Telecommunications Competition Code Overview of Draft Interconnection Policies

Telecommunications Competition Code Overview of Draft Interconnection Policies May 15, 2000

Agenda Introduction § § Objectives Approach to Developing Interconnection Principles Challenges Framework for Interconnection and Access Regulation Proposed Interconnection Policies § § § Scope of Services Obligation to Provide Access Responsibility for Charges Structure of Charges Charging Standards Summary 2

Change Driver Introduction n Infrastructure moves from service specific to multi-services n Existing infrastructure can be re-used in ways it was not originally designed n Standards bodies have not been able to keep up with technological change n Content has a significant impact on service demand n Demand is difficult to forecast n Traffic patterns change 3

Approach Introduction Technological Development Consumer Needs Government Objectives Interconnection Policy Objectives Policies Industry Development Consultative Process 4

Challenges Introduction Singapore as Info-comm Hub • Creation of an attractive environment for infrastructure investment • Greater service innovation, choice and any-to-any connectivity • Protection of Investments Except in Instances of Genuine Market Failure • Network Ownership, Planning, and Design At the Discretion of Operators • Fair and Just Compensation for Network Usage • Preference for Commercial Arrangements within Broad Guidelines • Regulatory Intervention Only As Necessary • Bias Towards Open Access for All 5

Elements Introduction Scope of services What are the likely interconnection related services that can be requested in a fully liberalized market? Obligation to Provide Services Who are the eligible requesting and providing operators for the interconnection related services? What are their obligations, and are these time bound? Responsibility for Charges Where do the responsiblities lie for costs incurred in establishing or maintaining these interconnection related services? Structure of Charges What guidelines should govern the structure of charges? Cost Standards What rules will be applied to the make-up and level of interconnection charges? 6

Future Considerations Introduction The following topics are not part of the focus of today’s discussion: Operator to Operator • Universal Service Obligations • Retail Price Regulation • Consumer Protection • Mobile Access Operator to Service Innovator • Network and Service Bundling • Intellectual Property Rights • Allocation of Network Capacity 7

Today’s Focus Introduction Operator to Service Innovator Interconnection Related Service Customer to customer access Operator to Operator Interconnection Scenario 1. Physical Interconnection (PI) 2. Origination and Termination (O/T) Operator to customer access 1. Physical Interconnection (PI) Network operator pays 2. Unbundled Network Elements network operator (e. g. (UNEs) unbundled loop) 3. Essential Support Facilities (ESFs) Customer to service innovator access Service innovator to customer access Out of scope Application Network traffic and payment exchanged (e. g. PSTN) Customer pays network provider who compensates service provider (e. g. CATV) Customer pays service provider, who purchases network (e. g. ISP) Out of scope Today’s Focus 8

Agenda Introduction § § Objectives Approach to Developing Interconnection Principles Challenges Framework for Interconnection and Access Regulation Proposed Interconnection Policies § § § Scope of Services Obligation to Provide Access Responsibility for Charges Structure of Charges Charging Standards Summary 9

Interconnection Related Services Type Description Scope of Services Current Example One-Time Physical Interconnection • The physical act of connecting two networks to allow O/T and/or to permit the use of UNE / ESF • Items that enable competition • Collocation (for O/T) • Virtual Collocation • SS 7 interconnection • Local Number Portability • Collocation for (UNE) • Emergency Services • Operator Services On-going Originating and Terminating Charges • Network to Network interconnection charges for traffic origination or termination • Call termination • Class 5 Aggregation • Equal access Unbundled Network Element • Elements that will be made available to allow new operators to offer service and promote competition • Local loop • Switch port Essential Support Facility • Competitive bottleneck that do not provide a telecommunications service • Conduit • Utility poles • Radio Tower 10

Identification and Examples of PI Type Scope of Services Examples of PI O/T Enabling • Collocation for FBOs • Signaling Interconnection • Interconnection Trunks UNE/ESF Enabling • Collocation (space, heat, light, power) • OSS Interconnection, where appropriate Competition Enabling • Local Number Portability • White Pages/Directory listings • Equal Access 11

Identification and Examples of UNEs Example Logic Scope of Services Issues Telephone Loop (Feeder, Distribution, and Drop) Current Potential Broadband • Made available in conjunction with the sale of service (including the service already using the loop) • Asset ownership • Availability • Repair and Maintenance • Cream skimming Switch Port • Made available to connect to another carrier’s access network • Asset ownership • Repair and Maintenance Access to the Feeder/Drop at the Jumper Wire Interface • Allows VDSL type services to be provided • As above plus • Space and Power • Network Intelligence Access to CATV plant at the Final Distribution Node • Allows others to provide two way high speed service over CATV plant • As above plus • Network Intelligence 12

Identification and Examples for O/T Example Logic Scope of Services Issues Potential Broadband Current Termination of call (PSTN) • Allows network interconnection for voice services X. 25, Frame Relay, and ATM Packet Termination • Allows data network interconnection for • Pricing packet services • Standards • Performance Voice over IP Termination on PSTN • Allows IP based and PCM based networks to be interconnected Native IP Interconnection • Allows peering (interconnection) between • Network performance IP based networks • Pricing • Signaling • Type of traffic 13 • Type of origination (National/International) • Pricing • Asymmetric traffic (e. g. Dialup ISP, 800) • Call Quality (delay, voice, quality) and Pricing • Signaling • Type of Origination

Identification and Examples of ESEs Example Logic Scope of Services Issues Conduit • Difficult/expensive to replicate • May not be being used effectively • Lots of conduit will become available as fiber replaces copper pair • Ownership • Availability • Repair and Maintenance In building risers and signal distribution networks • Difficult/expensive to replicate • Control over these resources have created significant problems for service providers in North America • Ownership • Availability • Repair and Maintenance Towers • Radio towers create environmental impact • Ownership • Wind loading • Power, spectrum etc. Rooftop Space • Similar to in building distribution and risers rooftop space is required for radio/satellite based service providers • Ownership • Availability 14

Agenda Introduction § § Objectives Approach to Developing Interconnection Principles Challenges Framework for Interconnection and Access Regulation Proposed Interconnection Policies § § § Scope of Services Obligation to Provide Access Responsibility for Charges Structure of Charges Charging Standards Summary 15

Policy Obligations Element Current and Future PI • All operators and requesting parties O/T • All dominant operators for all customers / services mix • All other operators direct or indirect UNE • All dominant facilities based operators where: –No commercial agreement can be reached –Not economically possible to replicate or bypass –Necessary to provide “telecom” service ESF • All facilities based operators and building landlords / owners for current 16

Clarification on Availability Obligations IRS Status Providing Operator’s Obligation Available - not in use and not reserved Not Available - in use or reserved üor customer if customer Lease on a Permanent Basis (100% capacity, e. g. loop) ü Lease on a Permanent Basis (<100% capacity, e. g. cable channel) ü û Lease on a Transactional Basis ( 100% capacity, e. g. call completion) ü ü group agrees 17 obligation to build

Classes of Requesting Operators Service Classes Service Innovator Services Based Operators (SBOs) Obligations Description Examples 1. Provides communications, computing or broadcasting services 2. Owns or operates systems that operate over telecommunications facilities IBM CNN Credit Card Processor 1. Owns or operates switching/ broadcasting equipment but leases transmission capacity from a FBO Equant Phoenix Network Inc. 2. Operates a private network Facilities Based Operators (FBOs) Directly or indirectly owns and operates transmission plant together with switching/broadcasting equipment Affected Operators 18 Sing. Tel SCV Star. Hub

Summary Obligations Rights Obligations Class Dominant Non-Dominant Class Service Innovator Not in Code Service Innovator Must Provide • PI • O/T • UNE • ESF Must Provide • PI • Direct/Indirect O/T • Existing ESF SBO FBO 19 SBO FBO All Operators Not in code May use • PI only for O/T May use • PI • O/T • UNE • ESF

Agenda Introduction § § Objectives Approach to Developing Interconnection Principles Challenges Framework for Interconnection and Access Regulation Proposed Interconnection Policies § § § Scope of Services Obligation to Provide Access Responsibility for Charges Structure of Charges Charging Standards Summary 20

Summary Responsibility Requesting Operator PI, competition enabling PI, O/T PI, UNE/ESF O/T UNE ESF Providing Operator Pays own Shared All (including costs of modifications) None Pays Own All (including costs of modifications) None All (including costs of modifications) 21 None

Facilitating Competition Responsibility • In order to ensure that the creation of PI does not become a barrier to competition, the i. DA proposes that the dominant operator is initially responsible for the investment • The i. DA will ensure that the dominant operator will provide PI in a timely manner • The requesting operators will reimburse the dominant operators as they use the PI 22

Agenda Introduction § § Objectives Approach to Developing Interconnection Principles Challenges Framework for Interconnection and Access Regulation Proposed Interconnection Policies § § § Scope of Services Obligation to Provide Access Responsibility for Charges Structure of Charges Charging Standards Summary 23

Policy High Structure FBOs Only End Users Resale of Retail Service Unit Cost of Goods Sold to Deliver Service for Requesting Party Leased Bandwidth Unbundled Network (UNE) Essential Support Facilities (ESF) Low Investment Required by Requesting Party 24 Origination / Termination High

Time Limits on UNEs Structure Retail Rate Cost UNEs may not be available after a certain time UNE Time 25

Symmetrical Charges Asymmetrical Advantages • Can help to remove new technology entry barriers • Covers operators actual costs • Can be used to deal with Universal Service Obligations Structure Symmetrical • Easier to administer • Can be used to ease new operator market entry (e. g. reciprocal compensation) • Technology neutral • Open to significant arbitrage • Rewards inefficiency Disadvantages • Difficult to administer • Does not reflect the reality in the choice of • Leads to arbitrage technology in each network 26 Bill and Keep • Simple to administer • Does not promote arbitrage • Technology neutral • Does not assist market entry

Agenda Introduction § § Objectives Approach to Developing Interconnection Principles Challenges Framework for Interconnection and Access Regulation Proposed Interconnection Policies § § § Scope of Services Obligation to Provide Access Responsibility for Charges Structure of Charges Charging Standards Summary 27

Justification of Cost Standards Policy objectives Promote investment Promote effective competition Optimise resource utilisation Simple and practical low charge partially compensatory level “playing” field avoid duplication implementable Long Run Average Incremental Cost fair and equitable charge fully compensatory; right cost of IRSs no discrimination optimal use of resources implementable Fully Distributed Costs high charge arbitrary apportionment distorts investment prone to incumbent’s manipulation new entrants over-invest facilities implementable high charge price may include monopoly profit inefficient duplication if tariffs do not reflect costs difficult to implement high charge SAC exceeds cost of providing IRSs duplication of facilities practicable Cost standards Long Run Incremental Cost Efficient Component Pricing Rule Stand Alone Cost Maximise customer benefits Standards barrier to entry by raising price efficient entry discouraged Not desirable for achieving policy objectives Desirable for contributing to policy objectives Desirable for achieving policy objectives 28

Justification of Cost Bases Policy objectives Cost bases Historical or Embedded Cost Current or Replacement Cost Forward Looking Economic Cost Maximise customer benefits Standards Promote investment Promote effective competition Optimise resource utilisation tend to be higher no correct signals for investment decisions prone to incumbent’s manipulation new entrants over-build systems tend to be lower correct “build or buy” signals not subject to incumbent’s manipulation no over-building of systems likely to be the lowest invest in efficient and advanced technology encourage efficient entry; discourage inefficient entry no wasteful duplication Not desirable for achieving policy objectives Desirable for contributing to policy objectives Desirable for achieving policy objectives 29 Simple and practical transparent and auditable sometimes difficult to quantify very difficult and timeconsuming to estimate/determine

Agenda Introduction § § Objectives Approach to Developing Interconnection Principles Challenges Framework for Interconnection and Access Regulation Proposed Interconnection Policies § § § Scope of Services Obligation to Provide Access Responsibility for Charges Structure of Charges Charging Standards Summary 30

Defining Elements of Interconnection Scope of services All technically feasible IRS across different types of networks Obligation to Provide Services • Based on licensee’s status • Time Bound ? Responsibility for Charges • Requesting operator for PI, UNE and ESF • Pay own for O/T or shared to establish Structure of Charges • Asymmetrical ? • Usage Based Cost Standards Summary • LRAIC • FLEC or Current or Replacement Costs 31 • Issue implementation details • Issue enforcement procedures • Outline the methodology for the calculation of charges to facilitate negotiations between operators

i. DA Process Review i. DA set framework Summary 1. Commercial agreements published or i. DA arbitrates in the case where dominant carriers are involved 2. Ida puts out costing methodology and guideline If dominant carrier is not involved, no arbitration i. DA review Yes Operator requests interconnection (O /T) No Can commercial agreement No be reached? Is one operator dominant? Yes i. DA dispute resolution i. DA review Yes i. DA set framework Can commercial agreement be reached? No No Is one operator dominant? Is the facility Yes necessary? No Can the facility be Yes replicated / obtained? Yes Is the facility available? Yes i. DA dispute resolution No No action unless appealed to the i. DA due to lack of agreement 32