JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2007
ACCESS AND INTERCONNECTION
PER-KAARE SVENDSEN
TELECOMMUNICATIONS LAW COURSE
FALL 2007
1.
2.
OVERVIEW OF PART 3 & 4

Overview of Access and Interconnection

Why is access regulated and need for access regulation

Different types of Access (Interconnection, Termination and Origination, National Roaming
and MVNO, Resale, LLUB)

What role do these terms play in the overall framework?

Regulation of operator with and without SMP

Regulation of Interconnection, Termination and Origination, National Roaming and MVNO,
Resale and LLUB

Relevant examples of cases

Dynamic regulation

Conflicts relating to access and interconnection

The NRA’s role in mediating and determination of conflicts
WHY IS ACCESS REGULATED?


Liberalisation tool (promote competition):
o
New entrants have not build their own network or their network is not of the same
magnitude as the incumbent
o
The same applies to certain facilities that the incumbent controls and that the new
entrant depend on for competing with the incumbent
Interconnectivity (interoperability):
o
3.
Customers are connected to one network and in order to call other customers
connected to other networks the networks must be interconnected
WHAT ROLE DOES ACCESS REGULATION PLAY IN THE REGULATORY FRAMEWORK?

Access and interconnection is essential to achieve interoperability between networks and to
promote competition

Art. 12 of AD is one of the most fundamental rules and establishes the cornerstone for
imposing access rules.

Other obligations relate to the terms and conditions for providing access to competitors
(transparency, non-discrimination, cost accounting and price control)

Access regulation play an important role in the regulation of vertically integrated operators
(see model)
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JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2007
IN
Operations
Network
operator
Infrastructure
Competitors need
access in order to
compete
Billing
Access to network
Wholesale/access
markets
Retail markets
Telephone service
End-users
4.
5.
DIFFERENT TYPES OF ACCESS

Interconnection: Termination, Origination and Transit

Capacity in mobile networks: National Roaming and MVNO

Resale of Mobile voice, fixed voice, subscriptions

LLUB (access to physical local loops)
BASIC IC MODEL – TERMINATION
Network
Operator A
Bill from NO B to NO
A= Termination fee
POI= Point of interconnect
Network A
Subscriber X
Network
Operator B
Network B
Bill from operator A to
X= Retail price
X pays retail price to NO A for
Traffic charge (RP1)
Connection charge (RP2)
Termination
part of call
Subscriber Y
5.1 Technical
o
Subscriber X = calling party and Subscriber Y = called party.
o
Subscriber X is connected to Network A (operated by Network Operator A)
o
Subscriber Y is connected to Network B (operated by Network Operator B)
o
Call set up originates in Network A (X) and terminates in Network B (Y)
o
Call set up means the logical set up of a separate call.
o
Termination means that the call terminates in a different network (B) than the
originating network (B)
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JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2007
5.2 Commercial
o
Subscriber X is a customer of NO A
o
Subscriber Y is a customer of NO B
o
Operator A and B enters into a interconnection agreement so that X can call Y.
o
NO As cost for this call

NO A’s own costs (use of network A + other costs),

Termination fee (use of network B)

Profit.
5.3 Billing

NO B bills NO A for interconnection fee

The termination fee is determined by NO B

The termination fee is normally computed
o
Call set up charge
o
Per minute charge (may vary between peak and off-peak hours)

NO A bills subscriber X for the retail price.

The retail price is normally computed to cover NO A’s costs and consists of
RP1 traffic charge: The traffic charge is normally reflecting the variable costs
relating to the call and covers
o
NO As’ use of own network (Network A)

termination fee payable to NO B for use of Network B

profit
RP2 connection fee: The connection fee is usually covering the fixed costs
relating to the access network to the subscriber and is normally included in the
periodic subscription fee (monthly or quarterly)
o
6.

IC MODEL – ORIGINATION
No bill from NO B to NO A
for Termination fee
Network
Operator A
Origination
part of call
Bill from NO A to NO
B for origination fee
POI= Point of interconnect
Network A
Network
Operator B
Network B
Bill from operator A to X=
Connection charge (RP2)
Subscriber X
Bill from operator A to
X=Traffic charge (RP1)
Subscriber Y
6.1 Technical

Same as for termination (see above)

Key issue: Subscriber X is connected to Network A

Subscriber X dials a four digit prefix (identification of NO B)
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JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2007
6.2 Commercial

Subscriber X has a dual customer relationship
o
customer of NO B for traffic
o
customer of NO A for the fixed connection

Subscriber Y is a customer of NO B.

Operator A and B enters into a interconnection agreement. Origination means that NO A
registers that Subscriber X is a customer of B by using a call-by-call selection or carrier
pre-selection.
6.3 Billing
7.

The call is billed by NO B (who bills for the traffic)

NO A sends a bill for the fixed connection (subscription fee).

Compare to LLUB: NO B may alternatively lease the access line to subscriber X and thus bill
for both traffic and connection
IC MODEL – TRANSIT
Transit fee
Retail
price
Network A
Termination fee
Network C
Network B
Subscriber Y
Subscriber X
Transit part
of call
7.1 Technical

Physical linking betweeen A and C and B and C, but not between A and B directly

X connected to A and Y connected to B

When X calls Y the call is transitted through C to B and B terminates
7.2 Commercial

NO A and NO C has entered into a interconnection agreement

NO B and NO C has entered into a interconnection agreement

C pays termination fee to B

A pays transit fee to C. The transit fee is normally computed to cover

o
the cost for use of C’s network
o
the termination fee charged by C
NO A bills the customer
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JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2007
7.3 Practical

for new entrants who does not have resources to enter into interconnection agreements
with several operators

technically it is sufficient to interconnect to one operator (whos connected to many other
networks)
8.
INTERNATIONAL INTERCONNECT
9.
THE RELEVANT MARKETS


Termination
o
Market 9 – individual fixed networks
o
Market 16 – individual mobile networks
Access and call origination
o
Market 8 – fixed networks
o
Market 15 – mobile networks (national roaming)
10. NRA TOOLBOX FOR ACCESS



Step 1: Decide that SMP operator must give access (direct)
o
A: follows from an existing obligation
o
B: NRA must impose a general obligations
o
C: NRA must impose a specific obligation
Terms & conditions for provision of access (direct)
o
A: non-discrimination
o
B: price regulation
o
C: reasonable
o
D: transparency
Other obligations on the SMP operator (indirect)
o
A: transparency
o
B: cost accounting separation and provision of information
11. THE ACCESS AND IC DIRECTIVE
11.1 Overview

Regulates the procedures and criteria for interconnection and access to electronic
communications networks

The concept of access and interconnection is broader than before

LLUB is included in the Directive and Regulation will be lifted

Important criteria for request for access to mobile networks, CATV networks etc.

Limitations on the obligations that Member States can place on SMP market players

Intervention shall be ”Specific, appropriate and temporary”. Unclear what this means for
new and undeveloped markets
11.2 Scope, Aim and Definitions

The Scope is widened and includes other types of networks and other types of
interconnection/access than today
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
TV networks, new elements for mobile networks, other types of ”special network access”
(conditional access and other facilities)

General provisions (II)
o
Right and obligation to negotiate interconnection (Art. 4)
o
Public Digital TV networks: must enable and provide unaltered wide-screen formats
(Art. 4)
o
Confidentiality obligation (Art. 4)
o
Powers and responsibilities for NRA (Art. 5)

NRA shall encourage and ensure “adequate access and interconnection, and interoperability
of services,”

Obligations and conditions by NRA must be “objective, transparent, proportionate and nondiscriminatory,”

Must be able to intervene at its own initiative

Chapter III – obligations on operators
11.3 Definition of Access in AD art. 2 (a)

means the making available of facilities and/or services, to another undertaking, under
defined conditions, on either an exclusive or non-exclusive basis, for the purpose of
providing electronic communications services.

Access covers inter alia:
o
access to network elements and associated facilities, which may involve the
connection of equipment, by fixed or non-fixed means (in particular this includes
access to the local loop and to facilities and services necessary to provide services
over the local loop)
o
access to physical infrastructure including buildings, ducts and masts
o
access to relevant software systems including operational support systems
o
access to number translation or systems offering equivalent functionality
o
access to fixed and mobile networks, in particular for roaming
o
access to conditional access systems for digital television services
o
access to virtual network services
11.4 Definition of Interconnection (AD art 2)

the physical and logical linking of public communications networks used by the same or a
different undertaking in order to; allow the users of one undertaking to communicate with
users of the same or another undertaking, or to access services provided by another
undertaking.

Services may be provided by the parties involved or other parties who have access to the
network

Interconnection is a specific type of access between public networks
12. OBLIGATIONS OF TRANSPARENCY ART. 9

Information from SMP operators must be publicly available (art. 9 (2))
o
accounting information,
o
technical specifications,
o
network characteristics,
o
terms and conditions for supply and use and
o
prices
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

Reference offers (RIO)
o
Ensure non-discrimination (art. 9 (2))
o
Reference offers must be sufficiently unbundled (art. 9 (2))
o
Level of detail can be decided by NRA
LLU offerings shall contain the elements in annex II (same as toady's regulation)
SMP Operator
External
Subsidiary of Internal
Comp
Dominant firm
2
Transparency makes it
possible for Competitor to gain
necessary info. A prerequisite
for non-discrimination
13. OBLIGATION OF NON-DISCRIMINATION ART. 10

SMP operators must apply equivalent conditions in equivalent circumstances
o


Allows differentiated terms in different circumstances= differentiation
Provide services to others under the same conditions and in the same quantity as it
provides for its own (subsidiaries/partners) services.
o
Does not allow for much flexibility
o
Does allow a small margin of differentiation, depends on what is considered the
“same”
No changes from earlier principles
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JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2007
Non-discrimination, accounting separation etc.
Internal
SMP Operator
External
Subsidiary of
Dominant firm
Compare SMP
operator and 1/2:
conditions must be
the SAME
Comp 1 Comp 2
Compare 1 and 2:
conditions must be
EQUIVALENT
14. ACCOUNTING SEPARATION ART. 11

When there is a non-discrimination obligation vertically integrated companies must provide
(inter alia) Wholesale prices and Internal transfer prices

Aim: To prevent discrimination and Prevent unfair cross-subsidy

NRA may specify the format and methodology

Most NRA's require LRIC (as opposed to historical cost for example) on interconnection
prices but not other elements
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JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2007
SMP Operator
External
Subsidiary of Internal
Comp
Dominant firm
2
Wholesale prices
Internal transfer
prices.
15. ACCESS TO AND USE OF SPECIFIC NETWORK FACILITIES (ART. 12)

No clear definition on exact application, but the NRA must use their discretion

If the NRA finds …that denial of access and unreasonable terms/conditions… …hinder the
emergence of a sustainable competitive market at the retail level (downstream market)…..
or would not be in the users interest, then “Reasonable request must be met”
15.1 Art. 12 access obligations may include:

Access to unbundled access to local loop

Good faith negotiations

Not to withdraw access

Open access to technical interfaces, protocols, other key technologies – indispensable for
interoperability of services or virtual network services

Co-location or other forms of facility sharing (ducts, buildings or masts)

Provision of specified services needed to ensure interoperability of end-to-end services
(including facilities for intelligent network services or roaming on mobile networks)

Access to operational support systems or similar software systems to ensure fair
competition

To interconnect
15.2 Discretionary test under art. 12

Technical and economic viability of using or installing competing facilities in light of the rate
of market development and type of interconnection and access involved

Feasibility of providing the access in relation to the capacity available

the initial investment by the facility owner, bearing in mind the risks involved in making the
investment;

the need to safeguard competition in the long term;

any relevant intellectual property rights;
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
the provision of pan-European services.

According to current community law (i.e. Bronner) this will be a narrow test – several
existing elements in the legal evaluation is not covered (i.e. reasonability)
16. PRICE CONTROL AND COST ACCOUNTING OBLIGATIONS (ART. 13)

Control of cost recovery and price controls covers (a) cost orientation of prices and (b) cost
accounting systems

Aim: Prevent lack of effective competition, Prevent monopoly rents and Prevent price
squeeze

Reasonable rate of return for operators must be allowed: currently ranging from 12% to
18%

Benchmarking can be used (as today)

Burden of proof is on operator

NRA can use separate costing methodologies

NRA may require prices to be adjusted

Description of cost accounting systems shall be publicly available
17. OBLIGATIONS RELATED TO CA SYSTEMS ART. 6


Conditional access systems (listed in Annex I, Part I and II)
o
Conditional Access Systems must be standardised (not specific on standardisation
level)
o
All operators must offer and provide technical services and decoders (CA) systems
to public broadcasters on fair, reasonable and non-discriminatory basis and keep
separate accounts
o
Holders of IPR (due to the new Directive on Copyright and related rights in the
information society) must not prevent lock-in of CA-systems based on IPR and
provide Common Interfaces
o
Application Program Interfaces (API)
o
Electronic Program Guides (EPG)
Obligations may be lifted – on the conditions in art. 6 (3)
18. TRANSITIONAL RULES: REVIEW OF OBLIGATIONS FOR ACCESS/INTERCONNECTION

Regulations (97/33/EC, 98/10/EC and 92/44/EC) shall apply until they can justifiably be
removed in accordance with art 7 (3). These obligations shall be maximum regulations on
SMP operators when obligations in art. 9 - 13 AD are applied to SMP operators

Transparency (art. 9)

Non-discrimination (art. 10)

Access to and use of… (art. 12)

Accounting separation (art. 11)

Price Control and accounting obligations (art. 13)
19. PRICE SQUEEZE

Model explanation
o
C= Cost of production
o
C1= retail branch own cost
o
C2 =wholesale price
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o
P= Retail price
o
TP=Transfer Price (internal price)
o
WP=Upstream price (wholesale price)
19.1 Normal competition situation

Wholesale price is regulated and TP must be the same as WP.

The competitors compete by beeing more effective on C1 (since C2 is given)

If retail price is set by competition, there will be a normal margin for effective competitors.
M
C WP
SMP Operator
M
C WP
Wholesale market
Subsidiary of
Dominant firm
TP=WP
Comp 1
M
M
C1
C1
C2 P
C2 P
Retail market
19.2 Effects of reduced P – price squeeze
M
C WP
SMP Operator
M
C WP
Wholesale market
Subsidiary of
Dominant firm
TP=WP
Comp 1
C1
C1
C2 P
C2 P
Retail market

If not normal competition, SMP retail branch may set prices equal to their cost (C1+C2).

IF SMP operator has a dominant position also in the retail market (or leverage its SMP
position in the wholesale market to the retail market) normally, the competitor will be
forced to reduce its prices.

If SMP firm reduce P then (thus C1+C2 equal P) –there is no margin to compete or the
competitor will operate with a loss.
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
In the long term this is not sustaniable and the competitor may be forced out of the
market. Consequently the SMP operator can raise prices at a later stage.

To create a margin, the regulator can regulate a) wholesale price or b) retail price
19.3 Remedy : Regulate Wholesale Price

In order to create a margin, the regulator can regulate the WP

This will create a margin since C2 will be reduced
M
C WP
SMP Operator
M
C WP
Wholesale market
Subsidiary of
Dominant firm
TP=WP
Comp 1
M
M
C1
C1
C2 P
C2 P
Retail market
19.4 Remedy – Regulate Retail price
M
C WP
SMP Operator
M
C WP
Wholesale market
Subsidiary of
Dominant firm
TP=WP
Comp 1
M
M
C1
C1
C2
P
P
C2
Retail market
P
P

In order to create a margin, the regulator can regulate the WP

This will create a margin since C2 will be reduced

This is not commonly used and will be used if the WP regulation fails to create competition.
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20. LOCAL LOOP UNBUNDLING –
20.1 Technical description

Local loops (copper wires) was earlier used for basic analogue voice telephony - new
technologies makes it possible to carry broadband traffic over copper pairs. Alternatives to
the existing copper loops are cable or radio technologies

Physical access: Equipment is connected directly to the copper pairs and this is used
exclusively by the new competitors entering the market

Bitstream access/Shared access: New entrant gains access to a defined bitstream on
incumbents local loop. Only this bitstream can be used. No other equipment can be used to
implement alternative bitstreams. Incumbent handles the physical management of the local
loop. High and low bandwidth applications may be shared between different local access
providers (e.g. one operator may provide basic voice telephony while another may supply
data services such as access to the Internet).
20.2 Practical problems

Physical limits of the copper pairs must be defined (i.e. the network interface and the user
interface),

Co-location must be arranged,

Interference (cross-talk) must be handled

Responsibilities of for use and maintenance of equipment and copper pairs
20.3 LLUB Obligations on SMP operators


Publish a Reference Offer (Art. 3 (1))
o
full unbundled access to local loops and
o
shared access;
Meet all reasonable requests for both types of access under transparent, fair and nondiscriminatory terms (Art. 3 (2));
o
Reasonable Request: "the access is necessary for the provision of the services of
the beneficiary, and that refusal for the request would prevent, restrict or distort
competition in the sector."
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
Charge prices for full unbundled access to local loops, for shared access and for related
facilities on the basis of cost-orientation (Art. 3 (3)).
o
"Pricing rules should ensure that the local loop provider is able to cover its
appropriate costs in this regard plus a reasonable return, in order to ensure the
long term development and upgrade of local access infrastructure.
o
Pricing rules for local loops should foster fair and sustainable competition, bearing
in mind the need for investment in alternative infrastructures, and ensure that
there is no distortion of competition, in particular no margin squeeze between
prices of wholesale and retail services of the notified operator.”
20.4 Obligations on NRA's

National regulatory authorities must: ensure that charging for both types of unbundled
access sustains fair competition (Art. 4 (1)); be able to impose changes to the Reference
Offer (Art. 4 (2)); be able to intervene on their own initiative to ensure provision of
unbundled local loops on fair, competitive and non-discriminatory terms (Art. 4 (2a)).

Annex I sets out a minimum list of items that must be included by notified operators in the
Reference Offer.

Soft law: Independent Regulators Group has published "Principles of implementation and
best practice regarding local loop unbundling".
21. WILL LLU CREATE COMPETITION?

Slow Roll Out:
o

Anti Competitive behaviour :  competing operators lack chance to compete with
incumbent on the same market; - especially where line sharing is not available.
Reasons for anti-competitive price structures
o
incomplete re-balancing of retail prices  overcharging of wholesale local
loops/predatory prices for retail local loops;
o
unreliable accounting data
o
the allocation of the large fixed costs is very sensitive and different accounting
methods may be used;
o
inconsistency between accounting methods used 
should be implemented.
consistent costing methods

Margin Squeeze Problem  incumbent's price of access combined with its downstream
costs are higher than its corresponding retail price

Comparability of the incumbent's access and retail services
22. SUMMARY

New regulatory package gives NRA more flexible tools than today and regulators must
lifting existing obligations if markets become competitive i.e. no SMP in a relevant market

Stronger influence by the Commission means more harmonisation but still NRA's have the
primary responsibility

SMP concept has changed and SMP operators are those that have a dominant position
(general competition law)

Toolbox of Remedies which can be used to define obligations on SMP operators consists of

o
indirect measures – NRA controls that SMP operators follow internal obligations –
no direct effect for competitors (transparency and accounting separation)
o
direct measures – SMP operators obligations which form rights for competitors.
Direct effect for competitors (non-discrimination, access and use of.., price control)
Toolbox consists of the followin remedies:
o
Supply of leased lines
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o
Offering of carrier selection
o
Price control on retail services
o
Access to and use of specific network facilities (interconnection etc.)
o
Transparency
o
Accounting separation
o
Non-discrimination
o
Price control on wholesale services
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