1 The regulation of France Telecom Reference Interconnection Offer 27 january 2003

2 The principles of interconnection France Telecom, the operator with significant market power, is obliged to propose an reference interconnection offer This offer is presented in a catalogue which is valid for a period of one year (from 1st january to 31 december) The offer presents a minimal set of services and prices which must be implemented via interconnection agreements Using these intermediate services, the operators must create the most advantageous retail offers for consumers The catalogue must be approved by ART prior to its publication

3 How it works: a one-year discussion Operators consulted in early year ART sets work schedule Discussions at the interconnection committee : operators express their needs Workshops with technical and economic studies Formal letter addressed to FT to demand evolution in sommer Negotiations with France Telecom Result: RIO approved in November

4 Services in the RIO Traffic conveyance services(1/2) Services in the RIO Traffic conveyance services (1/2) The interconnection architecture is based on: –Around 600 local zones (you need to interconnect to 600 local zones to cover all the France) ; –Around 18 regional zones (you have to connect to 18 zones to cover all the France). FT proposes national, regional and local services called double transit, single transit and intra CA or local switch interconnection. The 3 levels are proposed in termination and only 2 (local and regional) are proposed in collect to promote investment.

5 Services in the RIO Traffic conveyance services(2/2) Services in the RIO Traffic conveyance services (2/2) Termination services (direct interconnection): used by operators (mobile and fixed operators) to terminate voice traffic on the network of FT; Collect services (direct interconnection) : used by operators to collect different traffics: –Voice traffic for carrier preselection; –Internet narrow band traffic for ISP; –Traffic to the non geographical numbers for value added services ( meteo, taxi, …)

6 Services in the RIO Traffic conveyance services(1/3) Services in the RIO Traffic conveyance services (1/3) In 1998 (opening of the telecommunication market in France), the operators have connected at a national and regional level. Since 1998, they have migrated at a local level. The rhythm of this migration was boosted in 2002 with the opening of the local calls market to the carrier selection. Today, more than 50% of the traffic transits via the local level.

7 Services in the RIO Access to the sites (2/3) To collect and terminate the traffic, the other operators have to access to the sites (regional/local) of FT which proposes different services: –Colocation: the operator is allowed to install its transmission equipment (ADM) in the building of FT; –2 Mbit/s Transmission links delivered by FT between its building and the POP (point of presence) of the other operator; –In span services: it is a complex and median solution for which FT and the other operators connect their own transmission link in a site close to the building of France Telecom (not used a lot).

8 Services in the RIO Access to the sites(3/3) Services in the RIO Access to the sites (3/3) At the beginning, the operators prefer the 2 Mbit/s transmission links because they pay annual prices; After, they have to decide to buy the transmission or to build their own transmission links (colocation). In this case they have to compare an important investment to the sum of discounted annual prices (aroud per year per 2 Mbit/s – depends on the distance). The weight of the colocation has grown since This solution is better if you can depreciate the investment on an important volume of traffic which is at least the case at a regional level.

9 Services in the RIO Other(1/2) Services in the RIO Other (1/2) Preselection: –The price per new line opened to the preseletion: 5 per line in 2004; Portability: –Complex tarification with an important tariff which is the price to be paid for each number (15) The prestation paid by act: –FT bill all the intervention to modify the interconnection structure; –It cover exploitation costs (time x cost per hour): FT uses a 60 per hour rate.

10 Services in the RIO The leased lines(2/2) Services in the RIO The leased lines (2/2) The service was introduced in 2002; Before the operators used the retail offer of FT to interconnect their clients; The interconnection offer is based on a national structure with 125 zones and 2 points of interconnection per zone. You have to interconnect in a zone with FTs leased line switch and you pay a price depending on the distance between the switch and the client you have to connect. The offer is proposed to fixed operators (for their needs to connect their professional clients) and not to mobile operators (interested to connect their equipement BSC to BTS)

11 The important steps in the regulation of the RIO(1/3) The important steps in the regulation of the RIO (1/3) 1998: opening of the telecommunication market. Need to define an offer to allow the carrier selection and the termination of mobile traffic on the network of FT. The carrier preselection only concerns at the beginning national calls and not local calls and fixed to mobile calls : workshops were organised to better understand the economy of France Telecoms network and it was introduced a call set-up charge (demanded by Internet operators which have longer calls) and a new modulation (with low tariffs after pm to take into account the development of Internet low rate traffic).

12 The important steps in the regulation of the RIO (2/3) : –Introduction of a flat rate interconnection tariff: the impact was a drop of 40% of the prices; –Introduction of the LRIC as reference costs; –Introduction of carrier selection for fixed to mobile calls (november 2001) and for local calls (january 2002) –Introduction of a leased lined interconnection offer

13 The important steps in the regulation of the RIO (3/3) –Workshops with operators to introduce a price cap instead of an annual approval; –Drop in tariffs (preselection, leased lines,…) –New development: the traffic on fixed networks in not growing so fast as in the period (lower increase of the Internet narrow band traffic and of the mobile to fixed traffic and drop in the local and national fixed calls)=> stable tariffs.

14 The lessons The regulation must be flexible and integrate the needs of the sector (example: development of Internet); The regulator has to choose between simple and complex tariffs. The regulator has to choose the reference costs.

15 Some figures: VOICE prices ART uses an identical basket of interconnection consumption services Panier moyen minutes per 2 Mibts port BPN and per year 2,6 millions Average duration of calls 3 minutes 20 sec Répartition du trafic : - Peak hours 60% - Off peak hours 35% - « blue night » hours (super off-peak) 5%

16 VOICE: prices European comparisons: local level (1/2) Values are calculated including all pricing components, including 2Mbit/s port

17 VOICE: prices European comparisons: single transit (2/3) Values are calculated including all pricing components, including 2Mbit/s port

18 VOICE: prices Decrease in time-based prices(2/2)

19 VOICE: prices Termination diagram 1 23 Single transit Double transit Local level 213 New Operator New Operator New Operator Direct interconnection offer for L.33-1 operators TS SS TS: Transit switch SS: Subscriber switch

20 VOICE: prices Collection diagram 1 23 Single transit Double transit Local level 213 New Operator New Operator New Operator Direct interconnection offer for L.33-1 operators TS SS TS: Transit switch SS: Subscriber switch Subscriber dials a prefix