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Type III Interconnection: Key to Sustainable Local Network Competition

Type III Interconnection: Key to Sustainable Local Network Competition. Xu Yan, HKUST Business School. Hong Kong’s Local Fixed Networks. Monopoly Operation by former Hong Kong Telecom until 1995 under exclusive franchise

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Type III Interconnection: Key to Sustainable Local Network Competition

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  1. Type III Interconnection: Key to Sustainable Local Network Competition Xu Yan, HKUST Business School

  2. Hong Kong’s Local Fixed Networks • Monopoly Operation by former Hong Kong Telecom until 1995 under exclusive franchise • In 1995, in addition to Hong Kong Telecom, three new licenses were issued to Hutchison, New T&T and New World • In 1999, Hong Kong Telecom surrendered its exclusive IDD franchise

  3. Hong Kong’s Local Fixed Networks • In 1999, Hutchison, New T&T and New World get a moratorium with investment commitment • In 1999, five wireless local fixed network licenses were issued. Hong Kong Cable also obtained license for telecom service • Since 1 January 2003, local fixed network market has been fully liberalized

  4. Market Structure of the Local Fixed Network in HK, the UK and the US (By Dec. 2003) Source: FCC (http://www.fcc.gov), OFTA (http://www.ofta.gov.hk), Oftel (http://www.ofcom.org.uk)

  5. Regulator’s Efforts in Facilitating Competition • Operator Number Portability • statutory right of access into buildings • sharing of facilities (cable ducts, etc) • Type I Interconnection • Type II Interconnection

  6. Type I Interconnection - Interconnection between Network Gateways Gateway Network 1 Network 2 POI

  7. Type II Interconnection - the Local Loop Unbundling Network 2 Network 1 TBE Room MDF B Block-wiring Distribution Point A C Local Exchange of Network 1 Building Street

  8. Equipment Collocation in TBE Room

  9. Deployment of Type II Interconnection:The Cut-over of Jumper Line Customer Building Incumbent’s Exchange Main Distribution Frame (MDF) Incumbent’s Switching Equipment Equipment Side Line Side Cable Lead-in 2N Collocation Room Blockwiring in TBE Room LAL Tie Circuits (4) (3) Incumbent’s ExternalCable MDF (5) To 2N’s Host Exchange (Backhaul process) 2N’s Fiber Cable

  10. Universal Service Contribution: Subsidies from IDD HKTI HKTC International Destination New FTNS Mobile Service

  11. Price Squeezing Retail Price Interconnection Payment

  12. Starting from 1/8/1996 1/8/1997 1/9/1999 22/1/2001 1/1/2002 Business $104.6 $108.8 $108.8 $128 No price control Residential $67 $68.9 $90 $110 No price control Price Rebalancing

  13. More Exchange Opened for Type II Interconnection • 50% residents have choice among operators, new entrants are committed for more investment for moratorium Source: http://www.ofta.gov.hk

  14. Accelerated Market Share of New Entrants

  15. The Case of Wharf T&T • By the end of 2002: • Profit: HK53 million, 5.5 times comparing to 2001 • Revenue from fixed network: HK$833 million • Total lines: 340,000 • Market share: 9% (business 15%)

  16. Backbone Network of Hutchison Global Communication in Hong Kong

  17. Benefits of Competition is no Longer Just Limited to Corporate Users

  18. Type III Interconnection? Network 2 Network 1 TBE Room MDF B Block-wiring Distribution Point A C Local Exchange of Network 1 Building Street

  19. Reasons for Change • Regulation at different points are different • A: collocation, cut-over • B: Rights of way • C: building access • Different points represent different development strategies • A: Indirect access • C: Direct access • Bottleneck at point C may no longer be controlled by the incumbent • Property developers holding class license • New entrants affiliated with the property developers • Experience of success: the case of Korea

  20. Explicitly structured regulatory framework Type I: any-to-any communication; Type II: deployment of cut-over; Type III: subscribers access in buildings. Flexibility in regulation: Direct access vs. Indirect access Respond to market change From overall asymmetric regulation to site-specific asymmetric regulation Advantages of Change

  21. Conclusions • Type II interconnection (local loops unbundling) is efficient in facilitating local fixed network competition as long as there is no market distortion; • It is necessary to review type II interconnection timely in order to respond to the market change; • Type III interconnection is essential in guaranteeing universal choice so as to guarantee sustainable universal service

  22. Q &. A

  23. Thank You and welcome to Hong Kong Mobility Roundtable 2005!(http://www.hongkongmobility.ust.hk)

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