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Tariff strategies for competitive environments: Aims and objectives

Tariff strategies for competitive environments: Aims and objectives. Dr Tim Kelly (ITU), Seminar on tariff strategies for competitive environments, ALTTC, Ghaziabad, 20-22 July 1999.

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Tariff strategies for competitive environments: Aims and objectives

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  1. Tariff strategies for competitive environments: Aims and objectives 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 at Tim.Kelly@itu.int.

  2. Agenda • The state of the Telecoms sector worldwide • The Public Switched Telephone Network • Mobile Communications • The Internet • The growth of competition • The competitive pressures facing DoT • Aims and objectives of the course • Structure of the course

  3. Telephone main lines worldwide (M) 970 7% 792 6% 744 Annual average 694 F 5% growth o (right scale) 520 4% r 407 e 3% 327 c 245 2% 175 a 129 96 s 1% t 0% 60 65 70 75 80 85 90 95 96 97 00 Source: ITU World Telecommunication Indicators Database.

  4. 27 .8 to 68 .3 8 .6 to 27 .8 1 .4 to 8 .6 0 to 1 .4 “The future is here, it’s just not evenly distributed” William Gibson Teledensity 1996 (46) (45) (47) (48) Source: ITU World Telecommunication Indicators Database.

  5. Annual growth in telephone networkEmerging economies, 1990-95 27% 10% 9% 8% Africa Arab Latin Asia- States America Pacific Source: ITU “Asia-Pacific Telecommunication Indicators, 1997: New Telecom Operators”.

  6. Top 20 PTOs by revenue, 1997 Source: ITU PTO Database. Note: VSNL comes 56th

  7. Cellular subscribers worldwide (M) F o r Annual average e growth c (right scale) a s t 70% 420 60% 50% 285 40% 214 30% 144 20% 91 55 10% 34 23 16 11 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 2000 Source: ITU World Telecommunication Indicators Database.

  8. Cellphones, like fixed-lines, are closely related to wealth 100.00 Countries above the 2 Finland R = 0.8422 line have a higher than Israel expected mobile cellular penetration Switzerland Estonia Lebanon considering their level 10.00 Belgium of income. Bolivia Saudi Arabia 1.00 Gabon Cellular subscribers per 100 inhabitants, 1997 Azerbaijan Russia Cambodia Countries below the line have a lower than 0.10 expected mobile India, 97-98 Tunisia cellular penetration considering their level Cameroon of income. 0.01 $100 $1'000 $10'000 $100'000 GDP per capita, US$, 1996 Source: ITU World Telecommunication Indicators Database.

  9. Top 20 mobile companies, 1997 Source: ITU PTO Database.

  10. Internet hosts (million) and growth rates, 1990-1998 50 43.5 Telephone 6% 40 lines 29.7 30 Cellular 52% subscribers 20 16.1 Internet 87% hosts 9.4 10 4.7 2.3 1.3 0.7 0.4 0 90 91 92 93 94 95 96 97 98 Source: ITU “Challenges to the Network: Internet for development, 1999”. Network Wizards.

  11. Top 20 Internet Service Providers, 1998 Internet / Online Service Owner Rank Website Subscribers (latest, provider (Country) 000s) AOL (USA) * AOL Jun-98 1 www.aol.com 17’100 Fujitsu, others Aug-98 2 www.nifty.ne.jp Nifty-Serve (Japan) 2'630 Biglobe (Japan) NEC, others Mar-98 3 www.biglobe.ne.jp 2'560 T-Online (Germany) Deutsche Telekom Jun-98 4 www.t-online.de 2'300 MSN (USA) Microsoft Jun-98 5 home.microsoft.com 2'000 Chollian (Korea (Rep.)) Dacom Dec-97 6 http://www.chollian.net/ 1'170 WorldNet (USA) AT&T Jun-98 7 www.att.net 1'095 EarthLink Sprint (USA) Sprint, others Jun-98 8 www.earthlink.com 710 Prodigy (USA) Prodigy Jun-98 9 www.prodigy.com 638 Infovia (Spain) Telefonica Dec-97 10 www.tsai.es 535 Netcom (USA) ICG Jun-98 11 www.netcom.com 512 HiNet (Taiwan-China) Chungwa Telecom Jun-98 12 www.hinet.net 507 MindSpring (USA) MindSpring Jun-98 13 www.mindspring.net 393 SBC Internet Services SBC Jun-98 14 www.public.swbell.net 330 www.public.pacbell.net Tele2 (Sweden) Tele2 Jun-98 15 www.tele2.se 317 GTE Internetworking (USA) GTE Jun-98 311 16 www.gte.net Source: ITU “Challenges to the Network: Internet for development, 1999”. CWIX (USA) Cable&Wireless Jun-98 17 www.cwix.com 310 Wanadoo (France) France Telecom Jun-98 18 www.wanadoo.fr 266 Netvigator (Hongkong SAR) Hongkong Telecom Mar-98 19 www.netvigator.com 235 Telia Internet (Sweden) Telia Dec-97 20 www.telia.se 232 TOTAL, top 20 34’151

  12. Degree of competition in basic services, 1998, by region Monopoly 100% Competition 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Africa Americas Arab Asia- Europe States Pacific Source: ITU Telecommunication Regulatory Database.

  13. Degree of competition in mobile services, by region, 1998 Monopoly Competition 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Africa Americas Arab States Asia-Pacific Europe Source: ITU Telecommunication Regulatory Database.

  14. Why introduce competition into the Sector? • To introduce fresh investment and/or foreign investment into the Sector • Existing network may be ageing or poorly maintained • Existing operator may be debt-ridden or financially constrained • To introduce innovation, price competition and new management techniques • To create new business opportunities for local entrepreneurs and other suppliers • To create more choice for consumers • To improve level of teledensity and pace of network roll-out

  15. Competitive markets tend to grow faster than monopolistic ones Source: ITU “World Telecom Development Report 1998: Universal Access”

  16. Growth in international traffic per line, in emerging markets (1990=100) 200 175 Competitive markets 150 125 Non-competitive markets 100 75 50 25 0 1990 1991 1992 1993 1994 1995 Source: ITU World Telecommunication Development Report, 1996/97.

  17. Different approaches to market liberalisation • Introduce competition first in mobile and value-added, and only later in basic services • e.g., Mobile competition in South Africa since 1994 but exclusivity until 2003/4 for basic service. • Introduce a duopoly for a period followed by more open competition • e.g., UK introduced duopoly in 1982, full competition in domestic services in 1991 in international in 1996. • Go for “big bang” approach to liberalisation • e.g., Switzerland had monopoly until 1998; now full competition in all services. • Unbundling Local Loop • e.g., by allowing access to incumbent’s network

  18. Alternatives to introduction of competition • Liberalisation of sectors other than basic telecoms • mobile communications • public payphones • Internet Service Providers • Award of franchises for different regions • “comparative” or “peer” competition, but not in same geographic area (e.g., Indonesia) • Award of build/transfer arrangements • Build Operate Transfer (BOT), Build Transfer Operate (BTO), Build Own Operate Transfer (BOOT) etc (e.g., Thailand)

  19. DoT: The competitive environment Call-back companies andother resellers Internet companies (esp. IPTelephony) Local cable TVoperators Internationalpublic telecom operators DoT: Incumbentdomesticoperator Large users self-provisioningtelecom services Mobilephonecompanies Other incumbents: (VSNL, MTNL) New marketentrants: Fixed- line network

  20. Aims and objectives of the course • To provide general understanding of tariff restructuring in a competitive environment • To provide case-studies of other countries, developing and developed, which have introduced competition and rebalanced tariffs • To understand different forms of competition (e.g., Internet, mobile) • To link pricing with broader policy issues (e.g., Universal Service, changing int’l environment) • To provide forum for discussion of DoT strategies for tariff rebalancing, local loop unbundling etc

  21. Introduction to Course Lecturers • Dr Tim Kelly, Head, Operations Analysis,International Telecommunication Union, Geneva, Switzerland E-mail: Tim.Kelly@itu.int • Dr Chris Doyle, Senior Research Fellow,London Business School, UK E-mail: cdoyle@lbs.ac.uk

  22. Structure of course (Day 1) 11.30: Tariff strategies for competitive environments: Aims and objectives 2.00: Cost-based and demand-based tariffs (Tim Kelly) 3.00: Tariff rebalancing (Chris Doyle) 4.30: Tariff comparisons: global trends (Tim Kelly) 5.30: Discussion

  23. Structure of course (Day 2) 9.00: Tariff policies and Universal Service (Tim Kelly) 10.00: Tariffs and Service Quality (Chris Doyle) 11.30: Tariff strategies and the Internet (Tim Kelly) 2.00: Pricing of international telecom services (Tim Kelly) 3.00: Tariff regulation: Mobile and fixed (Chris Doyle) 4.30: TRAI proposals on tariff reform (Tim Kelly) 5.30: Discussion

  24. Structure of course (Day 3) 9.00: Tariff and pricing of interconnect (Chris Doyle) 10.00: Tariff strategies for competitive markets: Implications for India (Sidhu Sinha?) 11.30: Designing tariff strategies to match customer requirements (Chris Doyle) 12.30: Discussion

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