Process and Principles for
Interconnection rates calculation
by
Werner Neu
Arusha, 15 to 17 April 2002
Slide 0
Agenda
What are Switched Interconnection Services?
What should be regulated?
How to set Prices
Unbundling & Number Portability
Slide 1
What is interconnection? (1)
n
n Very
Very generally,
generally, interconnection
interconnection allows
allows that
that people
people at
at two
two different
different
places
places anywhere
anywhere in
in the
the world
world can
can communicate
communicate with
with each
each other
other ––
across
across many
many different
different networks
networks
n
n Assures
Assures the
the any-to-any
any-to-any principle
principle in
in telecommunications
telecommunications
n
n In
In aa national
national market
market being
being opened
opened to
to competition,
competition, interconnection
interconnection
with
with existing
existing networks
networks is
is aa necessary
necessary condition
condition for
for newly
newly entering
entering
operators
operators to
to succeed
succeed
Slide 2
Basic Services
n
n Principal
Principal services
services
ð
ð Call
Call termination
termination // Call
Call origination
origination // Terminating
Terminating access
access
ð
ð Transit
Transit services
services
ð
ð Mobile
Mobile termination
termination
n
n Ancillary
Ancillary services:
services:
ð
ð Access
Access to
to Directory
Directory services
services
ð
ð Access
Access to
to Emergency
Emergency services
services
ð
ð Billing
Billing services
services
Slide 3
Call Termination
Termination
Retail
payment
0228/700-1234
Interconnection
payment
OLO,
IC-Partner
Incumbent
Point of Interconnect
0228/700-1234
Handover of the call close to the destination
Slide 4
Call Origination (Carrier Selection)
Origination
Interconnection
payment
01070 0228 ...
Incumbent
OLO,
IC-Partner
Retail
payment
Handover of the call close to the origin
Slide 5
Carrier Selection & Call Termination
01070 0228/700-1234 ...
Incumbent
OLO,
IC-Partner
Incumbent
OLO 2
0228/700-1234
Slide 6
Transit Services
pure transit
IC-Partner 1
Incumbent
IC-Partner 2
transit + termination
("cascade service")
Slide 7
Fixed to Mobile and Mobile to Fixed
Retail price
48 cents/ min
Fixed
Retail Price
34 cents/ min
Mobile
Mobile termination rate
38 cents/ min
Mobile
Fix termination rate
6 cents/ min
Fixed
Note: All prices shown are indicative only
Generally, mobile termination rates are above fixed termination rates
Slide 8
Other Interconnection Services
n
n Emergency
Emergency Calls
Calls
n
n Number
Number Translation
Translation
Services
Services (e.g.
(e.g. Freephone,
Freephone,
Shared
Shared Cost,
Cost, Premium
Premium
Rate,
Rate, Personal
Personal Number)
Number)
0800
0700
0900
n
n Internet
Internet Access
Access
n
n International
International
Interconnection
Interconnection
n
n Mobile
Mobile Termination
Termination
n
n Third
Third Party
Party Billing
Billing
Slide 9
Agenda
What are Switched Interconnection Services?
What should be regulated?
How to set Prices
Unbundling & Number Portability
Slide 10
Numerous Regulatory Issues arise when ensuring the
shared Use of Resources, the most controversial one
being Pricing
Shared Use of Resources
Interconnection
Unbundling
Local Loop
• P.o.I.
• product scope
• I. billing
• pricing
• IC at local level
• cost standards
• I. routing. ....
• role of negotiations
• role of regulator
Other License
obligations
• degree
• co-location
• site sharing
• air conditioning
• fault repair, ventilation
• information requests
• ....
• number portability
• 3rd party billing
• payment collection
• carrier pre-selection
• tariff rebalancing
•....
Slide 11
www.detecon.de
Which Services to be Regulated?
n
n General
General rule:
rule: Only
Only those
those services
services shall
shall be
be regulated
regulated which
which constitute
constitute an
an
„essential
„essential facility“
facility“
n
n Essential
Essential facilities
facilities are
are basically
basically characterised
characterised by
by the
the following:
following:
n
n They
They are
are essential
essential for
for the
the interconnecting
interconnecting party
party to
to provide
provide their
their
services
services and
and
n
n they
they can
can not
not be
be provided
provided by
by any
any party
party besides
besides the
the owner
owner of
of the
the
essential
essential facility
facility under
under reasonable
reasonable terms
terms (within
(within reasonable
reasonable time,
time,
under
under reasonable
reasonable costs).
costs). Termination
Termination services
services generally
generally qualify
qualify as
as
such
such services
services
Slide 12
Guidelines for Negotiations
n
n In
In general,
general, interconnection
interconnection agreements
agreements between
between operators
operators
without
without SMP
SMP should
should be
be freely
freely negotiable
negotiable
n
n Nevertheless,
Nevertheless, itit is
is necessary
necessary to
to define
define general
general guidelines
guidelines as
as
the
the public
public interest
interest is
is concerned
concerned in
in any
any case
case
Slide 13
Guidelines for Negotiations: Interconnection
Agreement
n
n Each
Each interconnection
interconnection agreement
agreement shall
shall contain
contain mutual
mutual obligations
obligations and
and
responsibilities
responsibilities to
to protect
protect interests
interests of
of users
users
n
n Each
Each operator
operator should
should be
be required
required to
to negotiate
negotiate in
in good
good faith:
faith:
ð
ð no
no intentional
intentional misleading
misleading
ð
ð no
no coercion
coercion into
into making
making an
an agreement
agreement
ð
ð no
no intentional
intentional obstruction
obstruction
Slide 14
Rights of the Regulator
n
n right
right to
to intervene
intervene in
in negotiations
negotiations on
on its
its own
own initiative
initiative or
or on
on
request
request by
by either
either party
party
n
n right
right to
to set
set time
time limits
limits for
for negotiations
negotiations
n
n right
right to
to inspect
inspect agreements
agreements in
in the
the sphere
sphere of
of the
the public
public
telecommunications
telecommunications network
network (PTN)
(PTN)
n
n right
right to
to require
require aa PTN
PTN operator
operator to
to provide
provide interconnection
interconnection to
to its
its
facilities
facilities
Slide 15
Guidelines for Negotiations of SMP Operators (1)
n
n The
The SMP
SMP operators
operators should
should be
be obliged
obliged to
to
ð
ð meet
meet all
all reasonable
reasonable requests
requests for
for access
access to
to its
its network
network
ð
ð adhere
adhere to
to the
the principle
principle of
of non-discrimination
non-discrimination
ð
ð make
make available
available the
the agreements
agreements concluded
concluded to
to the
the MCI
MCI and
and
on
on request
request to
to interested
interested parties
parties (except
(except confidential
confidential
parts)
parts)
ð
ð publish
publish aa standard
standard interconnect
interconnect offer
offer
Slide 16
Guidelines for Negotiations of SMP Operators (2)
n
n Components
Components of
of aa standard
standard interconnect
interconnect offer
offer
ð
ð Call
Call termination
termination (local,
(local, single-tandem,
single-tandem, inter-tandem)
inter-tandem)
ð
ð Transit
Transit calls
calls (single,
(single, inter-tandem)
inter-tandem)
ð
ð International
International outgoing
outgoing calls
calls
ð
ð Physical
Physical collocation
collocation interconnect
interconnect and
and handover
handover
ð
ð Customer-sited
Customer-sited interconnect
interconnect and
and handover
handover
ð
ð Ancillary
Ancillary and
and advanced
advanced services,
services, e.g.
e.g.
ð
ð Operator
Operator assistance
assistance
ð
ð Directory
Directory services
services
ð
ð Emergency
Emergency services
services
ð
ð Billing
Billing services
services
Slide 17
Reference Interconnection Offer (RIO) by
Major Network Operator
n
n The
The obligation
obligation to
to publish
publish their
their interconnection
interconnection offer
offer or
or to
to make
make aa reference
reference
interconnection
interconnection offer
offer (RIO)
(RIO) can
can help
help to
to prevent
prevent the
the incumbent
incumbent from
from playing
playing off
off
one
one competitor
competitor against
against another.
another.
n
n For
For example,
example, according
according to
to the
the Annual
Annual ITU
ITU Telecommunication
Telecommunication Regulatory
Regulatory
Survey,
Survey, about
about 50
50 countries
countries make
make interconnection
interconnection agreements
agreements publicly
publicly
available,
available, such
such as
as Canada,
Canada, over
over the
the internet.
internet.
n
n Some
Some mechanism
mechanism should
should be
be in
in place
place to
to protect
protect commercial
commercial confidential
confidential
information
information in
in interconnection
interconnection agreements,
agreements, (e.g.
(e.g. confidential
confidential annexes
annexes can
can be
be
separated
separated out).
out).
Slide 18
Transparency and Information Required
n
n The
The availability
availability of
of points
points of
of interconnection
interconnection should
should be
be indicated
indicated in
in the
the Reference
Reference
Interconnect
Interconnect Agreement
Agreement to
to be
be published
published by
by the
the Incumbent.
Incumbent.
n
n Regulator
Regulator should
should ensure
ensure that
that interconnection
interconnection is
is available
available and
and that
that all
all necessary
necessary
information
information is
is furnished
furnished by
by the
the operator,
operator, e.g.
e.g.
n
n POI
POI location
location with
with exchange
exchange type
type and
and address,
address,
n
n description
description of
of network
network facilities
facilities to
to be
be interconnected,
interconnected,
n
n specific
specific capacity
capacity and
and traffic
traffic volume
volume requirements,
requirements,
n
n definition
definition which
which party
party has
has to
to provide
provide which
which facility,
facility,
n
n other
other technical
technical specifications,
specifications, e.g.
e.g. calling
calling line
line identification
identification specifications
specifications
n
n Information
Information should
should also
also include
include signalling
signalling interconnection,
interconnection, e.g.
e.g. type
type of
of
standard,
standard, point
point codes,
codes, use
use of
of leased
leased lines,
lines, diagram
diagram of
of signalling
signalling
interconnection
interconnection architecture
architecture
Slide 19
Points of Interconnection (POIs) at Any
Technically Feasible Point
n
n General
General rule:
rule: incumbent
incumbent shall
shall permit
permit interconnection
interconnection at
at any
any
technically
technically feasible
feasible point
point :: local
local switching
switching level
level (local
(local interconnection),
interconnection),
tandem
tandem switching
switching level
level (single
(single tandem
tandem interconnection)
interconnection) and
and trunk
trunk
connection
connection (double
(double tandem
tandem interconnection)
interconnection)
n
n France:
France: competitors
competitors required
required to
to establish
establish aa POI
POI in
in each
each of
of the
the
country’s
country’s 18
18 local
local government
government jurisdictions.
jurisdictions.
n
n Spain
Spain non-facility
non-facility based
based competitors
competitors have
have to
to maintain
maintain aa POI
POI in
in each
each of
of
the
the 52
52 provinces
provinces in
in which
which they
they originate
originate traffic.
traffic.
n
n In
In Germany,
Germany, competitors
competitors must
must open
open aa new
new POI
POI once
once their
their traffic
traffic at
at any
any
existing
existing POI
POI exceeds
exceeds aa certain
certain capacity
capacity threshold
threshold (48,8
(48,8 Erlang)
Erlang)
Slide 20
Requirements for Geographic Roll-Out of POIs
n
n Some
Some interconnection
interconnection regimes
regimes require
require minimum
minimum number
number of
of
points
points of
of interconnect,
interconnect, e.g.
e.g.
ð
ð to
to receive
receive aa licence
licence
ð
ð to
to be
be able
able to
to offer
offer country-wide
country-wide services
services
ð
ð to
to fulfill
fulfill requirements
requirements of
of network
network integrity
integrity of
of the
the incumbent's
incumbent's
network
network
n
n The
The number
number of
of POI
POI determines
determines the
the cost
cost structure
structure
ð
ð low
low number
number of
of POI
POI =>
=> low
low set-up
set-up costs
costs (for
(for own
own network),
network), in
in
average
average high
high per-minute
per-minute charges
charges
ð
ð high
high number
number of
of POI
POI =>
=> higher
higher set-up
set-up costs
costs (for
(for own
own network,
network,
leased
leased lines,
lines, etc.),
etc.), decreasing
decreasing average
average per-minute
per-minute charges
charges
Slide 21
When Shall the Regulator Step in?
n
n Some
Some countries
countries favoured
favoured aa policy
policy of
of industry
industry negotiations
negotiations of
of interconnection
interconnection
agreements,
agreements, operators
operators may
may seek
seek dispute
dispute regulations,
regulations, ifif negotiations
negotiations fail.
fail.
n
n Growing
Growing consensus:
consensus: advance
advance regulatory
regulatory guidelines
guidelines better
better suited
suited to
to establish
establish
the
the proper
proper environment
environment for
for interconnection.
interconnection.
n
n International
International experiences:
experiences: lack
lack of
of advance
advance regulatory
regulatory guidelines
guidelines hinders
hinders
development
development of
of competition,
competition, delaying
delaying the
the introduction
introduction of
of competition.
competition.
n
n In
In many
many countries
countries interconnect
interconnect terms
terms and
and conditions
conditions and
and charges
charges with
with SMP
SMP
are
are subject
subject to
to ex-ante
ex-ante regulation
regulation (approval
(approval or
or establishment
establishment by
by the
the
Regulator)
Regulator)
n
n Otherwise
Otherwise dominant
dominant operators
operators may
may be
be tempted
tempted to
to set
set charges
charges and
and conditions
conditions
which
which are
are disadvantageous
disadvantageous
n
n Ex-ante
Ex-ante regulation
regulation of
of charges
charges for
for operators
operators with
with SMP
SMP reduces
reduces time
time to
to reach
reach aa
fair
fair agreement.
agreement.
Slide 22
Guidelines for Dispute Resolution
n
n When
When no
no agreement
agreement on
on interconnection
interconnection is
is brought
brought about,
about, either
either party
party may
may
appeal
appeal to
to the
the MCI
MCI for
for dispute
dispute resolution.
resolution.
n
n The
The MCI
MCI has
has the
the right
right to
to refuse
refuse when
when none
none of
of the
the operators
operators has
has SMP.
SMP.
n
n In
In any
any other
other case
case the
the Regulator
Regulator shall
shall decide
decide on
on the
the dispute
dispute within
within aa period
period of
of
eight
eight weeks.
weeks. This
This period
period may
may be
be extended
extended by
by aa maximum
maximum of
of four
four weeks.
weeks.
n
n The
The Regulator
Regulator shall
shall
n
n take
take into
into consideration
consideration the
the interests
interests of
of the
the users
users and
and the
the entrepreneurial
entrepreneurial
freedom
freedom of
of the
the operators
operators to
to configure
configure their
their networks
networks
n
n decide
decide on
on the
the basis
basis of
of public
public oral
oral proceedings
proceedings
n
n give
give the
the parties
parties concerned
concerned and
and business
business circles
circles affected
affected the
the opportunity
opportunity to
to
state
state their
their case
case
Slide 23
Guidelines for Dispute Resolution (2)
n
n The
The decision
decision of
of the
the Regulator
Regulator has
has to
to be
be substantiated
substantiated and
and published.
published.
n
n The
The Regulator
Regulator may
may backdate
backdate any
any determination
determination to
to remove
remove an
an incentive
incentive for
for
delaying
delaying tactics.
tactics.
n
n The
The operators
operators shall
shall comply
comply with
with the
the decision
decision of
of the
the Regulator
Regulator within
within aa period
period
not
not exceeding
exceeding aa predetermined
predetermined period
period (e.g.
(e.g. 12
12 weeks).
weeks).
n
n The
The operators
operators may
may take
take case
case to
to aa court
court of
of appeal
appeal within
within aa period
period not
not
exceeding
exceeding aa predetermined
predetermined period
period (e.g.
(e.g. 44 weeks).
weeks). Such
Such appeal
appeal shall
shall not
not
have
have suspensory
suspensory effect.
effect.
Slide 24
Agenda
What are Switched Interconnection Services?
What should be regulated?
How to set Prices
Unbundling & Number Portability
Slide 25
Methods of Determining Interconnection Charges
n
n Cost
Cost based
based
ð
ð Long
Long Run
Run Incremental
Incremental Cost
Cost Accounting
Accounting Method
Method (LRIC)
(LRIC)
ð
ð Fully
Fully Distributed
Distributed Cost
Cost accounting
accounting methodology
methodology (FDC)
(FDC)
n
n Others
Others
ð
ð Revenue
Revenue Sharing
Sharing
ð
ð Bill
Bill and
and keep
keep
ð
ð Retail
Retail minus
minus
ð
ð Benchmarking
Benchmarking
Slide 26
Pricing of Interconnection
- Two part structure -
Transit
0800
0900
0700
Interconnect
Link
Interconnect
Services
Slide 27
Pricing of Interconnection Services
- Determined by network structure international
gateway
tandem
switching level
local
switching
level
concentrator
Slide 28
Pricing of Interconnection Services
- Element based charging (EBC) n
n Definition
Definition of
of Service
Service by
by network
network elements
elements
ð
ð local
local interconnection
interconnection
ð
ð single
single tandem
tandem interconnection
interconnection
ð
ð double
double tandem
tandem interconnection
interconnection
Slide 29
Pricing Interconnection Network Services :
Based on costs from a bottom-up model
Identify
fundamental
cost drivers of
networks
•coverage
(geographical
extent of the
network)
network’s capapacity to handle
• traffic
Cost of
network
components
• physical items
of equipment
• directly related
operational /
maintenance
costs
• customers
Annuitisation
of costs
• purchase
value
• cost of capital
• price trend
• asset life
Allocation of
component
costs to
network
services
• map network
elements to
network
services via
routing table
• divide
annualised
costs by
volume
Cost of
particular
product
Mark ups
• operational
costs
• product /
supply costs
• common
costs
• externalities
• customers
• incoming
minutes
• outgoing
minutes (onnet / off-net)
• etc......
Slide 30
www.detecon.de
Pricing Interconnection Networks Services :
Determining the costs of network components
number of physical units of all network elements
(concentrators, local switches, single and double tandem switches, transmission links)
capital and operating costs of network elements
(installation etc.)
capacity of network elements
(busy hour erlangs, call attempts etc.)
unit costs of every network element
(dividing costs by traffic)
Slide 31
Pricing Interconnection Network Services :
Pros and cons of bottom-up LRIC models
+
-
n suited for modelling forwardlooking (long run) costs
n different views about efficient
network
n lack of transparency and difficult
to implement
n arbitrary as to determination of
essential input parameters
n variety of forecasting and
modelling assumptions
(equipment design utilisations,
future asset prices, future voice
and data volumes) leads to high
uncertainty about results
è sensitivity analyses demonstrate
that, depending on the data for
structural parameters, prices
may vary significantly
n reflects complex linkages
n offers a rather detailed view of
(hypothetical efficient) cost
structures
n no dependency on cost
calculation system of the
company subject to regulation
n most effective when existing
network structure is
considered to be inefficient
Slide 32
www.detecon.de
Pricing Interconnection Network Services :
Based on costs from a top-down model
Traditional business structure is based on functional area
(sales and marketing, planning, operation etc.)
Product cost data not available from normal accounts systems
(which is cost centre based)
Need to allocate accounts-based data fully to products and services
After allocation, costs are contained in
1) products, 2) network elements, 3) related functions and 4) other functions
Slide 33
Top-Down Models:
Implementing a suitable cost accounting system
Objective
Ø to follow the basic principles of cost orientation and transparency
Ø to prevent discriminatory behaviour such as cross-subsidisation
Requirements to dominant operator
Ø keep separate accounts of
§ telecommunication activities and other activities
§ regulated and un-regulated activities
§ each activity that is subject to regulation
Ø allocate costs, capital employed and revenue in accordance with principle of
(direct or indirect) cost causation (i.e. ABC) (at least 90%)
Ø clearly identify unattributable costs in a specific account
Slide 34
Accounting Separation: Allocation of Costs
Operating Costs
Capital Costs
Accounting entries
Data Capture
i.e. Depreciation
Allocation
Services
Related
Functions
Network Components
Allocating Costs of Other Functions
Services
Network Components
Step 3
Step 2
Costs of functions
not related to the provision
of particular services:
planning, personnel.
Costs
of functions necessary
for the provision of services to the
customer such as billing,
maintenance and customer
services
Costs relating to the various components of transmission, switching and other network plant and systems
Allocating Costs of Network Components
Costs that can be directly identified with
a particular (wholesale or resale) service
Services
Step 4
Step 1
Related
Functions
Network Components
Allocating Costs of Related Functions
Services
Other
Functions
Allocating Costs of Services
Businesses
Slide 35
Top-Down Allocation of Costs
product
product
specific
specific
costs:
costs:
i.e.billing
i.e.billing
all
costs
to be
allocated
operational
costs
support
costs (i.e. PC
ABC
ABC
analysis
analysis
Co
fin st
al po
pr ols
od
uc to
ts
support costs)
+
network
network
element
element
costs
costs
+
network model or
routing table
allocation sheet
product volume
data
other(overhead)
(overhead)costs
costs
other
totalproduct
product
total
costs
costs
product
routing tables
allocate via mark
ups
Slide 36
Activity Based Costing Principles are Fundamental to Any
Top-Down Model
The ABC-Model attributes resources to activities and finally to services
Resources
i.e personnel, building
ResourceDriver
Driver
Resource
i.e.numberofofman-hours
man-hours
i.e.number
Activities
i.e Billing
ActivityDriver
Driver
Activity
Objects
i.e.number
numberof
ofbills
bills
i.e.
i.e Local IC-Minute,
residential customers
è As to cost assignment the focus is on why and what consumes costs, rather than
how to allocate costs that have already been occurred
Slide 37
Interconnection Charges: Revenue Sharing
n
n Entrant
Entrant pays
pays incumbent
incumbent share
share of
of his
his revenues
revenues as
as compensation
compensation
n
n Operated
Operated in
in countries
countries with
with limited
limited competition
competition or
or protected
protected monopolies,
monopolies,
e.g.
e.g. Thailand,
Thailand, Indonesia,
Indonesia, China,
China, Russia,
Russia, Nigeria
Nigeria before
before privatisation.
privatisation.
ð
ð
ð
ð
ð
ð
easy
easy to
to implement;
implement; No
No further
further cost
cost studies
studies have
have to
to be
be made,
made,
payments
payments can
can easily
easily be
be calculated
calculated on
on the
the basis
basis of
of call
call records.
records.
Payments
Payments are
are not
not connected
connected to
to the
the costs,
costs, no
no indication
indication whether
whether the
the
incumbent
incumbent is
is overover- or
or undercompensated.
undercompensated.
ð
ð Worst
Worst case:
case: interconnect
interconnect agreements
agreements contains
contains clauses
clauses for
for retail
retail tariffs,
tariffs, e.g.
e.g.
condition
condition that
that new
new entrants
entrants tariffs
tariffs have
have to
to be
be based
based on
on incumbents
incumbents tariffs.
tariffs.
ð
ð New
New entrant
entrant not
not able
able to
to compete
compete on
on basis
basis of
of prices;
prices; competition
competition will
will be
be
limited
limited only
only to
to niche
niche markets
markets where
where people
people are
are willing
willing to
to pay
pay aa higher
higher price,
price,
e.g.
e.g. because
because no
no service
service otherwise.
otherwise.
n
n For
For incumbent,
incumbent, model
model is
is very
very favourable:
favourable: receives
receives additional
additional revenues
revenues and
and
widens
widens the
the subscriber
subscriber base
base without
without own
own expenses.
expenses.
n
n For
For aa country
country that
that wants
wants to
to liberalise
liberalise markets
markets and
and that
that regards
regards competition
competition
as
as the
the major
major driver
driver for
for market
market growth
growth and
and innovation,
innovation, revenue
revenue sharing
sharing is
is
not
not recommended.
recommended.
Slide 38
Interconnection Charges: Bill & Keep
n
n Simple
Simple methodology:
methodology: Operators
Operators do
do not
not pay
pay each
each other
other for
for termination.
termination. Bill
Bill
own
own customers
customers only
only &
& keeps
keeps revenues.
revenues. Each
Each operator
operator pays
pays own
own facilities.
facilities.
n
n IfIf more
more calls
calls are
are terminated
terminated in
in the
the incumbent
incumbent network,
network, new
new operators
operators have
have
an
an advantage
advantage
n
n Approach
Approach is
is applied
applied in
in Canada,
Canada, Mexico
Mexico and
and some
some States
States in
in the
the USA.
USA.
ð
ð Simple
Simple model;
model; fits
fits good
good with
with balanced
balanced traffic
traffic flows.
flows. With
With Unbalanced
Unbalanced traffic
traffic
ð
ð
ð
ð
flows
flows itit favours
favours smaller
smaller operators
operators &
& supports
supports new
new competitors.
competitors.
Recommended
Recommended with
with flat
flat rate
rate regimes
regimes or
or below-cost
below-cost local
local call
call charges:
charges: cost
cost
based
based tariffs
tariffs would
would imply
imply IC
IC charges
charges above
above retail
retail tariffs
tariffs
With
With Unbalanced
Unbalanced traffic
traffic flows
flows disadvatage
disadvatage for
for operators
operators with
with higher
higher traffic.
traffic. Bill
Bill
and
and keep
keep does
does not
not reflect
reflect the
the cost
cost of
of interconnection.
interconnection.
n
n Bill
Bill and
and keep
keep is
is aa simple
simple and
and easy
easy to
to implement
implement instrument.
instrument. Works
Works best
best
with
with similar
similar traffic
traffic flows
flows &
& cost
cost structures.
structures.
n
n Appropriate
Appropriate to
to promote
promote competition
competition ifif retail
retail tariffs
tariffs are
are below
below cost
cost or
or where
where
flat
flat rate
rate are
are applied,
applied, e.g.
e.g. for
for local
local calls
calls or
or homogeneous
homogeneous data
data networks.
networks.
Slide 39
Interconnection Charges: Retail Minus
n
n IC
IC rates
rates == retail
retail tariffs
tariffs minus
minus xx percent.
percent. Discount
Discount can
can reflect
reflect avoided
avoided cost,
cost,
e.g.
e.g. for
for billing
billing or
or marketing.
marketing.
n
n Retail
Retail minus
minus was
was used
used in
in US
US and
and Japan
Japan before1995.
before1995.
ð
ð Comparably
Comparably easy
easy to
to calculate.
calculate. Ensures
Ensures compensation
compensation for
for interconnection
interconnection
ð
ð
ð
ð
ð
ð
ensures
ensures ability
ability to
to compete
compete also
also on
on prices.
prices.
Calculation
Calculation can
can never
never be
be exact.
exact. Danger
Danger of
of overover- or
or undercompensation.
undercompensation.
IfIf retail
retail tariffs
tariffs are
are below
below cost
cost incumbents
incumbents will
will be
be under-compensated.
under-compensated.
Retail
Retail plus
plus approach
approach is
is even
even worse:
worse: the
the same
same estimation
estimation problems
problems and
and
negative
negative effects
effects for
for competition.
competition.
n
n Retail
Retail minus
minus can
can serve
serve as
as aa quick
quick proxy
proxy ifif decisions
decisions have
have to
to be
be made
made
quickly
quickly and
and for
for the
the transition
transition period
period until
until information
information about
about interconnection
interconnection
costs
costs are
are available.
available.
n
n Retail
Retail minus
minus mechanism
mechanism should
should not
not prevail
prevail for
for aa longer
longer time
time because
because of
of its
its
weakness
weakness to
to assess
assess the
the right
right amount
amount of
of discount
discount to
to be
be provided.
provided.
Slide 40
Interconnection Charges: Benchmarking
n
n Applied
Applied in
in some
some member
member states
states of
of the
the EU,
EU, e.g.
e.g. in
in Denmark.
Denmark.
n
n European
European Commission
Commission has
has undertaken
undertaken research
research on
on tariffs
tariffs for
for
interconnection
interconnection and
and defined
defined „best
„best practice“
practice“ of
of the
the best
best three
three countries.
countries.
n
n Member
Member states
states are
are requested
requested to
to near
near their
their interconnection
interconnection tariffs
tariffs to
to the
the
best
best practice
practice benchmark.
benchmark.
n
n Benchmarking
Benchmarking can
can deliver
deliver aa range
range of
of tariffs
tariffs within
within which
which interconnection
interconnection
charges
charges should
should be
be set.
set.
n
n Can
Can also
also be
be used
used to
to cross-check
cross-check results
results from
from cost
cost based
based tariff
tariff calculation.
calculation.
n
n Works
Works well
well in
in environments
environments where
where interconnection
interconnection charges
charges are
are sufficiently
sufficiently
comparable,
comparable, e.g.
e.g. where
where network
network and
and charging
charging structures
structures are
are sufficiently
sufficiently
homogeneous.
homogeneous.
n
n The
The problem
problem of
of benchmarks
benchmarks is
is that
that the
the respective
respective costs
costs of
of services
services have
have to
to
be
be comparable.
comparable. Challenge
Challenge is
is to
to make
make information
information comparable
comparable and
and to
to
account
account for
for differences
differences
n
n They
They can
can also
also deliver
deliver targets
targets from
from best
best practice
practice countries
countries or
or “worst
“worst
practice”
practice” examples,
examples,
Slide 41
Interconnection Charges: Benchmarking - IC tariffs in the
European Union
EU: Local Termination (per minute/peak rate)
EU: Single Transit (per minute/peak rate)
0.025 €
0.025 €
Luxembourg
0.020 €
0.015 €
0.015 €
Finland
Germany
Belgium
0.010 €
Denmark
France
0.005 €
-
0.020 €
Greece
Austria
Luxembourg
Germany
Netherlands
Portugal
Italy Ireland
Spain
0.010 €
Austria
Belgium
Greece
Italy Ireland
Spain
France
Portugal
Finland
Netherlands
Sweden
Denmark
Best Practice
UK
Sweden
Best Practice
UK
0.005 €
-
€
€
EU: Double Transit (per minute/peak rate)
0.035 €
Finland
0.030 €
Belgium
0.025 €
France
Austria
0.020 €
Denmark
0.015 €
Spain
Greece
Germany
Italy Ireland
Best Practice
Portugal
Luxembourg
Netherlands
Sweden UK
0.010 €
0.005 €
-
€
Slide 42