1. Interconnection between Fixed and Mobile Networks Lara Srivastava Strategies and Policy Unit (SPU) International Telecommunication Union 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. Lara Srivastava can be contacted at lara.srivastava@itu.int 18 July 2000 MSU “Telecommunications in Europe”

2. 2 MSU’s FMI Session W hat is Interconnection? Legal, technical and economic arrangements between operators Several levels of interconnection  Between domestic networks*  Between national and international networks  Between domestic networks & customer terminals Cornerstone of a truly competitive market Growing importance in an era of convergence Why the need to regulate? Is this new?

3. 3 MSU’s FMI Session M obile is moving at a rapid pace… World Mobile Subscribers (millions) as % of Fixed-line Subscribers 199019911992199319941995199619971998 2% 3%4% 6% 9% 13% 20% 27% 38% 11 16 23 34 55 91 144 215 318 Source: ITU

4. 4 MSU’s FMI Session … A nd is set to overtake Fixed Source: ITU

5. 5 MSU’s FMI Session R elationship b/w Fixed & Mobile is thus being watched closely Increase in calling opportunities (and revenues) between fixed and mobile networks  Fixed-Mobile Interconnection (“FMI”) Advent of FMC or Fixed-Mobile Convergence Solutions Pricing of mobile networks converging with fixed networks

6. 6 MSU’s FMI Session F MI refers to both technical and pricing arrangements Access to Interconnection  Where and how does M interconnect with F?  Points of Interconnection (POIs)  Quality of Service Issues (QoS) Commercial Terms  Who pays what to whom?  Mobile termination charges (MTC)  Charges for Interconnecting with the Fixed Network

7. 7 MSU’s FMI Session A Fixed to Mobile communications service requires three main elements Orig. Access Switching Authentication Orig. Access Switching Authentication Core Network Switching Core Network Switching Locating the Customer Switching Term. Access Locating the Customer Switching Term. Access Call Origination Call Termination Calling Party (FIXED) Called Party (MOBILE) Transit service Source: Adapted from ECTA

8. 8 MSU’s FMI Session RPP vs CPP : Mobile users don’t always pay to talk Receiving Party Pays  Mobile party pays for incoming calls and fixed party pays only local tariff  Often, no interconnect arrangement is negotiated with the fixed operator for F-M calls. Mobile operators bill mobile consumer directly for “airtime”. Calling Party Pays  Mobile party does not pay for incoming calls and fixed party pays a premium to call the mobile party  Call termination paid by fixed operators is a significant part of mobile operator revenues

9. 9 MSU’s FMI Session Interconnect Regime for Mobile Operators  All operators: right and obligation to interconnect  SMP operators : access, information, non- discrimination EU Termination Charges Consistently > Cost E urope has seen high MTCs in CPP 0.3 0.2 0.25 0.15 0.1 0.05 BEDES F INLSUK LRIC + mark-up Termination charge Source: ECTA/Analysys

10. 10 MSU’s FMI Session M TCs are high because incentives to reduce them are lacking M TCs are high because incentives to reduce them are lacking Inefficient pricing Tariff Opacity Market Structure

11. 11 MSU’s FMI Session D espite the hype about MTCs, the situation is not the same everywhere D espite the hype about MTCs, the situation is not the same everywhere MTCs do not exist in all RPP countries  …and transition to CPP may not always be feasible or desirable Powerful incumbents can refuse to pay charges for connecting to mobile networks  … and this demonstrates the vulnerability of fledgling mobile operators in an unregulated environment e.g. let’s look at India

12. 12 MSU’s FMI Session C ase Study India: The Context Teledensity 2.2% Local market liberalized first Mobile Sector opened up in 1994 The Dept. of Telecoms was both licensor and incumbent operator until late 1999 Regulator TRAI created in 1995 2.4% World’s Surface 1 billion people or 16.7% of World 34% Poverty

13. 13 MSU’s FMI Session C ase Study India: The Mobile Sector 34 mobile operators in circles (provinces) and 8 in metros Nearly 2 million subscribers in April 2000  Growth of > 50% a year since March 1997  7.25% of total connections (F+M) In the circles, mobile network development is patchy  Mobile operators rely on the incumbent (DoT/DTS) to carry much of their traffic  …and incumbents will be launching their own mobile services in Metros & Circles this year

14. 14 MSU’s FMI Session C ase Study India: Attempt at CPP Interconnection - main stumbling block for development of mobile Only mobile operators pay to interconnect  DoT/DTS pays no access charges for F-M calls TRAI attempted to introduce CPP Interconnect or “revenue-sharing” scheme, but failed  Delhi High Court found that TRAI lacked jurisdiction  January 2000: Authority was disbanded & the TRAI Act amended

15. 15 MSU’s FMI Session C ase Study India: Technical Matters Mobile operators are obliged to use the incumbent’s network  DoT/DTS currently carries all inter-circle traffic … but have limited access to it  POIs and SSAs  Implementation of the TRAI’s 1997 Order  The “Notional Tax”

16. 16 MSU’s FMI Session C oncluding Remarks FMI is a key driver for the Mobile Sector Regulation should take into account differences in market structure & political context  e.g. what are the priorities of developing countries with powerful State-owned incumbents ?  e.g. are cost-based interconnect rates a viable solution in all cases? “Enabling” the Regulator International Studies and Benchmarking

17. 17 MSU’s FMI Session Case Studies (India, China, Mexico, Finland)  http://www.itu.int/osg/sec/spu/ni/fmi/case_studies Background Resources Website  http://www.itu.int/interconnect Thanks!