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pages. Chapter: 4: Module 3: Interconnection  |
Lesson 4: Technical and Operational Factors Influencing InterconnectionLesson ObjectivesThis lesson introduces critical components that arise and effect interconnection. This lesson introduces the student to various categories of pricing and the unbundling of network components. The quality of service of interconnecting operators is as well discussed.
4.1 PricingOne of the desirable features of a competitive market is that it virtually eliminates the need for government involvement in pricing decisions. Because any regulatory process is inevitably imprecise, slow to respond to market developments, and strongly influenced by social and political forces, regulatory decisions about prices are imperfect. Prices established by a functioning market mechanism, in response to the pressures of supply and demand, are likely to be far more satisfactory. Although ending or minimizing government involvement in pricing decisions is desirable, the government will probably have to be closely involved in these decisions for some time, partly because restructuring is likely to require some rebalancing of rates among different services. Rate rebalancing is politically sensitive, and the government is certain to be involved, whether or not such involvement is desirable. In addition, as a market moves from a non-competitive to a more competitive state, there may be a need for price scrutiny. Such scrutiny may be required to ensure that a dominant firm does not use its market power in one sector of the market to establish anticompetitive rates in another sector. And since a former monopoly telephone company is likely to retain some degree of market power for a while, at least in some sectors of the telecommunications market, price regulation to prevent monopoly pricing strategies may be necessary or appropriate. Interconnection comes with a variety of problems. None is more contagious than its price. The setting of access charges can be a tool for regulators to finance unrelated policy goals, for incumbents to frustrate competition, and for entrants to grab subsidy. Agreements on price rarely materialize in unregulated markets with unequal bargaining powers because a profit-seeking incumbent lacks the incentive to grant interconnection to a rival unless it recoups the losses of its monopoly rent. With voluntary agreements not forthcoming, government enters the field. And with government in the picture, access charges become less a mechanism for compensation and more a tool for broader policy. The challenge for regulators becomes setting prices for an intermediate good-access so as to encourage entry by newcomers, avoid inefficient entry, and provide an incentive for efficiency and upgrade. The pricing options for interconnection charges are:
It would take us too far afield to analyse the pros and cons of each of these options. Most require substantial regulatory resources, as subject entrants to exclusionary prices. A much simpler option is to set the interconnection charge as a wholesale charge, of the kind payable by a large user rather than a retail user. A retail charge will leave no margin for an interconnector to compete for customers. As you go through the section below focus on the roles intoroduced in the course introduction, technology is one contentious issue to be implemented in the interconnection simulation. All the key role players as mentioned in the course introduction (i.e NCC, Nattel, DomCell, IMN and the Consumers) should be able to consider how their role relate to technology issues in the negotiations. 4.2 Local Loop UnbundlingMethods of Unbundled AccessThere are three main methods of unbundled access, each of which responds to a different service need. These three methods are: Full unbundling of the local loop; Shared use of the copper line; and High speed bit-stream access. They provide complementary means of access. The three different options, see Figure 3-4, solve various operational aspects in terms of time to market, subscriber take-rate, availability of second subscriber line, local exchange node size and availability of collocation space in the exchange.
Full Unbundling of the Local LoopThe common use of unbundling often refers to full unbundling of the local loop, which can be called the direct access form of unbundling. Direct access means that alternative operators have direct physical access to the twisted copper-pairs and may use them in any way agreed to by the regulatory authority or defined bilaterally with the incumbent. Typically there are limits on access technologies and the power spectral density (PSD) of the transmitted signal by the transmission systems. Under these conditions the new operator will serve the subscriber with all requested services. The incumbent is responsible for maintaining the copper network. This is the clean cut solution, which gives the new operator possibilities to offer competitive and complementary services at a QoS level which is determined by operator and the customer. The intention of many new operators is to deliver high-speed services (the market segment with high revenue). With direct access a number of issues arise. Spectrum ManagementUniversal Service Obligation – USOUSO means access to an affordable basic voice telephony service, as defined by the EU Commission, and capable of being applied consistently across all Member States. The level of basic service should be reviewed and redefined from time to time across the EU. In an unbundled market it can be argued to what degree and with what services the incumbent has USO, when competitors are focusing on sweet spots. Does a customer that has selected an alternative operator still have the right to request the incumbent to offer him service according to the USO or is he regarded as a customer on the free market? Over time it is likely that price de-averaging will take place. Both in terms of leasing copper (cost based) and services under USO will result in market based costs with potential subsidy of rural areas where the cost is too high. Life-Line ServiceThe requirement on lifeline services has been met to almost a 100% under the monopoly regime. (The ISDN access with a Terminal Adapter used if the subscriber uses an ordinary phone can in most cases not work in a situation with local power failure.) To offer life-line service for a new operator may be difficult. In Austria, according to the decision of the NRA, the incumbent has no more USO, once the customer decides to change the operator via unbundling. New operators will probably deliver voice service with in-band techniques (Voice over ATM or Voice over IP), which would not be available during a local power failure. The lifeline requirement is likely to be removed, because of the high penetration of mobile phones, which approaches or has exceeded 50%. Shared use of the Copper Line[Detailed discussion of this topic occurs in TR504, the NetTel course on Spectrum Management.] The shared use or Frequency Unbundling is a split of the access portions of the spectrum. The two different spectrum portions are allocated to different operators. Both the alternative operators and the incumbent would have physical access to the copper plant. The foreseen application is that the plain old telephony service (POTS) or ISDN spectrum is separated from the higher frequencies. The shared use has elegance in that different services can be ordered independently from different providers, but the practicalities with this approach are non-trivial. It is well known that the POTS are regulated with a high degree of national requirements. This makes it difficult for new operators to enter with POTS. The shared use of the copper line facilitates fast deployment of broadband access (if the incumbent has provisions for splitters) by a competitive operator, while the quality of service for POTS can safely be maintained for the subscriber by the present service provider. The European Commission supports that Internet Service Providers (ISPs) are given direct access to the unbundled local loop. This has already been implemented, for instance, in Austria. ISPs are in general not interested in offering public telephony. In this case, line sharing is a handy option whenever unused copper wires are not available. The ISPs xDSL-service can then be combined, on the same copper wire, with traditional telephony. However, one major difficulty will be to specify a physical interface. Since ADSL above POTS and ADSL above ISDN uses different spectrum allocation, there may also be different equipment used both for the splitter and for the ADSL. Another problem with frequency unbundling is that it may slow down the migration to an all digital access, where the POTS-band would be reallocated for digital communication (possibly with telephony in-band) to enhance reach and performance. The opposition for this type of unbundling has been strong. This is a common view of the incumbents’ responses to the EC Draft. It is doubtful if this unbundling approach will be used in the field. High Speed Bit-Stream AccessThe bit-stream access form of unbundling is also called service unbundling. With bit-stream access, the incumbent takes on two different roles. One is to maintain and develop the copper plant including deploying all of the physical-layer transmission-systems on it, the other to offer services delivered on top of the physical layer. Alternative operators only take on the second role, competing with services to end-customers either on a circuit- or switched service basis. Bit-stream access allows for a high degree of network optimisation as the incumbent has full control over what physically happens in the copper plant. (This is given that no other form of unbundling is also used). However, the lack of competition on the physical layer may lead to a less aggressive schedule for deployment of new systems and technologies. Also, all operators are limited to the access characteristics that the incumbent chooses to implement, which could give a poorer service offering. In order for a new operator to differ from the incumbent it may offer other services. This may require a higher or more differentiated Quality of Service (QoS) (e.g., Asynchronous Transfer Mode (ATM) traffic classes). As a consequence, this may force the incumbent to get equipment that is over-dimensioned in order to offer all possible QoS. In this way, unnecessarily expensive equipment may be deployed [7].
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