8.1 Cost-based Interconnection Pricing
Pursuant to the Telecommunications Act and its Bylaw, the Commission has the objective to promote adequate, efficient and commercially viable interconnection arrangements between Service Providers through mutually negotiated interconnection agreements. Establishment of appropriate charges for interconnection services is a significant and integral part of such an interconnection arrangement.
Internationally accepted interconnection principles generally require interconnection charges to be cost-based. The “best practice” for cost-based approach for determining interconnection charges is the use of forward-looking long run incremental costs (LRIC) together with a system for the allocation and recovery of joint common costs. The Commission’s objective is to adopt the LRIC approach for interconnection pricing. Pending development of the LRIC costing approach, for the development of interconnection charges, consideration may be given to other approaches such as benchmarking using the interconnection charges for service providers in other countries.
8.2 Interconnection Charges
The RIO shall identify the tariff structure and level for all interconnection services offered by the Dominant Service Provider.
Defensible and credible information and justification in support of the development of the interconnection charges must be provided as an Appendix to the RIO.
The interconnection charges must be transparent and non-discriminatory. Same rate should apply for the same interconnection services provided under similar conditions to all Service Providers.
The Dominant Service Provider shall impute to itself the same charges for interconnection services which are used to provide its services or services of its other business units or affiliates.
Charges for various voice call conveyance services such as local, tandem and transit termination should reflect the extent of the use of network infrastructure elements.
The charge for mobile call termination should be a single charge based on the average use of the mobile network.
The filing, approval and publication of interconnection tariffs should be pursuant to the Telecommunications Bylaw and the Rules of Procedure and consistent with the Interconnection Guidelines.
8.3 Accounting Separation Cost separation of assets is a pre-requisite for Accounting Separation and the performance of cost studies for the development of cost-based interconnection charges. The Telecommunications Bylaw stipulates compliance by the Dominant Service Provider with the guidelines for cost separation.
Such cost separation – commonly termed Accounting Separation – is used in order to:
Facilitate an understanding of the profitability of different business units
Ensure adherence to the principles of non-discrimination such that the Dominant Service Provider sets the same charges for interconnection services used by (i) the interconnecting Service Providers and (ii) its own business units or affiliates
Identify abuse of dominance or other anti-competitive practices by the Dominant Service Provider
Identify the existence of cross-subsidization between different operations or business units and, in particular, from areas of market dominance to competitive services which provides unfair advantage to the Dominant Service Providers.
The telecommunications services of a Service Provider are typically provided using common networks and platforms and, as a consequence, share the use of assets and jointly incur operating and capital costs. The development of separate statements of income and capital employed for different businesses requires a prescribed allocation framework to allocate costs, assets and revenues.
The allocation framework should be consistent with the following high-level principles:
Cost causality: costs and assets should be allocated on the basis of the true drivers of cost i.e. those activities or services which cause the costs to be incurred or the assets to be purchased
Transparency: the allocation mechanisms should be clear, understandable and consistent throughout the allocation process
Materiality: costs and assets should be grouped into cost categories for allocation; these cost categories should be material in terms of financial magnitude.
8.4 Transfer Pricing
The concept of transfer pricing applies to the cost of internal use of equipment, facilities or services when provided from one business operation of the Dominant Service Provider to another business operation or to an affiliate.
Transfer prices should be non-discriminatory, transparent in their inclusion under separate accounts and should be based on clear and supportable rationale.
The transfer price for internal use should be equivalent to the charge that would be levied if the same equipment, facilities or services were to be provided to other Service Provider.
8.5 Accounting Separation Guidelines
The Accounting Separation Guidelines are to be issued as a separate document for implementation by the Dominant Service Provider.