Africa Internet Summit AFRINET 2000 Abuja, Nigeria, Sept. 1821, 2000

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Africa Internet Summit AFRINET 2000 Abuja,
Nigeria, Sept. 18-21, 2000

• Accounting Rates Settlement Traffic Bypass
  Impact on Providing Access to the Internet For
  Phone Calls
• Presented by
• Yaw Osei Amoako, Ph.D.
• ITXC Corporation
• Regional Director - Africa

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Agenda

• Accounting Rate Settlements System
• Definition, Components, Importance Crisis
• Internet Telephony
• What, Why, How Constraints?
• History, growth, implications and opportunities
• ITXC Corporation - The Talk of the Internet
• Background, History Global Footprint
• What ITXC can offer to African Public
  Telecommunication Operators (PTOs)
• Basic requirements for potential terminator
  originator
• What is SNARC?
• Next Step
• How does a PTO becomes an Affiliate?

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Accounting Rate System - What is it?

• It is based on dual price system.
• For each call, one price (the collection charge)
  is charged to users by the originating Public
  Telecommunication Operator (PTO).
• A second price is agreed by the terminating PTO
  and the originating PTO (the accounting rate).
• If there is an imbalance in the volume of
  incoming and outgoing traffic, then the
  originating PTO which generates more traffic pays
  for the difference to compensate the terminating
  PTO (the net settlement payment). (ITU
  Definition)

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Accounting Rate System- The Three Components

• The Collection Rate Rate charged by an operator
  to its customers. i.e. 1.00 per minute.
• The Accounting Rate Rate agreed between the
  originating country and the destination country.
  i.e. 0.60 per minute
• The Settlement Rate Is the proportion of the
  accounting rate that determines the actual
  payment between countries. Half of the
  accounting rate. i.e. 0.30 per minute

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Accounting Rate System -Disproportionately
Importance of the Revenue It Provides to Africa
PTOs

• Many countries have limited access to credit and
  tend to pay higher interest rates than developed
  countries. Foreign exchange earnings from
  International Settlements help solve the problem
  of needed funds.
• Equipment is often more expensive when ordered by
  African PTOs and often have to pay in advance
  for equipment and to lease access to undersea
  cable and satellite systems.

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Accounting Rate System - Disproportionately
Importance of the Revenue It Provides to Africa
PTOs

• Lack of direct routes result in high payment of
  transit charges to developed countries PTOs.
• African PTOs receive a surplus or monopoly
  profit of settlement rate from PTOs in developed
  countries. Providing access to most people in
  Africa is uneconomic people are either too poor
  or live in too remote regions to enable PTOs to
  recoup costs. International revenues subsidize
  services to these people and can keep domestic
  prices down.

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Whats happening to Africa PTOs Main Source of
RevenueAccounting Rate System?
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A system in crisis the Accounting Rate

• The Accounting Rate System is near collapse
  because
• Was based on monopoly providers in different
  countries dealing with one another bilaterally.
• Increasingly being undermined by technology
  Internet Telephony, Callback, etc.
• Market forces unleashed by the entry of
  competition.
• Lack of network development due to
• inadequate investment,
• inappropriate pricing policies,
• monopolistic industry structures and the absence
  of clear and effective regulation.
• Liberalization of telecommunications,
  particularly the 1997 WTO Basic
  Telecommunications Agreement.

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What will happen after the collapse?

• Low telephone penetration
• Unsatisfactory market structures
• Lack of diversity in revenue sources
• High prices to users
• Economically inefficient pricing
• Uncompetitive services
• More monopoly providers (whether State or
  privately-owned)
• Inadequate regulation or complete absence of
  explicit structured regulatory rules

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How To Adapt Successfully To The New Environment
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What Choices do African PTOs Have?

• Shared costs (circuits) rather than shared
  revenues.
• SKA/BAK Sender keeps all/Bill and keep
• Interconnection charges
• Facilities-based (e.g. Mobile/Telephone)
• Volume-based (Internet peer-to-peer arrangements)
  
• New Modes of Operation (Toll Bypass)
• Movement of traffic outside the accounting rate
  system, such as Refile, Hubbing Reorigination
  and Internet Telephony or Voice over the
  Internet.

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Where can revenue be raised easily quickly to
fund the provision of telecommunications to
rural and poorer populations?
The Answer Is INTERNET TELEPHONY or VoIP
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What is Internet Telephony or VoIP?

• Is the transmission of voice signals over
  packet-switched IP-based networks. There are two
  main subsets
• Internet Telephony using the public Internet
• Voice over IP using private, managed IP-based
  networks, in addition to the Public Internet..

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Why Internet Telephony?

• IP uses the available capacity in a more
  technically efficient manner.
• PSTN call occupies a duplex (2-way) circuit for
  the entire duration of the call, including the
  pauses between words or between replies.
• PSTN is optimized for voice transmission sampled
  in 8 bit bytes, 8,000 times a second, for an
  aggregate rate of 64 kbit/s.
• IP call could theoretically be routed over
  different circuits, each of which would be
  occupied for a few thousandths of a second at a
  time, as packets are routed across the network to
  be reassembled at the distant end.
• Technically efficient network provides greater
  capacity utilization for IP calls.
• IP is engineered to meet average loads, and the
  typical utilization over an extended time period
  is around 60-70 of network capacity and with
  built in redundancy, calls do not fail.
• PSTN is engineered to meet the business peak hour
  and thus network components are in use for,
  perhaps, less than 20 of time. Overloaded PSTN
  cause call attempts to fail.
• Internet Telephony has the potential to
  significantly reduce the cost of long distance
  voice communication

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Birth Of A New Communications Network

• The Old Way
• Converts sound into electrical signals and shoots
  them across a copper network. Its simple and
  works well, but its expensive. The switches
  that direct traffic across the network cost
  million of dollars. And each call uses an entire
  circuit. Thats like every car on the highway
  getting its own lane. The result Switched
  Long-distance calls cost more per minute compared
  to IP calls per minute.

• The New Way
• Internet technology is much cheaper than
  traditional phone gear. Thats because its
  digital routers, which direct traffic on the Net,
  cost tens of thousands of dollars, not millions.
  Whats more, each piece of data shares a line
  with data from other calls, just as cars share a
  highway lane. Parts of the same conversation
  often travel different paths, taking whatever
  route is available. The result Long-distance IP
  calls cost less compared to switched calls.

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Constraints to Internet Telephony

• Quality of Service (QoS)
• Improved quality with transition to private,
  managed networks (Tier 1 Carrier, such as ITXC)
  rather than use of public Internet (Internet
  Telephony)
• Bandwidth
• Getting better with new trans-Atlantic Satellite
  and Undersea Cables
• In Africa, bandwidth shortage is still a problem
• Regulatory prohibition
• African Regulators are liberalizing some form of
  IP Telephony, or turning a blind eye

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History of Internet Telephony Grandma To Grandma
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How Internet Telephony Works
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Implications of IP Telephony for African Countries

• Originating Calls
• African countries are much more price sensitive
  and less demanding with regard to service
  quality.
• Low-cost IP telephony will kick-start the growing
  Internet market help justify intra country
  calls.
• Traffic generated is likely to be incremental,
  i.e., it would not necessarily substitute for
  calls that would otherwise have been made
  directly on the PSTN, because they would have
  been too expensive.
• If substitution occurs, it is likely to be
  discounted services, such call-back or prepaid
  services, not necessarily the Telcos core
  business.
• Reduction of Telcos commitments to making
  international settlements payments to foreign
  Telcos.

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Opportunities for Africa PTOs

• Arbitrage
• Revenue defense
• Political
• Encourages greater teledensity
• Value-added IP based services
• Unified messaging
• Internet economics

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Growth of the IndustryProjected Size of Internet
Telephony Industry
Source International Data Corporation
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IP Telephony Revenue Vs. Worldwide
Telecommunications Revenue
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IP Telephony Voice-Enabled E-Commerce Revenue
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ITXCThe Talk of the InternetQuality and
Experience
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ITXC Background

• Internet Telephony eXchange Carrier
• Founded 1997
• Financing from Intel, Chase, VC, VocalTec, ATT
• NASDAQ ITXC (IPO Sept 27, 99)
• International Subsidiary in UK and Singapore.
  Sales office in Beijing.
• Largest Wholesale Internet Telephony carrier by
  footprint, volume
• Tom Evslin Founder, Chairman and CEO
• Founder and VP of ATT WorldNetsm

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ITXC.Net History

• Focused exclusively on wholesale VoIP industry
• Deployed 1000 VOIP gateways on 4 vendor
  platforms
• 10 network wide gateway upgrades in 24 months
• Three supported platforms, Vocaltec, Cisco and
  Clarent
• ITXC.net carries more traffic than any other IP
  telephony network or Clearing House
• Traffic to and from over 60 countries.

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Building at Internet Speed After 24 months
270PoPs 155Cities 60Countries
145Affiliates
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WHAT CAN ITXC DO FOR AN AFRICAN PUBLIC
TELECOMMUNICATION OPERATOR?
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How Can A Telco Profit from Internet Telephony?

• A telephone company can make money in many ways
  using IP technology. Few examples are as
  follows
• Termination
• Experiment with new IP technology without risk
  to their existing customer base, fend off new
  competitors and earn new revenue streams with no
  marketing expense or effort.
• Origination
• Empower customers by offering a choice of
  service levels at different prices to
  price-sensitive residential and business
  customers that might be most vulnerable to a
  telephone company aggressive new competitors,
  such as Call-Back Companies.

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Basic Requirements

• What does it take to become an Ideal Terminator?
• a professional-managed facility to co-locate ITXC
  gateway, called SNARC
• at least, 512Kbps (Supports 2E1s) of high quality
  IP dedicated connectivity, not dialup or shared
• a least, 2E1s (E1 30 Ports) of PSTN
  Connectivity
• experienced technical support available 24 hours
  per day, 7 days per week
• establish an affiliation with ITXC

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Who is an ITXC Originator?

• A PTO WHO
• connects to ITXC.net (ITXC global network)
  switch-to-switch using ITXC loaned Customer
  Premises Equipment, called SNARC, gateways
  co-located in the Telcos facility
• buys international routes from ITXC and uses them
  in its LCR - Least Cost Routing mix
• buys origination may pass on savings to
  customers or keep the increased margin
• buys origination may or may not tell customers
  the call is routed via the Internet - a marketing
  decision

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Estimated Traffic Associated with Internet
Connectivity Dedicated Bandwidth

• 384Kbps (30 Ports) 400,000 Minutes/Month
• 512Kbps (48 Ports) 600,000 Minutes/Month
• 764 Kbps (60 Ports) 800,000 Minutes/Month
• 1Mbps (96 Ports) 1,000,000 Minutes/Month
• Multiply by
• Agreed Termination Rate (0.00)
• Gross Maximum Income/Month 00,000.00)
• Less
• Cost of Bandwidth/Month (00,000.00)
• Net Maximum Income/Month (00,000.00)

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GUESS WHO IS ORIGINATING AND TERMINATING INTERNET
TELEPHONY CALLS TODAY!
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Who is Originating Terminating IP Calls Today?

• Incumbent Telcos
• Ameritech (USA)
• Bell Atlantic (USA)
• Japan Telecom
• Korea Telecom
• China Telecom
• Gambia Telecom
• Telstra
• New Competitive Carriers
• Internet Service Providers (ISPs)
• Cable Companies
• Wireless Companies
• Internet Telephony Service Providers

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SNARC Originating and Terminating Carrier
Traffic
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How does a Telco become an ITXC Termination
Affiliate?

• Review and signing of Non Disclosure Agreement
  (NDA)
• Review and completing a Deployment Provision Form
• Provide IP Connectivity Address or Addresses for
  testing
• Review and signing of Carrier Origination
  Termination (OT) Agreement
• Intense testing and deployment period - DP team
  works with the affiliate to test its Internet
  connections, and PSTN lines and the installation
  of the SNARC
• If the affiliate passes all of the tests and the
  quality of its termination meets the ITXC
  Standards, a certificate is awarded and ITXC
  Sales force will begin to sell minutes to the new
  destination to origination affiliates
• ITXC does the selling, marketing and insulates
  affiliates from debts and pays affiliates
  directly.