1. 1 INTERCONNECTION: THE MOROCCAN EXPERIENCE M. ELKADIRI, Technical Director ANRT elkadiri@anrt.net.ma Algiers 19-21 April 2003 1st REGULATORY MEETING FOR THE ARAB REGION

2. 2 WHY INTERCONNECTION? Interconnection is one of the main issues of the liberalization process : The access of a new entrant to the market is conditioned by the current interconnection policy. Interconnection tariffs are the “Hard-core” of competition

3. 3 DEFINITION AND SCOPE OF INTERCONNECTION *In Europe, long distance network often considered as part of core network **Point of Interconnection Source:Team analysis Mckinsey New entrant´s network Long distance network* Core network Access network Remote concentrator Feeder Local switch Tandem Distribution Tandem Incumbent’s network PoI** PoI Termination Origination Single-Tandem Double-Tandem Definitions

4. 4 Regulatory levers Industry structure Pricing Interconnect Equal access Cross-subsidy Support Number of competitors Speed of liberalisation Area of competition and type of players that can compete Licensing procedures and conditions Example regulatory levers Price caps (x factor, basket weights, subcaps... ) Tariff rebalancing Interconnect charges Process of setting / negotiating interconnect charges Establishing points of physical interconnection and/or co-location Access deficit compensation Universal service obligation definition, funding mechanisms Length and ease of prefix Pre-subscription mechanism Number portability INTERCONNECTION IS ONE OF REGULATORY LEVERS AND CANNOT BE CONSIDERED IN ISOLATION DEFINITION AND SCOPE OF INTERCONNECTION

5. 5 MOROCCAN REGULATORY FRAMEWORK OF INTERCONNECTION 1- The post and telecommunications Act n° 24-96 which sets up :  The right of interconnection for each operator.  The necessary conditions which should respect in interconnection  The power of the regulator to solve interconnection disputes. 2- The Interconnection decree which specifies :  The main clauses (technical, financial and administrative clauses) that each interconnect agreement should include.  The operator’s obligations ( General obligations for all operators and specific ones for SMP).  The principles of interconnection tariffs.  The conditions of interconnect offer.  The ANRT prerogatives.

6. 6 Respect of principles and rules of interconnection. Produce all necessary information to the regulator. Operators with market share more than 20% of a telecommunications service must submit an interconnection offer to the regulator for approval. They have to inform the regulator of the modifications concerning the RIO. OPERATORS ’OBLIGATIONS LEGAL FRAMEWORK

7. 7 THE ROLE OF ANRT Ensure clear terms, conditions and fair prices for interconnection Make sure that the interconnect agreement is in accordance with interconnection decree and approve the interconnection offer Impose sanctions and penalties for violation of regulation Play a role of arbitrator in the interconnect dispute LEGAL FRAMEWORK

8. 8 REFERALL TO THE ANRT When? No conclusion of the interconnect agreement Problems related to the interconnection tests How? Inquiry of the dispute file made by the Director of the ANRT Decision of the (administrative committee) 15 days 30 days Dispute resolution LEGAL FRAMEWORK: Dispute resolution

9. 9 INTERCONNECTION: The players ICX Interconnection Operator 2 Operator 1 Regulator

10. 10 Resolution of interconnection Dispute The first interconnection dispute that the ANRT had to arbitrate was over termination tariffs : 1- The dispute: Disagreement between IAM (the incumbent) & Medi Telecom (the new entrant) about interconnection Tariffs. 2- The dispute inquiry : ANRT entrust the inquiry to an internal Interconnection comity, which was supported by international experts. 3- The inquiry process : - Benchmark - Audition of both parties. - Analysis of the interconnection cost models of both parties 4- The decision of the administrative comity of the ANRT : With reference to the commission inquiry report, the administrative commission of the ANRT decided that Interconnection tariffs proposed by the interconnection commission are applicable.

11. 11 The 1st Interco dispute IAM proposal 41,5% MédiTél proposal 20% MOBILE PSTN IAM proposal 61% MédiTél proposal 80% 58,5% 80% 39% 20%

12. 12 ANRT’s Decision

13. 13 ANRT’s Decision

14. 14 Approval of interconnect offer TECHNICAL AND TARIFF INTERCONNECTION OFFER The TECHNICAL AND TARIFF INTERCONNECTION OFFER should be published by the operator who holds a market share higher than 20% of a telecommunications service. - It must be approved by the regulator. - The regulator shall be informed on the modifications of the interconnection offers. Process of approval of the interconnection offer -Effective cooperation with the incumbent operator in term of providing relevant information related to interconnection cost. -Efficient tools for analysing and assessing the tariff offer. The principal difficulty : INFORMATION ASYMMETRY

15. 15 MOROCCAN COST ALLOCATION MODEL -The MCAM was developed with international experts and ANRT’s multidisciplinary team. -The MCAM provide two basic deliverables:  financial results by service using Fully Allocated Costing methodology based on “cost causation” and  unit cost information suitable for calculating interconnect conveyance costs. - MCAM is based on historic costs. ANRT developed its own tools for calculations and assessment of interconnection costs for. - assessing the relevancy of the interconnect tariff data provided by operators - preparing the regulator for interconnect dispute arbitration - checking the eventual anti-competitive behaviour of the operator in the telecommunications market.

16. 16 Operator 1 Operator 2 Service Costs MOROCCAN COST ALLOCATION MODEL Operator 2

17. 17 MCAM STRUCTURE Manpower Analysis Current Account Cost Capital costs Functional Activities Cost Pools Direct Shared Common Drivers Final Services Algorithms

18. 18 NEW CHALLENGES k to adapt the legal framework of interconnection to the international context and the development of technology. k To allow visibility to operators including those expected to enter the market. k To foster the telecommunications market as whole. There are many issues related to interconnection to be faced: ANRT had launched a public consultation in order to set up Interconnection guidelines to precise the legal framework:  Definition of relevant market and the determination of SMP  Introduction of the long run incremental cost (LRIC) method  Carrier pre-selection.

19. 19 CONCEPTS OF RELEVANT MARKET AND SMP (Significant Market Power) -The definition of the relevant market in both its service and geographic dimensions often has a decisive influence on the assessment of a competition case. -a possible relevant market could be :  Market of fixed telephony  Market of mobile telephony  Market of leased lines  Market of Interconnection. -ANRT: -determine the criteria of the relevant market and -establish the methods of assessing the position of operators in the market of concern.

20. 20 LRIC (Long run Incremental cost) The LRIC (Long run Incremental cost) method will allow the regulator to assess the operators efficiency through the orientation of their interconnection tariffs toward costs. On the other hand, LRIC would insure the respect of the following principles : relevancy efficiency economic optimum financial viability fair competition - The current challenge for ANRT is to develop a tool for interconnection costs calculations based on LRIC Approach.

21. 21 INTERCONNECTION & NEW services Introduce adaptation to the legal framework of interconnection in order to take into account the specification related to advanced services like UMTS, IP telephony, GPRS etc…

22. 22 LONG TERME CHALLENGES : LOCAL LOOP UNBUNDLING  Important competitive stakes: Diversity of choice for customers Reduction of the access cost to the market. Efficient means for the new entrant ( Direct relationship with the customer)  Opportunities for the development of the economy via the development of internet access.

23. 23 LONG TERM CHALLENGES : NUMBER PORTABILITY  Number portability is the possibility for the customer to keep his phone number while he : change the geographical zone change the operator change the telephonic services  Number portability fosters the development of competition.

24. 24 CONCLUSION “healthy” interconnection process : Independent team with wide ranging expertise Good calculation tools Good benchmark knowledge And…. But, For sure, your decision will be challenged

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