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Pricing strategies for an incumbent operator:Part B: Mobile: Pricing strategies for an incumbent operator: Part B: Mobile 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 by e-mail at Tim.Kelly@itu.int Dr Tim Kelly, ITU “Workshop on Trends in Regional Telecom Prices in Asia-Pacific” Bangkok, 11-15 Sept 2000

Slide2: Pricing mobile services: Agenda A Mobile Revolution Worldwide and in the sub-region Pricing Mobile Options Price comparisons and trends Price trends Average Revenue Per User (ARPU) Fixed-Mobile Interconnect A Mobile Future

Slide3: A Mobile Revolution Source: ITU World Telecommunication Indicators Database. 0 200 400 600 800 1'000 1'200 1'400 1993 1995 1997 1999 2001 2003 Mobile Users Fixed Lines Fixed Lines vs. Mobile Users, worldwide, Million

Slide4: Mobile subscribers per 100 inhabitants Year-end 1999 Sub-region Source: ITU World Telecommunication Indicators Database. 11.09 4.21 3.42 3.00 1.42 1.06 0.81 0.33 0.16 Malaysia Thailand China Philippines Sri Lanka Indonesia Cambodia Viet Nam Lao P.D.R.

Slide5: Mobile subscribers as % of total telephone subscribers Year-end 1999 Sub-region Source: ITU World Telecommunication Indicators Database. 76.3% 42.4% 35.3% 32.9% 28.5% 26.8% 24.8% 19.7% 9.4% Cambodia Philippines Malaysia Thailand China Indonesia Sri Lanka Lao P.D.R. Viet Nam

The secret of mobile success: The secret of mobile success Why is mobile currently growing ten times faster (~55% p.a.) worldwide than fixed lines networks (~5.5% p.a.)? Why is the average mobile user much younger than the average fixed-line user? Why do users make calls using a mobilephone even when a fixed-line telephone is available and cheaper? What is the secret of the success of mobile? Price Options

Slide7: A selection of price options From Orange (UK) Source: http://www.uk.orange.net/kit/index.html.

Slide8: Pricing Mobile Note: Price basket based on monthly subscription plus 50 mins peak and 50 mins off-peak use. Source: ITU World Telecommunication Indicators Database. $37.00 $27.71 $21.02 $19.55 $19.34 $17.80 $16.26 $10.87 $9.74 Cambodia Viet Nam Malaysia Lao P.D.R. Thailand Sri Lanka Philippines China Indonesia Price of 100 minutes per month mobile usage, in US$

Declining prices for mobile access, global average, in US$, 1992-98: Declining prices for mobile access, global average, in US$, 1992-98 Note: CAGR = Compound Annual Growth rate. Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

Average revenue per user (ARPU)Bell Mobility (Canada): Average revenue per user (ARPU) Bell Mobility (Canada) 0 20 40 60 80 100 120 90 91 92 93 94 95 96 97 98 0 200 400 600 800 1'000 1'200 1'400 1'600 Subscribers ('000s) Revenue per sub/month Cost per sub/month Subscribers Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

Slide11: Cultivate the high-spenders Source: Price Waterhouse Coopers, based on Canadian data.

Mobile ARPU converging with Fixed-line ARPU, Japan (Yen ‘000s p.a.): Mobile ARPU converging with Fixed-line ARPU, Japan (Yen ‘000s p.a.) 0 50 100 150 200 250 300 1990 1991 1992 1993 1994 1995 1996 1997 Mobile ARPU Fixed-line ARPU Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

Pricing mobile and fixed:Monthly subscription charges (US$): Pricing mobile and fixed: Monthly subscription charges (US$) 0 5 10 15 20 25 Malaysia Indonesia Cambodia Thailand HK Sar Sri Lanka Residential fixed-line Digital cellular 3.0 2.4 1.1 5.0 1.7 5.0 Ratio: Cellular/fixed

Slide14: 0.0 0.2 0.4 0.6 0.8 1.0 HK Sar Sri Lanka Cambodia Malaysia Thailand Indonesia Residential fixed-line Digital cellular 18.2 6.7 10.0 3.0 7.5 Ratio: Cellular/fixed 0 n.a. Pricing mobile and fixed: Price of 3 minute local calls (US$)

Fixed-Mobile Interconnection: Fixed-Mobile Interconnection Interconnect prices are a major determinant of retail prices Evidence of “market failure” Interconnect prices are variable but generally very high In Calling Party-Pays environments, caller may not be aware of the charge they will be paying Calling party does not have a choice of operator to terminate the call Fixed-to-mobile and mobile-to-fixed highly asymmetric By 2005, 75% of all calls worldwide will involve a mobile

Calling opportunities worldwide: Calling opportunities worldwide 89.7% 5.0% 5.0% 0.3% 1993 52.7% 19.9% 19.9% 7.5% 1998 23.4% 25.0% 25.0% 26.7% 2003 Fixed-to- fixed Fixed-to- mobile Mobile-to- fixed Mobile-to- mobile Source: ITU Fixed-Mobile Interconnect website: http://www.itu.int/interconnect

Fixed/Mobile interconnect rates in selected calling-party-pays countries: Fixed/Mobile interconnect rates in selected calling-party-pays countries 0.293 0.208 0.205 0.078 0.070 0.064 0.047 0.034 0.017 0.293 0.052 0.051 0.042 0.050 0.026 0.047 0.034 0.017 Antigua Botswana Philippines Dom. Rep. Cambodia Mexico Guatemala Malaysia Costa Rica Mobile-to-fixed interconnect rate Fixed-to-mobile interconnect rate Source: ITU.

Slide18: A mobile future Source: 1990-1998 data from ITU World Telecommunication Indicators Database. 1999-2010 ITU projections. Mobile has overtaken fixed-lines in Cambodia, Finland, Italy, Korea Mobile subscribers to overtake fixed-line worldwide before 2005? Mobile revenue to overtake fixed-line after 2004? Fastest growth in developing countries Actual and projected subscriber growth, fixed-lines and mobile, millions, 1990-2010 0 500 1'000 1'500 2'000 1990 2000 2010 Fixed Mobile

The race for 3rd Generation mobiles: IMT-2000: The race for 3rd Generation mobiles: IMT-2000 0 32 64 9.6 128 144 384 2,000 1G 2G 3G Voice Voice Text Messaging Text Messaging Video Streaming Video Streaming Still Still Imaging Imaging Audio Streaming Audio Streaming Data Transmission Speed - kbit/s JPEG Still Photos E-Commerce Time Source: Adapted from Motorola.

Slide20: For more information ... Publication launch: 10 October 1999 (TELECOM ‘99) Available on paper and online (PDF format) World Telecom Indicators Database available online Website: http://www.itu.int/ti Other reports launched at TELECOM ‘99 Direction of Traffic 1999: Trading Telecom Minutes Trends in Telecom Reform 1999: Convergence Internet for Development (updated with latest data)