The Economics of Contracts: Theories and Applications

By Eric Brousseau; Jean-Michel Glachant | Go to book overview

20
Interconnection agreements in
telecommunications networks: from
strategic behaviors to property rights
Godefroy Dang-Nguyen and Thierry Pénard

1 Introduction

Interconnection regulation is a major issue for the liberalization of energy and telecommunications networks. Certainly, it is a focal point for tensions and interest conflicts among operators. In France, for example, the Telecommunication Regulatory Authority (ART) has to settle disputes concerning interconnection. These conflicts, opposing most often the incumbent operator France Telecom to its new competitors, deal with the unbundling of the local loop or the termination charges of calls from fixed to mobile networks.

Generally, interconnection has a precise objective: the subscribers of the interconnected networks are given the opportunity to have access to more subscribers (telecommunications) or more suppliers (energy or water). Interconnection requires a technical harmonization, as well as a contractual, often bilateral, arrangement among network operators. More precisely, in an interconnection contract operators define the conditions of access to their networks and the corresponding usage rights. In this chapter we will consider mainly telecommunications networks (voice and data). But many economic issues raised are equally relevant, mutatis mutandis, for other interconnected networks.

In telephone networks, interconnection agreements have been strongly influenced by the institutional framework in which they have emerged. For a long time, the telephone services relied on the principle of “network integrity. ” This notion appeared in the United States at the beginning of the twentieth century, under the influence of T. Vail, the AT&T's CEO of that time, to justify the monopoly given to his private company. As long as only national monopolies provided voice services, interconnection was merely a problem of international, diplomatic bargaining. For data networks, the relationships concerning the right of usage have been strongly influenced by the academic origin of the Internet. Interconnection took

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