international charging arrangements for internet services ben a. petrazzini international...
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International Charging
Arrangements for Internet Services
Ben A. Petrazzini
International Telecommunication
Union
UIT - ITU
AgendaAgenda
Evolution of the Internet
The North South gap
IP-based vs. PSTN networks
The challenge of Internet settlements
ITU-T Recomendation D. 50
Strengths and weaknesses
Alternative approaches
Is there a solution?
Countries onlineCountries online
818 22
34 4360
81
121
165
200211 214
191
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Nro. of countries connected to the Internet
Source: ITU.
Internet PenetrationJanuary 2001
> 5%
1 - 5%
0 - 1%
(59)
(37)
(99)
The online landscapeThe online landscape
0%10%
20%30%
40%50%60%
70%80%
90%100%
Internetusers
Mobile users
Telephone lines
Popul-ation
High income
Upper-mid income
Lower-mid income
Low income
280 million
490 million
912 million 6 billion
82 %69 %
58 %
15 %
User distribution, by income group, Jan 2000User distribution, by income group, Jan 2000
Source: ITU World Telecommunication Indicators Database.
Digital divide = Telecoms divideDigital divide = Telecoms divide
The digital divide is shrinkingThe digital divide is shrinking
18%Jan. 1995
Share of low and lower-middle income countries in:
Telephone main lines
Mobile subscribers
Estimated Internet Users
Jan. 2000
Source: ITU World Telecommunication Indicators Database.
28%
5%
1.1%
14%
7.6%
Catching up in the AmericasCatching up in the Americas
1996Share of Latin America & Caribbean (LAC) in Americas:
Telephone main lines
Mobile subscribers
Internet host computers
2000
Source: ITU World Telecom Indicators Database.
20% 25%
10% 29%
2.0% 2.7%
North America LAC
We prefer to walk while we talk! We prefer to walk while we talk!
0
2
4
6
8
10
12
1990 1991 1992 1993 1994 1995 1996 1997 1998
Main lines
Mobile subscribers
Latin America & Caribbean region, millions
Cellular overtaking fixedCellular overtaking fixed
57% [99]
80%
40% [99]
50%
38% [99]
Venezuela
Paraguay
Peru
Mexico
Brazil
Mobile as a percentage of total telephone subscribers
100%43%
57%
10%
90%
19%
81%
13%
86%
0% 20% 40% 60% 80% 100%
Europe
Arab States
Asia
Americas
Africa
Monopoly Competition
% of countries with Net competition% of countries with Net competition
ENTEL Internet
60%
CTC Internet
35%
Others5%
ChileTotal=100
Others50%
Uninet (Telmex)
50%
MexicoTotal=300
Concentration of market powerConcentration of market power
Argentina Venezuela170 ISPs; Arnet-Advance = 34% 165 ISPs; CANTV = 35%
Internet market controlled by incumbents, Jan 2000
IP backbone: IP backbone: limited competitionlimited competition
0%
5%
10%
15%
20%
25%
30%
1 2 3 4 5 6 7 8 9 10Ranking of the company
mm
ark
et
sa
hre
IP backbone providers
Int'l PTOs
IP: 4 largest = 80%Tel: 4 largest = 30%
Top backbone providers, Top backbone providers, spring 99spring 99
Backbone providers
Connections to ISPs
As % of total
C&W USA (ex MCI) 1’944 29.3%
WorldComm 1’496 22.5%
Sprint 1’407 21.2%
GTE Internetworking 354 5.3%
Source: Adapted from BoardWatch, ISP Directory, Spring 99.
GlobalGlobal Internet Bandwidth Internet Bandwidth
Asia /Pacific
LatinAmerica
USA / Canada
Europe
Africa
56 Gbps
0.1 Gbps
0.5 Gbps
Note: Gbps = Gigabits (1’000 Mb) per second. Source: ITU adapted from TeleGeography.
18 Gbps
0.4 Gbps
3 G
bps
0.2 Gbps
20002000
Global Internet BandwidthGlobal Internet Bandwidth
USA &Canada
Europe
13’258 Mbit/s
Asia-Pacific
5’916 Mbit/s
LatinAmerica &Caribbean
949 Mbit/s
Arab States, Africa
170 Mbit/s
152 Mbit/s
63 Mbit/s
69 Mbit/s
Fuente: TeleGeography Inc., Global Backbone Database. Data valid for Sept. 1999.
19991999
Note: Based on usage of circuits between the US and the rest of the world. Source: FCC.
0
50
100
150
200
250
300
1995 1996 1997 1998
PSTN circuits
International Private Lines(Internet)
IPL, 42%
PSTN, 58%
Central America
South America
IPL, 54%
PSTN, 46%
CaribbeanIPL, 18%
PSTN, 82%
World
Replacing PSTN with IP:Replacing PSTN with IP: Int’l circuits (‘000s)Int’l circuits (‘000s)
Dial-up Internet traffic as % of Dial-up Internet traffic as % of total traffic minutestotal traffic minutes
38%
27%19.5%
8.5%
18%12%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1998 1999
Telia (Sweden)
Telecom Portugal
Telenor (Norway)
Source: PTO annual reports. Note: For Telia, Internet traffic as % of local minutes. For others, as % of total
0.0% 0.2%
1.6%
5.5%
3.2%
0
1'000
2'000
3'000
4'000
5'000
6'000
7'000
1997 1998 1999 2000 2001
As percentage of int'l outgoing traffic
Total international VoIP traffic,Total international VoIP traffic,In millions of minutesIn millions of minutes
Source: ITU Internet Report 2001: IP Telephony
The The ggeography ofeography of the the IP IP world world
Investment in IP networks is still highly US-centric More than 95 per cent of inter-regional IP bandwidth
connectivity is to/from North America Accelerating returns to scale means: big gets bigger
Europe catching up fast Major investment in fibre-based networks since
opening up of EU markets in late 1990sDeveloping countries lagging behind
Geneva has more bandwidth than the whole of Latin America and the Caribbean together
Latecomers disadvantaged by high prices Insufficient demand to force down prices Non-liberalised telecom markets and obligation to pay
both cost of both half-circuits of Int’l Private Line
PTO A
Collectsrevenues
Collectstraffic
PTO B
Retainsrevenues
Terminatestraffic
Delivers traffic
Pays settlement fees
User 1 User 2 User 3 User 1 User 2 User 3
For accounting rate traffic, a direct bilateralrelationship is established between the origin and
termination operators. Intermediate transit operatorsare compensated from the accounting rate which is
usually split 50:50. PTO B retains net settlement.……...
PTO = PublicTelecommunicationsOperator
PTOs A & Bsplit the cost ofthe int’l circuit
Settlements-based traffic
ISP A
Exchangestraffic
ISP B
Collectsrevenues
Requestsand terminatestraffic
One-way (thick pipe)
User 1 User 2 User 3
For Internet Peering traffic, ISP B pays forboth halves of the International circuit(s) which areused for peering with ISP A. ISP B also pays for traffic exchange.ISP B may pay for the circuit directly, or in conjunction with one or more PTOs.
ISP = InternetServicesProvider
PTO B pays the full cost ofthe int’l circuit
Two-way (thin pipe)
Web 1 Web 1 Web 1
Internet Peering traffic (Web)
Developing country concernsDeveloping country concerns
They must pay both half-circuits of the International Private Line to overseas backbones and foreign ISPs Even though traffic flows in both directions over the
circuit, once it is established Interconnection costs are rising as IP traffic
continues to grow exponentially
Developing countries receive no international settlement payments for IP traffic Increasingly, incoming IP traffic includes IP
telephony and fax traffic which they must terminate
Telephone and fax traffic shifting to the Internet What will replace the US$7 bn from settlements?
ITU-T Rec. D.50: ITU-T Rec. D.50: Int’l Internet ConnectionInt’l Internet Connectionrecognizing
the sovereign right of each State to regulate its telecommunication, as reflected in the Preamble to the Constitution,
noting
a) the rapid growth of Internet and Internet protocol-based international services;
b) that international Internet connections remain subject to commercial agreements between the parties concerned; and
c) that continuing technical and economic developments require ongoing studies in this area,
recommends
that administrations/ROAs involved in the provision of international Internet connections negotiate and agree to bilateral commercial arrangements enabling direct international Internet connections that take into account the possible need for compensation between them for the value of elements such as traffic flow, number of routes, geographical coverage and cost of international transmission amongst others.
Recommendation D.50Recommendation D.50
The ITU-T, recommends that administrations involved in the provision of international Internet connections negotiate and agree to bilateral commercial arrangements enabling direct international Internet connections that take into account the possible need for compensation between them for the value of elements such as traffic flow, number of routes, geographical coverage and cost of international transmission amongst others.
VirtuesVirtues of of Rec. Rec. D50D50
Raises global awareness of the problem
Timing is in sink with the digital divide
waveLittle opposition to the initiativeSupport from several industrialized
nationsOpens the door for negotiating
alternative solutions to the problem
WeaknessWeaknesseses of of Rec. Rec. D50D50
ITU Recommendations are not mandatoryITU Rec have weight with national
administrations, much less with Internet access providers
Rec D50: no precise def. of terms, ways of measuring traffic, establishing costs, etc. [cost est. 3% or 60%?]
Consolidates the USA as a global hub for Internet traffic and undermines incentives for regional IP backbones
Tends to consolidate current oligopolistic nature of the IP backbone market
Is it inevitable?Is it inevitable?
It is a comercial arrangement in a liberalized marketplace
Responds to the current global infrastructure lay out
High cost of leased lines in LDCs and lower in the US
A considerable amount of content is in the north
Countries in the south gain a global presence
People on the NetPeople on the Net
30 47 83513 7 13 25
180
232
77
124
28%
21%
15%
9%6%
4%
1.6%1.0%0.5%0.3%0.1%0.1%
0
50
100
150
200
250
300
350
1995 1996 1997 1998 1999 2000
Pene-tration
Number of Internet users, millions
Source: ITU.
Developed
The America’s digital divide The America’s digital divide (Jan. 2000)(Jan. 2000)
Americas region
Users per 10’000 inhab.
Hosts per 10’000 inhab.
PCs per 100 inhab.
North 3’533 2’711 57
Central 245 43 4
South 267 38 4
Alternative approachesAlternative approaches
Effective competition in the leased line
market of developing nations
Development of regional IP backbones
Establishment of local and regional IXPs
Leverage for negotiating better conditions
with backbone providers in the north
Project Capacity Developer Ready
Atlantica 1 1.28 Tbps 360 Networks Sept 2000
South America Crossing
40 Gbps Global Crossing
Early 2001
Emergia 1.92 Tbps Telefonica, Tyco, IDT
2001
Arcos 1
Americas 8
15 Gbps
720 Gbpse
New World Network
2001 - 2002
Americas 3 4 Tbps Embratel, Sprint, C&W
and Teleglobe
2002
Mercus 1.5 Tbps Bias End 2001 - 2002
Growing regional bandwidthGrowing regional bandwidth
Fuente:Kessler Marketing Intelligence.
TransAtlantic cables, 1988-2001TransAtlantic cables, 1988-2001
Source: ITU, adapted from FCC.Note: Circuit costs assume a usage level of 18%, a compression level of 5:1 and a life-time of 20 years.
1
10
100
1'000
10'000
TAT-81988
PTAT-11989
TAT-101992
TAT-12/131996
AC-11999
TAT-142000
FlagAtlantic2001
Cir
cu
it c
ost
p.a
. (U
S$
)
1
10
100
1'000
10'000
100'000
Cir
cu
it c
ap
ac
ity
(64
kb
it/s
, 00
0s)
Circuit capacity, rising by 89% p.a.
Circuit costs, falling by 72% p.a .
InternationalInternational capacity and costs capacity and costs
IXPs around the world, Sept. 2000IXPs around the world, Sept. 2000
Americas region
IXPs Other regions
IXPs
North 109 Africa 2
South 6 Asia/Pacific 38
Europe 78
A task for the “Digital Divide” A task for the “Digital Divide” movement?movement?
Problem with the digital divide initiatives: too many issues no clear sense of priorities
One priority: reduce cost of Internet services to make them commercially self-sustainable
Opportunity to get the political and financial support of international aid agencies, multilateral lending institutions, G8 governments, and multinationals to build IP infrastructure to concentrate traffic regionally
Unión Unión
Internacional deInternacional de
TelecomunicacionesTelecomunicaciones
http://www.itu.int/http://www.itu.int/