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PNETS Statement By OFTA H.K. on 2nd December, 1995
Original URL http://www.ofta.gov.hk
You can also find on http://hktel.com   
   
     _________________________________________________________________
   
   
   
  PAYMENT OF INTERCONNECTION CHARGES
  BY INTERNET SERVICE PROVIDERS
  
   
   
    Statement by Mr Alexander Arena
    Telecommunications Authority (TA) in Hong Kong
    
   
   
   
        
  PURPOSE
  
        This Statement gives the considered views of the
                Telecommunications Authority (TA) on the requirement for
                the Internet Service Providers (ISPs) to pay the
                interconnection charges approved under the tariffs of
                Hong Kong Telephone Company Limited (HKTC) for lines
                between the ISPs� systems and HKTC�s network to enable
                ISPs� customers to access information over the World Wide
                Web (WWW).
                
   
        
            
         1. This Statement confirms the position under the law as it
            currently stands. It does not deal with the issues from the
            perspective of how charging policy may develop - this is
            subject to the conduct of the reviews mentioned in paragraphs
            28 to 33 inclusive.
            
  BACKGROUND
        
            
            
            
         2. On 22 March 1995, the TA issued a Statement clarifying the
            licensing requirement for telecommunications services offered
            over the public telecommunications networks in Hong Kong, in
            particular, Internet access and bulletin board services. The
            Statement identified a series of �elements� to be examined in
            classifying whether a service is a public telecommunication
            service (paragraph 3).
            
         3. On 29 September 1995, OFTA issued a circular letter to all
            ISPs confirming that the lines between the system of an ISP
            and the network of HKTC used for the retrieval of information
            and files not originating from the ISP (e.g. information and
            files retrieved over the World Wide Web (WWW) from databases
            located throughout the world) are subject to the
            �interconnection charge� approved by the TA under the tariffs
            of HKTC. The circular letter was also intended to clarify
            that the �service which only sells information� referred to
            in paragraph 4 of the March 1995 Statement would not include
            a service offered by an ISP which acts as a carrier of
            information from information providers to the customers of
            the ISP.
            
         4. Subsequent to the issue of the September 1995 circular
            letter, the TA has held meetings with the ISPs and received
            nine written submissions from ISPs and Fixed
            Telecommunications Network Services (FTNS) operators. A
            summary of the written submissions is given in the Annex. As
            can be seen from the Annex, the views are divided : most ISPs
            wishing to avoid the charge; most FTNS operators
            (particularly HKTC) wishing the current charges to be
            enforced and the charge paid by ISPs. The TA has considered
            the views expressed in these submissions and has taken legal
            advice.
            
         5. As all network operators, service providers and users are
            required to comply with the law at all times, it is the
            factual position under the current law that the TA must
            enforce when it comes to payment of interconnection charges.
            Looking to the future, the TA is reviewing the policies on
            the interconnection charges. This includes whether the
            interconnection charge is equitable and whether the level of
            the charge is appropriate. If any change is warranted as a
            result of the review, the appropriate revisions will be made
            to the law at a future time and all parties will be, of
            course, expected to comply with the revised law at that time.
            The time table of the review is discussed further in
            paragraphs 31and 32 below.
            
  TA�S CONSIDERATIONS
        
            
            Criteria for the Payment of Interconnection Charge
            
   
          
   Under the tariffs approved by the TA in accordance with the FTNS
          Licence granted to HKTC, HKTC is entitled to levy the
          �interconnection charge� on customers using lines connected to
          the PSTN for the provision of services licensed as �Public
          Non-Exclusive Telecommunications Services (PNETS)�. Thus an ISP
          needs to pay the �interconnection charge� if the service the
          ISP provides needs to be licensed as a PNETS under the law.
          
   The �interconnection charge� of the lines connected to HKTC�s network
          is referred to in this Statement only because at present, only
          one FTNS operator, i.e. HKTC, is offering such a service. When,
          in future, other FTNS operators also offer the service, then
          ISPs will have a choice of operators. The charges of
          non-dominant FTNS operators (i.e. currently Hutchison
          Communications, New T&T Hong Kong and New World Telephone) are
          not subject to approval by the TA.
          
          What Constitutes the Operation of
          a Public Telecommunication Service
          
          
          
   Under section 8(1)(a) of the Telecommunication Ordinance, a licence is
          required for the establishment or maintenance of any means of
          telecommunication. However, the Telecommunication (Fixed
          Telecommunication Network Services)(Exemption from Licensing)
          Order (the �Exemption Order�) (LN 293 of 1995) exempts a
          customer of an FTNS licensee from the licensing requirement for
          the operation of telecommunications equipment (not being a
          radiocommunication equipment) connected to the FTNS if the
          customer does not use telecommunication equipment to operate a
          public telecommunication service. Thus anyone, including an
          ISP, is not required to pay the �interconnection charge� for
          lines connected to the system not used for the operation of a
          public telecommunication service.
          
   Although the term �public telecommunication service� is not defined,
          the words �telecommunication service�, in so far as relevant,
          are defined in the Telecommunication Ordinance as the provision
          of facilities for use by members of the public or any person
          for the transmission or reception of messages. It follows that
          whether an ISP is operating a public telecommunication service
          depends on whether the system of the ISP can be said to be
          provided for use by members of the public for the transmission
          or reception of messages. 
          
   What constitutes the �provision of facilities for use by members of
          the public for the transmission or reception of messages� can
          best be illustrated by a few examples.
          
  FIGURE 1
  
   
          
          [IMAGE]
          
          
          
   Figure 1 shows a telephone of a business connected to the PSTN for the
          provision of an enquiry service providing information
          concerning the business to any member of the public. It is
          clearly the intention of the Exemption Order to exempt the
          business from any licensing for the operation of such a
          telephone. To argue that the members of the public
          communicating with the business over the PSTN have used the
          business� telephone for the reception or transmission of
          messages and therefore the business has somehow provided this
          telephone for public use would lead to the absurd conclusion
          that the business would need a telecommunication licence to
          operate that telephone. It therefore follows that in the
          situation shown in figure 1, the business operating that
          telephone cannot be said to be providing that telephone for the
          use by the members of the public for the transmission or
          reception of messages. The business is merely providing that
          telephone for use by itself for the transmission or reception
          of its own messages.
          
  FIGURE 2
  
   
          
          [IMAGE]
          
          
          
   Figure 2 shows a computer connected to the PSTN for the operation of
          an electronic bulletin board service for the dissemination of
          information of the operator of that service. There is not much
          logical difference between such a computer and the business
          telephone in figure 1 except that the human manning the
          telephone has been replaced by a computer. Accordingly, the
          operator of the computer cannot be said to be providing a
          facility for use by the members of the public for the
          transmission or reception of messages. Rather the operator of
          the computer is providing a facility for use by itself for the
          transmission or reception of its own messages.
          
   If the business telephone in figure 1 is open to use by any member of
          the public to make telephone calls or if the bulletin board
          service in figure 2 is used for the display and posting of
          messages from any member of the public, then clearly the
          telephone or the bulletin board service is providing a facility
          for the use of members of the public for the transmission or
          reception of messages. Licensing would be required under the
          Telecommunication Ordinance.
          
   It is the common characteristic of all services licensed under the
          PNETS licence that the services all convey messages of
          customers or �third parties�. For example, a value-added
          facsimile service stores and forwards facsimile messages
          accepted from customers to the service. An electronic-mail
          service conveys messages between users of the service. An
          electronic bulletin board service used for the exchange of
          information between users effectively conveys messages between
          the users.
          
   Thus a consistent interpretation that has been applied in the past is
          that the provision of facilities for use by members of the
          public for transmission or reception of messages should be
          taken to mean the provision of facilities for the conveyance of
          messages of the members of the public.
          
          The Above Principles as Applied to
          the World Wide Web Service
          
          
          
   The World Wide Web (WWW) is one of the services for the dissemination
          of information over the Internet. WWW documents are stored in
          computers known as �servers�. There is a huge number of servers
          scattered throughout the world. The servers are identified by
          Uniform Resource Locators (URL) which contain the domain names
          of the servers on the Internet network and the path and file
          names of the documents in the servers.
          
   A user can retrieve information from a WWW server through the service
          of an ISP. The user�s computer is connected to the ISP�s system
          either through a dedicated circuit (for large corporate users)
          or a dialled-up connection over the Public Switched Telephone
          Network (for the typical small or home users). To enable
          dialled-up access, the ISP�s system is connected to the PSTN
          through dedicated telephone lines. The ISP�s system is also
          interconnected with overseas ISPs through international private
          leased circuits (IPLCs) or other ISPs with IPLC connections.
          The ISP�s system may be interconnected with other local ISPs
          through direct links or an ISP exchange system.
          
  FIGURE 3
  
   
          
          [IMAGE]
          
          
          
   The Internet user�s computer is typically equipped with a �browser�
          programme. To reach the required WWW server identified by the
          URL, the browser queries the ISP�s system for the address of
          the server. The ISP�s system obtains the address either from
          its own database on domain names or makes enquiries to other
          databases. Once the address of the required server is obtained,
          the browser sends the file request in the form of packets to
          the remote WWW server through the Internet. The packets may be
          routed by many intermediate nodes of different networks before
          they reach the destination. On receiving the packets, the
          server validates the request and returns the required document
          file, also in packet form, to the user via the IPS�s system.
          
   It is apparent that the primary function of the ISP�s system is the
          conveyance of messages between the Internet users and the WWW
          servers. Such a conveyance function includes the translation of
          addresses and the routing of data messages in data packet form.
          The ISP is not responsible for the content of the messages or
          the information from the WWW databases. The ISP is basically
          operating as a node to convey messages between WWW servers and
          the ISP�s customers. Performing functions in this mode, ISPs
          are therefore operating a public telecommunication service.
          
   The above describes the case where the WWW servers are remote from the
          system of the ISP. It is possible that some local servers may
          be connected to the ISP�s system or that the WWW documents
          actually reside in the memory of the ISP�s system (figure 4).
          Unless the ISP has assumed responsibility for the content of
          the documents attached to, or residing in, its system, the
          function of the ISP system is still to convey the messages from
          the �authors� originating the documents and the Internet users.
          The Internet users are connected to the ISP and so are the
          �authors� or information providers. This also indicates that
          the ISP is merely providing a service for the conveyance of
          messages between users and information providers connected to
          its system.
          
  FIGURE 4
  
   
          
          [IMAGE]
          
          
          
   The only situation when an ISP can be treated as disseminating its own
          information is where the ISP has assumed responsibility for the
          content of the documents residing in its system, or the servers
          connected to it. This is where the ISP has actually
          incorporated the information into a service operated by the ISP
          and exercised editorial control and bears the associated
          responsibilities and possible liabilities over the content of
          the documents. The process is not unlike the incorporation of
          materials from various reporting agencies into a newspaper or
          from various producers into a broadcasting service. The
          information has been repackaged into another service with a
          separate identity.
          
   In the very unusual situation where an ISP repackages information from
          WWW into its own information, the TA agrees that under the
          current law, lines for the access to such a database operated
          by the ISP are not subject to the interconnection charge, but
          the use of these lines would be restricted to the access of
          this database only. The lines could not be used for the
          customers to access other Web sites. The ISP would, however,
          also have to bear all the responsibilities and liabilities
          associated with the contents of the information it disseminates
          under such a system.
          
   One submitter has argued that �the WWW is a huge computer database
          based on multiple networks of Web Servers on the Internet,
          cooperating together to form a world wide database of
          information. A Content Provider who owns and maintains a Web
          Server on the Internet allows repackaging of its content by
          other providers, thus forming a larger pool of information�.
          Such an argument is not supported by facts. There is a huge
          number of independent providers of information on the WWW and
          there is no evidence of any cooperative agreement among them.
          An ISP cannot therefore simply claim that it has assumed the
          responsibility or ownership of all the content available on the
          myriads of databases connected to the WWW without documentary
          proof.
          
   Some submitters have argued that the ISP may �mirror� the databases,
          i.e. the local ISP will download �hot information� from
          overseas Web sites and store information in the local computer
          for access by local Internet customers. Unless the ISP can
          supply documentary evidence that it has assumed ownership or
          responsibility for the information so downloaded, this
          operation is merely a store-and-forward process which is again
          a common method of conveyance in telecommunication services.
          
          
          
  CONCLUSIONS
  
   
          
          
          
   The TA concludes that, under the current law, the lines between the
          ISP�s systems and the network of Hong Kong Telephone Company
          Limited (HKTC) used for the retrieval of information and files
          not originating from the ISP (e.g. information and files
          retrieved over the World Wide Web (WWW) from servers located
          throughout the world) are subject to the �interconnection
          charge� approved by the TA under the tariffs of HKTC. 
          
          
          
  NEXT STEPS
  
   
          
   The TA will follow the following steps to implement his decision above
          :
          
        
            
          + A circular letter will be sent to all ISPs informing them of
            the decision on WWW in this Statement.
            
          + All ISPs will have to use �300� prefix interconnect lines for
            normal Internet access services with immediate effect.
            
          + HKTC will be informed of the TA�s decision. HKTC will
            directly deal with ISPs to make the necessary arrangements to
            ensure that only �300� prefix lines are to be used. HKTC will
            be required to conduct the transition of an ISP�s lines to
            �300� lines in a quick and fair manner.
            
          + HKTC is permitted, subject to its conditions of service, to
            disconnect ISPs who have not paid their bills. However,
            before disconnection, HKTC will have to give 14 days� notice
            to the ISP concerned and to inform OFTA at the same time.
            OFTA will publish the pending disconnection so that the
            customers of the ISP concerned could prepare for the
            disconnection and have sufficient time to change their
            subscription to another ISP.
            
   
          
          
          
  INVESTIGATION ON HKTC�S CHARGING METHODOLOGY
  AND METERING OF THE INTERCONNECT CHARGE
  
   
          
          
          
   The TA has also received a number of complaints from ISPs alleging
          that HKTC�s charging methodology and metering of the
          interconnect charge is unfair and possibly inaccurate. The TA
          has conducted a preliminary investigation into HKTC�s existing
          charging system for PNETS. While the results of the
          investigation show that there are no gross errors in the
          current metering system, the TA has identified a number of
          improvements that should be implemented. Accordingly, the TA
          will organize a workshop for all interested ISP�s on this
          matter. The workshop is scheduled on Wednesday, 6th December
          1995 at 3:00 p.m. in OFTA�s Conference Room. Separate
          invitations will be sent to all ISPs. The TA intends to issue
          his report on the technical investigations before the date of
          the workshop.
          
          
          
  REVIEW OF THE INTERCONNECTION CHARGE
  AND THE ASSOCIATED LEGISLATIVE FRAMEWORK
  
   
          
          
          
   The TA accepts that the current legislative framework on
          interconnection charges imposed on Public Non-Exclusive
          Telecommunications Service providers may not be the most
          appropriate arrangement given that many new technologies, e.g.
          Internet services, have emerged, and there are likely to be
          many more new services coming up in the near future.
          
   The TA has already started work on the review of the level of the
          interconnection charge (i.e. whether it should be 9 cents a
          minute) and the regulatory framework on who should pay, if at
          all, this charge.
          
   Work carried out by the TA so far includes :
          
        
            
          + an OFTA project team has been formed to consider the
            conceptual principles of the interconnection of PNETS to the
            PSTN.
            
          + OFTA has engaged a consultant (Deloitte Touche Tohmatsu) to
            study the costs of using the HKTC network, including the
            methodology used for measuring traffic in the HKTC network.
            (Started in October 1995; estimated completion date end
            January 1996).
            
          + OFTA is in the final stages of appointing another technical
            consultant to audit the accuracy of HKTC and HKTI�s metering
            equipment. (Project start date January 1996; completion date
            end March 1996).
            
   
          
   The TA expects to complete OFTA�s internal study by February 1996.
          Based on the results of the internal study, a consultation
          paper will be issued around end February 1996 for industry
          consultation. The TA intends to complete the entire review
          process by end April 1996 and implement the decisions as soon
          as possible thereafter.
          
   On a related matter, the current price control arrangements which
          apply to HKTC are due to expire in mid-1996. The TA has already
          started his review of these price control arrangements and
          relevant background papers may be found on OFTA�s BBS service
          or OFTA�s Internet Home-page. Clearly the PNETS interconnection
          charge will also be a relevant factor in the review of price
          control arrangements.
          
      2 December 1995
      
   
   
   
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