Connect the World The Future of Voice Framing

Connect the World The Future of Voice: Framing the debate ITU New Initiatives Workshop 15 -16 January 2007, Geneva Tim Kelly and Jaroslaw Ponder Strategy and Policy Unit International Telecommunication Union

Connect the World Framing the Debate: Agenda § Trends in traditional voice communication § Revenue and price trends for voice and data § Is the “pricing per minute” business model sustainable? § Some questions for discussion 15 January 2007 2

Connect the World Local telephone minutes per capita in US still growing 18'000 16'000 14'000 12'000 France In US continuous growth of local traffic. During last 15 years number of generated local call minutes per capita grew more than 4 times. Japan New Zealand 10'000 Spain 8'000 nd 6'000 at t en 4'000 T US e iv Switzerland e Tr United Kingdom 2'000 0 United States 1990 1991 1992 1993 1994 15 January 2007 1995 1996 Source: ITU World Information Society Statistics 1997 1998 1999 2000 2001 2002 2003 2004 3

Connect the World 2'000 Local telephone minutes per capita in other countries France 1'800 1'600 Japan 1'400 New Zealand 1'200 1'000 Spain 800 600 Switzerland General tendency of local fixed-line traffic to fall esp. since end of 1990 s 400 200 Tentat ive Tre nd United Kingdom 0 1991 1992 1993 15 January 2007 1994 1995 1996 Source: ITU World Information Society Statistics 1997 1998 1999 2000 2001 2002 2003 2004 4

Connect the World National telephone minutes per capita (long distance) 3'500 Australia General tendency of national fixed line traffic to fall since end of 1990 s 3'000 2'500 France Japan New Zealand 2'000 Spain 1'500 Switzerland nd e Tre v i t a Tent 1'000 United Kingdom 500 0 United States 1990 1991 1992 1993 1994 15 January 2007 1995 1996 Source: ITU World Information Society Statistics 1997 1998 1999 2000 2001 2002 2003 2004 5

Connect the World 400 350 300 250 International outgoing traffic minutes per capita In Korea, international outgoing traffic grew more than 12 times in last 15 years (tendency growing); in USA more than 5 times. Australia France Japan Korea (Rep. of) New Zealand 200 end r T tive a t n Te 150 Spain Switzerland 100 United Kingdom 50 0 United States 1990 1991 1992 1993 1994 15 January 2007 1995 1996 1997 Source: ITU World Telecommunication Indicators 1998 1999 2000 2001 2002 2003 2004 2005 6

Connect the World Factors underlying traffic trends? § Overall expansion of user base § The pressure of competition and market § § liberalisation Emerging alternative communication platforms (e. g. , mobile, Vo. IP) Influence of the Internet, esp. Voice over Internet Protocol and peering Peer-to-peer technologies (e. g. , Skype) Overall migration to the all-IP environment Do people communicate more now? 15 January 2007 7

Connect the World Long-term telecom revenue trends Revenue (US$ billion) 1'400 1'200 1'000 Other (e. g. , non-voice) 800 Mobile 600 International PSTN 400 200 0 1991 Domestic PSTN 1993 15 January 2007 1995 Source: ITU Information Society Statistics Database. 1997 1999 2001 2003 8

Connect the World Voice revenues stable as % of Revenue (US$ billion) total revenue Voice as a % of total 1'400 100% 90% 1'200 80% 1'000 70% 800 60% 50% 600 Non-voice 400 Voice (inc SMS, dial-up) 200 0 1991 40% Voice as % of total 30% 20% 10% 0% 1993 15 January 2007 1995 1997 Source: ITU Information Society Statistics Database. 1999 2001 2003 9

Connect the World Broadband price trends § International survey of broadband prices Ø Based on 133 economies that had broadband as early as 2004 § Methodology Ø Based on price in US$ per 100 kbit/s § Price trends Ø Median price has fallen by 41% p. a. Ø Median speed has risen by 66% p. a. Ø Faster than Moore’s Law 15 January 2007 Source: ITU Internet Reports 2006: Digital. Life. 10

Connect the World The trend towards flat-rate pricing § Broadband pricing § Similar trends towards bundling and flat-rate in voice market too Ø Voice offered “free” with internet and premium TV services 180 Number of economies Ø Flat-rate is now preferred to both timebased and data capped 160 140 Data Both 133 120 100 80 60 68% Time Flat-rate 166 145 75% 81% 40 20 0 15 January 2007 Source: ITU Internet Reports 2006: Digital. Life. 2004 2005 2006 11

Connect the World Is the “price per minute” business model sustainable? Yes § Well understood and simple (both for retail and wholesale) § Proven cash generator for telcos § Can accommodate different classes of service 15 January 2007 No § Pricing per minute is based on scarcity § Users want predictable monthly bills § Pricing per minute hinders take-up of data/content services 12

Connect the World Some questions for discussion § Will voice remain a trillion dollar business or will the business model collapse under pressure from Vo. IP? § How can voice service be profitably extended (e. g. , premium quality, chat, integration with other services, universal access, etc) § Will voice drive NGNs? (just like it drove ISDN, freephone, 3 G etc) 15 January 2007 13

Connect the World International Telecommunication Union Connect the World 15 January 2007 14