Interconnection principles

1
Interconnection principles
Dr Tim Kelly, ITU ITU/TOT Workshop on Trends in
Telecom Prices and Costing in Developing
Economies of the Asia Pacific Region Bangkok,
26-29 November 2001
The views expressed in this paper are those of
the authors and do not necessarily reflect the
opinions of the ITU or its Membership. The author
can contacted by e-mail at Tim.Kelly_at_itu.int.
2
Agenda

• The need for interconnection
• Growth of competition and market entry
• Interconnection between networks
• Interconnection principles
• WTO regulatory reference paper
• Trade principles
• Cost models
• Interconnection regulatory frameworks
• Worldwide
• Within the European Union

3
Competition in basic services, by region, 2000
Source ITU TelecomRegulatory Database.
4
Competition in basic services, 1995 - 2012
Source ITU Telecommunications Regulatory
Database.
5
Key events driving competition

• Mid-1980s
• Break-up of ATT
• Licensing of competition in UK and Japan
• Late-1980s, early 1990s
• Competition in Australia, NZ, Finland, Chile
• Introduction of GSM mobile creating scope for
  licensing additional mobile operators
• Mid-1990s
• Full competition in UK and US international
• Growth of international simple resale, callback,
  VoIP
• Late 1990s
• WTO basic telecoms agreement (15 Feb 97)
• EU full competition (1 January 1998)

6
Competition in selected services, 2000
Source ITU Telecommunications Regulatory
Database.
7
Competition in Asia-Pacific, 2000
Source ITU Telecommunications Regulatory
Database.
8
Countries permitting competition in basic
telecoms
1990 1995 1998
Japan United Kingdom United States
Australia Canada Chile Finland Japan Korea
(Rep.) New Zealand Philippines Sweden United
Kingdom United States
Australia Austria Belgium Canada Chile China Denma
rk El Salvador Finland France Germany Ghana Hongko
ng SAR Israel Italy Ireland (Dec 98)
Japan Korea (Rep.) Mexico New Zealand Netherlands
Norway Philippines Russia Spain (Dec
98) Sweden Switzerland Uganda UK USA plus others
....
9
Calling opportunities, China
1990
Total, 6.5 m fixed 0.02 m mobile
Mobile-to-
mobile,
Fixed-to-
1995
16
fixed, 36
Total, 40.7 m fixed 3.6 m mobile
Mobile-to-
fixed, 24
Fixed-to-
mobile,
24
2000
Source ITU World Telecommunication Indicators
Database.
Total, 129.8 m fixed 85.3 m mobile
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Telecoms at the WTO

• 1947-1986 GATT
• Successive rounds of trade negotiations reduce
  trade barriers for telecom equipment
• 1986-1994 Uruguay round
• Negotiations begin on Trade in Services
• Culminate in creation of WTO and GATS
• 1994-97 Basic telecommunications agreement
  (Protocol 4 to the GATS)
• 72 countries (93 of market by value), make
  telecom commitments
• Information Technology Agreement sees further
  liberalisation
• 5 February 1998 Implementation of basic telecoms
  agreement
• November 2001 Successful conclusions of Doha
  Summit sees launch of new trade negotiating
  round, including accession of China

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Selected trade principles

• Market access
• Access to foreign market on reasonable,
  non-burdensome terms
• Access to telecommunication transport networks
• Transparency
• Rules of the game clear for all players
• Most-favoured nation
• Preferential market access granted to most
  favoured nation made available to all signatories
• National Treatment
• Foreign service providers treated no less
  favourably than domestic ones

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WTO regulatory reference paper, principles

• Competitive safeguards
• Interconnection
• linking with suppliers providing public
  telecommunications transport networks or services
  in order to allow the users of one supplier to
  communicate with users of another supplier and to
  access services provided by another supplier
• Universal service
• Transparency
• Independent regulators
• Allocation and use of scarce resources

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Interconnection principles (1)

• Interconnection with a major supplier will be
  ensured at any technically feasible point in the
  network. Such interconnection is provided.
• (a) under non-discriminatory terms, conditions
  (including technical standards and
  specifications) and rates and of a quality no
  less favourable than that provided for its own
  like services or for like services of
  non-affiliated service suppliers or for its
  subsidiaries or other affiliates
• (b) in a timely fashion, on terms, conditions
  (including technical standards and
  specifications) and cost-oriented rates that are
  transparent, reasonable, having regard to
  economic feasibility, and sufficiently unbundled
  so that the supplier need not pay for network
  components or facilities that it does not require
  for the service to be provided and
• (c) upon request, at points in addition to the
  network termination points offered to the
  majority of users, subject to charges that
  reflect the cost of construction of necessary
  additional facilities.

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Interconnection principles (2)

• Public availability of the procedures for
  interconnection negotiations
• The procedures applicable for interconnection to
  a major supplier will be made publicly available.
• Transparency of interconnection arrangements
• It is ensured that a major supplier will make
  publicly available either its interconnection
  agreements or a reference interconnection offer.
• Interconnection dispute settlement
• A service supplier requesting interconnection
  with a major supplier will have recourse, either
• (a) at any time or
• (b) after a reasonable period of time which has
  been made publicly known to an independent
  regulatory authority to resolve disputes
  regarding appropriate terms, conditions and rates
  for interconnection within a reasonable period of
  time, to the extent that these have not been
  established previously.

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Approaches to costing

• Fully-allocated pricing models
• total costs for providing service (including
  historical, depreciated investment costs) divided
  by the volume of service provided (e.g., minutes
  of use, number of subscribers)
• Incremental pricing models (e.g., LRIC)
• marginal cost of providing an additional unit of
  service (e.g., next minute of traffic, next
  subscriber)
• 1001 different flavours of the above

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Alternative methodologies for interconnection

• Per minute
• Based on level of usage in each direction
• Normal system for interconnection between fixed
  and mobile
• Revenue-sharing
• Based on level of usage in both directions
• Normal system for international traffic
  (international accounting rate system)
• Capacity-based
• Based on level of capacity requested
• Normal system for Internet peering
• Hybrid
• Variations on the above

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Countries with an Interconnection regulatory
framework, by region
Source ITU Telecommunications Regulatory
Database.
18
Countries imposing regulatory obligations
Countries
60
50
40
30
20
10
0
Incumbent
Fixed
All fixed
All mobile
Mobile
Other
(fixed) only
operators
operators
operators
operators
SMP
SMP
Source ITU Telecommunications Regulatory
Database.
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Interconnection in Europe

• Existing regulatory framework
• Many different sector-specific directives,
  notably Interconnection Directive (97/33/EC)
• Two parts Recommendations on Interconnection
  pricing and accounting separation
• Methodology for identifying best practice
  pricing
• Lowest 20 of published interconnection offers in
  15 EU Member States at local (0.9 /100), single
  transit (1.5 /100) and double transit (1.8
  /100)
• New technologically-neutral regulatory framework
• Access to, and interconnection of, electronic
  communications networks and associated facilities
• First reading in European Parliament on 4 July
  2001
• Amended proposal available at
• http//europa.eu.int/information_society/topics/te
  lecoms/regulatory/new_rf/com2001-369en.pdf

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Range of Interconnection rates in EU, US per
minute
Source ITU, compiled from ECTA/Analysys, EU
Interconnection Tariffs in Member States, ITU
Regulatory Survey 2000.

21
Selected European interconnect and settlement
rates, US cents per min, 2000
14
Double transit
interconnect
12
Settlement
10
Rate to USA
8
6
4
2
0
Spain
Italy
France
Germany
Nether- lands
UK
Sources ITU, EU, FCC.
22
Double transit interconnection (in US cents per
minute)
5
4
Spain
3
Germany
France
2
UK
1
0
Mar-98
Sep-98
Dec-98
Mar-99
Nov-99
Sources ITU, EU.
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Looking ahead Interconnection issues under IP

• Full circuit model
• Separate charges for circuits and traffic
  exchange (peering)
• Obligation for entity requesting interconnection
  to pay full charges, even though traffic flows
  both ways
• Capacity-based model
• Charges according to capacity (bandwidth) rather
  than usage (minutes)
• Technology neutral model
• Many different types of service (e.g.,
  voice/data, real-time/store and forward) over
  same network
• Variable quality of service
• Possible variation in interconnection charges (or
  refunds) according to different levels of service
  quality

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For more information .

• ITU publication Trends in Telecom Reform 2001,
  Interconnection Regulation
• ITU website on regulation at www.itu.int/ITU-D/tr
  eg/index.html
• WTO website at www.wto.org