Effective Interconnection
in the APEC Region

A report for the APEC Telecommunications
Working Group

March, 1998

Preface

This study on telecommunications interconnection regimes in APEC began as a proposal initiated in 1996 by Emily Murase, predecessor in my office at the U.S. Federal Communications Commission. As competition in telecommunications markets continues to grow, both regulators and carriers in the APEC Telecommunications Working Group (TEL) have found interconnection issues more pertinent to their work. As a result, an Interconnection Task Group was established within the APEC TEL's Liberalization Steering Group in September 1997.
The first project for the Interconnection Task Group was to review and comment on the final drafts of this study. The Task Group members are thus acknowledged below. I thank them for their support of this project, which will serve as a starting point for the future work of the Task Group, and look forward to more fruitful discussions with them on the issues raised in this study.
- Irene Wu, Chair, APEC TEL Interconnection Task Group

Australia
Allan Horsley, Australian Telecommunications Users Group
Yoshiko Kurisaki, Societe Internationale de Telecommunications Aeronautiques
Ken Bell, Australian Communications Authority

Brunei
Dato Haji Abdullah bin Bakar, Ministry of Communications

Hong Kong, China
Matthew Lam, New T&T
George C. Chou, Hongkong Telecom

Indonesia
Dr. Ing M. Suwarso, Telecommunication Advisory Council
Risa Bhinekawati, MASTEL
Irwan Tampubolon, MASTEL

Japan
Yoichi Iida, Ministry of Post and Telecommunications
Kenji Saga, Asia University (JANCPEC Telecom Taskforce)
Toshiyuki Takei, Ministry of Posts and Telecommunications

Korea
 Jong-Tae Leem, Ministry of Information and Communication
Jae-Bum Lee, Ministry of Information and Communication;

New Zealand
Mark Holman, Ministry of Commerce

Philippines
Mr. Alfredo Carrera, Philippine Long Distance Telephone (PLDT)

Chinese Taipei
Dr. Kwang-Cheng Chen, National Taiwan University
Vivien Wang, Directorate General of Telecommunications

Thailand
Sira Limchareon. Communications Authority of Thailand

U.S.
Kelley Gannon, Bell Atlantic
Lloyd Kubis, Motorola
Kent Nakamura, Sprint
Erin Pham, Iridium

Effective interconnection in the APEC region

Table of contents
Preface 2
1. Executive summary 5
1.1 Liberalisation of trade *p+5X the goal of A.P.E.C.
5
1.2 Telecommunications competition *p+5X critical in achieving liberalisation
 5
1.3 Interconnection *p+5X the key to effective telecommunications competition
 5
2. Background to the study 7
2.1 Objective of this study
 7
2.2 Ovum's approach
 7
3. Interconnection policy in the APEC region 8
3.1 Telecommunications development
 8
3.2 Market structure
 8
3.3 The regulatory framework for interconnection
 10
3.4 Commercial arrangements for interconnection
 11
3.5 Key interconnect issues in APEC member economies
 11
4. APEC member economy profiles 17
4.1 Australia
 17
4.2 Brunei Darussalem
 23
4.3 Canada
 24
4.4 Chile
 30
4.5 People's Republic of China
 33
4.6 Hong Kong, China
 35
4.7 Indonesia
 39
4.8 Japan
 43
4.9 Korea
 47
4.10 Malaysia
 49
4.11 Mexico
 53
4.12 New Zealand
 55
4.13 Papua and New Guinea
 58
4.14 Philippines
 59
4.15 Singapore
 61
4.16 Chinese Taipei
 66
4.17 Thailand
 68
4.18 USA
 70

 1 Executive summary

1.1 Liberalisation of trade ? the goal of APEC

 In the Declaration of Common Resolve at their meeting at Bogor, Indonesia, in November 1994, APEC's Economic Leaders committed to:
to announce our commitment to complete the achievement of our goal of free and open trade and investment in the Asia-Pacific no later than the year 2020・ with the industrialised economies achieving the goal・ no later than the year 2010 and developing economies no later than the year 2020.
 This study on interconnection issues in the APEC region is driven by the recognition of the critical role of telecommunications in supporting and promoting this goal and vision of APEC.
 1.2 Telecommunications competition ? critical in achieving liberalisation The principles of the Bogor Declaration were re-affirmed in the Seoul Declaration for the Asia-Pacific Information Infrastructure (APII) issued by the APEC Telecommunications and Information Ministers in May 1995. It was resolved:
 to strengthen cooperation in every level for the Asia Pacific Information Infrastructure (APII) in an effective and balanced manner for the regional and global prosperity.
The Seoul Declaration established objectives of the APII to include:
  • Facilitating the construction and expansion of an interconnected and interoperable information infrastructure in the region; and
  • Encouraging the creation of policy and regulatory environments favourable to the development of the APII.
The core principles of the APII include:
  • Intensifying co-operation among member economies;
  • Ensuring open and non-discriminatory access to public telecommunications networks for all information providers and users in accordance with domestic laws and regulations;
  • Promoting a competition driven environment; and
  • Encouraging business/private sector investment and participation.
These objectives recognise not only the importance of a competitive telecommunications sector within APEC, but the central role of interconnection to ensure the benefits of competition are realised by all.
 1.3 Interconnection ? the key to effective telecommunications competition Most APEC member economies have introduced competition into at least one telecommunications market sector, and all have expressed commitment to further liberalisation. The competitive models vary, reflecting the need to balance and accommodate a range of domestic and international social, economic and political objectives.
  • Some member economies, such as the US, have had longer experience in long distance telecommunications services competition and are now in the process of developing further competition at the local level.
  • Other member economies, such as Australia, New Zealand and Hong Kong, China do not have as long a history of network services competition but have now opened their domestic markets to full competition.
  • In other member economies, generally those which are less developed economically, competition is being introduced on an incremental basis, and is balanced with other policy objectives for telecommunications, such as increasing teledensity, maintaining stable end-user prices, and ensuring that the operators have sufficient funds for network investment.
One of most important and difficult issues facing all member economies in the context of developing competition is the determination of interconnection frameworks and interconnection charges.
There are a number of different approaches to interconnection and the circumstances under which it becomes an issue. They include:
    (a) Linking two networks (whether wireless or fixed) that have been built and managed by two different operators.
    (b) Where there is a single network, permitting other operators to lease part of that network by unbundling the service elements.
    (c) Where there is a single network, permitting other operators to purchase entire unbundled or bundled services for resale at a wholesale price.
The interconnection framework, and in particular interconnection pricing, has a fundamental impact on the introduction of effective competition in telecommunications. This is the case, regardless of the competitive model which is adopted or the country's level of economic development.
The level of interconnect prices directly affects the viability of competitive networks and the incentives for network investment and development. The challenge for all APEC economies is to set interconnect charges which promote greater efficiency levels within a vigorously competitive telecommunications industry. If interconnect charges are set too low, facility based competition will not be realised and their will be an aggregate under-investment in new and augmented infrastructure, both by new entrants and by incumbent operators. Under-pricing relative to cost therefore will distort investment decisions about infrastructure. On the other hand, if interconnect prices are set too high there will be increased investment in infrastructure with consequential uneconomic by-pass of incumbents' facilities. In either case, competition will be distorted, whether because it is delayed or made unsustainable.
 2 Background to the study

2.1 Objective of this study

This study is a foundation for building on the principles and objectives which had their genesis at Bogor in 1994. This study has been sponsored by the APEC Telecommunications Working Group in order to collate experience from member economies in addressing the fundamental challenge of network interconnection. This study will not only provide information to member economies ? it will be the basis for those members to engage in dialogue about their respective experiences in implementing interconnection regimes.
 2.2 Ovum (s0Bs approach Ovum's approach to the study has been to formulate and administer a detailed questionnaire survey , which was sent to APEC representatives in all member economies. Responses have been supplemented where required by Ovum's own knowledge and information on interconnection arrangements and policies in APEC member economies.
3 Interconnection policy in the APEC region

3.1 Telecommunications development

Figure 3.2 describes in terms of key statistics the fundamental dimensions of each of the APEC economies and the services in operation and levels of penetration for both fixed and mobile telecommunications services. It is important to note that economies in earlier stages of development have little immediate incentive to develop detailed interconnection regimes. Their need is to ensure technical interworking between national and international service levels and between area/regional operators for the purposes of traffic origination and termination. However, it is generally accepted that interconnection is a necessary function of competition in service provision, and highly related to the level of telecommunications development in an economy.
 3.2 Market structure In terms of market structure, we have looked primarily at whether competition has been introduced in fixed and mobile telecommunications markets. Figure 3.1 summarises the current situation in each APEC member economy. It must be noted however that the levels of competition in each economy differ.

Figure 3.1 Levels of competition in APEC economies as at 1997
APEC Member Economy Competition in Domestic Fixed Network Services Competition in Mobile Services
Australia Yes Yes
Brunei Darussalem No No
Canada Yes Yes
Chile Yes Yes
People's Republic of China No Yes
Hong Kong, China Yes Yes
Indonesia No Yes
Japan Yes Yes
Korea Yes Yes
Malaysia Yes Yes
Mexico Yes Yes
New Zealand Yes Yes
Papua and New Guinea Not available Not available
Philippines Yes Yes
Singapore No Yes
Chinese Taipei No Yes
Thailand No Yes
USA Yes Yes

Figure 3.2 Key statistics APEC economies Key statistics APEC economies
Country Population
(m)		 Area
('000 sq km)		 Pop'n density
(per sq km)		 GDP
($ per head)		 Telephone
lines (m)		 Telephone
penetration		 Mobile
phones (m)		 Mobile
penetration
Australia 18.063 7740 2.3 19820 9.45 Note 2
52.3%		 4.1 Note 2
22.7%
Brunei 0.29 5.27 55.0 14307 0.07 24.1% 0.04 13.8%
Canada 29.55 9970.6 3.0 18983 17.7 59.9% 3.37 11.4%
Chile 14.23 748.8 19.0 4133 1.88 13.2% 0.3 2.1%
China 1200 9326 129 561 40.7 3.4% 3.63 0.3%
Hong Kong, China 6.19 1.076 5753 25614 3.5 56.5% 1.25 20.2%
Indonesia 193 1812 107 882 3.3 1.7% 0.22 0.1%
Japan 125 377.8 331 36075 61 48.8% 23 18.4%
Korea 44.85 98.73 454 11450 18.6 41.5% 3.14 7.0%
Malaysia 20.14 328.55 61.3 4202 3.34 16.6% 1.65 8.2%
Mexico 91.83 1960 46.9 6509 8.8 9.6% 0.64 0.7%
New Zealand 3.6 263 13.7 15439 1.66 46.1% 0.47 13.1%
Papua New Guinea 4.3 453 9.5 1275 0.04 0.9% 0 0.0%
Philippines 68.6 298.17 230 1090 1.43 2.1% 0.5 0.7%
Singapore 3.74 0.648 5772 27528 1.56 41.7% 0.39 10.4%
Chinese Taipei 21 35.98 584 12288 8.77 41.8% 1.1 5.2%
Thailand 58.2 511 114 2749 3.5 6.0% 1.08 1.9%
USA 263 9809.43 26.8 27129 165 62.7% 44 16.7%
Notes:
1. Sources: ITU, Euromonitor, MTI and Ovum - 1996
2. Penetration based on services per 100 population

3.3 The regulatory framework for interconnection

Figure 3.3 summarises the regulatory arrangements that have been implemented as at 1997 in APEC member economies. Fuller descriptions are provided under individual member reports.

Figure 3.3 APEC member economy interconnection arrangements
APEC Member Economy Regulatory agency independent of market operators Separation of policy and regulatory roles Interconnection Guidelines or Legislation Competitive Safeguards
Australia Yes Yes Yes Yes
Brunei Darussalem No No Not available Not available
Canada Yes Yes Yes Yes
Chile Yes Yes Yes Yes
People's Republic of China No No No Not available
Hong Kong, China Yes Yes Yes Yes
Indonesia Yes No Yes Not available
Japan Yes No Yes Yes
Korea Yes No Yes Yes
Malaysia Yes Yes Yes Developing
Mexico Yes Yes Yes Yes
New Zealand Yes ? not telecom specific. Not applicable Yes ? not telecom specific Yes
Papua and New Guinea Not available Not available Not available Not available
Philippines Yes Yes Yes Yes
Singapore Yes Yes Yes Yes
Chinese Taipei Yes Yes Yes Yes
Thailand Yes No No Not available
USA Yes Yes Yes Yes

3.4 Commercial arrangements for interconnection

Figure 3.4 summarises the arrangements for establishing interconnection charges in APEC member economies.

Figure 3.4 Arrangements for establishing interconnection charges
APEC Member Economy Commercial Negotiation of Interconnect Charges Role of regulator Charging Basis
Australia Yes, preferred Accept access undertakings and may intervene if negotiations fail Cost-based (Total Service Long Run Incremental Cost)
Brunei Darussalem Not applicable Not applicable Not applicable
Canada No Regulated through Carrier Access Tariffs Cost-based
Chile Yes, preferred May intervene Cost-based (Long Run Incremental Cost)
People's Republic of China Not available Not available Not available
Hong Kong, China Yes, preferred May intervene Cost-based
Indonesia Yes, on occasion Determines charges Revenue sharing
Japan Preferred in past, moving to a tariffed approach for dominant carriers in the future. Tariff approval Cost-based
Korea No Determines charges Cost-based
Malaysia Negotiated revenue sharing None, at present Revenue sharing
Mexico Yes, preferred May intervene Cost-based (Long Run Incremental Cost)
New Zealand Yes, preferred No telecom specific regulator. Parties have recourse through the courts. As negotiated
Papua and New Guinea Not available Not available Not available
Philippines Yes Supervisory Negotiated, revenue sharing ? cost-based planned
Singapore Yes, preferred May intervene Cost-based
Chinese Taipei Yes, preferred May intervene as last resort Cost-based (moving to Long Run Incremental Cost)
Thailand Revenue sharing Not Applicable As negotiated
USA Yes, preferred May intervene if negotiations fail. Cost-based (Long Run Incremental Cost)

3.5 Key interconnect issues in APEC member economies

Drawing general issues from the approaches of 18 APEC member economies to interconnection is difficult, and must be addressed with caution. In particular, it needs to be constantly recognised that each member economy:
  • has its own unique set of economic, social and political drivers, of which interconnection in telecommunications is a reflection
  • has adopted a model of telecommunications competition which, given those drivers, is considered most appropriate to serve its national and international interests
  • is at a different stage in both its economic development and the competitive development of its telecommunications industry.
However, common to all economies are:
  • the introduction of infrastructure competition in at least one sector of the telecommunications industry;
  • the commitment to liberalisation of the industry; and
  • shared commitment to the APEC objective of free and open trade in the region.
The more effective the interconnection regime in an individual economy in promoting the development of competition, the more likely the collective objective for the APEC region will be realised.
In this context, we believe that the key interconnection issues for APEC are:
  • Role of the regulator and of regulation: -- Regulatory agency powers and behaviour
    -- Transparency of interconnection arrangements
    -- Residual market power of incumbents and competitive safeguards
  • Interconnection and market structure: -- Basis for establishing interconnection charges
    -- Unbundling of service elements and local service competition
  • Resale and market structure
  • Fixed/mobile convergence
  • Universal service obligations, access deficits and tariff re-balancing
Each of these issues is dealt with below.
 Role of the regulator and of regulation
 Regulatory agency powers and behaviour
 The need for regulatory agencies which are independent of telecommunications operators is well recognised within APEC member economies. Independence of regulatory (implementation) activity from government (policy) activity is not as well recognised in current arrangements. The power and authority of regulators to intervene, the circumstances under which they may do so, and the level of discretion afforded by legislation, are critical matters in the interconnection policy framework.
To date, throughout the APEC economies, there have been limited opportunities for regulators to become involved in resolving inter-carrier disputes or failures associated with the negotiation of interconnection agreements. Interconnection regimes are commonly of such recency in many jurisdictions that opportunities have not yet fully arisen that require regulatory agency intervention.
A key issue is whether the development of interconnection regimes, and the achievement of the consequential benefits for enhanced competition, will be hastened or retarded by the absence of regulatory involvement. In some jurisdictions, notably New Zealand and Australia, there is heavy emphasis on self-regulation and the bilateral commercial negotiation of operators. Industry self-regulation comes in many forms. In all forms it is largely untested. It remains to be seen whether operators in the marketplace, and incumbent carriers in particular, have a greater interest in fully testing the boundaries of interconnection legislation through regulatory and court systems, than in negotiating direct outcomes with each other and with new entrants in a timely manner.

Transparency of interconnection arrangements

  • Publication of detailed and accurate information

    • It cannot be stressed too much that the transparency of an interconnection regime and the accuracy of the descriptions of its key requirements are paramount in permitting the introduction of early and effective competition. Functional characteristics of interconnecting services need to be carefully specified to ensure that an end user is not inhibited in any way when establishing a connection between parties via two or more networks. Another case is the publication of clear and comprehensive guidelines concerning the powers of a regulator and the circumstances and processes that relate to its intervention. Participants need to be able to assess the value of regulatory involvement and to assess the risks to them of various courses of behaviour.
  • Publication of interconnection charges

    • Most member economies rely on commercial negotiation between the parties to achieve interconnection agreements. The arrangements arrived at between the parties, in particular the charges, are then treated as commercially confidential information of the parties.
    The lack of public information of interconnection charges may lead to undesirable results such as a lack of benchmarks for other entrants when dealing with incumbents, possible strengthening of the incumbents' position in negotiation, and additional delay in negotiating agreements.
    A key issue is whether the objectives of regulatory and market reform in this area might not be better advanced by publishing key terms of interconnect agreements, at the possible expense of traditional commercial privacy values.
  • Obtaining cost information

    • A critical issue is the ability of both regulators and operators to obtain expeditiously relevant cost and other information especially from the incumbent. Historically information, particularly cost information, is not normally kept in a form which lends itself to analysis for the purposes of interconnect charge determination. As well, incumbent carriers have little incentive to make such information as does exist available to regulators or potential competitors. Well meaning efforts to discern true costs can easily degenerate into lengthy, costly, insoluble, and ultimately irrelevant academic debates delaying the introduction of effective interconnection. In order to avoid this, the regulator should decide on its policy goals, choose a costing policy that is consistent with those goals, and proceed on that basis.

Residual market power of incumbents and competitive safeguards
 In most APEC member economies the incumbent carriers have considerable market power which is not only reflected in market share, but also in terms of their access to resources, substantial skill sets, relationships with suppliers, and control of critical information and knowledge. In some economies the incumbent retains functions that might be better placed with the regulatory agencies.
The risk that an incumbent may delay or otherwise inappropriately influence negotiations needs to be firmly addressed in the interconnection framework. As competition increases, the continuing relevance and application of the safeguards will need to be examined.
As a minimum, the framework should address the following issues:
  • Cross-subsidisation, and the various alternatives available for ensuring compliance with cross-subsidy prohibitions, such as accounting controls and structural separation at various levels of severity
  • Controls on the ability of an operator with substantial market power to misuse that market power for anti-competitive purposes. Some economies rely on general competition laws to provide this safeguard, others address it specifically in telecommunications regulation
  • Sanctions for delay and anti-competitive behaviour, including pecuniary penalties, licence cancellation and suspension.

Interconnection and market structure

Basis for establishing interconnection charges
 There are essentially two ways of arriving at interconnection arrangements between operators: they can be set by the regulator or they can be commercially agreed between the operators (with or without some degree of regulatory agency involvement). Hybrid arrangements are also possible and in evidence.
The preference exhibited in most interconnect frameworks among APEC member economies is for commercial negotiation between the operators. There are advantages in this approach, including:
  • interconnection charges which are commercially reached are more sustainable
  • the operators themselves know best how to handle the technical, commercial and pricing issues which need to be negotiated.
However, there are disadvantages, including:
  • the process may take time to complete and may adversely affect the pace of competition
  • there is a risk that a dominant carrier will abuse its market position to delay and hinder interconnection negotiations, and the entry of new operators in the market.
To minimise the delays and risks inherent in commercial negotiations, some degree of regulatory involvement in the process is usually contemplated, such as:
  • dispute resolution procedures, including regulatory intervention to resolve deadlocks or breakdowns in negotiations
  • timetables for completion of negotiations, with effective sanctions for failure to comply
  • providing an indication of likely outcomes if regulatory arbitration or determination is sought.
The interconnection frameworks of the member nations adopt varying degrees of regulatory intervention in commercial negotiation. On the one hand, for example, the model proposed for Singapore contains probably the most detailed and comprehensive provisions for the conduct of negotiations, with regulatory oversight and involvement. On the other hand, New Zealand's framework relies solely on commercial negotiation with ultimate recourse to the judicial system under the general competition law.
The basis on which regulators might intervene is also an important issue. If regulators are to arbitrate, the issue is whether they may apply wide discretion in the context of their agency charters, or whether they are constrained to determine charges and other terms of interconnection in terms of guidelines established by legislation or, in advance, by the agencies themselves. In most APEC member economies there is a clear preference that cost should form the basis for regulatory interconnection charging determinations, and a further preference for incremental costs to be applied, rather than the fully allocated costs of the operator providing access. The experience of most member economies in applying cost considerations to interconnect issues is very limited to date.
The guidelines within which regulators operate, and the precedents that they develop over time, through their various arbitrations and other determinations on the subject of interconnection, will invariably influence the basis on which inter-party commercial negotiations are conducted.

Unbundling of service elements and local service competition
Many APEC economies agree that one of their priorities is to improve service for users, the majority of whom are affected most by the availability and price of local service. Unbundling service elements is an approach to maximise competition in local service and, thereby, bring the benefits of competition ? better and cheaper service ? to the majority of telecommunications users. Unbundling of services can also benefit the incumbent carrier by increasing utilisation of the existing network. For example, in the U.S. and Japan, where local service competition has become a priority after many years of competition in other service areas, unbundling local service elements has been adopted as the preferred approach.
If an economy adopts an unbundled service elements approach, the issues for pricing these elements are similar to those already discussed in relation to the basis for establishing interconnection charges. To briefly recapitulate:

  • Commercial negotiations for pricing of the unbundled elements and the technical points of interconnection are preferred, but run the risk of allowing the dominant carrier to abuse its market position to the detriment of the negotiations.
  • To minimise these risks, some regulatory involvement may be required in relation to the following:
-- dispute resolution procedures
-- timetables and possible sanctions to encourage completion of negotiations
-- a default menu of points of interconnection and pricing of elements to provide an indication of likely outcomes if dispute resolution by the regulator is sought.
Again mirroring the economic choices faced by regulators for interconnection charges in general, pricing of unbundled service elements may be based on incremental costs or fully allocated costs.

Resale and market structure
Resale can be used to encourage competition in terms of price and customer service. Resale allows for earlier entry and operation in the market, and can avoid uneconomic investment. New entrants who start as resellers can build a customer base which may grow to enable them to generate the scale necessary to support investments in their own facilities at a later date. In the U.S., for example, the second largest facilities-based carrier, MCI, began as a reseller competing against AT&T.
Significant issues in establishing a framework for resale include:

  • the degree to which rapid development of competition is important in a market
  • regulatory priority to be given to improving customer service and improving service
  • the degree of regulatory intervention that is possible or practical
  • developing a regime where resellers may repurchase service from major suppliers at a wholesale discount.

Fixed/mobile convergence

The region covered by APEC member economies is characterised by rapid development of cellular mobile systems and substantial penetration of mobile services. In some economies, cellular systems and mobile competition have been introduced in the absence of liberalisation of fixed network operations. In consequence, interconnection regimes need to explicitly recognise convergence and provide for fixed/mobile interconnection. Special competitive safeguards are required where the incumbent fixed carriers are permitted to operate in mobile markets.
To date, mobile interconnection terms have been constructed in a different manner to fixed interconnection. There has typically been no relation to network costs. A key issue, as mobile becomes a lower priced, mass market service, will be the merging of interconnection regimes between fixed and mobile services.

Universal service obligations and access deficits

Some member economies do not have separate universal service funds but deal with contributions to the universal service obligation through interconnection payments. Examples include Indonesia and Malaysia.
Inclusion of universal service contributions, and perhaps also access deficit contributions, in interconnection charges raises issues such as:
  • complication of the cost basis on which interconnection charges are determined or negotiated. The bases on which interconnection and universal service costing and charging are determined may be substantially different
  • Interconnection and universal service obligations have different requirements for measuring, collecting and managing information and costs, and the allocation of costs through charges
  • universal service costing and charges are inherently inappropriate for negotiation on a commercial basis between operators, and therefore cannot be associated with interconnection charging in regimes with a heavy reliance on commercial negotiation
  • possible impeding of the development of innovative and different approaches to universal service.

4 APEC member economy profiles

4.1 Australia

This profile is based partly on a response from the APEC representative in Australia, and partly on Ovum's in-house information about the Australian interconnection regime.

4.1.1Key statistics

The following statistics, unless otherwise stated, applied at 1 January 1996.
(19Y       Population 18,063,000
(19Y       Area 7.74 million sq km
(19Y       Population density 2.3 per sq km
(19Y       GDP $19,820 per capita
(19Y       Fixed line penetration 9.45 million (52.3%)
(19Y       Mobile penetration (1 January 1997) 4.1 million (22.7%)

4.1.2 Market structure

Fixed networks

There has been open competition in fixed telecommunications services since 1 July 1997. Previously, from 1992, there had been a duopoly between Telstra, the incumbent, and Optus, the second carrier. The new policy regime since 1 July 1997 in no way limits the number of carriers. This is a matter determined by market forces. As at 31 August 1997 there were eight carriers (three from the previous regime and five new entrants), and an estimated further 25 potential carriers who have signalled their intention to enter the market. Many potential new entrants have been delayed by the need to develop and submit an industry development plan to the regulator.
Telstra is currently majority Government-owned. One-third of the carrier was privatised in November 1997.
Telstra has approximately 85% market share of the long distance market and 100% of the local loop. Optus' plans to compete in the local loop, using its own cable infrastructure, have been delayed. It announced the commencement of its local call services in July 1996, however, delivery of the services has been hampered by difficulties with its hybrid fibre coaxial cable technology.

Mobile market

The mobile market in Australia shows strong growth. The average annual compound growth rate over the last nine years, in terms of numbers of customers, has been 68%. However, there were early signs of a tailing off in demand in 1997.
There are currently three mobile licensees: Telstra, Optus and Vodafone.
The structure of the mobile industry is a result of Government policy in respect of the AMPS network. In particular:
    (19Y only Telstra is permitted to operate an AMPS network
    (19Y resale of AMPS airtime, other than by another mobile carrier, is limited to a 5% margin.
The consequences of this policy have been that:
    (19Y Telstra is dominant in the wholesale market for AMPS;
    (19Y In the retail market for AMPS airtime Optus is the only AMPS reseller competing with Telstra.
The Australian Government has mandated closure of the AMPS network by the year 2000. This decision has been questioned in terms of the levels of service that will result from the lower current coverage of digital networks.
The Australian Communications Authority (ACA) will be auctioning the 800 MHz spectrum vacated by the closure of the AMPS network. The ACA intended to sell 10 MHz of spectrum in 1997, followed by 5 MHz in the following two years. This program has, subsequently, been deferred by the Government. Candidate technologies for use in this spectrum include IS-95 and D-AMPS. 45 MHz of spectrum in the 1800 MHz range will also be auctioned. It is expected that the three incumbent GSM carriers will each obtain 15 MHz of these frequencies to the bolster capacity of their GSM networks

4.1.3 Regulatory framework

Under the 1997 Telecommunications Act, there are no limitations on the number of licences which may be granted. The new framework does not distinguish between fixed and mobile services for regulatory purposes, but between carriers and service providers.
The regulation of competition in the industry before 1 July 1997 focussed on industry-specific controls on Telstra, the dominant carrier . Under the open competition framework, these controls have been replaced with reliance on the general competition laws. Simultaneously, regulation of the industry was transferred from Austel to the competition regulator, the Australian Competition and Consumer Commission (ACCC). The ACCC's primary concern is to ensure the absence of anti-competitive behaviour in telecommunications. Otherwise it hopes to leave the industry to self-regulation. In addition the Australian Communications Authority (ACA) has responsibility for technical regulation.
A key concept introduced under the Telecommunications Act of 1997 is that of Industry Self Regulation. This involves providing maximum opportunities for individual market participants to negotiate arrangements on a commercial bilateral basis, with intervention by the regulator only on the failure of these negotiations and at the instance of one or both parties. In addition the legislation contemplates industry for a to develop and recommend the adoption of industry codes and standards. For example, a key body, the Telecommunications Access Forum (TAF), comprising carriers and carriage service services, is charged with making recommendations on the declaration of services and the development of a draft access code setting out model terms and conditions. Industry self regulation is regarded as an integral part of light-handed regulation, with regulatory intervention being regarded as a last resort. It is still too early in the life of the new legislation to judge the success of this approach.
The regulation of interconnection is contained in the telecommunications access regime, contained in Part XIC of the Trade Practices Act. The regime is built on concepts of 'declared services', 'access providers' (being carriers or carriage service providers) and 'access seekers' (being providers of either carriage and/or content services). In essence, access must be provided to declared services on terms agreed between the access provider and the access seeker.

Competitive safeguards

The regulatory regime for open competition contains new powers to deal with anti-competitive conduct in the telecommunications industry. These powers supplement the general competition regulations in the Trade Practices Act 1974. They enable the ACCC to deal with anti-competitive conduct in telecommunications markets and to collect information to assist it in monitoring competition in the telecommunications industry.
The framework is intended to enable the ACCC to respond quickly to anti-competitive conduct. It provides that a carrier or carriage service provider with a substantial degree of market power must not engage in anti-competitive conduct (the 'competition rule'): if a carrier breaches the rule, the ACCC may issue a 'competition notice'. While the competition notice is in force, the ACCC is able to bring proceedings in the Federal Court for pecuniary penalties of up to A$10 million plus A$1million for each day the conduct continues, and third parties may seek an injunction to restrain the conduct and damages for any loss or damage suffered.

Tariff filing

The ACCC is empowered to make 'tariff-filing' directions, directing carriers and carriage service providers with a substantial degree of market power to file tariff information. This will allow the ACCC to examine carrier and carriage service provider conduct in telecommunications markets, including where the ACCC has concerns about potential anti-competitive conduct but has insufficient basis on which to decide whether to take action under the competition notice provisions. Particular items of information submitted under a tariff filing direction would be publicly released where this would have a net public benefit. Telstra is also required to file its tariffs for basic carriage services with the ACCC.
The intention is that the competition rules for telecommunications will eventually be aligned with the general trade practices provisions. The legislation provides that a review of the operation of these arrangements be undertaken before 1 July 2000. In conducting the review, consideration will be given to whether any or all of the telecommunications industry-specific competitive conduct provisions should be repealed or amended.

Equal access

Under the former framework, the second carrier, Optus, was given rights to pre-selection. A ballot process was conducted to determine the preference of customers for long distance carrier service. The ballot was a progressive process from area to area, and was conducted by mail by the regulator. The Telecommunications Act 1997 requires that preselection be extended to all service providers providing the standard telephone service. The ballot process has been dropped for future preselection activity by customers. The Act also enables the ACA to determine that pre-selection be made available to suppliers of other carriage services, having regard to the costs, benefits and technical feasibility of doing so.
Service providers without pre-selection make use of 4 digit prefixes.

 Number portability
 The Telecommunications Act 1997 requires the ACA to include rules for number portability in its national number plan. The first numbering plan under the new legislation must be in place by 31 December 1997.
The number ranges in which portability is to be established is a matter for the ACCC to determine in a direction to the ACA. The ACCC has released for public comment a draft direction which would require inter-carrier portability for local numbers, global numbers (eg freecall 1800 and 13 numbers) and GSM mobile numbers.
The terms and conditions on which portability is provided between parties will initially be a matter for commercial negotiation, although the ACCC has a power to arbitrate disputes.

4.1.4 Interconnect arrangements

Outline of interconnect regulation

The Trade Practices Act establishes a telecommunications industry-specific regime for regulated access to carriage services. This regime enables carriage services to be 'declared' by the ACCC. The services to be 'declared' are those which are essentially bottleneck or monopoly services, without access to which new entrants would not be able to provide competitive services. An initial list of declared services has been released, being the services currently provided under access agreements between carriers made under the pre-1 July 1997 framework. On an ongoing basis, declarations may take place on the recommendation of an industry body (the Telecommunications Access Forum) or after a public inquiry by the ACCC.
The consequence of services being declared is that carriers and carriage service providers supplying them are under an obligation to supply the declared services to requesting carriers and service providers. These may include ancillary services such as interconnection services.
The access regime enables the terms and conditions of access to be determined by any of, or a combination of, three methods: commercial negotiation, an undertaking submitted by individual carriers which has been accepted by the ACCC, or arbitration by the ACCC.
The framework allows for the industry to develop voluntary, parallel mechanisms to deal with access issues, such as alternative dispute resolution procedures. If developed, such mechanisms will not affect the rights of parties to notify disputes to and seek intervention of the ACCC.

Policy objective

The object of the telecommunications access regime is to promote the long-term interests of end-users of carriage services or of services provided by means of carriage services.
When considering whether regulatory decisions will promote that objective, the ACCC must have regard to:
  • The objective of promoting competition in markets;
  • The objective of achieving any-to-any connectivity; and
  • The objective of encouraging the economically efficient use of, and investment in, infrastructure.
 Role of the regulator
 The determination of the terms and conditions on which access is provided is primarily a matter for commercial negotiation, however, the ACCC has a role in:
  • Determining whether the terms and conditions proposed in an industry-developed 'access code' are reasonable;
  • Determining whether the terms and conditions proposed in an access provider's access undertaking are reasonable;
  • Arbitrating disputes about the terms and conditions of access.
As the current framework came into operation on 1 July 1997, there has not yet been recourse to the ACCC for dispute resolution. However, the ACCC has issued a number of documents, setting out its views on the pricing principles which would apply if it is called upon to arbitrate. The ACCC has also released an initial list of declared services.
 Dispute resolution
 There is no timetable set for negotiations. Any party, at any time, may notify the ACCC of a dispute and seek arbitration. The ACCC has limited powers to refuse to arbitrate a dispute.
Commercial negotiations are currently under way between carriers and service providers, since the introduction of the access regime on 1 July 1997, and no disputes have yet been notified to the ACCC (as at 31 August 1997).
A number of interconnection agreements and variations to the agreements have been negotiated, without recourse to dispute resolution mechanisms, under the pre-July 1997 interconnection framework.
 Extent of interconnection obligation
 Once a service is declared, any carrier or carriage service provider supplying that service is under an access obligation to:
  • Supply the declared service;
  • Provide interconnection necessary to enable the access seeker to make use of the declared service;
  • Provide billing information; and
  • Where the declared service is supplied by means of conditional access customer equipment (such as set top boxes for pay TV), provide services necessary to enable the access seeker to supply its own services for the means of that conditional access customer equipment.
There are no legislative requirements for differentiating between the interconnection rates for carriers and service providers ? all access seekers have equal legislative rights. However, the terms and conditions of access are primarily a matter for commercial obligation and so differing conditions, including price, are possible.
 Enforcement of the interconnection obligation
 Compliance with access obligations are a carrier licence condition and a service provider rule, enforced by the ACCC. Failure to comply with the conditions and rules is punishable by pecuniary penalty.
In addition, access obligations are enforceable by third parties through the Australian Federal Court.
 Requirements for unbundled access to network services
 The ACCC has a wide discretion to require the unbundling of services where this will promote the objectives of the access regime.
The ACCC's initial list of declared services includes:
  • Domestic PSTN originating access
  • Domestic PSTN terminating access
  • Domestic GSM originating access
  • Domestic GSM terminating access
  • Domestic AMPS originating access
  • Domestic AMPS terminating access
  • Transmission, 2 MBPS or multiples thereof (except between major cities)
  • Digital data access service
  • Conditioned local loop service
  • AMPS to GSM Diversion service and
  • Broadcasting access service over cable networks
 Publication of interconnection agreements
 There is no requirement for interconnection agreements to be made publicly available. The ACCC has strong information gathering powers which it can use if the information is relevant to its competition regulation responsibilities.
 Interconnect cost base
 The ACCC draft paper on access pricing principles provides that total service long-run incremental cost (TSLRIC) is the appropriate methodology when arbitrating disputes over the price of declared services where there is bottleneck power. The paper also proposes a forward-looking approach to determining TSLRIC, based on 'best-in-use' technology and production practices and valuing inputs using current prices.
Initial access prices between the carriers under the 1991 legislation were determined using a directly attributable incremental cost methodology. Subsequent charges were a matter for commercial negotiation against a broad set of cost-based principles.
 Technical aspects of interconnection
 The standard access obligations imposed once a service is declared, includes an obligation to provide interconnection at a technical and operational quality and timeliness equivalent to that which the access provider has itself.
Where parties to commercial negotiations on any terms and conditions of access to declared services are unable to reach agreement, they may notify the ACCC of a dispute and seek arbitration.

4.2 Brunei Darussalem

In the absence of a full response from the APEC representative in Brunei, this profile is based on other information available to Ovum.
4.2.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       0.29 million
Population
(19Y       Area 5270 sq km
(19Y       Population Density 55 per sq km
(19Y       GDP $14,307 per capita
(19Y       Fixed line penetration 70,000 (24.1%)
(19Y       Mobile penetration 37,000 (12.8%)
 4.2.2 Market structure All fixed services in Brunei Darussalem are provided by the monopoly carrier JTB (Jabatan Telekom Brunei).
The public mobile service is provided on a monopoly basis by DST Com, a private company.
The Government has determined that, in view of the size of the market in Brunei Darussalem, competition will be implemented at the fixed versus mobile level.
 4.2.3 Regulatory framework Regulatory administration has been transferred to the Ministry in early 1997. Prior to that, regulatory functions were carried out by JTB.
 4.2.4 Commercial interconnect arrangements No data available to Ovum

4.3 Canada

This profile is based on a response from the APEC representative in Canada, supplemented by Ovum's in-house information about the Canadian interconnection regime.
 4.3.1 Key statistics
Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       29.55 million Population
(19Y       Area 9,970,610 sq km
(19Y       Population Density 3.0 per sq km
(19Y       GDP $18,983 per capita
(19Y       Fixed line penetration 17.7 million (59.9%)
(19Y       Mobile penetration (1 January 1997) 3.37 million (11.4%)
 4.3.2 Market structure Telecommunications in Canada is regulated by the Canadian Radio-Television and Telecommunications Commission (CRTC). The CRTC approves all interconnection agreements on the basis of a power granted to it by S.29 of the Telecommunications Act. Canada has adopted a process of phased liberalisation - competition in long distance began in 1992, and local exchange competition is due to begin on 1 January 1998.
Fixed networks
 Fixed network telephony in Canada is served by the Stentor member companies: 9 provincially-based providers of local and long distance telephone service, 8 of which are privately owned and one, SaskTel, is owned by a provincial government. There are also 50 independent local exchange operators, 37 of which are provincially incorporated private companies and 13 are owned by municipalities. Bell Canada is the largest shareholder in the Stentor alliance with a 50% stake. The alliance promotes the pooling of resources in engineering, research, product development and marketing, and consequently plays a key co-ordinating role with the mobile carriers. BC Tel is the next largest company, which serves British Colombia.
A number of new entrant long distance carriers have entered the Canadian market including AT&T Canada, Westel, Telesat, Sprint, and Fonorola. Rogers Cable is competing in local areas with fibre access to major buildings.
Mobile networks
 Licences for two 800 MHz cellular systems were awarded in every province in 1985. Cantel was successful in winning the A-band licences nationally, whilst the B-band licences were awarded to companies affiliated to the fixed network operator in each province. The fixed network operators together formed the Mobility Canada alliance in 1992, which they claim enables them to deliver seamless mobile communication throughout Canada.
Cantel has approximately 1.5 million subscribers which gives it a market share of 40%. The Mobility Canada alliance companies have 2.5 million subscribers which gives them a market share of 60%. Penetration is roughly 12.5%, and growth is running at 30-40% per annum.
In 1995 the Canadian government awarded PCS licences in the 1.9 GHz band. Microcell and Clearnet were each successful in winning 30MHz, whilst Cantel and the Mobility Canada fixed network affiliates were each awarded 10 MHz.
 4.3.3 Regulatory framework The Canadian Radio-television & Telecommunications Commission (CRTC) regulates telecommunications and broadcasting services at the national level in accordance with the Telecommunications and the Broadcasting Acts. The CRTC is an arm's length federal government authority, independent of carriers and other market participants.
Section 24 of the Telecommunications Act provides that the offering and provision of any telecommunications service by a Canadian carrier are subject to any conditions imposed by the CRTC or included in a tariff approved by the CRTC.
Subsection 27(2) of the Act provides, among other things that Canadian carriers shall not unjustly discriminate or give an undue or unreasonable preference in relation to the provision of a telecommunications service or the charging of a rate for it.
Canadian telecommunications carriers are not currently licensed, although a licensing regime is being established as a means of implementing certain commitments under the WTO Agreement on basic trade in telecommunications services. Licences will be issued by the CRTC for certain international services. Common carriers who make use of the radio spectrum require technical licensing by Industry Canada under the Radiocommunications Act.

Policy objectives

The broad policy objectives for Canada's telecommunications sector can be seen from the Government's initiatives on the Information Highway:
 *p1291 to create jobs through innovation and investment
*p1291 to reinforce Canadian sovereignty and cultural identity
*p1291 to ensure universal access at affordable costs.
The Government has established four operating principles to guide the development and implementation of these objectives:
*p1291 an interconnected and interoperable network of networks
*p1291 collaborative private and public sector development
*p1291 competition in facilities, products and services
*p1291 privacy protection and network security.
The Government's facilities policy is aimed at advancing its Information Highway strategy through :
*p1291 allowing co-operation or sharing between cable licensees and telecommunications carriers
*p1291 making available for lease, resale and sharing by service providers and other carriers on a non-discriminatory basis, the facilities and capacity of telecommunications carriers under federal jurisdiction, including facilities of cable licensees beyond that used by them for the carriage of broadcasting services to the extent practicable,
*p1291 the availability of unbundled services.
In addition, the following specific policy objectives are set out in the Telecommunications Act:
    (19Y to render reliable and affordable telecommunications services
    (19Y to enhance the efficiency and competitiveness of Canadian telecommunications.

Competitive safeguards

The Split Rate Base proceeding in 1995 laid the groundwork for consumer and competitive safeguards. In the proceeding, the CRTC examined cost allocation between monopoly and competitive services, investments in interactive broadband networks and the reduction of the local service subsidy through rate re-balancing. The result was two separate rate bases: the competitive and the utility segments. Figure 4.3.1 shows differences in regulatory treatment of these two categories.

Figure 4.3.1 Implications of split rate base
Competitive services Utility services
Type of services Long distance data and broadband services Telephony services
Earnings regulation No Rate of return regulation until January 1998
Price caps from 1998
CRTC interest in profitability of telco No Not after 1998
Carriage of investment risks Shareholders Customers (for services where sufficient competition has not emerged)
Investment in broadband capacity In general, broadband capacity is allocated to this segment and transfer priced if required by utility segment Can only be included if there is a demonstrated requirement for the bandwidth

Through the rules for recovery of investments in broadband services, the CRTC wants to ensure that the utility segment rate base is not inflated prior to moving to price caps. It also wants to control the impact of broadband investments on basic local rates during the transition period and to introduce a mechanism which can ensure that utility customers would not fund the warehousing of capacity that may be required for services in the competitive market.
The significance of the split rate base and associated cost allocation procedures will diminish when price caps replace rate of return regulation in January 1998.

 4.3.4 Interconnect arrangements

Role of the regulator

The CRTC has the power to order interconnection subject to conditions regarding compensation or otherwise as it determines to be just and expedient. The CRTC makes use of both public proceedings and industry/regulatory committees to develop and implement interconnection requirements.
To date the CRTC has ordered interconnection to provide competitive long distance and local telecommunications, and wireless services.
The specific interconnection regime developed by the CRTC is seen as being effective in the promotion of competition, because:
    (19Y it is open to all competitors (19Y it has developed common terms and conditions of interconnection and entry obligations (19Y it includes a competitively neutral universal service contribution regime (see below).
Outline regulation of interconnect
In decision 94-19, the CRTC established a regulatory framework, based on a number of inter-related initiatives:
 *p1291 splitting the rate bases of the telephone companies into utility and competitive segments
*p1291 the implementation of a Carrier Access Tariff (CAT) to provide for the recovery by the utility segment from the competitive segment and from competitors of charges for contribution, bottleneck services and start-up costs
*p1291 the price imputation test which ensures the telephone companies' rates are not anti-competitive
*p1291 staged pre-set local rate increases to be offset by reductions in basic toll rates
*p1291 the move to price cap regulation in 1998 of the Utility segment after a transitional period
*p1291 the direction to the telephone companies to file tariffs for co-location and the unbundling of bottleneck services to allow for local competition.
 Interconnection obligations
 The Canadian regulatory regime permits entry by carriers through access to unbundled service elements, resale of carrier services and total bypass. However, bypass of incumbent carriers is permitted for domestic traffic only.
For the purposes of local wireline (fixed) service, competitors must interconnect with the PSTN, and must interconnect with each other. Local exchange carriers must allow all alternative providers of long distance services to interconnect with their networks. The obligation is placed on all carriers and service providers entering the local telecommunications market, and is enforced by the CRTC, either at its own request or at the request of an interested party. The CRTC has a range of enforcement instruments at its disposal under the Telecommunications Act.
Interconnection rights extend to all telecommunications services, and this includes data as well as voice communications.
Interconnect charges
 Interconnection and co-location tariffs are public. They are set by the CRTC following public proceedings in which interested parties file their submissions and interrogatories. They are set by regulatory action rather than by commercial negotiation, and therefore do not necessarily contain the innovation that may be brought to such matters by market forces. On the other hand, setting interconnection charges in this manner is seen as providing incumbents and competitors with common and equal terms of entry into the market, and through openness and procedural fairness, as facilitating early entry of competitive service providers.
The interconnect regulatory framework requires charges to be set on the basis of costs ? being long run incremental costs plus a mark up for common costs. This cost basis has been in place for a considerable time.
 Unbundled local loop
 The CRTC requires unbundled access to network services. This decision was taken in Telecom Decision CRTC 97-8 of 1 May, 1997, and categorised a range of facilities as essential, including local loops, local switching, transiting of traffic, and various directory services.
 Number portability
Number portability, although mandated by the regulatory framework, has not yet been implemented and the performance criteria are still under discussion. It is expected that a network database method will be used. Location Routing Number (LRN) will be used and will be nearly identical to the process to be used in the United States.
How the costs of number portability will be apportioned has not yet been determined. It is likely that it may be on a charge per transaction basis.
An independent third party chosen by the service providers will administer the numbering data base. The costs will be spread over the entire rate base, and will have little effect on the competitiveness of new entrants.
 Universal service obligation
 Access to reliable and affordable telecommunications services of high quality is guaranteed to Canadians in both urban and rural regions as one of the policy objectives of the Telecommunications Act.
Rate regulation and a complex system of cross-subsidies from long distance, business and other premium services revenues are the traditional means used to maintain low cost basic residential service. In principle, all long distance operators have to contribute to USOs for long distance traffic carried on the local networks. These contribution revenues will be disbursed to local exchange operators based on their subsidy requirement (based, in turn, on the operator's costs)
Contributions are based on a per minute charge referable to interexchange traffic volume carried by long distance service providers.
USO contributions are not factored into interconnect charges.
 Access deficit
 The access deficit in Canada is defined as the cost of providing service less the revenue derived from it. The exact size of the local access deficit is not publicly available. Access deficit payments are not factored into interconnect charges.
Sanctions
 As noted the CRTC has a range of instruments to enforce interconnect determinations and orders. Anyone who contravenes a CRTC order to connect is guilty of an offence punishable on summary conviction and liable to a fine, in not exceeding, in the case of an individual, C$5,000 for a first offence or C$10,000 for a subsequent offence (individual), or, in the case of a corporation, not exceeding C$50,000 / C$100,000.

4.4 Chile

This profile is based on the response from the APEC representative in Chile supplemented by Ovum's in-house knowledge of the Chilean interconnection regime.
 4.4.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 14.23 million
(19Y       Area 748,800 sq km
(19Y       Population Density 19.0 per sq km
(19Y       GDP $4133 per capita
(19Y       Fixed line penetration 1.88 million (13.2%)
(19Y       Mobile penetration (1 January 1997) 0.3 million (2.1%)
 4.4.2 Market structure

Fixed network

Chile has a competitive market for fixed network services structured on a regional and long distance service division. A carrier operating both services must have accounting separation between each of its operations.
Regional carrier regulation is set out in the General Telecommunications Act of 1982. This legislation enables a carrier to enter any of the 13 regional markets via an application process to the regulator, SUBTEL (the Undersecretary for Telecommunications). No limit is placed on the number of carriers which may enter each regional market. Competition in the local regions began in 1982 with the creation of local licences. This approach to deregulation was seen as a way of promoting infrastructure building due to lack of resources within Chile. Subsequently, in 1987, the incumbent telco, CTC, was privatised as the first step towards full competition. There are currently 8 local companies operating in the 13 different regions of Chile. CTC still has a presence in all 13 regions with a monopoly in 5 of them where new entrants have not been attracted. Despite the entrance of new carriers CTC has 95% of all the local lines in the country. Within regional markets, Subtel directly sets the maximum retail tariffs.
Long distance carrier regulation is set out in the Multi Carrier Act of 1994. This enabled long distance competition to begin. No limit is placed on the number of long distance carriers in the market, allowing 9 carriers to currently compete against each other. Long distance tariffs are set directly by the carriers, and customers have equal access pre-selection.
Mobile networks
 In the cellular mobile market, there are two licences available per region, allowing potentially 26 independent cellular operators. In practice only 3 operate - BellSouth Celular, VTR Celular and CTC Celular. CTC provides near total coverage for Chile with BellSouth operating in three regions and VTR operating in one region. These companies were awarded licences on a first-come, first-served basis with limited licence obligations imposed upon them.
In the PCS market, three national licences will be awarded in the near future to operators selected via a bidding process.
No funding is provided to mobile operators for universal coverage. Subtel also prevents mobile operators from cross-subsidising services. This includes handsets subsidies.
4.4.3 Regulatory framework The independent regulator, SUBTEL, has developed one of the more competitive telecommunications markets in APEC. They have a 'laissez faire' approach to market intervention. These policies include:
• disallowing the cross subsidisation of any service offered by an operator. This also prevents cross subsidisation of operations between a company operating in different markets;
• allowing operators to enter any markets upon request, except where the market is deemed to use 'scarce resources' such as radio spectrum; and
• ensuring non-discrimination in the services offered by operators.
 4.4.4 Commercial interconnect arrangements

Commercial principles

 Fixed network operators have to provide interconnection upon request. Carriers must respond to requests and negotiate interconnect arrangements within 90 days, or, failing that, risk intervention by the regulator and the imposition of arrangements based on charges set by the regulator. The regulator insists that interconnect services must be provided upon a non-discriminatory basis, with no cross subsidisation. This means:
*p1291 Each regional operator, both fixed and mobile, must estimate the interconnect cost for its particular network. The long distance operators do not have to estimate interconnect cost, but offer long distance tariffs from which customers may choose.
*p1291 Universal service obligations and access deficit contributions are removed from interconnect payments. Instead these are paid for directly on a regional basis via a Universal Service Fund provided by the Government and managed by Subtel.
*p1291 Basing interconnect prices on costs. Interconnect prices are intended to be changed to a LRIC methodology with SUBTEL having responsibility for determining the appropriate LRIC price for each regional operator. No determination has been made to date, but SUBTEL expect to make a determination by 1998. As an interim measure, operators are using their own LRIC estimates which have been approved by the regulator. LRIC prices will be re-evaluated every five years.
The current interconnect principles have been heavily shaped by the needs of the long distance carriers. The tariff for long distance calls are set by the long distance carriers, and includes payments to the regional operators for call origination and termination.
The current arrangements for interconnect effectively classify mobile operators as fixed network regional operators in relation to interconnection rights and interconnect payments. This enables the long distance carrier to pay the mobile operator the same as it would a regional operator for termination and origination services. This interconnect payment has become the de facto interconnect charge when regional operators (both fixed and mobile), are handing calls over to each other.
Technical principles
 A point of interconnect is established by each regional operator for handing over and collecting long distance calls. This is used by mobile operators within each operating region to hand over calls to the regional and long distance carriers. Least cost routing is used for collecting and terminating all calls.
In addition, the mobile operators may set up their own long distance operations if they carry sufficient levels of traffic between key destinations. However this long distance service must be offered to other operators on a non-discriminatory basis.
4.5 People's Republic of China In the absence of a response from the APEC representative in China, this profile is based on published information obtained by Ovum.
4.5.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 1,200 million
(19Y       Area 9,326,000 sq km
(19Y       Population Density 129 per sq km
(19Y       GDP $561 per capita
(19Y       Fixed line penetration 40.7 million (3.4%)
(19Y       Mobile penetration (1 January 1997) 3.6 million (0.3%)
 4.5.2 Market structure Major steps towards reform of the telecommunications industry were taken in 1993-94. Previously, the Ministry of Posts and Telecommunications (MPT) had a monopoly over all aspects of telecommunications. In 1994, MPT was divided into a regulatory division which retained the MPT name, and an operational arm, named China Telecom.
China Telecom is a national long distance telephone company which buys and sells services to the local post and telecommunications bureaux (P&Ts). There are approximately 30 P&Ts ? in all provinces and the cities of Beijing, Shanghai and Tianjin. The P&Ts are responsible for developing and operating networks within the provinces and this responsibility includes arranging for the necessary investment funds.
At the same time as the MPT was re-structured, the National People's Congress also ratified the formation of two separate networks (under the umbrella organisation China Unicom Ltd) to compete with the MPT and the local P&Ts in certain telecommunications areas: Lian Tong was authorised to provide voice services; Ji Tong was authorised to provide value added services. Lian Tong and Ji Tong are not intended to provide direct competition for China Telecom, but to cooperate in the development of a vast market.
Foreign participation in the operation of China's telecommunications system is prohibited. Only the two licensed public network operators, China Telecom and China Unicom Ltd may construct networks or invest in consortia to construct them.
Lian Tong was due to launch its first local fixed network in mid-July 1997 in Tianjin province, subject to completion of interconnection arrangements with the Ministry of Posts and Telecommunications. Its second fixed line network will be in Sichuan.
Some domestic value-added network services are open to competition, but not the market for international value-added network services. A recent plan submitted to APEC allows foreign operators to explore value-added telecom services opportunities within the Chinese market, such as electronic data interchange and voice mail.
 4.5.3 Regulatory framework

Policy objectives

 MPT has the responsibility of regulating all P&Ts and local operators, including making arrangements for the 'compensatory sharing of equipment and facilities to provide an efficient national system'.
The objectives of the national policy on telecommunications, as set out in the MPT Opinion of 3 August 1993, are:
  • To maintain the normal order in the communications system ie to ensure that each of the local systems function together in one comprehensive system
  • To ensure the security of the communications of the state and to provide quality communications services
  • To establish a fair competitive environment.
 4.5.4 Commercial interconnect arrangements The MPT has issued two rules regarding interconnect charges:
  • They must be non-discriminatory
  • They must be cost-based.

4.6 Hong Kong, China

This profile is based partly on a response from the APEC representative in Hong Kong, China and partly on Ovum's in-house information about the Hong Kong, China interconnection regime.
 4.6.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 6.19 million
(19Y       Area 1076 sq km
(19Y       Population Density 5753 per sq km
(19Y       GDP US $25,614 per capita
(19Y       Fixed line penetration 3.5 million (56.5%)
(19Y       Mobile penetration (1 January 1997) 1.25 million (20.2%)
 4.6.2 Market structure

Fixed networks

 Competition in local fixed services was introduced on 1 July 1995, when three new operators commenced business in competition with the incumbent Hong Kong Telephone Company Limited (HKTC). The new fixed network service licensees are:
    (19Y Hutchison Communications Ltd
    (19Y New T&T (Hong Kong) Ltd
    (19Y New World Telephone Ltd.
Certain 'external services' (including international voice services, international private leased circuits for data and international public data circuits for circuits-switched data, fax and packet-switched data), remain the exclusive domain of Hong Kong Telecom International Limited (HKTI), a related company of HKTC, until 31 March 1998. Competition is expected to be in external services in 1999.
Market shares of each operator are not published. However, the new operators have launched services only recently, and they have as yet few directly connected customers.
Interconnection negotiations between the new carriers and HKTC have not yet resulted in an interconnection agreement being reached, although New T&T has managed to secure collocation of its equipment at HKTC's local exchanges. An interconnection dispute is currently before the regulator, OFTA, for arbitration.
Hong Kong China's international gateway facilities are provided exclusively by HKTI. HKTI pays 'delivery fees' (essentially interconnection charges) to the local carriers for interconnection between HKTI's gateway and each local network.
Mobile networks
 Cellular services began in Hong Kong, China in 1984. Three licences were issued by the end of 1984 and a fourth in 1992.
Since 1992, the market for mobile services in Hong Kong, China has shown significant growth (eg, annual growth rate in 1996 of 76%) and a decline in prices, mainly due to:
    (19Y the introduction of more competition, with the licensing of the fourth cellular operator in 1992 and 6 PCS licensees in October 1996;
    (19Y the alleviation of constraints on market growth imposed by spectrum availability through the transition to digital and the opening of the spectrum for PCS services;
    (19Y increased supply of, and lower prices for, handsets brought about by the liberalisation of type approval for handsets;
    (19Y a new regulatory framework for mobile communications which is technology-neutral and capable of dealing with a variety of new mobile services operating from a variety of platforms
PCS development
In October 1996, six operators were licensed to provide PCS services in the 1.7 -1.9 GHz band.
The Government expects that, whereas mobile handset and connection charges have reduced significantly through existing competition, the big effect of PCS will be on airtime charges. As part of the bidding exercise the PCS licensees made significant commitments to lowering airtime rates. Most PCS licensees are offering cheaper airtime packages through the offer of lower per minute rates and using a per second pricing structure. Many operators are also waiving the registration and connection fees.
In December 1996, HKT established a new subsidiary, trading as One2Free. This was seen as a competitive response by HKT to the threat of PCS. One2Free markets cheaper packages to residential users. Larger users, including corporate customers, are targeted by cellular mobile operators, including HKT's cellular subsidiary, CSL Ltd.
 4.6.3 Regulatory framework The Office of the Telecommunications Authority (OFTA) was established in July 1993 as an independent regulator.
OFTA is responsible for the administration of telecommunications, the responsibilities including the promotion of competition, spectrum management, development of technical standards and the protection of telecommunication consumer interests.
Hong Kong, China's telecommunications policy goals are:
    (19Y that the widest range of quality telecommunications services should be available to the community at reasonable costs;
    (19Y that telecommunications services should be provided in the most economically and efficient manner possible; and
    (19Y that Hong Kong, China should serve as the pre-eminent communications hub for the region now and into the next century.
 Competitive safeguards
 There are four major ways in which the market power of the incumbent operator, Hong Kong Telecom (HKT), is regulated:
    (19Y Accounting separation requirements: General Condition 17 of the terms and conditions of the FTNS licences authorises OFTA to direct licensees to 'implement such accounting practices as specified by the OFTA in an Accounting Manual and its subsequent revisions'. In addition, the incumbent, is subject to separation of accounts requirements which aim to prevent cross-subsidisation between the various members of the HKT Group.
    (19Y Structural separation requirements: the various members of the HKT Group are separate legal entities. HKT is the domestic fixed telecommunications network service operator while HKTI holds the external communication franchise. Another member of the group, HKT CSL Ltd, operates the cellular and other competitive services. Each of these entities operates its own networks and services according to the relevant licences which it holds.
    (19Y Anti-trust laws: prohibitions on anti-competitive behaviour and misuse of market power. The FTNS (fixed telecommunications network services) licences contain a number of anti-trust provisions to prevent anti-competitive behaviour, collusion, preferential treatment and abuse of dominance. Conduct is only prohibited if it has the purpose or effect of preventing or substantially restricting competition in the relevant market.
    (19Y Pricing controls on incumbent: special tariffing rules are imposed on the incumbent because of its significant market power. These provisions include the requirement to file tariffs and specifically prohibit the incumbent from discounting against published tariffs without prior approval from OFTA.
 4.6.4 Commercial interconnect arrangements

Outline of interconnect regulation

 The regulatory framework for interconnection is contained in legislation, licences, regulatory statements, directives and guidelines. The fundamental provision is Section 36 of the Telecommunication Ordinance. The subsequent licence conditions, statements, directions and guidelines issued by OFTA provide matters of interpretation of this ordinance.
OFTA adopts a 'light-handed' and market driven approach in regulating interconnection between carriers. It expects the carriers to attempt to resolve interconnection issues through commercial negotiation in the first instance. OFTA will intervene only when negotiations break down or public interest requires to do so.
OFTA closely monitors the progress of negotiations and has issued a number of regulatory Statements in relation to interconnection to provide guidance and assistance to the fixed telecommunications network services operators.
OFTA is currently determining the issue of interconnection of fixed networks.
 Extent of the interconnection obligation
 The Telecommunication Ordinance provides that all licensed networks operators, as well as those which are exempt from licensing, have the obligation to interconnect. The fixed telecommunications network services operators are required to interconnect with each other for the conveyance of the traffic of all kinds of services covered by their licences.
The fixed telecommunications network services operators, the PMRS operators and PCS operators have interconnection rights at the HKTI gateway. The other public telecommunication service providers do not have carrier status and they are not permitted to directly connect with the HKTI gateway or to receive the delivery fees. In addition, they can only connect to an fixed telecommunications network at the fixed telecommunications network services licensees' standard retail tariffs.
There is no obligation to publish interconnect agreements.
 Enforcement of the interconnection obligation
 OFTA has the power under Section 36B of the Telecommunication Ordinance to issue a direction in relation to interconnection. The parties concerned are required to give effect to such a direction. Non-compliance will result in financial penalties in accordance with Section 36C of the Telecommunication Ordinance and/or cancellation, withdrawal or suspension of licence.
The terms and conditions for interconnection among the carriers may be negotiated on a commercial basis among carriers or determined by OFTA.
Dispute resolution
 OFTA encourages commercial agreement on interconnect charges. It will only intervene when commercial agreements could not be reached or where the agreements reached are not considered to be in the public interest.
Section 36 of the Telecommunication Ordinance provides for OFTA to arbitrate and impose interconnection conditions. The decision of OFTA is binding on the relevant parties.
The framework does not prescribe a timetable for negotiations. If the parties fail to agree, they may seek a determination by OFTA.
 Interconnect cost base
 The TA will adopt a cost-based charge in making a determination. The regulatory framework prescribes long run incremental cost on current cost base for FTNS interconnection, and fully distributed cost for tariffed interconnection at the retail level.
The cost base has not changed since competition was introduced. There are no current plans to adopt a different cost-base in the future, as the FTNS market has only been de-regulated for 2 years and competition is still at an early stage.
 Technical aspects of interconnection
 The legislative framework does not prescribe technical requirements of interconnection. Technical matters are generally left to the operators to negotiate. If they are unable to agree, they make seek a determination from OFTA. OFTA also co-ordinates and specifies the technical standards for network-to-network interfaces.
The fixed network operators were unable to agree on technical principles for interconnect prior to launching service in 1995. OFTA therefore issued a statement No 6 in 3 June 1995: 'Interconnection Configuration and Basic Underlying Principles', which provides the conceptual approach to interconnection.
In this statement two types of interconnect are foreseen. Type I interconnection is at the local switch. Type II interconnection requires the incumbent operator to make available its local loop for the use of the new entrants. Under the FTNS licence, the incumbent is also required to share certain of its facilities with the new entrants. Co-location of equipment in the exchange building of the incumbent is one such example.

4.7 Indonesia

In the absence of a full response from the APEC representative in Indonesia, this profile is based on Ovum's in-house knowledge of the Indonesian interconnection regime.
4.7.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 193 million
(19Y       Area 1,812,000 sq km
(19Y       Population Density 107 per sq km
(19Y       GDP $882 per capita
(19Y       Fixed line penetration 3.3 million (1.7 %)
(19Y       Mobile penetration (1 January 1997) 0.22 million (0.1%)
 4.7.2 Market structure The telecommunications law of 1989 distinguishes between:
• basic services. These include telephony, leased lines and telex. For these services the Government has granted exclusive licences to two 100% government owned companies - PT Telkom for national basic services and PT Indosat for international basic services. Exclusivity runs out in 2005 (Indosat) and 2006 (Telkom)
 • non basic services. These include value added services. The market for providing these services is open.
Because of the exclusivity arrangements any new entrant must reach a co-operative arrangement with one of the two incumbents. This co-operation normally takes one of two forms:
• a joint venture in which the new entrant(s) and Indosat or Telkom create a new company which operates as a separate entity
• a joint operation scheme in which a new entrant invests jointly with Indosat or Telkom in a unit which is jointly operated.
In either case foreign participation is limited to 35%.
As well as encouraging joint co-operation schemes the Government has also partly privatised both incumbents - floating 35% of Indosat and 25% of Telkom on the Indonesian and New York stock exchanges.
 Fixed networks
 As part of its five year national plan for telecommunications development from 1994 (Repelita VI) the Government restructured local telecommunications. It divided Indonesia into seven regions and allocated two to Telkom and five to joint operating schemes (also known as KSOs). The Government set the local companies a target of building five million new lines by 1999, three million to be provided by Telkom in its two regions and two million to be met by the KSOs in their five (less attractive) regions.
Under each KSO, private investors, normally one local company and one foreign telephone company, make an up front investment to build out the local network and operate it jointly with Telkom. To compensate Telkom for the financial benefits that it would have received from its existing installation in the region if a KSO had not been entered into, the KSO private investors are required to pay Telkom the Minimum Telkom Revenue, which is an agreed monthly payment for the term of the KSO. In return the private investors receive a share of the additional revenues generated for the fifteen year period from the beginning of 1996. The share covers the investor's operating costs and provides a reasonable return on the investment. The KSO private investors keep all revenue from all national calls and also receives revenue from interconnect charges.
At the end of the 15 year period, all of the lines constructed by the KSO investors are to be transferred to Telkom for a nominal payment. However, under the KSO Agreements, at any time after 31 December, 2005- which is 10m years after the start of the KSO ? Telkom has an option to purchase the new installation. Telkom can pay a purchase price based on the projected value of revenues that would have been generated in the remaining KSO period by the new facilities installed by the KSO.
International fixed services are run under a duopoly between the incumbent Indosat and the new entrant Satelindo.
Mobile networks
 The cellular market is competitive with three national GSM operators and three regional analogue operators. There are also ten companies currently bidding for Personal Communications Network (PCN) or Personal Handiphone System (PHS) licenses.
 4.7.3 Regulatory framework The Ministry of Tourism, Posts and Telecommunications (MTPT) develops telecommunications policy and regulates the state-owned telecommunications companies; the Directorate General of Posts and Telecommunications formulates technical policy, grants licences and carries out technical regulation. The regulators are independent of the operators.
MTPT's main functions are:
(19Y     retail price control
(19Y     determination of interconnect agreements
(19Y     development of technical standards
(19Y     equipment approvals
(19Y     spectrum allocation.
 Retail price control
 Until recently MTPT set all individual telecommunications prices after consultation with the operators and the Parliament. As a result of Decree 79/1995 Telkom can now set national prices under a price cap of the form RPI (retail price index) minus X. MTPT set the initial value of X at 6.0% per annum.
Telkom can set its line rental, local and long distance prices within the price cap. This gives it freedom to rebalance. However the Minister retains the right to reject price changes proposed, even if they comply with the price cap regime. Telkom made some modest price rebalancing moves at the beginning of 1997.
MTPT still sets international and mobile prices, after consulting the operators.
4.7.4Interconnect arrangements

Role of the regulator

 MTPT regulates technical requirements for the interconnection of telecommunications networks, as well as the charging and commercial aspects for interconnection.
MTPT determines most of the interconnect arrangements without the operators negotiating, using a similar process to that used for retail price control as discussed in the previous section.
MTPT Decree 75/1994 makes interconnect between operators mandatory. It requires them to interconnect so as to make optimum use of national telecommunications resources. MTPT Decree 70/1994 requires interconnect at the tertiary level within Telkom's network for international services, at the secondary and tertiary level for interconnect with cellular operators, and at the primary level for local interconnect.
Interconnect costs are recovered through a mix of revenue sharing arrangements and interconnect charges. These are published through ministerial decrees. Only in a few cases, such as the interconnect arrangements between cellular and the international operators, are commercial interconnect arrangements negotiated. These commercial arrangements are confidential.
Mobile interconnect
 In January 1997, the MTPT determined a new interconnect arrangement between PT Telkom and the cellular operators. Under the new arrangements the end user pays the air time charge plus the appropriate PSTN charge, depending on the distance between the two users. The new charges provide for a revenue sharing arrangement between PT Telkom and the cellular operators. This arrangement has led to a significant increase in mobile customers with benefits not only to mobile operators, but also to PT Telkom in increased interconnect revenues.
 Technical arrangements
 Technically the interconnect architecture in Indonesia is as follows::
 • Telkom's long distance network (Divnet) acts as a central transit network and transfers the bulk of calls between originating and terminating networks. In March 1997 Divnet operated 26 points of interconnect to other networks
• all other networks must interconnect through Divnet rather than directly with the terminating network. Recently two exceptions were made to this rule. Cellular operators can now interconnect directly with the international operators and the regional cellular operators can interconnect directly with each other
• the KSOs run local switching (primary centres plus local exchanges) only. All long distance calls requiring routing through a secondary or tertiary centre (ie trunk switching levels) must use Divnet. Many calls within a KSO region use Divnet.
Commercial arrangements
 KSOs and Divnet:
There are no interconnect payments between the KSOs and Divnet. A sender keeps all principle is used for all national calls between fixed line subscribers. The costs of Divnet are recovered through the revenue sharing arrangements for the joint operating schemes.
International:
Telkom bills end users on behalf of the international operators and passes to them the revenue collected (net of any interconnect payments). Historically interconnect between the international and national network was done on a revenue sharing basis, with Indosat paying 25% of its call revenue to Telkom. But, following Decree 108/1994, the international operators now pay fixed charges to Telkom.
Cellular Mobile:
The current interconnect arrangements between the cellular operators and Telkom are set out in Decree 05/1997. The end user pays the air time charge plus the appropriate PSTN charge depending upon the distance between the two users. Interconnect charges are levied on a revenue sharing basis. The percentage splits are designed to give the cellular operators a share of the profits which Telkom currently makes from long distance calls. In this way the Government hopes to stimulate use of the cellular networks.
Publication of interconnection agreements
 Interconnect charges which are set by the regulator are published through ministerial decrees. In the few cases where commercial interconnect arrangements are negotiated, the arrangements are confidential.
 Universal service
 All local operators are required to make 20% of their investment in rural areas (as predefined by government). Until recently the international operators were also required to contribute a fee of Rp700 per call towards a universal service fund for investment in rural telecommunications, however, this levy was abandoned at the beginning of 1997.

4.8 Japan

This profile is based on a response from the APEC representative in Japan, supplemented by Ovum's in-house knowledge of the Japanese interconnection regime.
4.8.1 Key statistics Unless otherwise stated, the following statistics are from 1 January 1996.
(19Y       Population 125 million
(19Y       Area 377,829 square km
(19Y       Population Density 331 per square km
(19Y       GDP US $36,075 per capita
(19Y       Fixed line penetration 61 million (48.8%)
(19Y       Mobile penetration (1 January 1997) 23 million (18.4%)
 4.8.2 Market structure Japan introduced competition in telecommunications in 1985 in the 'First Reform of Info-Communications'. In that year, the Telecommunications Business Law was introduced, which:
  • Established the Ministry of Posts and Telecommunications (MPT) as industry regulator, as well as giving it extensive policy functions
  • Separated the telecommunications markets into national and international components: competition was introduced into both the national and international markets, but the incumbent operators, NTT and KDD, were prohibited from offering services in each others' markets.
  • Partly privatised NTT.
 Fixed networks
 Carriers are classified as Type I or Type II carriers, with more stringent regulatory requirements applying to Type 1 carriers in respect of market entry and tariff regulation. Type I Carriers offer services by establishing their own telecommunications circuit facilities. Type II Carriers provide telecommunications services using leased infrastructure.
For domestic services, the incumbent operator is NTT. There are also around 120 competitors known as new common carriers (NCCs) which provide long-distance domestic, regional domestic, international, satellite and mobile services, and a few cable TV companies which are now entering the local telecoms market. These NCCs accounted for about 40% of the long distance market in 1996.
Despite the introduction of competition, NTT retains a near-monopoly in the local access market (other local access providers accounting for <1% of the market), with the result that all carriers are dependent on interconnection with NTT's local network in order to provide their own services.
Mobile networks
 In 1979 NTT launched the first mobile service using 800MHz in the Tokyo Metropolitan area. In 1992, NTT separated its mobile communication sector to establish NTT DoCoMo. NTT was subsequently divided into 10 regional companies in 1993 to fit with the regional structure of mobile licence areas.
In July 1995, the PHS service was launched by three new groups. PHS service providers deployed their services mainly in the urban areas and applied different pricing policy from the cellular services.
The mobile communications service, including cellular and PHS, are now divided into 10 licence areas. In each area, a maximum of four licences are given for the cellular service and three for PHS.
4.8.3 Regulatory framework The Ministry of Posts and Telecommunications (MPT) is the government department responsible for telecommunications policy and administration. MPT refers specific issues to a relevant council: the Telecommunications Council, the Radio Regulatory Council or the Telecommunications Technology Council.
MPT consults the Telecommunications Council on policy issues and administrative procedures, and refers applications from Type 1 carriers for proposed new or amended charges. If the Telecommunications Council approves the rates, MPT will approve them accordingly.
In January 1996, MPT released its deregulation package 'Promotion of Deregulation towards the Second Info-communications Reform'. The principal objectives of the reform are:
  • Deregulatory measures including further relaxation in rate regulation and full-scale liberalisation of leased circuit usage. MPT has established a study group examining the introduction of incentive regulation to replace the existing 'fair return' regulation.
  • Restructuring NTT: the Telecommunications Council in April 1996 released its report 'Status of Nippon Telegraph and Telephone Corporation - Towards the Creation of Dynamism in the Info-Communications Industry'. The report recommended the restructuring of NTT into a long-distance company (Long Distance NTT) and two regional companies (East NTT and West NTT). MPT announced in December 1996 that NTT had agreed to the re-structuring.
  • Promotion of network interconnection: MPT is currently reviewing the rules for interconnection with NTT's local network.
4.8.4 Commercial interconnect arrangements

Past framework

 The formal procedures for reaching an interconnect agreement are set out in Articles 38 and 39 of the Telecommunications Business Law of 1985. Prior to the 1996 review, the key features were as follows -
  • Interconnection was not obligatory
  • Agreement in principle depended on negotiations between carriers
  • All interconnect agreements had to be approved by the MPT. Approval was made on the grounds of public interest
  • MPT could arbitrate on disputes.
Therefore, interconnect charges between operators were negotiated and must then submitted to the MPT for approval.
The MPT ensured that these interconnect prices were based on fully allocated cost of running intra-prefecture service. The prices excluded any access deficit contributions. They allowed for a return on assets employed of around 5% per annum. NTT's relevant cost base was subject to accounting separation and scrutiny by MPT.
For fixed to mobile calls, NTT billed the calling customer, kept the interconnect charge and passed the remainder of the retail tariff to the mobile operator. For mobile to fixed calls, the mobile operators billed the calling customer and passed the interconnect charge on to NTT. The interconnect charge in both directions was the same.
The 1996 review
In its December 1996 review of the Basic Rules for Interconnection, the MPT's Telecommunications Council admitted that 'the current framework ・ does not necessarily function effectively.' It specifically identified three areas of weakness:
  • Interconnection negotiations are often prolonged. Numerous cases illustrate this point. It took more than 5 years for the NCCs to reach agreement with NTT on virtual private network (VPN) interconnection; and Type 2 carriers have been involved in ISDN and facsimile service interconnection negotiations for four and six years respectively. The review identifies the major problem being that the carrier which operates the network facilities is in an overwhelmingly superior negotiating position
  • Disputes arise over the appropriate cost basis for calculating interconnect charges. Negotiations on which are allowable cost items for NTT to include in its interconnect charges have been continuing since 1993. An agreement was reach in 1995 to exclude the costs of certain retail functions, but the dispute regarding research and development costs continues
  • Modifications of the NTT network to support interconnect requests are time consuming and costly. For example, in September 1995 NTT made a policy decision to open its network for interconnection at the local switch. However, when the first request for this type of interconnect was received in January 1996, NTT stated that the necessary network modifications would not be completed until December 1997, and the NCCs must bear the costs of these modifications.
From these and other examples, the MPT concluded that the interconnect framework does not allow for speedy and effective resolution of the disputes which inevitably arise.
 New interconnection framework
 The main recommendations of MPT's Proposed Basic Rules for Interconnection, (December, 1996) which have been recently confirmed, include:
  • all Type 1 Carriers will be obliged to provide interconnection and to observe the rates and provisions approved by MPT when connecting to Type I carrier designated facilities
  • special tariffing rules will apply to 'Designated Carriers', defined as carriers which own subscriber lines in excess of 50% of the total number of subscriber lines in a specific market:
      - ministerial authorization will be required for interconnection tariffs setting out interconnection charges and technical rules
      - the charges must be based on interconnection accounting
      - interconnection must be provided on an unbundled basis and according to unbundled charges. (A recent report from the Telecommunications Council has recommended unbundling of subscriber terminating equipment, the local loop, local switching, inter-exchange transmission, and the signalling network.)
      - terms and conditions for interconnection with essential facilities should be at least equal to those for comparable services provided by designated carriers
  • the introduction of wholesale user rates for Type II carriers should be considered. Type II carriers may interconnect with Type 1 facilities either in accordance with the interconnection rules or by adopting user tariffs for services. The adoption of wholesale rates would reflect the difference in cost of providing the services to resellers as opposed to general users.
  • failure to negotiate interconnection arrangements between parties within a reasonable time may result in MPT giving, on request from one of the parties, an arbitrated order for interconnection.
 Technical principles
Operators interconnect with NTT at the trunk level at each of 47 points of interconnect, one for each prefecture in Japan. NTT uses a specially conditioned interconnect gateway switch. The new common carriers pay for the installation and maintenance of this switch and share its use. This means that they pay a standard intra-prefectural access charge for both originating and terminating calls.
In September 1995, NTT announced its Open Network Plan (ONP). The ONP in principle allows the NCCs, including CATV companies which are planning to offer telephony services and Personal Handiphone Service (PHS) providers, to access the NTT network at multiple points of interconnect. In particular the plan:
  • Removes the constraint of operating a single point of interconnect in each prefecture
  • Creates the possibility of NCCs interconnecting directly with NTT local switches
ONP has the potential to increase competition and customer choice in local telecommunications services. However, local interconnect will not in practice be available until the start of 1998 at the earliest.

4.9 Korea

In the absence of a response from the APEC representative in Korea, this profile is based on Ovum's in-house knowledge of the Korean interconnection regime.
4.9.1Key statistics Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 44.85 million
(19Y       Area 98,730 sq km
(19Y       Population Density 454 per sq km
(19Y       GDP $11,450 per capita
(19Y       Fixed line penetration 18.6 million (41.5%)
(19Y       Mobile penetration (1 January 1997) 3.14 million (7%)
 4.9.2 Market structure The following market sectors are open to competition:
  • International voice telephony (since 1990);
  • Radio paging (1992)
  • Cellular services (1994)
  • Long distance voice telephony (1995)
The local fixed market is the monopoly of the incumbent, Korea Telecom. Competition is planned to be introduced in 1998.
Competition was introduced in the international market in December 1991. Dacom competes with Korea Telecom in the national and international markets. In March 1997, Dacom had 8% market share of the national market and 26.3% of the international market.
There are also two operators in the mobile network. SK Telecom began operation of an AMPS network in April 1994 and by the end of 1996 this network had 72% of Korea's mobile customers. It also opened a CDMA network at the beginning of 1996 and by the end of 1996 this network accounted for 18.6% of the mobile market.
Shinsegi Telecom entered the mobile market in April 1996 with a CDMA network. By the end of 1996, it had attracted 9.4% of the mobile market.
 4.9.3 Regulatory framework The Ministry of Information and Communication (MIC) is the government agency responsible for regulating new licences, approving tariff changes, and overseeing existing operators.
There is an obligation on a common carrier having essential facilities to provide interconnection. The regulator's permission is required for interconnection agreements between common carriers which operate essential facilities or have market dominance and other operators. In practice this means that interconnect agreements with Korea telecom are regulated. The MIC has the power to mandate interconnection agreements.
Information on interconnection rates is available through the MIC but only in respect of unclassified business information of the existing service providers.
Accounting separation, network disclosure and interconnection are being implemented.
 4.9.4 Interconnect arrangements

Commercial arrangements

 The interconnect rates which the MIC determined for Korea Telecom are based on unbundled network costs. The accounting methodology is fully allocated costs plus a return on investment of 10%.
The interconnection cost is broken up into traffic sensitive (TS) and non traffic sensitive (NTS) costs. The NTS element is in effect a contribution towards Korea Telecom's deficit on access rentals and universal service obligations.
The traffic sensitive costs are classified by network elements as follows.
  • Local exchange
  • Transmission from local to toll switch
  • Toll exchange
  • Transmission between toll switches.
 Technical arrangements
 The incumbent is required to provide interconnection that is technically equivalent to the interconnection it provides to its own operations. Unbundled terms must be offered.
The new entrant operator is responsible for determining the location of the points of interconnect (POIs). These POIs can be at the local exchange but, in practice, interconnect is only done at toll switches.

4.10 Malaysia

In the absence of a full response from the APEC representative in Malaysia, this profile is based on Ovum's in-house knowledge of the Malaysian interconnection regime.
4.10.1 Key statistics Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 20.14 million
(19Y       Area 328,550 sq km
(19Y       Population Density 61.3 per sq km
(19Y       GDP $4202 per capita
(19Y       Fixed line penetration 3.34 million (16.6%)
(19Y       Mobile penetration (1 January 1997) 1.65 million (8.2%)
 4.10.2 Market structure The Malaysian telecommunications industry has undergone major structural change in the 1990s. At the start of the decade Telekom Malaysia Berhad (TMB) was a 100% state owned organisation enjoying a total monopoly in fixed telecommunications and a duopoly with Celcom in operating cellular services. Now TMB is partly privatised and faces competition in fixed telephony from four other operators - Binariang, Celcom, Mutiara, and Time Telekom. There are six cellular mobile operators.
TMB dominates the fixed network market. Binariang and Time Telekom operate only a few tens of thousands of lines which are connect mainly to large corporate sites in Kuala Lumpur and the nearby Klang valley. At the same time TMB does not offer its customers indirect access to the networks of the new entrants for alternative long distance service. This is a major problem for the new entrants. Time Telekom in particular has invested heavily in a nation-wide fibre backbone network which is now lying largely empty, waiting for traffic from the indirect access customers for which it was planned. The Government has decided to require TMB to offer indirect access from the beginning of 1999. In the meantime competition in fixed services is limited.
Competition in mobile services is much stronger. The cellular mobile industry in Malaysia uses a mix of technologies for operating cellular services. The two analogue networks of Celcom and Mobikom dominate.
4.10.3 Regulatory framework Jabatan Telekomunikasi Malaysia (JTM) regulates the telecommunications industry in Malaysia. It was formed in 1987 when the former JTM was split into two. It reports to and is funded by the Ministry of Energy, Posts and Telecommunications. The main functions of JTM are:
• to allocate the use of radio spectrum and geostationary orbital slots
• to co-ordinate the development of technical standards in telecommunications
• to monitor and control telecommunications prices and quality of services
• to regulate the conduct of telecommunications and the running of telecommunication services in Malaysia
• to promote Malaysia as an international telecommunications hub
• to promote research and development into telecommunications in Malaysia.
JTM's terms of reference were established before the introduction of competition and do not give it explicit powers to regulate the competing operators.
The Director General of JTM is responsible for regulating competition, safeguarding consumer interests, administering the universal service levy and ensuring the rapid expansion of telecommunications infrastructure throughout the country.
 4.10.4 Interconnect arrangements

Policy objectives

 JTM has established the following objectives in respect of interconnection:
  • All network operators should contribute to the expansion of telecommunications services in Malaysia
  • All network operators should be encouraged to deploy high quality and advanced telecommunications infrastructure
  • The deployment and optimum usage of the sector's infrastructure and resources should be directed towards the development of an economically efficient telecommunications industry, should minimise uneconomic duplication of infrastructure facilities and encourage the shared use of common infrastructure facilities
  • Interconnect arrangements between carriers must display clarity, stability and transparency
  • connection arrangements should be consistent with commercially sound operations and sustainable outcomes.
 Current technical arrangements
 TMB provides both terminating and transit interconnect services to other operators, both fixed and mobile. TMB is not required to offer new entrants indirect access to its customers.
TMB is in transition to a position where it provides one or two points of interconnect to its network in each of the 13 states of Malaysia. New entrants interconnect to these POIs at the trunk switching level.
The industry has agreed that the originating operator should decide on the routing of the call. It can chose near end or far end handover. In general it chooses far-end handover to maximise its share of the call revenue retained. But a new entrant, with a partly developed trunk network, might use near end handover to TMB for certain routes until it has built its core network fully.
Current commercial arrangements
 The operators providing termination and transit services recover their costs through revenue sharing arrangements. They recover a fixed proportion of the regulated retail price level. The originating operator may choose to charge a lower price to its end customer. But this does not change the payment to the transit or terminating operator.
The percentage split is negotiated on a bilateral basis between operators. The revenue sharing arrangement is reciprocal. So both operators receive the same payment for the same call termination service.
The operators decide the split by negotiation. There are no ex-ante guidelines for setting percentages. In theory JTM can determine percentage splits if the parities cannot agree. It has not been required to do so yet.
There are constraints on what revenue splits can be negotiated. Operators are required, by their licences, not to discriminate in their interconnect prices. So, for example, TMB is required to offer the same revenue splits to all other operators for the same service.
The interconnect agreements are confidential to the parties. JTM can request copies of the agreements to check that they meet licence conditions (in particular, on non-discrimination).
Future interconnect arrangements
 JTM, in consultation with the industry, drew up and published its general framework for interconnection and access (GFIA) in 1996. The GFIA sets both general and specific rules for interconnect in Malaysia. It requires that:
  • all operators should interconnect with each other
  • operators should negotiate interconnect agreements. If they cannot agree within 90 days JTM will determine the unresolved aspects of the agreement within a further 30 days
  • all operators should charge for interconnect services on a reciprocal and non discriminatory basis. Logically, this leads to all operators charging the same prices for the same interconnect service and removes any price competition at the wholesale level
  • operators should offer unbundled interconnect service in accordance with the general practice in the [telecommunications] industry
  • operators should share infrastructure such as land, buildings, ducts, poles and in-building facilities. If operators cannot agree commercial terms for such facilities sharing, JTM will determine them
  • operators should continue to set commercial terms for interconnect based on revenue sharing until the beginning of 1999. This gives the industry time to rebalance prices and to develop appropriate mechanisms for funding access deficits and universal service.
  • from January 1999 operators should use cost based interconnect charges which are based on direct costs and a reasonable rate of return for an efficient operator. Charges for call termination and origination should include a specific contribution to the cost of local access.
  • JTM should determine the best way to meet the cost of the universal service obligation
  • operators should estimate the costs on which interconnect prices are to be based using a standard chart of accounts. But JTM does not require accounting separation between TMB's network and retail businesses
  • TMB should provide its customers with equal access to the long distance services of new entrants as well as its own long distance service. It should also give new entrants the right to bill these customers. The GFIA identifies two options for equal access - call by call equal access and preselection equal access . It does not specify which method should be implemented.
The GFIA also proposes that JTM has powers to fine operators which breach it. This might require them to pay compensation to other operators, or may result in modifications of the offender's licence
The GFIA is clear in what it proposes, but the status of the GFIA is less clear. At the moment the GFIA is a set of guidelines for operators on how to interconnect. It is not mandatory.

4.11 Mexico

In the absence of a response from the APEC representative in Mexico, this profile is based on Ovum's in-house knowledge of the Mexican interconnection regime.
4.11.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 91.83 million
(19Y       Area 1,960,000 sq km
(19Y       Population Density 46.9 per sq km
(19Y       GDP US $6509 per capita
(19Y       Fixed line penetration 8.8 million (9.6%)
(19Y       Mobile penetration (1 January 1997) 0.64 million (0.7%)
 4.11.2 Market structure

Fixed networks

Telefonos de Mexico (TELMEX) is the incumbent carrier. It was partially privatised in 1990, when a consortium led by the politically influential Grupo Carso, and including France Telecom and SBC bought into the company. Grupo Carso has 10.4% of TELMEX shares with France Telecom and SBC having 5% each.
Long distance competition was introduced from January 1 1997. The new entrants, which include Alestra (a consortium led by AT&T), Avantel (a consortium led by MCI), Iusacell, Marketel, Miditel and others, have together taken about 20% of the long distance market.
 Mobile services
 Wireless communications in Mexico were split into two sets of licences at launch. The B band of licences are held by TelCel, a subsidiary of Telefonos de Mexico. TelCel has 58% of the market, with the A band licences holding the rest.
The A band, which is composed of independent wireless operators, has been split into 9 regions. There are four players - Bajacell and Cedetel are both based in the North of the country and have two regions each. Portacel has one region, covering the South of the country. Iusacell has four regions in central Mexico.
4.11.3 Regulatory framework The Mexican telecommunications market is liberalising gradually. Prior to 1996 regulation of telecommunication services was in the hands of the Secretary of State of Communications. In 1996 the Government created an independent regulator, COFETEL, which together with the Secretary of State for Communications is responsible telecommunications regulation. All tariffs need to be registered with COFETEL prior to their introduction.
 4.11.4 Commercial interconnect arrangements

Principles for determining interconnect charges

 The rules governing interconnection in Mexico were set out in the Ley Federal de Telecomunicaciones of 1995. However, interconnect in practice is very unsettled, with the relationship between Iusacell and TELMEX in particular being non co-operative.
TELMEX has not been declared as the dominant carrier in Mexico, so it does not have to have its interconnect rates approved by the state regulator. It is the responsibility of the anti trust commission to determine whether TELMEX is the dominant carrier, and not the responsibility of COFETEL.
The telecommunications law says that operators have 60 days to establish interconnect agreements between themselves. If this has not been done then COFETEL has the power of intervention under article 42 of the telecommunications law.
 Technical Issues
 TELMEX is under an obligation to interconnect with mobile and long distance operators. The point of interconnection is determined by negotiation. For mobile services, the Tandem level in each province has been selected as the point of interconnection.
The mobile companies long distance networks also interconnect with the tandem access points, and in some cases the two long distance networks also interconnect. Exact arrangements vary from region to region.
The interconnection architecture in Mexico is as follows:
 Local to Local Interconnection
 Revisions to the telecommunications law are currently planned in order to accommodate competition in local access. If current timetables are met, the new law will pass through the national legislature by October 1997, and be enforced from 1st January 1998.
 Long Distance Interconnection
 An interconnect rate of Pesos 2.5 is used for interconnection between long distance operators and TELMEX. This rate was arrived at by conducting a cost study of the TELMEX network, based on the LRIC methodology. Once the costs of leased lines are included in this fee the total cost of interconnection works out at Pesos 8 per minute. Long distance interconnection is reciprocal.

4.12 New Zealand

This profile is based partly on a response from the APEC representative in New Zealand, and partly on Ovum's in-house information about the New Zealand interconnection regime.
 4.12.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 3.6 million
(19Y       Area 263,000 sq km
(19Y       Population Density 13.7 per sq km
(19Y       GDP $15,439 per capita
(19Y       Fixed line penetration 1.66 million (46.1%)
(19Y       Mobile penetration (1 January 1997) 0.47 million (13.1%)
 4.12.2 Market structure

Fixed networks

 A number of operators offer fixed network services in New Zealand.
  • Telecom New Zealand (TCNZ) is the incumbent telecommunications operator. It owns nearly 100% of the fixed access and local network, and has around an 77% share of the long distance and international markets.
  • In 1991, Clear entered the telecommunications market. It currently holds 20% of the long distance national and international market and also operates about 50,000 exchange lines for directly connected customers in the three big cities of Auckland, Wellington and Christchurch.
  • Other operators which have entered the New Zealand market over the last couple of years include Global One, Telstra, Telepacific and WorldxChange.
In the local access market Telecom New Zealand has virtually 100% share but Clear and Saturn Communications (a cable TV company) are rolling out networks in urban areas at present.
Mobile networks
 Telecom New Zealand's mobile network offers a 95% population coverage and currently has 440,000 customers. TCNZ use two service providers ? Cellnet and Ericsson.
BellSouth began operation of a GSM network in 1993. As of September 1997 it has 75,000 customers (approx. 14% of the market). BellSouth has decided against using Service Providers although recent media speculation suggests Clear has entered into a reseller agreement with BellSouth.
Further mobile competition is likely in the next few years. For example:
  • Telstra owns the rights to half of the GSM spectrum but has not yet built a network.
  • The Ministry of Commerce plans to auction 2GHz PCS spectrum in 1998.
 4.12.3 Regulatory framework In opening the New Zealand market up to competition the Government chose to do so without creating a specific telecommunications regulator. The Ministry of Commerce is responsible for advising the Government on the regulatory policy for the telecommunications sector. This work is carried out by the Communications Division which provides policy advice to the Minister of Communications on telecommunications, broadcasting, the radio spectrum, and postal services.
The Government has kept regulation of telecommunications to a minimum, relying primarily on general competition laws to regulate the industry. There are three main regulatory instruments:
  • the Commerce Act of 1986 which is designed to prevent anti-competitive conduct across all industries in New Zealand. It prohibits companies with a dominant market position from restricting market entry, eliminating rivals from the market or preventing competitive conduct by others.
  • the Telecommunications (Disclosures) Regulation of 1990/93 which requires TCNZ to publish prices and other supply conditions, to disclose its financial statements, and to disclose all interconnection agreements with other parties, including its own subsidiaries.
  • the Kiwi Share Obligation (KSO). This constraint, built into TCNZ's articles when it was privatised, requires TCNZ to:
    • retain the option of free local calls for residential users
    • increase residential line rentals no faster than inflation unless the profits of TCNZ is unreasonably impaired. In other words, residential rentals cannot be increased in real terms above the 1 November 1989 level of $27.80
    • maintain phone line rentals for residential customers in rural areas at no higher than in the cities and ensure that residential service will remain as widely available as it was in 1990
The Radiocommunications Act 1989 introduced fundamental reforms to the management of the New Zealand radio spectrum in order to facilitate competitive entry in telecommunications and broadcasting, as well as to promote efficiency in spectrum management. Provision is made in the Act for the establishment of management rights of up to 20 years and subordinate licences in the name of the Secretary of Commerce, and for transfers and subdivision of such rights. It is the Government's general policy that where the demand exists, supply of those rights will be tendered.
 4.12.4 Commercial interconnect arrangements The primary objective of the New Zealand interconnection framework is to facilitate competition between carriers, with a minimal level of industry-specific regulation. The New Zealand Government believes that interconnection should primarily be a matter for commercial negotiation between carriers.
There are no specific 'rules' covering interconnection per se. However, dominant carriers are required under general competition law (Commerce Act 1986) to offer interconnection to competing carriers. Telecom New Zealand, as the current dominant operator, is legally required to offer interconnection to other operators.
Other carriers have to right to sue the dominant carrier under the Commerce Act 1986. Sanctions include penalties up to NZ$5M, injunctions to restrain a person from engaging in anti-competitive conduct and damages for loss or damage caused by that person engaging in anti-competitive conduct.
In most cases interconnect agreements have been reached without recourse to the courts. However, the issue of local interconnection between Clear and Telecom was the subject of legal proceedings, and further court action is currently being pursued by these two carriers.
The interconnect agreements which have been reached between Telecom NZ and its competitors are published. While earlier agreements tended to have interconnect charges reflect the Telecom retail price structure, with a discount, more recent agreements for long distance services have been based on flat rates on a per call basis. The Clear agreement includes negotiated rates which are independent of Telecom retail prices, but also contains strong retail price related elements.
As of September 1997, Telecom New Zealand has entered into interconnection agreements with 9 different operators, and the new entrants have reached interconnection agreements amongst themselves.
 Equal access
 Customers can pre-select the long-distance carrier they wish to use, with the option of a carrier-selection prefix if they prefer. This was negotiated between carriers on a commercial basis.
 Number portability
 The Government has stated that it expects carriers to facilitate number portability on reasonable terms and conditions. The New Zealand Telecommunications Numbering Advisory Group (NZTNAG), an industry body comprising representatives from each of the carriers, has reached agreement on the technical solution to be used. However, the apportionment of costs for number portability is a matter for commercial negotiation among the carriers. Earlier this year, Telecom NZ and Telstra NZ became the first carriers to reach commercial agreement on number portability. WorldxChange has now reached a portability agreement with Telecom NZ as well, announced in September, 1997.

4.13 Papua and New Guinea

In the absence of a response from the APEC representative in Papua New Guinea, we have little relevant information for this profile.
4.13.1 Key statistics Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 4.3 million
(19Y       Area 453,000 sq km
(19Y       Population Density 9.5 per sq km
(19Y       GDP $1275 per capita
(19Y       Fixed line penetration 41,000 ().9%)
(19Y       Mobile penetration (1 January 1997) none
4.13.2 Market structure No information available to Ovum.
 4.13.3 Regulatory framework No information available to Ovum.
 4.13.4 Commercial interconnect arrangements No information available to Ovum.

4.14 Philippines

This profile is based partly on a response from the APEC representative in the Philippines, and partly on Ovum's in-house information about the Philippines interconnection regime.
 4.14.1 Key statistics
 Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 68.6 million
(19Y       Area 298,170 sq km
(19Y       Population Density 230 per sq km
(19Y       GDP $1090 per capita
(19Y       Fixed line penetration 1.43 million (2.1%)
(19Y       Mobile penetration (1 January 1997) 0.5 million (0.7%)
4.14.2 Market structure Prior to 1986, there existed one nationwide voice telecommunications operator and 40 independent local exchange carriers serving 1500 municipalities and provinces. These operating companies were interconnected, but on a limited basis. Between 1986 and 1992, with liberalisation of the telecommunications regime, attempts were made to expand the coverage of the telecommunications service by requiring the dominant carrier to submit more aggressive expansion plans, and requiring other telecommunications companies to upgrade facilities to digital equipment. In addition two licences were granted to new operators for the provision of international gateway facilities and two licences for the operation of cellular mobile telephone services.
Presidential Executive Order 109 (EO 109) was issued in July 1993, and expanded by guidelines from the regulatory agency, the National Telecommunications Commission (NTC) in September 1993. This initiative recognised the low profitability of local exchange service operations throughout the country and created local exchange obligations associated with the grant of the more lucrative international gateway facilities and cellular mobile telephone systems. Seven international licences and three mobile licences were issued.
As a result of these initiatives there are now 69 private local exchange carrier operators, 4 inter-exchange carrier operators, and 9 international gateway facilities operators, with rollout plans for 4 million new and additional landlines between 1997 and 1999. Mobile services in operation have markedly increased from 56,000 in 1992 to in excess of 500,000 in 1996.

 4.14.3 Regulatory framework The Philippines regulator, the National Telecommunications Commission (NTC), has been established as an independent agency. The NTC has been responsible for establishing guidelines for and overseeing the implementation of the various policy initiatives that now define the regulatory framework in the Philippines. The key policies are those relating to the expansion of the network service coverage set out in Executive Order 109 (see above) and policy guidelines for the compulsory interconnection of authorised public telecommunications carriers, as set out in EO 59 of February 1993.
 4.14.4 Commercial interconnect arrangements

Policy objectives

 The policy objective of EO 59 is the creation of a universally accessible and fully integrated nationwide telecommunications network and the consequential encouragement of greater private sector investment in telecommunications.

 Interconnection guidelines
 EO 59 provides that interconnection is to be established and maintained at points of connection, preferably at the local exchange level and the junction side of trunk exchanges, as required within a reasonable time frame, and having sufficient capacity to meet all reasonable traffic demands. EO 59 provides for the various telecommunications operators to negotiate interconnection conditions bilaterally among themselves, with the regulator only intervening in the event of failure to reach agreement in a reasonable time.
 Capacity issues
 The lack of historical data maintained on a commonly useful basis has proved to be a difficulty for the interconnection regime in the Philippines. Cumulative traffic minutes are monitored and reported to the regulatory agency, but the dependence on carrier reported data continues. Traffic forecasts for determining the adequacy of capacity are consequently constrained.
 Commercial Issues
 NTC, the regulator, has sought to create a commercial regime based on network access charges, rather than revenue sharing arrangements. Revenue sharing arrangements were permitted for a transitional period of 2 years. The requirement for access providing carriers to develop standardised cost manuals for calculating the costs of facilities used for interconnection clearly indicates that network access charges are to be cost based.
Cross subsidies are intended to be implemented via the interconnect charging arrangements, with local exchanges classified into groupings for the purpose, as follows:
  • metropolitan Manila
  • highly urbanised areas
  • rest of the country.

4.15 Singapore

This profile is based partly on a response from the APEC representative in Singapore, and partly on Ovum's in-house information about the Singapore interconnection regime.
 4.15.1 Key statistics Unless otherwise stated the following statistics applied at 1 January 1996.
(19Y       Population 3.74 million
(19Y       Area 648 sq km
(19Y       Population Density 5772 per sq km
(19Y       GDP US $27,528 per capita
(19Y       Fixed line penetration 1.56 million (41.7%)
(19Y       Mobile penetration (1 January 1997) 0.39 million (10.4%)
 4.15.2 Market structure Until April 1997, Singapore Telecom (ST) had a comprehensive monopoly on the provision of telecommunications networks and services. However, competitor companies have now entered the market for mobile and paging services, and the process of licensing new fixed network competitors for ST began on 1 March 1997.
 Fixed network
 Until 1995, Singapore Telecom (SingTel) held an exclusive licence for fixed network telecommunications which did not expire until 2007. However the Government brought this expiry date forward to 2000 and paid compensation to SingTel for the early termination of its exclusive rights.
The SingTel monopoly on fixed network service extends until 31st March 2000, and includes six classes of service, both nationally and internationally:
  • Public switched telephone services
  • Public switched message services
  • Public switched ISDN
  • Leased circuit services
  • Public switched data services
  • Public radio communication services
Singapore Telecom has achieved an extremely high level of penetration in the fixed network (more than 95.5% of homes have a fixed line). As Singapore is such a geographically small country there is no distinction between local and long distance calls.
 Mobile network
 Singapore has two mobile operators ? the Singapore Telecom subsidiary, SingTel Mobile, and MobileOne. There are also four paging operators ? SingTel Paging, MobileOne, Hutchison IntraPage and ST Messaging. There are more than 1 million paging subscribers in Singapore ? the highest penetration in the world.
MobileOne began operations in April 1997 using both GSM and CDMA networks. It achieved 35,000 customers in the first month of service. MobileOne is a consortium of four major business corporations: the Keppel Group (35%), Singapore Press Holdings (35%), Cable & Wireless (15%) and HongKong Telecom (15%).
The Government has committed to a duopoly for public cellular telephone mobile services at least until 31 March 2000.
 4.15.3 Regulatory framework The regulator, the Telecommunications Authority of Singapore (TAS), has recently announced a public tender to licence up to 2 Public Basic Telecommunications Services (PBTS) licensees. The successful bidders will be able to provide six different domestic and international telecommunications services: public switched telephone services, public switched message services, public switched ISDN services, leased circuit services, public switched data services and public radio-communication services.
The PBTS licences will be awarded by mid-1998, following tender, to compete with SingTel, in the provision of services which are currently the monopoly of SingTel. The licence obligations will include:
  • Provision of domestic and international basic telephone services to any person in Singapore who requests the provision of such services
  • Compliance with Codes of Practice (COPs)
  • Price control arrangements
  • Quality of service standards,
  • Interconnection with other public switched networks
  • Guidelines for fair practices conduct.
 TAS is empowered to impose a fine or suspend or cancel the licence where a Licensee breaches any of the licences conditions.
 Competitive safeguards
 TAS has released a Fair Practices/Conduct Guidelines for Telecommunications Service Providers. TAS will consider any licensee to be engaging in unfair practices/conduct if the conduct has the effect of unfairly:
  • Eliminating, deterring, reducing or damaging competition in the telecommunication market or in the provision of telecommunication services; or
  • Preventing or hindering the entry of new entrants into the telecommunication market.
Accounting separation will be imposed on licensees most likely to engage in unfair practices/behaviour. This type of behaviour would arise where there are opportunities for cross-subsidisation among different telecommunication services and products in a diversified and/or integrated services Licensee, and where a company or entity has been granted more than 1 licence by TAS.
TAS has developed a set of Accounting Guidelines setting out the principles for compliance by licensees which are subject to accounting separation. The licensees must ensure that the accounting and reporting practices adopted enable the provision of detailed records for submission to TAS whenever necessary.
 Equal access
 All PBTS Licensees, including SingTel, will use the number range 000 as the default code for access to the international telephone service. In addition, each PBTS licensee will be assigned its own international service access code. A caller would use this code to over-ride the default access code, and access the international services of another licensee. This means that every operator can use the 000 international access code for its own PSTN subscribers, while having another access code for ad hoc or call-by-call access by non-directly-connected local subscribers.
Number portability
 Singapore was the first country in the world to introduce number portability for mobile services. Number portability was made available at the start of competition in April 1997.
TAS requires number portability to be introduced for fixed networks by 1 April 2000. TAS will set the number portability charging principles to guide negotiations among licensees for additional requirements for network capacity and administrative costs of porting numbers.
 4.15.4 Interconnect arrangements

Principles

 Interconnection arrangements in Singapore are negotiated between carriers with scope for regulatory intervention from TAS in the case that agreement cannot be reached. The licence for the first competitive cellular telecommunications service was issued in May 1995. TAS was well prepared for this and had already stated the guidelines for interconnection and access at the tender stage. TAS was subsequently involved in facilitating/observing negotiation between the parties.
The main principles for interconnection as set out by TAS were that:
  • arrangements should be economically, technically and administratively efficient.
  • arrangements should be transparent to the telecommunications user.
  • arrangements should be non-discriminatory between mobile networks in terms of overall functionality, price, quality, and performance of the interconnection they provide.
  • negotiation among operators should be carried out with minimum mediation by TAS.
  • where feasible alternatives are available, market-based pricing should be used to determine prices for interconnection facilities. When there is no feasible alternative for the non-incumbent operator, cost-based pricing should be used.
Based on these principles, TAS set the key access charge to the fixed network for the first three years of competition from 1997 to 2000. The charge was set at the same rate as previously existed between SingTel and its mobile subsidiary.
Mobile interconnect charges
 The interconnection services and access charges between Singapore Telecom and MobileOne are divided into four components:
  • Interconnection charges, which are defined as charges related to capital and other one-time costs necessary to establish interconnection. These charges would be calculated based on directly attributable long run incremental cost principle and would be borne by the carriers wishing to interconnect to the PSTN.
  • Access charges. These are the usage sensitive charges that the terminating operator imposes on the originating operator and would be calculated based on a cost recovery principle.
  • Link connection charges. These are defined as the charge borne by the mobile operator for leasing circuits to connect MSC's to the PSTN. These charges must not be higher than the charges levied on other customers leasing similar volumes for the same services.
  • Supplementary and ancillary charges, for the associated facilities required to complete the interconnection and access arrangement.
The interconnect agreement between SingTel and MobileOne was completed and filed with TAS eight months after the award of the new mobile licence.
Fixed network interconnect
 In the tendering procedures for the new fixed network licence TAS has identified four major classes of Interconnect Related Services (IRS) for interconnect charging purposes:
  • Physical interconnect
  • Origination and termination services
  • Unbundled network elements
  • Essential support facilities
In the initial stages of competition, TAS will set interim benchmark interconnect charges for each IRS. These charges will be based on SingTel's network architecture, with assets valued on the basis of forward looking economic costs, and usage charges based on long run average incremental costs. The interim interconnect charges will be released to shortlisted tenderers and will apply for three years from 1 April 2000. Thereafter, interconnect charges are to be commercially negotiated between the operators.
TAS has prescribed a comprehensive negotiation framework, with two stages:
  • preliminary discussions between tenderers and SingTel are to commence once the successful pre-qualification tenderers have been announced
  • after the successful tenderers are licensed, the main negotiation process will begin. In this stage all administrative, commercial, technical and operational matters will be resolved. All PBTS licensees are required to produce commercial legally binding agreements with each other by the end of March 1999. Upon completion, the interconnect agreements are to be lodged with TAS.
    •  Technical arrangements
     TAS has identified two types of interconnection and access configuration to be adopted by the fixed network licensees:
    • Interconnection at network gateways, which may be international gateways, trunks exchanges, tandem exchanges, local exchanges or dedicated interconnection gateways;
    • Local loop access: access is possible at the exchange Main Distribution Frame (MDF), the building MDF, or the roadside cabinet.
    Licensees may propose alternative configurations but they must be endorsed by TAS. Each licensee is required to ensure good end-to-end quality of service and that sufficient capacity is available at the Point of Interconnection (POI) or Point of Access (POA).
    SingTel must provide access to unbundled network elements, defined as the physical facilities and network equipment, including the features, functions and capabilities associated with such equipment/facilities, which may be required by new operators in the interim period until their own networks are fully deployed.

    4.16 Chinese Taipei

    This profile is based partly on a response from the APEC representative in Chinese Taipei, and partly on Ovum's in-house information about the Chinese Taipei interconnection regime.
     4.16.1 Key statistics
     Unless otherwise stated the following statistics applied at 1 January 1996.
    (19Y       Population 21 million
    (19Y       Area 35,980 sq km
    (19Y       Population Density 584 per sq km
    (19Y       GDP $12,288 per capita
    (19Y       Fixed line penetration 8.77 million (41.8%)
    (19Y       Mobile penetration (1 January 1997) 1.1 million (5.2%)
     4.16.2 Market structure Competition in mobile services was introduced in January 1997, with the licensing of six private operators to run cellular networks on the island. The new operators are required by their licence conditions to begin offering services by the third quarter of 1997.
    Fixed local, long distance and international remain the monopoly of Chunghwa Telecom.
     4.16.3 Regulatory framework In 1995, Cabinet moved to speed up economic liberalization and in January 1996 the new Telecommunications Law was passed. The main Telecommunications Law:
    • Defines telecommunications services as Type One and Type Two.
      • Type One services are installation and operation of facilities which provide telecommunications services, and include wireless services. There is a ceiling of 20 per cent foreign investment in companies competing with the incumbent in Type One Services.
      • Type Two services are all value-added network services. Foreign investment is not restricted in VANS.
    • Requires all Type One operators which also provide Type Two services to calculate profit and loss separately and prohibits cross-subsidization. However, Type One providers are not prohibited from cross-subsidizing Type One services open to competition (ie cellular) with revenues from monopoly Type One services such as local, domestic long distance and international long distance.
    • Separates the regulatory and operational functions of the former monopoly: Chunghwa Telecommunications Co Ltd became the operator; the Directorate General of Telecommunications (DGT) took over the regulation of Taiwan's telecommunications.
    4.16.4 Commercial interconnect arrangements

    Regulatory arrangements

     The main regulatory instrument for interconnection is the DGT's Interconnection Regulations on Mobile Communications Services. This determines that:
    • All facilities-based (Type I) operators have a right to interconnection and an obligation to provide interconnection
    • Interconnection should be based on commercial negotiation
    • Agreements should be finalised within three months
    • Independent mediation should be sought if required
    • Determination by the DGT should be sought only as a last resort.
    No cost-rules are specified in the interconnection guidelines, though an accounting scheme has been required. This accounting scheme provides for itemisation of unbundled elements, but the guidelines do not require that physical access be given to unbundled elements.
    The current Interconnection Regulations on Mobile Communications Services will be reviewed after one year. Issues to be reviewed include:
    • Treatment of interconnection on fixed network services
    • Treatment of access deficit contributions
    • Policy on calculating interconnect charges
    • Disclosure of interconnection accounting reporting and of interconnection agreements.
    Under the proclamation of the Ministry of Transport and Communications on May 1996, every mobile carrier does have a liability to pay a portion of the costs of the Universal Service Obligation held by ChungHwa Telecom (although not until 2001) and the Access Deficit Contribution.
     Commercial arrangements
     Interconnect terms are currently being negotiated between ChungHwa Telecom and the new mobile licensees.
    At present, service providers (Type II carriers) do not pay interconnection charges. The interconnection arrangements between Type I and Type II carriers will be subject to future review.
    Costs used for interconnection purposes are presently on a fully allocated basis. It is a matter yet to be formally determined whether to move to an incremental cost model for interconnection purposes in future.
     Technical arrangements
     The interconnect architecture is agreed by negotiation between carriers. Normally interconnect is at the toll switch, and there is one toll switch appointed as a POI in each message area. Operators which interconnect at each of these POIs will have local access charges for all interconnect calls.

    4.17 Thailand

    In the absence of a full response from the APEC representative in Thailand, this profile is restricted to published information obtained by Ovum.
    4.17.1 Key statistics
     Unless otherwise stated the following statistics applied at 1 January 1996.
    (19Y       Population 58.2 million
    (19Y       Area 514,000 sq km
    (19Y       Population Density 114 per sq km
    (19Y       GDP US $2749 per capita
    (19Y       Fixed line penetration 3.5 million (6%)
    (19Y       Mobile penetration (1 January 1997) 1.08 million (1.9%)
     4.17.1 Market structure

    Fixed networks

     There are four fixed network operators in Thailand:
    • The Telephone Organisation of Thailand (TOT)
    • The Communications Authority of Thailand (CAT)
    • Telecom Asia
    • Thai Telephone and Telecommunication (TT&T).
    TOT, a State enterprise, dominates the fixed network market in Thailand. It has exclusive rights to install, maintain and provide domestic services in Thailand. CAT, another State organisation, has a similar pre-eminent position in the international market.
    In 1990 a programme of investment in telecoms using private sector finance was started. It involved build-transfer-operate (BTO) concessions. The private sector companies, of which TelecomAsia and TT&T were the only two in the fixed network, were granted concessions for a period of 10-25 years in which to invest and make a return on that investment. At the end of the concession period the assets, in theory, will return to TOT or CAT.
    In 1991, Telecom Asia was awarded a 25-year concession to operate a two-million line extension to the telephone capacity of Bangkok and neighbouring provinces. In 1992, TT&T was awarded a similar one-million line concession in provincial areas.
    Since then the scale of these concessions has been increased, but no further concessions have been awarded. As part of the terms of these extensions, the Government waived the protection from competition previously granted to TelecomAsia and TT&T. It did so in order to enable TOT to increase its own network coverage by 600,000 lines in the provinces and 200,000 lines in Bangkok.
    The Government intends to continue the BTO scheme, with the objective of reaching 12.7 million lines, and a penetration of 20%, by 2001.
    Mobile networks
     The cellular mobile market is dominated by two private sector operators in Thailand:
    • Advanced Information Service (AIS), a member of the Shinawatra group
    • Total Access Communications (TAC), owned by UCOM.
    Each operator has a BTO concession: AIS a 20-year concession from TOT; TAC a 22-year concession from CAT. The terms of these concessions restrict the frequencies which the operators may use (but not the geographic areas they may serve). Both companies operate both analogue and digital services.
    In addition, TOT and CAT each operate analogue mobile services.
    4.17.2 Regulatory framework There is no independent telecoms industry regulator in Thailand at present, although the Government is considering the introduction of such a body. It will need to do so as part of its commitment to the WTO liberalisation. At present the Ministry of Transport and Communications performs the regulatory function through TOT and CAT.
    The current draft Telecom Master Plan envisages:
    • The privatisation of TOT and CAT
    • An independent regulatory body in the form of the National Telecommunications Committee to be established.
    • Liberalisation of the local telephone service and of long-distance and international telephone services within two years from the date of Cabinet's approval to the Plan.
    Liberalisation is an on-going matter, and changes of detail may well occur. An offer has been made in the WTO offer rounds for full liberalisation by 2006.
     4.17.3 Interconnect arrangements The interconnect terms of the BTO concessions are all commercially negotiated and are typically based on revenue sharing agreements. The revenue shares for TOT's own concessionaires are included as part of the concession agreements. The details are shown in Figure 4.17.1.

    Figure 4.17.1: BTO revenue-sharing agreements
    Carrier

    Revenue sharing

    To:

    Amount:
    Telecom Asia

    TOT

    21%
    TT&T

    TOT

    44.5%
    AIS

    TOT

    20%
    TAC*

    CAT

    25%
    * Part of this revenue share has now been converted into shares.

    4.18 USA

    4.18.1 Key statistics

    Unless otherwise stated the following statistics applied at 1 January 1996.
    (19Y       Population 263 million
    (19Y       Area 9,809,430 sq km
    (19Y       Population Density 26.8 per sq km
    (19Y       GDP US $27,129 per capita
    (19Y       Fixed line penetration 165 million (62.7%)
    (19Y       Mobile penetration (1 January 1997) 44 million (16.7%)
     4.18.2 Market structure Competition was increased in long distance and international service in 1984 with the divestiture of AT&T. Competition in local service existed before the Telecommunications Act of 1996, but the Act was designed to accelerate this competition.
    The U.S. permits competition among both facilities-based and resale companies. U.S. policy allows competitors to combine a variety of their own facilities with a variety of leased elements in order to provide communications services for the users.
    As of 1996, there are 1102 local operators, 502 long distance operators and 277 international service operators. There are no regulatory restrictions on the number of carriers. In addition, according to the Telecommunications Resellers Association, there are over 1000 long distance resellers nationwide.
    Local fixed service
     Local service is dominated by the Regional Bell Operating Companies (RBOC)'s who have 116.3 million or 76.2 % of presubscribed lines in the U.S. Competing local exchange carriers (CLEC's) have 36.2 million or 23.8% of presubscribed lines. In 1996, based on reported revenue, these competing local exchange carriers have about 1-2% market share.
     Long distance (interstate) service
     As of 1996, four companies, AT&T, MCI, Sprint, and Worldcom, have 83% of the long distance market, as measured by reported revenue. Smaller competitors take up the remaining 17% of the market. Total market revenue for long distance in 1996 was US$82 billion.
     International service
     In 1996, the international facilities-based market was US$14.7 billion, dominated again by the four major long distance carriers - AT&T, MCI, Sprint, and Worldcom. The international resale market, US$3.3 billion in 1996, is dominated by smaller carriers. The four large carriers hold only 15.2% of the international resale market, as measured by reported revenue.
     Wireless
     As of 1946, AT&T was operating a mobile radio system that connected with the public telephone network. As of 1996, there were about 800 mobile network operators in the U.S. In small markets, there is an average of two carriers. In larger markets, there are 3-4 carriers. The largest carrier in a market is likely to have between 30-70% market share. There are also numerous resellers of wireless service in the market.
    Cellular subscribers have grown from 1 million in 1986 to over 38 million subscribers in 1996, or from a 2% to 16% penetration.
     4.18.3 Regulatory framework

    Regulations implementing the Telecom Act of 1996

     In 1984, after a Federal Court ordered the divestiture of AT&T, seven Regional Bell Operating Companies (RBOC's) were created to provide local telephone service. As a result, competition increased in the long distance market.
    Subsequently, the Telecommunications Act of 1996 established rules to permit the RBOC's to enter the long distance market and the long distance operators to offer local service. To implement the Telecommunications Act of 1996, the FCC undertook three major proceedings: (1) local competition (2) access charge reform, and (3) universal service.
    (1) The Local Competition Order unbundles the network and makes pricing of these elements based on forward-looking costs. According to the Order, all carriers, including long distance carriers, have access to these elements. This Order is the subject of a case now pending before the US Supreme Court over the division of authority between the FCC and state public utility commissions over pricing issues. Consequently, the rules in this Order have not taken effect. As a practical matter, however, the analysis contained in the Order is being used by many state public utility commissions as guidance in their deliberations.
    (2) The Access Charge Reform Order changes access charges' rate structures to make them more economically efficient. An "access charge" is the fee the long distance companies pay local service companies, known in the U.S. as local exchange carriers, for transport and termination of their calls. Prior to the Telecommunications Act of 1996, these access charges partly subsidised some universal service programs.
    The ultimate goal is to completely deregulate the access charge regime. That portion of access charges used to partly subsidise universal service is replaced by a new mechanism set out by the Universal Service Order.
    (3) The Universal Service Order creates a mechanism to collect and distribute funds for universal service programs that subsidise telephone service for users that have low-income or live in high-cost areas. The universal service fund is managed by a neutral, non-government, non-carrier, party which will collect contributions from all eligible carriers and disburse funds to eligible parties.
     Licensing requirements
     For local wireline service, there are no licensing procedures for domestic wireline service at the national level. State public utility commissions handle licensing for service provided within their states. For long distance service, a company must obtain a Section 214 license from the FCC. In recent years, section 214 applications have been streamlined. There is no limit to the number of licenses the FCC issues for this service.
    For wireless service, the first commercial license was granted by the FCC in 1983 through a process of comparative hearings. Later in 1983, the FCC shifted policy and began awarding licenses lottery. In December 1994, the FCC's held its first auction for a broadband license. Currently, most licenses for wireless service are awarded by auction. The FCC is generally moving to a policy of allowing flexible use of commercial mobile spectrum licenses. Thus, these license holders have considerable freedom to put their spectrum to its most valuable use as dictated by the market forces, rather than having to use it for a specific use mandated by regulation.
    Competitive safeguards
     Regional Bell Operating Companies (RBOCs), which until now were effectively monopoly providers of local service within their region, are required to create separate affiliates in order to enter markets where they can exploit their market power. Below are some examples of competitive safeguards for RBOCs:
    • An RBOC is required to establish a separate affiliate for some manufacturing activities, long distance services, information services, and alarm monitoring. This affiliate must operate independently of the RBOC; maintain separate books, records, accounts; have separate officers, directors, employees; may not obtain credit under an arrangement where the creditor has recourse to the RBOC's assets. In addition, all the affiliates transactions with the RBOC must be "on an arm's length basis" with all transactions written and available for public inspection.
    • The RBOC may not discriminate between its affiliate and other entities in the provision of goods, services, facilities, information, or establishment of standards. The RBOC is subject to an audit every two years by the FCC and state public utility commissions.
     The Local Competition Order states that safeguards cease after three or four years, depending on the type of affiliate, after the RBOC receives authority to provide long distance service, unless the FCC extends the period by specific order.
    The RBOCs are required to demonstrate that the local markets are competitive before they are allowed to compete in those long distance markets where they can exercise market power.
    Number portability
     Number portability is one of the obligations that the U.S. Congress imposed on all local exchange carriers (LECs), both incumbents and new entrants. All local exchange carriers are required to begin implementing a long-term portability solution in the 100 largest Metropolitan Statistical Areas (MSA), by the beginning of October 1997 and they are expected to complete deployment by the end of 1998. Number portability must be provided by all LECs to all telecommunications carriers, including wireless providers. All wireless providers must have the capability of delivering calls from their networks to ported numbers by the end of 1998 and they must provide portability by the end of June 1999.
     4.18.4 Interconnect arrangements

    Policy objective

     Incumbent telecommunications carriers are required to provide interconnection. The goal of this mandated interconnection system is to set up a domestic framework that promotes fair and effective competition, by providing transparent, non-discriminatory, and reasonably-priced interconnection.
    This mandated interconnection policy is not intended to guarantee the success of competitors. The success or failure of new entrants, as well as the success or failure of the dominant carrier, should be based on its ability to compete in the marketplace.
    Regulations are designed to permit new entrants to employ a variety of business strategies, including using unbundled elements, resale or total bypass of the network.
     Federal- State relationship
     The Federal Communications Commission (FCC) sets the broad rules for implementing the Telecommunications Act of 1996's section on local competition, which includes interconnection issues. However, the public utility commissions of individual states are responsible for approving local interconnection agreements or settling disputes if parties are unable to reach an agreement. Currently, there is a case pending before the U.S. Supreme Court on whether the states or the FCC have jurisdiction to set rules for interconnection pricing, unbundled network elements, and transport and termination of traffic.
     Obligation to interconnect
     All carriers have the obligation to provide interconnection. The incumbent carrier must provide interconnection at a cost-based price. Under the Telecommunications Act of 1996, the incumbent local telephone companies and new entrants may voluntarily agree to terms and conditions. However, it is required that firms negotiate in good faith. This obligation is enforceable by the state utility commissions. Once an interconnection agreement has been approved by a state utility commission, any aggrieved party may file a complaint in the courts. Parties can seek (1) mediation at any point in the negotiations and (2) arbitration after 135 days from the original request for negotiation. The states have initial responsibility to mediate and arbitrate these disputes, but may choose to pass these responsibilities on to the FCC.
     Unbundling obligation
     An incumbent is required to provide nondiscriminatory access to network elements on an unbundled basis, at any technically feasible point, to any telecommunications carrier, that makes such a request. This access is to be at rates, terms, and conditions, that are "just, reasonable, and nondiscriminatory," and in a manner that allows requesting carriers to combine such elements in order to provide telecommunications services. New entrants are allowed to combine elements to offer service. New entrants are not required to provide any of their own facilities.
    In the Local Competition Order, the FCC identified seven network elements that were considered the minimum set of elements that must be unbundled by incumbents. The incumbent should provide:
    1. unbundled access to local loops;
    2. network interface devices;
    3. local and tandem switching capability;
    4. interoffice transmission facilities;
    5. signalling and call-related databases;
    6. operations support systems function; and
    7. operator services and directory assistance facilities.
     Pricing principles
     In the Local Competition Order, a forward-looking long-run incremental cost-based pricing methodology, referred to as LRIC, is used to determine rates designed to facilitate competition. The forward-looking economic costing model preferred by the FCC is a Total Element Long-Run Incremental Cost based model (TELRIC).
    If states are unable to conduct a cost study and apply an economic costing methodology within the statutory time frame for arbitrating interconnection disputes, the FCC has established default ceilings and ranges for the states to apply, on an interim basis.
    For unbundled elements, the FCC identified the following ceilings and ranges for states to apply, on an interim basis.
      1. Local loop : flat rate, range from US$9.83 - US$25.36 per month, depending on the state
      2. Unbundled local switching : default proxy range of US$0.002-004 cents per minute
      3. End office switching : default proxy of US$0.002
      4. Tandem switching : default proxy of US$0.0015
      5. Signalling, database services : average charge is US$0.0343 per database inquiry.
      6. Transport : Interstate access rates for dedicated transport vary by region, type of circuit, mileage, and other factors.
    For local resale, the FCC ordered that retail services be offered at a wholesale price, which is defined as a retail rate less avoidable costs. Avoidable costs are those not needed to offer the service, such as billing, marketing, and collection. The FCC established a proxy for avoidable costs at 17-25% below the retail rate.
    For wireless services, the FCC did not support bill-and-keep arrangements because they are not cost-based. Further, the FCC concluded that because it involves only termination costs, wireless interconnection should be equivalent to the cost of unbundled local switching, with a default proxy range of US$0.002-0.004. The FCC has yet to resolve whether wireless interconnection should be determined at the tandem switch, which has a default proxy prices of US$0.0015.
     Technical aspects
     There are a number of methods of obtaining interconnection and access to unbundled network elements. Incumbents are required to provide any reasonable method of interconnection, including physical collocation and virtual collocation. Incumbents are required to provide physical collocation of equipment necessary for interconnection unless the incumbent can demonstrate that physical collocation is not practical for technical reasons or because of space limitations. In that event, the incumbent should still be obligated to provide virtual collocation of interconnection equipment.
    Tariffs
    For interconnection agreements for local service, it is up to the state-level public utilities commissions as to whether companies must file tariffs.
    For long distance service, access charges are tariffed by the FCC. Only in very limited situations can incumbent local exchange carriers (LECs) lower geographically average rates or offer volume and term discounts. LECs are allowed to decrease prices below the cap for all services as long as rates remain averaged geographically. As competition develops, the FCC will consider easing regulations in order to increase RBOC's pricing flexibility for access charges. The ultimate goal is to completely deregulate the access charge regime.
     Public availability of interconnection agreements
     According to the Telecommunications Act of 1996, all agreements, including those reached voluntarily, must be publicly filed with the states. Examples of interconnection agreements can be found on websites such as <www.nrri.ohio-state.edu/interconnect.html>.