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1. How will Ofcom ensure the undertakings are implemented in full and on time?

   Ofcom will work closely with BT, industry stakeholders and consumer groups to ensure that the objectives of the Strategic Review of Telecommunications are met.

   Over the next six months BT will start to deliver against a timetable for implementing the undertakings. The key milestones include:

   • Setting up a new and operationally separate business unit, which BT has called Openreach. It will be staffed by employees who are presently responsible for the operation and development of BT’s local access networks and with senior managers who are incentivised solely on the objectives Openreach rather than the objectives of BT Group plc.
   • Working to achieve equality of access, where Openreach will be required to support all communication providers’ activities (including BT Retail’s) on a precisely equivalent basis. This will mean that BT’s competitors will benefit from the same products, prices and processes as BT itself.
   • Creating an Equality of Access Board (EAB), and in consultation with Ofcom, the appointment of its members. The EAB will monitor BT’s compliance with the undertakings.
     
2. How will Ofcom monitor BT’s performance in delivering these changes?

   Over the next 12 months Ofcom will publish regular updates on the implementation of the undertakings and their impact. The first report will be published later in the autumn.

   Ofcom will monitor:

   • Whether BT is meeting the letter and spirit of the undertakings. To measure this Ofcom will develop indicators, in consultation with BT, the EAB and other stakeholders, which it expects to publish in December.
   • The immediate and medium-term benefits to communications providers. Ofcom’s regulatory approach aims to promote competition. Ofcom will speak to industry and consumer groups to determine a set of indicators to measure the level of competition in the UK telecommunications market. The indicators might include, for example, the amount of investment in unbundled exchanges and the take-up of products such as Wholesale Line Rental.
   • The immediate and medium-term benefits to consumers and businesses. Ofcom’s fundamental aim is to create a communications market that delivers greater choice, value and quality to consumers and businesses. Ofcom will therefore monitor indicators such as retail prices, service quality and choice of services to assess how the market is developing. The results will be included in Ofcom’s Communications Market Report (published every summer), which will include an assessment of trends and changes in the data.
     
3. If Ofcom finds that BT is in breach of the undertakings then what powers of enforcement or sanction does it have?

   The undertakings are enforceable under the Enterprise Act 2002.

   As part of the undertakings, Ofcom has the power to issue directions to BT to remedy any breaches. Under that Act, Ofcom can bring an action in the High Court if BT breaches the undertakings.

   If it emerges that undertakings are failing to address the competition problems outlined in the Strategic Review of Telecommunications then Ofcom has the power to open an investigation with a view to making a Market Investigation Reference to the Competition Commission. However, under the Enterprise Act, Ofcom cannot make a reference within twelve months, unless the undertakings have been breached.

4. When will the undertakings take effect?

   The undertakings take effect from 22 September 2005

5. Will the undertakings be reviewed in the future? If new technology emerges over the next few years, or if the structure of BT changes, then can the undertakings be amended to reflect these developments?

   The undertakings are intended to be a long term fix to the competitive problems in telecoms markets, not a short term measure. However, Ofcom has a general duty under the Enterprise Act to keep the undertakings under review.

   In addition, Ofcom will be carrying out a review next summer looking at the efficacy and delivery of the undertakings. Ofcom will also take that opportunity to look at how some of the more detailed rules are working in practice.

   It is possible that a new technology or other change will come along which will change the analysis of competition upon which the undertakings were based. Ofcom does not expect that, certainly in the medium term, but we can’t rule it out. In that case, Ofcom would be under a duty to look again at whether the undertakings needed reviewing

6. Is there still a possibility of a referral of BT to the Competition Commission under the Enterprise Act?

   Ofcom’s preferred long-term route to solving the competition problems that the Review identified is via these undertakings, and Ofcom is confident that they will address the competition problems successfully.

   In any event, under the Enterprise Act 2002, Ofcom cannot make a reference within 12 months on an issue on which it has accepted undertakings, unless those undertakings have been breached.

   However, after that Ofcom cannot legally rule out making a reference to the Competition Commission; it is one of the powers given to Ofcom by law, and Ofcom cannot legally say that it will not use that power in future.

7. How will Ofcom ensure that the Chinese walls between BT Group and Openreach remain in place?

   The rules keeping Openreach separate from BT require some quite significant changes to be made.

   For example, the management team running Openreach has to be in a separate building from the rest of BT, and the staff working for Openreach will be paid according to the performance of that business unit, not of BT Group as a whole.

   These arrangements will be monitored by the new Equality of Access Board (EAB), and if BT’s wholesale customers feel that the arrangements are not working, they will be able to complain to the EAB or to Ofcom.

8. Why did Ofcom reject the break up option – it worked in the gas industry, why not in telecommunications?

   Ofcom believes that it would not be proportionate to break up BT at this time, because we think the package of undertakings that we have accepted is sufficient to address the problems that we identified in the market. Ofcom accepts that there are certain benefits to BT’s vertical integration.

   It is important to note that Ofcom does not have the power to break up BT; Ofcom would have to refer the issue to the Competition Commission. If the issue was referred, the Competition Commission might or might not think that break-up was a suitable remedy.

9. How will the undertakings benefit consumers and when will these benefits become evident? Will consumers see a fall in their telephone and internet bills?

   Ofcom’s Strategic Review of Telecoms started by looking at what consumers want from today’s telecoms markets. Ofcom found that consumers do not just want lower prices, but also new products, and more choice. Ofcom’s Review found that the UK telecoms industry was not well-placed to deliver that.

   These undertakings will allow BT’s competitors to compete with it effectively. Ofcom expects effective competition to deliver lower prices and new services to consumers.

   For example companies are already investing, or about to invest large sums of money in new, faster broadband using local loop unbundling. As well as these early benefits, Ofcom expects that effective competition in the industry will deliver lower prices and more choice to consumers in the long-term.

10. How will Ofcom prevent rogue companies exploiting the new regulatory contract to the detriment of consumers?

    These rules will allow companies who want to compete legitimately to do so fairly. Separately, Ofcom is working hard on measures to target companies who break the rules – often inadvertently but sometimes on purpose.

    For example, in May 2005 Ofcom introduced measures to deal with fixed-line telephone slamming. All telecoms providers now have to have a sales and marketing code, and enforcement activity in this area is already underway.

11. How will industry benefit from the undertakings and when will the benefits become evident?

    Ofcom expects the undertakings to allow BT’s competitors to compete with BT on a more equal footing. That will allow well-run companies, with innovative products or very good customer service, to excel. Some of the measures in the undertakings delivering this will be in place quite quickly; others will take some time to put in place. The undertakings contain detailed deadlines for the delivery of particular measures.

12. Will the undertakings make it harder for the smaller alternative networks to compete? Will the undertakings make industry consolidation more likely?

    Ofcom’s aim is to create an environment where communications providers can compete fairly. This means focusing regulation on the parts of the network where there won’t be effective, long-term competition against BT; for example, the access network that connects to homes and businesses.

    Service providers that own some or no network are very important for a competitive market too, but Ofcom wants to move to a situation, as in other industries, where companies can buy from providers operating in competitive wholesale markets.

    Ofcom is not for or against consolidation in the industry, but as a competition regulator we would work with the OFT to investigate the impact of any proposed mergers on competition.

13. What is the relationship between the Undertakings and the current ex-ante framework?

    All of Ofcom’s duties, functions and obligations under the Communications Act 2003 remain in place. The undertakings are complementary to the existing ex-ante regime, they do not replace it.

14. Won’t next year’s review of the EU Regulatory Framework affect the undertakings?

    No. The undertakings have been accepted under the Enterprise Act 2002, which is a piece of UK competition law. The undertakings will be unaffected by any change in the European Framework.

15. If BT acts to the letter and spirit of the undertakings what impact will this have on de-regulation?

    Ofcom’s Strategic Review of Telecoms pointed out that BT is subject to a complicated mesh of regulation in many of the markets that it operates. The undertakings will have the effect of focusing the rules on the areas where there is a problem and because of this Ofcom expects to be able to deregulate in other areas.

    Ofcom has already started to look at the areas that it can do this; for example looking at whether BT can offer unpublished, bespoke prices to large business customers; there a number of other such areas where Ofcom will be considering deregulation in due course.

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