Slides available: BEREC expert workshop on IP-Interconnection (Peering and Transit) in cooperation with OECD

Update: BEREC website was redesigned and the slides fell off. They can still be found here in this open directory http://berec.mp.bi.lv/files/doc/berec/oecd/
On November 2nd, BEREC organized a workshop on IP-interconnection together with the OECD. All the slides are now available online.  And to save you from reading the whole post, here they are:

• Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
• Martin Levy, Director, Hurricane Electric "The Background of Internet Interconnection"
• Scott Marcus, Director, WIK-Consult, "IP interconnection, traffic trends, and wholesale and retail prices"
• Bill Krogfoss, Strategy Director, Chief Technology Office Alcatel-Lucent "Internet Economy and Content Peering"
  
• Falk von Bornstaedt, Head of Peering, Deutsche Telekom "IP Interconnection and differentiated QoS."
• Patrick Gilmore, Chief Architect, Akamai 
• Eric Ralph, Chief Economist of the Wireline Competition Bureau, FCC (Video message
  and teleconference); (no guarantee that the video works).
  

This was a direct result of the OECD High Level Meeting on the Internet Economy in June, where through conversations in the halls we noticed that there was a difference in the way regulators and Internet peering coordinators discussed interconnection. The workshop was a huge success, several people from the internet peering community flew in from Vienna for one day even though there was a RIPE-meeting going on too. 

A couple of points to take away from the meeting are:

• Peering agreements are for 95%+ handshake agreements, without any involvement of lawyers. They take 3 minutes to set up technically. 
• Both content providers and eyeball networks are working on getting content closer, faster and cheaper to the consumer. This benefits both parties. An interesting example were Google Global Caches which are now placed in networks around the world, but whose effect can most profoundly be seen in Africa where for instance the traffic over the Kenya Internet Exchange Point increased by several hundreds megabit/s peak after a cache was installed, saving the local internet community hundred thousands of dollars every month
•  The market for peering and transit is highly competitive and highly dynamic, with switching barriers being extremely low. A change in routing from one transit provider to another can literally be done in minutes. The effect of a peering agreement is almost immediate. 
• The people whose job it is to interconnect IP-networks speak of themselves as a community, even though some of them disagree quite considerably on how it should be done and who plays what role. 
• Peering and transit is done between all kinds of networks, even the European Commission has an AS-number and could set up it's own peerings.

 I think everyone looks back at a very successful event, that was seated to capacity. 

 

BEREC expert workshop on IP-Interconnection in cooperation with OECD 

November 2nd, Bloom Hotel Brussels, 9:00-17:30  

The goal of the workshop is to bring experts from the IP- interconnection community in contact with experts on interconnection from national regulatory authorities and to discuss future interconnection in an all-IP world.

The Internet’s way of using peering and transit as the basis for commercial negotiations differs considerably from the telephony’s world of Calling Party’s Network Pays. As a result even when talking the two worlds seem to be speaking about different things even when using the same words.

BEREC has been looking into these different approaches to interconnection in a series of papers since 2007 (ERG Report on IP-Interconnection 2007, ERG Common Statement on Regulatory Principles of IP Interconnection 2008, BEREC Common Statement on NGN future charging mechanisms, 2010). The OECD has studied Internet traffic exchange in a series of reports in 1998, 2002, 2005 and in a forthcoming paper in 2011. Furthermore, it has studied Internet traffic exchange in relation to the development of local content in cooperation with UNESCO and it has also organized a workshop on the topic in 2001 in cooperation with the German government. IP-interconnection markets are global markets crossing national borders and even continents. Therefore the OECD is singular in its analysis of trends in Internet interconnection taking a global perspective. Following the same objective of safeguarding competition, BEREC and the OECD take this workshop as a starting point hopefully to be continued in the future.

The format of the 4 session is intended to allow for an extensive discussion with the audience.

Programme
9:00-9:30 Registration and Coffee

9:30 – 10:00 Opening words by Monica Ariño, BEREC and Sam Paltridge, OECD

10:00-11:30 Session 1: The background of Internet interconnection
The goal of this session is to outline the basics of Internet interconnection.
Technical background: Peering (paid or free), transit, partial transit, variants (reciprocal transit
etc.), “Public” versus private, application needs for QoS.

• Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
• Martin Levy, Director, Hurricaine Electric "The Background of Internet Interconnection"

11:30-12:00 Coffee break

12:00-13:00 Session 2: IP interconnection, traffic trends, and implications for
wholesale and retail prices
The interconnection of internet networks has been described in terms of two-sided networks.
The network provider stands in the middle and can receive money from either the content
provider or the consumer. Is this description of the market accurate? What can the theory of
two-sided markets teach us? What contribution can content providers give to the deployment
of networks or alternatively what is the role of network providers in content?

• Scott Marcus, Director, WIK-Consult, "IP interconnection, traffic trends, and wholesale and retail prices"
• Bill Krogfoss, Strategy Director, Chief Technology Office Alcatel-Lucent "Internet Economy and Content Peering"

13:00-14:00 Lunch

14:00-15:30 Session 3: IP Interconnection and differentiated QoS

• Mike Blanche, Program Manager - Network, Peering and Content Distribution, Google,
• Falk von Bornstaedt, Head of Peering, Deutsche Telekom "IP Interconnection and differentiated QoS."
• Patrick Gilmore, Chief Architect, Akamai

15:30-16:00 Coffee Break

16:00-17:10 Session 4: The Future of Interconnection
The Internet hasn’t done away with telephony as a very important means of communication. The growth of mobile telephony has even been more dramatic than the growth of Internet. There have been calls in academic journals and on regulators directly to both impose the Internet’s way of interconnection on telephony and vice versa the telephony’s way interconnection on the Internet.

• Can we expect the market to evolve into one model or the other for all traffic?
• Could a hybrid model evolve?
• What role will new services on networks play? Will new demands be placed on
• interconnection?
• What characteristics of both models should survive?

Panel: 

Eric Ralph, Chief Economist of the Wireline Competition Bureau, FCC (Video message
and telco);
Andreas Sturm, De-Cix;
Mike Blanche, Falk v. Bornstaedt, Patrick Gilmore; Martin Levy

17:10-17:30 Wrap-up 

Cara Schwarz-Schilling, BEREC and Rudolf van der Berg, OECD

Killed! Milking someone else's customer: Fake voicemail.

Update October 12th: KPN has now killed the bad idea, because there were too many negative reactions.

KPN has come up with a brilliant way to make more money: Fake Voicemail, telecompaper reports. They need to, the financial targets are tough. (addendum: Friend of mine suggests it's a violation of common carrier status, or net neutrality. Interesting way to look at it. Imagine a fixed line and an answering machine, where this kicks in before the answering machine)

Normally if you call a mobile number and it isn't answered and the user hasn't activated the voicemail, after 90 seconds it will stop ringing. Now KPN has introduced a message after 30 seconds telling people that the phone isn't answered and that there is no voicemail. I call this fake voicemail. The fantastic thing of fake voicemail for KPN is that it can charge the 'termination rate' to someone else's customer (or its own customers for that matter), who hasn't asked for the message and was perfectly capable to understand that the other person didn't pick up the phone.

To keep you on the line longer and pay more, there is also a whole menu of options for those wanting to leave a message, that can be accessed through KPN's online portal etc. KPN is serious about this squeezing of someone else's customer and has announced it will come up with more types of services that incur a charge.

To me this just shows how easily exploited the termination rate system is and why it should be abolished altogether. The benefit of the service lies with the called network and the called person. Furthermore they have chosen to activate it on their network. If customers like this kind of service, let them become KPN customers.

I would suggest KPN to do a similar thing for all of it's fixed lines. The termination rate is less, but how hard can it be. :-) Other possible solutions would be to randomize the time the caller is sent to voicemail. Some people are way to good at guessing when to cancel the call and not be sent to voicemail. On it's own network it could send people reminder SMS's that inform them the person they called might now be available to take their call.

Another thing that bugs me is that even though termination rates are coming down, I don't see rates for calls to mobile coming down. Termination rates have dropped, but retail prices are remaining the same. It's still around 17 cents per minute to call mobiles.

A clip of my presentation on the future of interconnection at Ecomm

Lee Dryburgh put up the movie of my presentation on the future of interconnection. I gave this presentation last year at Ecomm '09 in Amsterdam. It covers topics like Calling Party Pays and Peering and Transit. What I set out to demonstrate was that it is very economically beneficial for networks to treat voice differently than data. This is because all networks benefit from the current Calling Party Pays interconnection scheme. A triple play ISP may see up to 10% of it's revenue and a significant part of its profit resulting from the fact that it has to 7.5 cents per minute to a mobile network. The lowering of mobile termination fees is therefore feared by many ISP's, because it negatively affects there turnover, even though most of the money just passes its bank account to go to the mobile networks. I have embedded both the movie and the presentation for your convenience.

Rudolf Van Der Berg's Presentation at Emerging Communication Conference & Awards 2009 Europe

View more presentations from eCommConf.

Updated: Mobile Net Neutrality in Europe: Google caught freeloading again? ;-)

UPDATE: Seems the quote of Deutsche Telekom was taken out of context, thanks Chris

With almost identical quotes to the chairman of AT&T a couple of years ago chiefs of Telefonica, France Telecom and Deutsche Telekom told the Financial Times that Google is a freeloader.

César Alierta, chairman of Telefónica, said [..]: “These guys [Google] are using the networks and they don’t pay anybody,” he said.

Stéphane Richard, France Telecom’s new chief executive, said: “Let’s see the development of digital society in terms of the winners and the victims. And today, there is a winner who is Google. There are victims that are content providers, and to a certain extent, network operators. We cannot accept this.”

René Obermann, Deutsche Telekom’s chief executive, said Google and others should pay telecoms groups for carrying content on their networks.“There is not a single Google service that is not reliant on network service,” he said. “We cannot offer our networks for free.”

I wrote my article on peering and transit with the AT&T quote as a starter. I sometimes regret it, because it makes it look like a net neutrality paper, but then again, it is here where the lack of knowledge of how peering and transit works continuously causes pain. 

It strikes me time and again that telco's have trouble seeing cause and effect. They see Google introducing a service and then see their traffic going up. So it must be Google that is causing this. But correlation is not causation. It is only when users click on a link that Google starts sending traffic to their network. It is their user who wants to use their network to get access to something that is big or small, but is located on Google's network. Wouldn't it be more fair to say that the mobile co's should pay Google for the increase in its transit bill instead of the other way round? Given the discussion on mobile termination rates, it would be fair to say that the mobile industry is of the opinion that the initiator should pay. Well, you can't argue that Google initiates the transaction, so it's the user then who will pay. 

The funny thing is also that everyone is always picking on big G. Big G of course has big shoulders and is used to some bullying, but it kind of ignores the fact that there are 190 million websites all over the world. I would think that Icanhascheezburger is a culprit in using telco websites too.. why do we never see Telco execs showing the devastating effects of LOLCATZZ picturez.. on their network. 

So telco's please tell us how you are going to pay 190 million for the network usage that your users cause? 

Will China meter the internet - not very likely

The BBC reports that China wants to meter the internet. A proposal to change the BGP-protocol is being discussed in the ITU-T. Andrea Servida, Deputy Head of Unit, Directorate General Information Society and Media, European Commission told this to the House of Lords  (at about 27:50minutes) in the UK. The BBC: "He warned the plan could threaten the stability of the entire internet. (..and)  that China could have a "hidden agenda" in wanting to monitor data flows. And, in later comments to BBC News, he suggested technical changes needed to charge everyone for internet traffic flowing through China could undermine the web's founding principle of openness as well as raising security and stability concerns for all net users."

Some people already reacted that this may lead to an epic battle between China and the internet. I personally don't think this will be the case. I think that it is highly unlikely that the ITU-T will formally push to abolish peering and transit and modifying BGP so that metering becomes possible. This doesn't mean that there aren't people who work for the ITU or people attending their meetings proposing these ideas. 

I base this on developments in regulatory circles in recent years and the time I spend at the ITU in Lebanon and Geneva in the last two months. The traditional model of Calling Party Pays for national telephony calls and international settlements for international telephony is gradually losing supporters. Some excellent examples of this are recent reports by the European Regulators Group and discussions by the OECD on the topic. Academics like Litchfield and Cambini and authors like Scott Markus are steadily gaining traction.

There are still quite some people versed in the old traditions of the telephony world and they have been irritated by the internet's system of interconnection through peering and transit for a long while. Already in 2000 the EU posted a semi-definitive paper on the topic putting an end to any dreams of metered internet interconnection in Europe along the lines of telephony interconnection. It was a topic in WSIS Tunis as well, but there the only mention it got was in paragraph 50:

50. We acknowledge that there are concerns, particularly amongst developing countries, that the charges for international Internet connectivity should be better balanced to enhance access. We therefore call for the development of strategies for increasing affordable global connectivity, thereby facilitating improved and equitable access for all, by:

1. Promoting Internet transit and interconnection costs that are commercially negotiated in a competitive environment and that should be oriented towards objective, transparent and non-discriminatory parameters, taking into account ongoing work on this subject.
   
2. Setting up regional high-speed Internet backbone networks and the creation of national, sub-regional and regional Internet Exchange Points (IXPs).
   
3. Recommending donor programmes and developmental financing mechanisms to consider the need to provide funding for initiatives that advance connectivity, IXPs and local content for developing countries.
   
4. Encouraging ITU to continue the study of the question of International Internet Connectivity (IIC) as a matter of urgency, and to periodically provide output for consideration and possible implementation. We also encourage other relevant institutions to address this issue.
   
5. Promoting the development and growth of low-cost terminal equipment, such as individual and collective user devices, especially for use in developing countries.
   
6. Encouraging Internet Service Providers (ISPs) and other parties in the commercial negotiations to adopt practices towards attainment of fair and balanced interconnectivity costs.
   
7. Encouraging relevant parties to commercially negotiate reduced interconnection costs for Least Developed Countries (LDCs), taking into account the special constraints of LDCs.
   

 Does that mean we're out of mad people demanding settlements? No of course not. The ITU has been given the task to look into the matter and that is where these people flock to. Nobody who is actually responsible for peering and interconnection attends these meetings, so it's like a zoo for dinosaurs of a by gone age.

In Lebanon an African nation demanded to know when the ITU would address these western countries dumping traffic on the countries internet connection. Like western companies are full of über-rich, doped up, anarchist hackers shoving youtubes like a DDOS of filth straight through the pipes into the minds of simple, naive, law abiding but curious Africans. When I answered them that an essential property of the internet was that you only got send what you requested, or acknowledged what you wanted to have (except for a Denial of Service attack), I didn't receive a positive response from the country. It also didn't help that I said it was only fair that they paid for their internet connection just like everybody else did and that they were free to not pay and disconnect from the internet. Great thing was that many nations in the room did agree with me.

In Geneva, where I was to enable the likes of Amazon, TomTom, Garmin and Apple to work as their own mobile telco (more on this later), a representative of an Arab nation stated that if the world would have adopted X.25 as the dominant protocol we now wouldn't have all this trouble with hackers and spam. (this isn't correct and we wouldn't have an internet equivalent either... but anyways) At an OECD meeting a couple of years ago Mauro Sentinelli, then deputy Chairman of the GSMA still argued against the internet's way of Peering an Transit, even calling for an increase in cost if traffic crossed a border. ETNO and the GSMA are still arguing against it, but when it comes to internet interconnection they come with no viable alternative.

So all in all, there are dinosaurs, they are arguing against extinction and consequently against the horrors of mammals and their despicable ways. This too shal pass.

MOBILE TERMINATION: TO REGULATE OR NOT TO REGULATE?

SESSION 6: MOBILE TERMINATION: TO REGULATE OR NOT TO REGULATE?

Moderator: Dr. M. Treschow, Director General, National Post and Telecom Agency, Sweden

GSR Discussion Paper on Mobile termination: to regulate or not? [presentation]
Dr. Vaiva Lazauskaite, Economic Analyst, ITU/RME

Interactive panel discussion:

• Should mobile termination rates be regulated or left to the market? What regulatory approach to choose?
• Symmetric regulation to promote investment and competition: can the EC approach be replicated in other parts of the world?
• How are convergence, NGNs and the transition to all-IP networks changing the situation?

Panelists:

• Mr. A. Alfehaid, Deputy Governor, Communications and Information Technology Commission (CITC), Saudi Arabia
• Mr. A. Haire, Deputy Director General (Telecoms & Post), InfoComm Development Authority of Singapore (IDA)
• Mr. J. Salvat, CEO, Servei de Telecomunicaciones d’Andorra (STA)

Mod: is there a need for regulation of MTR’s. I think we need to look at the consumer to answer this question.

Singapore: I view as regulation any decision made by the regulation. This also is not making a decision. It is necessary to understand when you are not going to make a decision. We do regulate parties with Significant Market Power. We do make decisions on someone who has control over a bottleneck. Communication is about three things: It is about getting on the network, going across and getting off the network (to another network). In Singapore we have noticed that when getting off the network onto a mobile network, we know that the Mobile companies have an incentive to raise prices. And the nice thing is they can tax someone who isn’t their customer. We have set our termination rate at zero therefore. At the retail layer we have a called party pays layer. At the wholesale layer we have a mobile network party pays. We did get a problem with arbitrage so we did get involved here (No explanation on what the problem was and how they did it)

Saudi Arabia: I would like to see more comparisons between nations. We need to know whether we should regulate or not. The question is when we can get rid of MTR. It is only when we have a mature market, with a fair spread of customers and traffic between networks.

Andorra: In our region the market is very mature. We should look at how many users there are and how they are using it. We  have a mature market. We should get rid of regulation of MTR;s and leave it to the market. If we regulate MTR’s we might see operators loosing interest in the pre-paid market.

Singapore: I belief that MTR rates are part of a big Mosaic. What we have done is create a highly competitive market. It is ruthlessly competitive. Maybe HongKong is more competitive. It is not just MTR’s. We have also prevented the use of SIM-Locks. These came on the market with the iPhone. We think that the services and handset market should be separate. We have repeatedly said no. Before the iPhone came on the market we warned the operators we wouldn’t allow SIM-locks. We now have an extremely vibrant market. When the third marketplayer came in the market. This guy was certifiably mad. He started to give away free incoming calls. His marketshare rose to 15%. Than the other two did the same and this madman again did something. He started with free international calls to seven nations.

We now have 6 pure VoIP play. The mobile players didn’t want to interconnect with them. They didn’t even answer a phonecall. In the end we put them in a room and got them discussion going. By 2007 we had worked out something.

Mod: What do you think of next generation networks

Andorra: We only have one operator. In our case we are unsure about NGN. We don’t have a peering point in Andorra. We assume that the costs will be the same because we will pay more on transit.

Saudi Arabia: In my opinion we are all going to review the existing systems and regulations. We think the existing system can’t be maintained.

Singapore: We are almost finished with our national broadband network. We are finished with all the interconnection stuff. It is all an open interconnection framework. We have based open access. We now have to mesh that with the traditional models. We are bringing three models into one, the new NGN, the old internet and the mobile network.

Gentleman from Africa: We didn’t have MTR’s between mobile operators and we did have fixed mobile termination termination at 0.30 US dollar. We are now regulating them and they fell 0.15 US dollar. Most mobile operators are not necessary even though  they are 0.09 USD now.

Lebanon: in Lebanon we have a kind of Bill and Keep regime between fixed and mobile. (than he quotes some of my paper and its statements, which you can find online. Much thanks for that!)

Mod: in the EC we are currently discussing this. We are discussing how we are going to get to Bill and Keep.

Question asked on termination rate to Wimax. Nobody comes up with a good answer it seems.

African nation asked what should be done when operators don’t want to negotiate a termining rate.

Singapore answers that they will revoke the license of the party not willing to interconnect.

African Nation answers that the impact will be much larger than if they let it continue. Singapore answers that they give fair warning. This is also a signal to the customers to leave the  network or other ways they are in trouble. This is enough to push telco’s in the right direction.

Saudi: We give parties 60 days to agree and if they don’t we set the prices for them.

North African nation. We had two mobile networks. When the third one came into the market we noticed that the two started an interconnection regime that favors big parties from small ones. Than we noticed that onnet charges were lower than off-net charges. Than we put the termination charge at 65% of the on-net charge.

Himalayan nation: To Singapore, is it fair to have a termination rate at zero. Isn’t it harsh to those parties. Because to terminate a call some resources are used.  I would like your opinion.

Moderator: Thanks audience and forgets to ask Singapore to answer the question. 
Later Singapore answered that the telco's do get their money, but from their own customers. Not from someone elses customers

The Future of Interconnection, or why we continue to pay for Voice

My second presentation at Emerging Communications Europe 2009 (Ecomm2009). The outline is: One would expect that because of the rise of data we wouldn’t have to pay for voice anymore, this won’t happen because:

• With data overtaking voice even on mobile networks, one would expect that soon we don’t pay for voice anymore
• We accept paying by the minute because voice is highly valued and it is a familiar way of billing
• The way voice interconnection is paid for in Europe is the reason we are stuck with paying by the minute
• Only when the current interconnection model is removed will voice be ‘free’

The Future of Interconnection, why you will continue to pay for Voice

View more presentations from Raindeer.

Mobile termination in non CPP countries

As I only discovered two days ago, Ofcom is busy with a consultation on the future of mobile termination charges.http://www.ofcom.org.uk/consult/condocs/mobilecallterm/

On the site you can find a report by Analysys Mason that describes the situation with regards to mobile termination tariffs in Canada, HongKong, Singapore and the USA. http://www.ofcom.org.uk/consult/condocs/mobilecallterm/annex8_1.pdf
One of the interesting conclusions is, that for elements like penetration it doesn't really seem to matter which tariff scheme is used, but it does affect the usage of mobile telephony.

Also have a look at Sri Lanka, the only country to have decided to go to CPP, but decided not to after a wave of protest in the country on the issue. http://www.trc.gov.lk/images/pdf/cppeng.pdf their approved retail tariffs are interesting to look at too. http://www.trc.gov.lk/press-room/approved-tariffs/91-sri-lanka-telecom-plc.html

(Mobile) termination rates may end your career

I have been quite critical on "termination charges". One reaction I received to my previous post via e-mail was quite eye-opening.

I have a friend, he was a member of the board of the regulator in XXXX. He ‘was’ because next day after regulator presented decision to lower MTRs, parliament (instead approving this decision) voted to change the CEO and the board. He was a member of dispute resolution commission. While resolving an ordinary dispute one of the sides started to influence him. Finally some people were trying to shut him. That’s more or less realistic picture of regulatory environment in developing country.

As a Dutchman I don't know what corruption is. It doesn't really exist here as far as I know. Maybe I'm blind, but we're doing pretty well according to Transparency International and World Audit Corruption. However, most countries are fighting a 2 TRILLION dollar industry (services (fixed and mobile)and equipment), when they want to change the rules to make sure that their country benefits from (mobile) telecommunications. To see some recent examples look for instance to these postings by Steve Song about telecoms in Africa, or at Russia aiming to ban foreign VoIP. Benefiting often means more for the same money, or more for less money and this is perceived as a loss by the local telecommunications companies.

You know, it's an increase in telecommunications usage that benefits economies, not an increase in telecommunications revenues, but that is awfully easy to say from the Northern bit of Europe

Low (mobile) termination costs are good for the poor

I've been interested in mobile termination rates for quite a while and I've blogged about it previously. In recent days I've been looking at it again for a variety of reasons and I found some new data, which might are interesting in the debate and that show that low termination rates or no termination rates are beneficial to poor people and to competition in general. I also read this article by Emma Buckland or Analysys Mason, who claims that in developing countries, where almost all mobile users are prepaid, a move to MPP would be even less popular.
But first, what was it all about again.

In most countries in the world, if you call a telephone number, your network will pay some money to the receiving network for the termination of the call. This system is called, Calling Party Pays. The effect is that in those countries the receiving of calls is free. The amount that needs to be paid (termination rate) is often determined by the regulator. If the market would set it, it would result in termination monopolies and as Orange in the The Netherlands once showed, you can raise termination costs without affecting incoming call levels, so it's essentially free money. The height of the termination rate is very contentious. Even more so because many regulators have deemed it right that some networks should receive more than others (asymmetric). Incumbents less than new entrants and mobile more than VoIP and fixed lines. Termination rates can be anywhere between $0.004 cents per minute (India) to $0.20 cents per minute (calling a mobile in Bulgaria). For a nice overview of the EU, see these graphs of the ERG.

There are a few countries that have a system that is known either as Bill and Keep or Receiving Party Pays or Mobile Party Pays. The way this is generally implemented is that the networks of the calling parties do not pay each other at all for the traffic terminated on the other's network. (I don't know of any country that has implemented a system that works like a collect call, where the receiving parties network pays back to the originating parties network) Countries that have this model are the USA, Canada, Sri Lanka, Singapore. There isn't one effect of this model, as in the USA you buy a bucket of minutes and whether it's an incoming or an outgoing call, your bucket is emptied) but in Singapore and Sri Lanka incoming calls are free.

There are many countries who have moved away from this model to CPP (like France and China). Sri Lanka had decided to move to CPP, but reversed that decision after an uproar in the country. So you would expect CPP be better for competition, better for consumers etc. And this is argued by the GSMA. And well, that just isn't true. The exact opposite is the case. Scott Marcus wrote a good comparison of CPP vs Bill and Keep and pointed to the larger amount of minutes of use in BAK countries.


One of the problems with the comparisons between BAK and CPP however is that they are often written in a black and white fashion. The main argument against BAK is that you would have to pay for incoming calls, that no user would/should accept this. Often the argument is used that it is bad for low usage and pre-paid customers as in CPP the operator gets income from their incoming calls too. What isn't done however is to make a comparison between countries with a high termination rate and a low termination rate in CPP countries. It is here that you can see some very interesting developments.

India is the ultimate country when it comes to low termination rates. They are at 20 paise per minute or $0.004/minute. Idea Cellular there reports around 400 minutes of use and an ARPU of $5.70. Interestingly they see a decline in average minutes of use, because of more multi-SIM customers. So an average customer may use more minutes, but on various SIM's. Almost all of these customers are on pre-paid subscriptions. Now contrast this to some other countries in the world.

Telenor in it's quarterly reports gives a good insight into the minutes of use for all of it's countries.
Pakistan has termination rates set at $0.013 per minute.  For Pakistan they give 150 minutes of use on average.

Thailand's termination rates are at around $0.02 per minute. In Thailand there are on average 300 minutes of use.
In Bangladesh the termination rate is at $0.0026 per minute and the Grameen Phone customers call 300 minutes of use.
All three countries aren't rich, but have mobile penetration rates of 30% or more and compound average growth rates of over 50 %, which means that with 2 years they will be above 60% market penetration. 

Now compare this to Telenor's European operations, neither Norway, Denmark or Sweden reach more than 250 minutes of use. Serbia gets 100 minutes of use. What are the termination rates in these countries?
Norway - between $0.08 and $0.14 and 250 mins of use
Denmark - between $0.10 and $0.14 and 200 mins of use
Sweden - $0.06 and 220 mins of use

So the poorer countries in this example have more minutes of use and a lower termination rate. Given the CAGR in the poor countries it can't be said that they don't see an uptake of mobile phone usage. Despite even the fact that in these countries most people use pre-paid mobiles.  All in all to me this implies that there is much to say in favour of decreasing mobile termination rates and maybe to abolish them all together. Also I would expect that developing nations would be in favour of such a move as it becomes clear that the nations with the lowest termination charge are the one's with the highes minutes of use.

Mobile telco's fail against Reding on mobile termination

Quite a bit on Mobile Termination fees in the news today . In the EU big Mobileco’s made a last ditch effort to persuade ms. Reding and mr. Barosso not to cut rates. In India new entrants asked the government to abolish mobile termination rates all together. India is a great example for the EU, on the effects of cutting mobile termination rates. In the EU the average mobile termination rate is 8.7 euro cent (and as high as 15.09 cent in Bulgaria) In India there is a proposal on the table to bring down mobile termination from 0.48 euro cent a minute to 0.16 euro cent per minute (or 1% of what the Bulgarians pay). Small operators of mobile networks even call for the full abolishment of termination charges. Meanwhile mobile usage in India has increased from '326 minutes per subscriber per month in October 2003 to 464 at present'. That's 2 times more than in the EU!

BTW the mobileco's are scaremongering when they say that their revenues will drop. What is most likely to happen when termination rates drop in the EU, is that the net outpayment from fixed lines to mobile lines will drop dramatically, saving users of fixed lines (old people and companies) a bundle. The ARPU's of mobileco's don't need to drop down dramatically as they can offer more minutes of use in bundles that cost about the same as current bundles. In the US and Singapore mobile termination fees don't exist and ARPU's are comparable or above those of the EU. ($29-46 in Singapore and $52 for T-mobile USA). Minutes of use in both countries is way higher than in the EU.

Now we'll have to wait until the negotiators of the T-mobile Germany, Vodafone UK, Telefonica and Orange France have frustrated the discussion in the European Council with the Commission enough

Mobile Terminating Access tariffs to go to 1 cent in 2012

08-05-2007 The presentations of the Encore workshop are available. They all argue forcibly in favor of diminishing or abolishing MTA-tariffs. For those of you who want to know about Peering and Transit as the alternative model, see my draft explanation.

Reuters last week reported that the EU will dramatically cut Mobile Terminating Access to a level of 1-2 cent per minute. " "The logic of the recommendation would be that by 2012 the incentive for keeping fixed termination rates and mobile termination rates would go," the Commission official said." I had missed this, but today this was confirmed at a workshop organised by Encore in The Hague. An official working for one of the EU regulators said 1-1.5 cents would be the goal of the Commission.

There is a great deal of logic behind this number. Currently the termination rates vary from 2 cents in Cyprus to 16 cents in Italy. Many countries are now forcing rates down to about 6 or 6 cents. Which is still well above cost according to ARCEP who are of the opinion that current costs are 3-4 cents and 2.5 cents is what their models predict the cost will be in 2010. So cost can come down dramatically without dropping below costs in the current Long Range Incremental Costs models.

The Commission wants to be forceful and will therefore not shy away from a statement. It cannot state a number that regulators already envisage. The start for the Commission will be the current MTA-tariff of Cyprus. It will not follow the gradual glidepaths of regulators. It doesn't want 2.5 cents by 2020, but it will want it next year or the year after. Bij 2012 this will need to be at 1 cent, as this is where mobile to fixed and fixed-fixed MTA-tariffs are at. Anything higher is not a proper statement.

The Commission can do this because there is no proper controlling force of the Commission. A recommendation will work as a regulation in the work of most regulators. If the regulator comes to the Commission with a higher MTA-tariff, the Commission will refer to its recommendation and the MTA-tariff of 2.5 cents. It will then start the serious doubts procedure, causing all sorts of political trouble for the national regulator while making the Commission look all harmonizing and consumerfriendly. So this is a lose-lose situation for the national regulator.

The Commission may have won part of the roaming battle, but it didn't succeed fully, because it wanted a directive and therefore had to agree to some changes in order to get the support from Vodafone.... I mean the UK. By doing a Recommendation the Commission may save itself the trouble of listening to the operators (countries) protest in all kinds of EU Council meetings. The Commission will look benign and any regulator not following the guidelines will look incompetent.

I don't belief the Commission will force Bill and Keep on the market. It will hope that by bringing the MTA-tariff's to the same level as fixed-fixed the market itself will choose to abolish MTA's all together.

Operators down on Mobile terminating fees fear

Bloomberg is reporting that stocks in Vodafone, Telefonica, Portugal Telecom, and Deutsche Telekom dropped sharply yesterday. Morgan Stanley has written a report warning that the EU may sharply drop Mobile Termination Rates. If this would happen, than it would open up the market to price competition and would seriously reduce the income gathered from incoming calls from fixed networks. Morgan Stanley sees drops to €0.025, in line with a presentation from ARCEP.

In my opinion there is also a serious possibility that the EU will advice to equalize termination fees from mobile-mobile and fixed-mobile to the same level as mobile-fixed and fixed-fixed. For The Netherlands this may mean a reduction of 80% all the way down to 1 cent per minute. This may not be in the very short run, but in the longer run.

Mobile operators would be wise to oppose any cut in termination rates as it would seriously impact their business. Not only would less money flow in, but it would also mean that there is no force stabilizing prices in the sector anymore. No competitor will price under the termination rate at the moment as this might mean that the customer becomes a bleeder. When termination rates drop to 1 cent, operators may just offer unlimited calling plans, like in the fixed line world. This leads to price competition and the erosion of margins.

Regulators are seriously looking into providing symmetry between Fixed Terminating Rates and Mobile Terminating rates. The ERG has had a draft common position online suggesting as much. In India termination fees are already symmetrical between fixed and mobile networks and growth doesn't seem to be a problem with 8 million new subscribers per month.

One thing that amazed me is that there is no mention of abolishing termination fees altogether in the ERG draft common position. This sounds rather novel, but is common practice in the internet world, where it is known as peering and transit and also in the United States and Singapore. The European Commission has a report out on this subject written by WIK consulting. It would allow regulators to step back from the market and not have to regulate it anymore at all, just like the case is in the internet world.

One benefit of sticking to termination fees, but dropping them sharply by equalizing them is that it takes away the "paying for incoming calls"- argument by the mobile telco's. They have consistently argued that abolishing terminating rates would require them to charge the subscriber for both incoming and outgoing calls, something customers fear (justly with todays prices in the EU). With a termination fee of 1 cent this argument wouldn't hold as strong.

To find some info look at my previous rant and posting the subject. Also have a look at the Encore Workshop on April 22nd in Amsterdam on the subject, where Carlo Cambine, Stephen Littlechild and Scott Marcus will speak. I plan to attend the session too.