NTC readies rules on telco interconnection

By Mary Ann Ll. Reyes - The Philippine Star

The National Telecommunications Commission (NTC) is preparing a set of rules that will govern interconnection agreements among telecommunications companies, a move which the NTC expects will fasttrack interconnection and take away the inequality of bargaining positions between the interconnection seeker and interconnection provider.

The reference interconnection offer (RIO) model will provide the minimum terms for interconnection which an interconnection seeker can demand from the provider. At present, interconnection agreements are essentially bilateral, with all the terms of the interconnection left to the determination of the parties. The model will apply to all carriers, including landline and cellular service providers.

In telecommunications, interconnection refers to the physical linking of a carrier’s network with equipment or facilities belonging to another network. Without interconnection, a mobile subscriber of Smart Communications cannot send text messages to or call a subscriber of Globe Telecom and vice-versa.

Interconnection agreements are presently commercial arrangements between the two carriers, involving matters such as how much is one carrier supposed to pay the other for terminating calls to the other’s network. Interconnection is mandated by law, although the NTC mandates interconnection only when bilateral negotiations fail.

But NTC Deputy Commissioner Jorge Sarmiento explained that there had been many instances where the negotiations for interconnection agreements have been delayed, mainly because there are no parameters to guide such bilateral talks and no model for interconnection agreements to follow.

"The minimums will all be in the RIO model so that when the party seeking interconnection goes to the other party, the seeker can just rely on the model. If the seeker thinks it can get better interconnection terms, then it can negotiate with the provider. But if the seeker feels that it would be useless to negotiate because of the inequality of bargaining power with the provider, then the seeker can ask the NTC to mandate the interconnection," he told The STAR.

The RIO was part of the competition policy framework which the NTC has prepared. The draft policy framework provides for certain obligations which a telecommunication company possessing significant market power (SMP) has to meet, in order to prevent such company from using its power to curtail competition.

According to Sarmiento, since the competition policy framework might take time to work out, "we have decided to concentrate on low-lying fruits that we can readily pick."

He emphasized that since interconnection agreements will still be bilateral agreements, the draft rules will provide the minimum basis for such discussions.

Justifying its plan to impose SMP obligations, the NTC noted that the telecommunications sector is an industry where strong network effects, combined with significant scale and scope economies, confer tremendous market advantage to one with a sufficiently large network.

It noted that inequality in market power is evident in the Philippine telecommunications sector where the largest two among 73 local exchange carriers account for 75 percent of subscriber base, while the biggest two cellular operators control 96 percent of the mobile service market.

NTC pointed out that a large supplier who owns and controls essential facilities, such as infrastructure that are too costly to duplicate, could eliminate competition by denying rivals access to its facilities that the latter require to provide services.

It added that an incumbent supplier with vertically integrated facilities may also be able to cross subsidize its services and engage in predatory practices in market segments threatened by competition.

"Under this scenario, a policy is needed to check on the conduct of suppliers whose market power is so extensive that it could not be restrained by competitive processes. That policy entails imposing competitive behavior on suppliers with significant power to protect their weaker rivals and to achieve effective competition," the NTC said.

But the Philippine Long Distance Telephone Co. (PLDT) group has warned the NTC to observe "extreme care and caution" in preparing a competition policy that would govern the information and communications technology sector, to avoid dampening incentives for investments.

"Market dynamics are best suited to ensure continued growth and innovation in this sector. The industry has done exceedingly well in contributing to the broad national objectives and any further regulation should be limited to only necessary minimum to allow the market to reward those who choose to bear risks in investment and innovation. The continued successful development of the sector should not be put at risk unless there is a clear, proven case," the group emphasized.

PLDT, Smart Communications, and Pilipino Telephone Inc. (Piltel) in a joint position paper noted that rapid innovation in the sector, falling prices in real terms, and robust competition among players, are not to be taken for granted and can be easily disrupted by well-intentioned but ill-advised policy interventions.