Developing the Telecoms Market:Universal Access

Commonwealth Telecommunication Organization (CTO)38th Meeting of Council

Trinidad, 28 September 1998

Michael MingesInternational Telecommunication Union (ITU)

Telecommunication Development Bureau (BDT)

CONTENTS

Measuring Access

Pricing Access

Universal Access

Supplying Access

Achieving Access

27.8 to 68.3 (46 countries)8.3 to 27.8 (46 countries)1.3 to 8.3 (47 countries)0 to 1.3 (48 countries)

MEASURING TELECOM ACCESS

“Teledensity”Main telephone lines per 100 inhabitants

Source: ITU.

Teledensity limitations

22 24 28

4856

63

0

25

50

75

100

Qatar (7.0)

Bahrain (6.0)UAE (5.7)

Singapore (4.0)

France (2.5)USA (2.7)

Teledensity Household density

Note: 1996 data. Figure in parenthesis shows the number of persons per household.Source: ITU.

• Households with a telephone

South Africa 8.8 millionhouseholds

Other measurements of telecommunication access

Have

telephone

32%

Useneigh-bours 8%

Usepayphone

16%

Use atshop/clinic

12%

None32%

Source: CSS. October household survey, 1995

• Towns with telephone service

• Payphones per inhabitant

• Distance from a telephone

• Time from a telephone

PRICING ACCESS

• Telephone service pricing– Socially desirable– Cost-oriented

• Measuring affordability

• Tariff strategies to reach the “unphoned”

Relativetelephonecharges

1995

01020304050

60708090

100

0% 5% 10%Telephone charges as % of

household income

House

hold

s w

ith

tele

phone (

%)

Source: ITU.

Socially desirable pricing

• Social benefits outweigh costs

• Affordable price, maybe < break-even

• Initial group of telephone users are clustered in the largest city and arenot poor

Percentage of households in Lima, Peru with a telephone, by income, 1996100%

84%

37% 36%

7%

A B Lima C D

A = Richest 25%B = Second 25%C = Third 25%D = Poorest 25%

Source: OSIPTEL.

• May not generate enough revenue for network expansion

Cost-oriented pricing

• Competitors enter high margin markets traditionally used to subsidize local services

• In telecom markets opened to competition, prices gravitate towards “costs”

• Higher fixed charges for residential users 80

90

100

110

120

1990 1992 1994 1996

OECD Residential tariff basket, 1990=100

Total basket

Fixed charges

Usage charges

Source: OECD.

Defining affordability

Establish average operatingcosts for telephone network

US$ 200 - 400 per subscriberper year

Derive an average tariff US$ 64 - 122 per year

Determine how manyhouseholds can afford service

Where 5% of household income> US$ 1’340 - 3’200

Choose a policy for families thatcannot afford service

Financial assistance, widespreadpayphones, etc.

0

100

200

300

400

500

600

700

800

Withtelephone

serviceOn

waitlist

Couldafford

Couldnot

afford

Without telephone service

Affordability & demand

~ 1’500 million households in the world

World households, millions, 1996

Source: ITU estimate.

Tariff strategies for the “unphoned”

• Tariff reductions for disadvantaged

• Prepaid calling cards

• Subsidized payphone calls

• Supporting incoming calls 0

200400600800

1'0001'2001'4001'6001'8002'000

1994 '95 '96 '97

0.0%

0.5%

1.0%

1.5%

2.0%Prepay

Contract

Density

Mexico cellular subscribers (000s)

Source: ITU estimate.

UNIVERSAL ACCESS

• Universal serviceUniversal serviceTelephone in most homes

• Universal accessUniversal accessTelephone within reasonable

distance for everyone

Achieving Universal Service

Countries with Universal Telephone Service(more than 90% of households with a telephone)

Source: ITU.

Universal servicetakes time

0%

20%

40%

60%

80%

100%

1960 1970 1980 1990 1996

France Japan

Sweden

Canada

Australia

USA

0%

20%

40%

60%

80%

100%

1960 1970 1980 1990 1996

Korea (Rep).

Turkey

Malay-sia

Poland

Mexico

Thai-land

LDCs

Percentage of households with a telephone

Source: ITU.

Universal Access to Universal Service transition

Malawi

UK

Trinidad &Tobago

1%

10%

100%

$0 $5'000 $10'000 $15'000 $20'000

Purchasing Power Parity per Capita, US$

House

hold

s w

ith t

ele

phone,

%

Universal

Access

Univers

al

Service

Source: ITU.

Universal access concepts

Example

In Ghana, defined as a telephone in every locality of more than 500 people.

In Burkina Faso, defined as a telephone every 20 kilometres.

In South Africa, proposed as a telephone within a 30 minute travelling distance.

Criteria

Population

Distance

Time

Definition

A telephone for every permanent settlement of ‘x’ population

A telephone within ‘x’ kilometres

A telephone within ‘x’ minutes

SUPPLYING ACCESS

• Technology– Wireless

(mobile and fixed cellular)

– Satellite (Global mobile systems)

– Voice plus (Cable TV and Internet)

• Policy– Privatization

– BTO

– Competition

Mobile cellular

• In some countries, wireless is substituting for wired service

• Characterised by low levels of fixed-line density with competitive wireless markets

Namibia

SouthAfrica

Barbados

Jamaica

SUBSTITUTE

T&TIndia

SingaporeSriLanka

UK

Cyprus

Malta

0%

5%

10%

15%

20%

25%

30%

35%

0 20 40 60

SUPPLEMENT

Main lines per 100 inhabitants

Cellular subscribers as %of total telephone subscribers

Source: ITU.

Fixed cellular

• Wireless Local Loop (WLL)– Cheaper than

conventional cellular because do not have to support mobility

• Around 50 systems in some 25 countries– In Sri Lanka, two WLL

operators licensed in 1996.They must each install 100’000 WLL lines by year 2000.

0

100

200

300

400

500

600

700

'96 '98 2000

Main

lin

es

(00

0s)

0

1

2

3

4

Tele

den

sity

Fixed-lines

WLL

Teledensity

SRI LANKA

Source: ITU.

Satellite

• Global Mobile Personal Communications by Satellite (GMPCS) systems technically provide world-wide communications access

• From a practical point of view, costs and capacity limitations will limit usage of these systems

• “The primary Iridium customers will be travelling professionals who need comprehensive, reliable global wireless communication.”

Voice+

• Bundle voice telephone with another service– Cable television– Internet

UK Cable Telephony subscribers (000s)

0

500

1'000

1'500

2'000

2'500

1992

1993

1994

1995

1996

1997

0%

2%

4%

6%

8%

10%As % of all residential telephone

subscribers(right scale)

Note: Years ending 31 March.Source: OFTEL.

Implementing universal access through payphones

• Mandated targets for incumbent PTOs

• Franchising public payphones:– Indonesia:

Wartels– West Africa:

Télécentres, Téléboutiques, Télékiosks

– Bangladesh: Village Pay Phones

Senegal: "Télécentres privés"

5'416

2'0401'221

541

1993

1994

1995

1996

0%

1%

2%

3%

4%

5%

6%

As % of alltelephone lines

Source: Sonatel, Gaston Zongo.

Supply policies

Mexico Thailand Philippines

Policy Privatization Build-Transfer-Operate Competition(BTO)

Increase main lines Install 4.1 million Add 5.5 millionTarget at annual average telephone lines telephone lines

of 12% between between between1990-1994. 1993-1996. 1994-1998.

0

2

4

6

8

90 92 94 96

0

2

4

6

8

-

2

4

6

8

86 90 94

-

2

4

6

8

0

2

4

6

8

90 94 98

0

2

4

6

8 Teledensity

Post-privatization

Pre-competition

Post-competition

Pre- BTO Post- BTOPre-privatization

Tele

phone lin

es

(m)

Mainlines

Tele-Density

Key:

ACHIEVING ACCESS

• What should Universal Service / Access include?

• How can Universal Service / Access be funded?

• How can Universal Service / Access policies be created and monitored?

• What are some Universal Service / Access targets?

What should Universal Service / Access include?

• Should universal service include multimedia access?

• “...provision via a fixed connection will also allow a fax and modem to operate”—European Union

• Pricing important• Connecting schools,

libraries and hospitals 1.3.7.42 6

30

22

16

19911993

19951997

0

1

2

3

4

5

6

Internet host computers Millions

Per 1'000 people(right scale)

Source: ITU from Network Wizards data.

Universal service funding

How it works

Advantage

Disadvantage

Cross subsidy

Residential tariffs subsidized

by profitable services.

Simple. Cost recovery left to the operator.

May not benefit those intended for, may not be

sustainable under

competition, not transparent.

Financial Assistance

Disadvantaged users are given a discount on

their telephone bill.

Targeted at those that need the most help.

Administrative costs.

Universal Service Fund

Operators are subsidized for

providing service in

underserved areas.

Costs are shared by all operators.

Administrative overhead. Costs

of universal service difficult to determine.

Access charge

Long-distance operators pay

local operators.

Eases transition to cost-based

tariffs.

Difficult to determine exact

costs. May reduce incentive

for the local operator to

improve efficiency.

A universal

access road map

INFOR-MATION-Households /

localities with / without telephone- Distances / time from telephone

DEFINEWhat is universal

access goal?“All urban

households with telephone, all localities with

public telephone”

POLICYWhat tools to achieve goal?

Targets, universal service funds, tariff policies

MONITOR

Translate goalsinto concrete

policies

Policies need tobe monitored for

compliance

Definitionchanges

withtechnology

andeconomic

development

How and who will monitor & enforce policy? Universal Service Agency?

1996 2010 1996 2010 1996 2010

WORLD 12.80 34.4 1.55

Developing 5.07 10 16.3 >50 0.84 2 Low income 2.44 5 8.5 >20 0.57 1 excluding China 1.22 4.1 0.21

MALTA* 48.30 >100 4.00

TeledensityHousehold telephonepenetration

Payphones per 1’000

people

Year 2010 Goals

* Host of 1998 World Telecommunication Development Conference

Goal: Provide reasonable access to telecommunications for all of humanity by the year 2010

WORLD TELECOMMUNICATION

DEVELOPMENT REPORT 1998

Universal Access to Telecommunications

http://www.itu.int/indicators