Activities of Study Group 3 Saburo TANAKA Councellor
Activities of Study Group 3 Saburo TANAKA Councellor, TSB/ITU Seminar in Guatemala City, November 2002 http: //www. itu. int/ITUT/othergroups/tal/index. html 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.
Activities of ITU-T Study Group 3 Agenda l Is SG 3 different from other SGs? ð SG 3 is unique ð But not different l What are the hot issues studied in SG 3? ð For Int’l Telephone services ð For INTERNET ð For Mobile Termination Service l What are the concerns of administrations and how do they react? 2
Activities of ITU-T Study Group 3 3 International Telecommunication Union l A UN Specialized Agency l Intergovernmental organization, governments represented through their telecommunication Administrations (constitutional Members) l Other entities (Recognized Operating Agencies, Scientific Industrial Organizations, regional and international organizations) admitted as Sector members l “Basic Law” = Convention and Constitution, to be modified by Plenipotentiary Conferences
Activities of ITU-T Study Group 3 4 ITU-T Membership (End 2001) l Member States: 189 l Sector Members: 179 ROAs (including ISOC, regional, International organizations, etc. ) Associates l New applicants: 2001: 71 2000: 66 234 SIOs 39 others 30
Activities of ITU-T Study Group 3 5 ITU-T mission l ITU-T's mission is to ensure an efficient and on-time production of high quality standards covering all fields of telecommunications. l 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. l More than 2800 Recommendations currently in force.
Task Force IETF 1394 TA AOEMA Modems CBOP COS ECE EIDX FCIA-J Home API IMTC JCTEA JMF Mobile Web ODVA PCMCIA SDR TSC WDF NGOs Intergovernment ITU (ITU-T and ITU-R) Forums & Consortia 3 GPP AOW 3 GPP 2 ATMF CDG CIF Commerce. Net J CTFJ DHF ECHONET ECOM EMA EMF FIPA FRF Home. PNA HRFWG IMWA Ir. DA JECALS JEDIC LONMARK MCPC MOPA MPLSF OIF OMG PHS Mo. U PICMG SSIPG STA UMTS USBIF Web 3 D Wf. MC ISO, IEC, IEEE, ETIS, ETSI, ECMA, TTC, Committee T 1, ARIB, TIA, SCTE AIM BINTERMS AMF Bluetooth CII Commerce. Net DISA ECTF ERTICO FSAN IDB Forum ITS America JEMA MDG. org MSForum OSGi POF TINA-C UWCC WIN Forum DOPG EDIFICE EWOS GSM Assoc. IFIP ITS UK JICSAP MITF MWIF PCCA Salutation TMForum W 3 C WLIF ……… ITU positioning AMI-C Cable DSLF EEMA FCIA HNF IFSA JAVA JIMM MMCF OASIS PCISIG SCF TOG WAP XTP Forum
Activities of ITU-T Study Group 3 7 IO SG 3 is unique Administrations ROAs l Because of its composition Ladies Gentlemen Developed countries Developing Countries
Activities of ITU-T Study Group 3 8 Dealing purely with non-technical standards and … l Tariff/regulatory/Policy related issues l. There are 4 Regional Tariff Groups
Activities of ITU-T Study Group 3 ITU–T SG 3 Major achievements l New Remuneration system ð Termination charge system ð Settlement rate system ð Special arrangement l Difficulty to quickly implement these systems ð Condition is to reach cost-oriented rate, but ð No cost data or model for some administrations l Regional Tariff Groups developed cost models l SG 3 is now developing cost principles and guidelines for negotiation l Transitional arrangements ð To facilitate staged reduction to cost based rate ð to avoid sudden fall of revenue (smooth transition) 9
1 Annex E to Recommendation D. 140 0 “indicative target rates” by Teledensity (T) Band, in SDR (and US cents) per minute. ( (end 2001) FCC : 23 ¢ (January 2002/2003) (end 2001) (end 2001) FCC : 15 ¢ FCC : 19 ¢ (January 2001) (end 2001) 19 ¢(J. 2000) (January 1999) Note: The correspondence between teledensity band income group shown in the bottom row is intended to be approximate, not precise. Source: ITU-T SG 3 Report. 1 SDR = US$1. 39.
Activities of ITU-T Study Group 3 11 Annex E Recommends also l That transit Administrations move towards the indicative target rate (upper limit) of 0. 05 SDR (0. 07 US $) per minute. l 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 E Operator B belongs to teledensity band F A and B agree to achieve TAR 0. 2 SDR (<0. 118 x 2) ð A can request settlement rate of 0. 09 SDR ð B accepts to pay 0. 11 SDR to A
Resolution 41 Updated “indicative target rates” by Teledensity (T) (Year 2002)
Activities of ITU-T Study Group 3 13 Termination charge l Destination operator (or Government) sets the charge l Charge should be established based on costs l Termination Charge includes ð ð International exchange National extension, including local loop And if appropriate, international circuit Other costs imposed on carriers by the national regulation l These components should be separately identified (Unbundled) l Charge applies to all traffic from any source l However if significant variation in costs, charge may vary (volume discount) l Termination charge may be introduced on a bilateral agreement basis
Accounting rates and Termination Charges What’ s the difference Accounting rate Termination charge Normally symmetric(50/50) Not necessarily symmetric (if cost differs) Bilaterally negotiation In theory, set unilaterally (need agreement to implement) Non-discriminatory (same rate for all correspondents) Discriminatory (different rates negotiated with different correspondents) Half-circuit regime (would Full-circuit regime (could be not normally be unbundled)
Activities of ITU-T Study Group 3 15 International call terminating on mobile network l SG 3 revised D. 93 in year 2000, allowing to negotiate ð a separate for traffic terminating on a mobile network ð however, this is by bilateral negotiation and when the rate is cost orientated ð The difference between the two rates should be as small as possible l Many countries now request very high settlement rates (3 – 5 times) ð A review is now going on in SG 3
Activities of ITU-T Study Group 3 16 Interconnection with mobile networks l key regulatory issues involving interconnection with mobile networks. These issues include: ð The role played by market structure and competition in setting mobile interconnection rates; ð The asymmetry of retail prices for fixed-to-mobile and mobile-to-fixed calls, stemming in part from asymmetrical interconnection rates; ð Difficulties in obtaining technical interconnection, including quality-of-service problems; ð The lack of transparency in setting prices for fixed-tomobile and mobile-to-fixed calls; and ð 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 Countries 40 35 30 25 20 15 10 5 0 Africa Americas Arab States Source: ITU Telecommunications Regulatory Database. Asia. Pacific Europe
Countries imposing regulatory obligations Countries 60 50 40 30 20 10 0 Incumbent Fixed (fixed) only operators SMP All fixed operators All mobile operators Source: ITU Telecommunications Regulatory Database. Mobile operators SMP Other
Interconnection in Europe l Existing regulatory framework ð Many different sector-specific directives, notably Interconnection Directive (97/33/EC) ð Two parts: Recommendations on Interconnection pricing and accounting separation l Methodology for identifying “best practice” pricing ð 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) l New technologically-neutral regulatory framework ð Access to, and interconnection of, electronic communications networks and associated facilities ð First reading in European Parliament on 4 July 2001 ð Amended proposal available at: ð http: //europa. eu. int/information_society/topics/telecoms/regulatory/new_rf/com 2001 -369 en. pdf
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 minute Fixed-tomobile Mobile-tofixed DOUBLE TRANSIT Lowest Best-practice (20%) guideline Highest Mobile-tofixed SINGLE TRANSIT Source: ITU, compiled from ECTA/Analysys, EU Interconnection Tariffs in Member States, ITU Regulatory Survey 2000. Mobile-tofixed LOCAL 0 5 10 15 20 25 30
Selected European interconnect and settlement rates, US cents per min, 2000 14 Double transit interconnect 12 Settlement Rate to USA 10 8 6 4 2 0 Spain Sources: ITU, EU, FCC. Italy France Germany Netherlands UK
Interconnection Regulatory and technical issues l Policy makers must resolve such basic questions as: ð which carriers require interconnection ð How the costs will be calculated and recovered, and ð At what points in the PSTN interconnection should occur l Regulatory issues ð Establishing guidelines in advance (without it, interconnection negotiations are frequently protracted, delaying the introduction of competition) ð Introducing competition requires “dominant carriers” to interconnect with other carriers ð Cost orientation: excessive prices deter market entry, hinder competition, end user suffers and can provide a pool of revenue l Technical issues ð Points of interconnection: incumbent operators permit inter- connection with their networks at any technically feasible point ð Dialling Parity and Pre-selection: Call-by-call customer selection or Operator pre-selection by pre-subscription ð Quality of Interconnection Service
Key Interconnection Rules in the WTO Reference Paper Interconnection with “Major Supplies”must be available Procedure Transparency Dispute resolution - 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 Procedures for interconnection to major suppliers must be made public Agreements of major suppliers’ model interconnection offers must be made public An independent entity (which may be the regulator) must be available to resolve interconnection dispute within a reasonable time frame
Economic issues The economic issues involved in interconnection largely come down to question of costs: cost definition, cost measurement, cost allocation and cost recovery l How can interconnection costs be measured? ð Theoretical Frameworks (Historica, Fully Distributed costs, LRIC) ð Cost study Approaches (Top-Down, Bottom-Up, Outside-In) l Interconnection charge ð ð ð Cost based charges Retail-based charges Price Caps “Bill and Keep” or “Sender Keeps All” Revenue Sharing
Cost Model OBJECTIVES BUSINESS DECISION SUPPORT • Pricing and Product Planning • Investment evaluation • Economics of direct/transit routing FINANCIAL CONTROL • Monitor actual performance and compare with plan and past trends REGULATORY COMPLIANCE • Set D. 140 as globally acceptable standard • Cost control • Rationalize tariff charges • Identify Cross Subsidy • Derive TAR, USO MARKETING TECHNOLOGY • Minimize opportunity for arbitrage • Enhancement towards global technology • Generate more revenue by increased traffic • Long term cost/benefit of technology and options • Impact of technology on global relations
Costing Methodologies METHODOLOGIES ACCOUNTING CONVENTION HISTORICAL COST ACCOUNTING • Actual costs incurred CURRENT COST ACCOUNTING • Cost of today of providing service • Mirrors competitors potential cost COSTING APPROACH FULLY DISTRIBUTED COST APPROACH • All costs are allocated to services INCREMENTAL COST APPROACH • Incremental costs only • Often long-run incremental costs only
Activities of ITU-T Study Group 3 28 Not many differences if… l Current cost accounting is used ð FDC=Historical Cost is no more relevant l Costs of efficient services provision are used ð this should be the aim of all operators ð spare capacity (legitimate if transparency) ð Disagreement on time horizon to achieve this l Principle of cost causality is applied (ABC) ð Common cost must be attributed to the service on the basis of the causality priniple ð However an exhaustive application of an ABC approach may be very costly l Need for cost recovery realised appropriately
Agreed General principles l 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). l Principle of practicability : The ability to implement a costing methodology with reasonable demands being placed on data availability and data processing in order to keep the costing exercise economical, yet still useful. l Principle of cost causality : The demonstration of clear cause- and-effect relationship between service delivery on the one hand the network element and other resources used to provide it on the other hand, taking into account the relevant underlying cost determinants. l Principle of contribution to common costs : Costing methodologies should provide for mutually agreed reasonable contribution to common cost as defined in Recommendation D. 140. l 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.
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.
Cost Study Methodologies Top Down (Total Company costs) Outside In (Proxy inputs results) Service Unit cost Results Bottom UP (Facility, operating cost inputs)
Activities of ITU-T Study Group 3 32 Cost model resolves everything? l Accounting rate is established by negotiation ð Rates need to be agreed upon in negotiation ð Market-determinde prices put pressure upon negotiation l Need to back up its claim for a charge ð By showing the price of a comparable competitively offered service ð Or for monopoly by providing relevant cost data l “Costs” = tools for negotiation, “costs” do not fix automatically the level of prices
Activities of ITU-T Study Group 3 Guidelines for negotiation of Accounting rates and Code of conduct l See Recommendation D. 140, Annex C l See TAL Temporary Document, Section 2 33
The importance of interconnection l Key to developing competitive markets ð Interconnection is the main driver of growth and innovation in telecom market, it promote efficient infrastructure development ð But constructing a sound interconnection framework is no easy task l Approaches to Interconnection Policy ð National approach – by 2000 101 countries had established interconnection regulatory framework ð Regional Approach – European Union (interconnection directive), CITEL (Guidelines and Practices for Interconnection Regulation), APEC (Recommended Principles for interconnection), TRASA(proposed interconnection guidelines) l WTO Reference Paper on Regulatory Issues ð 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 l Internet Interconnection has slightly different meaning. Historically Internet interconnection has involved simply different Internet networks. l This Internet Interconnection policies have proved increasingly inappropriate in a commercial industry. ð Many operator with larger networks often charge smaller ISPs a traffic-based interconnection fee ð Many backbone providers have begun offering transit service networks. l Different type of Interconnection Arrangements ð ISP Relationships with customers: usually via a dial-up ð ISP-ISP Interconnection: peering or bilateral agreement ð Multiple ISP Exchanges when several ISPs need to interconnect in a same city (use of an IXP) l International Regulatory Development
Inter-regional Internet connectivity 0. 4 Gbit/s Gb Europe s it/ Gb 14 it/s 7 0. 7 it/s 4 Asia / Pacific 162 Gb USA / Canada /s t i Gb 8. 1 Latin America Africa, Arab /s t i b G 5 0. 4 0. 1 Gbit/s Note: Gbit/s = Gigabits (1’ 000 Mb) per second. Source: ITU adapted from Tele. Geography.
Recommendation D. 50 The ITU-T, recognizing the sovereign right of each State to regulate its telecommunication, as reflected in the Preamble to the Constitution, noting a) 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; and c) 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 Divide Source: ITU.
Typical ISP cost comparisons <<<TAL countries Commercial & operational costs International connectivity National connectivity OECD countries >>> Commercial & operational costs
Internet retail pricing OECD average 30 hours of Internet access, US$, End 2001 Source: ITU adapted from ISPs / PTOs
Internet vicious circle
Virtuous circle
IP-Telephony Telephone to telephone (fax to fax) via Internet Phone Gateway Computer Telephone Phone Gateway Computer Public Switch Telephone l Any telephone/mobile user to any other l Main motivation: Accounting rate bypass, market entry for non-facilities-based carriers l Potential service providers include any PTO with settlement payments deficit (e. g. , US = US$5. 7 bn) l Market potential: 1. 3 billion telephone/mobile users
Activities of ITU-T Study Group 3 44 IP Telephony Opportunities and challenges l Opportunities ð Reduce prices to consumers and the costs of market entry for operators ð In terms of volume of traffic carried and level of investment committed l Challenges ð Undermine the pricing structure of the incumbent Public Telecommunication Operators (PTOs) ð Transition to IP-based networks also poses significant human ressource development challenges
Challenges Revenue gain and revenue loss Accounting Rate IP-Telephony Difference PTO in Developed country Collect US$ 1. 00 from user Pays US $ 0. 55 settlement. Retains US $ 0. 45 Collect US$ 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$ 0 Receives 0. 30 US $ for terminating charge Pays 0. 02 US $ for local call. Retains 0. 28 US $ +0. 28 US$ ISP in Developing country
How the operators in developping countries stop IP-Telephony Operator check only this line PSTN Operator Switch ISP Users can call ISP but ISP is unable to call users
Activities of ITU-T Study Group 3 47 For additional information Please visit: http: //www. itu. int/ITUT/studygroups/com 03/index. asp Or contact: saburo. tanaka@itu. int sophie. blondeau@itu. int
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