tariff policies and universal service / universal access the views expressed in this paper are those...
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Tariff policies and Universal Service Tariff policies and Universal Service / Universal Access/ Universal Access
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 [email protected]
Dr Tim Kelly (ITU), Seminar on tariff
strategies for competitive
environments,ALTTC, Ghaziabad,
20-22 July 1999
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 Service / Universal Access
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 Service / Universal Access
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
Universal Service / Universal Access
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)
Universal Service / Universal Access
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
Universal Service / Universal Access
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.
Universal Service / 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
Source: ITU World Telecommunication Development Report 1998: Universal Access.
Universal Service / Universal Access
- 20 40 60 80 100
Qatar
Bahrain
Kuwait
UAE
Singapore
Norway
France
USA
Teledensity Household density
Persons perhousehold
2.7
2.5
7.0
6.0
7.6
2.4
4.0
5.7
Teledensity does not necessarily
equal household density
Source: ITU World Telecommunication Development Report 1998: Universal Access.
Universal Service / Universal Access
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
Universal Service / Universal Access
“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
Universal Service / Universal Access
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
Source: ITU World Telecommunication Development Report 1998: Universal Access.
Universal Service / Universal Access
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
Universal Service / Universal Access
-
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.
Universal Service / 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.
Universal Service / Universal Access
Global measures of Affordability
Source: ITU World Telecommunication Development Report, 1998: Universal Access.
0
100
200
300
400
500
600
700
WithService
OnWaitlist
Couldafford
Couldnot
afford
~1'500 million households in the world
Without telephone service
Universal Service / Universal Access
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
Universal Service / Universal Access
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
Universal Service / Universal Access
$0
$500
$1'000
$1'500
$2'000
$2'500
'92 '93 '94 '95 '96 '92 '93 '94 '95 '96
0
5
10
15
20
Installation charge (left scale)
Teledensity (right scale)
Telecom Argentina TeleBrás
Installation charges and teledensity in Argentina and Brazil, US$
Source: ITU World Telecommunication Development Report, 1998: Universal Access.
… 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 ...
Source: ITU World Telecommunication Development Report, 1998: Universal Access.
Universal Service / Universal Access
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
Universal Service / Universal Access
Supply-side measures for extending Universal Access
Market liberalisatione.g., allowing new suppliers to enter market, liberalising
equipment market, giving financial autonomy to PTO, encouraging foreign investment, Build/Transfer/Operate concessions
Payphone liberalisatione.g., permitting private installation and ownership of payphones,
community telephone shops, telecentres
Technical solutionse.g., Mobile cellular, Wireless Local Loop, GMPCS, combined
cable TV/telephony
Universal Service / Universal Access
Pricing strategies to achieve Universal ServiceTargeted 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 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
Universal Service / Universal Access
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
Universal Service / Universal Access
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