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Explanatory note

1.1 This consultation exercise proposes that, with some important but narrow exceptions, all licence conditions and interconnection directions which were continued on a temporary basis when the new EU Regulatory Framework for Electronic Communications was implemented on 25 July 2003 should now be discontinued. To a large extent the proposed exercise is precautionary and it is intended to ensure that no continued provisions and directions are left in place inadvertently. The exercise is also intended to clarify the continued conditions and directions that remain in place for the time being, pending completion of reviews of the relevant markets. Finally, the exercise notes that those conditions and directions that continued the application of regulation depending on whether a provider was a Schedule 2 Public Operator (commonly known as having "Annex II" status) have now been discontinued. Therefore the requirement to maintain the "Annex II" list no longer exists. It had been intended that this list be replaced by a voluntary register, but Ofcom does not currently believe this to be appropriate, and proposes not to proceed with such a register.

Continuation of licence conditions and interconnection directions

1.2 On 10 September 2003 the Director General of Telecommunications ("the Director") published a statement "Continuing Licence Conditions after 25 July 2003" ("the September Statement"). That statement explained that when the new EU Regulatory Framework was implemented in the United Kingdom on 25 July 2003, individual licences and certain class licences granted under section 7 of the Telecommunications Act 1984 were replaced by General Conditions of entitlement made under the Communications Act 2003 (the "Act"). These apply to all persons providing Electronic Communications Networks and Services. The statement also explained that, additionally, individual Communication Providers may be subject to specific conditions, such as those imposed as a result of a finding of Significant Market Power, Access Related Conditions or conditions imposed as a consequence of a provider being designated as a universal service provider.

1.3 There were a number of specific conditions included in some licences which could not, however, be replaced by new conditions under the powers contained in the Act until a review of relevant markets had been completed and implemented. In view of this and to avoid a regulatory gap, Schedule 18, paragraph 9 of the Act allowed Ofcom to issue Notices ("Continuation Notices") to continue provisions in Licence Conditions until such time as it had reviewed the relevant market. For the same reasons, Schedule 18, paragraph 22 of the Act allowed Ofcom to issue Notices to continue Directions made under the provisions of Regulation 6 of the Telecommunications (Interconnection) Regulations 1997. (The power to issue Continuation Notices was previously exercised by the Director on behalf of Ofcom until Ofcom assumed its powers on 29 December 2003). A number of licence conditions and interconnection directions were made to continue in force by such Continuation Notices issued by the Director on 23 and 21 July 2003 respectively (which took effect from 25 July 2003).

1.4 Although the requirement for individual licenses no longer applied after 25th July 2003, the associated "Annex II" list of public operators did continue for a transitional period. This is because some of the continued conditions and directions continued to apply by reference to a "Schedule 2 public operator", being the status of public operators under Annex II of the Interconnection Directive. This transitional arrangement ceased when the relevant conditions and directions were discontinued as the market reviews were completed. Additionally, the Director published a statement on Guidelines for the Interconnection of Public Electronic Communications Networks on 23 May 2003 ("Interconnection Guidelines") in which he proposed that following this transitional period the Annex II list should be replaced by a voluntary and legally non-binding register of Public Electronic Communications Networks. However, as explained below Ofcom proposes not to implement such a register.

Removal of continued regulatory obligations

1.5 Paragraphs 9(12) and 22(10) to Schedule 18 of the Act require Ofcom to withdraw (discontinue) Continuation Notices in respect of continued conditions and continued directions as soon as practicable after they have been made. While it is appropriate to keep such notices in place pending completion of planned market reviews, Ofcom does not believe it is appropriate to maintain Continuation Notices for services in a market where there are no plans to review that market under the Communications Act 2003.

1.6 Some provisions of some Continuation Notices have already been discontinued specifically for markets which have been reviewed and for markets which Ofcom has concluded it should not review with a view to imposing ex ante regulation. Given the progress of Ofcom's programme of market reviews, Ofcom believes it is now appropriate that, instead of specifying the exceptional markets in which continued provisions should be deemed no longer to apply, it should now discontinue all Continuation Notices in their entirety except for specific provisions which should remain in force pending review of those specific markets.

1.7 Given that the new EU Regulatory Framework represents a shift from regulation of broad product and service sectors to market based regulation, this discontinuation exercise is intended to ensure that continued provisions are not inadvertently left in force where, for example, there is a not a precise match between market definitions which apply to continued provisions and market definitions which have been adopted when conducting market reviews under the Act. This approach is also intended to provide interested parties with greater clarity about the extent to which continued provisions still apply.

Specific effects of the discontinuation notices proposed

1.8 As already mentioned, Ofcom is proposing this discontinuation exercise for clarification and as such Ofcom considers that, in the main, this exercise should not involve discontinuation of many specific provisions. However, Ofcom does consider that this exercise will involve discontinuation of the following specific provisions:

• Ofcom intends that the discontinuation notice in respect of British Telecommunications plc ("BT") should remove all continued provisions which still apply in respect of wholesale end to end calls. Ofcom had indicated that it intended to review the market for wholesale end to end calls and, with this review in mind, continued provision condition 43 was maintained in force in respect of this market. As BT has now agreed that it will publish its prices for wholesale end to end calls, and will adhere to those published prices, Ofcom no longer intends to review the relevant market. This view may of course change in the light of changing circumstances, and the proposed discontinuation would not prevent Ofcom from conducting a market review and, if appropriate, imposing conditions at some time in the future.
• Ofcom also intends that the discontinuation notices in respect of BT and Kingston Communications (Hull) plc ("Kingston") should discontinue continued provision Condition 57 "Prohibition of undue preference and undue discrimination" and continued provision Condition 58 "Publication of charges terms and conditions". These continued provisions apply only where continued provision Condition 43 applies or, in the case of continued provision Condition 57, where a determination has been made under certain other continued provisions which relate to interconnection. Ofcom chose not to discontinue continued provisions Conditions 57 and 58 on a market by market basis when market reviews were completed, as these continued provisions ceased to have effect when the continued provision which triggered their application were discontinued. Ofcom proposed, in its consultation "Discontinuing licence conditions continued after 25 July 2003" published by Ofcom on 2 October 2003, that these continued provisions should be formally discontinued when the market review process had been completed. Ofcom believes that it is now appropriate to carry out that formal discontinuation.
• Ofcom also intends to discontinue four continued interconnection directions. These were not discontinued following completion of any single market review as they apply to more than one market. In Ofcom's view, these interconnection directions have served their purposes in resolving disputes, and no longer require continuation.

Continued provisions which Ofcom proposes should remain in force

1.9 Ofcom is proposing in this consultation document that the following continued provisions and directions should remain in force and all others should be discontinued;

• BT continued provision Condition 83 "Requirement to provide network access facilities" which was included in the Continuation Notice given to BT on 23 July 2003. This provision requires BT, amongst other things, to provide unbundled local loops. Ofcom is reviewing the wholesale local access market and has proposed that it should impose SMP conditions under the Act (see "Review of the wholesale local access market" published by Ofcom on 26 August 2004). The continued provision will be discontinued in its entirety when that review has been completed and, if appropriate, new SMP conditions imposed.
• BT and Kingston Communications (Hull) plc ("Kingston") continued provisions Condition 48 "Requirement to meet requests for access other than from schedule 2 public operators" but only in so far as these continued provisions relate to the market for payphone call origination. These continued provisions were contained in the Continuation Notices given to BT and to Kingston on 23 July 2003. Ofcom is consulting on the future regulation of payphone call origination and has proposed that reliance may be placed on voluntary undertakings which might be offered by BT and Kingston (see "Proposals regarding the requirement on BT and Kingston to provide payphone access" published by Ofcom on 22 July 2004). The continued provisions will be discontinued in their entirety when the consultation exercise has been concluded. In the meantime Ofcom proposes to discontinue these continued provisions in respect of all markets other than Payphone call origination.
• BT and Kingston continued provisions Condition 50 "Requirement to have cost accounting systems and accounting separation for interconnection purposes" and BT continued provision Condition 78 "Separate accounts". These continued provisions too were contained in the Continuation Notices given to BT and to Kingston on 23 July 2003. These provisions relate to the provision of regulatory accounts. Ofcom has already completed its review of the need for regulatory accounts in markets where BT or Kingston has been found to have SMP, and Ofcom has imposed new conditions under the Act (see "The regulatory financial reporting obligations on BT and Kingston Communications" published by Ofcom on 22 July 2004). However, as the provisions of the new conditions apply to accounting periods from 2004/5 onwards, the continued provisions must remain in force until 2003/4 accounting data has been received and assessed. When that exercise has been completed for each company Ofcom will discontinue the continued provisions which relate to that company in their entirety. However, Ofcom is proposing to discontinue without further delay Communications Networking Service (UK) (Concert Communications Company's ("Concert's") continued provision Condition 67 "Separate Accounts" as this is no longer appropriate given the findings of the market reviews relevant to CNS's activities and BT has agreed to provide some additional financial analysis of CNS in its 2003/04 regulatory Financial Statements.
• BT continued provision Condition 67 and Kingston continued provision Condition 66 "Control of Hardwired and other telephone rentals". These continued provisions were contained in Continuation Notices given to BT and to Kingston on 23 July 2003. In should be noted that these two Continuation Notices are distinct from the notices referred to above which were given to those companies in respect of other licence conditions, as these provisions relate to SMP Apparatus conditions. (The draft discontinuation notices at Annexes A and B do not relate to the provisions concerning hardwired and other telephone rentals). The continued provisions impose a charge control on certain rented telephone instruments. Ofcom has recently consulted on the future regulation of hardwired equipment and has proposed that, subject to BT and Kingston providing written undertakings which will ensure protection for customers with such equipment, the continued provisions should be discontinued in their entirety (see "Proposal that BT's and Kingston's price controls in respect of rental of hardwired telephone apparatus should be removed and replaced by written undertakings" published by Ofcom on 10 July 2004). Until that consultation is complete these provisions will remain in place.
• Vodafone and O2 continued provisions Conditions 69A "National roaming" which were included in the continuation notices given to O2 (UK) Ltd ("O2") and to Vodafone Ltd ("Vodafone") on 23 July 2003. Ofcom is re-consulting on the future regulation of national roaming (see "National roaming" published by Ofcom on 22 July 2004) and expects to discontinue these continued provisions when it concludes the re-consultation.
• All provisions continued by the continuation notices given to Crown Castle UK Ltd and to National Transcommunications Ltd on 23 July 2003. Ofcom has yet to conclude its consultation on the future regulation of the services to which these continued provisions relate (namely broadcasting transmission services) and expects to discontinue these continued provisions in their entirety when this consultation exercise has been concluded.
• All provisions continued by the continuation notice given to the class of person defined as the licensee for the purposes of the provision of access control services. These continued provisions apply only to Regulated Suppliers, of which Sky Subscribers Services Limited is the only such supplier. Ofcom is reviewing the relevant services and expects to discontinue these continued provisions in their entirety when the review has been concluded.
• All provisions continued by the continuation notice given to the class of person defined as the licensee for the purposes of the provision of Electronic Programme Guide Services. Again, Ofcom has not yet completed its review of these services and expects to discontinue these continued provisions once its review is complete.

Annex II and the voluntary register of Public Electronics Communications Networks

1.10 As already mentioned, the Annex II list of public operators continued for a transitional period, but all relevant conditions and directions have now been discontinued, following completion of the relevant market reviews. For example, an important set of discontinuation notices relating to narrowband interconnection services was published on 28th November 2003, whilst further discontinuation notices in relation to broadband and leased line interconnection services were published on 13th May 2004 and 24th June 2004 respectively. Therefore the requirement to maintain the Annex II list no longer exists.

1.11 It had been proposed that the Annex II list be replaced by a voluntary and legally non-binding register of Public Electronic Communications Networks (PECN). The aim was to provide transparency as to which communications providers had rights and obligations to negotiate interconnection under condition 1 of the General Conditions of Entitlement. The advantages of such a register were set out in the Interconnection Guidelines as being:

• it is invidious to place the obligation of determining whether a given provider provides a PECN on another provider, such as BT;
• in the absence of a list, a provider may be required to disclose commercially confidential information to competitors in order to establish PECN status;
• the publication of a list is transparent and offers regulatory certainty; and
• the availability of a list avoids a potential cause of delay in reaching interconnection agreements.

1.12 It was however also recognised that the proposed PECN register seems to contradict the spirit of the new regulatory framework, and this is of particular concern to Ofcom. The move from a licensing regime to a system of general authorisations was intended as a step towards a more normal commercial environment, in which communications providers do not require permission from a regulator to be in business. The proposed PECN register could undermine this approach, and the change in mindset that it was intended to promote, and could only be justified if it provides substantial value. Ofcom does not believe this to be the case, for the following reasons:

• guidance as to when a communications provider might operate a PECN is set out in the Interconnection Guidelines. The definition of a PECN is more straightforward that the previous description of those with Annex II status. It should be possible in most cases for this guidance to be applied without reference to the regulator, in which case Ofcom considers that the register would not add value; and
• the register is unlikely to be a useful tool for resolving borderline cases, since it is both voluntary and legally non-binding. As noted in the Interconnection Guidelines, it is open to any provider to negotiate interconnection without appearing on the register, and vice versa appearance on the register does not confer a right to interconnection.

Ofcom therefore proposes not to proceed with the creation of a voluntary register of PECNs.

Other matters for clarification

1.13 Notices discontinuing, amongst other continued provisions, the continued provisions relating to charge controls on mobile call termination were given to Orange Personal Communications Services Ltd ("Orange"), T-Mobile (UK) Ltd ("T-Mobile"), O2 and Vodafone on 28 May 2004 when Ofcom's review of mobile call termination was concluded and new conditions were imposed under the Act. As the new charge controls contained in the new conditions did not come into force until 1 September 2004, the discontinuation notices were deemed to be effective from 2 September 2004.

1.14 The continuation notices relating to premium rate services conditions in all individual licences and all class licences were discontinued in December 2003 when new General Conditions were imposed under the Act.

1.15 Cable and Wireless plc was given a continuation notice on 23 July 2003 which continued certain conditions. These continued provisions were discontinued in their entirety when the Director concluded his review of wholesale international services in November 2003. In Ofcom's view there is no need to issue a further discontinuation notice.

The proposed discontinuation Notices

1.16 Ofcom is proposing to issue discontinuation notices as follows;

• To BT in respect of all continued provisions except for the 4 provisions specified in the schedule to the notice (see draft notice at Annex A);
• To Kingston in respect of all continued provisions except for the 2 provisions specified in the schedule to the notice (see Annex B);
• To Concert in respect of all continued provisions in their entirety (see Annex C);
• To each of Vodafone and O2 in respect of all continued provisions excepting the national roaming condition (Condition 69A) (see Annexes D and E);
• To BT and the 54 operators listed in the schedule to the notice in respect of the interconnection direction concerning BT's Review Supplemental Agreement made on 28 September 2001 (see Annex F);
• To BT and Energis in respect of the interconnection direction concerning BT's rearrangement charges made on 30 January 2003 (see Annex G);
• To BT and Kingston in respect of the interconnection direction concerning physical interconnection arrangements, Kingston's Reference Interconnection Offer and Kingston's Interconnection charges, made on 22 October 2001 (see Annex H); and
• To BT and Colt Telecommunications Ltd concerning charges calculated in accordance with Element Based Charge matrix made on 17 December 2001 (see Annex I).

Next steps

1.17 Although the Act does not require Ofcom to consult before discontinuing a Continuation Notice, the Director stated in the September Statement that, in the majority of cases, before discontinuing any provisions of any Continuation Notice, he would consult on the matter for at least 14 days. On this occasion, taking into account the holiday season, Ofcom is allowing 28 days for interested parties to consider the implications of the proposal. Information about how to respond to this consultation exercise is contained in the following Section 2.

The full text of this document is available in PDF format via the link at the top right of the page.

• Proposal that all provisions continued from licences made under the Telecommunications Act 1984 and all continued interconnection directions will cease to have effect except for specific provisions in specific markets listed in this document as exceptions [pdf]
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