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19.3.

98 EN Official Journal of the European Communities C 84/3

Commission Communication on interconnection pricing in a liberalised telecommunications


market

(98/C 84/03)
(Text with EEA relevance)

1. BACKGROUND Directive 97/33/EC on Interconnection in Telecom-


munications (the Interconnection Directive). In addition
to the ex ante rules contained in these two Directives, the
competition rules of the Treaty apply.
The Community has developed a regulatory framework
for telecommunications that provides for open and
competitive markets from 1st January 1998, with tran-
sition periods for certain Member States. The Under the ‘Full Competition’ Directive, Member States
Community market of 190 million fixed telephone lines have to ensure that telecommunications organisations
presents opportunities for market entry into one of the publish, by 1 July 1997, the terms and conditions for
fastest growing sectors of the economy. The market for interconnection to the basic functional components of
telecommunications services in Europe has been growing their voice telephone service and their public switched
at a rate of about 8Ø% per annum (in nominal terms) telecommunications networks, including the intercon-
since 1990, and OECD comparisons of competitive and nection points and the interfaces offered according to
non-competitive markets indicate that growth rates can market needs. Terms and conditions for interconnection,
be expected to increase significantly following liberali- which include interconnect price lists, must be
sation. Current telecommunications investment in the non-discriminatory, proportional and transparent, and
Community is running at about ECU 40 billion per year. based on objective criteria.

The subject of interconnection is of particular Furthermore, by 1st January 1998, Member States must
importance to the development of a competitive market ensure that telecommunications organisations provide
in telecommunications. Interconnection to the interconnection on these terms and conditions to under-
incumbent’s network is essential for most new entrants in takings authorised to provide such services or networks.
order to access the existing base of telecommunications The deadline for implementation of this Directive into
users in a national market. The EU regulatory national law was January 1997.
framework for telecommunications sets out principles for
interconnection to be implemented at national level
under the supervision of the national regulatory auth-
orities for telecommunications (NRAs). The ‘Full Competition’ Directive provides minimum
requirements concerning interconnection. The Intercon-
nection Directive, which came into force in August 1997
and is to be implemented into Member States’ national
Publication by the Commission of Recommendations on laws by 31 December 1997, goes further than the full
Interconnection is foreseen in the European Parliament competition Directive by laying down a harmonised set
and Council Directive 97/33/EC on Interconnection in of principles for interconnection. In addition to the obli-
TelecommunicationsØ(Î). The aim of such Recommen- gation for fixed network operators with significant
dations is to assist the national regulatory authorities in market power to provide interconnection to their
carrying out their obligations under the Directive and networks at cost oriented prices, it sets out the super-
thereby ‘facilitate the development of a genuine visory role of the national regulatory authorities who
European home market’Ø(Ï). must, among other things, ensure publication of a
‘reference interconnection offer’ describing the terms and
conditions for interconnection.

2.ÙTHE REGULATORY FRAMEWORK FOR INTER-


CONNECTION The Interconnection Directive also requires that
agreements involving interconnection to fixed network
operators with significant market power are made
publicly available.
The EU Regulatory Framework for interconnection is
set out in Commission Directive 96/19/ECØ(Ð) (the ‘Full
Competition’ Directive) and the EP and Council
Certain Member States have been granted transition
(Î)ÙOJ L 199, 26.7.1997, p. 32. periods for liberalisation of voice telephone services and
(Ï)ÙDirective 97/33/EC, recital 12. public telecommunications networks, with corresponding
(Ð)ÙOJ L 74, 22.3.1996, p. 13. deferments for the publication deadlines referred to
C 84/4 EN Official Journal of the European Communities 19.3.98

aboveØ(Ñ). However, the Interconnection Directive charges faced by a new entrant. It is important to stress
requires all Member States to ensure publication of a that the comparative data in this document should not be
‘reference interconnection offer’ by 1 January 1998. ln taken as a comparison of the full interconnection charges
the case of transition countries, the scope of this facing a new entrant in each Member State.
reference interconnection offer is limited to the terms
and conditions for interconnection of already liberalised
services, i.e. mobile networks and cross-border intercon-
nection of fixed and mobileØ(Ò) networks. 3.2. Cost orientation

The application of the principles set out in Commission


recommendations is without prejudice to the duty of the The Interconnection Directive imposes cost-oriented
Member States and of undertakings to comply fully with interconnection charges on certain network operators
the EU competition rules, taking account of the specific with significant market power. The principle of cost
positions set out in the Communication from the orientation implies that the price charged for provision
Commission on the application of the competition rules of a service should reflect the underlying costs incurred
to access agreements in the telecommunications in providing that service. Thus in arriving at principles
sectorØ(Ó). for interconnection pricing, it is necessary to analyse the
way in which the act of interconnection imposes costs on
a network.

3. ÙCOMMISSION RECOMMENDATION ON INTER-


CONNECTION PRICING (Ô) Most of the costs involved in a telecommunication
network are one-off costs, which are incurred, for
example, when trenches are dug, ducts and cable
3.1. Scope of the recommendation installed, and when switches are purchased and
programmed. Other on-going costs also occur, such as
for maintenance, switch reprogramming, and adminis-
When two networks interconnect, each operator seeks to tration costs.
charge the other for resources provided. In the telecom-
munications sector, interconnection charges paid to the
incumbent operator represent one of the largest costs
incurred by new market entrants — often amounting to A fixed network has to be dimensioned according to the
about 40Ø% of expenditure. The most basic intercon- quality of service required during the period of peak
nection service provided is that of call termination (i.e. traffic load which it will be required to handle. If a
delivering a call which originates on one network to its network has to handle peak hour traffic from other
destination on another network), and the recommen- interconnected networks, additional capacity will be
dation concentrates on pricing principles for call termi- necessary to maintain the desired quality of serviceØ(Õ).
nation. An analysis of the capacity costs required to provide that
service quality (given demand, or subsequently, actual
interconnect traffic figures) will enable costs to be appor-
tioned among interconnecting parties.
The cost of call termination is only one part — albeit a
very important part — of the total interconnection

In an ideal situation, where an industry comprised estab-


(Ñ)ÙLater dates agreed for certain Member States: lished market players with relatively stable market shares,
Ireland: publication — 1.7.1999, capacity based charging would be the most efficient
full competition — 1.1.2000 interconnect pricing rule. However these conditions do
not apply in newly liberalised telecommunications
Portugal: publication — 1.7.1999,
full competition — 1.1.2000 markets, and the usual basis for interconnect pricing is
traffic based pricing — with adjustments as appropriate
Luxembourg: publication — 1.1.1998,
full competition — 1.7.1998
Greece: publication — 30.6.2000,
full competition — 31.12.2000 (Õ)ÙAt times of the day when few calls are being made, little or
no reconfiguration or investment in capacity will be required
Spain: publication — 1.5.1998, to handle additional traffic from interconnected networks,
full competition — 30.11.1998. and so the costs incurred by the terminating network will be
relatively small. At the peak period, however, an additional
(Ò)ÙUnder the Interconnection Directive, some Member States increment of traffic will require a corresponding addition in
may be granted a transition period for cross-border inter- network capacity if the terminating network is to maintain
connection of fixed and mobile networks. the same service quality. Capacity investment represents the
(Ó)ÙOJ C 76, 11.3.1997, p. 9. bulk of the additional costs incurred in a network when
(Ô)ÙOJ L .Ø.Ø., .Ø.Ø. 1998. terminating interconnected traffic.
19.3.98 EN Official Journal of the European Communities C 84/5

for time of day, day of week variations — such that the shown in the table below. Indeed, the Interconnection
total traffic-related forward looking interconnection Directive recognises that ‘charges for interconnection
costs of an efficient operator are recovered. based on a price level closely linked to the long run
incremental cost for providing access to interconnection
are appropriate for encouraging the rapid development
3.3. Costing methodologies of an open and competitive market’ (Recital 10).

The issue of setting fair and efficient cost-oriented inter-


connection prices is being faced in liberalised markets all The forward looking long run incremental cost provides
around the world. There is a clear trend towards the use an analytical framework which can be used to obtain an
of a forward-looking long run average incremental cost estimate of the cost that would be found in a fully
(FL-LRAIC) approach for interconnection pricing, as competitive market.

Table 1 — Current and planned cost methodologies for calculating interconnection charges in already liberalised markets

Country and name of Regulatory involvement in Cost basis which NRA Costing standards
National Regulatory determining Interconnection currently work with to to be used in future
Authority (NRA) charges of incumbent calculate IC prices IC price calculations

Australia Negotiations between FL LRICØ(*) FL LRICØ(*)


AUSTEL the parties under the (Directly attributable (DAIC)
threat of arbitration by incremental cost
the NRA DAIC)

Denmark NRA approved Fully Distributed FL LRICØ(*)


Telestyrelsen reference price list. Historic Costs (from 1999)
Negotiations between
parties and dispute
resolution with NRA

New Zealand Negotiations between Apparently not based No costing principles


Competition Law the parties, where on explicit ‘top-down’ stated
failure could give rise or ‘bottom-up’
to direct regulation

Sweden Negotiations between Fully Distributed Modified FDC


PostØ@ØTelestyrelsen the parties, with future Historic Costs (FDC) (likely to be transformed
dispute resolution by to modified LRIC)
NRA

United Kingdom Interconnection Fully Distributed FL LRICØ(*)


OFTEL charges determined by Historic Costs + (from October 1997)
the NRA Current Cost accounts

USA Negotiation, with right Fully Distributed FL LRICØ(*)


FCC + State to arbitration. Proxy Historic Costs (TELRIC)
Commissions interconnect charges (may differ between
published by FCC the states)

(*)ÙFLÚÚForward Looking
LRIC Long run incremental costs
C 84/6 EN Official Journal of the European Communities 19.3.98

In a competitive market, the price a firm pays for an the incumbent operator’s own increment in traffic, would
asset or investment is not what governs its return. From then form the total of all incremental interconnection
the moment the investment is made (i.e. the time when costs. This figure would then be divided up in a fair and
the investment cannot be reversed without significant transparent manner between the notified operator and
cost), the asset’s value to the firm depends on what the those interconnecting, with the result that the cost of
firm can do with that asset. It can either sell the asset to interconnection to any party is the long run average
the highest bidder or it can use the asset to produce a incremental cost (LRAIC).
good or service which the firm sells to generate an
income.
Costs calculated in this way do not include an operator’s
joint and common costs. In order to allow an operator to
recover all its legitimate costs, the interconnection charge
also needs to take account of the forward looking joint
and common costs of an efficient operator, for example
The goods or services produced with the help of that by means of ‘mark-ups’ applied to the LRAIC of each
asset usually face competition from close substitutes serviceØ(ÎÎ).
produced by competitors. If any of those competitors has
superior efficiency — such that it is able to supply a
superior quality/price package to consumers — other
less efficient market players will need to respond
3.4. Cost accounting systems
accordingly, rather than continue pricing on the basis of
their embedded or historic costs. In other words, firms
are compelled to look forward to survive, rather than
backward to their original investmentsØ(Ö). The Interconnection Directive requires that organisations
with obligations for cost-oriented interconnection
charges must implement cost accounting systems which
are capable of demonstrating that interconnection
charges do indeed follow the principles of cost orien-
tation and transparency. The Directive does not specify a
The forward-looking approach is implicit when ident- particular cost accounting system, but does require trans-
ifying and measuring the economic or ‘real’ costs (i.e. parency of the system used.
LRIC) associated with the increment in output. In the
particular case where the increment is a single unit,
incremental costs will be the same as marginal costs. In
the short run, the size of any increment is limited by the Currently most incumbent operators have accounting
capacity of the firm’s existing productive assets. The long systems based on fully distributed historic costs which
run however, is the time horizon in which the firm can were developed in monopoly environments. However, it
undertake capital investment to increase this capacity. In is clear from the above discussion that the use of historic
this regard, the long run is the time horizon in which the costs for calculating interconnection charges is not
firm could adjust (downwards or upwards) all of its consistent with a competitive market, and will tend to
inputs, including the size of each and any of its lead to an over-statement of the interconnection costs.
production plants, to meet a decrement or increment in
the volume of production. Thus, the entire investment
cost entailed in any point of interconnection, and any
investment in network and switching capacity required to In response to the new competitive environment,
handle interconnected traffic, would be avoidable, and operators need to develop new accounting systems to
thus captured by a long run incremental cost provide the information which is needed both for
measureØ(ÎÍ). The total of all such measures, including internal management purposes and for external regu-
latory purposes. The Commission is therefore recom-
mending that NRAs should set deadlines for implemen-
tation by incumbent operators of new cost accounting
systems based on current costs and activity-based
(Ö) This is a major source of risk in market economies, and is
one of the reasons that a firm’s value, as measured by the accounts. National regulatory authorities will want to be
value of its shares, can change significantly in a short assured that costs which appear to be common are
period. Only when a firm has substantial market power is it distributed to the fullest extent possible, taking into
possible for it to demand from customers (or competitors in
the case of interconnection) a price calculated to provide it
with a required rate return on its past investments. Inter-
connection charges that are based on historic costs serve to
protect an incumbent from the real pressure of a (ÎÎ)ÙMark-ups may be uniformly applied to the LRAIC of each
competitive market. service. Alternatively, NRAs could require that common
(ÎÍ)ÙWhile the cost characteristics of telecommunications costs be recovered on call origination, but not call termi-
networks are rather different than is found in unregulated nation. The underlying aim should be to ensure that
competitive markets, the corollary of LRAIC in a common costs are not allocated in a disproportionate way
competitive market is known as the competitive price. to less competitive services.
19.3.98 EN Official Journal of the European Communities C 84/7

account the relevant direct and indirect cost drivers. practice’ approach provide a check that interconnection
Activity based accounts which use current costs provide a charges proposed by an incumbent are consistent with an
‘top-down’ check through reconciliation with intercon- efficient competitive market.
nection costs calculated according to ‘bottom-up’
forward looking long run average incremental costs.

If the operators’ proposed interconnection charges lie


outside the range of ‘best current practice’ charges given
here, national regulatory authorities may use their rights
Experience suggests that it can take about 2 years for an under the Interconnection Directive to request justifi-
incumbent operator to implement a new accounting cation of the proposed charges. Where appropriate,
system, although this period could decrease as cumu- NRAs can require retrospective changes to intercon-
lative experience is gained in the sector. nection charges.

4.ÙDERIVATION OF ‘CURRENT BEST PRACTICE’


3.5. The use of ‘best current practice’ prices during the PRICES
transition to LRAIC based systems

4.1. Comparison of interconnection charges for call


termination in Member States
Recent years have seen considerable research carried out
by regulatory institutions, consultancies, and academics
into identifying the long run average incremental cost
(LRAIC) of telephone networks, or parts of telephone The interconnection charge per call minute (for call
networks. This involves building ‘bottom-up’ models termination) varies with the path taken by the call.
whereby an economic/engineering model of an efficient Depending on the locations of the point of intercon-
network is developed, from which interconnection costs nection and the called user, there may be a different
can be calculated by aggregating the costs of individual number of switching stages and inter-exchange links
network elements. Reconciliation of the results of these involved in delivering a call, and this can give rise to a
models with the results obtained from ‘top-down’ models complex tariff structure for interconnection.
(which take as their starting point the current cost
accounts of an operator, and seeks to arrive at an inter-
connection cost by a process of allocation and elimi-
nation of cost elements) serve to demonstrate that the In order to simplify comparisons, the approach taken in
calculated interconnection costs are broadly accurate. the recommendation is to examine the interconnection
These models have been subject to intense debate and charges to the incumbent’s fixed public network under
analysis by regulators, market players, and academics three different scenarios:
alike.

(i) ‘Local’ level interconnection

However, in most cases the results of this work have not


yet been incorporated into regulated interconnection A call handed over for termination at the local level
prices. At the present time, very few countries appear to represents interconnection at (or nearest to) the
be in a position to calculate per minute interconnection local exchange to which the destination user is
charges based on actual estimates of long-run average connected, and represent the lowest level of inter-
incremental costs. connection charge which is available in a given
country.

(ii) ‘Single transit’ interconnection (metropolitan level)


Therefore, as an interim measure, to be used until the
information required to complete the calculation of
‘bottom-up’ LRAIC-based costs is available, (cross-
checked where appropriate by top-down models based Single transit interconnection allows access to all
on current cost accounts), and national regulatory auth- customers in a metropolitan region, such as a large
orities have the experience, regulatory and economic city. This is likely to be the level of interconnection
resources to complete such a costing exercise, intercon- most often demanded by new entrants in a national
nection charges obtained by employing a ‘best current market.
C 84/8 EN Official Journal of the European Communities 19.3.98

(iii) ‘Double transit’ interconnection (‘national’ level) States are shown in Annex II of the recommendation (as
of 1 September 1997). In some cases these are the
charges proposed by incumbent operators and as such
are still subject to approval and possible adjustment by
Double transit interconnection allows access to all national regulatory authorities.
customers on the incumbent’s network (‘national’
level’ interconnection). A call handed over at this
level normally incurs the highest level of intercon-
nection charge. 4.2. Calculation of ‘best current practice’ prices

Like retail tariffs, interconnection tariffs may also The ‘best current practice’ prices given in the recommen-
include time-of-day variations for peak, off-peak and dation are based on the interconnection charges in the
intermediate periods, reflecting the network operator’s three lowest priced Member States. The precise calcu-
need to manage demand and network capacity jointly. lations are explained in Annex II of the recommendation.
To simplify comparison, the approach in the recommen- The ‘best current practice prices’ so derived are
dation is to examine only the highest peak rate intercon- expressed as a range which is considered to be wide
nection chargesØ(ÎÏ). Only call-related costs are included enough to take account of recognised cost differences
in the comparison; non traffic related costs, for example between Member States.
costs related to the provision of interconnection links or
the number of interconnection ports utilised, are not
included.
Cost differences between EU Member States may occur
as a result of factors such as average density of
connections, labour costs, or permitted rate of return on
Current charges for international call termination are not capital employed. Insufficient empirical evidence is
taken into account in the ‘best practice’ comparisons, currently available to make a full evaluation of the effect
because at present these charges are based on the of each of these factors, but the evidence that does exist
accounting rate system and are not cost-oriented. (There indicates that such differences are unlikely to be large
is increasing pressure to bring down the prices currently enough to invalidate the ‘best current practice’ charges
charged under the international accounting rate system, recommended here. The difference between the top and
and this will be reinforced when the WTO agreement on bottom bands of the recommended ‘best current practice’
basic telecommunications services becomes effective in charges varies from 60Ø% (local level interconnection) to
1998. From 1 January 1998, within the EU, the impli- 100Ø% (metropolitan level interconnection).
cations of Community law are that charges for cross-
border interconnection between Member States should
be based on the cost of call termination at the national
level.)

5.ÙOTHER ISSUES RELATED TO INTERCONNECTION


PRICING
Comparison of interconnection charges around the
world reveals very significant differences, not only in the
actual charges but also in the relative charges for inter-
connection at these three different levels. This is not 5.1. Categories of interconnecting organisation
unexpected given that many of these charges are a result
of negotiation and do not necessarily reflect an obli-
gation for cost-orientation. Comparisons based on
The Interconnection Directive grants certain categories
non-EU countries are thus often of limited value at
of organisation the right and obligation to negotiate
present.
interconnection with each other. The organisations
concerned may be in the same Member State or in
different Member States. There are four such categories
Since July 1997, most fixed network operators in EU of organisation, identified in Annex II of the Directive.
Member States have published their interconnection
charges in line with Directive 96/19/EC. Current inter-
connection charges for call termination in EU Member
The Directive allows different tariffs, terms and
conditions for interconnection to be set for different
categories of organisations which are authorised to
provide networks and services, where such differences
(ÎÏ)ÙThe duration of peak and off tariff periods, and their can be objectively justified on the basis of the type of
comparative price levels, varies considerably between
Member States and this makes it difficult to compare interconnection provided and/or the relevant national
‘average’ prices. licensing conditions.
19.3.98 EN Official Journal of the European Communities C 84/9

Different charges based on the relevant national licensing The cost of call termination on a mobile network is in
conditions must be objectively justified. Some Member most cases not subject to price regulation under the
States have indicated that in order to achieve strong Interconnection Directive. The one exception occurs if
competition in both infrastructure and services, their the mobile operator is designated by its NRA as having
licensing/authorisation framework may link intercon- significant market power on the national market for
nection conditions for an organisation to its level of interconnection (i.e. the fixed market for interconnection
investment in infrastructure. Such a policy has to be and the mobile market for interconnection combined). In
applied in a way that is consistent with other provisions, this connection, the Commission has made the following
inter alia in the Directive, concerning non-discrimi- statement to the European ParliamentØ(ÎÐ):
nation, and should not lead to any restriction or
distortion of competition. In particular, fixed and mobile
operators with significant market power must apply
similar conditions in similar circumstances to intercon- ‘The Commission confirms that Article 7(1) of the Inter-
nected organisations providing similar services, and must connection Directive is to be applied to all organisations
provide interconnectlion facilities and information to operating the public telecommunications networks
others under the same conditions and of the same quality and/or publicly available telecommunications services as
as they provide for their own services, or those of their set out in Parts 1 and 2 of Annex I [i.e. fixed network
subsidiaries or partners. operators], which have been notified by national regu-
latory authorities as having significant market power,
and only to those organisations.’

5.1.1. Interconnection with Mobile operators


The implications of this statement are that the
Commission does not support on the basis of the Inter-
connection Directive a general obligation for cost
oriented interconnection tariffs on mobile operators that
Interconnection charges between fixed and mobile do not have significant market power on the national
networks have tended to be considerably higher than market for interconnection. This is without prejudice to
interconnection charges between fixed networks. the duty of Member States and of undertakings to fully
Differences between Member States in the intercon- comply with the EU competition rules, taking account of
nection charges for mobile operators have in turn been a the specific positions set out in the Communication from
contributing factor to the differing rates of growth in the Commission on the application of the competition
mobile telephony between Member States. rules to access agreements in the telecommunications
sector.

However, the cost of conveying a particular call from a


point of interconnection to its destination on the termi- 5.1.2. Interconnection with organisations in other Member
nating fixed network is basically the same whether the States
call originates on a mobile network or another fixed
network, and therefore there is no justification for the
large differences in interconnection charges imposed by
fixed network operators depending on the type of A characteristic of today’s (pre-1998) telecommuni-
network on which the call originated. The ‘best practice’ cations market is that an operator in one Member State
interconnection charges set out in the recommendation that originates traffic and bills customers can inter-
are applicable for interconnection by mobile networks connect with the national operator in a second Member
operators as well as by other fixed network operators on State in order to deliver traffic, without needing to be
a non-discriminatory basis. The fact that a mobile authorised in the second Member StateØ(ÎÑ). The Inter-
operator may have a different licence or authorisation connecting operator neither owns nor operates infra-
does not justify differentiation in interconnection tariffs structure in the destination Member State, and in the
for the same call termination services provided by a fixed case of transit via third countries or use of satellite links
network operator with significant market power. or submarine cables, may lease rather than own some
parts of the infrastructure used for delivery of traffic to
the destination Member State.

The average interconnection charges paid by a mobile


operator may of course differ from those paid by
another fixed network operator as a result of variations (ÎÐ)ÙEP Procs verbal, para. 2-122, 10.6.1997, p. 48.
in the distribution of point of interconnection, call desti- (ÎÑ)ÙUnder the international accounting rate system, this usually
nations, call durations, and differences in the ‘time of happens at a virtual point of interconnection approximately
day’ calling pattern. in the middle of the international half circuit.
C 84/10 EN Official Journal of the European Communities 19.3.98

This practice of ‘cross-border interconnection’ will cost of universal service obligations can be shared among
remain a feature of the post-1998 liberalised EU market, organisations providing public telecommunications
and the principle of non-discrimination requires that all networks and/or voice telephony services. The Directive
operators authorised in one Member State (ie requires charges for interconnection to be separated
incumbents and new entrants) receive equivalent from charges related to universal service contribution;
treatment when delivering traffic to another Member this includes any supplementary charges resulting from
State. This has implications for both the authorisation temporary tariff imbalances (‘access deficit’ type
procedures in the Member States and the reference inter- charges).
connection offer.

Firstly, it means that all points of interconnection open The ONP Voice Telephony Directive 95/62/EC
to national operators should also be open to authorised requires telephone tariffs to be cost oriented. Thus
operators in other Member States who wish to deliver compensation for tariff imbalances (‘access deficit’ type
cross-border traffic. Secondly it means that an operator charges) are only permissible where a national regulatory
that merely interconnects to deliver traffic, and that is authority imposes tariff constraints on an operator
not offering services or providing infrastructure in the relating to the speed of tariff re-balancing, in accordance
destination Member State, should not have to be auth- with Article 12(2) of Directive 95/62/EC. An operator
orised or established in the destination Member State. that does not have regulatory constraints on its retail
tariffs cannot claim access deficit type contributions.

Thirdly it is proposed that the reference interconnection


offer should include — as a discrete unbundled element
of the interconnection offer — terms and conditions and The purpose of a universal service charge is to ensure
tariffs for the transmission link between the actual point that the social cost of universal service in a Member
of interconnection and the borderØ(ÎÒ). This will alleviate State is shared by the players on that market. It is not
the administrative problems which could otherwise appropriate for the social costs in one Member State to
hamper the development of competition for telecom- be subsidised by telephone users in all other Member
munications services between Member States, and will States. Thus, contributions to universal service should
avoid discrimination between new entrants and not be imposed either directly or indirectly on organi-
incumbent operators providing cross-border services. sations which merely interconnect to deliver traffic to a
Member State and do not actually offer telecommuni-
cations services in that Member State.

For competitive equality, it should also be possible for an


operator from another Member State who merely
terminates traffic to rent such a transmission link (i.e. the In the same way, an ‘access deficit’ implies that profits
link between the point of interconnection and the from national and international services provide a cross-
border) from an alternative infrastructure provider where subsidy to the ‘local access’ business. Presently, under the
available, without needing to be authorised or established international accounting rate system, incumbent
in the destination Member State, and without affecting operators are earning significant revenues when termi-
the status of the operator with regard to the terms and nating calls from other countries. The ‘excess profits’
conditions for interconnectionØ(ÎÓ). earned from terminating incoming calls from other
Member States represent a cross-subsidy to consumers in
one Member State from callers in all the other Member
States. Thus when operators in other Member States
5.2. Universal service and other supplementary charges interconnect to deliver traffic to a Member State, it is
inappropriate that they should contribute either directly
or indirectly to any access deficit type scheme in that
Member State.
The Interconnection Directive allows Member States to
set up universal service schemes, whereby the net

In accordance with the principle of non-discrimination, it


(ÎÒ)ÙThe ‘border’ needs to be interpreted in an appropriate follows that when calculating the contributions to be
manner taking into account the type of infrastructure used made by operators in a Member State to universal service
eg satellite, submarine cable or terrestrial circuit. costs or access deficits, the traffic of these operators
(ÎÓ)ÙSome Member States may have different terms and which is incoming from other Member States should not
conditions for interconnection depending on whether or not
the interconnecting party owns and operates telecommuni- be taken into account when assessing the level of
cations infrastructure. contributions.
19.3.98 EN Official Journal of the European Communities C 84/11

6. CONSULTATION and a copy of the working document were sent to the


European Parliament.
The key points covered by the recommendation were set
out in a working document prepared by the Commission
Services (DGXIII). Following an initial presentation to Further consultation on the basis of the working
the ONP CommitteeØ(ÎÔ) at its meeting on 10 July 1997, document was held with market players at a public
the working document was discussed in detail at a workshop held in Brussels on 9 September and attended
second meeting of the ONP Committee on 10 September by approximately 200 people.
1997. In accordance with the inter-institutional modus
vivendi on advisory committee procedures, the agenda Comments received as a result of this consultation have
for the ONP Committee meeting of 10 September 1997 been taken into accouant. There is general support for
the Commission to provide guidance in the areas covered
(ÎÔ)ÙAn advisory committee comprising representatives of
by the recommendation, but incumbent operators and
Member States, set up under Article 9(1) of Directive new entrants hold different views concerning the recom-
90/387/ECC. mended ‘best current practice’ prices.