There are two broad forms of interconnection: one-way interconnection and two-way interconnection.
One-way and two-way interconnection can co-exist. For example, new entrants often obtain parts of their networks from the incumbent carrier (one-way interconnection), and then exchange traffic with the incumbent (two-way interconnection).
One-Way Interconnection
One service provider or carrier must obtain inputs from another carrier in order to offer services to its customers (Figure 1 provides an illustrative example). The carrier supplying the inputs may or may not compete with the firm purchasing the inputs.
Figure 1: Example of One-Way Interconnection
For example, prior to 1996, local exchange carriers in the United States were prohibited from offering long-distance services. Long-distance carriers such as AT&T, Sprint and MCI obtained access from these local exchange carriers, to offer long-distance services to customers on the local exchange network.
Payment for one-way interconnection is always from the interconnecting operator (in the example above, the long-distance carrier) to the interconnection provider (the local exchange carrier).
One-way interconnection also occurs in other industries, for example when rail operators seek access to rail networks.
Two-Way Interconnection
Two or more carriers must connect their facilities (networks) so that customers of one carrier can call customers served by other carriers (and vice versa).
Figure 2: Two-Way Interconnection
There are several approaches to structuring interconnection payments for two-way interconnection, which are discussed here.
Two-way interconnection also occurs in other industries. For example, credit cards such as VISA and MasterCard are provided over interconnected networks of member banks and participating merchants. Cardholders, member banks and merchants pay fees to access a credit card network.
The operator’s willingness to interconnect will vary depending on the form on interconnection and, in particular, whether the interconnecting parties are competitors.
RELATED INFORMATION
What is Interconnection?
Pricing Principles