Telecommunications operators will interconnect voluntarily in some circumstances. If two operators are not in direct competition with each other, then generally they will have an incentive to interconnect. This is because interconnection increases the value of a network to its subscribers, by increasing the number of people they can call and the range of ICT services they can access (network externalities).
Sometimes incumbent operators will have little incentive to allow access to their network, or to allow access on reasonable terms. Where the interconnection seeker is a potential competitor, an incumbent may seek to limit competition, and preserve its market power, by:
- Refusing to interconnect
- Offering interconnection at a price, or on other terms, that make it difficult for an efficient entrant to compete, or
- Seeking to “sabotage” the entrant by providing a lower quality interconnection service to the entrant than the incumbent provides itself.
In these cases regulatory intervention can lead to a more efficient outcome. The motivation for interconnection regulation is that efficient competition in “downstream” markets would be difficult, or even impossible, unless entrants can access the incumbent’s network at appropriate prices, terms and conditions.
For example, the European Union’s interconnection directives allow National Regulatory Authorities to impose interconnection or unbundling obligations on carriers that have significant market power, in:
“situations where the national regulatory authority considers that denial of access or unreasonable terms and conditions having a similar effect would hinder the emergence of a sustainable competitive market at the retail level, or would not be in the end-users’ interest.”[1]
In any market, regulation needs to be able to adapt to changing circumstances. This is especially important in the ICT industry, where outdated regulation risks stifling market growth and innovation.
Endnotes:
[1] “Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive)”, Official Journal of the European Communities, Article 12.
RELATED INFORMATION
Forms of Interconnection
Unbundling
Setting Interconnection Prices
Regulation