1. 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.

2. 2 International Interconnection 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 Int’l Interconnection with mobile network Internet Interconnection – IP Telephony

3. Telephony : Some DATA(1999) Intern’l Telephone revenue : 56 billion US $ Settlement transaction : 28 billion US $ Net Settlement payment to developing countries amount to around : 5 billion US$ Int’l Infrastructure costs reduction: < 20 % Annual average traffic increase : 8 % Average Settlement rate reduction: ? % Telephony : Some DATA(1999) Intern’l Telephone revenue : 56 billion US $ Settlement transaction : 28 billion US $ Net Settlement payment to developing countries amount to around : 5 billion US$ Int’l Infrastructure costs reduction: < 20 % Annual average traffic increase : 8 % Average Settlement rate reduction: ? % 3

6. Falling prices

7. X X Traditional regime: Joint provision of service Country ACountry B 7 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.

8. X Emerging regime: Market entry and interconnection XX Country A Country B Jointly provided circuit Circuit provided by operator B 8 Cross border interconnection and the trading of international traffic minutes

9. A C B C B A Operator in A sends traffic to operator in C under an arrangement of exclusivity Operator in A is a partner of operator in C Settlement rates A/B > C/B Origin A Destination B Origin C Destination B Operator in C declares traffic to B on transit through A Operator in B receives traffic at settlement rate C/B instead of A/B Operator in C “re-labels” the traffic as originated in C 1 2 3 4 Refile and other practices using accounting rate system

10. Using AR CALL BACK using Accounting Rates

11. Mobile tromboning (using accounting rate)   Called BCaller A Operator A’s national network Operator B’s mobile network Operator A’s Int’l facility Operator B’s Int’l facility Operator X or Operator A’s facility in another country International boundary High Interconnection charge

12. Country ACountry B Operator A Operator B PSTN IWF Interconnect Leased lines International simple resale (ISR) (By-passing accounting rate) Once a foreign carrier accepts the benchmark rate, it can negotiate ISR arrangements with US carriers

13. Country ACountry B Telephone service using data transmission (By-passing accounting rate) Operator A PSTN Voice is packetized = data transmission Telephone regulations do not apply VSAT Inter- connection 

14. Call from International Telecommunication Network (ITN) to another ITN via IP-based Network IP Telephony (by-passing accounting rate)

15. 15 International Interconnection ITU–T 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)

16. Annex E to Recommendation D.140 “indicative target rates” by Teledensity (T) Band, in SDR (and US cents) per minute. Annex E to Recommendation D.140 “indicative target rates” by Teledensity (T) Band, in SDR (and US cents) per minute. 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 = US$1.39. 16 FCC : 23 ¢ (January 2002/2003) FCC : 19 ¢ (January 2001) 19 ¢ (J.2000) FCC : 15 ¢ (January 1999) (end 2001) ( end 2001)(end 2001)

17. 17 International Interconnection 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 E Operator B belong to teledensity band F A and B agree to achieve TAR 0.2SDR (<0.118x2)  A can request settlement rate of 0.09 SDR  B accepts to pay 0.11SDR to A

18. 18 International Interconnection Termination charge 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

19. Accounting rate Accounting rate Termination charge Normally symmetric(50/50)Not necessarily symmetric (if cost differ) Bilaterally negotiationIn 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) Accounting rates and Termination Charges What’ s the difference

20. 20 International Interconnection 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

21. Interconnection Rates in selected European countries under CPP (in US $ / minute)

22. Interconnection Rates in Selected European Countries Calling Party Pays (CPP). In US $ per minute.

23. Interconnection rates in selected non-European countries Calling Party Pays (CPP) vs. Receiving Party Pays (RPP). In US$ per minute.

24. 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

25. 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.

26. IP-Telephony Telephone to telephone (fax to fax) via Internet 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 = US$5.7bn) Market potential: 1.3 billion telephone/mobile users Telephone Public Switch Internet Phone Gateway Computer

27. 27 International Interconnection IP Telephony Opportunities 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

28. Accounting RateIP-TelephonyDifference PTO in Developed country Collect US$ 1.00 from user Pays US $ 0.55 settlement. Retains US $ 0.45 Collect US$ 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$ Challenges Revenue gain and revenue loss

29. ISP PSTN Operator Switch How the operators in developping countries stop IP-Telephony Operator check only this line Users can call ISP but ISP is unable to call users

30. 30 International Interconnection 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