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Tariff policies and Universal Service / Universal Access

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

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Tariff policies and Universal Service / Universal Access

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  1. 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

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

  3. Universal access • Availability ... • Accessibility ... • 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

  4. Universal access and Universal service • Universal service: telephone in every home • Universal access: telephone within reasonable distance for everyone

  5. 27.8 to 68.3 (46) 8.3 to 27.8 (46) 1.3 to 8.3 (47) 0 to 1.3 (48) Teledensity disparities

  6. 2'000 1'800 1'600 1'400 1'200 1'000 800 600 400 200 0 <1 1-5 5-10 10-20 20-30 30-40 40-50 >50 The scale of the problem 72% of world’s population live in economies with less than 10 main lines per 100 inhabitants Population, million Teledensity band Source: ITU World Telecommunication Indicators Database.

  7. No. of countries: 43 37 29 28 22 17 19 25 Tele- density: <1 1-10 5- 10- 20- 30- 40- >50 10 20 30 40 50 50 Best 40 Average 30 20 10 0 20 Years 30 40 10 1 50 Teledensity transition Source: ITU World Telecommunication Development Report 1998: Universal Access.

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

  9. Teledensity does not necessarily equal household density Persons per household Teledensity Household density 2.7 USA 2.5 France 2.4 Norway 4.0 Singapore 5.7 UAE 7.6 Kuwait 6.0 Bahrain 7.0 Qatar 20 40 60 80 100 - Source: ITU World Telecommunication Development Report 1998: Universal Access.

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

  11. “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 arenot poor • May not generate enough revenue for network expansion Source: OSIPTEL.

  12. Waiting lists and average waiting times, India, 1975-96 3 8 Wait list Advance 7 Wait time Deposit 6 Scheme 2 5 introduced 4 Average waiting time (years) Waiting list (millions) 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.

  13. Defining affordability • Relative affordability, e.g., <5 per cent of average family income • BUT, initial telephone users are are not necessarily “average • In low income countries, costs for network installation may be high, but incomes are low • “Best practice” cost of operating a network • Methodology must be refined for residential and business users • Costs must be split between one-time & recurring

  14. Percent of households with telephone Telephone charges relative to household income, 1995 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.Source: TU World Telecommunication Development Report 1998: Universal Access.

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

  16. Average & best practice residential costs Note: 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.Source: ITU World Telecommunication Development Report, 1998: Universal Access.

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

  18. No access 18% Have telephone 29% South Africa Not Near- 9 million by 6% households Another phone Nearby 5% Neigh- bours 6% Nearby Public phone 36% Measuring Accessibility Teledensity: 10.7 Cellular density: 3.7 Total telephone density: 14.4 Household telephone penetration: 29% Universal access penetration (% of households with access to telephone): 82% Source : Statistics South Africa . <http://www. statssa . gov . za />

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

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

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

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

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

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

  25. Achieving Universal service Percentage of households with a telephone

  26. Household telephone penetration Payphones per 1’000 people Teledensity 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 Year 2010 Goals Goal: Provide reasonable access to telecommunications for all of humanity by the year 2010 Source: ITU World Telecommunication Development Report, 1998

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