A statement issued by the Director General of Telecommunications
February 1999
Please note that this document has been updated to include a new addendum Oftel explanatory note on gradual geographic roll-out of the CPS service (April 1999) - Please click here to view the addendum
Part 1 – The Functional Specification for CPS
Nature of the CPS
service
Responses to consultation
Whether or not to include local calls
Combinations of call types
Timescales
Implementation of the functional
specification
CPS commercial group
CPS process group
CPS consumer group
NICC–PNOIG
Part 2 – Recovering the costs of CPS
Background
Comparison with number portability
Analysis of cost causation
Disproportionate distribution of benefits
Direct vs. indirect access competition
NTS calls
How to recover per operator costs
Treatment of indirect access minutes
Kingston
Process for cost recovery
Responses to consultation
Recovering costs from relevant minutes
Summary
Part 3 – Timescales for introduction of CPS in the UK
Annex 1 – CPS Functional Specification (Issue 1)
Annex 2 – Draft Process Manual
Annex 3 – Application of the 6 cost recovery principles to CPS
Addendum - Oftel explanatory note on gradual geographic roll-out of the CPS service
Since making a commitment to the introduction of CPS in December 1997, Oftel has been working closely with the UK industry to secure the introduction of a timely, pro-competitive and consumer friendly CPS service. In July 1998, Oftel consulted on the Functional Specification for the service which has been developed through discussion with UK operators. The Functional Specification, which is reproduced in Annex 1, was adopted by the Director General in August 1998 and supplied to BT and KC for implementation. Part 1 of this statement responds to important points raised in the course of consultation by interested parties. It goes on to describe the work of the industry process group in compiling a process manual for order handling which will be adopted and used across the UK industry; and the development of a consumer code of practice to ensure consumer protection in what is expected to be a lively market. The draft Process Manual appears in Annex 2 for information. This document is still being developed. Comments on or questions about this draft should be forwarded to the CPS Process Group via the Oftel web site.
Part 2 of the statement deals with cost recovery. This is not about retail prices for the CPS service, but rather the way in which BT and KC are expected to recover the costs of modifying their systems to offer a CPS service. This issue has been the subject of discussion with the industry since an initial Oftel paper in March 1998 which described how Oftel’s 6 principles guiding decisions on cost recovery (developed originally in the context of number portability) might apply to CPS. Having considered responses in detail, Oftel reappraised its initial view on cost recovery and, in November, issued for comment a draft statement with revised proposals. Part 2 sets out Oftel’s response to some of the key comments made on the draft and decisions on its approach to cost allocation and recovery. Annex 3 details how the cost recovery principles apply.
Part 3 of this statement addresses the timescales within which Oftel believes CPS can be introduced in the UK. This is currently the subject of a UK submission to the EU Commission seeking a deferment of the obligation in the EU Numbering Directive to introduce CPS by 1 January 2000. Oftel anticipates the Commission’s decision on the deferment early in the Spring. Oftel will issue a statement on the Commission’s decision when it is received. Oftel’s submission seeking deferment is reproduced in Annex 4.
Part 1 – The Functional Specification for CPS
The July document proposed that the CPS service offered by BT and Kingston, should give those customers who wish to use pre-selection a choice between the following options:
Option 1 – International calls only
This option enables customers to pre-select a carrier other than BT – or Kingston as the case may be – for all their international calls only
Option 2 – National calls only
This option enables customers to pre-select a carrier other than BT or Kingston for all their national calls only.
Options 1 and 2 may be combined so that the customer has pre-selects for both national and international calls. The pre-selected operator may of course be the same or different for each call type.
Calls for which the customer does not pre-select an operator – ie everything but international and/or national calls – would continue to be routed by the originating direct access operator. Thus BT or Kingston would continue to route local, mobile and specially tariffed calls etc. In addition to this, customers would be able to suspend, or ‘override’ their preselections for individual calls on a call by call basis by dialling a pre-fix of extra digits, having made arrangements to do so with alternative operators (including BT or Kingston).
Option 3 – All calls
This option enables a customer to pre-select an operator other than BT or Kingston to carry all of their calls. As long as the customer remained with BT or Kingston, these operators would continue to provide the line to the customers' premises and would bill for line rental. But the only calls which BT or Kingston would route and deliver would be calls using Type A short codes (eg 100, 999, 112) or Type C (operator specific) short codes such as 150. All of the customer’s international, national, local, mobile, specially tariffed (eg freephone, local rate, national rate and premium rate), personal numbers and paging calls would be routed to the pre-selected operator. Call by call override will be available when using this option too.
Customers who wish to continue to take all of their call services from BT or Kingston will not need to do anything. The provision of their calls will be unaffected by the introduction of the CPS service. Likewise, existing call by call carrier selection (indirect access) services will continue to be available from BT and Kingston.
Further details are in the functional specification reproduced in Annex 1.
The service described above is detailed in the Functional Specification adopted by Oftel in August 1998 and referred to BT and Kingston for implementation. BT and Kingston have both commenced their implementation programmes, assisted by industry groups who are developing agreed processes for handling customer orders and consumer protection. The next stage of implementation work on CPS will focus on setting charges for CPS, and considering the technical implications of CPS for network interoperability. This is in hand and will be developed in discussion with the UK industry, assisted by EU guidelines where these exist.
The settling of the Functional Specification centred on a few key policy choices, particularly whether or not to include local calls, the combinations in which different call types should be available and timescales for the introduction of the CPS service.
Oftel received 12 responses to the consultation on the draft Functional Specification. This followed a 6 month period of discussion with industry players and consumer representatives, Regulators in other EU Member States and the EU Commission. An explanation of how policy choices were arrived at follows.
Whether or not to include local calls
The obligation in the Numbering Directive that CPS should be made available, is broadly and simply defined. It does not limit CPS to any particular calls types nor does it specify that particular call types should be offered. Whilst the prime focus of CPS was national and international calls, it was far less clear whether local calls and calls to mobile phones should also be included.
There was opposition to the inclusion of local calls from BT who expressed concern about the impact on its core network of the inefficient call routing which this might create. Other direct access operators were also concerned about the impact on direct access competition of a CPS service which looks like a complete substitute for BT’s service. On the other hand, prospective CPS operators supported the inclusion of local calls, given in particular that they are already available using indirect access. CPS customers, they said, would be interested in an all calls service. Consumer groups with whom Oftel spoke strongly supported the availability of CPS for local calls and calls to mobiles.
Oftel concluded that local calls ought to be included, in particular so that customers in areas currently beyond the reach of local access infrastructure competition could have a choice of service provider for call carriage. Oftel took into account that BT’s concerns about the impact on its network of taking local call traffic into the trunk layer could to some extent be met by accurate traffic volume forecasting and encouraging interconnection at the local layer, and that the impact on direct access competition is a broader regulatory question which will soon be considered in the context of the review of BT’s price controls.
Having decided that the UK CPS service should include a broader set of call types than just national and international, Oftel had to consider the number of pre-selects which customers should be able to choose from, and the combinations of call types within those pre-selects. There was obviously a range of options.
There was broad support for the availability of individual pre-selects for national and international calls. Consumer groups also expressed interest in individual pre-selects for other call types such as local calls and calls to mobiles, in order to increase customer choice and to allow customers to compile their own combinations. An alternative proposal was to group calls to mobiles with national calls, which would be of particular interest to business users. Some argued that it should be for CPS operators to market an attractive range of services and that customers should be able to choose between different call packages on the merits of the services and tariffs offered. Prospective CPS operators supported the availability of an ‘all calls’ option. Experience of indirect access products suggested, they said, that an all calls service would be simple to use and attractive to customers.
Oftel took the view generally that a balance needed to be struck between extending the number of selection types and the costs and timescales for introduction of CPS. The timing requirements of the EU provisions put constraints on the level of complexity of the service which could be introduced. And when considering whether to introduce individual pre-selects for different call types, Oftel looked at the needs of customers and the desirability of operators being able to offer competitive service packages. For example, profit margins available for calls to mobile phones can be significant (though less than margins for international calls and some national calls). The market for calls using specially tariffed numbers varies – calls using 0800 are unlikely to generate much profit but calls to premium rate numbers are likely to be commercially interesting. Local calls, however, can be provided economically using CPS but would be unlikely to generate sufficient profits alone – ie when not combined with other, more lucrative, call types such as national or international calls – to stimulate commercial interest. In other words, a specific ‘local calls only option’ might not be attractive enough for any CPS operator to want to offer local calls CPS, which would deprive some customers of choice which might otherwise be available. Given that Oftel believes many customers will benefit from the availability of such a service, it would appear to be counter productive to require local calls to be provided as a single option.
A balance has been struck by grouping all calls together, so that operators can package less lucrative services which are attractive to customers, with more commercially attractive services such as national and international calls. To ensure that the arrangement can not be circumvented by the ability to take international and national calls from an alternative supplier, Oftel decided that the all calls option cannot be combined with any other option, although separate pre-selects for national calls and international calls may be combined together and call by call override is available.
The Numbering Directive requires CPS to be available from 1 January 2000, with scope for the EU Commission to grant a temporary deferment to a later date if satisfied that there are sufficient technical grounds. The introduction of CPS into BT’s network requires a substantial systems software upgrade, including the provision of new routing software from BT’s switch suppliers. In Oftel’s view, there would be insufficient time between the end of December 1997 when an EU wide policy on CPS was adopted by the Council and 1 January 2000 when the CPS service must be in place, to specify, design, produce, install and test the necessary network developments. Decisions therefore had to be made about whether to adopt a short term strategy for introducing a CPS service by the due date, such as the installation of autodiallers on customer premises or whether to seek a temporary deferral on technical grounds in order to develop a service of comparable functionality to that available in other Member States. In the 6 months leading up to the consultation, Oftel discussed this issue in depth with all sides of the UK industry. Details appear in the UK’s submission to the Commission in Annex 4. A preliminary view of likely timescales for the introduction of the substantive service was set out in the consultation document, anticipating the introduction of national and international call CPS before the end of 2000 and the all calls service during 2001.
Prospective CPS operators and some consumer groups expressed disappointment at the delay in introducing the CPS service. However, there was broad recognition of the importance of introducing a viable service which does not compromise BT’s national network and which is not only pro-competitive but also consumer friendly.
Several consumer groups underlined the importance of considering the impact of CPS introduction on consumers with their own customer premises equipment. Considerable work will need to be undertaken to accommodate the Millennium change and code and number changes, as well as the introduction of the Euro, during 2000. Consumer groups have supported a deferment to allow planning for these events. Most respondents showed a willingness to accept the necessity for a deferment as long as the grounds on which it is sought are transparent and plainly justified.
Oftel awaits the Commission’s decision on its request for a deferment.
Implementation of the Functional Specification
Arrangements for practical implementation of CPS are being made as a collaborative exercise between operators (including BT and Kingston), consumer groups and Oftel. Early in 1998 the CPS Commercial Group was established, as a sub-group of the cross-industry Interconnect Policy Forum (now the Operator Policy Forum). Reporting to the CPS Commercial Group are the Process Group, which establishes inter-operator procedures, and the Consumer Group, whose work covers any consumer-related issues. Groups have been chaired by Energis and included Oftel representation.
This group co-ordinates the work of the CPS Process Group and CPS Consumer Group, scrutinises and/or approves their decisions, and attempts to reconcile conflicts between the differing commercial interests of different operators. It reports progress and new developments to the Operator Policy Forum. The Commercial Group is attended principally by operators’ regulatory staff. The group began meeting in February 1998. One issue that the Commercial Group will handle is the trials of the CPS service, for example deciding which operators should participate in the trials of CPS with Kingston and BT.
This group has met, mostly fortnightly, since June 1998. It does the bulk of the work on devising practical processes for the delivery of a retail CPS service, referring key questions to the other CPS groups where necessary. It comprises technical specialists from a number of operators, including BT. Its role is to fully develop agreed standard processes for handling customers’ CPS orders (using electronic interfaces between operators); complaint and fault handling; inter-operator billing; and production of management information statistics. All the basic order-handling procedures are now agreed, and the group is working hard to settle outstanding issues.
The key issue addressed so far by the Process Group is designing a CPS order-handling system that will protect consumers from "slamming", a change of service without the customer’s knowledge or consent, which has been a significant problem in the USA. Slamming is not visible to customers because they do not need to do anything different when making a CPS call – however they may end up paying more for their calls than they have agreed to pay. Suggestions for protecting customers included external audit of operators’ order records; phone confirmation from customers to BT or Kingston (initiated by either party); and written confirmation to BT/Kingston from the customer of the change of service, using a standard reply card/slip. The options were referred to consumer groups for advice, with the unanimous choice being the last option. Therefore, the customer will return a contract to the CPS operator signing them up and separately return a card to BT/Kingston (or other direct access operator offering CPS on its network). The card will include the customer’s signature, as well as other information that should identify the card as genuinely completed by the customer rather than a ‘slammer’. To further protect customers, there will also be a 14-day "cooling-off" period within which they can change their minds.
The consumer group comprises about six members of consumer groups, plus some operators and an Oftel representative. This group has met several times since February 1998, and is set up to discuss specific issues as and when they arise. The Consumer Group’s role is to agree the content of a CPS code of practice which CPS operators will be expected to sign up to as a condition of being able to offer the service, to recommend how this Code of Practice will be enforced, and to act as a general forum for exchange of consumer views on the developing CPS service.
The Consumer Group was responsible for agreeing a methodology to ensure that consumers’ wishes were accurately reflected in the CPS order processing system, effectively having the casting vote between a variety of operators’ views. Other anti-slamming measures developed by the consumer group, and incorporated within the code of practice, include separate billing for BT (etc.) and CPS operators, which should make any slamming more apparent to consumers.
The code of practice includes sections about contracts for CPS service, use of confidential consumer details, rules on promotion of CPS services, and bill payment. The code also reflects the procedures developed by the Process Group. Enforcement of the code of practice is currently being discussed within Oftel. The Consumer Group has rejected industry self-regulation, partly as those most likely to disregard the code are the least likely to feel bound by self-regulation. The most likely enforcement option is a licence condition, but the details of how this would work for CPS are still under discussion.
Documents produced by all these groups are now hosted on another part of Oftel’s website. Included are terms of reference, minutes and agenda of meetings, process documents, and the draft consumer code of practice.
Now that the Process Group has established many basic inter-operator processes, the technical aspects of CPS implementation are being discussed within the Public Network Operators Interest Group (PNOIG) of the Network Interoperability Consultative Committee (NICC). Three specific groups will meet from January 1999, to cover issues such as CPS interworking and interoperability.
Part 2 – Recovering the costs of CPS
This section describes how BT will be expected to recover the costs of introducing CPS functionality into their network.
In March 1998, Oftel published a paper which set out its proposed methodology for deciding how the costs of CPS should be recovered. Oftel made certain fundamental assumptions:
Three types of cost were identified – system set up costs, per operator costs and per line costs. In March 1998, Oftel published an initial analysis of how the six cost recovery principles might apply to these three categories of cost. This approach was discussed with the industry at a workshop in May 1998 and written comments were provided. There was broad agreement that per line costs should be met by CPS operators. Some debate took place about how per operator costs should be paid for. Most discussion centred on BT’s system set-up costs. Although a detailed breakdown of actual costs is not yet available, system set-up costs are expected to be the greatest expense. Having considered the points made in response to the initial paper, Oftel revised its analysis of how the six principles should apply. This revised approach was explained in a draft statement which Oftel published for comment in November 1998.
With some refinements to reflect comments made by interested parties, the conclusions in the draft statement are being adopted by Oftel, so that BT’s system set-up costs will be recovered through a surcharge on call origination for all relevant calls originating on BT’s network. In other words, BT and CPS operators (and thereby their customers) will both contribute to the cost of introducing CPS. This reflects the fact that both types of customer will benefit from the introduction of CPS through general price reductions resulting from increased competition. However, because CPS customers are expected to benefit more than customers who continue to use BT for all their services, CPS customers will be required to make a greater contribution to the overall costs than BT customers. This will be achieved by CPS operators being responsible for per operator and per line costs in addition to contributing to system set up costs.
A discussion of the way in which the cost recovery principles lead to this approach is set out in Annex 3. The key issues which arose in the course of developing CPS cost recovery rules are summarised and discussed below.
Comparison with number portability
In Oftel’s initial paper on cost recovery, a comparison was drawn between application of the cost recovery principles to CPS and their application to geographic number portability. In the case of geographic number portability, each operator bore its own system set-up costs, in the interests of cost minimisation, reciprocity and effective competition. Per line costs were charged by the donor operator to the recipient operator, on the basis of cost causation and the distribution of benefits. Some respondents to the consultation suggested that there were sufficient parallels between CPS and number portability to justify the same conclusion in both cases.
Although per line costs have been treated in the same way, Oftel did not consider it correct to apply the same rules for system set up to both CPS and number portability. This is largely due to the absence of reciprocity in the case of CPS – only BT and Kingston incur the expense of installing functionality to route calls to a variety of operators according to customers pre-selects, whereas in the case of number portability, both the donor operator and the recipient operator must modify their systems to accommodate the customer’s wish to port its number. To ignore this disparity would undermine the need for competitive neutrality which underlies the principle of effective competition.
The usual starting point for the application of the six cost recovery principles is to consider how the costs are caused, on the grounds that economic efficiency is enhanced by requiring parties to pay for costs which they directly cause to be incurred. The other principles are then considered, to see the extent to which the starting point may require modification. In the case of CPS this was not straightforward. The rationale of economic efficiency is not as relevant where costs are caused to be incurred by the imposition of a regulatory obligation.
Application of the cost causation principle to BT’s system set-up costs caused considerable debate between the polarised views of BT, which considered the costs to be incurred by the wish of CPS operators to offer the service, and the views of CPS operators, who considered the costs to be caused by the imposition of an EU regulatory obligation to provide CPS. A case can clearly be made for both arguments. Oftel took the view that cost causation in the case of CPS is largely mechanistic rather than economic. As a result, Oftel has placed limited reliance on it. The distribution of benefits and effective competition are considered to be of more importance when deciding how BT’s system set up costs should be recovered. This is discussed further in Annex 3.
Unequal distribution of benefits
Having concluded that there will be a distribution of the benefits of CPS to BT customers other than those choosing to take CPS services (see Annex 3), Oftel considered representations about the proportions in which these benefits would accrue and the need for unequal benefits to be reflected in differing contributions to the costs. Oftel was asked to consider weighting the surcharge so that the surcharge on CPS minutes was greater than that on non-CPS minutes, to reflect the fact that CPS operators’ customers will gain greater benefits than non-CPS customers.
Under current arrangements, unequal benefits are reflected by CPS operators having to pay per operator and per line costs in addition to contributing to system set up costs. BT will not contribute to these additional costs. There is no evidence that weighting the surcharge would better reflect the distribution of benefits than this arrangement. Consequently, Oftel has rejected the weighting approach.
There are other arguments which support this conclusion. Competitive neutrality depends on maintaining the status quo so that competition between CPS and non-CPS traffic is not unduly distorted. This supports the costs being spread evenly across both types of traffic. Further, differential weighting would be difficult to administer and any weighting factors difficult to justify objectively. It would require accurate forecasting of CPS call volumes. Spreading the costs evenly allows call origination volumes for all relevant calls to be used. This is fairly stable and predictable.
Direct vs. indirect access competition
The principle of effective competition suggests that any cost recovery mechanism should be competitively neutral. Where an indirect access service is introduced into the network of an operator for whose customers both direct and indirect access operators are competing, a question arises about where competitive neutrality lies – whether it is between the two types of operator competing to acquire new customers from BT, ie direct access competitors to BT and CPS operators, or between the existing service provider and the new one, ie BT and the CPS operator. In Oftel’s view, effective competition would be achieved if a narrow view is taken and competitive neutrality ensured between BT and indirect access operators.
However, Oftel believes that the co-existence of both direct and indirect access competition raises important questions about market structure and about current regulatory provisions for how the costs of the local access network are met. Any tensions which might exist between direct and indirect access competition relate to the interaction between retail and network prices. Oftel proposes that this issue should be addressed in its review of BT’s price controls, in the course of which BT’s interconnection charges will be considered. Thus, Oftel’s conclusions on effective competition in the context of CPS are without prejudice to future decisions on how to ensure competitive neutrality between direct and indirect access operators who compete to acquire BT’s customers.
The ‘all calls’ CPS option, which will be available in 2001, includes number translation or specially tariffed services such as freephone and premium rate calls. The division of revenues for these calls between originating and terminating operators is governed by regulatory rules – the ‘NTS formula’. This is currently under review. CPS on NTS calls will involve the CPS operator purchasing call origination from the network operator and acting as the originating operator for the purposes of the formula. Concerns have been expressed about the applicability of CPS surcharge to these call types and about the placing of the surcharge within the formula.
Oftel has carried out a detailed analysis of the way in which the six recovery principles might apply to NTS calls. Distribution of benefits and effective competition are particularly relevant.
Imposing the surcharge on NTS calls
The first issue to consider is whether NTS calls should attract the surcharge. Under the current regime the originating operator has the task of conveying the call to the terminating operator and billing the customer for the call. The originating operator receives the retail price (P) from the customer. It then passes on to the terminating operator the Deemed Retail Price for the call (D), which is determined by Oftel on the basis of retail charges, less the charge for call origination (C) which includes an uplift to cover the originating operator’s retail costs. Under this regime there will be a benefit from CPS because it will put downward pressure on the retail uplift contained within C. As a result, Oftel believes it is correct to impose the CPS surcharge on NTS calls under the current system.
Oftel is currently undertaking a review of the NTS regime. As part of this review, one option which Oftel is considering is a model under which the terminating operator would set the retail price and its own retention, subject to the originating operator having an adequate retention. The level of the originating operator’s retention could be set by Oftel, as it effectively is now, or it could, subject to some constraints, be determined by the originating operator.
If this option were to be taken up there would be a benefit from CPS. If Oftel were to determine the level of C this benefit would be the downward pressure on the retail uplift. If the originating operator’s retention were to be set by the originating operator itself, the benefit would be the downward pressure on this retention. This implies that it would be appropriate to impose the surcharge on NTS calls if either variant of this option were adopted in the NTS review.
It therefore seems that under both the current regime, and the possible alternative model, CPS would bring about benefits to NTS calls. The CPS surcharge will therefore apply to NTS.
Where to include the surcharge in the formula
Under the current regime retail prices for NTS services are to a degree fixed, since they are related to the prices charged for other services (eg 0845 calls are priced at the local call rate). The benefit from CPS putting pressure on the retail uplift will therefore tend to feed through to the terminating operator and its customers. This indicates that the terminating operator should bear the cost of the surcharge. This would be achieved by adding the surcharge to the amount retained by the origination operator for call origination (C).
If the outcome of the review were to be that the originating operator was to be able to set its own retention level, there would be no need for Oftel to be involved in determining where the surcharge should be borne. However, if the chosen option is for Oftel to set C, then the argument is much the same as it is under the current regime, and it would be appropriate for the surcharge to be added to C.
How to recover per operator costs
CPS operators have argued that CPS per operator costs should be treated in the same way as comparable costs in the case of number portability, where they were classified as part of system set up costs and dealt with as data management amendments. Oftel does not accept that there is a clear parallel. Data management costs incurred to accommodate number portability are likely to be more limited than in the case of CPS. This is because CPS will involve greater numbers of operators who use undialled pre-fixes and a faster turnover of activities which cause costs to be incurred as operators supply and terminate services. Because of this, CPS per operator costs are considered to be a separate cost head to similar activities undertaken in the context of number portability. Application of the relevant principles supports the costs being borne by CPS operators themselves and not spread across interconnection charges as data management amendments.
Treatment of indirect access minutes
Indirect access services accessed using a four digit diallable access code will continue to be available over BT's network after CPS is introduced. They may be used by BT customers wishing to select alternative carriers to BT on a per call basis, or by CPS customers wishing to override their pre-selections on a per call basis, perhaps to select BT.
Early discussions of the treatment of indirect access calls after the introduction of CPS centred on ensuring that indirect access services were not affected by CPS. However, in order to avoid distortions between CPS and indirect access services, it is now proposed that indirect access and CPS minutes should be treated in the same way. This means that the CPS surcharge on call origination will apply equally to indirect access and to CPS minutes. This is supported by considerations of practicality, as well as the distribution of benefits in the same way as it applies to BT non-CPS calls.
In the November draft Statement on cost recovery, Oftel proposed that the costs associated with developing, purchasing and installing autodiallers should be treated as system set-up costs, and consequently, recovered across all minutes in the same way as for BT’s system set-up costs. However, some parties argued that installation costs should be treated as per line costs, which would be recovered from CPS operators alone.
Oftel has undertaken an analysis of where the costs should be borne, using the six principles. The cost causation principle is of little assistance when considering the recovery of development costs because these have to be incurred to comply with EU obligations. Kingston has to be in a position to offer the autodialler service even if there is no demand for it. On the other hand, consideration of cost causation suggests that costs associated with both provision and installation of autodiallers should be recovered only from CPS minutes. The decision on whether this cost is to be incurred is made by the individual deciding to request CPS.
The need for effective competition suggests that costs should be spread across all minutes. Loading costs onto CPS minutes would change the current balance of cost between Kingston and indirect access operators in favour of Kingston. It can be argued that competition from indirect access operators is particularly important in Kingston given the lack of any competing network operators.
Distribution of benefits suggests that costs should be spread across all minutes. Those who use CPS will benefit most but other customers will also benefit from the increase in competition. Cost minimisation would also support spreading costs across all minutes. It is Kingston who has control over the level of costs and if they are all to be charged out to CPS operators there is no incentive to minimise costs. Practicality supports costs being spread across all minutes because of the difficulty in forecasting demand for CPS.
The six principles are balanced and arguments could be sustained for cost recovery across either all minutes or CPS minutes. However, there is a further important consideration in deciding whether the provision and installation of autodiallers should be a system set-up cost or a per line cost. Were Oftel to allow a significant element of the cost of system set up to be treated as a per line cost for autodiallers, thus reducing the proportion of the cost to be met by the operator offering CPS, this might give any operator with an obligation to provide CPS an incentive to choose a technical solution such as autodiallers for the wrong reasons – ie to load the greatest proportion of costs onto its CPS competitors rather than choosing the most economic and technically feasible option overall. Therefore, in the absence of compelling arguments to do otherwise, Oftel proposes to proceed with its November proposals. The costs of manufacture, capital provision and installation of the autodialler, including the administration of the system, will be system set up costs spread across all relevant minutes. Programming the autodialler with a customer’s preselections – whether carried out remotely or by a site visit – will be treated as per line costs, to be met by the benefiting CPS operator.
Consideration of the practicalities of cost recovery and process for cost allocation will be an ongoing process. Considerable work will need to be undertaken to prepare for the addition of CPS to BT’s list of standard services. However, certain issues have already been addressed and Oftel’s position on this is set out below.
In its draft statement on cost recovery, Oftel sought views on the way in which starting charges for CPS should be set. Responses to consultation were fairly consistent, although certain key issues arose.
Recovering costs from relevant minutes
Oftel sought views on which calls should be considered to be ‘relevant’ – ie subject to the CPS surcharge when the first phase of CPS becomes available in 2000. The consensus was that only those calls on which CPS would be available in the first phase – national and international calls – should be subject to the CPS surcharge and that phase 2 costs should not be payable until phase 2 services become available. However, most of the costs of the CPS service are common to both phases and so must be incurred in time for the delivery of the first phase. Those costs which are solely attributable to phase 2 will be relatively small compared to what must be incurred for initial service launch, but local calls account for 60% of call volumes. To phase cost recovery in this way would make the surcharge high in the first year and significantly lower in subsequent years. This creates difficulties for setting the CPS surcharge and for business planning for operators. Oftel has therefore decided to set the surcharge on an equalised per minute basis for all minutes over the period of cost recovery (the length of this period has yet to be decided). This spreads the costs evenly over all relevant minutes and avoids the need to change the level of the surcharge from year to year.
Oftel has rejected the alternative approach of converting the up-front cost into a flow of costs to be recovered in each year. In this case the surcharge on a relevant minute would be the cost to be recovered in that year divided by the number of relevant minutes in that year. This would mean the surcharge could change from year to year, particularly given the absence of local calls from the first year – when the cost of the surcharge would be more than double the surcharge in subsequent years.
A new present value approach would be adopted in either case.
In summary, BT’s system set-up costs will be recovered as follows:
Part 3 – Timescales for introduction of CPS in the UK
According to EU law, CPS should be introduced in the UK by 1 January 2000. Having considered what will be necessary to make the service available from BT’s network, it is not considered possible to meet this deadline. The UK has therefore sought a deferment from the EU Commission of the deadline for introduction. It is proposed that CPS will be available nationally for Options 1 and 2 (national and international calls) at the latest by the end of 2000, and for Option 3 (all calls) during 2001. These timescales will become clearer as implementation is progressed.
Kingston Communications has made a submission to Oftel that it would be uneconomic to introduce a systems software upgrade for their networks which is comparable to BT’s. Oftel has therefore agreed that Kingston should be able to meet the obligation to offer CPS using autodiallers. Because autodiallers are easier to develop and install, and given the smaller scale of the work necessary to introduce CPS in the Hull area, a deferment of the CPS obligation has not been sought for the Hull area and CPS is expected to be available from Kingston’s networks from 1 January 2000.
An explanation of what is necessary for BT to offer CPS and anticipated timescales for this work to be completed, are set out in the deferment submission, which is reproduced in Annex 4.
Functional specification for Carrier Pre-Selection
Issue 1
Definition
1. Carrier Pre-Selection (CPS) is the facility offered to customers which allows them to opt for certain defined classes of call to be carried by an operator selected in advance (and having a contract with the customer), without having to dial a routing prefix or follow any other different procedure to invoke such routing. CPS can be overridden by dialling an indirect access code of another operator (again where there is a contract between the customer and the operator).
Scope
2. Carrier Pre-Selection will be provided by the following originating operators:–
on, or as soon as practicable after, 1 January 2000 (subject to any deferment agreed to by the Commission in the light of the timescales needed to introduce the facility, technically and geographically).
3. CPS facilities will be provided to any operator (referred to as the CPS Operator) which qualifies under Schedule 2 of the Interconnect Regulations and has established Points of Interconnection with the originating operator and been allocated a CPS prefix code and/or a Type B single stage indirect access code by Oftel.
4. Originating operators will provide CPS facilities to all customers, on request of CPS operator, on direct exchange lines, including ISDN and Centrex lines (1). CPS will not be provided on public or managed payphone lines or lines on Low User Schemes.
5. Originating Operators shall support up to 100 CPS Operators on any switch. Where demand appears likely to exceed this limit, steps will be taken to develop further capacity.
Customer Options (2)
6. Customers opting to use CPS may take up both or either of the following options:
or they may make a single pre-selection for the following
CPS will not apply to calls using Type A short codes (eg 100, 999, 112) or Type C (operator specific) short codes
Where no option is made, relevant calls will be routed according to the decision of the originating operator.
Local calls shall be interpreted as calls to those geographic destinations which are charged at local call rate by the originating operator.
Routing
Where a customer has elected to have calls routed by CPS, the following will apply:–
Where a call is routed by CPS, the originating operator will prefix the customer’s dialled digits with the ‘CPS access code’ before passing the call across the Point of Interconnection. The CPS access code ensures routing through the originating operator’s network to the Point of Interconnection. Where a pre-selected call is dialled using the local dialling format, the originating operator will insert the leading zero and area code between the CPS access code and the dialled number .
CPS facilities shall not apply to operator controlled calls, including transfer charge calls. Operator and other special services of CPS Operators will be accessed using the appropriate indirect access code.
A CPS access code will be a 4 digit non-diallable prefix (3).
Override
13. Calls made to Type B Indirect Access Codes will override CPS options and route to the operator identified by that code, without alteration to the digit string dialled by the customer
Billing
14. Responsibility for billing the calling customer on CPS and Indirect Access calls rests with the CPS Operator. Where no pre-selection or other form of selection has been made by the calling customer, the originating operator will bill for those calls.
CPS Services (4)
15. CPS calls will be provided as a standard interconnect service to qualifying CPS Operators.
Oftel
August 1998
CPS Process Manual (draft) - click here to download
Application of the six cost recovery principles to CPS
Introduction
In December 1997 the Director General determined that BT and Kingston should be considered to be operators having significant market power (SMP) in the market for fixed networks and services, for the purposes of the Interconnection Directive (97/33/EC). The Numbering Directive (98/61/EC) requires Member States to impose an obligation on all operators with SMP in fixed networks and services to provide carrier pre-selection (CPS) by 1 January 2000. To comply with their obligations under EU law, BT and Kingston will incur substantial costs. In order that CPS should make a positive contribution to competition, and to ensure a fair result in the interests of consumers, Oftel believes that some of these costs should be recovered from other operators and proposes to apply the 6 cost recovery principles developed in the context of number portability to decide how cost recovery should take place.
Costs of introducing CPS
Oftel has identified three broad categories into which the costs of making available the CPS service will fall:
System set-up costs, which are the costs of developing and implementing the software needed for the capability to provide CPS and the cost of modifying support systems;
Per operator set-up costs, which are the costs of enabling CPS for any individual operator, including activity similar to a data management amendment and the setting up of commercial arrangements for the electronic transfer of customer orders;
Per line set-up costs, which are the costs of implementing CPS for individual customer lines.
Most of the costs of implementing CPS are likely to fall in the category of system set-up. The actual costs of introducing CPS have yet to be established. BT and its suppliers have provided the following initial costs estimates, which should be considered to be indicative at this stage:
£million
Data build, network implementation, inter-operator testing and associated costs 25
Exchange software upgrades 10
Operational Support Systems (OSS) 4.3
INCA development and associated interconnect systems 0.5
Total 39.8
It will be possible to have a clearer idea of the costs of modifying BT’s OSS and INCA when the work of the industry’s CPS Process Group is complete and a way forward has been agreed on what modifications will be necessary.
In addition to the costs set out above, the inclusion of local calls in the CPS service is likely to require BT to invest in extra capacity at the tandem layer. Investment will take place against traffic volume forecasts. Processes for forecasting are being agreed by the CPS Process Group. The cost of extra capacity should be recovered through interconnection charges. This means that increased network capacity will be paid for by the increased traffic within the current network charging arrangements. Therefore, no allowance is made for recovering these costs as part of BT’s system set-up.
Cost Recovery Principles
The six cost recovery principles may be briefly described as follows:
cost causation costs should be recovered from those whose actions cause the costs to be incurred at the margin;
distribution of benefits costs should be recovered from the beneficiaries especially where there are externalities;
effective competition the mechanism for cost recovery should not undermine or weaken the pressures for effective competition;
cost minimisation the mechanism for cost recovery should ensure that there are strong incentives to minimise costs;
reciprocity where services are provided reciprocally, charges should also be reciprocal;
practicability the mechanism for cost recovery needs to be practicable and relatively easy to implement.
When applying these principles, it is generally sound to start with cost causation on the grounds that economic efficiency is enhanced by requiring parties to pay for costs which they directly cause to be incurred. The other principles are then considered, to see the extent to which the starting point may require modification.
Oftel’s initial view was that there is a sound case for recovering per line and per operator set-up costs from CPS operators. This was principally due to the compelling weight of the cost causation principle: the activities of CPS operators would cause per operator and per line costs to be incurred and consideration of the other 5 principles did not suggest an alternative conclusion to be preferable. As for system set-up costs, Oftel did not take a firm view of the most appropriate method of recovery. This is because the view was taken that the cost causation principle does not give a clear indication of how these costs should be recovered and arguments can be made in several ways on the application of the other principles. In the absence of strong guidance on cost causation, Oftel considered that the arguments were fairly evenly balanced and that none of the principles gave a compelling indication of how the system set-up costs should be recovered.
Responses to Consultation
Responses received expressed broad agreement that per line costs should be recovered from CPS operators. Although there was no clear consensus on per operator costs, in Oftel’s view no persuasive arguments were put forward as to why these costs also should not be recovered from CPS operators, in accordance with the principle of cost causation. However, unsurprisingly, two clear trends emerged on system set-up costs. On the one hand, it was argued that each operator should bear its own system set-up costs, failing which BT’s system set-up costs should be spread across all relevant minutes originating on BT’s network. On the other hand, it was argued that CPS operators should bear all of BT’s system set-up costs.
Oftel’s analysis of cost recovery for BT
When applying the six cost recovery principles, Oftel starts by considering the implications of the principle of cost causation and then goes on to consider how the other five principles lead to an adjustment to the cost recovery scheme implied by the application of the principle of cost causation. It should be borne in mind that the cost causation principle may provide less clear conclusions where costs are caused to arise by compliance with a regulatory obligation rather than voluntary activity. The overall aims of the cost recovery scheme are to ensure that CPS promotes competition where possible, and that the interests of consumers are reflected in the outcome.
System set-up costs
Cost causation
There has been some debate about whose actions cause system set up costs to be incurred. On the one hand, it has been argued that BT incurs the costs of CPS due to the activities of CPS operators wishing to provide the service. On the other hand it has been argued that the costs arise because the EU Council adopted a Directive which requires the service to be provided. It is Oftel’s view that whilst both of these could be described as factors contributing to the costs being incurred, neither provides a firm basis for attributing system set-up costs.
A literal application of the cost causation principle is that the costs of CPS are caused to be incurred by BT’s actions to implement the service to comply with its obligations under EU law (as shortly to be implemented into domestic legislation). The EU Numbering Directive requires Member States to impose an obligation on all operators with SMP to provide CPS. BT is such an operator and must, as a matter of law, comply with that obligation. In doing so, it incurs costs. On this interpretation, cost causation suggests that the costs of CPS system set-up should be borne by BT since BT incurs the costs in order to fulfil legal obligations considered to be appropriate for an operator with significant market power.
However, because BT has no choice but to incur costs to comply with EU legal obligations, the conclusion should be viewed with caution – had BT incurred these costs voluntarily, this conclusion would be clear. In fact, the cost causation principle is not particularly helpful when deciding how the costs of CPS should be borne because the underlying economic efficiency rationale does not obviously apply in this case. Oftel’s view is that the cost causation principle does not suggest that any operator other than BT causes BT’s system set-up costs to be incurred, but that the argument that BT causes the costs to be incurred and should therefore be responsible for bearing them, is not compelling either.
Distribution of benefits
Oftel’s initial view was that even BT customers not using the CPS service would benefit from the competitive impact of CPS, but that these benefits may be offset by disbenefits if CPS were to weaken direct access competition in the UK. Oftel has decided that the potential disbenefits are actually part of the larger question of the UK’s call origination charging arrangements. This question is being addressed separately, and it is not appropriate to consider it within the CPS cost recovery analysis. This leaves the positive competitive benefits of CPS as the only relevant factor. Whatever the extent of these benefits, even BT customers not using CPS will share in them, and it is therefore right that they should contribute towards the costs.
For most consumers, these benefits will be neither as significant nor as long-term as the benefits of network competition, but in terms of reducing retail prices for calls in the short term, CPS is likely to have some impact additional to indirect access. This is particularly likely to be the case once the all calls option is available for BT customers from 2001.
It has been suggested that the benefits of CPS will extend to customers of other direct access operators and thus the distribution of benefits principle suggests that they too should contribute to the costs of the service. On the basis of the distribution of benefits principle alone, there may be some merit in this argument. However, it would be difficult in practice to share the costs of BT’s system set-up costs with other direct access operators who do not purchase call origination services from BT. Due to its impracticability, therefore, Oftel does not propose to allow BT to recover any of the costs of CPS from other direct access operators, save where those operators are offering CPS services to BT customers in which case they will be treated in the same way as other CPS operators.
Effective competition
Oftel takes the view that effective competition will be best served by a competitively neutral cost recovery scheme for CPS. A decision needs to be taken as to which type of competition is relevant – competition between BT and indirect access operators in call carriage or between indirect access operators and direct access operators with whom they are competing to attract BT customers.
It has been argued that the relevant competition is that between BT and CPS operators: direct access operators are not relevant because CPS operators aren’t in competition with them, since they address a different market by offering a range of advanced services as well as TV; indirect access operators can compete with BT only in the provision of cheaper calls. Oftel does not find this argument convincing. However, it is not considered that a particular cost recovery mechanism for CPS would be the appropriate way to ensure competitive neutrality between CPS and direct access operators. This broader question is one which Oftel is addressing separately.
Spreading system set-up costs across all relevant call origination minutes (ie all calls of a type available under CPS that are carried by BT or by a CPS or indirect access operator) would be competitively neutral between BT and indirect access operators, since the retail prices each could offer to customers would include the same charge for call origination. Further, if system set-up costs are recovered from all minutes, this would include CPS over-ride minutes too: this would preserve competitive neutrality between indirect access and CPS and BT-routed calls. The effective competition principle suggests that BT’s system set-up costs should be shared between BT and CPS operators.
Cost minimisation
The need to build incentives for cost minimisation into charging mechanisms for CPS strongly suggests that cost recovery should be over all relevant originating minutes, so that some of the costs are recovered from all parties. The cost minimisation principle can be satisfied in a number of ways so there is no direct relationship between the principle and any particular way of recovering costs. Under the current proposals, BT would have to bear a significant proportion of the costs of CPS. This provides a good incentive to BT to minimise the costs which it incurs. BT would have little incentive to do this if it were able to recover all of its costs from other operators.
Practicability
The practicability principle suggests that costs should be recovered in a simple way which lends itself to relatively easy measurement. Recovery of CPS costs across all relevant minutes, including NTS, allows total traffic volumes to be used to calculate charges. This is reasonably predictable and unlikely to change rapidly over time, whereas the size and growth of CPS traffic volumes are very uncertain. Because of the room for error in forecasting CPS traffic, recovering costs over CPS minutes alone could lead to under- or over-recovery of costs, thus producing charges which send the wrong pricing signals to the market. Recovering a proportion of costs from direct access operators would also be impractical. Another proposal that Oftel rules out on practicality grounds is that system set-up costs are borne up-front by CPS operators. As costs would need to be shared initially among the original CPS operators, there would be a clear incentive for operators to stay out of the market temporarily and so avoid paying any costs.
Reciprocity
Unlike the case of number portability, the reciprocity principle is not helpful in this exercise. In the number portability cost recovery exercise, the service in question was to be offered on a reciprocal basis between operators with comparable networks, offering comparable services. It was considered appropriate that each should pay for the set up of the service on their own systems. However, CPS may only be offered from BT’s and Kingston’s networks: the process and costs of BT’s systems set-up are quite different to the process and costs undertaken by CPS operators. Had the reciprocity principle been applicable in the case of CPS, there would have been an argument for requiring BT to bear its own system set-up costs. In the absence of reciprocity, the effective competition principle suggests that costs should be shared in a competitively neutral way between BT and CPS operators.
Conclusion on BT’s system set-up costs
Cost causation is not particularly helpful in deciding how BT’s system set-up costs should be recovered, since BT is obliged by regulation to provide the service. However, other factors, particularly the distribution of benefits and effective competition, clearly suggest that the burden of the costs should be shared between BT and CPS operators. Arguments about practicability and cost minimisation tend to support the same conclusion.
Comparison with cost recovery for other SMP obligations
This approach produces a result consistent with other provisions on cost recovery for costs incurred in meeting regulatory obligations. BT is subject to a CPS obligation only because of its commercial position as an operator with significant market power. Other SMP obligations such as accounting separation and measures to ensure transparency of BT’s processes are imposed to benefit the industry as a whole. Because of this, the costs which BT incurs in meeting its regulatory obligations are shared amongst the industry (and thus, indirectly, amongst customers, including BT’s), by inclusion on a non-discriminatory basis in interconnection charges. CPS will be introduced as a competitive mechanism to ensure equality of access to competing call conveyance service providers; it is therefore appropriate and consistent that BT should be able to recover from CPS operators the costs of making the service available, in the usual way.
Per operator costs
The principle of cost causation strongly suggests that these costs should be met by CPS operators, since they will only arise, by definition, because of a specific request from an operator wishing to provide CPS or CPS override services (indirect access).
Consideration of the other principles does not obviously suggest a departure from this approach. In particular, it is CPS customers who will get most of the benefit of the services offered by the individual CPS operator. BT customers who do not take CPS services may receive some incremental benefit as a result of an individual CPS operator offering CPS but this is not a strong enough consideration to justify modifying what is suggested by cost causation. In other words, although there may be some benefits due to the first or second operators offering CPS, the incremental benefit from the next CPS operator and the next will rapidly diminish.
This will produce competitive neutrality in per operator costs between BT and CPS operators in the provision of CPS services. This is because BT, in setting up its network to act as a provider of CPS override (indirect access) services, should incur the same per operator costs as if it were any other operator electing to offer such override services.
Per line costs
Oftel considers per line costs to raise the same issues as per operator costs and that the 6 principles apply in the same way, with cost causation the overwhelming issue. Thus Oftel proposes that per line costs should be met by individual CPS operators, including BT. Should a customer change their pre-selections to re-select BT, BT would have to pay per line charges.
Conclusions on cost recovery for BT
Oftel concludes that BT should recover the costs of implementing CPS on its network as follows:
Recovery of CPS costs for Kingston Communications (KC)
Kingston have made representations to Oftel about the expected cost of introducing switch-based CPS functionality in the Hull area. They argue that the differences in economies of scale between BT and Kingston mean that a switch-based CPS solution in the Hull area would be a far greater burden to KC customers than its equivalent for BT customers in the rest of the country.
Kingston anticipate system set-up costs for CPS in the region of £4.8 million of capital expenditure plus around £400,000 p.a. of operating costs. Kingston contend that most of the costs of developing a switch-based system would be incurred in software development (for their operational support systems). Per operator and per line costs are likely to be far less resource-intensive. Kingston argue that they do not benefit from BT’s economies of scale: thus although KC’s costs would be around a tenth of BT’s, the impact on KC customers, whether or not they use CPS, would be disproportionately larger. A CPS service involving the level of costs suggested would be unattractive to anyone considering taking CPS.
Oftel takes the view, having considered the costs information provided by Kingston, that a switch-based CPS service would indeed impose significant costs on KC and/or CPS operators, to such an extent that the uptake of CPS would be likely to be severely reduced. As a result, the unreasonably high costs of providing the network functionality would be very hard for Kingston to recover, unless they were passed on to KC customers generally.
Kingston have proposed an alternative strategy for implementing CPS on their network. This would entail the use of autodiallers – smart boxes to automatically route calls according to a customer’s pre-selections – installed on customer premises. This solution would allow those customers in the Hull area who choose to take CPS service to have the same functionality as a switch-based service, but at a more reasonable cost.
Oftel has considered this proposal carefully, including the cost modelling provided by Kingston. Oftel has indicated to Kingston that it is willing for Kingston to produce detailed proposals for an autodialler-based CPS service. It is to be stressed that this is because Kingston will not benefit from the economies of scale which make a switch-based service the most viable option for BT. Implementing CPS on BT’s network will still be cheaper per customer than the Kingston proposal. It will also have more network resilience. Kingston are aware that their proposed solution would have to meet the following initial conditions (although detailed rules which would apply to an autodialler-based service will be developed in due course):
Oftel proposes the same approach for cost recovery on Kingston’s network as that proposed for BT. This is due to the need not to distort operators’ decisions over which technical solutions to deploy. The system set-up costs of introducing CPS functionality onto Kingston’s network should be recovered from all relevant call origination minutes (ie all call types available under CPS, whoever carries them). This would include costs incurred in the design, manufacture and installation of autodiallers with the requisite functionality. Per operator and per line costs, including programming the autodialler, will be recovered in the same way as for BT; that is, pursuant to the principle of cost causation and in the absence of a contrary conclusion based on the other principles, per operator and per line costs should be borne by the CPS operators who cause these costs to arise.
UK submission seeking deferment of Carrier Pre-Selection obligations
I Overview
This paper sets out why the UK seeks a deferment of obligations to introduce carrier pre-selection (CPS) and the grounds on which it is believed a deferment is justified. In Oftel’s view, it will be possible to introduce CPS throughout the UK in the following way:
(Centrex is a service provided over the PSTN as an alternative to customers having their own Private Branch Exchange (PBX), with the PSTN providing the switching of calls between terminals on the customer's site as well as calls to and from other users of the PSTN.)
These are dates which BT and its suppliers consider the earliest feasible to commit to national roll-out. Oftel is keeping pressure on BT and hopes that these timescales will be improved on by parallel development of operational support systems (OSS) and network roll-out of CPS software. It will not be possible until later in the process to confirm final dates for completion of implementation and therefore a deferment according to the timetable set out above is requested.
This submission is made pursuant to Article 20(2) of the Interconnection Directive as amended, which provides that a deferral of CPS obligations may be requested where the Member State concerned can prove that they would impose an excessive burden on certain organisations or classes of organisation.
The Director General determined, in December 1997, that BT and Kingston shall be deemed to be operators having significant market power in the markets for fixed networks and services in the UK. Consequently, CPS obligations will be imposed on BT and Kingston when the amendment to the Interconnection Directive (currently known as the Numbering Directive) is transposed into UK law at the end of 1998.
Having consulted the UK industry and consumer groups, the Director General has adopted a functional specification for CPS which describes the separate CPS options and services which BT and Kingston will be required to provide. These are as follows:
Option 1 – International calls only
This option enables customers to pre-select a carrier other than BT – or Kingston as the case may be – for all their international calls.
Option 2 – National calls only
This option enables customers to pre-select a carrier other than BT or Kingston for all their national calls.
Options 1 and 2 may be combined so that the customer has pre-selects for both national and international calls. The pre-selected operator may of course be the same or different for each call type.
Calls for which the customer does not pre-select an operator – ie everything but international and/or national calls – would continue to be routed by the originating direct access operator. Thus BT or Kingston would continue to route local, mobile and specially tariffed calls etc. In addition, customers would be able to suspend, or ‘override’ their preselections for individual calls on a call by call basis by dialing a pre-fix of 4 extra digits, having made arrangements to do so with alternative operators (which could include BT or Kingston).
Option 3 – All calls
This option enables a customer to pre-select an operator other than BT or Kingston to carry all of their calls. As long as the customer remains with BT or Kingston, these operators will continue to provide the line to the customer’s premises and will bill for line rental. But the only calls which BT or Kingston would route and deliver would be calls using short codes to special services eg emergency services, directory enquiries and operator assistance. All of the customer’s international, national, local, mobile, specially tariffed (eg freephone, local rate, national rate and premium rate), personal numbers and paging calls would be routed to the pre-selected operator.
Customers who wish to continue to take all of their call services from BT or Kingston will not need to do anything. The provision of their calls will be unaffected by the introduction of the CPS service. Likewise, existing call by call carrier selection (indirect access) services will continue to be available from BT and Kingston.
Reasons for requesting a deferment
The UK seeks a deferment of CPS obligations because Oftel considers that it will not be practically possible to upgrade switch software and to introduce the required functionality throughout the relevant networks by 1 January 2000. The reasons for these difficulties are largely technical: the local switches employed in BT’s UK network are quite different from switches in other Member States in that they have no latent CPS capability (see paragraphs 22–24). CPS will necessitate major software development and network upgrades.
Background to CPS harmonisation
In other Member States, where CPS was initiated as a competitive strategy, planning for its introduction started well before December 1997 when there was EU consensus that it should form part of the ONP framework. In many of these Member States, SMP operators were required by domestic laws in 1996 or 1997 to plan for CPS functionality by 2000 at the latest. CPS was not part of the domestic legislative framework being constructed for BT at that time. Oftel notes that in October 1997, BT met representatives of the Commission to discuss CPS. It is understood that at that meeting (which Oftel did not attend) BT detailed the critical path for introduction of CPS in the UK and set out that planning would need to start more or less immediately if the service were to be in place by the due date, 1 January 2000. It was not possible at that stage, however, to start planning for CPS because there was no legal certainty about the extent and nature of the CPS service which was eventually to be required to be made available in all Member States.
II Approach to CPS
Development of the CPS service description
When the December 1997 Council meeting produced a Common Position on the terms on which CPS would form part of the EU framework, Oftel immediately started to prepare for the introduction of the service. The consultation on the Numbering Green Paper, which led to the Council’s Common Position, envisaged CPS for national and international calls. The draft Directive introduced in Autumn 1997 however, was not specific about what services were to be covered. It was not until the Commission provided subsequent clarification of the intention behind the Directive that Member States understood that the CPS service might not be limited to these services but could also include other services. Because there were no precise definitions for CPS, a period of consultation with the UK industry was required to determine a Functional Specification for the CPS service.
There has been considerable uncertainty, in particular as to whether local calls and calls to mobiles should also be included, and indeed Oftel’s research of the position in other Member States showed that most do not intend to include local calls at least initially. The UK could not specify the CPS service which BT would have to plan for without making a decision on the services covered. This has fundamental implications for the design, cost and timing of the CPS service to be delivered. CPS for local calls requires complex questions about the use and integrity of BT’s network to be addressed.
Nature of the UK market
The UK already has over 40 operators offering various types of indirect access service. Local calls are currently available via indirect access through the easy access services which have been established in the UK for many years. Any call type can be offered to BT customers by indirect access operators and local calls in particular can be economically provided because of the UK’s low interconnect rates for call origination (Oftel understands that local call indirect access is not generally available or profitable in other Member States and so this has probably been less of an issue elsewhere). The volume of indirect access calls to mobiles is growing. At present, the market for indirect access ‘all calls’ is small because few operators have invested in the necessary infrastructure to handle mobile and number translation services economically.
Given the range of existing indirect access services, it seemed inappropriate to introduce a CPS service which has lesser functionality. Further, the diverse mix of UK operators, and established processes for debate about regulatory changes in the UK meant that it was not reasonable for either Oftel, or BT to dictate how the CPS service should work without adequate consultation. Moreover, a short term, minimal service based on existing switch functionality was not an option in the UK. This is further explained in paragraphs 22–24 below.
Views of the UK industry
There were strong views about the form which CPS should take from competing sides of the UK industry : operators interested in using CPS wish to be able to offer all calls, including local calls. BT were extremely concerned about the impact which significant growth of indirect access local calls volumes might have on their network – indirect access local calls place capacity demands on trunk switches which do not occur where calls are routed directly by the local switch. Oftel, with its responsibilities for safeguarding BT’s network stability, shared these concerns. All sides of the industry have been aware of the tight timetable for meeting the EU CPS obligation. It became clear during consultation that there would be a trade-off between the sophistication of the service initially introduced and the speed with which it might be made available.
Consumer needs
Consumer groups in the UK supported a service with a variety of options, not just national and international calls. However, there has been concern amongst consumer groups that an implementation of CPS which is not properly planned could simply create customer confusion. The aims of the Numbering Directive will be thwarted if the service which is offered to customers is not taken up because of poor preparation and inadequate customer acquisition and order handling processes – notably to avoid ‘slamming’ which has been prevalent in the US. Thus, it has been important for Oftel to develop a service description which meets the requirements of end-users and is easy for them to use, whilst incorporating consumer protection safeguards.
The Millennium and code and number changes
Finally, pre-existing constraints on BT’s network development dictate the timing of further network modifications. The UK industry have agreed to a network freeze between 1 October 1999 and 14 January 2000 to accommodate Millennium changes. During this time, no network modifications other than those to accommodate the Millennium may be carried out. In addition to this, extensive code and number changes are planned in the UK during 2000. These will not necessitate a single freeze period, but rather BT’s network will be subject to short periods when no other modifications can take place other than those to accommodate the code and number changes, between 22 April 2000 and 16 October 2000. There is clearly a very real risk of compromising the integrity of BT’s network should BT be forced to undertake both CPS modifications and Millennium and number changes concurrently. The alternative, of trying to introduce CPS before 2000 would mean that introduction would have to be complete by September 1999. This would clearly be impossible given the work which has to be undertaken.
III Consultation
Oftel sought to find a way through these different interests and obstacles. There were consultations with the manufacturers and suppliers who would be doing the software upgrades to provide CPS functionality for BT and Kingston networks. This included a special meeting of the Network Interoperability Consultative Committee to investigate the service/timing trade-offs (the NICC, an industry wide forum which includes BT and other operators and manufacturers, which has the UK remit to agree issues of interoperability for networks making up the PSTN). Oftel also consulted NRAs in other Member States to find out what services would be available elsewhere. There was no clear consensus in the responses, but only 2 out of 15 indicated an intention to include local calls and most had yet to make any firm decision.
CPS has been referred to the NICC for resolution of issues surrounding technical interfaces and interoperability with existing services. The NICC will support the work of the industry process group and of BT’s suppliers as they develop the CPS software and as it is rolled out across BT’s network.
In February, Oftel consulted consumer representatives and Telecoms Advisory Committees about the specification of the CPS service and consumer protection issues.
Deadlines were imposed by equipment manufacturers and suppliers according to a critical path for introduction of the service as early as possible in 2000. Oftel, working with the industry made every effort to meet these deadlines. The third draft of the Functional Specification was issued for a short period of consultation in July 1998. After 2 weeks, this was adopted and referred to BT and Kingston for implementation. The adopted UK CPS Functional Specification is designed to offer a customer friendly service, to be free from barriers which would prevent operators from entering the CPS market, and to meet the requirements of the Numbering Directive.
Since March there has been parallel work on cost recovery for CPS. Three types of cost have been identified: system set-up costs, per operator costs and per line costs. Oftel published an initial consultation paper which applies to these 3 categories the 6 principles used to decide cost allocation for number portability. This showed the arguments to be finely balanced, as to how the bulk of the costs of implementing CPS – system set-up costs – should be recovered. Oftel is now considering responses to the consultation paper and will publish a statement on cost recovery shortly.
Industry based groups, set up by Oftel, are now handling the day to day development of the CPS service, to develop processes for the preparation, introduction and future availability of the CPS service. Oftel is involved in this process to keep discussions on track and to resolve any difficulties that may arise. There is now a CPS Commercial Group which has authority to take decisions about the implementation of CPS on behalf of the industry (subject to intervention by Oftel). Into this group reports a Process Group which is developing customer order handling processes and arrangements for product launch; and a Consumer Group which is working with representatives of end-users to develop the Code of Practice and procedures to deal with abuses such as ‘slamming’.
IV Process and timescales
What will be required to make CPS available from BT’s network
By way of general background, CPS is an established feature of the US telecoms market. Manufacturers who supply both US and EU markets will often provide a degree of CPS functionality – but this will generally require modification for EU markets since US definitions of ‘local’ and ‘national’ calls are quite different and depend on inter-state boundaries. Where latent CPS functionality exists within EU builds, it may be possible to introduce a CPS service in a matter of months. It is important to recognise that whilst it may be true that European network operators are moving towards standardisation, a manufacturer’s basic build has to be customised for individual operators. In contrast to switches developed for EU and US markets, switches developed for the UK have no latent CPS functionality at all and providing even basic CPS functionality requires extensive development of new exchange software. Design, development, testing and implementation of such upgrades usually involve a lead time of 18 to 24 months.
The existing UK network is significantly different from networks elsewhere in the EU. In part, this is because 70% of BT’s switches are supplied by GPT, who do not supply switches to incumbent operators in other Member States. These GPT switches at present have no CPS functionality. The steps which will be taken to introduce CPS into the GPT network of exchanges is detailed below.
The remaining 30% of BT’s switches are supplied by Ericsson. Ericsson have developed a standard European exchange software build with variations for individual operators (although it is by no means clear that Ericsson will be in a position to deliver CPS in all Member States by 1 January 2000). This includes latent CPS capability for national and international calls for PSTN and ISDN traffic. However, for the UK, Ericsson developed a non-standard software build with specific BT features which were either not available or not required in the standard European build. Ericsson cite as examples the BT NUP and DASS signalling systems, customer services, charging and proprietary interfaces.
Ericsson’s UK build was originally developed in 1984. There has now been 14 years of divergence between the UK and European builds. The UK build has no CPS capability. Ericsson have assessed the impact of introducing CPS capability on their core software subsystems. They estimate that around 50% of the subsystems will be impacted and will require substantive modifications.
Oftel has considered with BT and its suppliers, how CPS functionality should be developed. Economies of scale of the BT network make it clear that a switch based solution would be both the most technically feasible solution and the cheapest. Manufacturers who supply BT’s networks are:
In addition there are in the region of 120,000 customers who will be served by UXD5 exchanges by 2000. These are in rural areas. UXD5 exchanges have very limited functionality – they would not readily support a switch based CPS solution. Alternative solutions, such as the provision of autodiallers to CPS customers, are being considered for customers served by these exchanges. This is a technically inefficient way to provide the service but it is anticipated that numbers will be small and it is these customers in particular who are likely to benefit from a CPS service. Switch based solutions will become available when these exchanges are replaced.
The process for introducing CPS into BT’s network is as follows:
Exchange software upgrades
BT’s network is subject to a rolling programme of upgrades. These are usually planned years in advance and pre-determined services or features are timetabled in to specific builds. As explained earlier, no provision was made in BT’s upgrade cycle for CPS until it was agreed that the UK would be subject to the CPS obligation. Many other Member States, however, required their SMP operators to plan for CPS in advance of the EU provision being adopted – in some cases in time for the 1998 liberalisation. Services are scheduled into builds on the basis of a ‘Schedule of Requirements’ which allows switch suppliers to allocate resources to projects. The schedule of requirements for CPS was dependent on adoption of the Functional Specification. This was referred to BT by Oftel on 6 August. BT referred the Schedule of Requirements to its suppliers on 23 July on the basis of the draft Functional Specification, in order to allow planning to begin. Certain issues are still outstanding (billing, for example) which would normally be dealt with in the Schedule. In the interests of speed, these outstanding issues will be dealt with as they are decided.
The process of exchange software upgrades must be undertaken by a dedicated team – it is not something that can be outsourced, although we understand that Ericsson are using non-UK Ericsson programmers to achieve the development timescales which Oftel have pressed them to commit to. Designing the software is, however, only one step in the process: integrating the new product into existing programmes is essential to preserve the integrity of the network. The standard process for delivering a software build to BT so that BT can prepare for roll-out is as follows:
This normally takes 18–24 months. The software build then undergoes a month's testing programme at BT’s Research Laboratories (Martlesham). On satisfactory completion of these tests, the build will be rolled out to selected exchanges in a Trial Zone in the BT network for 3 months to determine if it is stable enough to work in an operational environment: if no problems are experienced national rollout of the build is authorised. A further two months is allowed for this. Taking the GPT 6300 build as an example, testing at Martlesham is scheduled for February 2000: Zone testing from March – end May 2000, and rollout completion for end July 2000.
BT’s software build delivery timetable for CPS is as follows:
| Switch type / supplier | Build | Functionality delivered | Target switch technology roll-out | ||
| System X GPT | 5900 | Year 2000 compliance | August 1998 | ||
| 6100 |
UK code and number change | May 1999 | |||
| 6300 |
CPS | July 2000 | |||
| 6500 |
CPS | May 2001* | |||
| AXE10 Ericsson | BTLE7 | CPS | Summer 2000* | ||
| AXE10 Ericsson | BTLE? | CPS | 2001 | ||
* subject to contract. It should be noted that GPT has split the functionality over 2 builds in order to deliver Options 1 and 2 more quickly than Option 3 can be delivered. This is an indication of the complexities of the software design. Ericsson will also now split development over 2 builds. Latest delivery dates are not yet known but functionality will be in place by December 2000 at the earliest for Options 1 and 2 and around the end of 2001 for Option 3 and Centrex.
Development of Operational Support Systems (OSS)
To speed implementation of CPS, Oftel has asked BT to develop its operational support systems in parallel with the development of upgrades to its network. BT has agreed to do this as far as possible. BT will be developing 10 independent but interworking OS systems as well as an electronic inter