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This Statement sets out Oftel’s conclusions from its investigation into a complaint about the way BT provides Call Minder and outlines options for action. Section 1 – Introduction Section 2 – Current licence position Section 3 – New service provider regime Section 4 – Competition analysis Section 5 – The way forward Section 6 – Notes Comments are invited by 9 June 1997 on the measures set out in this Statement. There will then be a further period up to 23 June 1997 during which comments are invited on any submissions made to Oftel during the initial period. Written comments should be submitted to: David Edwards, Oftel, 50 Ludgate Hill, London EC4M 7JJ Written comments will be made publicly available in Oftel’s library except where respondents indicate that their response or parts of it are confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly marked as such. In the interests of transparency, respondents are requested to avoid confidentiality markings where possible. Comments on this document can also be sent to Oftel on the Internet (if they are relatively short) by filling in the form on the Web pages or by using the following e-mail address: press.office.oftel@gtnet.gov.uk Oftel intends to set up a link between this document on Oftel’s pages and any responses placed on respondents’ own Internet pages. Please contact Cate MacPherson at Oftel on 0171 634 8752 to organise this. Confidential responses should not be sent via the Internet. Click here to return to Contents
Click here to return to Contents Introduction 1.1 This Statement sets out the Director General’s conclusions from Oftel’s investigation into a complaint about BT’s Call Minder service. The purpose of this Statement is to test whether independent service providers (ISPs – see Section 6, Note 1) are serious about entering the market for network based voicemail services for residential and single line business users; and in that light to settle the appropriate enforcement action. BT’s Call Minder 1.2 BT’s Call Minder was launched at the end of September 1994. In addition to answering calls and recording messages, Call Minder can handle up to 3 calls simultaneously. If a message is taken when an incoming call is not answered by the called party or the line is busy, it rings customers back to inform them that there is a message waiting. It can also accept instructions from the customer using a speech recognition system. It is perceived to have the advantage of simplicity or ease of use compared to answering machines. At present BT charges £1.67 per month (£5 per quarter inc VAT) for the service. 1.3 Call Minder is currently run from BT’s Systems Business(SB – see Section 6, Note 2), as opposed to its Supplemental Services Business (SSB – see Section 6, Note 3). The SB is, essentially, that part of BT’s business involving the installation, running and maintenance of its network and the conveyance of voice and telex messages. The SSB is that part of BT’s business that provides BT’s customers with all telecommunications services or enhanced services except the conveyance of voice and telex messages. 1.4 The split between the SB and the SSB has been in place for many years. The reason for it is to ensure that BT cannot use its dominance in its network business to its advantage in its provision of competitive enhanced services. This is particularly important because BT is a vertically integrated company which is both a very large retail operation and, at the same time, a significant supplier of network services to its competitors. Oftel carefully polices the divide between the SB and SSB, so as to ensure, among other things, that no cross-subsidy takes place between those two parts of BT’s business. 1.5 The basis on which BT’s SB is divided from its SSB is soon to be changed to take account of the digitalisation of telecommunications services. This is necessary because the current division distinguishes between voice and data which is clearly not appropriate in a digital world. Consideration is therefore being given, not only to the current position, but to where Call Minder should be placed within the new SB/SSB split. Click here to return to Contents Current licence position The complaint 2.1 In December 1995, a complaint was lodged with Oftel. The complainant alleged that the fact that Call Minder is currently provided from the SB is stifling competition in the provision of competing services by favouring BT, and that Call Minder should not be provided from the SB, but should be provided from BT’s SSB pursuant to the terms of its licence. This is because the complainant believed that by operating Call Minder from the SB and by not providing separately the components of the service – namely call diversion, conveyance, a special ‘stutter’ dial tone that acts as a message waiting indication and an interactive speech applications platform (ISAP) which acts as a mailbox – BT was failing to make them available to allow others to offer voicemail services on a viable basis. The complainant alleged that this both restricted competition generally and favoured BT’s SB over competitors’ businesses. (An ISP can only compete with network based services where it can buy network inputs at retail prices on the same basis as BT’s own SSB.) Regulatory position 2.2 Call Minder is an SSB service under the terms of BT’s licence. It falls within the definition of those services (‘Relevant Services’ – see Note 4) which must be supplied from the SSB (ie enhanced or value added services). While call diversion, conveyance and ‘stutter’ dial tone are SB products, in that they are inextricably linked to the running of the network, the ISAP (mailbox) is an enhanced element and belongs to the SSB. By not making available to ISPs the separate components of the service which are within the SB and by failing to run the mailbox from the SSB, BT is in breach of its licence by unfairly favouring one of its own businesses and unduly discriminating against third parties who do or may wish to purchase these components from BT in order to offer a service which competes with Call Minder. Oftel informed BT of this view on 28 November 1996. BT’s response 2.3 BT has contended that Call Minder should be an SB offering because it requires integration with its network switch build, order handling and service management facilities. BT has argued that, while it is technically possible to unbundle the components and offer them to third parties, it would for the present be operationally difficult and commercially unworkable to provide an economic basis on which either BT or competitors could offer the service if it were to be run from the SSB, for the following reasons. 2.4 BT and ISPs would need to develop processes to deal with:
2.5 BT also believes that the conveyance cost of the second leg of a diverted call, divert and message waiting functions and the cost of billing, promotion and administration would mean the price to the end user would significantly increase. BT’s initial estimate was that there would be an additional cost of £6.7M if it were to separate out the SB inputs and provide Call Minder from the SSB. 2.6 In addition, BT has argued that if it were to offer Call Minder as a retail product from the SSB, the costs of the existing inputs would increase and the price of the service would have to be four times the current price of £5. This is based upon BT’s estimate of the retail (SB) prices for the use of the network which it would seek to pass on to customers to cover the costs of the diverted leg of calls, message retrieval, message waiting indication and ring back (at present customers do not pay call charges to retrieve their messages from their mailbox when calling on their own line). Further, this cost of the components is the same as the ISPs would need to pay to acquire them from BT, which would put any product they offered in the same position. 2.7 BT has indicated that in order to provide network elements of the Call Minder components throughout its network it will take in the region of two to three years. BT claims that sufficient time is required to develop necessary interfaces, software and a usage based billing system. Oftel’s response 2.8 Oftel is satisfied that BT is and is likely to continue to contravene Condition 17 of its licence by unduly preferring a part of its own business; more particularly, under Condition 17.2, by unfairly favouring to a material extent a business carried on by it by providing separate services bundled together and by not making the underlying components available to third parties who may wish to offer customers competing services. Oftel is also satisfied that, by providing Call Minder from the SB, BT has breached the rules in Condition 18 on where services should be placed within the SB and the SSB. 2.9 The bulk of capital costs for separating out SB inputs seem to be for the development of a retail billing system. It is Oftel’s view, however, that all these costs should not be borne by the Call Minder service, particularly as such a system will have much wider applications for other innovative BT services. 2.10 It is also Oftel’s view that the conveyance (and/or other) services that the SSB would need to acquire from the SB would not be exactly the same as normal call conveyance, and so it would be possible for BT to develop special products as inputs to the Call Minder product (and its ISP equivalents) which could be priced differently from normal calls. Although some price disadvantage may still remain, this is unlikely to be as significant as BT claims. 2.11 Regarding the timescales of two to three years proposed by BT for unbundling the components, Oftel would obviously like to see the changes taking place on a much shorter time scale because there are ISPs who do or may wish to offer competing services and more importantly because BT is in breach of its licence. Enforcement action 2.12 BT is currently discussing with ISPs the nature of their needs to see whether these could form a basis for more imaginative tariffing both of the components for ISPs and of the overall service for customers. 2.13 While discussions between BT and ISPs are progressing, BT continues to be in breach of its licence. The Director General has a duty under Section 16 of the Telecommunications Act 1984 (the Act) to make an order to enforce BT’s licence save where the contravention is of a trivial nature or where he is satisfied that the duties imposed on him by Section 3 of the Act preclude him from making a final order (duties of the Director General are described in Note 6). In this case, as explained above, by operating Call Minder from the SB and bundling its components BT is inhibiting competition. Therefore, in normal circumstances, an order under Section 16 of the Act would be an appropriate response to such contraventions of the licence. Click here to return to Contents New service provider regime 3.1 So far this Statement has concentrated on the regulatory regime which is currently enshrined in BT’s licence, and the explanations of what is meant by the SB and the SSB in paragraph 1.3 were given on that basis. However, Oftel published a document in February of this year, entitled Promoting Competition in Services over Telecommunication Networks, in which it set out its policy for altering the way in which services are allocated between BT’s SB and its SSB. The need for such a redefinition of the split between the SB and the SSB was almost universally endorsed in the responses Oftel received on this consultation. 3.2 Oftel believes that a new division between the SB and the SSB is necessary. At the moment the definitions make a distinction between voice and data services. This is clearly inappropriate in a digital world where there will be no distinction between the two. 3.3 The mechanism for the new division was a definition of ‘network services’ (see Section 6, Note 7). All services falling within the definition would be required to be provided to customers from the SB. Services which did not fall within it would be required to be provided to customers from the SSB. The definition was divided into three categories: (a), (b) and (c). Category (a) comprised basic conveyance services and the switching of both voice and data. Category (b) comprised elements of services which were so embedded in the network that it would not be practicable for anyone other than a network operator to provide them. 3.4 Category (c) was a little different from (a) and (b). It was thought that a certain flexibility needed to be built into the network services definition to ensure that services ought, for policy reasons, to be provided from the SB, could be so provided, even though they did not fall within the wording of the definition as drafted. This might occur, for example, where the enhanced element of a given service was small, and/or where it would be more efficient for it to be provided by a network operator than by an ISP because the cost of configuring the underlying SB service so that it could be provided to ISPs might outweigh the benefits to the market and consumers of competition from them. Thus category (c) provided, essentially, that a service which was not caught by categories (a) and (b) might nevertheless be regarded as an SB service if it was economically more efficient to do so. Other factors, such as the competitive position of BT with respect to other licensed operators; the impact of placing a service in (c) on customers, especially in terms of the impact on price; and the technical difficulty of unbundling, would all be important in any decision to categorise any service as a (c) type service. A decision would only be taken following consultation with interested parties, including potential competitors, where it was agreed between the Director General and BT that it should be so provided. 3.5 The question then arises: where would Call Minder be placed in the new regime? Of the elements of the services described above, Oftel believes that the ISAP is intrinsically enhanced and should be placed in the SSB. Click here to return to Contents Competition analysis 4.1 Call Minder does not fit readily into either categories (a) or (b) of the network definition. It contains some more complex elements than a category (a) service and, as far as (b) is concerned, Oftel takes the view that Call Minder is not a service which is intrinsically so embedded in the network that it cannot practically be provided by others. If it has been set up in such a way as to make it impractical to offer to competitors, that does not qualify the service to be regarded as a category (b). Oftel would regard it as anti-competitive if BT were to set up services in such a way as to give it a competitive advantage. 4.2 However, it may be appropriate to place Call Minder in category (c) if, for example, it appeared that irrespective of where Call Minder was placed in BT’s regulatory structure competition in provision of this type of service was only likely to develop between network operators. In determining whether Call Minder should be placed in category (c), Oftel would need to consider a number of factors, including the following. These considerations also form part of the analysis necessary for determining what action should be taken under current licence conditions:
The market 4.3 BT views Call Minder and telephone answering machines (TAMs) as competing in the same market, and hence constituting the relevant market for the purposes of competition analysis. The fact that Call Minder and a TAM offer the same basic service in answering calls and recording messages is not in dispute. However, the key issue relates to the extent of competition between the two. 4.4 The objective of market definition is to identify those products which compete with one another. In the case of Call Minder, what is at issue is whether the Call Minder service is a close enough demand-side substitute for customer equipment such as TAMs to be considered as being part of the same product market. In this case it should be obvious that the supply-side for an answering service and an answering machine are very different. Call Minder is a network based voicemail/answering service and does away with the need for customer equipment. Demand-side substitution 4.5 Call Minder performs a similar set of services as that which can be obtained from a TAM, ie the recording and playback of messages. However, as mentioned in paragraph 1.2, Call Minder has a number of additional features that can not be reproduced by an answering machine. These additional features make Call Minder a substitute for a TAM, but not vice-versa. This is also reflected in the price differential: Call Minder costs £5.00 per quarter while a basic answering machine can be purchased outright for less than £30.00, with very little additional running cost. 4.6 Voicemail services in general offer a greater degree of sophistication as well as more flexibility. All this suggests that voicemail/answering services and in particular the Call Minder service are more than just a straightforward alternative to a TAM, ie there is a significant element of product differentiation between answering machines and answering services. It is Oftel’s view that this differentiation is significant enough to mean that Call Minder is in a separate market from TAMs, differentiated by its additional capabilities. Competitive pressure from TAMs on such network based services will, therefore, be weak but the TAMs market could be influenced by such services if the price dropped to a level closer to that of TAMs. However, at present, the price differential is such that the TAMs market and the Call Minder market behave independently (see below). Impact of Call Minder on sales of answering machines 4.7 BT claims that it has around half a million customers for the Call Minder service and an annual growth rate of more than 100%. If it is the case that Call Minder is competing directly with answering machines, one might reasonably expect this high take-up rate to impact directly on sales of TAMs. However, it seems that to date the introduction of Call Minder has had little impact on the sales of TAMs in terms of comparing sales volumes for the periods just before and just after the introduction of Call Minder. It would appear then that the introduction of Call Minder has not had a significant impact on the telecommunications equipment market and this adds further weight to the argument for two separate product markets, ie there is a separate economic product market for network based services like Call Minder. The business and residential markets 4.8 Separate markets can be defined for the supply of answering services to medium/large business users and residential/single-line business customers because of different demand characteristics and/or technical limitations of customer equipment attached to a single line. The services for large business users are geared towards handling a greater volume and length of messages as well as providing for other services such as message forwarding and message broadcast, eg BT’s own Voicebank and Voicecom services provided from the SSB. In addition, where a customer has a multi-line connection to the public network the customer’s equipment can divert to a voice-mail bank when the required extension is engaged. The service level advantages of a network embedded service (ie Call Minder) over customer premises equipment (CPE ieTAM) is much reduced, if not eliminated, where customers have such multi-line connections. 4.9 In the larger business market, therefore, there is greater scope for substituting CPE for network based systems. However, a residential or small business customer is not likely to substitute one of these in the event of a price rise for Call Minder, because it would entail purchasing either additional lines and/or additional, unwanted, capabilities. The relevant market definition for Call Minder 4.10 Oftel’s market definition for the purposes of competition analysis is the operation of network based voicemail services for residential and single line business users in the UK. Unless the price of Call Minder drops significantly there is unlikely to be any significant interaction between the Call Minder market and the TAMs market. Thus the competitive impact of Call Minder, and any changes to be made to the way Call Minder is provided by BT, are confined to the provision of similar network based services. Competition 4.11 BT and a number of cable and mobile operators provide network based voicemail services. BT’s charge of £1.67 per month (£5 per quarter inc VAT) for Call Minder appears to be the most expensive; whilst at least one operator makes no charge for its service. 4.12 Thus BT is currently facing ‘competition’ from other network operators who, because in general they do not face the same controls as BT, are free to offer their services from their equivalent of the SB. BT is, therefore, currently on a level playing field with other PTOs. However, it should be noted that this competition is partial as each individual customer is likely to face a monopoly supplier as the only network messaging service available is the one attached to the customer’s local access supplier. 4.13 There are no ISPs that compete with Call Minder to provide voicemail services to single line customers. However, several ISPs provide voicemail services to medium and large business customers. This appears to be made possible because the ISPs are able to purchase the necessary SB inputs to their services at retail prices on the same basis as the SSB purchases inputs to BT’s Voicebank and Voicecom services. For the reasons outlined above, however, Oftel does not regard these services as being in the same market as Call Minder. 4.14 The complainant and at least two other ISPs have indicated to Oftel that they would be interested in providing competing services to Call Minder if the prices charged for the components which make up Call Minder were equivalent to those paid by BT’s own business and were set at reasonable levels. Impact on customers 4.15 In assessing what action to take in relation to Call Minder, in respect of both the current and the future regulatory regimes, the Director General needs to balance his duty to promote the interests of consumers with his duty to maintain and promote effective competition. One of Oftel’s aims is to promote competition and innovation in services over telecommunication networks. The Director General believes that competition is ultimately in the best interests of customers. If BT runs Call Minder from its SB, its customers will never be able to choose ISPs to provide their voicemail services. The Director General has also noted that competitive voicemail services are run by ISPs for business customers and competition has a tendancy to spread from the business to the residential market. However, the Director General needs to satisfy himself that ISPs are serious about providing a competitive service if he is to take action. On the other hand, if the price increase in the Call Minder service predicted by BT arose, this would not be in the interests of consumers. However, if, as BT predicts, the market for the service is likely to grow substantially over the next five years, BT ought to be able to recover the additional costs of unbundling as demand grows for voice messaging services and maintain the current level of end user price. In addition, it should also be possible for BT to develop specialist SB products to supply the necessary SB inputs into Call Minder in such a way that the impact on retail prices is minimal. 4.16 However, if the responses to this Statement show that ISPs are not serious about entering the market, and/or that the prospects for future entry by ISPs into this market is limited (by, for example, the limited amount of the service they would be actually providing as opposed to just reselling BT’s services), Oftel’s primary concern would then be to avoid disrupting benefits that customers are currently enjoying from Call Minder being run from the SB. Weight of network and enhanced elements 4.17 As explained in paragraph 2.1, the main components which make up Call Minder are: call diversion, conveyance, a special ‘stutter’ dial tone that acts as a message waiting indication and an interactive speech applications platform (ISAP) which acts as a mailbox. While call diversion, conveyance and ‘stutter’ dial tone are SB products, the ISAP is a value added element and therefore belongs to the SSB. Since BT accepts that it would be technically possible to unbundle the components, BT could be required to run the ISAP from the SSB and make available the SB inputs ie call diversion, conveyance and ‘stutter’ dial tone as retail products. This would allow the SSB and ISPs to purchase the SB inputs at retail price thus creating a level playing field between BT and its competitors. 4.18 However, if the SB elements of Call Minder make up the vast majority of the service there will be only a limited area in which ISPs will actually be competing with BT in the independent provision of service (as opposed to the simple re-sale of BT provided elements). Although there is benefit from such re-sale (in terms of innovatory packaging of the services etc) there may be a trade-off between this competition and a potentially higher price charged to customers for the service. The greater the element of enhanced service in the product the less this is a potential problem. (Hence, there is no issue that BT’s Voicebank and Voicecom belong firmly in the SSB.) Click here to return to Contents The way forward 5.1 Oftel proposes the following action:
5.2 Thus the prime purpose of publishing this Statement to determine whether or not there are ISPs who are serious about entering the market for Call Minder type services. If the responses go far enough to prove that there are ISPs who are serious about competing, then category (c) will not be appropriate, as it would be essential that a level playing field existed between BT and its competitors for the provision of this service. This would mean that BT would have to unbundle the components making up Call Minder and provide them as retail products. In the circumstances an order under section 16 of the Act would be the appropriate remedy. However, before proceeding to make an order, the Director General will need to satisfy himself that there is genuine and viable demand for the elements of the Call Minder service from competing ISPs. Although BT is in discussion with some ISPs, the onus will be on ISPs to provide Oftel with concrete and detailed proposals if Oftel is to take enforcement action. 5.3 If, on the other hand, it is uncertain from the responses as to how committed the competition might be, Oftel’s primary concern, as stated in paragraph 4.16, would then be not to inconvenience customers. Oftel might therefore consider allowing BT to continue to operate the service from the SB for the purposes of its current licence as long as competition is not foreclosed. If that is the outcome of this Statement, Oftel will consider whether a (c) categorisation would be appropriate for the future and whether to take steps to bring the new SB/SSB divide into effect sooner than the planned date of April 1998. 5.4 Oftel invites responses to this Statement and after considering the responses that it receives, the Director General will decide on how to proceed, that is to say:
Click here to return to Contents Notes 1) Independent Service Provider (ISP) means those service providers who are not network operators or owned by network operators and sell services using the networks of licensed operators. 2) Systems Business means the following activities of the Licensee or of any Wholly Owned Subsidiary to the extent that they are undertaken in the United Kingdom taken together:
3) Supplemental Services Business means the following activities of the Licensee taken together:-
4) Relevant Service means any service which is provided in whole or in part by means of any of the Applicable Systems and which could have been provided on 30 April 1987 under and in accordance with the Class Licence for the running of telecommunication systems providing value added and data services granted by the Secretary of State on 30 April 1987 in whole or in part by means of a telecommunication system the running of which was authorised by that licence. 5) Condition 17 of BT’s licence prohibits BT from showing undue preference to, or exercising undue discrimination against, particular persons or persons of any class or description as respects the provision of telecommunications services including the provision of any Relevant Service; or from favouring to a material extent a business carried on by BT in a way that places competitors at a significant competitive disadvantage. 6) Duties of the Director General: under section 3 of the Telecommunications Act 1984 the Secretary of State and the Director General each have a duty to exercise the functions assigned or transferred to him by or under Part II or Part III of the Act in a way which he considers will best:
The Secretary of State and the Director General each have a duty to exercise those functions, subject to the above, in a manner best calculated, amongst other things, to:
7) Definition of Network Services to be inserted into BT’s licence: ‘Network Service’ will mean any service which is provided by the Licensee by means of the Applicable Systems in relation to which the following provisions apply:
‘Basic Conveyance Service’ means a service consisting in the conveyance of Messages including switching incidental to such conveyance; ‘End-user’ means any person running a telecommunication system authorised to be connected to the Applicable Systems, not being a person running a telecommunication system under a licence granted individually by the Secretary of State under section 7 of the Act; ‘Interested Parties’ has the meaning given in Condition 16B.10.
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