Discussion Papers

Ingo Vogelsang* unter Mitarbeit von Ralph-Georg Wöhrl

Ermittlung der Zusammenschaltungsentgelte auf Basis der in Anspruch genommenen Netzkapazität
Nr. 226 / August 2001

* Boston University


Capacity based interconnection charges are currently internationally debated in connection with flat rates for end users. They are, however, of potentially more general significance for enabling new competitors to offer end-user rates that better reflect network costs. The U.K. has been the leader in capacity based charging (CBC). Since June of 2000 the competitors of BT (the dominant network provider) can buy a capacity based call origination service called FRIACO that connects to specified numbers of Internet service providers. The FRIACO tariff shows how CBC can be introduced comparatively quickly and without major complications if focussed on the particular purpose of enabling end-user flat rates.

CBC relates to interconnection services, for which the maximal capacity utilization is booked in advance and paid in monthly or one-time fees, not triggering any further charges for usage within the specified capacity limit. We show that CBC generally follows efficiency criteria more closely than minute-based charges. However, there exist a number of related institutional approaches with properties similar to CBC. They include, in particular, peak-load pricing, a combination of spot pricing and forward markets, leased lines, maximum demand charges, interruptible contracts and bill-and-keep arrangements. What distinguishes CBC is the tracking of network costs and the possibility for risk sharing between the dominant network operator and the other competitors.

Before introducing CBC, capacity costs (and other costs) have to be calculated first and then converted into prices. Next, the competitors have to book the desired capacities with the dominant network operator. Finally, mechanisms have to be found to ensure that the booked capacity limits are enforced and to determine the consequences of exceeding the booked capacity. All this requires an intensive exchange of information, because the other competitors have to inform the dominant network operator about their expansion plans and usage profiles. Vice versa, the dominant network operator has to inform the other competitors about its plans. The information exchange and other transaction costs are lower if element based charging has already been introduced before. But even then CBC could lead to different expected market outcomes and therefore altered investment plans. The introduction of CBC is certainly facilitated if introduced to solve very specific problems or as an option along with existing interconnection services.

The study assumes that longrun incremental costs form the basis for CBC. It further considers the desirability for some flexibility to entertain shortrun capacity utilization issues and longer term capacity adjustments. Such flexibility could, for example, be provided by price caps for interconnection charges or by resale of booked capacities in short-term capacity markets. The regulator thus needs to act before the introduction of CBC. The role of the regulator could be restricted to providing the institutional framework, to help in negotiations or to aid with the information exchange, but it could also lead to more traditional price regulation.

Only German language version available.

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