The Impact of New Technologies such as Broadband and VOIP on Telecommunication Markets Seminar on Economic and Market Analysis for Central and Eastern European countries (CEEC) and Baltic States, Czech Republic, Prague 9-11 September 2003 Robert Shaw ITU Internet Strategy and Policy Advisor This presentation available at http://www.itu.int/ITU-D/finance/ International Telecommunication Union Agenda
Introduction The Impact of New Communication Technologies Reflections on Human Connectivity Innovations Broadband: the Next Big Thing? Broadband & VOIP in Leading Economies Japan and Korea Country Case Studies Some Regulatory and Policy Experiences Conclusions: Which strategies work and which dont International Telecommunication Union Introduction: International Telecommunication Union International organization where governments and private sector coordinate global telecom networks and services Founded in 1865, it is the oldest specialized agency of the UN system 189 Member States, 650 Sector Members, 75 Sector Associates Headquarters Geneva, 11 regional offices, 790 staff / 83 nationalities International Telecommunication Union
ITU Mission Maintain and extend international cooperation in telecommunications Technical and policy assistance to developing countries To harmonize actions of Member States and promote cooperation between Member States and Sector Members International Telecommunication Union ITU mission To promote at international level, the adoption of a broader approach to issues of telecommunications in the global information economy and society To extend the benefits of telecoms to all the worlds inhabitants Helping the world communicate International Telecommunication Union The Impact of New Technologies
Technology-driven industries like telecommunications historically characterized by steady growth punctuated by giant leaps forward, usually when new technology is introduced International Telecommunication Union Impact of New Technologies This historical pattern has been repeated in the development of every new communications network technology: 1840s: telegraph 1870s: telephone 1890s: radio telegraphy or wireless
1920s: radio broadcasting 1950s: television broadcasting 1960s: geostationary satellite communications 1970s: computer communications 1980s: optical communications 1990s: Internet and mobile communications International Telecommunication Union Impact of New Technologies In the last part of the twentieth century, the almost simultaneous arrival of two major innovations mobile phones and the Internet not only changed the face of communications, but also gave the impetus to dramatic economic growth International Telecommunication Union Mobile and Internet: identical twins born two years apart? Users (millions) and penetration per 100 pop. 1,000
18 Mobile subscribers 800 16 Internet users 14 Mobile penetration 600 12 Internet penetration 10 8 400 6 4 200
2 0 0 1992 93 94 95 96 97 98 99 2000 01 International Telecommunication Union Distribution of mobile and Internet users by region, 2001 Estimated Internet users, 500 million Americas, 28% Africa, 3%
Asia-Pacific, 38% Europe, 31% Americas, 37% Asia-Pacific, 32% Europe, 29% Mobile phone users 948 million Africa, 1% International Telecommunication Union Predicting the Future International Telecommunication
Union The Historical Perspective Napoleon: History is the version of past events that people have decided to agree upon. When we look back over history at any advancement in electronic communication networks, we tend to forget about the highs and the lows, the boom-bust cycles and the failed predictions about likely usage Some examples International Telecommunication Union We often get it wrong: telephone For the first 30 years of the telephone, promoters struggled to identify the killer application that would promote its wide adoption by home owners and businesses. At first the telephone was promoted as a replacement for the telegraph, allowing businesses to send messages more easily and without an operator. Telephone promoters in the early years touted the telephone as new service to broadcast news, concerts, church services, weather reports, etc. Industry journals publicized inventive uses of the telephone such as sales by telephone, consulting with doctors, ordering groceries over the telephone,
listening to school lectures and even long distance Christian Science healing! The concept that someone would buy the telephone to chat was simply inconceivable at that time. - C. Fischer, America Calling International Telecommunication Union We often get it wrong: email The popularity of email was not foreseen by the ARPANET's planners. Roberts had not included electronic mail in the original blueprint for the network. In fact, in 1967 he had called the ability to send messages between users not an important motivation for a network of scientific computers . . . . Why then was the popularity of email such a surprise? One answer is that it represented a radical shift in the ARPANET's identity and purpose. The rationale for building the network had focused on providing access to computers rather than to people. - J. Abbate, Inventing the Internet International Telecommunication Union We often get it wrong: dot.com Ten years ago The Public Switched Telephone Network (PSTN)
was just completing the transition to digital The Internet was starting to move from academia Three years ago Dot.com mania and hype ruled Widely forecast that the Internet was about to take over as the sole communications medium Massive overbuilding of capacity compared to need International Telecommunication Union Today Once high-flying telecom companies like Worldcom and Global Crossing have dramatically gone bankrupt, leaving behind massive debts. Others teeter on edge of bankruptcy Billions of dollars have evaporated in stock market valuations US telecom operators and equipment manufactures have probably laid off close to a million people since the beginning of last year Industry searching for the next big thing to drive new wave of innovation and growth International Telecommunication
Union So whats the next big thing? Our track record of predicting the future isnt so good But lets try International Telecommunication Union So what do these things have in common? 1840s: telegraph 1870s: telephone
1890s: radio telegraphy or wireless 1920s: radio broadcasting 1950s: television broadcasting 1960s: geostationary satellite communications 1970s: computer communications 1980s: optical communications 1990s: Internet and mobile communications International Telecommunication Union The Next Big Thing? History suggests there is class of innovations that can propel growth in economies On examination, common characteristics are their contribution to human interconnectivity According to the consulting firm Accenture, there are six overriding features that these kind of innovations share International Telecommunication Union Human Interconnectivity Innovations 1. Interconnected: create linkages and networks that bring together people,
markets, goods or even entire societies 2. Mainstream: innovations ultimately become items of mass consumption, available to all classes of society 3. Ubiquitous: they become available everywhere they are needed International Telecommunication Union Human Interconnectivity Innovations 4. Low Cost: As they spread, price falls rapidly and continuously 5. Capital Expenditure-Led: In each case a significant capital investment in infrastructure is required ahead of mass adoption 6. Prime Mover: spread often driven by a breakthrough application although often not immediately obvious in early years International Telecommunication Union Industry searching for the next big thing to drive new wave of innovation and growth
Is Broadband the Next Big Thing? International Telecommunication Union What is Broadband? Affordable faster connection to the Internet allowing always-on high-speed connectivity: Fast web browsing VOIP Audio Video Online photo exchange Internet gaming
E-health / telemedicine Teleworking E-education E-government Video conferencing Faster e-commerce Web services International Telecommunication Union What is Broadband? No consensus about what constitutes broadband, generally greater than 256 kbit/sec Others say life begins at 100 Mbit/sec Some technologies
Digital subscriber lines (copper phone lines) Cable modem (copper coax) Fibre optical cable WLAN Fixed broadband wireless (e..g, IEEE 802.16) Satellite Free space optics (lasers) International Telecommunication Union Most common technologies Broadband technology breakdow n, by technology, w orld, 2002 2% DSL Cable 39% Other 59% International
Telecommunication Union Broadband penetration is very uneven throughout the world so we naturally look to leading economies for what works International Telecommunication Union Which economies are doing well Broadband penetration, subs per 100 inhabitants, by technology, 2002 Korea (Rep.) 21.3 Hong Kong, China 14.9 Canada 11.2 Taiw an, China
9.4 Denmark 8.6 Belgium 8.4 Iceland 8.4 Sw eden 7.2 Japan 7.1 United States Finland
Other 6.9 Austria Singapore Cable 7.8 Netherlands Sw itzerland DSL 6.6 6.3 5.5 5.3 International Telecommunication Union
Which economies are doing well Broadband subscribers per 100 inhabitants, by GNI (PPP) per capita, 2002 25 KOR y = 0.0171e0.0002x R2 = 0.4577 20 15 HKG 10 5 KNA EST VCT VEN MLT SGP BEL CANDNK ISL JPN NDL CHE
AUT MAC GBR DEU SVN ESP ITA FIN PRT ISR AUS USA NOR 0 $0 $5'000 $10'000 $15'000 $20'000 $25'000 $30'000 $35'000 $40'000 International Telecommunication Union But its the user experience which
counts: relative speeds Broadband speed comparisons, Mbit/s, July 2003 Japan - ADSL (520x) Korea (Rep) - VDSL (400x) ITU (240x) (30x) USA - Cable Switzerland - ADSL Dial-up (15x) (1x) 0 5 10
15 20 25 30 International Telecommunication Union Downloading DVD video Time needed to download a DVD over each Internet connection (4 gigabyte file) Japan: ADSL (26 Mbit/s) 20 minutes Korea: VDSL (20 Mbit/s) 26 minutes ITU: Leased line (12 Mbit/s) 44 minutes USA: Cable modem (1.5 Mbit/s) 6 hours CH: ADSL (0.756 Mbit/s) 12 hours Dial-up (0.056 Mbit/s) 7.5 days
International Telecommunication Union There is Broadband Digital Divide even in OECD Countries Some OECD countries have barely started while Korea questions whether it has reached penetration ceiling DSL availability ranges from not offered to 98% population coverage. Some evidence of gaining new class of users: Telekom Austria claims that 40% of its broadband subscribers previously had no Internet access International Telecommunication Union Japan Country Case Study International Telecommunication Union Case Study: Japan
In 2000, the Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT), in order to encourage deployment of DSL, established rules for local-loop unbundling and co-location. These rules made it much easier for new ADSL operators to interconnect with the local networks of the incumbent, NTT Since then, number of new ADSL service providers entered the market and the most successful has been Yahoo!BB which started an ADSL service in September 2001 at low monthly charge of JPY 2400 (~US$ 20) for up to 1.5 Mbit/s connection speed International Telecommunication Union Case Study: Japan Like Hanaro Telecom in Korea, Yahoo!BB's entry from outside normal telecom circles, energized competition among ADSL providers and set a price benchmark Providers' monthly charges rapidly fell to around JPY 3000 (US$ 25), and the quality of service has also rapidly increased from 1.5 to 8 to 12 to 26 Mbit/s! Competition also energizes FTTH market: 100 Mbit/s available for ~ US$ 49 (USEN)
International Telecommunication Union Growth in Japan Broadband Access 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 420,000 400,000 380,000 360,000 340,000 320,000 300,000 280,000 260,000 240,000 220,000 200,000 180,000 160,000
00-12 01-3 01-6 01-9 01-12 02-3 02-6 02-9 02-12 03-3 03-6 International Telecommunication Union
Japan and VOIP: Market Dynamics Yahoo!BB bundled VoIP with subscriptions allowing free calls to other Yahoo!BB users and cheap calls to regular phones in Japan or internationally However still had to keep your other phone for incoming calls as there was no way to address/terminate incoming calls Popularity of VOIP services and requirement to better interconnect PSTN and IP-based services lead to Japan taking unique regulatory approach to numbering plan allocation for IP terminal devices International Telecommunication Union Japan and VOIP: Policy & Regulatory Reaction MPHPT decided last year to issue telephone numbers specifically for IP devices (starting with a 050 prefix) youll be able to call a PC in Japan from a telephone In November 2002, MPHPT handed out ~7 million numbers to ISPs VOIP Development Consortium in cooperation with MPHPT working to set standards on quality
requirements for number allocation, interconnection, tariffs and termination International Telecommunication Union Korea Country Case Study International Telecommunication Union Just how far ahead is Korea? Broadband subscribers, end 2002, million 12 10.1m 10.7m 10 Denmark, Italy, Finland, Portugal, Spain, Ireland, Lux & Greece Austria
Sweden 8 Belgium Netherlands 6 UK Source: ITU World Telecom Indicators Database. 4 France 2 Germany 0 Rep. of Korea,
Population 47 m European Union, Population 380 m International Telecommunication Union Secrets of Koreas success (1) Government policy push Maximize ability of all citizens to use ICTs Vision of a creative knowledgebased society E-Korea Vision 2006 (2002-2006) CYBER KOREA 21 (1999-2002) Ten priority areas Annual action plans National Framework Plan for Informatization Promotion (1996-2000)
National information superhighway Korea Information Infrastructure Initiative (1995-2005) Administration, defense, public security, finance & education National Basic Information System (1987 1996) International Focus on manufacturing Telecommunication Measures to nurture IT Industry Union (1987 1985) Outcome of public policy drive: A highly ICT-literate society Home PC-ownership: >78%, of which >86% are Internet users >90% of Internet users have broadband access PC Penetration at home (78.5%)
Internet Access at home (68.1%) Year No PC at home Dial-up ISDN xDSL Cable modem Other No Internet Access June 2002 3.0% 0.5%
55.5% 8.8% 0.3% 10.4% 21.5% Dec 2001 5.5% 0.8% 45.1% 11.3% 0.5% 13.6% 23.1% Source: Adapted from KRNIC.
Outcome of infrastructure competition: Diversity and choice Broadband service penetration (in 000s of subscribers) Technology Max. Down Speed xDSL Up to 8Mbit/s Cable modem 1999 2000 2001 Nov. 2002 1 170
2070 4387 5664 Up to 10Mbit/s 13 190 1390 2530 3554 Metro Ethernet & B-WLL Up to 10Mbit/s - -
540 875 1181 Satellite Up to 1Mbit/s - 10 20 12 6 Total Subscribers (000s) 14 370
4020 7805 10405 % of total household 0.1% 2.6% 29% 56% 63% 1998 Source: Adapted from Korean Ministry of Information and Communications. Secrets of Koreas success (3) Attractive pricing options SwissCom (Bluewin)
139.00 Iceland (Islandssimmi) 72.60 Canada (Bell Sympatico) 30.60 US (Comcast) 28.60 Singapore HK, China (PCCW) 21.90 12.70 Korea (Hanaro/KT) 2.90 Japan (Yahoo BB) 1.80
Source: ITU research. Price per 1 Mbit/s April 2003 International Telecommunication Union More secrets of Koreas success Emphasis on education Broadband seen as family investment in education Highly-urbanized population 80% living in urbanized areas 48% of housing stock is apartment blocks Favourable regulatory environment Local loop unbundling Government support for facilities-based competition Local manufacturing and local content Emphasis on R&D High performance IP backbone Korean content (e.g., DAUM portal) and games
Government support Spectrum fees and other remain within sector International Telecommunication Union Some Conclusions International Telecommunication Union Is Broadband a Human Interconnectivity Innovation? Early lessons from leading economies like Korea and Japan suggest yes: Create linkages and networks that bring together people, markets, goods or even entire societies: Yes Ultimately become items of mass consumption, available to all classes of society: Yes Becomes available everywhere needed: Yes Price falling rapidly and continuously: Yes In each case a significant capital investment in infrastructure is required ahead of mass adoption: Yes Spread often driven by a breakthrough application: VOIP (Japan) International
Telecommunication Union What does work Government policy initiatives to maximize ability of all citizens to use ICTs High level commitment to policies aimed at promoting competition Independent regulator Facilities-based competition: Korea, Canada Unbundling & line sharing: Denmark, Iceland, Japan Cable divestiture by incumbent telecommunication carriers: Netherlands & Switzerland Ensuring spectrum is available for innovative solutions Competition drives higher speeds Belgium, Korea and Japan Flat rate and affordable pricing International Telecommunication Union
What doesnt work Monopolies Telco ownership of cable networks Technologies that require high installation costs (truck rolls) High and/or Metered Pricing Australia and New Zealand experiences suggest users do not like download caps (e.g. 500 Mbytes) or metered pricing as they limit use of streaming media Low speeds If poorly understood, consumers may be seriously disappointed when they realise that although they had been promised high-speed Internet access, in practice, it is not much better than dial-up. ARTTelecom Internet, a review of the French market, March 2003 International Telecommunication Union Some ITU Broadband Resources ITU Promoting Broadband Workshop http://www.itu.int/osg/spu/ni/promotebroadband/
Korea Case Study http://www.itu.int/ITU-D/ict/cs/korea/material/CS_KOR.pdf Japan Case Study http://www.itu.int/osg/spu/ni/promotebroadband/casestudies/ japan.pdf New ITU Strategy and Policy Unit publication available September 2003: Birth of Broadband International Telecommunication Union Thank you International Telecommunication Union Helping the world communicate International Telecommunication Union
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