Benchmarking is the process of establishing interconnection rates based on rates in other jurisdictions. For example, the rate charged to long distance carriers for terminating calls on a local network might be based on rates for this function in other jurisdictions.
Benchmarking has two main purposes in interconnection pricing. In situations where detailed cost models can be estimated, benchmarking can be used as a common sense check on the results of the modelling. Alternatively, benchmarking can be used directly to set interconnection prices.
Benchmarking can be very useful to regulators if undertaken carefully. Undertaking a full forward-looking cost modelling exercise is challenging and time-consuming. In some markets the detailed information required may not be available. Regulators in many jurisdictions have used benchmarking to set initial interconnection rates (for example Botswana, New Zealand).
Where benchmarked rates allow competition to develop satisfactorily, rates based on benchmarking may be used for extended periods.
In a benchmarking exercise, adjustments need to be made for differences among jurisdictions, for example exchange rates, traffic patterns, or the cost of shipping network equipment.
For a discussion of practical issues in benchmarking prices click here.
RELATED INFORMATION
International Benchmarking of Prices
Setting Interconnection Prices
Long-Run Incremental Cost Pricing