tariff policies for achieving universal service / universal access dr tim kelly, international...

Tariff policies for achievingTariff policies for achievingUniversal Service / Universal Universal Service / Universal

AccessAccess

Dr Tim Kelly, International Telecommunication Union (ITU)Workshop on settlement reform and the costing and pricing of

telecom services, Vientiane, 16-18 November 1999

Note: The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Dr Tim Kelly can be contacted by e-mail at [email protected].

Universal Service / Universal Access

Pricing Strategies to achieve Universal Service / Universal Access

What is Universal Service / Universal Access?

The “myth” of subsidised accessDefining affordabilityPricing strategies

For universal accessFor universal service

Targets for the year 2010


Universal accessAvailability ...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


Universal access and Universal service

Universal service: telephone in every home

Universal access: telephone within reasonable distance for everyone

0

10

20

30

40

50

60

70

80

90

100

GDP per capita

Percentage of households with a telephone

Universal access

Universal service


Teledensity disparities

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


0200400600800

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

<1 1-5 5-10 10-20 20-30 30-40 40-50 >50Teledensity band

Po

pu

lati

on

, mill

ion

The scale of the problem

Source: ITU World Telecommunication Indicators Database.

72% of world’s population live in economies with less than 10 main lines per 100 inhabitants


Teledensity transition

<1 1-10 5- 10- 20- 30- 40- >50 10 20 30 40 50

0

10

20

30

40

50

No. of countries:

Average

Best

1 10 20 30 40 50

43 37 29 28 22 17 19 25

Tele-density:

Years

Source: ITU World Telecommunication Development Report 1998: Universal Access.


Telecoms transition, from 10 to 30 lines per 100 inhabitants, Asia-Pacific

1935 1955 1975 1995

New Zealand

Australia

Japan

Hongkong

Singapore

Taiwan-China

Korea (Rep.)

10 lines per100 inhabitants 30 lines per

100 inhabitants



The “myth” of subsidised accessIt 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


“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

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


Defining affordabilityRelative 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 networkMethodology must be refined for residential and

business usersCosts must be split between one-time & recurring


-

20

40

60

80

100

0% 2% 4% 6% 8% 10%Telephone charges as % of household expenditure

Per

cent

of h

ouse

hold

s w

ith

tele

phon

e

Telephone charges relative to household income, 1995

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.


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.

Methodology for determining average and best practice costs

Source: TU World Telecommunication Development Report 1998: Universal Access.

Average Median Bestpractice

Annual operating costper line

380 300 200

Annual subscription1 122 96 64Annual connection fee2 39 7 3Total annual charge fortelephone service

160 103 67

Annual income requiredto afford service3

5'432 4'320 3'480

Average & best practice residential costs

Note: Based on study of 10 operators from different regions and income groups. “Best practice” is the lowest1. 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.


Global measures of Affordability


0

100

200

300

400

500

600

700

WithService

OnWaitlist

Couldafford

Couldnot

afford

~1'500 million households in the world

Without telephone service


Have telephone

29%

No access

18%

NearbyPublic phone

36%

Neigh-bours 6%

Nearby5%

Not Near-by 6%

Anoth

er

phone South Africa

9 millionhouseholds

Source: Statistics South Africa.<http://www. statssa.gov.za/>

Teledensity: 10.7Cellular density: 3.7Total telephone

density: 14.4Household

telephonepenetration: 29%

Universal accesspenetration (% ofhouseholds withaccess totelephone): 82%

Measuring Accessibility


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

Residential installation fee, in US$: Selected countries plus World average, 1998


225.57

210.00

202.79

181.00

171.31

124.00

91.00

81.00

61.35

34.80

22.03

17.77

8.20

China

Cambodia

IndonesiaVietnam

Russia

Average

Lao

Thailand

Hongkong Sar

South AfricaIndia

Malaysia

Philippines

Business installation fee, in US$: Selected countries plus World average, 1998

Source: ITU World Telecommunication Indicators Database. 582.44

274.97

225.57

210.00

181.00

165.00

91.00

81.00

61.35

34.80

22.03

17.77

6.86

Russia

Indonesia

ChinaCambodia

Vietnam

Average

Lao

Thailand

Hongkong Sar

South AfricaIndia

Malaysia

Philippines


0

1

2

3

'75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95

Wa

itin

g li

st (

mill

ions

)

-

1

2

3

4

5

6

7

8Wait list

Wait timeAdvance Deposit Scheme

introduced

Ave

rag

e w

aitin

g tim

e (ye

ars)

Waiting lists and average waiting times, India, 1975-96


Monthly residential subscription, in US$: Selected countries plus World average, 1998


15.00

10.05

9.50

8.99

8.91

7.22

7.11

6.20

5.23

3.43

3.19

1.88

1.50

Cambodia

South Africa

AveragePhilippines

Hongkong Sar

Indonesia

Malaysia

Vietnam

IndiaRussia

ThailandChina

Lao

Monthly business subscription, in US$: Selected countries plus World average, 1998


18.84

15.00

14.80

14.08

12.44

11.62

10.66

6.20

5.23

3.00

2.90

2.40

Philippines

Russia

CambodiaAverage

Hongkong Sar

Malaysia

South Africa

Indonesia

Vietnam

IndiaLao

China

Thailand

… lead to faster growth rates

Monthly residential subscription charges, US$

$-

$2

$4

$6

$8

$10

1990 1991 1992 1993 1994 1995 1996

Uruguay

Malaysia

Hungary

MoroccoPercentage of households with telephone

0

10

20

30

40

50

60

70

1990 1991 1992 1993 1994 1995 1996

Malaysia

HungaryUruguay

Morocco

Higher monthly subscription

charges ...


Local call charge in US cents per 3 mins: Selected countries plus World average, 1998


9.0

9.0

7.0

7.0

3.8

3.2

2.2

1.4

0.0

0.0

0.0

n.a.

Vietnam

Cambodia

Average

Thailand

South Africa

Indonesia

MalaysiaIndia

China

Lao

Hongkong Sar

Philippines

Russia

International 3 min call to US, in US $: Selected countries, 1998/99


7.39

6.65

4.36

4.00

3.58

3.28

2.76

2.63

2.49

1.18

0.63

Vietnam

Russia

China

India

Lao PDR

Thailand

Indonesia

Brazil

Hongkong Sar

South Africa

United Kingdom

Australia


Demand-side measures for extending Universal Access

Tariff cross-subsidiesTraditional method, but may not benefit those for which it is

intended

Universal Service FundTargeted assistance for special needs (e.g., rural areas,

disabled), but may create administrative burden

Direct Financial Assistance to usersTargeted assistance using non-telecom-specific criteria, but

may be difficult to control abuses

Community-wide initiativese.g., Payphone in every village, community

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Jan-88

Jul-88

Jul-89

Nov-90

Oct-91

Feb-92

Sep-93

Jun-94

Aug-95

Dec-96

01-Nov-97

11-Nov-97

Local

Medium

Long distance

Rebalancing in action: Iceland Telecom, price of 3 minute, peak-rate call, includ. tax

Source: Iceland Telecom, OECD.


Supply-side measures for extending Universal Access

Market liberalisatione.g., allowing new suppliers to enter market, giving financial

autonomy to PTO, encouraging foreign investment, Build/Transfer/Operate concessions

especially, liberalising mobile cellular

Payphone liberalisatione.g., permitting private installation and ownership of payphones,

community telephone shops, telecentres

Technical solutionse.g., Wireless Local Loop, GMPCS, combined cable TV/telephony


Pricing strategies to achieve Universal Service

Targeted tariff optionse.g., for low-volume users, the elderly, the disabled, foreign

migrants

Special tariffs for phoneshops, telecentresPrepaid calling cards

for fixed-line and mobile networks

Support for incoming callse.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


Achieving Universal service

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


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

TeledensityHousehold telephonepenetration

Payphones per 1’000

people

Year 2010 GoalsGoal: Provide reasonable access to telecommunications

for all of humanity by the year 2010

Source: ITU World Telecommunication Development Report, 1998

tariff policies for achieving universal service / universal access dr tim kelly, international...

Documents

universal access penetration

home universal access

universal service targets

myth of subsidised access

basic telephone service

world average

o slide

inhabitants source