1. ITU workshop on
International Roaming and
International Traffic Termination
Session 12: International Traffic
Termination
Bangkok
5-8 October, 2010
David Rogerson International
Telecommunication
Union 1
October 2010
2. Agenda
Why is international termination different?
Why is there a regulatory problem?
Stakeholder viewpoints
Operators
Governments
National regulators
Approaches to regulation
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3. Why is international
termination different?
International
Telecommunication
Union 3
October 2010
4. International traffic termination
International traffic termination allows
subscribers in one country to receive calls
from subscribers in other countries.
International traffic termination applies to
both fixed and mobile termination …
although different charges may apply.
For the purpose of this presentation we focus
on voice traffic but termination can also
apply to text (SMS) and switched data
services.
4
5. Typical call scenario
3. International
1. Caller pays operator in Country X
retail IDD rate for pays termination rate in
call to Country Y Country X
Y X
National
Switch (NS) NS
Int’l IGW
Gateway (IGW) 2. Operator from
Country Y pays Int’l
Settlement Rate to
partner in Country X
6. The system is symmetrical
3. International
operator in 1. Caller pays
Country Y pays retail IDD rate for
termination rate call to Country X
in Country Y
Y X
NS NS
IGW IGW
2. Operator from
Country X pays Int’l
Settlement Rate to
partner in Country Y
7. Key principles of Int’l Accounting Rates
Developed at a time of national monopolies
and before mobile networks were established
Initial settlement rates were (at best) loosely
based on costs
They have failed to keep up with cost reductions
caused by technology improvements and
competition
Although the system appears symmetrical
the money flows are from developed to
developing countries:
Most traffic originates from rich countries
High settlement rates favour the recipient
countries
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8. Simple example: calls between two
monopolies in Countries X and Y
Call type IDD rate Settlement Revenue Revenue
rate Operator Operator
X Y
From X to Y 22cpm 15cpm 7cpm 15cpm
From Y to X 20cpm 15cpm 15cpm 5cpm
Note:
• Reciprocal settlement rate which covers costs and margin
• Reciprocity usual but not necessary
• Each operator controls profitability by setting IDD rates
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9. Complication: competition lowers prices
in country Y
Call type IDD rate Settlement Revenue Revenue
rate Operator Operator
X Y
From X to Y 22cpm 15cpm 7cpm 15cpm
From Y to X 16cpm 15cpm 15cpm 1cpm
Note:
• Margins squeezed for operators in Country Y
• Lower IDD prices increases the % of outbound traffic from
Y to X, exacerbating the loss of margin
• Country Y wants to reduce settlement rates.
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10. Pressure to reduce Int’l Accounting Rates
Developed countries, where competition
increased fastest and costs fell fastest,
wanted to lower settlement rates to protect
operator profits
The FCC in the 1990s imposed benchmarks
on US carriers: rates above which they were
prohibited from settling international
payments.
Developing countries saw inbound
international calls as an important source of
revenue and resisted the tide to lower
settlement rates.
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11. Complication: differential mobile
termination rates make some calls
unprofitable
Call type Settlement Termination Revenue for
rate rate int’l
operator
Inbound call 10cpm 2cpm 8cpm
to fixed
Inbound call 10cpm 12cpm -2cpm
to mobile
Note:
• Affects countries where calling party pays is the norm for
all calls (e.g. Europe)
• Not an issue for countries where mobile party pays to
receive calls (e.g. USA)
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12. How to deal with international calls to
mobile (in CPP countries)
The mobile operator could accepts a lower
termination rate for international calls
But this encourages refile, where national calls are
presented as if international, so as to obtain lower
termination rate.
Early revenue sharing schemes in Europe were
abandoned as a result
Differential settlement rates, higher for
mobile than for fixed
May allow all calls to be profitable, but increases
complexity especially between RPP and CPP
countries
Sustainability requires rapid reduction in mobile
termination rates.
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13. Example of reciprocal, differentiated
settlement rates
Mobile settlement = 10cpm
US EU
Fixed settlement = 2cpm
Unified settlement = 6cpm
Assumes 50/50 traffic split. Would need to be renegotiated if significantly different in practice.
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14. Why is there a regulatory
problem with international
termination?
International
Telecommunication
Union 14
October 2010
15. National regulatory objectives
The NRA is charged with looking after the
national economic interests
Will lower settlement rates be in the national
interests?
Consumers will benefit from lower international
calling charges
Operators and Government may prefer the higher
rates that brings in hard currency and can fund
investment.
Where the balance of traffic is heavily in
favour of inbound international calls, it is
hard to regulate settlement rates down.
The benefits of cost-based settlement rates will
largely be experienced by consumers in other
countries.
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16. Lack of regulatory independence: government
objectives may trump regulator’s objectives
Government’s objectives
Regulator’s objectives
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22. Approach 1: Hold back the tide
Maintain high settlement rates as
long as possible
Requires monopoly / government
control of international gateway
VoIP should be banned to limit
bypass
Hard to sustain in the face of
international pressure, trade
agreements, technology change etc
23. Example - monopoly international gateway
IGW Provider
10cpm (Fixed)
(incumbent)
18cpm (Mobile 1)
21cpm (Mobile 2) 15cpm
Mobile 1
18cpm
Mobile 2
7cpm
Fixed 2
Numbers are indicative.
Each operator sets its
own termination rates.
International Country X
24. Approach 2: Controlled evolution
Accept that international settlement
rates are going to fall towards cost-
based levels but seek a gradual
change
Various methods of achieving this
e.g:
Prohibition on transit traffic
Regulated glidepath
25. Example - Prohibition on transit traffic
IGW Provider
10cpm (Fixed)
(incumbent)
18cpm (Mobile 1)
21cpm (Mobile 2)
15cpm
Mobile 1
18cpm
Mobile 2
7cpm
Fixed 2
Numbers are indicative.
Only larger operators can
negotiate direct
International Country X international connectivity
26. Example – regulated glide-path
National termination rates
much below international X
IGW-POI transit costs close National
8cpm
to zero POI
Glide-path removes
14cpm
difference over several years
IGW
International termination rates as at 1 January
14
12
US cents per minute
10
14
8 12
10
6 8
4
2
0
2010 2011 2012 2013
27. Approach 3: Let the market decide
Introduce competition in
national and international
services
Allow transit of incoming
international calls
Charges for terminating
international calls are gradually
reduced to similar level to
national call termination.
28. Liberalised international traffic
Any operator can enter this market so long as it
can negotiate an agreement with an
international partner
The ability to handle traffic destined for another
network potentially allows smaller operators to
achieve sufficient scale to enter this market
Margins are competed away because of the
transit capability
High price elasticity of demand – international
operators will switch traffic in bulk between
national termination partners based on small
price differentials.
29. Liberalised market outcomes - initial
IGW provider
6cpm (Fixed) 3cpm
10cpm (Mobile)
3cpm 3cpm 7cpm
6cpm (Fixed)
Mobile 1
10cpm
(Mobile)
7cpm
6cpm (Fixed) Mobile 2
10cpm
3cpm
(Mobile)
Fixed 2
6cpm (Fixed) Numbers are indicative.
10cpm (Mobile) Termination rates are the
same as for national calls.
Transit operator retains a
International Country X small margin.
30. Liberalised market outcomes – long term
IGW provider
1.5cpm 1cpm
1cpm 1cpm 1cpm
1.5cpm
Mobile 1
1cpm
1.5cpm Mobile 2
1cpm
Fixed 2
1.5cpm Numbers are indicative.
Termination rates are the
same as for national calls.
Transit operator retains a
International Country X small margin.
32. Thank you.
In the final session we will look at a
case study with role play on
international traffic termination
International
Telecommunication
Union 32
October 2010
