Interconnection Regulation

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Study Group 3 Activities(International
Interconnection)
Saburo TANAKA
Councellor International Telecommunication
Union TAL Seminar Havane, 22 October 2001
Note The views expressed in this presentation
are those of the author and do not necessarily
reflect the opinions of the ITU or its membership.
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Agenda

• Some data and statistics
• Paradigm shift
• Traditional regime
• Emerging regime
• Examining market reality
• New practices using Accounting rate system
• New practices by-passing accounting rate system
• ITU activities
• Transitional arrangements
• New remuneration systems
• Intl Interconnection with mobile network
• Internet Interconnection IP Telephony

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Telephony Some DATA(1999)Internl
Telephone revenue 56 billion US Settlement
transaction 28 billion US Net Settlement
payment to developing countries amount to around
5 billion USIntl Infrastructure costs
reduction lt 20 Annual average traffic
increase 8 Average Settlement rate
reduction ?
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(No Transcript)
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(No Transcript)
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Falling prices
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Traditional regimeJoint provision of service
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Country A
Country B
X
X
Two different national operators jointly
establish an international circuit and decide the
revenue they wish to obtain. They then divide
that revenue fifty-fifty split.
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Emerging regimeMarket entry and interconnection
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Jointly provided circuit
Country B
Country A
X
X
X
Circuit provided by operator B
Cross border interconnection and the trading of
international traffic minutes
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Refile and other practices using accounting rate
system
Operator in A sends traffic tooperator in C
under anarrangement of exclusivity
Operator in C declares traffic to B on transit
through A


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A
1
A
Origin CDestination B
Origin ADestination B
Operator in B receives traffic at settlement rate
C/B instead of A/B
C
C

• Operator in A is a partner of operator in C
• Settlement rates A/B gt C/B

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Operator in C re-labels the traffic as
originated in C
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B
B
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CALL BACK using Accounting Rates
Using AR
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Mobile tromboning (using accounting rate)
Operator X or Operator As facility in another
country
International boundary
Operator As Intl facility
Operator Bs Intl facility
Operator As national network
Operator Bs mobile network
High Interconnection charge
?
?
Called B
Caller A
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International simple resale (ISR) (By-passing
accounting rate)
Country A
Country B
Operator B
PSTN
Operator A
Interconnect
IWF
Leased lines
Once a foreign carrier accepts the benchmark
rate, it can negotiate ISR arrangements with US
carriers
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Telephone service using data transmission (By-pass
ing accounting rate)
Country A
Country B
VSAT
Operator A
Inter-connection
PSTN
?
Voice is packetized data transmissionTelephone
regulations do not apply
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IP Telephony (by-passing accounting rate)
Call from International Telecommunication Network
(ITN) to another ITN via IP-based Network
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ITUT SG-3 Major achievements

• New Remuneration system
• Termination charge system
• Settlement rate system
• Special arrangement
• Difficulty to quickly implement those systems
• Condition is to reach cost-oriented rate, but
• No cost data or model for some administrations
  Group 3 is developing cost methodologies
• SG3 is now developing cost methodologies
• Transitional arrangements
• To facilitate staged reduction to cost based rate
• to avoid sudden fall of revenue (smooth
  transition)

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Annex E to Recommendation D.140 indicative
target rates by Teledensity (T) Band, in SDR
(and US cents) per minute.
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(
end 2001)
(end 2001)
(end 2001)
(end 2001)
(end 2001)
(end 2001)
(end 2001)
FCC 19 (January 2001)
FCC 15 (January 1999)
FCC 23 (January 2002/2003)
19 (J.2000)
Note The correspondence between teledensity
band and income group shown in the bottom row is
intended to be approximate, not precise. Source
ITU-T SG3 Report. 1 SDR US1.39.
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Annex E Recommends also

• That transit Administrations move towards the
  indicative target rate (upper limit) of 0.05SDR
  (0.07US ) per minute.
• To negotiate asymmetrical accounting rate (other
  than 50/50) if both administrations agree to move
  to below the indicative target rate. Example
  Operator A belong to teledensity band EOperator
  B belong to teledensity band FA and B agree to
  achieve TAR 0.2SDR (lt0.118x2)
• A can request settlement rate of 0.09 SDR
• B accepts to pay 0.11SDR to A

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Termination charge

• Destination operator (or Government) set the
  charge
• Charge should be established based on costs
• Termaination Charge includes
• International exchange
• National extension, including local loop
• And if appropriate, international circuit
• Other costs imposed on carriers by the national
  regulation
• Those components should be separately identified
  (Unbundled)
• Charge applies to all traffic from any source
• However if significant variation in costs, charge
  may vary (volume discount)
• Termination charge may be introduced on bilateral
  agreement basis

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Accounting rates and Termination Charges
What s the difference
Accounting rate Termination charge
Normally symmetric(50/50) Not necessarily symmetric (if cost differ)
Bilaterally negotiation In theory, set unilaterally (need agreement to implement)
Discriminatory (different rates negotiated with different correspondents) Non-discriminatory (same rate for all correspondents)
Half-circuit regime (would not normally be unbundled) Full-circuit regime (could be unbundled)
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International call terminating on mobile network

• SG3 revised D.93 in year 2000, allowing to
  negotiate
• a separate rate for traffic terminating on a
  mobile network
• however, this is by bilateral negotiation and
  when the rate is cost orientated
• The difference between the two rates should be as
  small as possible
• Many countries now request very high settlement
  rates (3 5 times)
• A review is now going on in the SG3

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Interconnection Rates in selected European
countries under CPP (in US / minute)
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Interconnection Rates in Selected European
Countries Calling Party Pays (CPP). In US per
minute.
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Interconnection rates in selected non-European
countries Calling Party Pays (CPP) vs. Receiving
Party Pays (RPP). In US per minute.
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Internet Interconnection

• Internet Interconnection has slightly different
  meaning. Historically Internet interconnection
  has involved simply different Internet networks.
• This Internet Interconnection policies have
  proved increasingly inappropriate in a commercial
  industry.
• Many operator with larger networks often charge
  smaller ISPs a traffic-based interconnection fee
• Many backbone providers have begun offering
  transit service networks.
• Different type of Interconnection Arrangements
• ISP Relationships with customers usually via a
  dial-up
• ISP-ISP Interconnection peering or bilateral
  agreement
• Multiple ISP Exchanges when several ISPs need to
  interconnect in a same city (use of an IXP)
• International Regulatory Development

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Recommendation D.50

• The ITU-T,
• recognizing
• the sovereign right of each State to regulate its
  telecommunication, as reflected in the Preamble
  to the Constitution,
• noting
• a) the rapid growth of Internet and Internet
  protocol-based international services
• b) that international Internet connections remain
  subject to commercial agreements between the
  parties concerned and
• c) that continuing technical and economic
  developments require ongoing studies in this
  area,
• Recommends that
• administrations involved in the
  provision of international Internet connections
  negotiate and agree to bilateral commercial
  arrangements enabling direct international
  Internet connections that take into account the
  possible need for compensation between them for
  the value of elements such as traffic flow,
  number of routes, geographical coverage and cost
  of international transmission amongst others.

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IP-Telephony Telephone to telephone (fax to fax)
via Internet
Internet
Phone Gateway Computer
Phone Gateway Computer
Telephone
Public Switch
Telephone

• Any telephone/mobile user to any other
• Main motivation Accounting rate bypass, market
  entry for non-facilities-based carriers
• Potential service providers include any PTO with
  settlement payments deficit (e.g., US US5.7bn)
• Market potential 1.3 billion telephone/mobile
  users

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IP TelephonyOpportunities and challenges

• Opportunities
• Reduce prices to consumers and the costs of
  market entry for operators
• In terms of volume of traffic carried and level
  of investment committed
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
• Challenges
• Undermine the pricing structure of the incumbent
  Public Telecommunication Operators (PTOs)
• Transition to IP-based networks also poses
  significant human ressource development
  challenges

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Challenges
Revenue gain and revenue loss
Accounting Rate IP-Telephony Difference
PTO in Developed country Collect US 1.00 from user Pays US 0.55 settlement. Retains US 0.45 CollectUS 1.00 from user Pays US 0.30 to ISP for terminating call.Retains US 0.70 0.25 US
PTO in Developing country Receives US 0.55 settlement. Receives US 0.02 local call charge. -0.53 US
ISP in Developing country 0 Receives 0.30 US for terminating charge Pays 0.02 US for local call. Retains 0.28 US 0.28 US
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How the operators in developping countries stop
IP-Telephony
Operator check only this line
PSTN Operator Switch
ISP
Users can call ISP but ISP is unable to call users
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Conclusion

• Transitional arrangements
• Negotiate in using Annex F, especially for
  asymmetric arrangements
• How to move to the termination charge
• Call terminating on mobile network
• RPP against CPP
• Experience of TAL countries
• Internet Interconnection / IP Telephony
• How to promote IP Telephony