Interconnection principles 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 at Dr Tim Kelly, ITU ITU/TOT Workshop on ‘Trends in Telecom Prices and Costing in Developing Economies of the Asia Pacific Region’ Bangkok, November 2001

International Telecommunication Union 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

International Telecommunication Union 3 Source: ITU Telecom Regulatory Database. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AfricaAmericasAsia- Pacific Arab States Europe MonopolyPartial competitionCompetition Competition in basic services, by region, 2000

International Telecommunication Union 4 Source: ITU Telecommunications Regulatory Database Local Long distance International Countries Competition in basic services,

International Telecommunication Union 5 Key events driving competition Mid-1980s:  Break-up of AT&T  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)

International Telecommunication Union 6 Source: ITU Telecommunications Regulatory Database. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Basic services CellularCable TVISPs MonopolyPartial competition Competition Competition in selected services, 2000

International Telecommunication Union 7 Source: ITU Telecommunications Regulatory Database. 0% 10% 20% 30% 40% 50% 60% 70% 80% LocalLong distance InternationalCellular MonopolyPartial competition Competition Competition in Asia-Pacific, 2000

Countries permitting competition in basic telecoms: 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 Denmark El Salvador Finland France Germany Ghana Hongkong 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....

International Telecommunication Union 9 Calling opportunities, China 2000: Total, m fixed m mobile Fixed-to- fixed, 36% Fixed-to- mobile, 24% Mobile-to- fixed, 24% Mobile-to- mobile, 16% 1995: Total, 40.7 m fixed m mobile 1990: Total, 6.5 m fixed m mobile Source: ITU World Telecommunication Indicators Database.

International Telecommunication Union 10 Telecoms at the WTO : GATT  Successive rounds of trade negotiations reduce trade barriers for telecom equipment : Uruguay round  Negotiations begin on Trade in Services  Culminate in creation of WTO and GATS : 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

International Telecommunication Union 11 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

International Telecommunication Union 12 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

International Telecommunication Union 13 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.

International Telecommunication Union 14 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.

International Telecommunication Union 15 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

International Telecommunication Union 16 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

International Telecommunication Union 17 Countries with an Interconnection regulatory framework, by region Source: ITU Telecommunications Regulatory Database AfricaAmericasArab States Asia- Pacific Europe Countries

International Telecommunication Union 18 Countries imposing regulatory obligations Source: ITU Telecommunications Regulatory Database Incumbent (fixed) only Fixed operators SMP All fixed operators All mobile operators Mobile operators SMP Other Countries

International Telecommunication Union 19 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: 

International Telecommunication Union 20 Range of Interconnection rates in EU, US$ per minute Mobile-to- fixed LOCAL Mobile-to- fixed SINGLE TRANSIT Mobile-to- fixed DOUBLE TRANSIT Fixed-to- mobile Lowest Best-practice (20%) guideline Highest Source: ITU, compiled from ECTA/Analysys, EU Interconnection Tariffs in Member States, ITU Regulatory Survey 2000.

International Telecommunication Union 21 Selected European interconnect and settlement rates, US cents per min, SpainItalyFranceGermanyNether- lands UK Double transit interconnect Settlement Rate to USA Sources: ITU, EU, FCC.

International Telecommunication Union 22 Double transit interconnection (in US cents per minute) Mar-98Sep-98Dec-98Mar-99Nov-99 Spain Germany France UK Sources: ITU, EU.

International Telecommunication Union 23 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

International Telecommunication Union 24 For more information …. ITU publication “ Trends in Telecom Reform 2001, Interconnection Regulation ” ITU website on regulation at: WTO website at