1. Background

ICP-ANACOM believes it is necessary to introduce a non-temprorized interconnection model in light of the electronic communications market?s evolution and the emergence of competitive and innovative retail services which the current temporized interconnection model cannot completely address.

By opening the electronic communications market to competition, end user rates can be used to segment the market, strengthen existing customer loyalty and react to offers from competitors. A certain degree of freedom in defining rates is thus essential for competition in this market.

The underlying cost structure of PTC's network primarily reflects the costs of its size and not its traffic volume, while ?per minute? billing imposes a substantial variable cost to competitors. Thus, by replicating PTC?s offers and developing sustainable competition, operators competing with PTC can take advantage of a cost structure, derived from the interconnection conditions with PTC, for the most part identical with this company?s. In general, the marginal cost of PTC?s network traffic volume is essentially zero. Thus, when creating an actual competitive environment allowing other OSPs to replicate PTC?s operating conditions, their marginal costs for traffic must also be zero. This goal can be achieved with capacity-based interconnection prices.

Consequently, in ICP-ANACOM?s decision regarding the imposition of obligations in wholesale markets for call origination and termination1https://www.anacom.pt/render.jsp?contentId=55129, the obligation to provide a capacity-based interconnection service was imposed upon the PT Group, and ICP-ANACOM has promised (in its consultation report2https://www.anacom.pt/render.jsp?contentId=55130), before the end of the first half of 2005, to present discussion guidelines for the alteration of the Reference Interconnection Offer (RIO) so that it may accommodate the capacity-based interconnection offer.

In this interconnection model, PTC will offer OSPs3https://www.anacom.pt/render.jsp?contentId=55131 a specific interconnection capacity at a given interconnection point at a fixed price. It will thus be necessary to define standards for this capacity-based interconnection offer, namely eligible traffic, possible options for continued temporized interconnection, traffic transfer conditions (including an incentive price for correct planning) and the basic per-unit capacity price.

Establishing a capacity-based interconnection price and pricing levels leading to non-discriminatory treatment in the PT Group?s various interconnection services requires a clear definition of underlying assumptions. At the outset, current traffic estimates must be used to determine an initial interconnection price. Such estimates can be tenuous, typically with discrepancies between regulator and operator information, and may not completely allow for the potential market effects of introducing capacity-based interconnection.

In this context, to evaluate capacity-based interconnection pricing under the principle of price orientation toward costs, PTC must substantiate its proposed pricing using actual data which it must make available. Specifically, this data includes traffic channels? percentage of occupancy and voice and Internet services? (wholesale and retail) total traffic weight, measured in volume per hour (to determine the peak hour), relative to total daily traffic. Given that voice service traffic and Internet service traffic evolve differently, it is also important to learn about each type of traffic?s individual evolution in order to forecast this evolution.

Once established, any price based on prior average traffic volumes tends to stimulate increased traffic, eventually becoming unbalanced and requiring periodic reassessment.

The interconnection model also raises technical questions in the following areas: (1) planning interconnection in line with service quality levels, (2) definition of traffic transfer conditions, including price, (3) network operation and maintenance, including procedural definitions, (4) implementation deadlines for capacity-based interconnection, (5) interconnection price differences at various network levels.

ANACOM thus believes it is important to hear from the various entities involved with regard to questions surrounding the implementation of a capacity-based interconnection model. Under the scope of its jurisdiction pursuant to Article 6, Item 1, Section m) of its articles of association, passed by Decree Law no. 309/2001, of 7 December, ANACOM is launching this public consultation to reflect on the issue (including past experiences in Spain, the only European Union country known to have a capacity-based interconnection offer for voice and Internet) and invites discussion on the various questions whose answers will be valuable in ultimately defining the capacity-based interconnection model to be adopted in Portugal.


1 See decision on imposition of obligations in wholesale markets for call origination and termination at: /streaming/decisao_final.pdf?categoryId=121019&contentId=246822&field=ATTACHED_FILE. (only available in portuguese) 
 2 See consultation report on imposition of obligations in wholesale markets for call origination and termination at: /streaming/relatorio_consulta.pdf?categoryId=121019&contentId=246825&field=ATTACHED_FILE. (only available in portuguese) 
 3 Public telecommunications network operators, telephone service providers (fixed and mobile) and data transmission service providers.