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Theory of Network Interconnection

Discuss about telecom: foreign mobile termination rates effects?

In this contemporary world, with the rise in mobile networking services all through the world the mobile termination rates of each of the countries differ from one country to another. Barane & Vuong (2012) commented on the essential fact that termination rates on the mobile networks refer to the payment by international carriers for the international calls. There are three models through which charging of the fees can be done are- Calling Party Pays (CPP), Receiving Party Pays (RPP) and Bill and Keep (BAK). Different policies are thereby taken in order to lower as well as eliminate the mobile termination rates for the end users. This therefore led to higher consumption of mobile services that is used on average. According to the outlook and opinion of Claeys & Hainz (2014) each of the country therefore takes a good number of initiatives that will lower the Mobile Termination Rates (MTR). The main aim behind lowering this MTR is to reduce the lower the retail unit prices for most of the users as well as increase the higher usage. As commented by Gherghina (2014) the termination rates can be easily negotiated and regulated as per the requirements. There are different approaches can easily be used for regulating the rates. In order to benchmark, the cost models such as LRIC models are the most popular approaches (, 2015).

This assignment will be dealing with the theory of network interconnection, trends in international termination rates, increased international charges and establishment of cartels and risks involved in it. Moreover, the researcher also deals with commitments of World Trade Organizations, international telecommunication regulations and risks on using internet in order to spread the policies. In addition to this, the case studies of Pakistan, Spain as well as Ghana are well explained by the researcher along with a vivid exploration of FCC data.

The service that consists of both hand off of the call at the interconnection point and the diffusion of the call to the received party is thereby the call termination. Harbord & Pagnozzi (2010) commented on the essential fact that the relationship between the retail prices, termination rates as well as usage is a core concern that needs special attention. When a call is conducted between say network A and network B, then network B cooperates more for releasing a successful call. Therefore from the outlook of Kossof (2013) a regulatory operator needs to get associated with the termination of the call that is referred to as termination monopoly. This therefore results in introduction of various kinds of regulations that attempts for addressing the problem. The traditional rates of termination comprises of data transfer rate that is conjunction with VoIP (, 2015).

Originating Network

Originating Network

Terminating Network

Call Received

Call Placed

Retail CPP Payment

Wholesale CPNP Payment

As per commented by Malisuwan (2013) under the rules and regulations of CPNP the network operator of the receiving side compensates the service that the network operator of the originating team is generating. The incoming calls are therefore generally charge free that corresponds to the retail arrangement of the Calling Party pays (CPP). On the other hand, the termination rates only functions as a wholesale income to the operators but also operates in such a way that it is the wholesale cost to the operators. According to the viewpoint of Riley & Augustson (2013) for extending the traffic for getting balanced, the rates are made symmetric and therefore the charges tend to be 0 between the operators. It is clearly depicted that the mobile termination rates sometimes become too large that the users tend to believe that the real underlying costs are equally high. But, Stork & Gillwald (2014) contradicted that the expectations in the competitive market for operating the network for returning the profits that is associated with the termination costs above the rates by lowering the fixed charges. In order to stay in perfect competition, the network operators give away the profits in the highly competitive market (, 2015).

Figure 1: Wholesale Arrangements of CPNP

(Source: Luis Lapez, 2011, pp.175)

From the outlook of Young Wook (2014) the economically network operators operates in high termination rates and thereby sets a minimum retail price per minute for the off-net calls The inhibited network operators therefore sets a retail price for each minute that is lower than the network operator that is terminating the call. Moreover, it doesn’t have any kind of effect on the on-net calls where the pr ice is set by the operator’s alleged marginal cost for terminating the call. According to the outlook and opinion of Huang (2014) the mobile operators that have huge customer database easily get benefited from the smaller competitors through both on-net as well as off-net discrimination of prices. It is said that reduction in MTR enables the small operators for lowering the retail price for every minute that compels the large operators in lowering the retail pricing of every minute as a response (WiredShut, 2015).

According to the outlook of Van Kleef (2013) mobile termination can be termed to as monopolistic market and therefore the cons exploitation are also high that warrants the continuation of the regulation. In order to obtain the cost based network as well as service information that is used for cost modeling, it therefore helps in true cost comparison for terminating the rates. In order to regulate the rates of termination, it therefore allows the entry of VoIP or Voice Service Substitutes for bringing in more competitiveness. Moreover as per commented by Hoernig, Bourreau & Cambini (2015) when it is seen that the maturity of the network evident, it converts to the SKA interconnection costing command. The traffic symmetry need not be too hard that will give toughness for identification and proof. Moreover, this will also eliminate the tests as well as regulations that require monitoring as well as maintenance (, 2015).

Terminating Network

According to the outlook of Kongaut & Bohlin (2014) the trend in the international market of telecommunications is declining due to incoming termination rates that occurred due to liberalization. The rates that were initially government imposed monopoly prices that rapidly congregated to the levels that are available for the operators in the domestic markets. The opening markets and the artificial notions used the international rate system of accounting. As mentioned by Huang (2014) the operator who owned a network in two countries was the only matter of concern of that country. There are cases where the operators fails to terminate the traffic over their own facilities, there liberation enabled for building or buying the capacity that crossed the international borders. The wide spread access to the telecommunication therefore increased the demand of the international calls (, 2015).  

From the opinion and outlook of Luis Lapez (2011) Telegeography which is one of the privately owned consulting companies estimated that the number of international call minutes are terminated on PSTNs (Public Switched Telecommunication Network) is increased by 50 million international minutes every year to 490 billion. This observation is seen in the two decades that ranges between 1992- 2012. The growth rate has decreased in the recent years and hence Telegeography give rise to VoIP to VoIP that represents an overall increase in the total. As per the outlook of Lin (2013) the liberalization of the international markets that have lower transit costs and termination costs decreases the overall costs of delivering the international calls. The trend that follows lower termination rates results in offering more minutes to the consumers as per the plans that are more concentrated towards the commercial offers of the data plans (Zittrain et al. 2014).

The unexpected rise in traffic that is associated with the rise in telecommunication network that is easily accessed in the Asian countries. But as commented by Peretz (2013) the importance of having economics in United States that cause increase in volume of the traffic that associates with decline of international rate of termination. The existence of strong competition on both the sides of the international route is coupled with growth for accessing the people not having telephones. From the outlook of Schuster (2014) the between the years 2003-2011, the telecommunication traffic in between China and United States is increased along with the increase in lower payments for every minute calls. Fir the entire period of time, the payments for every minute is decreasing or reducing relatively. Again, the further substitution for the traditional services the well known VoIP calls that easily terminates the traditional fixed as well as the wireless networks. Therefore the recording of this traffic may or may not be recorded by the different countries (, 2015).

Retail CPP Payment

As per mentioned by Thompson (2013) the FCC data captures a limited amount of traffic but in United States the outbound interconnected VoIP traffic is captured that is originated by the legacy carriers.  Moreover, the FCC does not capture the VoIP traffic in United States and this exclusion is already addressed in FCC revised requirements of reporting. Apart from this, the United States finds it advantageous for using substitutable services as it works the best. In addition to this, from the outlook of Van Logchem (2014) the connectivity of India also changed dramatically in the recent years along with became very competitive in the next decade. But in the same time it is seen that in India the mobile penetration has increased to a huge rate and the rising competition kept the termination rates low as much as possible. It is also seen statistically that the growth of the outgoing traffic from the United States to India is striking low as per the available data that is captured. As per strategically commented by Stork (2012) the existence of ever competitive markets such as China and Hong Kong for maximizing the broadband capabilities for raising the charges of incoming the international traffic. So, the politics need to be pursued that constrains as well as eliminates the competition in the segment (, 2015).

According to the outlook of Lee, Han, & Choi (2014) the operators of United States has made a survey that clearly depicts that the termination rates although the country has not decreased throughout all the countries on the minute basis. The countries of Caribbean show that the payment on the basis of per minute is nearly same in 2011 as well as in 2003. There are certain countries that that allowed reducing rates in the market but the other have increased it considerably. From the outlook of Ljungberg (2013) the rates are roughly the same and hence the average payment is per minute between the time periods 2005-2010. On the other hand, the average payments have increased over a huge period of time. As a result, this results in huge differences between the domestic termination as well as international termination that result from regulations rather than market forces. There are some countries such as Ghana that exhibits strong competitive domestic market for elimination of the competition in order to determine the price (, 2015).  

In addition to this, Atanasova et al. (2013) also commented that the mobile carriers eliminates per minute charges for the digital data conveyance and hence introduces the interconnection charges for aligning the mobile voice. Other than this, at the retailing level, the IP overlays the voice service provider that even uses the flat rate pricing. Apart from this, in the IP network environment, it allows new service that offers markets to emerge as well as weigh the benefits that is related to the objectives of national information. According to the opinion of Barjot (2014) the communications and media that is the part of regulatory framework as well as governance implements it only with the legislation that is required for control and direction. The appropriate investor as well as framework of partnership in order to achieve the objectives of information society is used for human capital accumulation as well as development (, 2015).

Wholesale CPNP Payment

Conley & Jordan (2012) commented on the essential fact that attempts for comparing mobile prices while comparing the mobile service basket at low rates. On the basis of FCC data, one of the groups that are identified with media reports and outcomes are available for documentation of Surcharges on International Incoming Traffic. The annual growth rate that is dependent on average payment per minute is being compared within the time period 2003 to 2011 (DaVanzo & Rahman, 2014). This collection of data is done from United States and hence the second group comprises of the African countries. After the introduction of international termination surcharges that is been witnessed in between the year 2007 to 2011, where clear breaks in the time series is seen. As per the outlook of Cricelli, Grimaldi & Levialdi Ghiron (2012) the reduction of user traffic based on minutes is noticed by 29% and calls per user is 27%. The global financial crisis affects the total traffic that also includes the international traffic and hence the difference in the performance is quite notable (, 2015).

Dong-Eun & Da Young (2014) commented on the essential fact that with the liberalization in the communication market, the growing number of countries that is outside OECD has introduced a standard of terminating the charges for the incoming international traffic. The termination charges apply across the incoming traffic for mobile as well as fixed networks and sometimes for locking the market shares. Therefore from the viewpoint of Gonsalves et al. (2014) it can be said that it somehow acts like a government sanctioned cartel that prevent completion as well as increase in pricing for those consumers those are involved in the countries. The constraint of such policies within the economy is the practical effect that limits the benefits of competition in the telecommunication sector. This plays a fundamental role in both economic as well as social development and also depends on many related effects (, 2015).

As commented by Decarolis & Giorgiantonio (2014) the one of the major implication is taxation that determines the share of the standard rate that is paid to Government that leads to the taxation for the rest of the foreign countries. This determines the standard payment of rate that is being paid to the Government and is charged on the basis of mandatory Government fees. From the viewpoint of Felgentrager et al. (2013) the customers of the foreign countries pay the taxes that are essential. A tax in one country applies on the surcharge for another country. The arbitrage opportunities that are between domestic and international termination rates is so large that grey market is therefore created where bypassing the official rate is terminated at the local levels.

Trends in International Termination Rates

Babazadeh & Farrokhnejad (2012) commented on the essential fact that in case of liberalized market that criminalizes the activity that is viewed as routine practice and thereby create costs for monitoring traffic as well as enforcement of law. Even the GSM gateways allow the bypass of charging the international termination ratesAccording to the outlook of Hui et al. (2014) for incoming traffic, the single rate is been set at USD 0.04 which is comparatively higher than the competitive rate that is set for domestic termination of the market. The similar estimation exists for grey traffic the amount of bypass (Coursera, 2015). 

For further challenging the cartels that is sanctioned by the Governments, it is the tendency to become instable that involves dominant members for setting market shares. According to the outlook of Pasiouras & Gaganis (2013) the favor of incumbent fixed provider of network that is sanctioned by the Governments has the mobile network getting overwhelmed for incoming the international traffic. It is been statistically seen that the network share of the provider was 50% along with other 13 players and even shares 50% through estimation (Pickering, Chung Kim Yuen, & Nurick, 2013). Nearly 90% of the international minutes of incoming calls are being terminated on the mobile networks. Even the cartel members left as because the grey traffic increased to a considerable rate and hence the demand of the services fell apart with the higher termination rates. This even resulted in loss of the operators that is based on the arrangement of cartel and hence revenue is reduced by two thirds the level that is experienced to ICH (, 2015).

According to the outlook of Gherghina (2014) by 2013, nearly 111 WTO members out of 150 WTO members had made commitments for facilitating the trade in the telecommunication services. Nearly 102 members also have legally committed for expanding the competition in the basic services of voice telephony. Other than this, nearly 90 members of WTO are solely omitted towards the regulatory principles that reflect best practices in the regulation of telecom services. As commented strategically by Harbord & Pagnozzi (2010) the trading rules that are applied for the telecommunication services include the articles of frame working that comprises of General agreement on Trade in Services. This legally binds all the WTO members and hence requires the Government for ensuring the reasonable as well as non-discriminatory conditions for accessing the public network services (Future of the Internet - And how to stop it, 2008).

For resolving the WTO disputes the resolution process that involves both Mexico as well as United States. At that time, United States stated that Mexico failed in preventing the anticompetitive behavior and hence the regulations of Mexico empowered the present telecommunication network. Pasiouras & Gaganis (2013) commented on the essential fact that this is done for fixing rates for international interconnection that is on behalf of suppliers in the market. After that as per the rules and principles of WTO, one can address several cases for the member countries for authorizing the Government for requiring the cartel for excluding competitive markets for setting the rates. As commented by Gonsalves et al. (2014) the rates are not so favorable and hence the governments have made the termination rates standard as because they cause a huge difference between the termination offers that is for both the domestic suppliers as well as foreign suppliers. The charges are also cost oriented that are compared to the domestic termination (Ohm, 2008).

According to the outlook and opinion of Gonsalves et al. (2014) the Federal Communications Commission or FCC has issued order for stopping the anticompetitive behavior by the international carriers for evaluating the rate floors over the negotiated rates. The average termination elevates the rate floors over the previous rates that is been negotiated in the route of United States and Pakistan. As per commented by Hurkens & Lapez (2012) the Pakistani carriers that was established in 2012 for exchanging the international calls to Pakistan, the rates is being increased from 0.2 USD to .088 USD which is nearly double the cost for the callers of United States that resulted in curtailing the demand for calling Pakistan (The Chronicle of Higher Education, 2015).

According to the outlook of Harbord & Pagnozzi (2010) Ghana being one of the countries of South Africa is also stick on to the WTO reference paper based son Telecommunications. In June, 2010, surcharge on the international inbound traffic is legislated that came into action in 2009. On raising the termination rate fro, USD 0.11, 0.13 to 0.19 USD meant an increase in the termination charges (Babazadeh & Farrokhnejad, 2012). As per the new termination rate, the Ghanaian Government takes 0.06 USD and therefore operates for getting the remaining USD 0.13. As per the data that FCC discloses the average payment on the average payment per minute. On the other hand, the United States carriers pay the Ghanaian carriers USD 0.16 for per minute calls (, 2015).

In addition to this, Gherghina (2014) also commented strategically that the researcher has chosen Spain as because the Spanish CMT maintains the good data that did not suffered at all. Again, the multiple changes in MTR in a certain period of time for the availability of data are also available. As commented by Chan & Nadvi (2014) the CMT captures a huge array of data that captures both originating as well as terminating minutes. Other than this, it also contains on net mobile, off net mobile, international, national as well as other detailed categories. On the other hand, the revenues are also detailed similarly. Other than this, the revenue that is been collected on basis of Voice service-based revenue that is declined as the MTR also declined of the basis of the mobile to mobile off-net calls.

According to the outlook and opinion of Pickering, Chung Kim Yuen, & Nurick, (2013) with the innovation of technology, more and more complex as well as non traditional approaches are coming forward. The approaches regarding the delivery, pricing and regulations are faced with the intervention. Moreover, the long term consumer benefits along with national information society had developed the policies for regulatory intervention. From the viewpoint of Barane & Vuong (2012) there are some established service providers that are inclined towards the suppress development of substitute services for the deployment of innovative as well as new technologies that will give a tough competition to their shares in the traditional market. So, the regulators need to choose steps for removing the barriers that will help in making the traditional market much more competitive in nature. The regulatory compliances become difficult and the tracking also becomes equally difficult when it is seen that the entry barriers of natural monopoly market are less significant in nature. As a result, according to Ponthan et al. (2014) the market entry technologies become diversified along with low prices and hence the IP based NGN type network easily facilitates the entry of the market at each layer of the network. This broadens the spectrum of the services and hence the content will need to address both the social as well as economic equity within ICT sector.

As commented by Chan & Nadvi (2014) according to the International Telecommunication Regulations the member countries those have been the members of ITR have agreed on the agreement. The countries those have signed with the new treaty it came into effect from 1st January, 2015. Each and every administration subjects to national law, establishment of charges that is to be collected from the customers. As mentioned by Chan & Nadvi (2014) the charges that are charged for are the national laws for establishment of charges from the customers. In accordance to the national law of the country, the fiscal tax is levied on the collection charges that are collected to respect the international services that are billed to the customers in that for meeting the special circumstances.

The mutual agreement establishes as well as revises the accounting rate that is relevant to CCITT recommendations as well as relevant to the cost trends. As per commented by the outlook of Ponthan et al. (2014) when a government intervenes the standard rates that run to the counter of the article since the competitive rates in the different countries are likely to converge. The retail prices diverge from one country to another and hence the competition is excluded in the bilateral relationship. Hui et al. (2014) commented on the essential fact that the intention of both the items excludes the country that is the tax operators or consumers for another country. In some countries, double taxation is also valid that have same asset, transactions and even income. As commented by Gonsalves et al. (2014) the artificially rising wholesale rate that is raised all around the world that leads to the evolution of new business models. The members therefore promote the wholesale pricing for traffic for respecting and inviting the parties on the telecommunication networks.

According to the outlook and opinion of Harbord & Pagnozzi (2010) special arrangements are made that avoids technical harm and thereby facilitates the telecommunication of the third parties. When ITR was introduced 1988, significant steps were taken for enabling the negotiations for developing the alternative rate system. As mentioned by Baigorri & Maldonado (2014) the country that violates or deviates from the ITR principles, USD 0.04 tax for minute has to be paid for inbound international traffic. The tax is accompanied with a decrease in traffic. Moreover, it is also seen that in 2011, the number of minutes was only 450 million which is a decline over 53%. It is also notified that the calls that been sent from United States declines from 127 million to nearly 61 million in the year 2011 which is a decrease of nearly 52% (Chan & Nadvi, 2014).

As created by Ponthan et al. (2014) the cartels and surcharges that is been applied on the international PSTN traffic raises the concern of policies that is extended to Internet. The taxation of PSTN involves the Internet issue that involves the termination of VoIP that is reconverted to PSTN traffic. This is also seen that such kind of policies places new business models between the internet as well as PSTN. According to the outlook of Hurkens & Lapez (2012) there are several countries that use WAP technology that develops countries for accessing applications via social networking sites like Twitter and Facebook. They access it through 2G phones and many of the telecom services provide access to Google search without the data charges. Only when the users want to go beyond the search, then extra cost is incurred.

In addition to this, according to the comment of Hui et al. (2014) the taxes on traffic termination lead to the increase in cost that leads to the engagement of OTT services that hampers the development. Points are made for renovating the innovation in order to pay the network premiums. On the other hand, the markets in order to internalize the externalities of the network for efficiently reform the opening market. According to the outlook of Chan & Nadvi (2014) the ICTs and role innovation plays in addressing the externalities. The distorted prices as well as usage of non market methods have negative implications in the international telecommunication services and hence the competition acted more efficiently for meeting the goals.

As commented by Ponthan et al. (2014) the FCC data that is been collected from US carriers for understanding the proceedings based on the potential effect of termination rates based on US consumers. As per the economic analysts, the effects of low mobile termination rates draw from two sources- BEREC/CERG data. Focus is mainly based on the number of minutes of use, market share of the subscriber as well as voice revenue on the per minute basis. From the viewpoint of Gherghina (2014) the total payment that is to be received by the foreign carriers comprises of the average rate of termination. So, it can be said that the sum total of the payment is comprised of the average payment per minute that is multiplied by the number of minutes. So, it can be said that the termination rates as well as total payment both have negative signs. It is said that the reduction in traffic easily outweighs the positive effect that increases the termination rates that will carry the overall payment that is received by the foreign carriers.

The initial regression analysis helps in increasing the traffic reduction keeping in mind the increase in average termination rate. Barane & Vuong (2012) commented on the essential fact that the final analysis that is carried while increasing the rates of termination has become more ubiquitous on the regional basis. Therefore the increase in termination charges decreases the international incoming traffic from the United States. Moreover, the data that is collected from the ITU, World Bank as well as FCC combines in creation of the panel of the countries between 2003and 2011. It focuses on examining the effects that deals with the increase in the termination rates. Baigorri & Maldonado (2014) also commented on the fact that introduction of such policies thereby aims in increasing the revenues. It therefore gives a positive relationship between the received payment as well as traffic that is existed in the dataset. Other than this, the traffic and termination rates have a negative relationship. It is required to pint out the negative relationship between the foreign carriers and termination rates.

As per mentioned by Ponthan et al. (2014) FCC is the national regulator that addresses the issues that is raised in NOI. The consumers pay the rates that are quite high and discriminates due to the over exercising of the market power. As per the FCC regulations, the mobile termination is in the unilateral way. The unilateral territorial measures from getting unjustified that will be impossible for reaching the targets that have no effects. According to the outlook and opinion of Babazadeh & Farrokhnejad (2012) the National Regulatory Authorities takes into account the tough measures on terminating prices on the mobile calls. The US customers are in contradiction to the US carriers that do not recognizes values for directly contracting the individuals over phones. It also focuses on the analysis for understanding the root problem that attempts in overriding the actions based on National Regulatory Authorities that addresses the Mobile Call Termination.


In this assignment, the researcher will be dealing with the mobile termination rates that are an international concern in today’s contemporary world. It is the process that involves the detailed analysis of the market as well as identification of the remedies. The process is therefore continuous impact that is totally based on territorial intervention on the subject of mobile call termination. This assignment deals with the trends that are followed in the international termination rates along with the increased international charges. The researcher also explains the establishment of cartels along with its effects and World Trade Organization Commitments. In addition to this, the researcher also explains the risk regarding the policies that are spreading through Internet.


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