Interconnection between Fixed and Mobile Networks

1. 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

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

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

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

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

6. FMI refers to both technical andpricing arrangements • Access to Interconnection • Where and how does M interconnect with F? • Points of Interconnection (POIs) • Quality of Service Issues (QoS) • Commercial Terms • Who pays what to whom? • Mobile termination charges (MTC) • Charges for Interconnecting with the Fixed Network

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

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

9. Europe has seen high MTCs in CPP • Interconnect Regime for Mobile Operators • All operators: right and obligation to interconnect • SMP operators : access, information, non-discrimination • EU Termination Charges Consistently > Cost 0.3 LRIC + mark-up 0.25 0.2 0.15 Termination charge 0.1 0.05 BE D ES I NL S UK F Source: ECTA/Analysys

10. Tariff Opacity Market Structure Inefficient pricing MTCs are high because incentives to reduce them are lacking

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

12. Case Study India: The Context • Teledensity 2.2% • Local market liberalized first • Mobile Sector opened upin 1994 • The Dept. of Telecoms was both licensor and incumbent operator until late 1999 • Regulator TRAI createdin 1995 2.4% World’s Surface 1 billion people or 16.7% of World 34% Poverty

13. Case Study India: The Mobile Sector • 34 mobile operators in circles (provinces) and 8 in metros • Nearly 2 million subscribers in April 2000 • Growth of > 50% a year since March 1997 • 7.25% of total connections (F+M) • In the circles, mobile network development is patchy • Mobile operators rely on the incumbent (DoT/DTS) to carry much of their traffic • …and incumbents will be launching their own mobile services in Metros & Circles this year

14. Case Study India: Attempt at CPP • Interconnection - main stumbling block for development of mobile • Only mobile operators pay to interconnect • DoT/DTS pays no access charges for F-M calls • TRAI attempted to introduce CPP Interconnect or “revenue-sharing” scheme, but failed • Delhi High Court found that TRAI lacked jurisdiction • January 2000: Authority was disbanded & the TRAI Act amended

15. Case Study India: Technical Matters • Mobile operators are obliged to use the incumbent’s network • DoT/DTS currently carries all inter-circle traffic • … but have limited access to it • POIs and SSAs • Implementation of the TRAI’s 1997 Order • The “Notional Tax”

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

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