1. Developments in settlement reform: Trends in international telecom traffic, costs and prices Dr Tim Kelly, International Telecommunication Union (ITU) Workshop on settlement reform and the costing and pricing of telecom services, Vientiane, 16-18 November 1999 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. Dr Tim Kelly can be contacted by e-mail at Tim.Kelly@itu.int.

2. 2 Trends in intl traffic, costs and prices Agenda Trends in international traffic Worldwide Sub-region Regional breakdown of traffic Market shares Competitive markets Cost and price trends FCC benchmarks ITU Focus Group, indicative target rates ITU/TeleGeography Direction of Traffic publication

3. 143 124 108 94 72 62 54 48 44 38 30 82 0 200 400 600 800 1'000 1'200 199019911992199319941995199619971998199920002001 Fixed lines and mobile subscribers worldwide (millions) 0 20 40 60 80 100 120 140 160 Billions of minutes of international telephone traffic Fixed main lines Mobile subscribers Total int'l traffic Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes. Trends in subscribers and international traffic, Worldwide

4. 0 10'000 20'000 30'000 40'000 50'000 60'000 70'000 199319941995199619971998 Subscribers 0 2 4 6 8 10 12 14 16 18 20 Million minutes of int'l traffic Fixed-line Mobile Outgoing Incoming Trends in subscribers and international traffic, Cambodia Source: ITU World Telecommunication Indicators Database.

5. Trends in subscribers and international traffic, Lao PDR Source: ITU World Telecommunication Indicators Database. 0 5'000 10'000 15'000 20'000 25'000 30'000 199319941995199619971998 Subscribers 0 2 4 6 8 10 12 14 Million minutes of int'l traffic Fixed-line Mobile Outgoing Incoming

6. Trends in subscribers and international traffic, Vietnam Source: ITU World Telecommunication Indicators Database. 0 500 1'000 1'500 2'000 2'500 199319941995199619971998 Subscribers (000s) 0 50 100 150 200 250 300 350 Million minutes of int'l traffic Fixed-line Mobile Outgoing Incoming

7. Europe, 68.0% North America, 16.8% Asia-Pacific, 9.7% LAC, 3.6% Africa, 1.9% Regional share of International traffic, 1983 By origin, total = 10.2 billion minutes Europe, 43.0% North America, 32.5% Asia-Pacific, 18.5% LAC, 4.1% Africa, 1.9% Regional share of intl traffic, 1997 By origin, total = 81.8 billion minutes Changing regional shares of global international traffic, 1983 & 1997 Note: LAC = Latin America and the Caribbean. Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes.

8. 21.7% 21.6% 17.1% 16.1% 16.0% 12.3% N. America Asia-Pacific LAC World Africa Europe Compound annual growth rates in outgoing traffic, 1983-1997 Note: LAC = Latin America and the Caribbean.

9. Trends in outgoing traffic, bn minutes - 10 20 30 40 50 60 19901991199219931994199519961997 Developed countries Developing countries Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes.

10. Trends in incoming traffic, bn minutes Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes. 0 10 20 30 40 50 60 19901991199219931994199519961997 Developed countries Developing countries

11. 0 5 10 15 20 199319941995199619971998 PaymentsReceiptsNet settlement Trends in settlement payments and receipts, Developing countries, US$bn Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes.

12. 35% 46% 74% 85% 1990199519982005 Mono- poly Compe- tition 4142948 Number of countries permitting more than one operator for international telephony Percentage of outgoing international traffic 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.

13. Level of competition in international services in WTO basic telecoms agreement Competition Monopoly Source: ITU Telecommunication Regulatory Database.

14. Countries permitting intl competition 19901998 20Israel 1Japan1Australia21Italy 2New Zealand2Austria22Japan 3UK3Belgium23Korea (Rep.) 4USA4Brunei D.24Malaysia 1995 5Canada25Mexico 1Australia6Chile26Netherlands 2Canada (partial)7Colombia27New Zealand 3Colombia8DPR Congo28Norway 4Chile9Denmark29Peru 5Denmark10Dominican Rep.30Philippines 6Finland11El Salvador31Russia 7Japan12Finland32Somalia 8Korea (Rep.)13France33Spain (after Dec. 1998) 9Malaysia14Germany34Sweden 10New Zealand15Ghana35Switzerland 11Philippines16Guatemala36Uganda 12Sweden17HK-China (after Dec 1998)37Ukraine 13UK18Indonesia38UK 14USA19Ireland (after Dec. 1999)39USA

15. Top 10 PTOs by outgoing intl traffic Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes.

16. 1.1% 21.2% 0.6% 2.2% -14.3% -16.4% -17.3% -2.7% BT FT Sprint MCI WorldCom AT&T Telecom Italia SwissCom DT 4.5% 9.7% 0.5% 8.2% 5.9% -2.9% -2.1% 17.6% % change in traffic % change in intl rev. Selected PTOs, performance 1997/98 Note:Based on 1998 international outgoing traffic and revenue from international operations. For Sprint, MCI WorldCom and AT&T, data relates to 1997. The definition of international revenue (gross, net or retail) is tat used by each individual operator. Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes.

17. Note:Traffic shares relate to minutes of outgoing traffic from members of each alliance. Source: ITU/TeleGeography Inc. Direction of Traffic, 1999: Trading Telecom Minutes AT&T/BT, 17.2% GlobalOne, 14.3% MCI WorldCom, Telefonica, TP, 11.1% Cable & Wireless, 4.7% Others, 47.3% Total, 1997: 81.2 bn minutes Unisource, 5.4% Emerging global alliances, shares of intl traffic market

18. 18 Trends in intl traffic, costs and prices Emerging global alliances: Recent developments WorldCom merges with MCI, bids for Sprint Following collapse of BT/MCI merger, BT & AT&T join forces in Concert AT&T and Telefonica withdraw from Unisource GlobalOne on point of collapse following purchase of Sprint by WorldCom Deutsche Telekoms bid for Telecom Italia fails; Olivettis succeeds Cable & Wireless re-positioning itself as supplier of data services Telia and TeleNor merge

19. 0 0.2 0.4 0.6 0.8 1 878889909192939495969798 1987-92, -2% p.a. 1992-96, -4% p.a. 1997-98, -14% p.a. D.140 approved D.140 revised Global average settlement rates, US$ per minute Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes.

20. 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1993199519971999 Italy France UK Germany Convergence: Accounting rate to US in US$ per minute, four European countries Source: FCC. Data for year-end except 1999 = September 1999

21. 0 1 2 3 4 5 199519961997Jun-98Dec-98Jun-99Nov-99 Volume-based rates Vietnam Cambodia Lao PDR Accounting rates with USA, US$ per minute Source: FCC (Ken Stanley).

22. Where do you fit in? FCC Benchmarks: Examples from Asia-Pacific region

23. Focus Group Recommendations on indicative target rates by Teledensity (T) Band, in SDR (and US cents) per minute. Note: The correspondence between teledensity band and income group shown in the bottom row is intended to be approximate, not precise. Source: ITU Focus Group Report. 1 SDR = US$1.39. 23

24. 24 Trends in intl traffic, costs and prices Benchmarks & Focus Group target rates in sub-region Note:For Cambodia and Lao PDR, the target year will depend upon net settlements as a % of total telecom revenue. For the % change, a target year end of 2004 is assumed. Rates are to US, per minute. Source: ITU.

25. 0 2 4 6 8 10 12 19901991199219931994199519961997 300 minutes, local calls 3 mins Int'l call to US Monthly line rental Tariff rebalancing trends, in US$ Average of 39 major economies Source: ITU World Telecommunication Indicators Database.

26. 0 2 4 6 8 10 12 19951996199719981999 Vietnam Lao PDR Price of a 3 minute call to USA, US$ per minute Note: Price data for Cambodia unavailable. Source: ITU/TeleGeography Inc. Direction of Traffic 1999: Trading Telecom Minutes.

27. 27 Trends in intl traffic, costs and prices International traffic trends: Conclusions Voice traffic continuing to grow, but the main action is now elsewhere Mobile and the Internet will be the major demand drivers for the future Competitive markets will be the norm, monopolistic markets the exception in the future Alliances will continue to be formed, but partnerships are still unstable Price trends in Cambodia, Lao and Vietnam are out of line with international trends

28. For more information... Publication launch: 10 October 1999 (TELECOM 99) Available on paper and on- line (PDF format) Also available with database on CD-ROM Website: http://www.itu.int/ti Other reports launched at TELECOM 99 World Telecom Development Report 1999: Mobile Cellular Trends in Telecom Reform 1999: Convergence & Regulation Internet for Development (updated with latest data)