On 7 November 2012, the Communications Authority (“CA“) published a consultation paper reviewing the regulatory guidance on the charging principles between fixed carriers. Fixed-to-fixed connections remain the only type of connectivity where interconnection charges are regulated by the CA under s.36A of the Telecommunications Ordinance (the “Ordinance“). The CA may also issue regulatory guidelines for interconnection charges under s.6A of the Ordinance. In 1995 the CA issued a statement titled “Interconnection and Related Competition Issues – Statement No.7 – ‘Carrier-to-Carrier Charging Principles’” (“Statement No. 7“) which contains the principles for interconnection between fixed carriers. It was last revised in 2009.

When Statement No. 7 was first introduced the local fixed telecommunications market had just been liberalised. At the time, there was a pre-dominant fixed carrier with only three new fixed carrier entrants. The purpose of Statement No. 7 was to facilitate competition and protect consumers’ interests. However, the present-day telecommunications market has changed considerably. It has become highly competitive with a diverse variety of services being offered to consumers. Thus, the CA believes that Statement No. 7 has achieved its original purpose and may no longer be necessary or relevant in the current telecommunications market. Accordingly, the CA proposes to withdraw Statement No. 7 so that all types of interconnection charges will ultimately be determined through commercial negotiations.

Two options have been proposed by the CA; either to maintain Statement No. 7 or withdraw it entirely. The argument in support of maintaining Statement No. 7 is that it will continue to keep a level playing field between fixed carriers, thereby protecting consumers’ interests.

Nonetheless, the CA has argued that customers’ interests are already being protected by the wide variety of telecommunication services currently available at affordable prices. Regulation is therefore no longer required to safeguard consumers’ interests and thus the CA has put forward a second opinion regarding the withdrawal of Statement No.7.

Above all, the CA believes that the telecommunications market will not be adversely affected as a result of de-regulation. Interconnection charges for fixed-to-mobile connections were de-regulated in 2009 and regulations were never made for mobile-to-mobile connections. These markets have flourished in the absence of regulation with commercial negotiations being the sole method for determining interconnection charges.

Statement No. 7 is also becoming increasingly obsolete as its scope of application is diminishing. Over the past two decades, alternative telecommunication services such as broadband internet and mobile voice services (which are not subject to Statement No. 7) have significantly increased in popularity.

Fixed carriers have begun implementing speedier forms of connectivity by providing self-built customer access networks (“CANs“) such as fibre optic connections which are growing in prevalence. A number of carriers have also adopted next generation networks (“NGNs“) and more carriers are presently shifting towards this model. NGNs allow transfer of all forms of traffic to be delivered more efficiently in small data packets based on IP addresses. Neither self-built CANs nor NGNs are subject to Statement No. 7. These interconnection charges are therefore all settled by commercial agreements.

As fixed carriers progressively migrate towards CANs and NGNs, commercial agreements will progressively become the dominant method of determining interconnection charges between fixed carriers in any case. The diminishing role of Statement No. 7 in the current telecommunications market as well as the strength of the market that is not guided by regulation has led the CA to propose the withdrawal of Statement No. 7.

If option two is pursued, the CA is proposing the introduction of a transitional period for fixed carriers to have the time to conduct negotiations amongst themselves on interconnection agreements. The transitional period would only last for one year as the CA is of the opinion that the withdrawal of Statement No. 7 would have limited impact on fixed carriers. During this period, Statement No. 7 would continue to remain in force in case the CA is required to make determinations on interconnection charges. However, fixed carriers would be permitted to implement commercial agreements that deviate from the charging principles set out in Statement No.7. The CA proposes to commence this transitional period after a statement has been issued to conclude this consultation.

The consultation for comments and reviews is currently open and will end on 7 January 2013.