A New Interconnection Regime for Telecoms Operators

Interconnection is crucial because the majority of calls will originate from and terminate in the incumbent carrier¡¯s network.

Interconnect Obligation

The Regulations impose a basic obligation on a ¡®dominant telecoms enterprise¡¯ (dominant carrier) to interconnect. Essentially, a dominant carrier has an obligation to interconnect with another telecoms operator that requests interconnection.

The requesting operator must be licensed to operate one of the following types of telephony network:

a) fixed line local;

b) domestic long distance;

c) international;

d) terrestrial cellular mobile;

e) satellite mobile;

f) data; or

g) any other telephony network designated by the MII.

A carrier is dominant if it operates a fixed line local telephony business and it has more than a 50% share of that market in its service area. In practice, this would mean that China Telecom is the dominant carrier. This would be the case even in those areas where Unicom has a fixed line local telephony business as it is most likely that China Telecom¡¯s market share would be in excess of 50%.

Consistent with an objective of interconnection elsewhere, customers should be able to choose its long distance carrier. It should be noted that the interconnection obligation does not apply to dominant mobile operators such as China Mobile. Where necessary, however, interconnection can be achieved through a third party with whom both parties have a common interconnection.

Discriminatory Provisions

The regulator must approve the interconnection agreement before it can be implemented. It cannot contain any discriminatory provisions. This usually means that customers of the new entrant should be provided with services on terms that are no less favourable than those on which the incumbent carrier provides to its own customers. This principle is in the Regulations, but with the proviso that it is technically feasible.

Implementing Interconnection

The incumbent carrier has no incentive to implement interconnection in a timely manner. It has all the advantages in terms of market share and bargaining strength. On the other hand, the requesting operator cannot unilaterally determine the terms of an interconnection agreement. The Regulations lay down time limits within which milestones have to be met. For example, a new point of interconnection (POI) must be operational within seven months of the new entrant requesting for interconnection.

All interconnection must take place through a POI. The parties are free to decide on the number of POIs. The Regulations recognize the concept of far-end-handover.

Cost of Interconnection

Interconnection comes at a price to the requesting operator. In determining the charging principles in other systems, regulators often balance the need to encourage new investment in infrastructure against the wasteful duplication of resources.

They are also aware that the incumbent carrier often has an obligation to provide universal service. Having said that, it is accepted that there are not necessarily any clear answers.

Briefly, the charging system that favours the requesting operator is usually one that is based on a revenue/tariff sharing model or which is market-based if alternatives are available.

The alternative is a cost-based system. On a fully allocated cost basis, charges would reflect all the costs attributable to the interconnection service together with an allocation of overheads. Charges based on an incremental cost basis would only reflect the increase in the dominant carrier¡¯s costs in expanding its capacity to provide the interconnection. The latter is generally considered to be more equitable.

The Regulations provide that interconnection rates should be cost-based and that, prior to the parties confirming the cost, the rates should be tariff based. Unfortunately, the Regulations and subsequent settlement rules do not seem to indicate on what basis the cost is determined.

Dispute Resolution

The Regulations contain detailed provisions on the circumstances when a party can apply to the regulator for mediation and the procedure for such mediation. Such circumstances include those concerning interconnection time limits, the positioning of POIs and the settlement of interconnection fees. If mediation fails, the regulator is entitled to make a decision by way of administrative decision.

An Important First Step

The promulgation of the Regulations is salutary because it introduces several important and known concepts, including the all-important basic right to interconnect.

Although some areas could have been more fully described, for example, the basis for charging, the impression is that these were left deliberately vague in order to preserve regulatory flexibility. No doubt these issues will be clarified in future regulations, perhaps in the eagerly-awaited PRC, Telecommunications Law and perhaps before the next inevitable wave of foreign investment in this sector.

Seung Chong
Freshfields, Beijing