Motivation for Network Interconnection

Scope

This lesson introduces to a student why network interconnection is a necessary facet in telecommunications. The student must be able to understand and explain the relationship between liberalization, competition and interconnection.

Review Questions

1. Is interconnection a precondition for competition? Explain
   
2. Describe what the advantages and disadvantages of competition in relation to interconnection

Connectivity

A basic premise of communications is that one measure of a network's value is its ability to interconnect the maximum number of users. A competitive market that produces many small, detached networks is undesirable, relatively useless, and essentially counter productive. Users value the ability to reach all other communicators through a single, simple access point, such as the telephone. Thus, interconnection is an indispensable feature of the desired communications network structure.

To the extent that any company has an existing substantially installed network, interconnection permits competition to develop in a less costly manner. New entrants permitted to interconnect on reasonable terms and conditions will not have to invest in duplicating existing plant; investment can be devoted instead to expansion and upgrade of facilities and services. Of course, some duplication will be required to accommodate increases in capacity. The cost of installing additional switches (with the associated software) is enormous; therefore, access to the switch is a critical feature of any effort to develop a coherent and competitive market. Transport lines are becoming less expensive, although the costs of installation, in terms of disruption as well as actual installation work, may be substantial in many areas [5].

Liberalization and Competition

Consider what the ITU wrote:

Regulators around the globe consider interconnection to be the single most important issue in the development of a competitive market place for telecommunication services. (Introduction to Trends in telecommunication Reform 2000-2001 "Interconnection Regulation” -3rd edition, 2000 by the International Telecommunication Union www.itu.int/publications/docs/trends2000.htm)

The global telecommunications sector is undergoing major changes. A service that was once considered to be the sole purview of natural and often government -owned monopolies has been privatized and opened to competition, in response to both technological development and the failure of state-owned telecom entities to satisfy the growing telecommunications needs of users and economies. The advent of competition has been accompanied by the creation of National Regulatory Agencies, charged with the responsibility of facilitating market entry by new players, to guard against anti-competitive practices of incumbent monopoly operators, and ensuring that the benefits of competition are passed on to consumers.

All over the globe the introduction of competition in telecommunications has brought tremendous benefits to both consumers and operators. Competition provides consumers with greater choice of service operators, wider variety of services, significantly improved service quality, and more cost reflective tariffs. For developing countries, added benefits include the attraction of badly needed investment, faster network deployment, and wider consumer coverage. In addition, incumbents and other operators are given incentives to make improvements in their efficiency and to exploit opportunities for growth and innovation.

Interconnection is a necessary condition for effective competition since it enables consumers of one network to be able to successfully complete a call to another consumer or service irrespective of whose network the originator of the call is using or to whose network the call recipient or service provider is connected to. This is referred to as the any-to-any principle of interconnection. This requires the interconnection of networks, for example, allowing a cellular customer to communicate not only with existing cellular subscribers but also with the fixed line telephone customers of the incumbent operator and vice-versa. The necessary condition for effective competition is that entrants must not only have access to the incumbent's networks, but access must be on terms and conditions that are fair, non-discriminatory, and transparent [5].