1. International interconnection:
Part 1: Trends in international telecom traffic
Dr Tim Kelly,
International Telecommunication Union (ITU)
SSGRR, L’Aquila, 26 Oct 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 at 1

2. International Interconnect: A series of three lectures
Part 1: Trends in international traffic
Part 2: Managing the transition from revenue- sharing to cost-orientation
Part 3: The Internet changes everything

3. Agenda Trends in international traffic Regional breakdown of traffic
Steady growth in voice traffic
Higher percentage originating from mobiles
Explosive growth of Internet traffic
Regional breakdown of traffic
Market shares
Competitive markets
Telecom Italia’s international position
ITU/TeleGeography “Direction of Traffic” publication 2

4. Trends in international traffic minutes (billions)
1'200
160
143
Fixed main lines
124
140
1'000
Mobile subscribers
108
120
Total int'l traffic
800 94
100 82 72
Fixed lines and mobile subscribers
worldwide (millions)
600
Billions of minutes of international 80
telephone traffic 62 54 48 60
400 44 38 30 40
200 20
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

5. The changing pie: Global telecom service revenue, 1998
Domestic fixed-
Other (incl. Internet, leased
lines, telex), 10.6%
line revenues,
59.3%
Mobile
service
revenues,
21.2%
The recent history of our industry is reflected in the shares of revenue which are generated by the different sub-sectors. Fixed-line telephone services still generate around two thirds of total telecommunications revenue worldwide, which was worth more than US$700 billion in The remaining third comes from mobile cellular and other services, such as leased lines, telex and the Internet.
International
revenues, 8.9%
1998 Telecom service revenue. Total = US$724bn
Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

6. Projection of revenue growth (US$bn)
1'000
Actual
Projected
900
Other (e.g.,
Internet, leased lines, telex)
800
700
Mobile service revenues
600
500
Service revenue (US$ bn)
400
International
300
200
But this picture is changing. Revenue generated from domestic and international fixed-line services reached a peak shortly after TELECOM 95, and have subsequently been in decline. By the time of TELECOM 2003, they will contribute less than half of the total. Indeed, were it not for the continuing growth of the Internet and especially of mobile cellular, the industry as a whole would be shrinking rather than growing in value.
Domestic fixed-line service revenues
100
Tele-com
1996
1997
1998
Tele-com
2000
2001
2002
Tele-com
1995
1999
2003
Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

7. Growth trends: fixed-lines, mobilephones and estimated Internet users, millions
Fixed-line telephones
1'200
Mobilephones
1'000
Estimated Internet users
800
600
400
200
Forecasting the growth in the fixed-line telephone network is the most straightforward. Today, the number of telephone users worldwide was probably just short of 900 million, up from around 700 million at the last World Telecom. The number of telephone subscribers should have passed the one billion mark before the next Telecom.
The development of the mobile market is more difficult to predict. As TELECOM 99 opened its doors, there were probably some 400 million mobile cellular users around the world. Of the five hundred million new users added to the world’s telecommunication networks since TELECOM 95, three hundred million are using mobilephones and two hundred million using fixed-line telephones.
The remarkable growth of the mobile market is charted in the ITU’s new World Telecommunication Development Report, published today. Almost every forecast of the growth of mobile cellular market has proved to be an underestimate of its actual growth. At the risk of being proved wrong, I will forecast that there will be more mobile subscribers worldwide by TELECOM 2003 than there are telephone subscribers today.
Most difficult of all to measure, let alone forecast, is the growth of the Internet. The most reliable estimates show that there are around 200 million active Internet users today compared with around 50 million four years ago. By TELECOM 2003, the number of users may exceed half a billion, and many of them may be accessing the Internet from mobiles rather than from fixed-line connections.
1995
1996
1997
1998
1999
2000
2001
2002
2003
Note: Columns show actual and projected users at end of year. Source: ITU.

8. 100 years of telephones Log scale: 1910-2010 Normal scale: 1990-2010
2'000
1'000
1'500
Fixed
Fixed
1'000 10
Mobile
Mobile
500
In this presentation, I have taken snapshots of the industry in 1995, 1999 and During that period, mobile communications will have changed from being primarily a complement for fixed-line telecommunications to being a potential substitute for it. The number of mobile subscribers around the globe overtook the number of Internet subscribers in the mid-1980s. In a handful of countries such as Cambodia, Italy, Finland and the Republic of Korea, the number of mobile subscribers is now greater that the number of fixed-line users. By the time we hold TELECOM 2007, there will probably be more mobile subscribers worldwide than fixed-line ones.
But we at the ITU have long memories as well as short ones. What is remarkable about the development of the mobile sector is that it will have gone from zero to one billion subscribers within two decades. The telephone industry is more than 130 years old and has still not yet reached that point. The tendency of technological change to accelerate market development augurs well for the development of new services, such as 3G mobile, and also for the extension of those services to all the inhabitants of the world.
1910 20 30 40 50 60 70 80 90
2000 10
1990
2000
2010
Source: ITU, “World Telecommunication Development Report: Mobile Cellular” 1999.

9. Internet outgrowing voice Hongkong SAR, April‘98-July’99, Minutes of user per month, ‘000s
1'200
1'000
Dial-up Internet
800
(via PSTN)
600
Int'l voice/fax
400
(in + out)
200 4 6 8 10 12 2 4 6 98 98 98 98 98 99 99 99
Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

10. Trends in call volume, Deutsche Telekom, 1997-98
86.3%
36.0%
7.2%
-7.1%
-2.1%
Domestic
Int'l
Local calls
Calls to
Calls to
long-
outgoing
mobile
Internet (T-
distance
calls
networks
Online)
Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

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

12. Compound annual growth rates in outgoing traffic, 1983-1997
Europe
12.3%
Africa
16.0%
World
16.1%
LAC
17.1%
Asia-Pacific
21.6%
N. America
21.7%

13. Trends in outgoing traffic, bn minutes60 50
Developed countries 40 30 20
Developing countries 10 -
1990
1991
1992
1993
1994
1995
1996
1997
Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

14. Trends in incoming traffic, bn minutes60 50 40
Developed countries 30 20
Developing countries 10
1990
1991
1992
1993
1994
1995
1996
1997
Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

15. Top 10 PTOs by outgoing int’l traffic
Source: ITU/TeleGeography Inc. “Direction of Traffic 1999: Trading Telecom Minutes”.

16. Selected PTOs, performance 1997/98
% change in traffic % change in int’l rev.
-2.1% DT
-16.4%
-2.9%
SwissCom
2.2%
5.9%
Telecom Italia
0.6%
8.2%
-2.7%
AT&T
17.6%
MCI WorldCom
21.2%
0.5%
Sprint
1.1%
9.7% FT
-17.3%
4.5% BT
-14.3%
Note: Based on 1998 international outgoing traffic and revenue from international operations. For Sprint, MCI WorldCom and AT&T, data relates to 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. Emerging global alliances, shares of int’l traffic market
AT&T/BT, 17.2%
Others,
47.3%
GlobalOne,
14.3%
Total, 1997:
81.2 bn minutes
Hand-in-hand with the shift towards private ownership is the trend towards formation of global alliances. While the partnerships continue to change, there appears to be no slow down in the rush to form new alliances and to add new partners to existing ones.
The international telecommunications traffic market provides particularly fertile soil for the creation of such agreements between companies. For the moment, the types of service which they provide are fairly conventional, but they are planning a new generation of services which are “global”, rather than merely “cross-border” in nature. As an example of this, AT&T and BT, two of the biggest names in the fixed-line world, are building a new international network, based on Internet Protocols, and have recently extended this co-operation to their mobile activities also.
In the satellite world, global operators are emerging that are not bound by terrestrial borders. While the financial difficulties of GMPCS operators have been much publicised, the fact is that they are establishing a new type of venture which is different in nature from today’s primarily national operators. Their closest competitors are likely to be the new generation of private consortia establishing undersea cable networks, such as Project Oxygen or Global Crossing. The undersea cable business began, more than a hundred years ago, with privately-funded ventures and we are now returning to that model. Only the scale of the vision has changed.
MCI WorldCom,
Telefonica, TP,
11.1%
Cable & Wireless, 4.7%
Unisource, 5.4%
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”

18. Emerging global alliances: Recent developments
WorldCom merges with MCI.
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 Telekom’s bid for Telecom Italia fails; Olivetti’s succeeds
Cable & Wireless re-positioning itself as supplier of data services
Telia and TeleNor merge

19. Percentage of outgoing international traffic open to competition
Mono-
poly
Compe-
85%
74%
tition
46%
35%
Number of countries permitting more than one operator for international telephony 4 14 29 48
1990
1995
1998
2005
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.

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

21. Countries permitting int’l competition
1990
1998 20
Israel 1
Japan 1
Australia 21
Italy 2
New Zealand 2
Austria 22
Japan 3 UK 3
Belgium 23
Korea (Rep.) 4
USA 4
Brunei D. 24
Malaysia
1995 5
Canada 25
Mexico 1
Australia 6
Chile 26
Netherlands 2
Canada (partial) 7
Colombia 27
New Zealand 3
Colombia 8
DPR Congo 28
Norway 4
Chile 9
Denmark 29
Peru 5
Denmark 10
Dominican Rep. 30
Philippines 6
Finland 11
El Salvador 31
Russia 7
Japan 12
Finland 32
Somalia 8
Korea (Rep.) 13
France 33
Spain (after Dec. 1998) 9
Malaysia 14
Germany 34
Sweden 10
New Zealand 15
Ghana 35
Switzerland 11
Philippines 16
Guatemala 36
Uganda 12
Sweden 17
HK-China (after Dec 1998) 37
Ukraine 13 UK 18
Indonesia 38 UK 14
USA 19
Ireland (after Dec. 1999) 39
USA

22. Telecom Italia, int’l traffic trends, billion minutes
3'500
3'000
Incoming traffic
2'500
2'000
Outgoing traffic
1'500
1'000
1994
1995
1996
1997
1998

23. Telecom Italia, revenues from int’l calls In Billion Lire
Actual
Forecast
2'605
2'554
2'589
2'511
2'470
2'288
2'193
2'018
1'799
1'751
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source: Telecom Italia. Forecasts from Salomon Smith Barney.

24. Telecom Italia, revenues breakdown In Billion Lire
Fixed charges, 20.7%
billion Lire
Other 11.2%
Equpt. 5.3%
Mobile,
22.1%
Fixed charges, 21.5%
Other 9.0%
Equpt. 6.4%
International
calls, 6.2%
Domestic calls, 34.5%
Mobile,
37.0%
billion Lire
International
calls, 4.8%
Domestic calls, 39.7%
Source: Telecom Italia. Forecasts from Salomon Smith Barney.

25. 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

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