What governing principles are there for interconnection pricing?

[Response by Eric P. Chiang, May 2009]

One of the obligations of regulators is to promote an environment that best simulates a market that would exist if sufficiently competitive. Controlling interconnection pricing is an important responsibility, along with reducing barriers to entry imposed by incumbents.

From an economic perspective, the ultimate goal of regulation is to increase social welfare, which improves on the consumer side (net consumer surplus) via lower retail prices and enhanced services and reliability, but also, it improves via profitability of the operators (net producer surplus). Thus, the goal of regulators is not necessarily to eliminate monopoly operators; but rather, to ensure that if only one (or a small number of) operators control the market, they are the ones that are most cost-efficient.

New entrants face obstacles when entering the market. Without the ability to replicate the entire infrastructure, they are dependent on the incumbent for interconnection. Therefore, without adequate regulation many entrants accept very adverse interconnection terms with incumbents. Thus, regulatory guidance to promote fair competition is vital, and brings us back to the primary objectives of non-discrimination, cost-based interconnection pricing, and transparency.

Components of interconnection agreements: An ideal interconnection agreement generally encompasses the following objectives as established by the WTO Agreement on Basic Telecommunications Services (World Trade Organization 1996):

  • provide interconnection at any technically feasible point in the network
  • provide interconnection in a timely fashion
  • provide interconnection without discrimination (in quality or rates)
  • provide unbundled elements to avoid charges for unnecessary components
  • provide interconnection at non-traditional points with additional charge
  • allow all procedures and agreements to be made available to the public



WTO Agreement on Basic Telecommunications Services
World Trade Organization