2. Capacity-based interconnection offer in Spain

2.1 Interconnection model

2.2 Eligible traffic

2.3 Basic capacity unit

2.4 Traffic transfer conditions

2.5 Minimum service agreement time and capacity unit cancellation procedure

2.6 Deadlines and compensation for non-fulfillment

2.7 Flat tariff calculation methodology

2.1 Interconnection model

In 2001, Spain?s national regulatory authority (CMT) defined a capacity-based interconnection model, revisited in 2003, to complement its temporized interconnection model (based on per-minute billing). In this capacity-based model, an operator may purchase a specific capacity of interconnection services from the historic operator (Telefónica) at a given Point of Interconnection (PoI) with a fixed cost calculated using the forecast traffic volume, regardless of the associated use, i.e. type of traffic (Internet and/or voice data) and the actual usage time.

The capacity-based interconnection model adopted by CMT is fundamentally different from the temporized interconnection model in terms of the size of its traffic overflow routes. In the capacity-based interconnection model, traffic transfer may be routed using elements associated with the actual capacity-based interconnection network and/or the temporized interconnection network (model/current network).

2.2 Eligible traffic

Eligible traffic for capacity-based interconnection includes access (call origination) and call termination traffic, and does not distinguish the type of traffic (voice and/or data). Transit services, international call termination and special services (together with intelligent network services) are not included. Interconnection capacity may be purchased at the local, metropolitan and transit levels (single and double).

Such an approach offers the following advantages: (1) greater flexibility in buying and selling capacity, (2) minimized risk in failing to account for capacity needs for a given interconnection, (3) optimization of network services made available to OSPs which, by streamlining and distributing traffic (temporarily, for instance) can route higher numbers of minutes at lower unit costs. Some inherent complications do, however, exist: (1) excessive unbundling, given that a basic 64-Kbps unit can create management and operating problems in the interconnection network, (2) the historic operator may need to make adjustments to the switching and interconnection network to furnish the required capacity at local exchanges, (3) traffic transfer routing, which may have to be done using network elements associated with the temporized interconnection model, with additional costs and complications.

2.3 Basic capacity unit

In Spain, temporized interconnection is structured around a basic network unit of 2 Mbps (E1), i.e. a route?s minimum capacity, while the basic capacity-based interconnection unit is 64 Kbps, i.e. capacity purchased by an operator must be a multiple of this unit. If, in a given 2-Mbps interconnection, there are x units of capacity purchased, the remainder (30-x) must be used in temporized interconnection. In routes with more than 4 E1s (120 units), this multiple goes from 1 to 5, meaning that the increments of capacity in these larger routes are done in groups of 5 x 64 Kbps, while keeping a minimum capacity unit of 64 Kbps for routes whose capacity is 4 E1s or less. Responsibility for the sizing of capacity units rests solely on the operator originating the traffic and is done according to its traffic forecasts, service level and overflow conditions as specified in the RIO^{4https://www.anacom.pt/render.jsp?contentId=55132}.

2.4 Traffic transfer conditions

Telefónica?s RIO currently includes the following traffic transfer options for operators purchasing a specific interconnection capacity:

• Interconnection without transfer: Overflow traffic is lost
   
• Interconnection with transfer: Overflow traffic can be rerouted in one of two ways:
  
  i) Transfer over temporized routes in the same PoI. The associated cost of this transfer is the per-minute price in time-based interconnection (originated/terminated) multiplied by 5 to offset Telefónica?s network planning and operating costs and, primarily, to discourage interconnection capacity downsizing by the OSP.
  
  ii) Alternate routing via temporized interconnection at another PoI. This option is only activated when interconnection (by capacity and time) at the PoI has been completely consumed. The associated cost of this option corresponds to the ?alternate routing service? as specified in Telefónica?s RIO.

2.5 Minimum service agreement time and capacity unit cancellation procedure

There is a minimum service agreement time of two years for every basic capacity unit purchased at a given PoI. At the end of this period, the OSP may terminate the capacity agreement or substitute it with a temporized interconnection agreement with no penalties being incurred.

Premature cancellation of basic capacity units is grounds for a compensatory fine of 25% of all remaining services through the end of the minimum service agreement time. In the event of cancellation (or migration) of a portion of the capacity purchased, basic units having the highest (most recent) CIC^{5https://www.anacom.pt/render.jsp?contentId=55133} are altered/removed, so that circuit numbering does not have to be reorganized each time the number of units must be changed, regardless of the beginning of the interconnection agreement.

2.6 Deadlines and compensation for non-fulfillment

Data which must be exchanged between Telefónica and OSPs purchasing capacity include: (1) data identifying the capacity order, (2) data identifying the OSP, (3) type of migration, (4) desired capacity. Various phases of capacity orders have been likewise identified, such as: (1) pending approval, (2) in progress, (3) awaiting resolution of obstacle to deployment.

Deadlines for migrating from one interconnection model to another are as follows: (1) 5 working days for order approval, (2) 20 days for operational deployment, including tests.

Notwithstanding general measures on non-fulfillment of deadlines for orders to construct and expand PoIs, the following additional provisions have been established for the unique circumstances of the capacity-based interconnection model:

• Non-fulfillment of deadline for migration to capacity-based model: If Telefónica has not completed the actual migration within the 5+20 day time period, interconnection traffic is billed according to the capacity-based interconnection model from that moment forward.
   
• Non-fulfillment of PoI construction/expansion deadlines: In such cases, in addition to the application of penalties, the operator pays interconnection prices for alternate routings of traffic originally routed through the capacity purchased, with a 50% discount.

2.7 Flat tariff calculation methodology

According to the CMT, the main principles to be upheld in calculating interconnection prices are setting prices based on the cost of long-term efficient service, including a reasonable return on investment and the model?s economic continuity, i.e. maintaining an average level of return for the operator providing the capacity combined with a reduction in unit costs for operators requesting this same capacity.

Therefore, the CMT has established a relationship between the monthly capacity price and the per-minute price by means of size-related criteria: scheduled monthly traffic.

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^{4 See Telefónica RIO at: http://www.telefonicaonline.com/qx/manual/textoconsolidado_oir2003.pdfhttp://www.telefonicaonline.com/qx/manual/textoconsolidado_oir2003.pdf.
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