Home Africa and the Middle EastAfrica and the Middle East II 2003 The Free Internet Initiative (FII)

The Free Internet Initiative (FII)

by david.nunes
Mohamed El NawawyIssue:Africa and the Middle East II 2003
Article no.:16
Topic:The Free Internet Initiative (FII)
Author:Mohamed El Nawawy
Title:Chairman and Managing Director
Organisation:TE Data
PDF size:120KB

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Article abstract

Egypt’s liberalised telecom sector introduced service-based competition. Instead of freeing prices, the government fixed Internet access at the price of a local call. The incumbent carrier, Telecom Egypt, must share this call revenue with the ISPs according to the nation’s regulatory authority’s formula. Internet users have no contract. They decide upon the ISP they will use each and every time they call for a connection. Consequently, the ISPs that consistently provide the best, most reliable, service get the customers.

Full Article

Egypt is the largest Arab nation. Its population of 70 million is nearly 25% of the total Arab population. One third of Egypt’s population is under 15 years old and another third is between 15 and 25 years old. Egypt has more than 8 million PSTN (public switched telephone network) lines in service. There are more than 4.5 million mobile subscribers in Egypt. In 1998, Egypt’s government converted the national incumbent operator, Telecom Egypt or TE, into a corporation and created an independent telecommunications regulator, the Telecommunications Regulatory Authority or TRA. In 2001, a framework for IS/PDN (Internet Services / Public Data Network) operators was presented to fully liberalize the business and further enable competition. Subsequently, the telecommunications law of 2003 further enabled the elements of telecommunications competition, establishing the concepts of network element un-bundling by licensed telecommunications operators and further establishing the autonomy of the TRA. A company with a Class A IS/PDN license has official permission to: co-locate within incumbent exchanges and build up their own facility using the incumbent operator’s infrastructure, construct its own copper/fiber facility, use un-bundled access infrastructure (local loops) and offer DSL based services, operate its own international bandwidth gateway, receive its own numbering from the TRA and sell services to both the retail and wholesale markets. The Free Internet Initiative (FII) was born out of the IS/PDN framework that was established in 2001. The Egyptian Free Internet Initiative (FII) began its operations in January 2002. The FII allows consumers to seamlessly connect to the Internet by dialing an ISP specific number, with no surcharge beyond the tariff set for a normal local telephone call. The IS/PDN providing the access revenue shares the call revenue with TE, the incumbent. Accordingly the IS/PDN must build a network adjacent to the PSTN in order to offload the FII call traffic to the adjacent network at the level of the local and / or tandem switch. The IS/PDN provider revenue share percentage is determined according to the point in the network hierarchy where the call is offloaded. The IS/PDN provider earns more if it offloads at the local switch level and less when it offloads at the tandem switch level. Objectives and Challenges Objectives The FII’s objectives are different for the end-customer and the market/industry. For the end-user, the FII seeks to minimize price and maximize competition among providers. The FII’s industry /market objectives are aimed at encouraging the offloading traffic from the PSTN and at upgrading the operational capacity of the ISPs so that they can eventually provide infrastructure and services that, today, only the incumbent provides. Customer Objective – Cost Reduction: The End User Price (EUP) for Internet dial access is set by the Regulator (TRA) and formatted to equal the PSTN charges. This reduces the previous cost structure and, since the incumbent collects it, is convenient. Single billing by the incumbent TE, and the relatively relaxed payment schedule it enforces, will apply. These changes go a long way towards reducing the gap between those who, in the past, could afford Internet access and those who could not. Customer Objective – Pervasive Competition: The system requires the customer to discriminate and selects among different service providers by dialing a specific IS/PDN operator number for each access to the data network. Consequently, IS/PDN operators must have available capacity, and be ‘sharp’ – provide high grade service – at all times; otherwise, they lose revenue instantaneously to a competitor. This is quite different than subscribing to an IS/PDN operator’s service for a month or longer and then suffering when the IS/PDN operator fails to provide the level of service desired. Competition is also effectively maintained for the “Class C” operators, those licensed to resell services (non-facilities-based competition), since the TRA provides each with a numbering system, which permit it to switch transparently between the services of different “Class A” IS/PDN operators using the class C’s own numbering. Market/Industry Objective – Reduce the burden of Internet calls on the PSTN: The PSTN was built to accommodate voice calls; these have a Mean Hold Time of approximately 3 minutes. Internet/Data calls, in contrast, have a Mean Hold Time of more than 20 minutes. As Internet/Data traffic increases, this difference alone could throw the PSTN network into turmoil. Upgrade IS/PDN operator capabilities to the level of National Operators – Nearly 8 operators were awarded Class A or Class B licenses and numerous ISP’s were accorded class C classification. A total of 214 numbering systems were awarded by the TRA. Each of the class A and B IS/PDN operators will effectively learn to co-locate and interconnect with the incumbent, interconnect with other IS/PDN operators, operate a mainstream multi-vendor facility, implement settlement against traffic originated/terminated, and implement customer care for a growing number of Internet users. Those IS/PDN operators are accumulating experience in nation-wide operations that will enable them to capitalize on future, additional, telecom liberalization. Future liberalisation might well open the access, last-mile, market and, perhaps, give them broader rights to participate in other industry services. Some have criticised the fact that EUP dial access price was made equal to the local PSTN call tariff. Some feel that this would lessen effective competition. So far, though, by fixing the EUP at local call levels, IS/PDN operators have been pressured to creatively build and deploy their networks and facilities to provide better service and, in that way, capture call revenue. Since price is no longer an issue competition for the available business, for user loyalty, forces the operators to compete by offering more and better services – a challenge more difficult to meet than that of price competition. Challenges The Free Internet Initiative has had to overcome a series of technical and regulatory challenges in order to function. The technical challenges include upgrading and implementing new billing systems, implementing a new switching / routing architecture, and the planning for and implementation of new technology. Regulations for the access to and control of the local loop and revenues sharing of the new tariff schedule need to be dealt with. Businesses need to learn about their new markets, create business plans and train their staff appropriately. Technical Challenges Billing System – Telecom Egypt, TE, had to prepare the complex billing and reporting systems – to handle the revenue receipts and interconnection fee payments (revenue sharing) – that collect data from the switching platforms of many different vendors. The billing system had to account for the traffic from all the new operators and service providers, and these use a wide variety of platforms. PSTN Switch Convergence – PSTN switches are evolving as switch manufactures add routing functions to their switch platforms. The roles of TE and the IS/PDN operators depend clearly upon defined rules and the definitions of the services that each can perform. The increased functionality of TE’s switches blurs the lines, in a justifiable and pervasive way that cannot be overlooked, between the incumbent and the IS/PDN operators. As a result, the sector has to deal with an emerging new market structure. Future Technology – Switched access over copper wiring, according to industry experts, will be replaced in time by broadband access. Today’s local loop technologies are considered to be interim solutions, that will be replaced when it becomes feasible to connect each home to the network with optical fibre. The current infrastructure is based entirely upon switched copper access networks that, in some cases, also carry DSL broadband un-switched circuits. FII, currently, depends upon these technologies. Regulatory/Business Challenges Local Loop Management: The local loop provides “last-mile” access to the customer. The local loop has always been an integral part of the PSTN and belonged to the incumbent. Now the incumbent shares the loop and its services are carried side-by-side with those of other licensed operators. The quality and management must now be closely audited by the TRA to inhibit abuses. Legal issues concerning security and consumer rights need also be addressed. Market (PSTN Tariff Re-pricing) – Adjustments to Telecom Egypt’s PSTN local call tariffs may require readjustment of the IS/PDN revenue sharing arrangements. Awareness – Since Internet access prices are equivalent to the local PSTN tariffs, market growth will depend upon consumer awareness and education. Managing the market is now much more complex than in the past when the only variable to manage was price. Conclusion Business Models – Class C providers are evolving; they provide value-added services such as specialised content. Egypt’s largest news organizations are now using the FII, having been licensed as Class C providers. Yet original content is lacking; the Class C content providers depend upon marketing to survive and there is little real, service based, competition. Models based upon revenue sharing with Class A infrastructure providers are being developed. Some content providers guarantee exclusive content to the customers of their Class A IS/PDN providers. This practice has raised some concerns in the sector. Training – Local IS/PDN operators need competent, well-trained, human resources. Operators need know-how to compete effectively. They need staff to develop value-added services, to implement facilities, to provide customer care and market telecommunications services. Building the needed capacity – developing and keeping key human resources – is a challenge.

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