7500)
Germany (D2)
Price of monthly subscription plus 100 minutes of mobilephone calls in US$, August 1999
Note: Excludes charges for incoming calls in RPP markets.Source: ITU World Telecom Development Report 1999: Mobile Cellular
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International Telecommunication Union
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Fixed-Mobile Interconnection! Interconnect prices are a major determinant of retail
prices! Evidence of “market failure”
" Interconnect prices are variable but generally very high,especially in Europe
" In Calling Party-Pays environments, caller may not be awareof the charge they will be paying
" Calling party does not have a choice of operator to terminatethe call
! Fixed-to-mobile and mobile-to-fixed interconnectrates are highly asymmetric
! By 2003, 75% of all call opportunities worldwide willinvolve a mobile
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Elements of a Fixed-to-Mobile call
Orig. Access
Switching
Authentication
Orig. Access
Switching
Authentication
CoreNetwork
Switching
CoreNetwork
Switching
Locating theCustomer
Switching
Term. Access
Locating theCustomer
Switching
Term. Access
Call Origination Call TerminationCalling Party
(FIXED)
Called Party
(MOBILE)
Transit service
Source: Adapted from ECTA.
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The competitive cascadeSubscriptions
Retail calls
Origination
Termination
National roaming;Mobile number portability
Indirect access
Wholesale prices linked to retailtariffs for mobile-originated calls
The flow of competition
Source: Ovum.
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RPP vs. CPP: What’s thedifference?
Receiving Party Pays# Mobile party pays for
incoming calls and fixedparty pays only local tariff
# Often, no interconnectarrangement is negotiatedwith the fixed operator forF-M calls. Mobile operatorsbill mobile consumerdirectly for “airtime”.
Calling Party Pays# Mobile party does
not pay for incomingcalls and fixed partypays a premium tocall the mobile party
# Call termination paidby fixed operatorsis a significant partof mobile operatorrevenues
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Fixed/Mobile interconnect rates in selectedcalling-party-pays countries, US$ per minute
0.293
0.208
0.205
0.078
0.070
0.064
0.047
0.034
0.017
0.293
0.052
0.051
0.042
0.050
0.026
0.047
0.034
0.017
Antigua
Botswana
Philippines
Dom. Rep.
Cambodia
Mexico
Guatemala
Malaysia
Costa Rica
Mobile-to-fixedinterconnect rate
Fixed-to-mobileinterconnect rate
Source: ITU RegulatoryQuestionnaire Survey.
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International Telecommunication Union
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Fixed-to-mobile interconnectionrates, Europe, US$ per minute
0.30
0.24
0.23
0.23
0.22
0.21
0.20
0.20
0.18
0.18
0.17
0.16
0.156
Switzerland
Germany
Italy
Austria
Sweden
Finland
France
Spain
Belgium
Netherlands
Denmark
UK
Norway
Source: ITU, compiledfrom ECTA/Analysys,EU InterconnectionTariffs in MemberStates, ITU RegulatorySurvey 2000
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International Telecommunication Union
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Mobile termination is out ofline with costs(even if costs areoverestimated!)
Higher cost technology
Less economy of scale
Higher costs of financing
6:1 - 9:1Actual
interconnect charges
16:1
Ratio of mobile to fixed costs
Ratio of mobile to fixed charges
Note: This applies toCPP i t
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International Telecommunication Union
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Sample prices in RPPenvironments, in US$ per minute
0.092
0.005
0.020
0.001
0.056
0.009
0.020
0.009
0.008
0.008
0.007
0.002
0.000
0.000
0.008
0.000
CPP
RPP
USA
Sri Lanka
Singapore
HK SAR
Canada
China
Mobile-to-fixedinterconnect rateFixed-to-mobileinterconnect rate
Average
Source: ITU RegulatoryQuestionnaire Survey.
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Case Study India: The context! Teledensity 2.4%
! Local market liberalized first,then long distance
! Mobile Sector opened upin 1994
! The Dept. of Telecoms wasboth licensor and incumbentoperator until late 1999
! Regulator TRAI createdin 1995
2.4% World’s Surface
1 billion people or 16.7% of World
34% Poverty
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Case Study India: The Mobile Sector! 34 mobile operators in circles (provinces)
and 8 in metros! More than 3 million subscribers in Dec 2000
# Growth of > 50% a year since March 1997# Mobile density around 0.3%
! In the circles, mobile network development ispatchy# Mobile operators rely on the incumbent
(DoT/DTS) to carry much of their traffic# …and incumbents launched their own mobile
services in Metros & Circles in 2000
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Case Study India: Attempt at CPP! Interconnection - main stumbling block for
development of mobile in India! Only mobile operators pay to interconnect
" DoT/DTS pays no access charges for F-M calls" Mobile operators obliged to use DoT/DTS network,
but have only limited access to it (via PoIs)" Compromise proposed over WLL access
! TRAI attempted to introduce CPP “revenue-sharing” scheme, but failed. Now trying again" Delhi High Court found that TRAI lacked jurisdiction" January 2000: TRAI Act amended
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International Telecommunication Union
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Case Study, Hongkong SAR! Became a Special
Administrative Regionon 1/7/97
! 6.8 million pop.! Mobile competition
since 1987! Currently 6 main
operators! Mobile density >80 per
100 inhabitants! Private and foreign
ownership permitted
PCCW18%
Peoples14%
Hutchison30%
SmarTone17%
New World14%
Sunday7%
Mobile operator’smarket share
(1/1/01)
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International Telecommunication Union
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Hongkong SAR, Fixed-to-Mobile interconnection! Clear and transparent statement of regulations
" Statement No. 7, (June 1995) sets out framework forcarrier to carrier charging principles
! Principle of cost-orientation" When requested to provide information, incumbent
operator (PCCW) must provide detailed cost breakdown,according to OFTA’s cost manual.
" Interconnect charges are US$10 per month per 64 kbit/sline plus 0.8 US cents per minute.
! Number portability" Introduced in March 1999" Has permitted greater user choice and has spurred
market growth
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International Telecommunication Union
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Looking to the future! Licensing of 3G systems and development of
mobile Internet" Choice of standards" Choice of method for allocating licences" How many operators?
! Mixed success for 2G mobile Internet" Huge success of i-Mode in Japan" Disappointing take-up of WAP in Europe
! Difficult to reconcile business models" Mobile voice charged by the minute" Internet access charged on a flat-rate basis
! Roaming issues" 3G is intended to permit global roaming" But, in Europe, EU competition policy authorities are
conducting an inquiry into excessive roaming charges andrecently conducted a series of raids on mobile operators
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Implications for public policy! Big difference between CPP and RPP
" CPP environment appears more favourable to market growth" But CPP mobile operators frequently charge above-cost
prices for interconnection! Regulators hesitant to intervene
" Mobile perceived to be an open and competitive market" But, evidence of market failure in call termination rates
! Operators can always blame high prices on someoneelse:" Mobile service providers blame other operators for high
roaming charges" Fixed-line service providers blame mobile operators for high
termination charges
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For more information ... ITU Website atFor more information ... ITU Website atwww.itu.int/interconnectwww.itu.int/interconnect
Case studies! Finland! India! Mexico! China and Hongkong SAR! Malaysia
… and on the licensing of 3Gmobile at www.itu.int/3G