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Summary

Background

1.1 Wholesale Line Rental (WLR) allows alternative suppliers to rent access lines on wholesale terms from BT, and resell the lines to customers, providing a single bill that covers both line rental and telephone calls. Its introduction has been a significant stage in the development of competition in retail markets in the UK. A fully effective WLR product will bring major benefits to consumers in terms of increased choice, innovation and lower prices. Consumers in all parts of the country will have the opportunity to choose alternative suppliers who provide combined access and call services.

1.2 In 2002 BT was required to introduce WLR. This was linked to a form of incentive regulation - the retail charge control would be relaxed from RPI-RPI to RPI+0% when Ofcom assessed that BT had introduced a fit-for-purpose WLR product which was being actively used by competitors. This commitment gave BT an incentive to introduce WLR fully in a timely manner and also recognised that the market for these services would become more competitive through the introduction of a fit-for-purpose WLR, with competition itself controlling prices.

1.3 ‘Fit-for-purpose’ (FFP) is to be assessed in terms of material compliance with a product specification and process implementation published in March 2003 and through an analysis of the market impact of WLR.

1.4 BT triggered the assessment on 8 July by writing to Ofcom indicating that it considered that the WLR product now met the requirements set in 2003 and that the charge control should consequently now be relaxed.

1.5 This document sets out Ofcom’s analysis of the extent to which WLR meets the FFP requirements and invites views on Ofcom’s initial conclusions.

Assessment

1.6 The product specification set 38 main requirements for BT to meet in terms of providing a FFP WLR product. Having assessed the WLR services and processes introduced by BT, Ofcom believes that 37 of the requirements have already been delivered as specified or as subsequently agreed by Ofcom and service providers, albeit in the case of two only marginally. The 37 include exchange line types, supplementary services, forecasting and order queue management, billing and debt management, consumer protection measures and most ordering, provisioning and fault management requirements.

1.7 The product area which Ofcom believes does not meet the requirement is the process that enables service providers to transfer customers when they move home.

1.8 To measure the performance of WLR process implementation, 15 Key Performance Indicators (KPIs) were set in 2003. Ofcom believes that, on the basis of current data, 13 of the KPIs meet the requirements set, including four where the requirements are met in part. The two areas where Ofcom believes the requirements are not met relate to the availability of the ordering and fault management services.

1.9 BT has provided an ‘action plan’ in which it commits to make improvements to the WLR processes and systems in system upgrades in December 2005 and April 2006 which will address the shortcomings in the failing areas identified in the assessment and in those Ofcom judges to have only marginally met the 2003 requirements.

1.10 Another part of the assessment considers whether the market impact of WLR was such as to suggest that the goal of effective retail competition was likely to be achieved. The levels set in 2003 for a FFP assessment were 50,000 WLR orders a month.

1.11 Since the launch of WLR in March 2004 there has been entry by a number of companies pursuing the mass-market residential base. The average monthly growth rate for WLR over the last six months has been 115,758 lines, with an average of 80,798 residential and 34,960 business lines. At the current rate of growth Ofcom estimates that there will be over one million residential WLR lines by the end of 2005 and potentially between 2.5 and 3 million by the end of 2006.

Assessment conclusions

1.12 In considering whether the WLR product is FFP, Ofcom has taken into account the extent and timing of the work needed to address the shortcomings identified. Ofcom has concluded that BT’s program of work will address within a reasonable timeframe the areas where the WLR processes and systems do not currently meet the requirements set in 2003. Moreover, Ofcom has the power to direct BT to deliver these improvements within certain timescales if necessary.

1.13 Given that the WLR product meets most of the core requirements, that the work outstanding is sufficiently minor, that BT has committed to carrying the outstanding work in a timely manner and that take up levels are significantly exceeding the targets set, Ofcom believes that WLR is FFP under the criteria set in 2003. Ofcom is therefore proposing that the retail charge control should be relaxed to RPI+0% from December 2005.

1.14 The proposed relaxation of the control is a major deregulatory measure which is an appropriate response to the significant increase in competition that the introduction of a fit-for-purpose WLR product brings.

Next steps

1.15 Ofcom is consulting on the proposal that WLR is FFP on the basis of BT’s actions to date and commitments to address the areas identified. The consultation runs until 8 November. A statement setting out Ofcom’s conclusions will be published in December.

1.16 The retail charge control provision itself expires on 31st July 2006. Ofcom intends to review the charge control provisions in the first half of 2006 to consider whether it is appropriate for the control to lapse or whether new arrangements should be put in place from July. The review will include a consultation in spring 2006.

The full document is available below

• Responses
• Wholesale Line Rental - Fit For Purpose Assessment - Statement
• Wholesale Line Rental : Fit-For-Purpose Assessment [pdf]
  Full Print Version

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