Transcript BBEurope_2005

Center for Information and
Communication Technologies
The Cost of Universal Service Obligations in
PSTN and VoIP
For further information: www.viskan.net
Bordeaux, December 12, 2005
Halldor Matthias Sigurdsson ([email protected])
Research Interest
Center for Information and
Communication Technologies

In this paper:

Analysing the current Universal Service
Legislation

How does the transformation from PSTN to
VoIP affect current or future USO

Estimate the cost and extent of Universal
Service Obligations in PSTN
Next Steps:
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Is broadband becoming a commodity which everyone should be entitled to?
Should Universal Service Obligations be extended to include broadband?
Which methods exist to ensure widespread broadband?
What is the cost?
The Cost of Universal Service Oblications
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Context
Center for Information and
Communication Technologies
Center for Information and
Communication Technologies
Danish Technical University
Techno-Economic Studies
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BREAD
http://www.ist-bread.org
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ECOSYS

TONIC

Economic Theory

Laffont and Tirole, 2000

Bijl and Peitz, 2002

M.Cave et al., 2002
http://www.celticinitiative.org/Projects/ECOSYS/default.asp
Regulation and Entry into Telecommunications Markets
Chapter 10, Handbook of Telecommunications Economics
Extending Universal Service
http://www-nrc.nokia.com/tonic/
TETRA
Competition in Telecommunication
http://www.telenor.no/fou/prosjekter/tera/

P.Xavier, 2003

García-Murillo and Mckninght,2005
Should Broadband be part of universal service obligations
Internet Telephony: Effects on the Universal Service
Program in the United States
The Cost of Universal Service Oblications
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Paper Structure
Center for Information and
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PSTN Structure
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VoIP Structure
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Universal Service
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Case Study: Iceland
– Cost Components
– PSTN in rural areas
– Cost Components
– PSTN in rural areas
– Universal Service Obligations
– Universal Service Fund
– Cost simulation model
– Cost of USO in Iceland
Paper is available on-line at:
www.viskan.net/phd/publications.php
The Cost of Universal Service Oblications
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Universal Service
 Universal Service
–
–
–
–
Availability, Accessibility and Affordability
Currently only basic voice telephony
Implemented differently by each member state
Defined in EU’s New Regulatory Framework from 2002
 Universal Service Obligation
– Burden, usually put upon incumbent operator
 Universal Service Fund
– Compensation for fulfilling USO
– Different approaches: UK and US
The Cost of Universal Service Oblications
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Center for Information and
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VoIP & Universal Service
 Literature suggest
– Redistribution through taxation rather than subsidies
[Laffont and Tirole, 2002]
– Inefficiency of USF ($1 raised costs $1.8)
–
[Laffont and Tirole, 2002]
 Effect of VoIP on USF
– García-Murillo and Mckninght simulate that contributions to the fund be
reduced by 45% in the next 15 years, if VoIP operators are exempted for
contributions to the Universal Service Fund
– If VoIP operators are demanded to contribute to the Universal Service Fund,
contributions will increase. But this is not enough to meet the increasing
demands for its services
 Extenstion of Universal Service
– Xavier and now EU concludes that there is no need to introduce new legal
requirements for mobile and high-speed internet services under the EU's
universal service rules at the moment.
The Cost of Universal Service Oblications
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PSTN
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Public Switched Telephone Network

Cost Components

20%
Internal Services
Housing
Switching
46%
Transmission
12%
18%
Local Loop
Remote Subscriber Stages
Local and Transit Exchanges
Transmission System
Control and signalling system
Switching system
The Cost of Universal Service Oblications
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VoIP
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Voice over IP
PSTN
Softswitch / Gateway
CPE
Softswitch
Gateway
ATA
CPE
ATA
Internet
Cost Components


20%
Internal Services
Housing
Switching
46%
Transmission
12%
18%
CPE Customer Premises Equipment
ATA- An Analogue Termination
Adapter
The Internet
The Cost of Universal Service Oblications
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Comparing the two
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PSTN
CPE
Softswitch
Gateway
ATA

CPE
ATA

Internet


Overlay Service
Uses the Internet
Broadband = Urban Service
10 % Penetration
12%
12%
18%
18%
20%
20%
46%
46%
Infrastructure Service
Costly Transmission
USO = Rural Service
90% Penetration
The Cost of Universal Service Oblications
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The Case - Iceland
Center for Information and
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Facts:
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



Status:
Inhabitants: 280.000
Arial: 103.000 km2
70% in capital
92% in towns
2,5 Gb/s fibre ring connecting
all towns
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Not a EU member
Member of EEA
High broadband penetration
128 Kb/s minimum enjoyed
by all (apart from 72 farms)
The Cost of Universal Service Oblications
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Hypothesis
Center for Information and
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Cost pr. user
Cost of remote structures
and operation is distributed
but related to customer
number
The Cost of USO can be
calculated and
aggregated
Reference Level
No. of users pr. location
The Cost of Universal Service Oblications
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Actual Cost
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Remote Structures and Operation
Thousands
Cost pr. Customer
< 500 customers
35
30
25
20
15
10
R2 = 0,7734
5
0
0
50
100
150
200
250
300
350
400
450
500
Number of Customers
The Cost of Universal Service Oblications
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Approach
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2
1
User
3
Program
Remote Structure and Operation
< 500 customers
Subroutines for
constructing reports
VBA
ENGINE
CORE
Microsoft Excel
Database / Spreadsheets
Pareto Analysis of Total
Cost of Operation for
Iceland Telecom (the
incumbent) for 2002
Chapter 4
Problem Analysis
Spreadsheet
Spreadsheet
Spreadsheet
Spreadsheet
Distance Database
Badwidth
allocation
Operational
cost calculations
Feasibility
calculations
Total Cost pr. location
User Interface
Thousands
Algorithms for
Optimisation
VBA Model for cost
components that can be
calculated
The Cost of Universal Service Oblications
2.500
2.000
R2 = 0,5526
1.500
1.000
500
0
0
50
100
150
200
250
300
350
400
450
500
Number of Customers
Regression Analysis for
fixed cost components
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The Cost of USO
Remote Structure and Operation
< 500 customers
< 500 customers
35
30
25
20
15
10
R2 = 0,7734
5
Thousands
Remote Structures and Operation
Total Cost pr. location
2.500
2.000
R2 = 0,5526
1.500
1.000
500
0
0
0
50
100
150
200
250
300
350
400
450
0
500
50
100
150
100
Customers
Termination Points
90
80
50.000
70
40.000
60
50
30.000
40
20.000
30
20
10.000
10
0
0
Town
300
160000
Accumulated number of
cuostmers within group
70.000
City
250
350
400
450
500
Population Sparcity
Accumulated number of
termination points within group
Accumulated number of customers
within group
Level of Urbanisation
60.000
200
Number of Customers
Number of Customers
60
customers
140000
Number of RSS
50
120000
40
100000
80000
30
60000
20
40000
10
20000
0
Accumulated number of
termination points
Thousands
Cost pr. Customer
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0
100
200
Rural
The Cost of Universal Service Oblications
300
400
500
600
700
800
Distance from Capital [Km]
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Conclusion
 VoIP is a disruptive technology, has different cost
structures and greatly reduces barrier to entry
 Difference between PSTN and VoIP
–
–
–
–
Infrastructure vs. Overlay
Costly transmission vs. Internet
Rural vs. Urban
90% penetration vs. 10%
 1,5% of customers require 33% of all locations
 Loss of € 199 pr. non-profitable users requires € 2,96
subsidy pr. PSTN user
The Cost of Universal Service Oblications
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Questions ?
For questions or comments
Please feel free to contact
[email protected]
www.viskan.net
The Cost of Universal Service Oblications
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