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Executive Summary

1.1 On 22nd September 2005, BT Group plc ('BT') offered and Ofcom accepted a set of undertakings ('the Undertakings') pursuant to Section 154 of the Enterprise Act 2002 in lieu of a reference of certain markets to the Competition Commission. The acceptance of the Undertakings was aimed at addressing Ofcom’s competition concerns in these markets through, inter alia, the implementation of what has been termed “Equality of Access” for all communications providers.

1.2 The physical separation of operational support systems ('OSS') currently shared between Openreach and the rest of BT is a key part of Equality of Access as it reduces the capability and incentive of BT for non-price discrimination. As such Section 5.44 of the Undertakings requires BT to:

• Physically separate Openreach OSS from the rest of BT by 30th June 2010;
• Design all new Openreach systems to be separate from the rest of BT;
• In the interim, until full physical separation is achieved, deliver a logically separate OSS capability for certain product groups according to binding milestones;
• Review regularly with Ofcom a roadmap for achieving physical separation.

1.3 As a result of reviewing this roadmap, Ofcom is proposing to agree with BT a variation to Section 5.44 of the Undertakings and is consulting on this proposed variation. The aim of the variation is to strengthen the effectiveness of the Undertakings in the long term by introducing a series of binding interim milestones from now until the completion date of 30th June 2010. These binding milestones enable progress towards physical separation to be measured at key stages in the programme, thereby providing visibility of, and the opportunity to mitigate, any risks that might jeopardise either the final delivery of full physical separation by 30th June 2010 or the customer experience in the interim.

1.4 Although system separation is often seen as a purely technical task, the demands it makes for rigorous examination of business relationships, interfaces, processes, data and organisations are at the heart of running a business and therefore, in the case of BT, what it means to achieve full operational separation. As part of implementing physical separation BT has therefore put in place a wide reaching business change programme that is intended to deliver separation not only of systems but in cultural, business, process and organisational terms as well, leading to real operational separation.

1.5 Given the technical complexity of physical separation, the changes it requires to BT's business and the role these OSS play in enabling BT to interact with and manage its customers, there is a risk of detrimental impact on the consumer service experience. A key objective in the development of the roadmap and its review between Ofcom and BT is to understand and mitigate this risk. To this end ‘Ready to Mass Migrate’ milestones are included in the proposed variation; they mark the point at which the preparation and testing of the operational capability to support mass migration at the required volumes without detriment to consumers will have been completed. Ofcom’s view is that the protection of the consumer experience during the migration process should be one of our primary objectives: customers must have uninterrupted access to service even as data is migrated. Considerable emphasis is therefore placed on balancing the speed of physical separation with minimising the risk of customer disruption.

1.6 A primary concern for Ofcom is to ensure that physical systems separation helps deliver the benefits of operational separation to industry and consumers without detriment to the consumer experience. In order to ensure that physical separation is being delivered effectively, Ofcom has examined BT’s approach to systems separation. BT are implementing physical separation in accordance with their long term strategy for their systems estate, that is to say they are building new physically separate operational systems for Openreach and the rest of BT, and moving data that is currently in shared systems to these new systems, closing legacy systems where possible. It is Ofcom's view, supported by independent expert scrutiny, that at this stage, this approach is the most effective in terms of achieving physical separation as early as possible consistent with minimising the risk to the consumer experience.

1.7 BT will implement physical separation progressively; volume migration began in June 2006, and peaks in 2008/9 leaving a “tail” to be completed in 2010. It will therefore take several years, but will have to be achieved by 30th June 2010, the date originally set in the Undertakings. In the interim BT will implement strengthened user access controls for EOI products supported on shared systems. Given this, and the increased transparency resulting from the binding milestones, Ofcom no longer considers it necessary to require the implementation of a logically separate OSS capability, previously included to reflect the need to protect against non-price discrimination in the period up to full physical separation. It is Ofcom’s view that, with the appropriate audit measures in place, BT's implementation of user access controls together with other measures set out in the Undertakings, can provide proportionate protection against non-price discrimination prior to full physical separation on 30th June 2010. These audit measures must include regular internal audit reporting to the Equality of Access Board ('EAB'), which shall report any issues to Ofcom, and external audit on at least two separate occasions.

1.8 Ofcom proposes and BT agrees to vary the Undertakings such that the binding milestones indicated in the table below are included. In this table, customer side relates to the migration of data pertaining to real end-customers (e.g. other CPs and consumers) and supply side relates to the migration of BT Wholesale data in its role as supplier to Openreach (e.g. for the supply of electronics used in Openreach products).

Table 1 Binding milestones towards physical separation

User Access Controls	WLR Analogue, SMPF, MPF(-1-) 30th June 2007	WLR ISDN2(-1-) 30th Sept 2007	WLR ISDN30(-1-) 30th Dec 2007
Ready to Mass Migrate	PSTN Customer Side 31st March 2008		Featureline Customer Side 30th June 2009
Migration Progress	Customer Side		Supply Side
	50% migrated 30th Nov 2008	90% migrated 30th Sept 2009	50% migrated 31st May 2009	90% migrated 31st Jan 2010
Physical Separation Complete	June 2010

Footnotes:

1.- Applicable to EOI products

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