Interconnection between Fixed and Mobile Networks Lara Srivastava

Interconnection between Fixed and Mobile Networks Lara Srivastava Strategies and Policy Unit (SPU) International Telecommunication Union 18 July 2000 MSU “Telecommunications in Europe” Note: The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Lara Srivastava can be contacted at lara. srivastava@itu. int

MSU’s FMI Session What is Interconnection? l Legal, technical and economic arrangements between operators l Several levels of interconnection ð Between domestic networks* ð Between national and international networks ð Between domestic networks & customer terminals l Cornerstone of a truly competitive market l Growing importance in an era of convergence l Why the need to regulate? Is this new? 2

3 MSU’s FMI Session Mobile is moving at a rapid pace… World Mobile Subscribers (millions) as % of Fixed-line Subscribers 38% 27% 318 20% 215 13% 2% 3% 16 4% 6% 9% 144 91 55 34 23 1990 1991 1992 1993 1994 1995 1996 1997 1998 11 Source: ITU

4 MSU’s FMI Session … And is set to overtake Fixed Telephone Subscribers Worldwide, 1910 -2010 Logarithmic Scale 2'000 1'000 10 Mobile voice Source: ITU 30 40 50 60 Mobile voice 1'500 Fixed voice 0 1910 20 Normal Scale 70 80 Fixed voice 500 0 90 2000 10 1990 2000 2010

MSU’s FMI Session Relationship b/w Fixed & Mobile is thus being watched closely l Increase in calling opportunities (and revenues) between fixed and mobile networks ð Fixed-Mobile Interconnection (“FMI”) l Advent of FMC or Fixed-Mobile Convergence Solutions l Pricing of mobile networks converging with fixed networks 5

MSU’s FMI Session 6 FMI refers to both technical and pricing arrangements l Access to Interconnection ð Where and how does M interconnect with F? ð Points of Interconnection (POIs) ð Quality of Service Issues (Qo. S) l Commercial Terms ð Who pays what to whom? ð Mobile termination charges (MTC) ð Charges for Interconnecting with the Fixed Network

7 MSU’s FMI Session A Fixed to Mobile communications service requires three main elements Calling Party (FIXED) Call Origination Transit service Orig. Access Switching Authentication Source: Adapted from ECTA Core Network Switching Call Termination Locating the Customer Switching Term. Access Called Party (MOBILE)

8 MSU’s FMI Session RPP vs CPP : Mobile users don’t always pay to talk Receiving Party Pays Calling Party Pays ð Mobile party pays for incoming calls and fixed party pays only local tariff ð Often, no interconnect arrangement is negotiated with the fixed operator for F-M calls. Mobile operators bill mobile consumer directly for “airtime”. ð Mobile party does not pay for incoming calls and fixed party pays a premium to call the mobile party ð Call termination paid by fixed operators is a significant part of mobile operator revenues

9 MSU’s FMI Session Europe has seen high MTCs in CPP l Interconnect Regime for Mobile Operators ð All operators: right and obligation to interconnect ð SMP operators : access, information, nondiscrimination l EU Termination Charges Consistently > Cost 0. 3 0. 25 0. 2 0. 15 0. 1 0. 05 LRIC + mark-up Termination charge BE Source: ECTA/Analysys D ES F I NL S UK

10 MSU’s FMI Session MTCs are high because incentives to reduce them are lacking Market Structure Tariff Opacity Inefficient pricing

11 MSU’s FMI Session Despite the hype about MTCs, the situation is not the same everywhere l MTCs do not exist in all RPP countries ð …and transition to CPP may not always be feasible or desirable l Powerful incumbents can refuse to pay charges for connecting to mobile networks ð … and this demonstrates the vulnerability of fledgling mobile operators in an unregulated environment e. g. let’s look at India

12 MSU’s FMI Session Case Study India: The Context l Teledensity 2. 2% l Local market liberalized first l Mobile Sector opened up in 1994 l The Dept. of Telecoms was both licensor and incumbent operator until late 1999 l Regulator TRAI created in 1995 2. 4% World’s Surface 1 billion people or 16. 7% of World 34% Poverty

MSU’s FMI Session 13 Case Study India: The Mobile Sector l 34 mobile operators in circles (provinces) and 8 in metros l Nearly 2 million subscribers in April 2000 ð Growth of > 50% a year since March 1997 ð 7. 25% of total connections (F+M) l In the circles, mobile network development is patchy ð Mobile operators rely on the incumbent (Do. T/DTS) to carry much of their traffic ð …and incumbents will be launching their own mobile services in Metros & Circles this year

MSU’s FMI Session 14 Case Study India: Attempt at CPP l Interconnection - main stumbling block for development of mobile l Only mobile operators pay to interconnect ð Do. T/DTS pays no access charges for F-M calls l TRAI attempted to introduce CPP Interconnect or “revenue-sharing” scheme, but failed ð Delhi High Court found that TRAI lacked jurisdiction ð January 2000: Authority was disbanded & the TRAI Act amended

MSU’s FMI Session Case Study India: Technical Matters l Mobile operators are obliged to use the incumbent’s network ð Do. T/DTS currently carries all inter-circle traffic l … but have limited access to it ð POIs and SSAs Ø Implementation of the TRAI’s 1997 Order ð The “Notional Tax” 15

MSU’s FMI Session 16 Concluding Remarks l FMI is a key driver for the Mobile Sector l Regulation should take into account differences in market structure & political context ð e. g. what are the priorities of developing countries with powerful State-owned incumbents ? ð e. g. are cost-based interconnect rates a viable solution in all cases? l “Enabling” the Regulator l International Studies and Benchmarking

17 MSU’s FMI Session Thanks! Case Studies (India, China, Mexico, Finland) ð http: //www. itu. int/osg/sec/spu/ni/fmi/case_studies Background Resources Website ð http: //www. itu. int/interconnect