Bundled discounts offered by other Operators
Other issues – Condition 24F Conclusions
Annex 1 – Detailed description of the tariff
Annex 2 – IDD routes which are below fully allocated cost after maximum relevant discounts
1 BT have proposed the introduction of a new tariff which would offer discounts to customers based on their spend on both outbound calls and inbound freephone and lo-call services across all their sites.
2 The bundling of services through the use of discounts both by BT and other operators is likely to become increasingly common and raises important competition issues. Oftel believes it helpful to both the industry and its customers to set out how it has examined BT’s proposal.
3 The following principles have informed our assessment:
- An explicit tie, making the sale of a product where the operator has a dominant position conditional on the purchase of one where the operator is not dominant, is likely to constitute an abuse of the dominant position and to be prohibited.
- Where an operator offers a tariff package comprising products from several different economic markets and where the operator is not dominant in any of those markets, then this is unlikely to have an adverse effect on competition.
- In the absence of an explicit tie–in, where an operator wishes to offer a tariff package in which the overall level of discount is based on a customers’ total expenditure across a range of products and the operator is dominant in the supply of at least one of the products, then the package will need to be assessed in terms of whether the discount provided could have a de facto tie–in or discriminatory effect. In particular, whether the discount for the package is significantly greater than the discount available for each product separately.
- Factors that are likely to be important in assessing the impact on competition in the above situation will include:
(a) the ability of competitors to replicate (both technically and commercially) the package of services on offer to the customer – this will include a consideration of the importance of geographical factors;
(b) the prospects for the development of effective competition in the markets where the operator is considered dominant; and the incentive properties of the tariff.
4 In relation to this particular scheme Oftel has reached the following conclusions:
- BT does not appear to have a dominant position in the provision of either inbound services or outbound call services for business customers.
- Although the tariff could take the price of calls to a number of international countries below fully allocated costs (thus requiring BT to obtain formal consent from Oftel for the below cost prices under the terms of its licence), Oftel believes that in this case these prices are unlikely to produce a material effect on competition.
- Based on this preliminary analysis, the tariff as a whole would appear not to have a material effect on competition and to be a reasonable response by BT to competition.
5 Consequently,
- Oftel does not propose to object to the new tariff.
- Oftel is minded to grant consent for the below fully allocated cost prices. Such a consent would only be granted after consideration of any responses to this statement received by 13 November.
- Should Oftel grant consent, which would allow BT to publish the tariff (as required under its licence), then it would be prepared to waive the normal 28-day period between publication and introduction of the tariff to allow it to be introduced on 1 December 1998.
Any comments on this statement should be received in Oftel by 13 November and addressed to:
Keith Loader
Oftel
50 Ludgate hill
London
EC4M 7JJ
email: kloader @ oftel.gov.uk
Fax: 0171 634 8949
1.1 This document sets out the approach Oftel proposes to adopt in relation to tariff packages for businesses offered by BT which include a discount structure that is based on expenditure across a range of services. BT has indicated that it believes that customers are increasingly looking to it to offer discounts which take into account their total expenditure with BT in the same way that happens in their dealings with suppliers outside the telecoms sector. BT has also claimed that its competitors are already offering such discounts and that it is now in the position of having to respond to the way in which competition is developing.
1.2 The term bundling is generally used to describe situations where a firm bundles together a number of products and typically the price of the bundle would be less than the price of buying each product individually. In this document Oftel uses the term ‘bundled discounts’ to refer to tariff packages where the discount is based on total expenditure across a number of products.
1.3 Typically there are basically three forms that bundled discounts can take:
a site-based discount where the scale of the discount at a particular site depends on the total expenditure across a range of different products at that site;
a product-based discount ie where the scale of a discount on a particular product depends on the total expenditure on that product across, say, all of a firm’s sites; and
a whole firm discount ie schemes which combine product and site–based discounts eg a discount scheme which is based on the customer’s total expenditure across all the firm’s products.
1.4 The Guidelines which accompany the Fair Trading Condition (‘FTC Guidelines’) set out the position that, in a competitive market, discounting is generally taken as a sign of healthy competition. However, in those markets where competition is not fully established, discounting of prices by the incumbent may be a form of price discrimination and may be considered to constitute anti-competitive behaviour. In general, discounts which reflect real underlying savings in costs of supply would not be discriminatory and would not be seen as anti-competitive.
1.5 However, the FTC Guidelines did set out some examples of discounts which might be expected to have an adverse effect on competition eg loyalty rebates – where a firm receives a rebate provided it has met certain expenditure targets set by the supplier. The Guidelines also indicated that certain forms of bundling could have an effect which was similar to a refusal to supply and thus were unlikely to be justifiable eg full–line forcing – where a firm is required to purchase an entire range from one supplier. One mechanism by which this sort of bundling could be enforced is if there is an explicit ‘tie-in’ – for instance, if a dominant operator imposed an explicit linkage between the purchase of different products ie where the ability to purchase product A was conditional on the customer also purchasing product B from the same firm. This would prevent a firm supplying only product B from competing if the operator was dominant in the provision of product A.
1.6 In situations where there is not an explicit tie-in, it is nevertheless still possible to structure a discount system in such a way that it has the effect of a tie between products/services where the supplier is dominant (‘non-competitive products’) and those in which the supplier is not dominant (‘competitive products’) eg by offering a discount based on total expenditure across competitive and non-competitive products. There is a danger that such a discount structure could in effect tie customers in to the supplier for all services even though there is no formal contractual obligation to that effect. For instance, in order to qualify for the discount a business customer might be dissuaded from switching expenditure from the dominant supplier even for competitive products.
1.7 In the case of BT there is the need to consider whether a discount scheme based on whole company expenditure exploits BT’s position as the only network operator with geographical ubiquity in the UK in a way that is likely to have an adverse effect on competition. The concern here is that since only BT is able to serve all sites across the UK, a discount scheme based on aggregate expenditure across a number of sites will deter a firm from switching to another operator at those sites where it has this choice. To date BT has not been permitted to offer multi-site customers bundled discounts based on total expenditure across all of a firm’s sites.
1.8 BT currently offers a number of discount schemes for business customers. For instance:
Business Choices: offers business customers on a single site reduced call charges for calls made on exchange lines nominated by the customer in exchange for a quarterly fee. The discounts available depend upon which scheme the customer has opted for but are in the range:
- National and international calls: 27–31% discount;
- Local rate calls: 20–24% discount;
- UK Chargecard calls: 14–18% discount;
- Calls to Mobiles and PRS: a flat rate 5% discount.
Corporate Choices: offers business customers discounts for direct dialled calls in return for a quarterly corporate charge and a quarterly site fee. The level of discount for each site is determined by the Site Fee paid.
1.9 Other discount schemes which can be combined with Business Choices and Corporate Choices include: Key Numbers; Key Cities, Key Regions and Key Countries.
2.1 BT has now indicated that it wishes to offer a discount package which is based on a firm’s total expenditure on outbound calls (ie local, national and IDD) and ‘inbound’ calls (ie 0800– and 0345– type services). This package is therefore one which bundles together inbound and outbound services across sites.
2.2 According to BT the proposed tariff aims to meet the increasing usage of outbound and inbound services across the whole business market. It will offer additional discounts ranging from 1 – 5% on aggregated call spend over ,125 per quarter for both categories of service across all of a customer’s sites. The maximum level of discount is achievable on qualifying spend of ,1,000,000 per quarter or more.
2.3 Existing BT customer discounts will still apply and the scheme will be applied to the customers total net call spend on qualifying calls. For example, a customer’s call discounts on outbound calls such as ‘Business Choices’, ‘Key Discounts’ and ‘Community Discount’ will still apply to a customer’s call bill. The additional discount under the new scheme will apply over and above other discounts.
2.4 The tariff includes a number of call spend thresholds which determine the level of additional discount that a customer qualifies for. A customer’s quarterly spend on each qualifying call type (ie inbound and outbound) must be at least 10% of the qualifying spend threshold or a reduced threshold discount will be applied. Although there is no fee to join the scheme, customers must register for the scheme with BT and must use both outbound and inbound services. Further details of the scheme and the conditions attached to it are provided at Annex 1.
2.5 In considering tariffing issues in relation to services offered by BT, Oftel is concerned to ensure that BT is complying with the terms of its licence. For instance, Condition 17 requires that BT not show undue preference to, or exercise undue discrimination against, particular persons or persons of any class or description and Condition 18A (the Fair Trading Condition) prohibits BT from abusing a dominant position or acting to distort, restrict or prevent competition in a market.
2.6 BT’s position as the former incumbent PTO means that in a number of markets, its market position – in terms of market share – is likely to lead to a presumption of dominance. That presumption would then need to be tested against actual market conditions. However, under EU jurisprudence even firms which are considered to have a dominant position in a particular product market are entitled to respond to competition ie a dominant firm does not have to passively accommodate new competitors. This concept of proportionality that lies behind the notion that a dominant firm should be entitled to defend its legitimate interests (ie ‘meet’ competition) has been developed by the ECJ across a number of cases (eg Eurofix-Bauco v. Hilti).
2.7 In situations where the tie-in is not explicit, Oftel’s concern will be to examine the impact on competition of the discount structure ie to examine the incentives on customers and the discriminatory effects as between customers. Factors that will need to be taken into account in considering whether such a structure is anti-competitive include the degree of competition for the individual products; the technical and economic feasibility of unbundling; and whether there is any exclusionary effect. For instance, if it is economically feasible and realistic for competitors to offer an equivalent bundle of services – even if they are not yet actually doing that – then the bundling of those services by an incumbent would not be likely to have an adverse impact on competition.
2.8 In order to assess these different factors as applied to this case it is necessary to consider the competitive conditions for each of the services (or sets of services) involved.
3.1 In the course of the 1996 Retail Price Control Review, Oftel identified separate national markets for local, national and IDD calls. In the Statement Pricing of Telecommunications Services from 1997 (June 1996) Oftel concluded that there were good prospects for competition in certain services and for medium and large businesses and as a result, Oftel believed that further price controls on the business markets were no longer necessary, apart from a requirement on BT to offer a safeguard package for small businesses. As a result of this, the scope of the price control was formally reduced to cover just residential customers.
3.2 Oftel proposes to continue to use these market definitions and also proposes to look again at how competition has continued to develop in terms of the provision of these services.
3.3 Table I below gives an indication of the emerging competition in the national call market for business customers over the last 6 years.
Table I: National Call Revenues.
| Year | BT | Cable | CWC/Mercury | Others |
| Business | ||||
| 1992/3 | 83.8% | 0.2% | 15.9% | 0.0% |
| 1993/4 | 80.3% | 0.6% | 19.0% | 0.0% |
| 1994/5 | 76.2% | 1.1% | 22.0% | 0.6% |
| 1995/6 | 73.2% | 1.9% | 20.4% | 4.5% |
| 1996/7 | 70.7% | 4.0% | 17.3% | 9.0% |
| 1997/8 | 65.4% | 2.9% | 16.6% | 15.1% |
3.4 The change in the pattern of market shares over time has taken place against the background of PSTN traffic volumes which are growing at around 8-9% per annum. On this basis, Table 1 would suggest not only that BT is facing increased competition for business customers but also the fact that other established competitors have seen their market shares fall would indicate that they too are facing increased competitive pressures.
3.5 In particular the most significant change has been in the growth of indirect access. Over 40 telecoms companies have been licensed to provide indirect access services in the UK and it has been estimated that over 13% of customers in the business market already use indirect access services. The competition provided by resellers has helped to keep retail pricing pressure on BT, CWC and other facilities based carriers. A number of operators also use indirect access as a way of offering services in areas where they have yet to build out their own local network infrastructure. For instance, licensed resellers in the UK include WorldCom International, COLT and AT&T (UK), all of which are also in the process of building out their own network infrastructure.
3.6 On the basis of the availability of indirect access on a national basis, Oftel considers that it should be technically and commercially feasible for other operators to offer national call services to business customers across the UK.
3.7 In the context of the 1996 Price Control Review, Oftel indicated that it proposed to regard individual country routes (eg UK-US, UK-Australia) as separate product markets. However, for the purposes of an overall analysis of competition it can be useful (and more practical) to aggregate market share data across routes where BT faces competitors who also operate across a number of different routes, rather than to consider the market structure of every single route. The overall change in the pattern of shares for all IDD calls made by business customers is shown in Table II below.
Table II: Overall Market Shares of International Call Revenues.
| Year | BT | Cable | CWC/Mercury | Others |
| Business | ||||
| 1992/3 | 66.6% | 0.5% | 32.9% | 0.0% |
| 1993/4 | 61.8% | 1.1% | 34.9% | 2.2% |
| 1994/5 | 59.8% | 1.7% | 32.6% | 6.0% |
| 1995/6 | 55.5% | 2.2% | 25.2% | 17.1% |
| 1996/7 | 47.9% | 2.8% | 21.3% | 28.0% |
| 1997/8 | 39.1% | 2.1% | 20.6% | 38.1% |
3.8 The fact that BT’s share of the total revenue for international calls by business customers has fallen below 40% is perhaps the most dramatic illustration of how quickly market structures can change once competition is introduced. On some specific country routes where there is the most competition, BT’s share on individual country routes may well be even lower than 40%.
3.9 At the end of 1996, Oftel announced the full-scale liberalisation of international facilities. This removed a significant barrier to entry because up to then operators had been dependent on BT and CWC for the provision of international private circuits over which to offer service in competition with BT and CWC. Although the full impact of this is likely to take some time to feed through, BT estimates that as at end June 1998, its share of overall IDD call volumes had fallen further to 30%.
3.10 The change in market shares over time, together with the removal of a major regulatory barrier meaning that IDD markets are likely to become more competitive, means that Oftel considers the markets for IDD calls to be basically competitive.
3.11 Up until recently it was thought that it was not economic to offer local call services by means of indirect access. However, BT has argued that there is currently an arbitrage opportunity for indirect access operators and has provided a series of illustrative calculations to indicate the gross margin available to indirect access operators if they were to purchase the underlying interconnection services from BT.
3.12 Although Oftel is sceptical as to whether the gross margin is perhaps as great as BT purports to demonstrate, Oftel is aware that a number of indirect access operators are offering local calls as part of the package of services they offer (eg Broadsystems). In addition, BT provided a number of examples where its competitors are actually offering local call services via indirect access to customers. For example, BT has provided examples where:
- an operator without extensive national network infrastructure has recently won a contract to supply a customer with indirect access at all sites for all outbound calls;
- another operator with a more extensive national trunk network supplies call services to a major travel firm through a combination of direct connections to the firm’s Head Office and smart boxes at another 70 locations across the UK. All regional, national and international traffic is then routed over the operator’s network; and
- an aggregator has installed software at 500 sites of a bank and will use indirect access to route all UK and international traffic through different operators.
3.13 These examples would appear to indicate not only that businesses are prepared to accept indirect access solutions but that BT’s competitors have been able to compete successfully with BT for multi-site business customers.
3.14 At present, Oftel believes that there is an arbitrage opportunity for providing local call services by means of indirect access and considers that it is technically as well as commercially feasible for other operators to offer local call services across the UK.
4.1 BT uses the term ‘inbound services’ to refer to both Freefone (ie 0800/0500) and Lo-call services (ie 0345/0845).
4.2 An important feature of these services is that the called party bears part or all of the costs of the call and that the standard geographical tariff bands do not apply. In the case of a call to an 0800 number from within the UK, the call is free to the calling party and it is the called party that is charged for the call. In the case of Lo-call services, the caller is charged at local rates, wherever they call from in the UK and the called party meets the balance of the call charge. In addition to simply providing a mechanism by which the called party can bear part of the call charge, operators offering inbound services will also provide ancillary services such as flexible call routing arrangements or statistical analysis of call patterns.
4.3 The customers contracting with operators to set up inbound services will almost exclusively be business users. Inbound services are typically used for sales/marketing or customer support functions but they can have a wide range of applications: order handling, creating and testing new channels to market, expanding market presence, customer care and sales support. For example, a number of financial institutions use 0800 numbers for handling enquiries about PEPs, Unit Trusts etc. It is also the case that some businesses operate behind these numbers eg a number of the telephone banking services operate behind 0345 numbers; many Internet access providers provide their services from behind an 0345/0845 number; and a number of calling card operators often use an 0800 number by which customers can access their services. A number of charities also use 0800 or 0345 numbers to provide Helpline services.
4.4 For some cases, the sequence of numbers might impart a special significance to the number in its own right (eg the Department of Health uses 0345 123456) or for some firms a particular sequences of numbers will have its own significance. These numbers are sometimes known as ‘golden numbers’. Number translation has been introduced for non-geographic numbers and this reduces an important barrier to switching operators (see below).
4.5 Another product within the portfolio of marketing/customer service products is the national call rate number (ie calls using the 0990 number range). However, a key difference between national rate call services and inbound call services is that for national rate call services the calling party is charged at the equivalent PSTN national rates, irrespective of where the caller is calling from in the UK. This means that the called party does not bear any of the call charges.
4.6 On the demand-side, some firms appear to have a preference for using, say, an 0800 number for sales and marketing purposes but an 0345 number for longer term customer information services. For instance, where a firm is trying to generate customer response in conjunction with a short-term marketing campaign, they might use an 0800 to help stimulate enquiries about the firm’s products. Where there is likely to be a longer term relationship with the customer, a firm might prefer to use an 0345 number in order to offset some of the expense they would otherwise incur in using an 0800 number. Indeed it is the case that a single firm might use freephone numbers for marketing purposes and lo-call numbers for on-going customer support functions.
4.7 This distinction is by no means a hard and fast rule but it could indicate that these services could be regarded as forming part of a portfolio of products that a business would use, rather than being in direct competition with each other. Oftel has not received any evidence about customer behaviour in relation to changes in relative prices and so it has not been possible to assess properly the extent to which customers might switch between the two services if the price of one were to be increased by a small but significant, non-transitory increase in price.
4.8 Oftel does consider that there is an important distinction on the demand-side between these specially tariffed voice services and premium rate services. Premium rate services are typically used by service providers to offer content-based services to the customer eg adult information lines, chat lines, etc. Premium rate numbers are billed at a higher rate than for a standard phone call and the operator shares the revenue from each call with the service providers who operate and promote their services independently. In some cases the customer is charged a flat rate amount per call rather than on a pence per minute basis.
4.9 In some cases customer helplines do operate behind premium rate numbers – for instance, premium rate numbers are used by some IT firms – and they have also been used for charity fund raising events, but for the most part they are used where the service provider has information of value to callers. Given the higher rates that are charged for accessing premium rate numbers it seems, in general, that firms would be unlikely to regard premium rates numbers as close substitutes for specially tariffed voice services.
4.10 On the supply-side, there does seem to be considerable scope for substitution between the two services in that not only would the intelligent network features which implement the number translation for 0345 and 0800 services be identical, but also the marketing and distribution mechanisms for these services are likely to be very similar. The network arrangements in terms of delivering high call volumes and peak call volumes are likely to be very similar. More formally, if there was a single supplier of 0800 numbers and that firm tried to exploit its position over its customers, it is not only feasible, but also likely, that firms providing 0345 numbers would be able to switch quickly and easily to offering 0800 numbers without having to make substantial additional investments.
4.11 In fact, in terms of the operators which offer these types of services, it is already commonplace for an operator to exploit these economies of scope to offer both freephone and lo-call services.
4.12 It is likely that the scope for supply-side substitution extends across all specially tariffed voice services ie freephone, lo-call and national rate services. In terms of extending this argument to include premium rates services, Oftel understands that the intelligent network features for implementing number translation would be the same, but is less clear about the extent to which substitution between these different types of service would be likely or indeed the extent to which it is currently taking place.
4.13 In terms of the geographical market, it would appear that an operator does not require a ubiquitous network in order to be able to provide these services to firms across the UK. Consequently, Oftel proposes to regard the relevant geographical market as being national in scope.
4.14 Taking into account the above discussion of demand and supply-side factors, the narrowest product market definition that would seem reasonable, would be to consider 0800 and 0345– type services as part of the same market. However, Oftel accepts that, taking into account supply–side factors, the relevant market could be extended to include national call services. BT have not provided any arguments to suggest that they believe that this is the case. Oftel believes that the demand-side characteristics of premium rate services would tend to imply that they would not be seen as close demand-side substitutes.
4.15 For the purposes of this statement Oftel will consider the competitive conditions surrounding the provision of 0800 – and 0345 – type services. At this stage Oftel is proposing to consider premium rate services as a separate market from inbound services although it would be prepared to reconsider this issue.
4.16 In 1995 Oftel decided that 0800 numbers were widely recognised industry standards and should be available to all operators. Prior to 1995, Mercury was the major competitor to BT. Since 1995, a large number of other operators have begun to offer telemarketing services for business. In its response to the Oftel Consultative Document Pricing of Telecommunications Services from 1997 (Dec. 1995), BT estimated that for the period 1995/96 it accounted for around 80% of all 0800/0345 calls. It estimated that the next largest competitor was Mercury with 15% and no other competitor had more than 1%.
4.17 In terms of other operators offering these call services, BT now faces competition from a range of operators. For instance, Oftel is aware that CWC, Kingston, NTL, Telewest, COLT, MFS/WorldCom, Torch, Norweb, AT&T and Scottish Telecom are among some of the operators which offer both freephone and lo-call services to customers. In all, BT estimates that there are now around 81 licensed operators offering inbound services.
4.18 BT estimates that for September 1996, it accounted for around 81% of all 0800 call minutes and 62% of all 0845/0345 call minutes. Estimates of BT’s market share of the freephone and lo-call segments for the year ended March 1998 are set out in the table below:
| 30/09/96 | 30/09/97 | 31/01/98 | 30/06/98 | |
| Freephone Segment | ||||
| BT Minutes | 87.2m | 121.6m | 149.0m | 151.1m |
| Total Minutes | 107.5m | 178.6m | 232.1m | 246.1m |
| BT share | 81.1% | 68.1% | 64.2% | 61.4% |
| Lo-call Segment | ||||
| BT Minutes | 87.6m | 149.0m | 195.6m | 224.0m |
| Total Minutes | 140.8m | 618.3m | 968.3m | 1,142.9m |
| BT share | 62.2% | 24.1% | 20.2% | 19.6% |
| Overall Market | ||||
| BT Minutes | 174.8m | 270.6m | 344.6m | 375.1m |
| Total Minutes | 248.3m | 796.9m | 1,200.4m | 1,389.0m |
| BT Share | 70.4% | 34.0% | 28.7% | 27.0% |
Source: BT.
4.19 The substantial reduction in market shares over a relatively short period of time (ie 2 years) would appear to reflect a rapid development of competition. Other things being equal, entry will be more likely in a growing market than one which is static or declining. The fact that the volume of freephone and lo-call minutes has been growing rapidly would also tend to facilitate market entry. BT estimate that freephone and lo-call minutes are growing at an annual rate in excess of 50% and 140% respectively.
4.20 The history of entry into this market since 1995 would indicate that, for existing telecoms operators, barriers to entry are low. On BT’s network, number translation may be carried out using either the IN Phase I platform (where a database is accessed via a signalling message from a tandem switch) or using its Derived Services Network where more complex features are required. The technology for offering number translation services is now typically embedded within the switches being used by other network operators – this means that they have been able to develop number translation platforms without the same legacy issues that BT has had to deal with.
4.21 The introduction of number portability for non-geographic numbers also removed a significant barrier to entry. In some cases it was perceived that businesses would be reluctant to switch away from certain numbers or groups of numbers because their customers were familiar with them. However, porting numbers to another operator is now a realistic option.
4.22 To demonstrate the impact of number portability, BT has been able to provide a range of actual examples where customers have ported 0800 and 0345 numbers to other operators. The examples provided by BT indicate that it is not just large companies with a significant level of expenditure on inbound services which are able to switch to BT’s competitors, but that firms situated in the more geographically remote areas (eg Cornwall and the North of Scotland) and which have relatively low levels of expenditure on inbound services, can and do switch to other operators. As at the end of June 1998, BT had 11 non-geographic number portability agreements ‘in service’ and another 10 operators were proceeding through the service establishment phase on the way to implementing portability agreements.
4.23 In terms of pricing, there is evidence that BT has responded to the increasing competition for inbound services by reducing its prices (most recently, the basic price of Freefone and Lo-call services was reduced at the beginning of September 1998) as well as engaging in a series of special offers and promotions. Again this would indicate that BT is being forced to respond to the increasing competition that it faces from other operators.
5.1 BT has claimed that a number of its major competitors are already offering bundled discounts to business customers on a UK wide basis ie the discount a customer receives is based on its total expenditure on telecoms services with that operator. For instance, BT claims that CWC has a range of discount schemes (eg UKLink, MetroLink and Corporate Portfolio) which offers a combination of volume, term and total expenditure discounts across a range of services including inbound and outbound call services. BT believes that AT&T and Telinco are other operators who offer bundled discounts as a matter of course.
5.2 The fact that other operators appear to bundling inbound and outbound services together lends support to the argument developed above that it should be technically possible for BT’s competitors to be able to replicate the bundled package that BT is offering.
6.1 Condition 24F.4 of BT’s licence requires it to seek the Director General’s written consent before it publishes and introduces any tariff (or change to an existing tariff) which would reduce the prices of certain services such as calls and exchanges lines (known as ‘general prices’) below cost. The Condition requires that consent to the introduction of such a tariff ‘shall not be unreasonably withheld’. In determining whether to grant such consent the Director General would normally base his decision on an assessment of whether any material anti-competitive effects were likely to arise from the new prices.
6.2 Given the overlapping nature of many BT discount schemes it can sometimes be difficult to calculate the price of a particular service or even a particular call and hence whether it is above or below cost. For example, BT’s Key Country scheme offers 15% off calls to a particular country for a fixed fee and BT’s Key Numbers (the Business equivalent of Friends and Family) offers 5% off calls to 10 specific numbers and 10% off an eleventh. This means that a customer who has a selected Key Country could get 15%, 19.25% or 23.5% off calls to that country depending on whether he had nominated the number he was calling as a ‘Key Number’. In order to take these factors into account when assessing a discount scheme, a series of assumptions are made which are intended to provide the means of verifying that BT is covering its costs for the discount scheme as a whole eg the number of customers taking up the scheme is an important variable.
6.3 In relation to the particular Inbound/Outbound scheme BT intends to introduce, a number of services could fall below fully allocated costs (FAC) and so require the Director General’s consent for their introduction. In particular, international calls could be below cost on calls to Sweden, and 27 smaller routes (a full list is attached at Annex 2). In relation to Sweden, prices on average would be less than 5% below FAC. Given the level of competition on this route we do not believe that BT pricing slightly below FAC would have an anti-competitive effect. It is also relevant that whilst the network costs of services are calculated on a LRIC (long run incremental cost) basis retail costs are still calculated on a FAC basis. Oftel has stated in its FTC Guidelines that whilst there is a presumption that prices below LRIC are predatory, such a presumption does not automatically apply to prices above LRIC and below FAC.
6.4 In relation to the other 27 international routes prices could, if a customer took advantage of all available discount schemes, in theory fall below FAC by up to 49%. However, examining the list of countries it would seem unlikely that in many instances this level of discount would be achieved. Oftel therefore believes that very few calls to these countries would be so far below cost. Consequently, Oftel fells it is unlikely that there would be an adverse effect on competition and would be minded to grant consent for the new prices. However, comments on our preliminary analysis as set out above, together with any supporting evidence, are welcome.
7.1 In relation to this particular scheme Oftel has reached the following conclusions:
BT Dual Discount, subject to the conditions noted below, offers business customers a percentage discount of 1% to 5% on net (i.e. after all other applicable discounts have been applied) quarterly spend on Qualifying Calls Types where the customer spends a minimum of £125 (exc VAT) per quarter on Qualifying Call Types. The level of discount is determined by the level of spend as set out in the table below.
Qualifying calls types:
1) Inbound Calls
Freefone 0800/0808 and Lo-call 0345/0845 calls.
2) Outbound Calls
PSTN & ISDN local, national, international calls and calls to mobile phones
FeatureNet Off-Net calls,
The following calls are excluded:
Inbound Calls: NationalCall, ValueCall and International Freefone.
Outbound Calls: Chargecard, Operator, Directory Enquiry, Information and Entertainment, FeatureNet On-Net, Evening and Weekend Caller, and Midnight Line calls.
| Quarterly Spend thresholds on qualifying spend (Exclusive of VAT) |
Minimum Call Spend on both Inbound or Outbound
Calls (Exc VAT) |
Minimum Call Spend on both Inbound or Outbound
Calls (Inc VAT) |
Discounts on net spend |
| £125 – £999.99 | £12.50 | £14.69 | 1.0% |
| £1,000 – £9999.99 | £100 | £117.50 | 1.5% |
| £10,000 – £24,999.99 | £1000 | £1175.00 | 2.0% |
| £25,000 – £199,999.99 | £2500 | £2937.50 | 2.5% |
| £200,000 – £399,999.99 | £20,000 | £23500.00 | 3.0% |
| £400,000 – £599,999.99 | £40,000 | £47000.00 | 3.5% |
| £600,000 – £799,999.99 | £60,000 | £70500.00 | 4.0% |
| £800,000 – £999,999.99 | £80,000 | £94000.00 | 4.5% |
| £1,000,000 and above | £100,000 | £117500.00 | 5.0% |
1 Customers must register for the scheme.
2 Customers must be on either Business or Corporate Choices schemes for PSTN
3 The scheme only applies to eligible business lines. Eligible business lines means business lines rented from BT by the customer or the customer's wholly owned subsidiaries. On registration the customer must specify the eligible business lines that the customer wishes to include in the scheme and inform BT of any changes.
4 The customer's quarterly spend on each qualifying call type (i.e. Inbound and Outbound) must equal or exceed the minimum call spend requirement of the qualifying spend threshold. Where the customers spend does not exceed the minimum call spend requirement of the threshold, the next applicable lower spend discount will apply.
Eg. Customer's total net spend is £30000.00 (exc VAT) but spend on Inbound Calls is £2400.00(exc VAT), ( i.e. less than the minimum spend requirement of £2500.00 (exc VAT) for the spend threshold £25000.00 – £199,999.99 (exc VAT)). A 2% discount will apply since the minimum call spend requirement of £1000.00 (exc VAT) for the spend threshold £10000.00 – £24999.99 (exc VAT) is met.
E.g Customer’s total net spend is £30000.00 (exc VAT) but spend on Inbound Calls is £999.00 (exc VAT), (i.e less than the minimum call spend requirement of £2500.00 (exc VAT) for the spend threshold £25000.00 – £199,999.99 (exc VAT) and less than the minimum call spend requirement of £1000.00 (exc VAT) for the spend threshold £10000.00 – £24,999.99 (exc VAT)). A 1.5% discount will apply since the minimum call spend requirement of £100.00 (exc VAT) for the spend threshold £1000.00 – £9999.99 (exc VAT) is met.
The discount is calculated on a quarterly basis and is based on the customer’s net spend on Qualifying Call Types which appears on all qualifying bills issued during the relevant quarter. The first quarter commencing on the registration date. At the end of the quarter BT will apply the applicable discount to the next appropriate customer bill nominated by BT. BT will apply the highest applicable discount to the total quarterly spend.
Routes marginally below cost (ie up to 5%)
| BT Chargeband | |
| Sweden | 1a |
| Guam Palau (The Republic of) |
13 13 |
| Others | |
| Dominican Republic Grenada (inc. Carriacou) Jamaica Montserrat St Kitts & Nevis St Lucia St Vincent & the Grenadines |
5 5 5 5 5 5 5 |
| Tajikistan Guyana Haiti |
8a 8 8 |
| Comoros Somalia |
10 10 |
| Cambodia (Kingdom of) Central African Republic Chad Diego Garcia Guinea Bissau Laos Micronesia Mongolia Nauru Solomon Islands Tonga Tuvalu Vanuatu |
13 13 13 13 13 13 13 13 13 13 13 13 13 |
Barriers to Entry – an additional cost which must be borne by entrants but not by firms already in the industry; or other factors, which enable an incumbent to maintain prices above the competitive level without inducing entry.
Bundling – the tying of one service or product to the supply of others including some situations where the supply of services are linked through the use of discounts. See also full line forcing
Calling card – a service that allows calls made from a telephone to be billed to a different telephone or credit card account.
Dominant – a dominant firm is one which is able to act largely independently of its competitors and customers in terms of pricing or output decisions. Dominance has to be assessed within the context of an analysis of the degree of competition within a relevant market.
Fair Trading Condition (FTC) – is modelled on Articles 85 and 86 of the EC Treaty and prohibits the abuse of a dominant market position and agreements which restrict or distort competition.
Freephone – automated reversed charge mechanism whereby caller pays nothing while company receiving call pays all call charges and associated costs (line rental, enhanced services)
Freephone number – a number which can be reached free of charge to the caller often beginning 0800 or 0500.
Freephone helplines – helplines run on a not for profit basis providing access to advice, information, listening support, befriending, counselling and/or referral in the fields of health and social welfare where calls are free of charge to the caller.
Freephone Services – telephone services offered by network operators and service providers for which there is generally no charge to the caller.
Full-line forcing – a form of bundling where, in order to obtain an individual product or service, the full range of products or services must be purchased even though there might be demand for only one product or service within the bundle .
IDD - international direct dialling.
Indirect access – where a customer’s call is routed and billed through operator A’s network even though the call originated from the network of operator B. (It is the generic term for both easy access and equal access Carrier Pre-Selection.
Interconnection – interconnection means the physical and logical connection of two operators networks thereby allowing customers of one system to connect with customers of the other, or to access services provided from the other system.
Interconnection services – services provided by one telecommunications organisation to another for the purpose of the conveyance of messages and information between the two systems and including any ancillary services necessary for the provision and maintenance of such services.
National rate – the rate for calls within the national call area, the area being defined by the telecommunications operator serving the customer
Non-Geographic Number Portability – where a customer who has had allocated to him a non-geographic number associated with a particular type of service, such as 0800 freephone, an 07 personal number, or an 0891 premium rate number, can retain that number when they change to a different operator or service provider offering a service of the same or similar type.
Number portability – number portability between operators enables a customer to transfer from one operator to a second operator and retain the same number provided the customer remains at the same address.
Number translation – a service where a dialled number is translated to another for final delivery e.g. 0800 numbers.
Number Translation Services (NTS) – the process associated with the routing of a non-geographic number to a network termination point, eg, the number is translated from its non-geographic format into a geographic or mobile number to enable it to be routed to a geographic location or to a mobile phone
Premium Rate Service (PRS) – services, including recorded information and live conversation, run by independent service providers. All calls to these companies are charged at a higher rate than ordinary calls to cover the companies’ costs in providing the content of the call and the operator’s cost for the special network facilities needed.
Price discrimination – supplying the same product/service to different customers at different prices in relation to differences in costs. Conventional price discrimination is possible where the supplier is able to segment the market, either on the basis of (known) different demand characteristics, or by a self-selecting set of volume related tariffs.
PSTN – Public Switched Telephone Network
PTO – Public Telecommunications Operator – network operators providing services to the public with powers granted by the Secretary of State for Trade and Industry under the Telecommunications Act 1984 to enable them to install their systems on public and private land, property etc.
Public Switched Telephone Network (PSTN) – the complete network of interconnections between telephone subscribers .
Service provider – provider of telecommunication services, or services with a telecommunication service component, to third parties whether over its own network or otherwise.
Substitutability – whether an increase in the price of one product would lead consumers to switch to other competing products or services (demand-side substitutability) or lead producers to switch rapidly into the supply of the good in question (supply-side substitutability).
