Tariff policies and Universal Service Universal Access Dr

Tariff policies and Universal Service / Universal Access Dr Tim Kelly (ITU), Seminar on tariff strategies for competitive environments, ALTTC, Ghaziabad, 20 -22 July 1999 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 e-mail at Tim. Kelly@itu. int

Universal Service / Universal Access Pricing Strategies to achieve Universal Service / Universal Access l What is Universal Service / Universal Access? l The “myth” of subsidised access l Defining affordability l Pricing strategies ÞFor universal access ÞFor universal service l Targets for the year 2010

Universal Service / Universal Access Universal access l. Availability. . . l. Accessibility. . . l. Affordability. . . of basic telephone service “to promote the extension of the benefits of the new telecommunication technologies to all the world’s inhabitants” ITU Constitution, Article 1

Universal Service / Universal Access Universal access and Universal service l Universal service: telephone in every home l Universal access: telephone within reasonable distance for everyone

Universal Service / Universal Access Teledensity disparities 27. 8 8. 3 1. 3 0 to to 68. 3 27. 8 8. 3 1. 3 (46) (47) (48)

Universal Service / Universal Access Population, million The scale of the problem 2'000 1'800 1'600 1'400 1'200 1'000 800 600 400 200 0 72% of world’s population live in economies with less than 10 main lines per 100 inhabitants <1 1 -5 5 -10 10 -20 20 -30 30 -40 40 -50 >50 Teledensity band Source: ITU World Telecommunication Indicators Database.

Universal Service / Universal Access Teledensity transition No. of countries: Teledensity: 43 37 <1 1 -10 29 28 22 17 19 25 510 1020 2030 3040 4050 >50 50 Best 40 Average 30 20 10 0 Years 1 10 20 30 Source: ITU World Telecommunication Development Report 1998: Universal Access. 40 50

Universal Service / Universal Access Telecoms transition, from 10 to 30 lines per 100 inhabitants, Asia-Pacific Korea (Rep. ) Taiwan-China Singapore Hongkong Japan 10 lines per 100 inhabitants 30 lines per 100 inhabitants Australia New Zealand 1935 1955 1975 Source: ITU World Telecommunication Development Report 1998: Universal Access. 1995

Universal Service / Universal Access Teledensity does not necessarily equal household density Persons per Teledensity Household density household USA 2. 7 France 2. 5 Norway 2. 4 Singapore 4. 0 UAE 5. 7 Kuwait 7. 6 Bahrain 6. 0 Qatar 7. 0 - 20 40 60 80 Source: ITU World Telecommunication Development Report 1998: Universal Access. 100

Universal Service / Universal Access The “myth” of subsidised access l It is commonly argued that telephone access should be priced at a low rate so that as many people as possible can afford it l But, Þ this may result in ‘subsidies’ from non-telephone users to telephone owners, who are typically business, government and richest 1% of population Þ if revenues do not cover costs, then the waiting list will grow

Universal Service / Universal Access “Socially desirable” pricing • Rates are kept artificially low • Affordable price, maybe < break-even • Initial group of telephone users are clustered in the largest city and are not poor • May not generate enough revenue for network expansion Source: OSIPTEL.

Universal Service / Universal Access Waiting lists and average waiting times, India, 1975 -96 2 Advance Deposit Scheme introduced Wait list Wait time 8 7 6 5 4 3 1 2 1 0 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 Source: ITU World Telecommunication Development Report 1998: Universal Access. Average waiting time (years) Waiting list (millions) 3

Universal Service / Universal Access Defining affordability l Relative affordability, e. g. , <5 per cent of average family income ÞBUT, initial telephone users are not necessarily “average ÞIn low income countries, costs for network installation may be high, but incomes are low l “Best practice” cost of operating a network ÞMethodology must be refined for residential and business users ÞCosts must be split between one-time & recurring

Universal Service / Universal Access Telephone charges relative to household income, 1995 Percent of households with telephone 100 80 60 40 20 - 0% 2% 4% 6% 8% 10% Telephone charges as % of household expenditure Note: The annual telephone charges data are a basket based on one tenth of the installation charge, annual subscription in the largest local network, 700 local calls and 130 long-distance calls. Taxes are included.

Universal Service / Universal Access Methodology for determining average and best practice costs Source: TU World Telecommunication Development Report 1998: Universal Access.

Average & best practice residential costs Note: Source: Based on study of 10 operators from different regions and income groups. “Best practice” is the lowest 1. 40% of operating costs discounted by 20 per cent (covered by higher business subscription charge. 2. Actual connection charge, divided by seven. 3. Assuming telephone charges represent 5% of income. ITU World Telecommunication Development Report, 1998: Universal Access.

Universal Service / Universal Access Global measures of Affordability Source: ITU World Telecommunication Development Report, 1998: Universal Access.

Universal Service / Universal Access Measuring Accessibility Another phone e on South Africa 9 million households ph le te % e 29 Nearby 5% av Not Ne by 6 ar% H No access 18% N bo eigh ur s 6 % Nearby Public phone 36% Source: Statistics South Africa. <http: //www. statssa. gov. za/> Teledensity: Cellular density: Total telephone density: Household telephone penetration: Universal access penetration (% of households with access to telephone): 10. 7 3. 7 14. 4 29% 82%

Universal Service / Universal Access Pricing strategies for extending Universal Access l Installation charges initially high, but coming down over time l Residential subscription charges should reflect cost of servicing line (typically US$5 -10 per month) l Set separate charges for residential and business subscribers l Lower prices for payphone or community telephone access l Tariff options, e. g. , for low-volume users

Universal Service / Universal Access Installation charges and teledensity in Argentina and Brazil, US$ Installation charge (left scale) $2'500 Teledensity (right scale) $2'000 20 15 $1'500 10 $1'000 5 $500 $0 0 '92 '93 '94 '95 '96 Source: Telecom Argentina '92 '93 '94 '95 '96 Tele. Brás ITU World Telecommunication Development Report, 1998: Universal Access.

Monthly residential subscription charges, US$ $10 Uruguay Malaysia $8 $6 Hungary $4 Morocco $2 Percentage of households with telephone 70 60 $1990 1991 1992 1993 1994 1995 1996 Higher monthly subscription charges. . . 50 Malaysia Hungary Uruguay 40 … lead to faster growth rates Source: ITU World Telecommunication Development Report, 1998: Universal Access. 30 20 Morocco 10 0 1991 1992 1993 1994 1995 1996

Universal Service / Universal Access Demand-side measures for extending Universal Access l Tariff cross-subsidies ÞTraditional method, but may not benefit those for which it is intended l Universal Service Fund ÞTargeted assistance for special needs (e. g. , rural areas, disabled), but may create administrative burden l Direct Financial Assistance to users ÞTargeted assistance using non-telecom-specific criteria, but may be difficult to control abuses l Community-wide initiatives Þe. g. , Payphone in every village, community

Universal Service / Universal Access Supply-side measures for extending Universal Access l Market liberalisation Þe. g. , allowing new suppliers to enter market, liberalising equipment market, giving financial autonomy to PTO, encouraging foreign investment, Build/Transfer/Operate concessions l Payphone liberalisation Þe. g. , permitting private installation and ownership of payphones, community telephone shops, telecentres l Technical solutions Þe. g. , Mobile cellular, Wireless Local Loop, GMPCS, combined cable TV/telephony

Universal Service / Universal Access Pricing strategies to achieve Universal Service l Targeted tariff options Þe. g. , for low-volume users, the elderly, the disabled, foreign migrants l Prepaid calling cards Þfor fixed-line and mobile networks l Support for incoming calls Þe. g. , to allow families to receive calls from family members working abroad, for instance through voicemail, telecentres, callturnaround, foreign sales of calling cards etc

Universal Service / Universal Access Achieving Universal service Percentage of households with a telephone

Universal Service / Universal Access Year 2010 Goals Goal: Provide reasonable access to telecommunications for all of humanity by the year 2010 Household telephone penetration Payphones per 1’ 000 people 1996 Teledensity 1996 WORLD Developing Low income excluding China 2010 12. 80 5. 07 2. 44 1. 22 2010 34. 4 10 5 Source: ITU World Telecommunication Development Report, 1998 16. 3 8. 5 4. 1 2010 1. 55 >50 >20 0. 84 0. 57 0. 21 2 1