1. Fixed-Mobile Interconnection Issues
Dr Tim Kelly, ITU
“Workshop on international settlement reform and the costing and pricing of telecom services”, Hanoi, December 2000
The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or its Membership. Dr Kelly can be contacted by at

2. Pricing mobile services: Agenda
A Mobile Revolution
Worldwide and in the sub-region
Pricing Mobile
Options
Price comparisons and trends
Price trends
Average Revenue Per User (ARPU)
Fixed-Mobile Interconnect
A Mobile Future

3. A Mobile Revolution Fixed Lines vs. Mobile Users, worldwide, Million
1'400
Mobile Users
1'200
Fixed Lines
1'000
800
600
400
200
1993
1995
1997
1999
2001
2003
Source: ITU World Telecommunication Indicators Database.

4. Mobile subscribers per 100 inhabitants
Year-end 1999
Sub-region
Lao P.D.R.
0.17
Viet Nam
0.42
Cambodia
0.81
Indonesia
1.06
Sri Lanka
1.22
China
3.42
Philippines
3.66
Thailand
3.84
Malaysia
13.70
Source: ITU World Telecommunication Indicators Database.

5. Mobile subscribers as % of total telephone subscribers
Year-end 1999
Sub-region
Viet Nam
13.5%
Lao P.D.R.
20.8%
Sri Lanka
25.1%
Indonesia
26.8%
China
28.5%
Thailand
31.0%
Malaysia
40.3%
Philippines
48.5%
Cambodia
76.3%
Source: ITU World Telecommunication Indicators Database.

6. The secret of mobile success
Why is mobile currently growing ten times faster (~55% p.a.) worldwide than fixed lines networks (~5.5% p.a.)?
Why is the average mobile user much younger than the average fixed-line user?
Why do users make calls using a mobilephone even when a fixed-line telephone is available and cheaper?
What is the secret of the success of mobile?
Price Options

7. A selection of price options From Orange (UK)
Source:

8. Pricing Mobile Price of 100 minutes per Indonesia $9.74
month mobile usage, in US$
China
$10.87
Philippines
$16.26
Sri Lanka
$17.80
Thailand
$19.34
Lao P.D.R.
$19.55
Malaysia
$21.02
Viet Nam
$27.71
Cambodia
$37.00
Note: Price basket based on monthly subscription plus 50 mins peak and 50 mins off-peak use. Source: ITU World Telecommunication Indicators Database.

9. Declining prices for mobile access, global average, in US$, 1992-98
Note: CAGR = Compound Annual Growth rate. Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

10. Average revenue per user (ARPU) Bell Mobility (Canada)
120
1'600
Revenue per sub/month
Revenue/cost per subscriber
per month (US$)
1'400
100
1'200 80
1'000
Cost per sub/month 60
800
Subscribers ('000s)
600 40
Subscribers
400 20
200 90 91 92 93 94 95 96 97 98
Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

11. Cultivate the high-spenders
Source: Price Waterhouse Coopers, based on Canadian data.

12. Mobile ARPU converging with Fixed-line ARPU, Japan (Yen ‘000s p.a.)
300
Mobile ARPU
250
200
150
Fixed-line ARPU
100 50
1990
1991
1992
1993
1994
1995
1996
1997
Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

13. Pricing mobile and fixed: Monthly subscription charges (US$)
Ratio:
Cellular/fixed 25
Residential fixed-line
3.0
Digital cellular 20
2.4
1.1
5.0
1.7 15 10
5.0 5
Malaysia
HK Sar
Cambodia
Indonesia
Thailand
Sri Lanka

14. Pricing mobile and fixed: Price of 3 minute local calls (US$)
Residential fixed-line
1.0
n.a.
Digital cellular
Ratio:
18.2
0.8
Cellular/fixed
6.7
0.6
10.0
0.4
3.0
7.5
0.2
0.0
HK Sar
Cambodia
Thailand
Sri Lanka
Malaysia
Indonesia

15. RPP vs. CPP: Mobile users don’t always pay to talk
Receiving Party Pays
Mobile party pays for incoming calls and fixed party pays only local tariff
Often, no interconnect arrangement is negotiated with the fixed operator for F-M calls. Mobile operators bill mobile consumer directly for “airtime”.
Calling Party Pays
Mobile party does not pay for incoming calls and fixed party pays a premium to call the mobile party
Call termination paid by fixed operators is a significant part of mobile operator revenues

16. Components of a Fixed to Mobile Call
Call Origination
Call Termination
Calling
Party
(FIXED)
Called
(MOBILE)
Transit service
Orig. Access
Switching
Authentication
Core
Network
Locating the
Customer
Term. Access
Source: Adapted from ECTA

17. Fixed-Mobile Interconnection
Interconnect prices are a major determinant of retail prices
Evidence of “market failure”
Interconnect prices are variable but generally very high
In Calling Party-Pays environments, caller may not be aware of the charge they will be paying
Calling party does not have a choice of operator to terminate the call
Fixed-to-mobile and mobile-to-fixed highly asymmetric
By 2003, 75% of all calls worldwide will involve a mobile

18. Problems in calling-party-pays (CPP) environments
Lack of tariff transparency
Mobile operators not subject to commercial consequences of keeping rates elevated
Vertical integration further reduces incentives to lower rates
Inefficient pricing
Non-transparent
Tariffs
Market Structure

19. Calling opportunities worldwide
5.0%
5.0%
0.3%
7.5%
19.9%
1993
89.7%
52.7%
23.4%
26.7%
Fixed-to-
Mobile-to-
19.9%
fixed
mobile
1998
Mobile-to-
Fixed-to-
fixed
mobile
25.0%
25.0%
2003
Source: ITU Fixed-Mobile Interconnect website:

20. Calling opportunities, Cambodia
Fixed-to-
fixed 5%
Fixed-to-
Mobile-to-
mobile
mobile, with
17%
interconnect
34%
Mobile-to-
Mobile-to-
mobile,
fixed
without
17%
interconnect
27%
Note: Mobile subscribers = March 2000; fixed-line subscribers = December Source: ITU World Telecommunication Indicators Database.

21. Calling opportunities, Lao PDR
Mobile-to-
mobile,
without
interconnect 6%
Mobile-to-
fixed
18%
Fixed-to-
fixed
58%
Fixed-to-
mobile
18%
Note: Mobile subscribers = March 2000; fixed-line subscribers = December Source: ITU World Telecommunication Indicators Database.

22. Calling opportunities, Viet Nam
Mobile-to-
Mobile-to-
Mobile-to-
fixed
mobile,
mobile, with
10%
without
interconnect
Fixed-to-
interconnect
0.71%
mobile
0.74%
10%
Fixed-to-
fixed
78%
Note: Mobile subscribers = March 2000; fixed-line subscribers = December Source: ITU World Telecommunication Indicators Database.

23. Fixed/Mobile interconnect rates in selected calling-party-pays countries
0.017
Costa Rica
0.017
0.034
Mobile-to-fixed
Malaysia
0.034
interconnect rate
0.047
Fixed-to-mobile
Guatemala
0.047
interconnect rate
0.026
Mexico
0.064
0.050
Cambodia
0.070
0.042
Dom. Rep.
0.078
0.051
Philippines
0.205
0.052
Botswana
0.208
0.293
Antigua
0.293
Source: ITU.

24. Sample prices in RPP environments
RPP countries
0.002
China
0.001
0.007
Mobile-to-fixed
Canada
0.000
interconnect rate
0.008
Fixed-to-mobile
HK SAR
0.008
interconnect rate
0.008
Singapore
0.000
0.009
Sri Lanka
0.000
0.020
USA
0.020
Average
0.009
RPP
0.005
0.056
CPP
0.092

25. The race for 3rd Generation mobiles: IMT-2000
2,000 1G
Video Streaming
Video Streaming
Remote
Medical
Service
(Medical
image) 2G 3G
Video
Conference
(High quality)
Still
Still
384
Imaging
Imaging
Video on
Demand:
Sports, News
Weather
Audio Streaming
Audio Streaming
144
Video
Conference
(Lower quality)
Text Messaging
Text Messaging
Data Transmission Speed - kbit/s
128
Video
Surveillance,
Video Mail, Travel
Image
Mobile TV
Voice
Voice 64
Electronic
Newspaper
JPEG
Voice
Mail
Still Photos
E-Commerce
Electronic
Publishing 32
Karaoke
Mobile
Radio
Fax
9.6
Data
Weather, Traffic, News,
Sports, Stock updates
Audio
Voice-driven Web Pages
Streaming Audio
Telephone
(Voice)
Time
Source: Adapted from Motorola.

26. Future Trends: Mobile Internet
Pricing and billing
unmetered flat-rate (Internet)
per-minute charges (Mobile)
From circuit-switching to packet-switching
Impact on nature of interconnection agreements?
Evolution of the interconnection value chain: connectivity, capacity, content …
How to measure value? How to split revenue among players?

27. For more information ... ITU Website at www.itu.int/interconnect
Case studies
Finland
India
Mexico
China/HK
Trends in Telecom Reform, 2001 edition: Interconnection