trade in telecommunications & accounting rate reform dr tim kelly *, head, strategy and policy...
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Trade in telecommunicationsTrade in telecommunications& accounting rate reform& accounting rate reform
Dr Tim Kelly *,
Head, Strategy and Policy Unit,
International Telecommunication Union,
30 April, 2001
* The views expressed in this presentation are those of the author, and do not necessarily reflect the opinions of the ITU or its membership. Tim Kelly can be contacted at tim.kelly@itu.int.
Trade in telecommunications
AgendaAgenda Trends in telecoms worldwide Trade in telecommunications
The GATS and the WTO Basic Telecoms Agreement
The stakes: Market liberalisation Shift from a bilateral to a multilateral trade regime
Reform of the accounting rate system What is the accounting rate system? What are the problems? What are the possible solutions?
ITU/WTO co-operation What does it all add up to?
Projection of growth trends, Projection of growth trends, fixed and fixed and cellular subscribers and int’l traffic, 1995-2005cellular subscribers and int’l traffic, 1995-2005
Source: ITU.
0
500
1'000
1'500
2'000
2'500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Fix
ed li
nes
an
d m
ob
ile s
ub
scri
ber
s w
orl
dw
ide
(mill
ion
s)
0
50
100
150
200
250
Bill
ion
s o
f m
inu
tes
of
inte
rnat
ion
al t
elep
ho
ne
traf
fic
Fixed lines
Mobile subscribers
International traffic
Actual Projected
0
100
200
300
400
500
600
700
800
900
1000
90 91 92 93 94 95 96 97 98 99 00 01 02
Ser
vice
rev
enu
e (U
S$
bn
)
Actual Projected
Domestic Telephone/fax
Int'l
Mobile
Other: Data, Internet, Leased lines, telex, etc
Projection of revenue growth (US$bn)Projection of revenue growth (US$bn)
Source: ITU.
Increasing involvement of private Increasing involvement of private sector in supply of servicessector in supply of services
Source: ITU Telecommunication Regulatory Database.
Status of Incumbent operator
0
20
40
60
80
100
120
140
160
180
1991 1993 1995 1999 2000
Private
State-owned
Countries
Countries with Separate Regulatory Body
Role of government shifting from Role of government shifting from participation to regulationparticipation to regulation
Source: ITU Telecom Regulatory Database.
Trade in telecommunications
Trade in telecomsTrade in telecomsDual role of telecommunications
As a facilitator of trade in other sectors (GATS) As a directly traded product and service (BTA)
How can telecom services be traded? Modes of delivery Cross-border (e.g., call re-origination) Commercial presence (e.g., Foreign Direct
Investment) Consumption abroad (e.g., calling cards) Movement of staff (e.g., consultancy services)
Global Telecom Trade, US$ billionGlobal Telecom Trade, US$ billion
0
20
40
60
80
100
1990 1991 1992 1993 1994 1995
Other
Settlement payments
Telecom equipment
Note: “Other” includes privatisation receipts, cross-border roaming of mobiles, consultancy, FDI, foreign aid etc.Source: ITU “World Telecommunication Development Report, 1996/97”
Countries permitting competition in Countries permitting competition in basic telecoms:basic telecoms:1990 1995 1998JapanUnited KingdomUnited States
AustraliaCanadaChileFinlandJapanKorea (Rep.)New ZealandPhilippinesSwedenUnited KingdomUnited States
AustraliaAustriaBelgiumCanadaChileChinaDenmarkEl SalvadorFinlandFranceGermanyGhanaHongkong SARIsraelItalyIreland (Dec 98)
Japan Korea (Rep.)MexicoNew ZealandNetherlandsNorwayPhilippinesRussiaSpain (Dec 98)SwedenSwitzerlandUgandaUKUSA
plus others ....
35%46%
74% 85%
1990 1995 1998 2005
Mono-poly
Compe-tition
4 14 29 48
Number of countries permitting more than one operator for international
telephony
Percentage of outgoing international Percentage of outgoing international traffic open to competitiontraffic open to competition
Note: Analysis is based on WTO Basic Telecommunications Commitments and thus presents a minimum level of traffic likely to be open to competitive service provision. Source: ITU, WTO.
Trade in telecommunications
WhatWhat’’s covered, whats covered, what’’s not?s not?
Covered in WTO telecoms agreementsGovernment measuresIndividual country commitments (schedules) providing market access to stated markets in telecom servicesRelated agreements (GATS, Information Technology)Regulatory principlesCommercial presence (foreign direct investment)
Not covered in WTO basic telecoms agreementNon-government measures (e.g., commercial contracts)Market areas not covered in individual commitments or stated as exemptionsRest of world (including China, Russia etc)Accounting rates and settlementsBroadcasting and audiovisual industry
Trade in telecommunications
General Agreement on Trade General Agreement on Trade in Services (GATS) principlesin Services (GATS) principles Most-favoured nation (MFN), Article II Transparency, Article III Domestic regulation, Article VI:
qualification requirements and procedures technical standards licensing requirements
Monopolies and exclusive service supply (Article VIII)
Market access (Article XVI) National Treatment (Article XVII)
Trade in telecommunications
Basic Telecom AgreementBasic Telecom Agreement Process initiated in 1994 to extend GATS
commitments to basic telecoms (i.e., voice) Process reached “standstill” in April ‘96. Sticking
points: Reaching Critical Mass of countries “One-way by-pass” of accounting rate system Status of mobile satellite services
Negotiations re-opened, 15 Jan-15 Feb 1997 Successful conclusion on 15th February
69 countries signed agreement 61 countries committed to Regulatory Reference Paper,
in whole or in part
Trade in telecommunications
Regulatory Reference Paper (1)Regulatory Reference Paper (1) Competitive safeguards
prevention of anti-competitive practices engaging in anti-competitive cross-subsidisation withholding information
Interconnection provided under non-discriminatory terms cost-oriented, transparent and timely additional network termination points on request at
cost-oriented rates Published terms and rates Disputes procedure
Trade in telecommunications
Universal Service Obligations at discretion of Member State no more burdensome than necessary
Licensing criteria publicly available transparent process
Independent regulatory authority Allocation and use of scarce resources
objective, timely, transparent and non-discriminatory procedures for allocation
Regulatory Reference Paper (2)Regulatory Reference Paper (2)
The International Telecom Traffic The International Telecom Traffic Roller-coasterRoller-coaster
Global international telephone callsBillions of minutes
4 5 5 6 8 9 10 11 13 14 16 1821
2428
3338
4349
57
64
71
79
86
94
101
8%8%9%
12%12%12%
15%15%
13%14%
17%17%17%
15%15%
11%11%
13%12%
16%
15%
19%18%
17%
15%
18%
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
Annual change
Source: ITU “Trends in Telecom Reform, 2000/01”
Trade in telecommunications
What are accounting and settlement What are accounting and settlement rates?rates?
Collection chargeThe amount charged to the customer by the Public Telecommunication Operator(PTO)
Accounting rateInternal price between PTOs fora jointly-providedservice
Settlement ratePayment from one PTOto another. Normally, half the accounting rate
X
International Transmission Facility
International Switching Facility (Gateway)
Call Termination
Country
What the accounting rate coversWhat the accounting rate covers
X X
Traditional regime:Traditional regime:Joint provision of serviceJoint provision of service
X
Emerging regime:Emerging regime:Market entry and interconnectionMarket entry and interconnection
XX
Trade in telecommunications
Accounting rate reformAccounting rate reformAccounting rates are traditional way of sharing revenues
from int’l services BUT, creates incentives among recipient countries to sustain
rates at high level Accounting rate system not well-adapted to competitive market
environment Large imbalances in traffic and settlement payments
Strong pressure to move towards a cost-oriented system BUT, many developing countries are heavily dependent on net
settlement payments Transition may be quicker for some than others Cost-oriented system may well be asymmetric
Trade in telecommunications
The international call price squeezeThe international call price squeeze
7
28
43
5858
74
444455
95 96 97 98 99 00
Swiss call prices. US cents per minute.
Call to USA
Local call
Source: ITU “Trends in Telecom Reform, 2000/01”
Increasingly competitive marketsIncreasingly competitive marketsInternational traffic by carrier type, in International traffic by carrier type, in billions of minutesbillions of minutes
0
20
40
60
80
100
120
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
New carrier incompetitive market
Incumbent carrier incompetitive market
Monopoly
Source: TeleGeography, 2001.
The accounting rate regime The accounting rate regime unravelsunravels
The bilateral accounting rate regime More than 100 years old Rates negotiated and accounts settled bilaterally Worked well in time of monopolies, state control and
balanced traffic flowsAs market liberalisation increases …
Price imbalances and traffic imbalances grow Net settlements increase, creating incentives for
operators receiving more traffic than they send to keep prices high
… pressure for a multilateral agreement grows WTO basic telecommunications agreement creates
possibility for direct interconnection, but agreement avoids discussing accounting rates
Accounting rates are falling; Accounting rates are falling; but but not fast enough to avoid by-pass?not fast enough to avoid by-pass?
1.01 1.00 0.98 0.950.91
0.87 0.850.81
0.670.60
0.450.40 0.37 0.35
0.31 0.27 0.25 0.230.20
0.15
0.49 0.470.42
0.370.32
0.580.54
0.64
0.49
0.39
0.54
0.14
0.29
0.39
0
0.2
0.4
0.6
0.8
1
1.2
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
World
USA
Asia-Pacific
Africa
LAC
Settlement rate trends, in SDRs
Source: ITU “Trends in Telecom Reform, 2000/01”
Trade in telecommunications
Accounting rates and termination Accounting rates and termination charges: charges: What differences?What differences?
Accounting rates Termination charges
Normally symmetric (accounting rate split 50/50)
Not necessarily symmetric (if costs differ)
Bilaterally negotiated In theory, set unilaterally (though D.150 requires bilateral negotiation)
Discriminatory (different rates with different correspondents)
Non-discriminatory (same interconnect schedule offered to all carriers)
Half-circuit regime (not normally unbundled)
Full-circuit regime (can be unbundled)
Trade in telecommunications
Two-track approachTwo-track approach At conclusion of WTO negotiations on basic telecoms,
Agreement for a moratorium on disputes related to accounting rates until 2000
That moratorium now being discussed by Trade in Services Council
At conclusion of ITU World Telecom Policy Forum, Agreement to establish a Focus Group to establish “indicative target rates” for settlement rates in the transition to cost-orientation
A range of rates, of between 6 – 44 US cents per minute established, for countries with differing teledensity, despite strong opposition from the United States
Two alternative scenarios:Two alternative scenarios:
T < 1 1<T<5 5<T<10 10<T<20 20<T<35 35<T<50 T>50
$0.45 $0.35 $0.29 $0.23 $0.16 $0.12 $0.06
Source: ITU Focus Group Report, FCC.
ITU Focus Group targets, by teledensity ITU Focus Group targets, by teledensity (T), to be achieved by 2001 (2004)(T), to be achieved by 2001 (2004)
FCC Benchmarks, by income groupFCC Benchmarks, by income groupLow income,
T<1Low
incomeLow-midincome
Upper-mid
income
Highincome
$0.23 $0.23 $0.19 $0.19 $0.15
2002 2001 2000 1999 1998
Focus Group Final Report and Focus Group Final Report and FCC Benchmarks comparedFCC Benchmarks compared
FCCBenchmarks
ITU FocusGroup
Coverage ofanalysis
72 countries 224 countries /territories
Range of rates(direct relations)
0.11-0.16 SDR 0.043-0.327SDR
Transit shares Not covered 0.03-0.06 SDR
Groups 4 by income +1 by teledensity
7 by teledensity+ 2 others
Target years Multi-year: 1998, -99, 2000, -01, -02
Year-end 2001(2004)
Dependency onnet settlements
Not covered Extendedtransition
29
Potential impact of Focus Group Targets & Potential impact of Focus Group Targets & FCC Benchmarks on Case Study CountriesFCC Benchmarks on Case Study Countries
Country Lowestsettlement
rate
Targetrate/year
ITU FGchange %
FCC %change
Bahamas 0.225 0.118 (2001) -18.1% -93.9%Colombia 0.375 0.162 (2001) -22.7% -35.1%India 0.592 0.251 (2002) -18.3% -31.5%Lesotho 0.300 0.327 (2001) -5.0% -12.2%Mauritania 0.622 0.327 (2001) -17.9% -26.0%Samoa 0.300 0.312 (2001) -5.0% -28.3%Senegal 0.633 0.312 (2003) -12.6% -48.5%Sri Lanka 0.550 0.251 (2004) -11.8% -29.9%Uganda 0.337 0.327 (2001) -5.0% -14.5%
1
10
100
1'000
10'000
100'000
TAT-7
1983
TAT-8
1988
TAT-9
1991
TAT-10
1992
T-11
1993
T-12/13
1995
Gemini
1998
TAT-14
2000
Co
st p
er v
oic
e p
ath
(U
S$)
1
10
100
1'000
10'000
100'000
1'000'000
100'000'000
Cap
acit
y (v
oic
e p
ath
s)
Cost per voice path (US$), declining by
41% p.a.
The future (1): Will traffic be “too cheap The future (1): Will traffic be “too cheap to meter”? to meter”? TransAtlantic cables, 1983-2000TransAtlantic cables, 1983-2000
Source: ITU, TeleGeography Inc., FCC.Note: Voice-path numbers assume a compression ratio of 5:1 to number of circuits.
10'000'000
Capacity (voice
64% p.a.paths), growing by
The future (2): Will IP render PSTN circuits The future (2): Will IP render PSTN circuits obsolete?obsolete? International circuit usageInternational circuit usage
Note: Based on usage of circuits between the US and the rest of the world. Source: FCC.
0
50
100
150
200
250
1996 1997 1998
Public Switched TelephoneNetwork circuits
Int'l Private Line circuits (Internet)
Trade in telecommunications
ITU/WTO Co-operationITU/WTO Co-operationOpinion A of 1998 World Telecom Policy Forum
Recommends applying the WTO Regulatory Reference Principles in ITU Member States Competitive safeguards Interconnection Universal service Licensing Independent regulators Allocation and use of scarce resources
Co-operation agreement between ITU and WTO considered by ITU Plenipotentiary and WTO Trade in Services Council and signed on 22 Nov. 2000
International interconnection:International interconnection:Issues for regulatorsIssues for regulators
Transparency: Should regulators require the publication or disclosure of settlement rates and/or interconnection rates?
Intervention: What circumstances might justify intervention in negotiation of accounting rates or establishment of interconnect rates?
Unilateral action: How should regulators respond to possible unilateral action by foreign regulators in setting benchmark rates?
Mobile international connection: Does the development of 3G services require special attention from regulators?
Trade in telecommunications
What does it all add up to?What does it all add up to?Philosophical
Facilitating the transition to a competitive market environment
Birth of a global information society Telecommunications as a traded service
Practical Shift from a revenue-sharing to a cost-oriented regime
for international telecommunications Market liberalisation now the dominant paradigm Efforts to provide a “soft landing” for those countries
likely to be hardest hit by changes
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