A New Framework for Assessing Interconnection Charges with the Evolution of Telecommunications Networks

Recently, the telecommunications industry has faced fundamental changes. The competition in the telecom market has intensified according to service diversification due to voice and data integration, broadcasting and telecom convergence, and merger and acquisition of telecom operators. The networks evolve from circuit networks to next generation networks, such as BcN, 3G, 4G, and finally converge to All-IP networks. In addition, the Korean government has also presented new regulation policies in retail, wholesale, and spectrum allocation to promote competition and encourage investment. These trends are affecting Korean regulation policies, including the regulation of interconnection charges. The Korean regulatory agency uses a hybrid framework, that combines the rate of a top-down LRIC model and the slope calculated by the rates of a bottom-up LRIC model to assess interconnection charges. In this paper, we investigate the issues of the current framework for assessing interconnection charges in Korea in light of the rapid changes in the telecom industry. We show that investment in NTS or 3G may result in a decrease in operators' rates. The interconnection rate increases without network investment when traffic decreases. As a result, the current framework is limited in giving telecom operators incentive to increase network investment and use their networks efficiently. In addition, the top-down rate is out of date. The bottom-up model requires numerous, complicated simulations to compute the rates. We analyze the telecom regulation trends in the EU and propose a new framework for calculating the interconnection charge based on a glide-path method, a bottom-up model, and the concept of technology neutrality. The framework is clear and robust against the rapid changes in the telecom industry. In addition, we expect that the new framework can improve network efficiency because it excludes inefficient costs and derives operators' network investment with transparent regulations