A Study On Interconnection Charges Of Telecommunication Services

As telecommunication networks interconnect, the interconnected network provides services to customers of the interconnecting network and costs occur. Provided the operator of this interconnected network is unable to collect charges for its costs, the interconnecting operator should transfer a certain portion of its revenue to the interconnected operator as compensation, or the interconnection charge. Therefore, the amount of this charge directly impacts the interest of both parties, and thus becomes a core issue of network interconnection, and thus becomes the focal point of telecommunication regulation.Chapter 1 of this dissertation reviews the background of interconnection charges and its vital importance to a competitive environment for the telecommunication industry.Chapter 2 reviews and systematically analyses numerous international literature on interconnection charges so far. After categorizing all related theories and methods into three classes (compensation principle, cost-based principle, and others), the conclusion was that there are no theories or methods on interconnection charges that can satisfactorily resolve the issue so far.Chapter 3 applies Arrow's Impossibility Theorem in Welfare Economics and proves: When there are at least 3 operators to interconnect in a telecommunication market, any method to find a uniform interconnection charge cannot possibly exist. Therefore, any theory or method for determining interconnection charges must have the following characters: impartiality, executability, and variability from network to network according to their individual characters (costs, operation, etc.).Chapter 4 describes the Principle of Tariff Independence (PTI) for interconnection charges, and, based on worldwide empirical research which proves that Both-Party-Pays (BPP) or Receiving-Party-Pays (RPP) is superior to Calling-Party-Pays (CPP), further proves that, similar to BPP (or RPP), PTI effectively avoids substantially higher-than-cost interconnection charges caused by CPP. Thus, PTI is the optimal and most effective solution for deciding interconnection charges when CPP cannot be replaced by BPP for political or social reasons. In addition, because PTI does not require accomplishing the Hercules task of measuring and calculating network costs, it is a substantial cost-saving methodology for regulating authorities and further promotes effective telecommunication competition and social welfare.Chapter 5 summarizes this dissertation, points out its limitation, and provides suggestions for future research.Contributions of this dissertation include, while there is no existing effective and systematic solution for deciding interconnection charges. For the first time, prove the nonexistence of a uniform solution for interconnection charges, and further prove that PTI is the optimum solution to deciding interconnection charges when tariff practices cannot be replaced by BPP.