Vital Connections: New PRC Interconnection Regulations

On May 10 2001, the Ministry of Information Industry (MII) issued the Regulations for the Administration of the Interconnection of Public Telecommunications Network (Interconnection Regulations). The Interconnection Regulations supersede the 1999 Administration of the Interconnection of Telecommunication Networks Tentative Provisions (Provisional Regulations).1 The Provisional Regulations have been amended to reflect the new interconnection provisions contained in the PRC, Telecommunications Regulations (Telecom Regulations), which entered into effect on September 25 2000.

The Interconnection Regulations apply to carriers operating basic telecommunications services in the PRC including:

(i) fixed local telephone networks;

(ii) domestic long-distance telephone networks;

(iii) international telephone networks;

(iv) IP telephone networks;

(v) terrestrial cellular mobile communications networks;

(vi) satellite mobile communications networks;

(vii) internet backbone networks; and

(viii) other telecommunication networks specified by the MII.

KEY POINTS:

• Applicable to operators of basic telecommunications services such as
fixed-line local, domestic and international long distance, satellite mobile,
terrestrial cellular mobile and internet backbone networks.

• Distinction made between the "leading carrier" and "non-leading carrier."

• Sets out the time limits and imposes an obligation on the dominant carrier to provide
interconnection.

• Interconnection agreements are no longer subject to MII approval.

• Greater emphasis on improving the quality of interconnection.

• Reaffirms that settlement fees should be cost based.

• Regulations drafted in line with World Trade Organization pro-competitive principles on
interconnection.

• Penal provisions have been strengthened to reflect the provisions in the Telecom Regulations.

The list of services in the Interconnection Regulations has been expanded to include internet backbone networks, whereas in the Provisional Regulations,
there is a broad reference to "data communications networks." Since the promulgation of the Telecom Regulations, internet services are formally categorized under both basic telecom services and value-added telecom services.

Reference Paper

The basic principles for interconnection introduced by the Telecom Regulations appear to mirror those set out in the Reference Paper on Regulatory Principles for Basic Telecommunications Services (Reference Paper), which was negotiated as part of the World Trade Organization (WTO) Agreement on Basic Telecommunications (BTA). The Reference Paper addresses interconnection rights, anti-competitive safeguards, universal service obligations and the establishment of an independent regulator.

The Reference Paper acknowledges that telecom markets in most WTO member states have operated within a monopoly regime, and contains core principles aimed at ensuring the advantages of the former monopoly operator, or any other "major supplier" are not used to the detriment of new market entrants. In the PRC, the dominant player is China Telecom followed by China Unicom, Jitong and China Railway Telecom. China Telecom, as the former monopoly holder, is in an advantageous position because it controls an extensive network and has a substantial customer base.

Dominant Operator

Under the Telecom Regulations, the definition of a "leading telecommunications operator" is an operator that controls the necessary telecom infrastructure, commands a relatively large share of the telecom market, and can materially influence the entry of other telecom operators. The Interconnection Regulations elaborate further on this definition and define a leading telecom carrier as an enterprise that operates a fixed-line local telephone service and has a market share of more than 50% of the local telecom network.3 It is interesting to note that under the Reference Paper, "a major supplier" is defined as having the ability to materially affect the terms of participation with respect to price and supply for basic telecom services, either through its control over essential facilities or position in the market.

The Interconnection Regulations make the distinction between the "leading telecommunications carrier" and "non-leading telecommunications carrier." This distinction did not appear in the Provisional Regulations, which merely referred to the "leading carrier" and other carriers. Presumably, the new terminology reflects the MII's recognition of China Telecom's pre-eminent position in the marketplace when compared with its closest rivals.

Definition of Interconnection

The Reference Paper also addresses various interconnection issues. Interconnection is defined as "linking with suppliers providing public telecommunications transport networks or services in order to allow the users of one supplier to communicate with users of another supplier." Similarly, under the Interconnection Regulations, "interconnection" is defined as "the establishment of an effective communications connection between telecommunication networks to enable the subscribers of one telecommunications carrier to communicate with the subscribers of another telecommunications carrier or to access the various telecommunications services of another telecommunications carrier."4 Moreover, the definition of interconnection has been broadened in the Interconnection Regulations to include the direct connection between two telecom networks or the re-routing through a third party network by two telecom networks to effect the sharing of services.

Timing and Quality of Interconnection

In accordance with the principles of the Reference Paper, the Telecom Regulations provide that the leading telecom operator may not refuse requests for interconnection by other telecom operators. The provision is reiterated in the Interconnection Regulations that stipulate that telecom carriers may not refuse interconnection requests. Clearly, the provision is aimed at curbing the anti-competitive practices of the dominant carrier and to addressing the recent complaints concerning interconnection delays lodged by rival operators against China Telecom.

The Interconnection Regulations require the leading telecom carrier to provide interconnection within the time limit agreed in the interconnection agreement stating that no party can suspend interconnection without cause. As the new regulations do not provide a clear definition of, or criteria for, assessing "cause" in this regard, telecom carriers are likely to enjoy considerable interpretive discretion.

Further, the Interconnection Regulations impose an obligation on the dominant carrier to cooperate with other carriers and warn against imposing any unreasonable conditions on the non-leading carrier. The Interconnection Regulations encourage carriers to share essential facilities such as buildings, conduits (ducts), pole lines, cable inlets and troughs.5

Article 12 states that the quality of interconnection must comply with the relevant technical standards formulated by the MII. When providing interconnection to other telecom operators, the leading Interconnection Regulations also impose a duty on carriers to keep the information provided by each party confidential and to use such information solely for interconnection matters.com carrier must ensure that the quality of interconnection is the same as the quality provided for the same type of service operated by the leading telecommunications operator's own subsidiaries and branches.6

Cooperation Between Carriers

The Interconnection Regulations stipulate that interconnecting networks should not discriminate on the choice of routing or the grade of service provided by the dominant carrier to other carriers. Article 15 provides that if a non-leading carrier selects the fixed local telephone network of the dominant carrier as its third party network, the dominant carrier may not refuse service and should ensure the quality of the re-routed communications.

The Interconnection Regulations also require the leading telecom carrier to provide non-leading telecom carriers with information on the interconnection-related network functions. The network components include the overall structure, signalling method, billing procedures, method of synchronization and equipment configuration. In addition, a non-leading telecom carrier must also provide the dominant carrier with information on their plans and schemes for interconnection and their equipment configuration. The Interconnection Regulations also impose a duty on carriers to keep the information provided by each party confidential and to use such information solely for interconnection matters.

Interconnection Agreements and Costs

Chapter 4 of the Interconnection Regulations requires connecting parties to enter into an interconnection agreement based on the principles of friendly cooperation and mutual coordination. Article 24 sets out the main topics to be discussed and negotiated when concluding such agreements including the technical plan for the interconnection, the apportionment of the construction costs and other contractual terms. The Provisional Regulations required interconnection agreements to be approved by the MII before they could be implemented.7 The Telecom Regulations and the new Interconnection Regulations merely require the interconnection agreements to be filed with the MII, suggesting perhaps that interconnection agreements no longer require MII approval to be legally binding.8

Both the Provisional Regulations and the Interconnection Regulations provide little guidance on the basis for determining the level of interconnection fees. Article 21 of the Interconnection Regulations states that when effecting interconnection and inter-communication, carriers should adhere to the Measures for the Settlement of Call Charges Between Telecommunications Networks. Notably, Article 22 reiterates the provision in the Provisional Regulations that calls for interconnection settlement rates to be determined on a cost basis. The Interconnection Regulations are silent on the methodology to be used for calculating the cost base thus allowing the MII and the respective carriers some flexibility in formulating and amending the methodology in future.

Resolving Disputes

Chapter 7 of the Interconnection Regulations sets out the procedures for handling disputes between carriers. The telecom regulatory authorities are responsible for reviewing applications for mediation allowing the regulator to play a key enforcement role in ensuring the performance of interconnection agreements.

Article 43 states that if mediation fails to resolve the dispute within 45 days, then the mediator may invite telecommunications experts and other specialists to examine the case and submit proposals for consideration. The parties may take their case to the courts if they are dissatisfied with the decision of the telecom authority, but while they are initiating court proceedings, they must implement the decision of the mediator.9

Penalties

It is worth noting that the Telecom Regulations prohibit any telecom operator from restricting users to using only its own services and preventing users from selecting services operated legally by other telecom operators.10 The Telecom Regulations re-emphasize the need to clamp down on such anti-competitive practices and set out penalties ranging from a warning or monetary fines to the closing down of the operator's business.

In accordance with Chapter 8 of the Interconnection Regulations, carriers who fail to perform interconnection in a timely manner will be subject to fines ranging from Rmb5,000 to Rmb30,000. Refusal to provide interconnection or failure to comply with the relevant technical standards will result in higher penalties imposed under the Telecom Regulations.11

Removing bottlenecks

In light of China's imminent WTO accession, the Telecom Regulations and the Interconnection Regulations have introduced a number of provisions to ensure that the PRC adopts the pro-competitive regulatory principles under the BTA, and in particular, to establish terms and conditions for non-discriminatory interconnection.

While the new interconnection regulations appear to clarify and reinforce certain pro-competitive principles, in practice, the MII will need to monitor the activities of the major carriers more carefully and act effectively to remove interconnection bottlenecks. In the past, incumbent carriers have adopted various methods to delay or limit interconnection with other operators, for example, by restricting the availability of bandwidth in certain key cities in the PRC. Prior to the promulgation of the Telecom Regulations and the Interconnection Regulations, regulators could impose only punitive fines, which the incumbent carrier regarded as a price worth paying to keep the market to itself. However, the MII can now keep a closer regulatory eye on the behaviour of the licensed telecom carriers and will be better equipped to foster a more competitive marketplace.

Endnotes

1. See "New Regulations Encourage Competition in Telecoms" by Nancy Leigh China Law & Practice, 2000, February, p.26.
2. Article 2 of the Interconnection Regulations.
3. Article 5 (3) of the Interconnection Regulations.
4. Article 5 (1) of the Interconnection Regulations.
5. Article 10 of the Interconnection Regulations.
6. Article 21 of the Telecom Regulations.
7. Article 30 of the Provisional Regulations.
8. Article 26 of the Interconnection Regulations.
9. Article 45 of the Interconnection Regulations.
10. Article 41 and 42 of the Telecom Regulations.
11. Chapter 6 of the Telecom Regulations.