Originally published in March 2002.


The telecommunications industry cannot work without interconnection between different carriers. If the carriers cannot agree interconnection terms this has a negative effect on the market. Accordingly, the Telecommunications Authority ("TA") has a role in regulating interconnection arrangements to ensure there is interconnection. The latest statement from the TA deals with the following main issues:

  • The use of LRAIC approach to interconnection charges
  • The use of historical or current costs
  • Bill and keep arrangements
  • Cost recovering mechanism
  • Physical link costs and network conditioning costs
  • Depreciation schedules
  • Special call types
  • Transparency of interconnection charges

Full Article

These are the major interconnection charging principles which were subject to review and the TA's conclusions:

1. The use of Long Run Average Incremental Cost ("LRAIC") approach to measure the relevant costs for interconnection - The TA concluded that LRAIC with a mark-up to recover the common and joint costs which are causally related to the "entire conveyance service" (i.e. the conveyance service for the calls of the carrier's own customers (including service providers) and the interconnecting service for the other carriers interconnected with the carrier in question) provided to directly connected customers and interconnecting carriers, remains the appropriate cost standard for the calculation of interconnection charges.

2. The principle of determining interconnection charges based on the lower of current or historical costs

Type I Interconnection (i.e. interconnection between network gateways) - In calculating the LRAIC for Type I Interconnection charges, the TA will take the existing network configuration of the incumbent carrier as given, but will modify it to eliminate any network inefficiency. At the same time, the TA will use the current or replacement cost standard, but will consider applying a cap based on the historical cost standard on all or part of the cost components in the LRAIC, particularly those cost components related to land and buildings.

Type II Interconnection (i.e. interconnection at points in the local loop) - When calculating LRAIC, the TA will apply the current or replacement cost standard to the copper-based local loop systems of the incumbent. However, for local loops constructed under the protection of the monopoly for local fixed telephone services, the TA will consider using the historical cost standard in determining Type II Interconnection charges.

3. "Bill and Keep" Arrangement (Under this arrangement, there will be no charge payable among the interconnecting carriers for terminating each other's traffic. Each carrier "bills" its own customers for outgoing traffic that it sends to other networks and "keeps" all the revenue that received.) - The current terminating charge arrangement (for any-to-any traffic - i.e. any customer in any one network can have access to any other customers or any service offered in any interconnecting network) and originating charge arrangement (for access to services) is to be retained and will not be replaced with the "bill and keep" arrangement.

4. The cost recovery mechanisms for interconnection - The costs of network conditioning (i.e. costs incurred by a carrier to prepare and maintain its own network for interconnection, if identifiable, causally related and attributable to the provision of the interconnection service) should be regarded as part of the incremental costs for the provision of the interconnection service and recovered through the usage charge of interconnection.

5. Physical link costs and network conditioning costs - Each interconnecting carrier should bear on its own account the costs of providing the physical links up to notional Point of Interconnection ("POI"), and conditioning its network, so as to be ready to interconnect with the other carrier. The costs of physical links and network conditioning (if identifiable, causally related and directly attributable to the provision of interconnection service) should be recovered through the usage charge of interconnection.

6. The depreciation schedules for switching and trunk transmission/termination equipment - The TA considers that the specific length of the depreciation periods for network assets should be considered as part of any determination exercise during which the TA will call for detailed information from the parties.

7. Special Call Types - The TA does not consider it necessary to change the charging arrangements for operator-assisted paging calls, volatile calls and calls to information/database services.

The charging arrangements for Integrated Services Digital Networks ("ISDN") calls will be modified. The charging arrangements will be based on traffic passing through the POI rather than the type of terminal devices of the originating or terminating operators. Therefore traffic passing through the Public Switched Telephone Network ("PSTN") and ISDN POI should be subject to PSTN and ISDN interconnection charges respectively irrespective of the originating and terminating terminal device type.

8. Transparency of interconnection charges and justifications - The TA will request the dominant local carrier to publish reference interconnection offers for all major interconnection services after receiving the approval of the TA. If the dominant carrier does not accede to this request, the TA will consider publishing the content of all interconnection agreements entered into by the dominant local carrier filed with the TA.

The TA Statement was issued on 18 March 2002 can be found at http://www.ofta.gov.hk/tas/interconnect/table_0318/ta20020318_review.pdf.

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