Telecoms Market Analysis and Regulations: A Comprehensive Overview

1. UK International Telecoms Policy Mike Conradi Legal Secondee from Baker & McKenzie World Bank, 9 March 1999 michael.conradi@bakernet.com

2. Market Information

3. 370 International Local, National and International Call volumes 400 350 300 250 1986/7=100 200 150 100 50 0 1986/87 1987/88 1988/89 1991/92 1993/94 1996/97 1997/98 1989/90 1990/91 1992/93 1994/95 1995/96 Local National

4. UK Traffic by Region of the World (Jan-March 1998) 900 800 700 600 500 400 Millions of minutes 300 200 100 0 EU Africa Far East Bloc South Asia Former Central and Middle East US and Canada Eastern Australia/NZ Other Europe S America Western Outbound Inbound UK Traffic by Region

5. Local 60% National 28% Other 6% International Calls to 4% mobile 2% All Operators Retail Call Volumes Q3 97/98

6. Local National International Calls to mobile 19% Payphone Private Circuits Other DQ BT’s Retail Profits Profits1997/8 36% 0% 0% 33% 10% 0% 2%

7. 1992/93 Market Shares - 1992 to 1997 100% 80% Others 60% Cable 40% Share of revenues CWC BT 20% 0% 1992/93 Residential Users Business Users

8. 1997/98 1997/98 Market Shares - 1992 to 1997 100% 80% Others 60% Cable 40% Share of revenues CWC BT 20% 0% Residential Users Business Users

9. Methods of Conveyance

10. Handover point Switch Switch Call Origination Call Termination International Conveyance Settlement Rate Accounting Rate The Accounting Rate System NB: Major profits come from incoming calls

11. France Germany Greece Spain Italy USA Canada Netherlands Weighted Average Accounting Rate Trends EU, USA and Canada 0.5 0.4 0.3 Value (SDR) 0.2 0.1 0 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98

12. Weighted Average Accounting Rate Trends Rest of the World 1.8 1.6 Pakistan 1.4 India South Africa 1.2 Russia 1 Israel Value (SDR) 0.8 Turkey 0.6 Poland 0.4 0.2 0 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98

13. International Simple Resale • Allowed in UK since 1994 • Competition but constrained by cost of leased circuit. • Complaints re: BT’s IPLC prices • No network competition. • No return traffic - unlike Accounting Rates. • Many countries - illegal (deprives incumbent of revenues). OFTEL/DTI “liberalised” list. • Packaged IPLCs - on SDH rings

14. Competitive Origination Competitive Transport Competitive Termination REGULATION Cross Border Interconnection Model NB: Profits can arise from either outgoing or incoming calls

15. Policy Issues

16. 1,000,000 minutes Dodgy Dodgy 1,500,000 minutes 1,000,000 Minutes Tel Tel UK One-Way Bypass

17. Policy Issues • One-Way Bypass • Whipsawing • Asymmetric pricing imposed by monopolist; or • Other manipulation - depending on balance of traffic • IFL Licence conditions aim to prevent these: • Proportionate Return • Information to DG - no longer “parallel accounting” • Specifications & Consents

18. Policy Issues • Review of BT’s wholesale IDD pricing: • Gross pricing replaced by net pricing • New Guidelines out (very) soon • BT Retail price control review expected this year • Monitoring the market: • Publication of Accounting Rates (Statement on the Collection and Publication of International Call Information - July 1998) • Detection of breaches • CWC WEO review - results published February 1999

19. Tromboning Mobile Interconnect rate: 20p Int’n mobile term rate: 5p Settlement rate: 3p BT’s loss per mobile call: 2p/min • Solutions: • Call “gapping” & • Negotiation of separate rates for calls to mobiles - coming soon!

20. Efforts to Reform Accounting Rates • Study Group 3 - Focus Group. • Target rates according to teledensity • Moves to compensate those who suffer significant revenue losses. • Outcome of last meeting • Settlements rate “deficit” - 1996, > $5.5bn • Benchmarking proposal - implementation dates, and target rates, staggered by income. • Upper Income benchmarks - 1 Jan 1999.

21. Efforts to Reform Accounting Rates • Investigation begun December 1997 • 7 operators’ charges merit further investigation. • Also, looking at availability of cross border interconnection. - Implementation of ICD • WTO Basic Telecommunications Agreement • Signatories made “offers” detailing stages of liberalisation. • Offers are binding.

22. Submarine Cables

23. Submarine Cables • Cases concerning capacity on consortia cables - 1997/87 • Now, three changes: • 1. Economics • 2. Private Cables - capacity for sale • Atlantic Crossing, Flag, Flute (dark fibre) • 3. Self-owned networks • Farland (BT), Hermes, Worldcom, Viatel, Esprit CWC, Colt, Unisource & others

24. Max Capacity end 2000 Capacity (current) Pan-European Networks 700 600 500 400 Total Capacity - Gb/s 300 200 100 0

25. UK Cable Landing Stations January 1999 Atlantic Crossing BT operated CWC operated Redcar CANTAT-3 Scarborough UK-Denmark 4 UK-Germany 6 (3/99) Winterton UK-Germany 5 UK-Netherlands 14 Holyhead BT-TE 1 Bude TAT-14 (2000) Aldeburgh UK-Netherlands 12 Farland (1999) Oxwich Bay TAT-11 Gemini SOLAS (early 99) Widemouth TAT-8 Broadstairs UK-Belgium 5 Land’s End (Porthcurno) CELTIC RIOJA TAT12/13 FLAG Gemini Brean PTAT St Margaret’s Bay UK Belgium 6 UK-France 4 Farland (1999) Brighton UK -France 3 Folkestone UK -France 5 Goonhilly TAT-9 UK-Spain 4 SEA-ME-WE 3 (mid 99) NB: Excludes self-owned cables

26. Submarine Cables • Backhaul & Cable Station Access • Conveyance: Switch & Cable Landing Station (CLS) • CLSs owned, usually by BT or CWC only • So obligations - re: access to CLSs, publication of backhaul prices & non-discrimination • CWC obligations lifted - February 1999 • Could be significant bottleneck • Breakout below STM-1 (155 mb/s)

27. UK International Telecoms Policy Mike Conradi Legal Secondee from Baker & McKenzie World Bank, 9 March 1999 michael.conradi@bakernet.com