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Mobile Interconnection
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In many countries, mobile interconnection is regulated andpriced differently, depending on the form of
interconnection.
There are three broad forms of mobile interconnection:
A mobile network terminates a
call from a fixed network. The call might originate from a local
fixed operator, a domestic long-distance operator, or an
international operator
A mobile operator interconnects
with a fixed network in order to complete calls for the mobile
operator's customers. Again, the fixed network might be owned by
a local fixed operator, a domestic long-distance operator, or an
international operator
A mobile operator interconnects
with another mobile operator
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Mobile Termination Rates (MTR) are the fees chargedwhen you call a friend on a different mobile network, or
call their mobile from your landline. In doing so, the other
mobile network charges your operator a fee for carrying
the call.
There is no a unique treatment of mobile termination
charges among countries:
Some countries only regulate mobile termination charges for fixed-
to-mobile calls.
In other countries, mobile networks are required to apply a singleregulated termination charge regardless of where the call
originates.
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Under Calling Party Pays (CPP) the calling party, or the calling party'snetwork, pays for the call. The recipient of the call pays nothing.
CPP is used in many countries to structure interconnection payments
for fixed-to-mobile calls. Under the "old" CPP model, the mobile
operator sets a fixed-to-mobile tariff. The fixed operator deducts
specified charges from this fee (such as an origination charge, andbilling and collection charges), and passes the balance of the call
revenue to the mobile operator.
In recent years, some regulators have decided to regulate fixed-to-
mobile tariffs, rather than leaving this to the mobile operator to
determine. This generally reflects concerns that fixed-to-mobile tariffsare too high. This concern has also led regulators to control mobile
termination charges
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A minority of countries, predominately developed countries such as the United
States, use a system of receiving party pays or mobile party pays for
interconnection with mobile operators.
Under this system, the mobile user pays airtime on received calls as well as
calls that user has initiated. This reduces the problem of setting
interconnection charges to defining the costs of just the link between two
networks, which generally is low and easily defined. Thus, countries usingreceiving party pays have largely avoided the problem of high mobile
termination charges.
This is a definite advantage of the receiving party pays system. Since a
receiving party pays system requires the mobile user to pay directly for
network usage on the mobile network, its main disadvantage is that it makes
it difficult commercially to extend service to mobile users with very low income
levels, precisely where the calling party pays system has been most
successful.
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Regulation of fixed-to-mobile rates and/or mobile termination chargesis usually justified on the basis that those prices are "too high"
compared to a cost-based estimate, or to prices for outgoing mobile
calls.
The argument is that mobile operators are able to sustain high fixed-
to-mobile prices because they have market power in setting prices forfixed-to-mobile calls
This market power derives from the fact that the fixed subscriber who
places a call to a mobile subscriber has no influence over which
mobile network is used. Mobile subscribers make this decision when
they decide to join a network Under Calling Party Pays mobile subscribers do not pay for fixed-to-
mobile calls, so they may not take the price of these calls into account
in selecting a network
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Many regulators now control mobile termination charges.
Several forms of such regulation are:
In the absence of cost based data, regulators
are increasingly relying on international benchmarking to set regulated
mobile termination charges in their own countries
Some regulators have introduced regulations requiring mobile
operators to round each call to a lower unit of charging (for example
rounding to the second when the charging unit is to the minute). The effect
of this requirement is to reduce revenue from mobile termination
Regulators are increasingly pressuring
operators to base mobile termination charges on long run incremental
costs or fully allocated costs
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Market forces are also pushing down CPP rates and mobile termination
charges. For example users are increasingly substituting mobile-to-mobile calls
for fixed-to-mobile calls, creating additional pressure on mobile operators to
reduce fixed-to-mobile rates and mobile termination charges.
United States international carriers, supported by the United States
Government, are pressuring developing country operators to reduceinternational mobile termination rates. Because United States carriers are net
exporters of telephone traffic to developing countries, a reduction in mobile
termination charges would reduce their net interconnection payments to
foreign operators
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Under Calling Party Pays (CPP) for fixed-to-mobile calls, the fixedoperator deducts specified charges from the fixed-to-mobile rate and
passes the balance of the call revenue to the mobile operator
The fixed operator may retain charges for the following items:
Call origination charges reflect the cost of the fixed
network used to originate the call
The fixed operator may levy a contribution to the
cost of collecting call revenue from its customers. This fee may be
expressed as a percentage of the fixed-to-mobile tariff, or as an absolute
charge per minute, per call or per bill
The fixed operator may levy a fee for bad debts, on the basis
that fixed-to-mobile calls may make up a significant proportion ofcustomers' total bills
For instance in some countries fixed operators charge fees for
managing complaints related to fixed-to-mobile calls
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The basic economic principles of forward-looking cost models apply to
both fixed and mobile networks. However, the importance and typesof cost drivers in a mobile network differ from traditional fixed
networks.
The costs of both fixed and mobile networks increase with increases
in:
The number of subscribers, and
The traffic produced by those subscribers
The costs of a mobile network also increase with coveragethe
geographic size of the network.
Coverage costs are an example of common costs. They do not
increase with the volume units usually considered in wholesale orretail price structures (such as access connections and usage).
Accordingly, retail and interconnection prices for mobile usage need to
contain mark-ups to recover coverage costs
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Structre of a GSM Mobile System
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Roaming is the term used to describe the situation when a subscriber of one
mobile operators service travels outside that service area and obtains
connectivity and service from another operator. Roaming can take place withina country or between countries, as long as it involves a customer of one
operator being connected to the mobile network of another operator.
Conceptually, roaming is similar to a call forwarding arrangement. Callers use
the customers usual mobile phone number. The home network hands the call
over to the host network, which passes the call to the customers mobile
phone
Roaming charges are generally much higher than termination charges within
the home area. Customers often pay a monthly fee to be able to roam plus
usage charges, the combination of which can be quite expensive
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VoIP Interconnection
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Internet telephony, or Voice over the Internet Protocol (VoIP), is a category of
services that enable users to make real time voice calls, transmitted over theInternet (rather than using traditional circuit switched telephone networks).
VoIP enables network operators, service providers, and consumers make
significant savings, by:
Reducing the underlying costs of a telephone call. VoIP uses network resources
much more efficiently than conventional telephone service, reducing the costs of
providing a call (albeit with the loss of some call quality and service features)
Creating opportunities for regulatory arbitrage that enable service providers and
consumers to reduce or avoid call charges and/or regulatory fees
Currently the volume of voice telephony traffic is small compared to
traditional, dial up, circuit-switched telephone services. However, the very real
potential exists for packet switched, Internet Protocol networking to become
the primary medium for most voice and data services. Should this occur,
information services (including VoIP) will become the primary end user service
provided by telecommunications networks
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VoIP services differ depending on whether:
The service provides a competitive alternative to conventional
telephone services
A conventional telephone can transmit and receive calls
Subscribers need to acquire and install additional equipment on
their premises Traffic routes into or from the PSTN
Users pay for service
Three broad categories of VoIP service:
Internet telephony via computer; Internet telephony that is partially accessible from and to the
PSTN; and
Internet telephony that is fully accessible from and to the PSTN.
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Internet telephony via personal computer has several drawbacks:
Typically, calls do not access the PSTN (unless one of the computers accesses the
Internet via a modem and conventional dial-up telephone line)
Subscribers must log onto the service in order to make and receive calls
The service does not provide caller identification and location information needed in
emergencies The service does not offer the same sound quality and reliability as conventional
circuit switched telephony
For these reasons, most countries treat Internet telephony via computer as an
unregulated information service, largely free of traditional telephone carrier
responsibilities
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This category of VoIP calls includes:
Long distance telephone calls originated by subscribers of incumbent carriers,
and by users of calling cards who call from payphones and mobile phones
Internal corporate VoIP traffic that originates and terminates over anenterprise network. Some enterprise networks can route traffic into the PSTN
VoIP services that enable customers to make calls over the Internet
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The Internet and conventional circuit switched telephone numbering systems
use different addressing systems. Thus VoIP services in this category mustprovide call processing software that can map Internet Protocol addresses to
call recipients with conventional telephone numbers.
The software routes the call as far as possible through Internet networks, to a
gateway or point of presence as close as possible to the intended call
recipient. At that point, the service converts the call to telephony traffic and
hands it off to a conventional telephone network.
To access this category of VoIP services, users need:
A subscription to a VoIP service
Broadband Internet access
A modem
An Analog Terminal Adapter, to configure VoIP onto the users DSL or cable modemlink
The ability of subscribers to access service from conventional telephones, or
alternatively to call conventional telephone numbers, makes this form of
Internet telephony more attractive to customers (and therefore more
commercially attractive) than Internet telephony via computer
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Many telephone companies already use Internet carriage to handle long
distance calls. The customer making the call may not even be aware of this
Most current VoIP services do not use the PSTN for both call origination and
termination.
In the future, almost all VoIP services will require a broadband, digital Internet
access link. Telephone companies and cable television companies will replace copper
networks with optical fibre. This will enable voice services to ride over a
ubiquitous broadband digital network as a software application
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Decisions on the regulatory status, availability, and price of VoIP services will
directly affect the economic viability and future regulatory status of incumbentoperators
VoIP services can traverse the telephone network without detection. Thus,
even where regulators permit only limited or no VoIP services, incumbent
operators will still face competition from this source. Incumbent operators
may no longer be able to expect voice traffic to generate lucrative revenues
and profits
In response to this competitive pressure, incumbents may seek regulatory
relief. For example, incumbent operators may approach regulators seeking:
Regulatory parity with new entrants, for example by removing asymmetric
regulation not imposed on other operators
Protection from competition, for example by banning or seeking to limit VoIPservices
Finally, regulators will have to consider how best to encourage incumbent
operators to retrofit their existing networks and install new digital plant,
optimized for switching and routing data (of which VoIP will be a significant
component in the future)
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Many countries regulate information services and traditional
telecommunications services differently. Differential regulatory treatment creates opportunities for arbitrage. It also
encourages incumbent network operators to:
Focus new investment into unregulated broadband networks
Migrate services (including voice telephony using VoIP) onto those new networks
wherever possible
This behaviour achieves operational savings, and also qualifies voice telephonytraffic for a lower level of regulation.
The result will be an increase in the volume of information services, and a
reduction in the volume of voice telephony minutes of use that are subject to
interconnection charges, or international accounting rate settlements.
Network operators traditional sources of revenues will erode, forcingregulators to rethink how network operators should be permitted to recover
their costs
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Wireless networks will have a substantial impact on VoIP service development,
particularly in developing countries As wireless and VoIP traffic increase, differences in the terms and conditions
under which wireline, wireless and VoIP operators interconnect networks will
create opportunities for arbitrage, and distort markets
Differences in call termination rates and interconnection arrangements can
cause operators to adjust traffic flows to obtain the lowest possible rate, and
to minimize regulatory fees
Incumbent operators may seek to exploit bottlenecks and essential facilities,
by imposing above cost termination charges to deliver calls to wireless
subscribers, or to deliver wireless traffic to wireline subscribers.
This may encourage wireless carriers and VoIP providers to avoid the
incumbents network by seeking cheaper alternatives for originating andterminating traffic
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These promise to have sufficient bandwidth
and operating standards to support high speed data services, presumably
including VoIP
Wi-Fi can also support voice telephone calls.
Wi-Fi is generally provided as unlicensed broadband network access, on an
stand-alone basis at homes, offices and public hot spots such as airport
lounges and coffee shops
VoWiFi can integrate Wi-Fi access with licensed thirdgeneration mobile services. With seamless roaming between the two
networks, subscribers could use voice over a WiFi network (where available)
and mobile connections where WiFi is missing, or outside a WiFi network.
VoWiFi has the potential to allow VoIP providers to completely bypass the
PSTN
WiMax is a wireless
broadband technology, which has a range of up to 30 miles and can be used
for wireless networking like Wi-Fi, but at higher data rates over longer
distances
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Benchmarking Voice Telephony Call Rates
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Nation or State Local Level Single Transit Double Transit
Fixed-to-Fixed EUaverage 2003 0.80 Euro-cents per MOU 0.75 Euro-cents per MOU(Minutes of Use) 0.63 Euro-cents per MOU
New York 2005 Port rate $2.57 flat rate 0.001147 cents per MOUoriginating; 0.00111 centsper MOU terminating
Tandem Switching0.000481 cents and0.000203 commontransport
Hungary 2004 1.85 Euro-cents per MOU 2.4 Euro-cents per MOU 2.76 Euro-cents per MOUCzech Republic 2004 1.3 1.62 2.06Japan 2004 1.727 local switching yen
per MOU 2.057 yen per MOUIndia 2005 0.20 - 1.10 Rupee based
on mileage bandsMalaysia 2005 2.6 Sen per MOU 4.8 Sen per MOU 8.43 Sen per MOU
Benchmarking data is sourced from Teligen, the OECD, the European Commission, Intug, and the NationalRegulatory Research Institute.
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Benchmarking Broadband Data Rates
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Nation or State
56/64 kilobits per second at 2,
50 and 200 kilometres
1.544/2 megabits per
second at 2, 50 and 200kilometres
155 megabits per second
at 2, 50 and 200 kilometres
United Kingdom 2004 229; 460; 583 Euro per month 464; 1691; 3612 Euro permonth 11,964; 33,908; 71,795Euro per month
New York 2004 186; 410; 1009 Euro per month(56 kbps) 488; 1578; 4635 Euro permonth (1.544 mbps) n/a
California 2004 88; 233; 689 Euro per month(56 kbps) 360; 1234; 3651 Euro permonth (1.544 mbps) n/a
Germany 92; 414; 478 Euro per month 340; 1979; 2504 Euro permonth 1600; 7511; 12,161 Europer month
Hungary 193; 337; 621 Euro per month 702; 2149; 5003 Euro permonth 7813; 13,727; 23,868 Europer month
Japan 655; 1122; 1190 Euro permonth 3164; 7301; 9046 Euro permonth 9302; 50,583; 122,998 Europer month
Malaysia 2.6 Sen per MOU 4.8 Sen per MOU 8.43 Sen per MOUBenchmarking data is sourced from Teligen, the OECD, the European Commission, Intug, and the NationalRegulatory Research Institute.
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ICT Regulation Toolkit Module 2 Competition and Price Regulation
InvoDev, ITU (http://www.ictregulationtoolkit.org)
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http://www.ictregulationtoolkit.org/http://www.ictregulationtoolkit.org/