Wednesday 8 February 2012

Contents of module

Delivery Fees

Both mobile and fixed line PSTN carriers interconnect with international gateways for IDD call origination or termination.

For outgoing calls the interconnection for PSTN carriers is either direct, where carrier A provides direct local loop access to the customer, or indirect where the customer is served by carrier B for local calls but pre-selects the service of carrier A for IDD calls. In this case carrier B transits the local customer’s call from its own network to carrier A’s network and carrier A interconnects with the IGF. In this case carrier A pays a transit fee to carrier B.

In 1998 HKTI agreed to relinquish the exclusivity of the international licence for gateway facilities and voice services. This was followed by four changes:

  • the introduction of international simple resale (ISR) from January 1999, which opens all traffic, including voice, to services competition
  • the licensing of competing international gateway facilities, using submarine cable or satellite
  • the rebalancing of local tariffs to remove the subsidy from international to domestic, a step made necessary by the prospect of much lower IDD charges and revenues in the future. Residential line rentals increased from HK$69 to HK$90 per month in 1999, and may be raised to HK$110 per month
  • a change in the method of payment for universal service.

Prior to 1993 interconnection between HKTI and HKTC was arranged on a revenue-sharing basis, a split of 40:60 for short haul traffic (under 100 miles) and 60:40 for long haul traffic. Revenue from this source funded HKTC’s universal service obligation.

From 1993, when it was decided to introduce competition in the PSTN market, the TA proposed a delivery fee mechanism under which HKTI would pay a delivery fee to local carriers for the origination and termination of international calls minus an access deficit charge (ADC) which was paid directly to the dominant carrier, HKTC, for the universal service obligation.

In July 1996 the basis of the universal service contribution (USC) — as the ADC was now renamed — shifted, according to the TA, away from the principle of compensating HKTC for deficits in providing access to uneconomic areas to the "net costs of serving uneconomic customers.” (See Universal Service Arrangements: the Regulatory Framework – TA Statement 14 January 1998, ).

Uneconomic customers are those for whom the total cost of providing basic PSTN services are greater than the total revenues coming from the provision of the service.

One reason for uneconomic customers is that local PSTN tariffs are below cost, so tariff rebalancing will substantially reduce the USC over time. Another reason is that some customers live in remote areas, but as Hong Kong continues to urbanize these areas the proportion of uneconomic customers will decline. Also, a customer who is uneconomic one-year may become an economic customer the next year as their usage patterns change.

Provision of the basic PSTN service opens the door to revenues from other, value-added, services, although in an open and fully interconnected network the VAS who benefits from this may not be an associated company of the PSTN provider. This is a reason for the PNETS charge in Hong Kong.

The following operators are required to pay the USC in proportion to the total international traffic that passes through their networks.

  • PSTN carriers
  • Mobile operators
  • Virtual private network (VPN) operators
  • International simple resale (ISR) operators

Under the delivery fee system the USC was collected by having the exclusive IGF operator, HKTI, deduct it from the delivery fees due to the PSTN carriers and mobile operators.

In the case of VPNs and ISRs measuring their proportion of international traffic is not always easy. The volume of traffic passing through their systems is not directly measurable from their revenues because their tariffs will vary over time, and sometimes usage charges are replaced with monthly flat fees.

The TA has therefore estimated a conversion ratio between a 64 Kbps international private leased circuit (IPLC) and traffic minutes. In 1996-97 this was around 7,400 call minutes per month.

VPN operators are included in the USC because they access their customers on dedicated circuits which are laid alongside the PSTN and in that sense they are dependent on the local access network.

ISR operators are included because their networks are accessed through the local switched network and they compete for the customers of the carriers.

On the other hand, the TA ‘to promote Internet access among the general public’ exempts ISPs. (Universal Service Arrangements: the Regulatory Framework – TA Statement 14 January 1998.