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Lesson 5: Economic Terms in InterconnectionLesson ObjectivesThis chapter discusses the financial part and approaches used to set interconnection charges
5.1 Interconnecting ChargesInterconnecting charges is one of a key issue which claims a significant part of the cost especially to new telecommunication operators. This is so since in most cases only the incumbent has an end-to-end network. Where no regulator exists the interconnection charges may be at the discretion of the incumbent. 5.2 Approaches of Setting Interconnection ChargesA variety of approaches have been used to calculate interconnection charges. Please refer to Table 3-3 in module 3 of [2] for the main approaches to interconnection charges. The main approaches can be listed as follows:
Internationally accepted interconnection principles generally require interconnection charges to be cost-based or cost-oriented. This is the case with the interconnection principles of the WTO's Agreement on Basic Telecommunications and the European Union's Interconnection Directive. Cost-based pricing of interconnection services is consistent with best practices adopted by regulators in most countries For more information refer to: H. Intven, J. Oliver and E. Sepu'lveda, Telecommunications Regulation Handbook, Module 3 - Interconnection (2000) or online on this website http://www.infodev.org/projects/314regulationhandbook/module3.pdf 5.3 Specific Interconnection CostsSpecific interconnection costs can be divided into two, i.e. start-up costs and interconnection links. Start-up CostsThe network infrastructure of most incumbent operators was designed to function on a monopoly basis. In the transition to a competitive telecommunication market, some modifications are usually required to the operator's switching and transmission facilities and related software to permit efficient interconnection among multiple operators. For example, switches must be programmed to recognize and route traffic to telephone numbers on the network of interconnection operators. Additional numbers must often be allocated and equipment modified to deal with them. These modifications are often referred to as start-up costs, since they are required at the outset to permit interconnection. Interconnection LinksDifferent approaches have been adopted to apportion the costs of the physical links between interconnecting operators. Such links include transmission lines or radio links that carry the interconnecting circuits. They also include the ducts, towers, manholes and other support infrastructure, as well as the modifications that are required to the transmission-related facilities (e.g. cross-connects and distribution frames) in order to accommodate the interconnected circuits. As with start-up costs, interconnection links are a necessary prerequisite for the development of a competitive market. Taking this view, regulators may consider it appropriate to apportion the cost of such links between incumbents and new entrants, based on the assumption that end users of all operators will ultimately benefit. 5.4 Internet Charges and Mobile ChargesPlease refer to module 3 on section 3.3.6 and section 3.3.7 of the telecommunication regulation Handbook or at the website mentioned below for Internet Interconnection Charges and Interconnection with Mobile Networks. Module 3 deals with details on interconnection. http://www.infodev.org/projects/314regulationhandbook/module3.pdf You can find a comparative study of interconnection laws available in PDF format at http://www.oecd.org/pdf/M00003000/M00003019.pdf
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