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31 May, 2011

Interconnection charges Dilema.

As CCK readies itself to cut the interconnection charges operators are divided on the issue .The big players wants the regulator to shelve the process while the underdogs in the industry are pushing for a review and quick implementation of the new charges.

Internationally ,interconnection charges are used to promote an environment that best simulates a competitive market.Most agreements state that interconnection (or access) prices should be cost-based,although there are other pricing methods that can promote efficiency in term of access .

Many countries use the Cost-based interconnection pricing as it puts greater burden on the incumbent to stay competitive, as customers lost to entrants represent potential lost profits.It also promotes easier entry by new operators since it maximizes cost efficiencies by avoiding duplication of essential facilities,hence the most efficient over the long term.

There are few shortcoming to cost based pricing in that in term of access most entrants focus there services in profitable networks and limits building out networks.There is also the inability of the incumbents to easily recover all their fixed costs which might affect service delivery and network quality.

The main challenge the regulator will have to contend with when reviewing the interconnection charges will be the issue of the incumbents recovering their fixed costs as well as stimulating competition and network penetration and access.This can be resolved by viewing all costs in the long-term, where all costs, including capital, are considered.

Operators who are against the latest revision argue the new rates are unsustainable and will reduce their margins which will eventually have a ripple effect in the economy,Job losses and reduced tax income have been quoted.The protagonist of the review want to use the revised rates to win more clients since incumbents have historically used the high interconnection charges to lock in subscribers.

Recent reports indicate that a committee that was formed by the the prime minister favor the reviewof the interconnection charges downward, so its a matter of time before CCK effect the new charges.The development  will be watched keenly to see the effect of this new charges to the industry.    

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