towards the future: what next for telecom businesses? dr tim kelly, itu wednesday session 1 cto...
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Towards the future: What next for Telecom Businesses?
Dr Tim Kelly, ITUWednesday Session 1
CTO Senior management seminar: Telecoms
restructuring and business change
Malta, 17-21 May, 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 [email protected].
AgendaAgendaThe current international telecoms market Forecasting by projection of current trends
Market trends Price trends Infrastructure trends
Forecasting by identifying discontinuities Rise of the Internet Mobile / Fixed substitution Erosion of the accounting rate system
The international telecoms market in 2005
Europe, 43.0%
North America, 32.6%
Asia-Pacific, 18.5%
LAC, 4.1% Africa, 1.9%
International traffic by origin, 1997International traffic by origin, 1997Global total, 81.8 billion minutesGlobal total, 81.8 billion minutes
Note: “LAC” = Latin America & Caribbean. Source: ITU/TeleGeography “Direction of Traffic” Database.
Top ten international telecom Top ten international telecom carriers, 1997 (billions of minutes)carriers, 1997 (billions of minutes)
AT&T US 10.3MCI / WorldCom US 7.3Deutsche Telekom Germany 5.3BT UK 3.7France Telecom France 3.5Sprint US 2.8Telecom Italia Italy 2.4Swisscom Switz. 1.9C&W Comms UK 2.1Stentor Canada 1.8
Source: ITU/TeleGeography Inc.
AT&T/BT DT/TI/Sprint
MCI/WorldCom
Unisource C&W(UK)/HKTI
14.0
10.4
7.3
4.43.8
Major alliances, ranked by billions of Major alliances, ranked by billions of minutes of outgoing int’l traffic, 1997minutes of outgoing int’l traffic, 1997
Source: ITU/TeleGeography Inc.
AT&T
MCI
DT
BT
FT
Sprint
T. Italia
SwissCom
8.8%
10.3%
4.6%
13.8%
11.2%
7.7%
11.8%
18.3%
-10.6%
0.8%
5.0%
-14.3%
1.3%
12.5%
-19.0%
-39.7%
Top 8 international carriers, 1996/97Top 8 international carriers, 1996/97
Growth in traffic Change in int’l revenue
Source: ITU, TeleGeography Inc.Note: Revenue change is based on dollar figures and may be different if expressed in local currency.
0
250
500
750
1'000
1'250
1'500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Su
bsc
rib
ers
(mil
lio
n)
0
50
100
150
200
250
300
Bil
lio
ns
of
min
ute
s o
f in
t’l
traf
fic
Fixed main lines
Mobile subscribers
Total int'l traffic
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
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.
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.
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.
Infrastructure capacity and costs, Infrastructure capacity and costs, 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
0
10
20
30
40
50
60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
TransAtlantic
TransPacific
Actual Projected
Bandwidth glut
Bandwidth shortage
Bandwidth glut?
Infrastructure capacity, Infrastructure capacity, TransAtlantic & TransAtlantic & TransPacific, in millions of voice-pathsTransPacific, in millions of voice-paths
Source: ITU, TeleGeography Inc., FCC.Note: Voice-path numbers assume a compression ratio of 5:1 to number of circuits.
0
0.2
0.4
0.6
0.8
1
1.2
90 92 94 96 98 00 02 04
Actual Projected
Retail price
Wholesale price
Price projections: Price projections: price per minute of price per minute of international call from US (in US$)international call from US (in US$)
Source: ITU, FCC. Note: “Retail price” calculated as actual revenue per billed minute of international traffic. “Wholesale price” calculated as weighted average of settlement rate to all US destinations.
Discontinuity 1: The Internet Discontinuity 1: The Internet Internet hosts (million)Internet hosts (million)
Source: ITU “Challenges to the Network: Internet for Development, 1999”, Network Wizards.
0.4 0.7 1.3 2.34.7
9.4
29.7
43.5
16.1
0
10
20
30
40
50
90 91 92 93 94 95 96 97 98
87%
52%
6%Telephone
lines
Cellularsubscribers
Internethosts
Canada & US
64.1%
Europe24.3%
LAC*1.2%
Africa0.5%
Developing Asia-Pacific
2.9%Other4.6%
Australia, Japan & New
Zealand7.0%
Distribution of Internet hosts, Distribution of Internet hosts, January 1998January 1998
Source: ITU “Challenges to the Network: Internet for development, 1999”.
“IP is to communications what the PC was to computing … it’s
that fundamental a shift”
Dan Schulman,AT&T WorldNet Services,
Quoted in Tele.Com, May 1998
The EconomistMay 2nd 1998
Computer to computer Since 1994 Conversation between two similarly
equipped computer users via Internet
Computer to telephone Since 1996 Internet user interconnecting with Public
Telephone Network via an intermediaryservice provider (e.g., call-back company) or a service provider’s Website
Telephone to telephone Since 1997 Telephone carrier routes telephone or
fax message via a data network (Internet, frame relay) rather than viathe Public Telephone Network
Internet telephony:Internet telephony:Different modesDifferent modes
Telephone TelephonePublic Switch
Internet
Phone Gateway Computer
Phone Gateway Computer
Phone Gateway Computer
TelephonePublic Switch
Internet
Internet
Phone Gateway Computer
Phone Gateway Computer
Discontinuity 2: Mobile / Fixed Discontinuity 2: Mobile / Fixed SubstitutionSubstitution
Most mobile users currently also have a fixed line telephone. But, in the longer term:
Substitution of traffic Users making calls from mobile instead of from fixed-line
telephone Mobile users making calls to other mobile users
Substitution of subscriber base New users (e.g., teenagers) choosing mobile connection without
buying fixed line Users with both mobile and fixed line giving up fixed line to save
on monthly costs
When will mobile calls be cheaper than fixed-line?
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1990 1991 1992 1993 1994 1995 1996 1997 1998
Su
bsc
rib
ers,
th
ou
san
ds Fixed line network
Mobile network
Cross-over point. Cross-over point. Fixed lines and mobile Fixed lines and mobile subscribers in Finland, 1990-98subscribers in Finland, 1990-98
Source: ITU “World Telecommunication Indicators Database”.
August 1998
Mobile/fixed line substitutionMobile/fixed line substitution
In some countries, wireless is already substituting for wired service
Characterised by low levels of fixed-line density with competitive wireless markets
Also where fixed-line network damaged
0
5
10
15
20
25
30
35
0 10 20 30 40 50 60
Main lines per 100 inhabitants
Cellular subscribers as % of total telephone subscribers
Philippines Finland
ThailandLebanon Israel Japan
Jamaica
SUBSTITUTE
Venezuela
South Africa
IcelandN. Zealand
Colombia
Gabon
France
Germany
ItalySri Lanka
Uganda
Korea (Rep.)
Greece
SUPPLEMENT
Discontinuity 3: Erosion of the Discontinuity 3: Erosion of the accounting rate systemaccounting rate system
Accounting rate system has prevailed for more than 100 years Based on revenue-sharing between operators
New market entrants prefer to pay domestic interconnect charges Pressure towards cost-oriented rates Internet has no end-to-end settlements
BUT, developing countries highly dependent on net settlement payments Transfers worth some US$7-10 billion per year, much of
which is used for equipment purchases
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
Traffic already shifting to the Internet. Traffic already shifting to the Internet. Usage of int’l circuits between US & UK, 1995-Usage of int’l circuits between US & UK, 1995-9797
Source: ITU, adapted from TeleGeography, FCC.
0
10'000
20'000
30'000
40'000
50'000
60'000
1995 1996 1997
International private lines (mainly Internet)
Public telephone
Idle circuits
Forecasting to 2005 by Forecasting to 2005 by projecting projecting forward current trendsforward current trends
By 2005, there could be: 1.4 billion telephone lines 950 million cellular telephone subscribers 400-500 million Internet users
These could account for: 250 billion minutes of int’l voice/fax traffic 2.5 trillion minutes of total voice/fax traffic 1’000’000 Gigabits (1 Petabit) per second of Internet traffic Services market of around US$1.1 trillion Equipment market of around US$400 billion
““The death of distance The death of distance as a determinant of the as a determinant of the cost of communicating cost of communicating
will probably be the will probably be the single most important single most important factor shaping society factor shaping society in the first half of the in the first half of the
next century.”next century.”
Frances Cairncross, “The Death of Distance”, 1997
Forecasting to 2005 by Forecasting to 2005 by identifying discontinuitiesidentifying discontinuities
By 2001, less than 10% of int’l traffic will use accounting rate system Domestic interconnect fees will be dominant mode
Major price cuts in international calls after 2002/2003 Availability of new infrastructures Impact of Internet pricing model (distance and duration
independent)
Mobiles exceed fixed-line phones in OECD countries by 2004/2005 Introduction of “third generation” mobiles after 2000 Generational shift, as new users reject fixed-lines
The int’l telecoms market in The int’l telecoms market in 2005: 2005: Some educated guessesSome educated guesses
The premium of an international call over a domestic call (currently >300%) will be <20% Internet-like pricing structure
Traffic flows will be dictated by a small number of hubs connected to multiple fat pipes Major hubs in New York, London and Hong Kong?
Major alliances will own a smaller share of the market as infrastructure owners resell capacity Market significantly bigger by volume, but only slightly bigger by
revenue
Telecom development gap will grow Gap between middle income countries and LDCs