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Interconnection
principles
Dr Tim Kelly, ITU
ITU/TOT Workshop on ‘Trends
in Telecom Prices and
Costing in Developing
Economies of the Asia Pacific
Region’ Bangkok,
26-29 November 2001
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 e-mail at [email protected].
International Telecommunication Union
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
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International Telecommunication Union
Competition in basic
services, by region, 2000
100%
Monopoly
Partial competition
Competition
90%
80%
70%
60%
50%
40%
Source: ITU
Telecom
Regulatory
Database.
30%
20%
10%
0%
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Africa
Americas
Asia-
Arab
Pacific
States
Europe
International Telecommunication Union
Competition in basic services, 1995
- 2012
Countries
100
90
80
70
60
50
40
30
Local
Long distance
International
20
10
0
4
1995
1997
2000
Source: ITU Telecommunications Regulatory Database.
2003
2012
International Telecommunication Union
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:
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 WTO basic telecoms agreement (15 Feb ’97)
 EU full competition (1 January 1998)
International Telecommunication Union
Competition in selected
services, 2000
90%
Monopoly
Partial competition
Competition
80%
70%
60%
50%
40%
30%
20%
10%
0%
6
Basic
services
Cellular
Cable TV
Source: ITU Telecommunications Regulatory Database.
ISPs
International Telecommunication Union
Competition in Asia-Pacific, 2000
80%
Monopoly Partial competition
Competition
70%
60%
50%
40%
30%
20%
10%
0%
Local
7
Long
distance
International
Source: ITU Telecommunications Regulatory Database.
Cellular
Countries permitting competition in
basic telecoms:
1990
Japan
United Kingdom
United States
1995
Australia
Canada
Chile
Finland
Japan
Korea (Rep.)
New Zealand
Philippines
Sweden
United Kingdom
United States
1998
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
Calling opportunities, China
1990:
Total, 6.5 m fixed
+ 0.02 m mobile
Mobile-tomobile,
16%
1995:
Total, 40.7 m fixed
+ 3.6 m mobile
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Source: ITU World Telecommunication
Indicators Database.
Fixed-tofixed, 36%
Mobile-tofixed, 24%
2000:
Fixed-tomobile,
24%
Total, 129.8 m fixed + 85.3 m mobile
International Telecommunication Union
Telecoms at the WTO
 1947-1986: GATT
 Successive rounds of trade negotiations reduce trade
barriers for telecom equipment
 1986-1994: Uruguay round
 Negotiations begin on Trade in Services
 Culminate in creation of WTO and GATS
 1994-97: Basic telecommunications agreement
(Protocol 4 to the GATS)
 72 countries (93% of market by value), make telecom
commitments
 Information Technology Agreement sees further
liberalisation
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 5 February 1998: Implementation of basic telecoms
agreement
 November 2001: Successful conclusions of Doha
Summit sees launch of new trade negotiating round,
International Telecommunication Union
Selected trade principles
 Market access
 Access to foreign market on reasonable, nonburdensome 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
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International Telecommunication Union
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”




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Universal service
Transparency
Independent regulators
Allocation and use of scarce resources
International Telecommunication Union
Interconnection principles (1)
 Interconnection with a major supplier will be
ensured at any technically feasible point in the
network. Such interconnection is provided.
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(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
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:
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• (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
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
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International Telecommunication Union
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
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 Variations on the above
International Telecommunication Union
Countries with an Interconnection
regulatory framework, by region
Countries
40
35
30
25
20
15
10
5
0
Africa
Americas
Arab
States
17
Source: ITU Telecommunications Regulatory Database.
AsiaPacific
Europe
International Telecommunication Union
Countries imposing regulatory
obligations
Countries
60
50
40
30
20
10
0
Incumbent
(fixed) only
18
Fixed
operators
SMP
All fixed
operators
All mobile
operators
Source: ITU Telecommunications Regulatory Database.
Mobile
operators
SMP
Other
International Telecommunication Union
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:
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
http://europa.eu.int/information_society/topics/telecoms/regulatory/new_rf/com2001-369en.pdf
International Telecommunication Union
Range of Interconnection rates in EU, US$
per minute
Fixed-tomobile
Mobile-tofixed DOUBLE
TRANSIT
Lowest
Best-practice
(20%) guideline
Highest
Mobile-tofixed SINGLE
TRANSIT
Source: ITU,
compiled from
ECTA/Analysys, EU
Interconnection
Tariffs in Member
States, ITU
Regulatory Survey
2000.
Mobile-tofixed LOCAL
20
0
5
10
15
20
25
30
International Telecommunication Union
Selected European interconnect and
settlement rates,
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US cents per min, 2000
12
Double transit
interconnect
Settlement
Rate to USA
10
8
6
4
2
0
Spain
21
Sources: ITU, EU, FCC.
Italy
France Germany
Netherlands
UK
International Telecommunication Union
Double transit interconnection
(in US
cents per minute)
5
4
Spain
3
Germany
2
France
UK
1
22
0
Mar-98
Sources: ITU, EU.
Sep-98
Dec-98
Mar-99
Nov-99
International Telecommunication Union
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, realtime/store and forward) over same network
 Variable quality of service
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 Possible variation in interconnection charges (or refunds)
according to different levels of service quality
International Telecommunication Union
For more information ….
 ITU publication “Trends in
Telecom Reform 2001,
Interconnection
Regulation”
 ITU website on regulation
at: www.itu.int/ITU-D/treg/index.html
 WTO website at
www.wto.org
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