Telecommunication Regulation – Interconnection

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[Response by Eric P. Chiang, May 2009]

Regardless of the clarity of regulatory guidelines affecting interconnection, disputes are almost certain to arise. In fact, dispute resolution (a type of ex post regulation) remains a primary responsibility of regulators, despite the attention placed on ex ante regulation. When addressing disputes, it is the goal of regulators to resolve the dispute in a timely manner and in a way that avoids service disruptions and minimizes welfare loss among stakeholders.

The ability for regulators to handle disputes adequately and fairly lies in its ability to maintain credibility among parties involved. While regulatory bodies are designed to be independent of the government and the companies involved, corruption and other non-independent relationships sometimes hamper their effectiveness. Subsequently, the consequences of disputes are often passed on to customers, such as when mobile operators refuse to interconnect with other mobile operators, forcing customers to carry multiple phones to make off-network calls.

In markets where interconnection is essential, including local and long-distance call termination, international calling, and Internet service, disputes arising from interconnection can be frequent and damaging to stakeholders involved. The most common reasons for disputes include:

• Failure of an operator to develop a ‘reference interconnect offer’ (RIO)
• Delay tactics
• Disputes over termination charges or other terms, or failure of payment
• Quality issues
• Improper use of customer information by competing parties

A thorough discussion on dispute resolution with respect to interconnection is provided in Bruce et al. (2004) and Samarajiva (2002).

Traditional court litigation is generally not an efficient means of resolving disputes, since 1) most laws do not take into account the changing social norms and rapid technological advances in telecommunications, and 2) court litigation is costly and time-consuming. Thus, alternative dispute resolution (ADR) procedures are used quite extensively in interconnection disputes. ADRs come in many forms, both private channels (outside the court system) as well as public channels (within the court system).

Private ADR channels are those that avoid the use of the courts. These include:

• Negotiation: parties meet privately to discuss possible solutions to conflict
• Conciliation: a third party meets with each party separately, then the parties attempt to find a solution
• Mediation: a third party meets with the parties and searches for common interests and alternative solutions; however, the mediator does not impose a solution
• Arbitration: a third party hears the facts and the arguments by the parties, then provides a decision that is binding (or non-binding if it is prior agreed upon by the parties)
• Mediation-arbitration combos: parties first seek mediation to arrive at a solution; if one does not result, then arbitration takes over until a resolution is proposed
• Neighborhood panels: panels consisting of volunteers from the community (usually well-known persons) to help mediate and provide conciliation services

Public ADR channels involve the courts but avoid the use of trials. They usually occur when parties cannot agree to a private ADR channel. These include:

• Court-ordered mediation: required mediation before proceedings can occur
• Court-ordered arbitration: arbitration that is managed by the court
• Early neutral evaluation: a neutral third party hears the facts and arguments, then finds common agreements between parties and suggests possible solutions.
• Voluntary settlement conference: similar to early neutral evaluation except it can take place any time during the conflict resolution, even during court proceedings.
• Minitrials: parties meet without lawyers, using a mock judge who hears the case and arguments, then issues an opinion. In many cases, the parties will accept the opinion as a realistic outcome of an actual trial, thus avoiding the costs of trial.

Related Questions

• What is interconnection and why is it important?
  • How can a telecommunications regulator determine whether the interconnection tariffs a company proposes will encourage efficient entry by low cost suppliers?
  • Are there other factors than the cost of interconnection that needs to be considered by a telecoms regulator?
  • What are common cost models used for determining interconnection tariffs and how do they deal with common costs?
  • Are there differences between cost models in retail vs. interconnection pricing?
  • What can a regulator do when cost data for interconnection pricing is difficult to come by?
  • What governing principles are there for interconnection pricing?
  • What is the difference between cost-based and retail-price based interconnection charges?
  • How should a regulator resolve disputes related to interconnection?