Contents of module
- Interconnection Part Five
- Interconnection index
- eLearning main Index
Local Access Charges
From January 1999 the delivery fee system was replaced with a local access charge (LAC) system and a modified delivery fee system, in anticipation of the extension of ISR to voice services, and the issuing of more IGF licences to external telecommunications services/gateway (ETS) operators.
With both services and facilities competition in the international voice market, the TA reclassified international traffic routes as "A" routes, defined as routes where either services competition or facilities competition was effective, and "B"routes where HKTI remained dominant. (Local Access Charge and Modified Delivery Fee Arrangements: Statement of the TA, 25 November 1998).
On "A" routes for incoming and outgoing traffic an LAC is paid by the external telecommunications services/gateway operators (ETS) to the local networks according to the following principle:
In order to reflect the costs that would be incurred by the external services/gateway operators if they construct the local network themselves, the local access charge would be calculated using the forward-looking cost standard with the appropriate cost of capital. The local access charge would also include the costs of using the customer access facilities. USC will be paid to the network operator with universal service obligation as part of the cost of using the local network. The local access charge thus arrived at would be a fair charge to the external services/gateway operators for their use of the local networks, and also provide commercial incentives to the FTNS for the rollout of their local network infrastructure. (Statement 25 November 1998)
For incoming traffic on "B" routes the TA sets a delivery fee to be paid to the local network operator amounting to half the extra profits made by HKTI as the sole or dominant gateway operator.
So if the settlement inpayment and the LAC + the costs of switching and transmission are equal, extra profits are zero and only the LAC is paid to the PSTN carrier. This arrangement reflects the fact that on "B" routes HKTI remains the sole or dominant IGF and enjoys the excess profits arising from settlement inpayments which may greatly exceed the costs of call termination.
For outgoing traffic on "B" routes the TA only stipulates the wholesale price for delivering traffic to the HKTI gateway.
This would be set equal to the rate of settlement outpayment plus the costs of external switching transmission. Given the fact that all the local network operators could effectively compete for the outgoing traffic through direct or indirect access to the external gateway, no setting of a delivery fee for the conveyance of outgoing Category B traffic over the local networks would be required. (Statement 25 November 1998)
For traffic delivery to and from mobile operators on "A" routes the interconnection arrangements and tariffs are left entirely to market forces. On "B" routes the same arrangements apply as to fixed line PSTN carriers outlined above. The following table summarizes the changes from 1993.
| Date | Incoming Delivery Fee |
Outgoing Delivery Fee |
Universal Service Charge (USC) |
|---|---|---|---|
| Pre – 31.7.93 | |||
| Short haul | 60% revenue | 60% of call charge | International revenue |
| Long-haul | 40% revenue | 40% of call charge | International revenue |
| 31.7.93 | |||
| China short haul | HK 62¢ | 8.19% of HKTI’s average IDD tariff | HK 45¢ Access Deficit Charge |
| Rest of World | HK$2.12 | ||
| 1.10.95 | |||
| China short-haul | HK 63¢ | 8.19% of HKTI’s average IDD tariff | HK 35.8¢ Access Deficit Charge |
| China long-haul | HK$1.6 | ||
| Rest of World | HK$2.23 | ||
| 1.1.99 | |||
| "A" Routes | HK 15.8¢LAC | HK 15.1¢LAC | USC |
| "B" Routes | Modified Delivery fee | Wholesale price | USC |
The composition of the LAC is shown in the following table.
| Cost items (¢/min) | Outgoing direct | Outgoing via transit | Incoming direct | Incoming via transit |
|---|---|---|---|---|
| Traffic sensitive costs | ||||
| Switching and transmission | 7.3¢ | 7.3¢ | 7.3¢ | 7.3¢ |
| Number portability | 0.7¢ | |||
| Non-traffic sensitive costs | ||||
| Local loop and customer line termination equipment | 5.6¢ | 5.6¢ | 5.6¢ | 5.6¢ |
| Administration costs | 2.2¢ | 2.2¢ | ||
| Total Local Access Charge | 15.1¢ |
12.9¢ |
15.8¢ |
12.9¢ |
In a Statement, 22 April 1999 Local Access Charges of FTNS other than HKT the TA noted the three new entrants agreed to charge the same transit fee (LACT) of 12.9 cents per minute as HKT, and although ‘the three new FTNS operators have not made any commitments to reduce the local access charge (the LAC) for directly connected external service/gateway operators, a lower local access charge (transit) has indirectly set the ceiling for such charges.’ Under competitive conditions none of the new entrants wishes to lose a business opportunity to the incumbent.
The collection of the universal service contribution (USC) has also changed under the more open competitive LAC arrangements. A Press Release by the TA, 25 January 2000, states that Citibank N.A. was appointed intermediary for the collection of the USC. Previously HKTI collected the USC from the carriers, mobile operators and the VAS and ISR operators, but commercial secrecy dictates a new arrangement so that HKT is no longer privy to information about the market shares of its competitors.
The USC was provisionally estimated 10.6 cents per minute in 1997/98 starting from 1 January 1999, but the TA recognized this would over-compensate the incumbent for the following reason. The LAC charge is calculated
based on the forward-looking cost standard, including the cost of capital which is commensurate with the risk faced by the FTNS operators in the local fixed network market. To ensure a fair return would be available for the development of the local networks, the local access charge should also bear its share of the costs of using the customer access facilities (i.e. the local loops) (Statement 25 November 1998)
The use of forward-looking costs itself over-compensates the incumbent who has long ago written off a substantial portion of its customer access network. The pre-tax risk-adjusted cost of capital for new entrants is set at 21.5 per cent, whereas a pre-tax 18 per cent cost of capital would result using historical cost based LAC. Using an historical cost approach reduces the LAC by HK3.8 cents and therefore TA determined the USC of 10.6 (para. 13 of TA Statement on 5 Feb 1999) cents should be reduced by this amount on “A” route payments.