ORGANIZACION DE LOS ESTADOS AMERICANOS
ORGANIZATION OF AMERICAN STATES
Comisión Interamericana de Telecomunicaciones
Inter-American Telecommunication Commission
IX MEETING OF THE I PERMANENT CONSULTING
COMMITTEE: TELECOMMUNICATIONS
September 12 – 15, 2006
Buenos Aires, Argentina
OEA/Ser.L/XVII.4.1
CCP.I-TEL/doc. 880/06
12 September 2006
Original: Spanish
ECUADOR EXPERIENCES IN THE APPLICATION OF THE
COST MODELS APPLICABLE TO THE
INTERCONNECTION OF TELECOMMUNICATION PUBLIC
NETWORKS
(Item of the Agenda: 3.2)
(Document submitted by the delegation of Ecuador)
In Ecuador, in compliance with the legal and regulatory basis, there exist two mechanisms through which
the interconnection of telecommunication public networks is implemented.
a)
Through Agreement executed between the Telecommunication services licensees.
The legal, technical, economic and commercial conditions of interconnection are fixed through free
negotiation between the parties by means of an Interconnection Agreement that is submitted to the
SENATEL for its approval and registration before the Public Telecommunications Registry.
Regarding charges, in the Interconnection Agreements, these are mutually agreed upon and must be
based upon costs plus profitability, and must be true and reasonable, must take into account economic
feasibility, and must be disaggregated, so that the provider requesting interconnection is not forced to pay
for network elements or installations he does not need for service provision. The methodology to
determine the interconnection charges and their payment terms are freely negotiated by the parties taking
into account the principles contained in the Interconnection Regulations.
b)
Through Resolution issued by the National Telecommunications Secretariat.
If 60 days after negotiating, the providers have not been able to execute an Interconnection Agreement,
SENATEL, based upon the agreements achieved by the providers during the negotiation period, shall
duly establish the legal, technical, economic and commercial terms and conditions which the
interconnection shall be subject to, within 45 days counted from the date its participation has been
requested.
In case of SENATEL’s intervention, interconnection charges are established based on the following
principles:
CITEL, 1889 F ST. NW., WASHINGTON, D.C. 20006, U.S.A.
TEL: + 1 202 458 3004 FAX: + 1 202 458 6854 e-mail: [email protected]
Web page: http://citel.oas.org


According to the expenses on account of establishment, operation and maintenance of
installations that may allow the physical and logical interconnection of networks.
According to usage charges that shall be determined based on the long term incremental costs
with an unbundling of the elements for interconnection pointed out in Section 7 of the
Interconnection Regulation in compliance with the model prepared by SENATEL for this
purpose and approved by CONATEL. The long-term incremental cost will consider a reasonable
payment of capital associated to the network elements used for interconnection.
Regulations of Ecuador in the issue of Interconnection give priority to free negotiation between the
parties, having eventually considered the participation of the Regulator. However, in the country,
negotiations to renew Interconnection Agreements between the fixed telephone companies
(ANDINATEL and PACIFICTEL S.A.) and the mobile phone companies (CONECEL and OTECEL
S.A.) which ended in the year 2004, did not achieve the expected success, specially because they did not
come to an agreement as to the charge the companies should pay each other, for which reason
SENATEL’s intervention was imminent.
In order to comply with its duty, SENATEL adopted two mathematical models.
1.
Model to determine the call termination charge in a wired fixed network (INTEROFFICE).
The Interoffice model used to assess the price of the termination in the fixed network forms part of the
Hybrid Cost Price Model, HCPM. It is a bottom up model that combines the engineering design of a
fixed network with the economic analysis of cost optimization, thus introducing economic efficiency
principles to determine network costs. It is capable of estimating interconnection costs using two
different approaches: TELRIC (Total Element Long Run Incremental Cost) and TSLRIC (Total Service
Long Run Incremental Cost).
Since SENATEL’s purpose is to assess the interconnection price of an efficient model, the cost inputs
used correspond to international market prices of network elements that make interconnection possible.
The model builds and assesses the price of a fixed telecommunication network according to its main
elements for interconnection: Switching, Transmission and Signaling. With the demand information
(traffic and lines) and the georeferenced location of the switching center, which is entered as input data,
the model sizes the capacity required to cover the demand from the switching exchanges and the
transmission links. The model input data is:
*CLLI
Tandem
Lon
Lat
Lines
TotCCS
IOCCS
AnnualMinutes
BusDS0
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Exchange Code (name)
Indicator of whether the exchange is tandem or not
Longitude of the exchange in decimal degrees
Latitude of the exchange in decimal degrees
Total number of lines with direct connection to the exchange
Total number of seconds of traffic (in hundreds) in the peak demand
hour
Total number of seconds of traffic which enter the network between
exchanges in the peak demand hour
Total number of minutes of annual traffic
Number of commercial normal lines with direct connection to the
exchange
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BusDS1
ResDS0
ResDS1
DLCs
SpclAcc
Number of commercial digital lines with direct connection to the
exchange
Number of residential normal lines with direct connection to the
exchange
Number of residential digital lines with direct connection to the
exchange
Number of digital terminals with direct connection to the exchange
Number of rented lines with direct connection to the exchange
(without being connected to the switch)
Annual costs are estimated for each network element using the annualization factors that are multiplied
by the previously determined investment amounts. The annualization factors include the following
items: (i) Cost of capital or reasonable capital profitability rate; (ii) Cost of operation and maintenance
of the equipment and the infrastructure used, and (iii) Years of economic life of the equipment and
infrastructure used.
Total interconnection costs are the result of adding the switching costs, transmission costs and signaling
costs.
2.
Model to determine the call termination charge in a mobile network (WICOM).
The model used to assess the cost of the termination in the WICOM (Wireless Cost Optimization Model)
is a bottom up model which combines the engineering design of a mobile network with the economic
analysis of cost optimization, thus introducing principles of economic efficiency to determine network
costs.
Due to its nature, WICOM belongs to the so-called TELRIC models: Total Element Long Run
Incremental Cost.
Detailed cost information on the network elements is an input of the model. Since SENATEL’s purpose
is to assess the interconnection price of an efficient model company, the cost inputs used correspond to
international market prices of the network elements that make interconnection possible.
The model designs the essential elements of a wireless network that makes connectivity of users possible
with the exchange and of users between themselves. To achieve this, the network must connect the
network client base station to a switch, ensure that there is an adequate capacity in these switching
facilities to process all expected calls in the peak demand hours, and interconnect that switch with other
base stations and others switches to route the calls to their addressees. Peak demand traffic is a very
important input of the model that allows determining the capacity of the switches.
To connect base stations with other base stations and the exchange, the model mainly builds a series of
links, the capacity of which is optimized based on cost and distance. For each link, the model decides
between using optical fiber, microwave or satellite, compares the cost of using each of these three
technologies, and makes the decision selecting the least expensive technology.
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Once the model builds the network, sizing the capacity of the switch exchanges and links, the model
estimates the total investment required to build that network, as well as that investment associated annual
cost. Annual costs are estimated for each network element using the annualization factors that are
multiplied by the previously determined investment amounts. The annualization factors include the
following items: (i) Cost of capital or reasonable capital profitability rate; (ii) Cost of operation and
maintenance of the equipment and the infrastructure used, and (iii) Years of economic life of the
equipment and the infrastructure used.
The report on results classifies costs as follows: costs sensitive to traffic and costs not sensitive to traffic.
Costs sensitive to traffic are the result of the difference between the total network cost at peak demand
hour (busy hour) and the total network cost outside busy hours, i.e. they are incremental costs due to
traffic.
The information required to feed the model is the following:
EE.BB
Lon
Lat
Pk Hr
TotCCS
TotSecLocal
CCS
Local Pk Hr:
LD CCS
LD Pk Hr
Code for the base station
Longitude of base station (decimal degrees)
Latitude of base station (decimal degrees)
Total peak demand hour at base station (0-24)
Total peak demand in peak hour calls in hundreds of seconds
(CCS)
Maximum demand of local traffic in CCS
Peak demand hour of local traffic (0-24)
Peak demand of long distance traffic in CCS
Peak demand hour of long distance traffic ( 0 – 24)
Results obtained by applying the INTEROFFICE model to the ANDINATEL Fixed Telephone
Network
In general, the Regulator did not have the necessary information for the model available, being it
necessary to estimate certain parameters, such as:
Traffic during the peak demand hours was estimated using a factor derived from Peruvian data. The ratio
of the number of hundreds of seconds of traffic in peak hours to the total annual traffic for a given year in
Peru was determined and applied to the traffic information in Ecuador.
Information on unit costs used in the estimation of interconnection cost was found in several
international sources.
Reasonable Capital Profitability Rate: This rate is determined using the WACC or Weighted Average
Cost of Capital Methodology:
The Secretariat assumed a conservative structure of neutral equity and debt for companies, assuming that:
E
 50%
DE
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D
 50%
DE
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This assumption is reasonable specially if the result or reasonable capital profitability rate is applied to
different companies and if there is uncertainty as to how each of them shall be financed in the future.
With the above mentioned equity and debt structure, the results obtained were as follows:
Risk Free Rate
Leveraged Beta
Market Premium
Country Risk (EMBI + Ecuador)
Equity Cost
Debt Cost
Tax Rate
Debt / (Debt + Equity)
Equity / (Debt + Equity)
4.26%
1.74
7.55%
7.89%
25.29%
11.96%
36.25%
50.00%
50.00%
WACC after tax
16.46%
WACC before tax
25.82%
Total cost per minute, including all network components used to provide the interconnection service is
approximately two cents of US dollars. If we only consider the part of those components economically
attributable to traffic on busy hours, the cost per minute is estimated at 1.66 cents of US dollars per
minute, assuming capital cost at 23.87%, and at 1.70 cents of US dollars, assuming capital cost at
25.82%.
Applying the concept of capacity charge, the model reports a cost of $172 and $176 per month for Erlang
during peak hour, depending on the capital cost. It is important to recognize that this estimation needs to
be refined, because the model assumes that the hour of maximum demand is common to all installations,
and that raises the capacity assumed by the model. Real capacity will probably be less than the capacity
reported by the model, thus the actual cost will be higher. To make that estimation more accurate, it
would be necessary to obtain detailed information on all the nodes of Andinatel’s network and peak
usage.
The results also suggest a way of charging the interconnection with a rate in two parts, allocating the
NTS cost per line to the number of fixed lines the company assigns for each company that requests the
interconnection. The TS cost will be added later to the minutes of traffic.
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Results obtained when applying the WICOM model to OTECEL and CONECEL Mobile
Telephone Service networks
The application of the model for mobile telephone service networks resulted in a value of 11.31 cents of
US dollars for the capital cost of 25.82%, value to be applied on the Interconnection Provisions of such
mobile carriers.
Current state of the interconnection in Ecuador
The interconnection charges determined by SENATEL applying both models of charges have been
accepted by Ecuador market with the logical concerns of the companies.
The WICOM model has also been applied to TELECSA S.A., the third carrier of mobile telephone
service, and to the two WLL networks that are about to enter the market. The following table shows the
country’s current interconnection situation:
RESUMEN DE CARGOS DE INTERCONEXION EN ACUERDOS Y DISPOSICIONES VIGENTES
SERVICIO DE TELEFONIA
EMPRESA
ANDINATEL
PACIFICTEL
ETAPA
ETAPA
SETEL
ECUTEL
LINKOTEL
OTECEL CONECEL TELECSA
TELECOM
TELEFONIA FIJA
ANDINATEL
TELEFONIA FIJA
PACIFICTEL
50% de la tarifa
50% de la tarifa
TELEFONIA FIJA
ETAPA
N/R
TELEFONIA FIJA
ETAPATELECOM
N/R
Bill & Keep Bill & Keep
N/R
Bill & Keep Bill & Keep
N/R
Bill & Keep
N/R
Bill & Keep
N/R
0,1131
0,1131
0,1131
Bill & Keep
0,1241
TELEFONIA FIJA (WLL)
SETEL
Bill & Keep
Bill & Keep
N/R
0,1131
0,1131
TELEFONIA FIJA (WLL)
ECUTEL
Bill & Keep
Bill & Keep
N/R
0,1131
0,1131
0,1131
0,1131
TELEFONIA FIJA
LINKOTEL
Bill & Keep
STMC
OTECEL
0,017
STMC
CONECEL
0,017
SMA
TELECSA
0,020
0,0195
0,017
0,017
0,017
0,017
0,017
0,017
0,017
0,23
0,23
0,1131
0,1241
0,1131
0,23
0,23
Nota: los valores estan dados en US dólares por minuto.
Acuerdo vigente
Sin Acuerdo vigente ni Disposición
Disposiciones de Interconexión
Disposición de Interconexión en trámite
Donde:
Bill & Keep
Es el procedimiento de liquidación de los cargos de interconexión según el cual cada operador factura a sus propios clientes por el tráfico saliente originado en su
red y enviado a la otra red y retiene todos los ingresos que resultan de ello. En definitiva, cada operador factura su servicio al cliente y guarda lo recaudado.
N/R
Significa "No Registrado" pues ETAPA no está legalmente obligada a inscribir sus Acuerdos de Interconexión en el Registro Público de Telecomunicaciones pues, a
través de la Ley Especial de Telecomunicaciones Reformada (art. 38, inciso segundo) se reconoce a favor de la I. Municipalidad del cantón Cuenca, provincia del
Azuay, la titularidad del servicio público de telecomunicaciones, para operar en conexión con el resto del país y el extranjero, pudiendo prestar servicios en forma
directa o a través de concesiones.
Sin Acuerdo vigente ni
Significa que los prestadores de servicios de telecomunicaciones aún no están operativos o no requieren de interconexión pues cursan su tráfico a través de
Disposición de
terceros bajo la modalidad de tránsito.
Interconexión
Pendiente Registro
Público de
Telecomunicaciones
Aún no se encuentra inscrito en el Registro Público de Telecomunicaciones
Actualizado al 02 de agosto de 2006
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