This Statement is the culmination of proposals made in the Consultative Document published in February 1996 and the followup Statement published in June 1996 concerning the provision of services over telecommunication networks. Those documents addressed a number of issues of importance to independent service providers - those who use other operators networks to provide services to their customers - including the charges for use of BT's network, and market distortion arising from anticompetitive behaviour.
In a fully competitive market, the terms of trade do not depend on regulatory structures but upon the ethic of fair competition and an ability to conduct business within the framework of general competition law. The telecommunications sector in the UK is well on the way to such a market, but is not yet at the point at which competition law is a sufficient tool with which fair competition can be either promoted or sustained. The market is in transition between an era in which heavy regulation was a necessity and one in which a "handsoff" approach would be effective. I expect the transitional phase in which we now find ourselves, and in which I will continually make efforts to withdraw from detailed regulation, to last until 2001 at the latest.
This Statement seeks to address the goal of effective competition at all levels in the value chain, from provision of the access network through to delivery of basic and enhanced services over that network. The Statement is, itself, a recognition of the valuable contribution made by independent service providers to the telecommunications industry as a whole, in particular, in terms of the innovation and imaginative applications which are vital for driving the industry forward.
The main measures set out in this Statement are as follows. An updated classification of BT's Systems Business and Supplemental Services Business will be brought into effect as of April 1998. This change is vital in the new digital world, where developments in technology must be taken account of to ensure that the increasingly complex array of services can be classified effectively. The change is also important because it is that which underpins the prices which BT charges itself for network services and it is therefore necessary to enable the policing of anticompetitive behaviour between BT and independent service providers. Another measure set out in the Statement will give BT greater flexibility to offer lower prices to independent service providers in order to promote competitivelypriced services at all levels in the value chain, although access to costbased interconnect prices will for now be limited in the main to those installing networks. A third measure provides for the enhancement of the information required to be published in the Financial Statements relating to the divide between BT's Systems Business and its Supplemental Services Business. This will help to provide greater transparency in the relationship between BT and independent service providers for the benefit of everyone in the market. Additionally, independent service providers will be entitled to allocations of numbering capacity without the need for individual licences.
This Statement also announces Oftel's intention to set up an Independent Service Provider Forum, which I hope will be used by independent service providers to bring to the fore issues which are important to them and which may not yet have been fully explored. In preparing for this, Oftel has already had much helpful input from independent service providers, for which I am grateful, and I hope that they will continue to work constructively with Oftel through the Forum.
Don Cruickshank
Comments are invited by 31 March 1997 on the measures set out in this Statement. There will then be a further period up to 14 April 1997 during which comments are invited on any submissions made to Oftel during the initial period.
Written comments should be submitted to:
Philip Sack
Oftel
50 Ludgate Hill
London EC4M 7JJ
fax: 0171634 8731
email: intsection.oftel@gtnet.gov.uk
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 wherever possible.
Oftel intends to set up links between this document on Oftel's pages and 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.
Chapter 1: Introduction
Chapter 2: Pricing of BT's Network Services to Independent Service Providers
Chapter 3: Definition of Service Providers
Chapter 4: Implementation of policy on Relevant Connectable System Status
Chapter 5: Split between BT's Systems Business and Supplemental Services Business
Chapter 6: Accounting Arrangements
Chapter 7: Access by Independent Service Providers to Network Interfaces
Chapter 8: Access by Independent Service Providers to Numbers
Chapter 9: Oftel's future plans for promoting fair competition in the interests of Independent Service Providers
Chapter 10: Summary of policy
Annexes
Annex A: List of Respondents to the June 1996 Statement
Annex B: Service Provider Definition
Annex C: Proposed Guidelines for Relevant Connectable System Status
Annex D: Proposed modifications to BT's Licence relating to new definitions of Systems Business and Supplemental Services Business
Annex E: Categorisation of services within the Systems Business
Annex F: BT's Basic Data Services
Annex G: The Internet Protocol Service
Annex H: Details of Accounting Arrangements
Annex I: BT's guidelines for prenotification of New Services
A Purpose of this Statement
1.1 In February 1996, Oftel published a Consultative Document entitled Promoting Competition in Services over Telecommunication Networks, and in June 1996 followed it up with a Statement on the same subject. The objective was to consult widely with the industry and other interested parties on how best to promote competition in services provided over telecommunication networks, in particular by those not owning their own networks (which in this Statement are called "independent service providers"). Oftel is seeking to create a framework for effective, efficient and sustainable competition in the market for such services, for the ultimate benefit of the consumer.
1.2 The earlier documents sought to identify the regulatory and competition issues which need to be addressed in order to deliver this objective. Key issues identified were:
The need for a review of pricing of network services (the basic and essential components for making up enhanced services) to independent service providers and the need to encourage lowr prices for independent service providers.
Linked to the above, the need to clarify policy on entitlement to pay regulated standard interconnect charges from BT.
The need to review and update the division between BT's "Systems Business" or "SB" and its "Supplemental Services Business" or "SSB".
Access to technical interfaces and numbering capacity for independent service providers.
Other related issues, including, in particular, the definition of service providers, the licensing framework for independent service providers, a review of the accounting requirements on BT in the context of the new SB/SSB definitions, and the unbundling of certain services offered by BT.
1.3 Oftel's initial views and requests for further comments on these points were set out in its June 1996 Statement. A list of the respondents to the June Statement is at Annex A.
1.4 The objective of this Statement is to bring as many of these issues as possible to a conclusion, and to bring all the threads of Oftel's proposed policy as described in the earlier documents together so that this Statement can be used for reference.
B Definitions
1.5 This Statement uses a number of key terms and what follows is a list for the reader s reference of these terms. There is also a glossary at Annex J containing definitions of other important terms used in this Statement.
network operators means those who install their own telecommunication transmission networks;
service providers means those who provide services over telecommunication networks to the public at large; they may install their own networks (ie they may also be network operators), or, in the case of independent service providers, use the networks of others;
end users means the final customers of service providers including closed user groups and those providing services only to organisations under substantively the same ownership;
network services means the conveyance of calls, messages and signals over a telecommunication network, including any necessary switching. Network services can be subdivided into network interconnection services, which are provided to other network operators to enable calls and associated functions to be passed between interconnected networks, and basic retail services which are provided to other customers, that is, end users, independent service providers and BT's Supplemental Services Business. BT is expected increasingly to devise new network services aimed specifically at independent service providers which are likely to be "intermediate" products derived from services provided to end users but with certain elements stripped out because they are not used by independent service providers; independent service providers would add (nonnetwork) elements to create retail services - either their own basic retail services or enhanced services. This Statement does not generally draw a distinction between network interconnection services and basic retail services but uses the generic term "network services" to refer to both. Under the proposals set out in Chapter 5 of this Statement, BT would provide all network service out of its Systems Business.
enhanced services means services with a telecommunications component and which use network services as an essential input, but which contain some function over and above network services which is readily capable of being carried out by independent service providers. Under the proposals set out in Chapter 5 of this Statement, there is a presumption that BT would provide all enhanced services out of its Supplemental Services Business, although, in certain circumstances it may be permitted to provide certain enhanced services from its Systems Business. These services are described in Chapter 5 as category (c) services and such services are regarded for the purposes of this Statement as network services.
Systems Business (SB) is currently defined in Condition 18 of BT's licence as being, essentially, that part of BT's business involving the installation, running and maintenance of its network and the conveyance of realtime voice and telex messages, as distinct from the Supplemental Services Business. Oftel is proposing to modify the definition of BT's Systems Business (see Chapter 5 of this Statement).
Supplemental Services Business (SSB) is currently defined in Condition 18 of BT's licence by reference to the definition of "Relevant Services", which in turn refers to the Value Added and Data Services Class Licence granted in 1987. In essence, and under that definition, the SSB consists of that part of BT's business that provides all telecommunication services or enhanced services except "realtime voice telephony and telex" (which are in BT's SB). Oftel is proposing to modify the definition of BT's SSB (see Chapter 5 of this Statement).
C Relationships between BT, other network operators, independent service providers and end users
1.6 The diagram below illustrates the accounting separation between BT's Systems Business and its Supplemental Services Business, as well as the relationship between BT, other network operators, independent service providers, and end users. BT provides network services in the form of basic retail services from its Systems Business to end users, independent service providers and its own Supplemental Services Business. End users pay normal retail prices for basic retail services, but under the policy set out in Chapter 2 of this Statement, BT is expected to introduce lower prices for basic retail services supplied to independent service providers (which it would also charge to the Supplemental Services Business). BT provides network services in the form of network interconnection services from its Systems Business to other network operators at interconnect or "Condition 13" prices (see paragraph 4.3 below).
D Evolution of the UK telecommunications market
1.7 The UK telecommunications market already benefits from considerable
competition. This Statement sets out measures designed to facilitate
competition still further. Oftel believes that the best way to
achieve a competitive market is through vigorous competition between
network operators and independent service providers. Oftel has
put considerable resources into setting costbased charges
for interconnection with BT's network, and BT is obliged to offer
these charges to other network operators. However, in the June
1996 Statement, Oftel'spelt out its longer term goal whereby the
price paid for access to and use of BT's network (ie network services)
would depend not on the regulatory identity of the customer (eg
network operator, independent service provider, or end user),
but on the nature of the product or service purchased from BT.
Oftel believes that this objective will have been reached by the
end of the next price control period in 2001 because, in the interim,
BT and other network operators will, as a result of commercial
forces rather than regulatory action, develop services aimed specifically
at different types of customer designed to meet their needs more
effectively than the network services that are currently provided.
Figure 1.1 relationships between BT, Other Network Operators, Independent Service Providers and End Users
E Mobile Service Provision
1.8 This Statement concerns the provision of services over fixed networks. Oftel published a Consultative Document on mobile service provision in May 1996, and will shortly be publishing a followup Statement setting out the measures to be taken in the light of that consultation. Oftel recognises, though, the increasing convergence of services provided over fixed and mobile networks. Some service providers wish to offer their customers both fixed and mobile services, whereas others may wish to offer services that can be accessed via either type of network. Oftel is therefore considering the implications of this convergence for the regulatory structure, and the followup Statement on mobile service provision will deal with this issue in greater detail.
F The EU dimension
1.9 EU legislation has important consequences for the regulatory framework applying to telecommunications in this country. In addition to existing competition rules and Directives such as the ONP Directives (including the Voice Telephony Directive), a number of other Directives are in the process of being adopted for implementation by the beginning of 1998. The Licensing and Interconnection Directives are likely to have the most impact on independent service providers.
1.10 There are a number of broad principles covered in these Directives, all of which Oftel has taken into account when developing its policy on service providers, including the following:
G Outline of the Statement
1.11 Chapter 2 explains the rationale for expecting BT to offer more favourable terms to independent service providers than to end users, and sets the broad parameters within whch it may do this. It highlights the need for a definition of service providers which is discussed in Chapter 3. Chapter 4 describes how Oftel intends to regulate entitlement to interconnect prices from BT through its policy on Relevant Connectable System status. Chapter 5 sets out the new framework within which BT will be able to provide "network services" and "enhanced services" and Chapter 6 details the accounting requirements to be applied to BT in order to help monitor the way it provides these services. Chapters 7 and 8 discuss independent service providers needs for more sophisticated access to networks and for numbering capacity, respectively. Chapter 9 concerns Oftel's future plans for promoting fair competition in the interests of independent service providers including its intention to set up an Independent Service Provider Forum. Chapter 10 summarises the measures set out in this Statement.
A Rationale for change
2.1 Oftel believes that independent service providers can make an important contribution to the development of innovative, high quality services that are provided over telecommunication networks, adding value to those networks and providing consumers with choice and value for money. It therefore wishes to help stimulate the market for independent service provision by promoting an efficient, competitive market for the provision of network services which are an essential input to the enhanced products of independent service providers.
2.2 Because network services are an essential input to enhanced services, the terms on which independent service providers may purchase these inputs are of vital importance. In the present UK telecommunications market BT continues to enjoy a dominant position in the provision of many network services by virtue of the size and ubiquity of its network relative to those of other network operators. This Statement focuses therefore on the prices BT charges to independent service providers. The following Chapter concerns the definition of service providers and Annex B contains Oftel's proposed definition. Independent service providers are those that come within the definition, but who do not install their own networks. This Chapter refers to "independent service provider prices", although in certain circumstances network operators may also purchase network services from BT at independent service provider prices (see paragraph 3.2).
2.3 One hindrance to BT offering lower prices for network services to independent service providers may have been Condition 17 of its licence. This prohibits BT'showing undue preference to, or exercising undue discrimination against, particular persons or classes in respect of the charges or other terms or conditions on which it provides services by means of its network. This may have deterred BT from introducing prices for access to, and use of, its network by independent service providers that are lower than the prices charged to end users. However, in Oftel's view, independent service providers are a class of user of BT's services which offers scope for BT to price lower than to other users, because of lower costs incurred in serving them, as a means of stimulating use of the network. Hence, in its June 1996 Statement, Oftel indicated that it would not, in principle, consider that BT had exercised undue discrimination in offering prices for network services to independent service providers that were different from prices charged to end users, and said that it would devise a definition of service providers.
2.5 Taking a more flexible approach to the effects of Condition 17 could give rise to risks of anticompetitive behaviour by BT. BT, as the dominant provider of many fixed network services in the UK, could seek to set prices to independent service providers in a way designed to weaken and ultimately eliminate competition from other network operators or independent service providers. The provisions in BT's licence designed to prevent anticompetitive behaviour, including the "Fair Trading" Condition (Condition 18A) which came into force on 31 December 1996, will apply to independent service provider prices.
B Oftel's policy
2.6 Oftel expects to see a general reduction in prices of network services for independent service providers primarily as a result of BT's response to increasing competition from other network operators. Prices charged to independent service providers must be fair, and, in line with the EU framework, all tariffs charged by network operators with significant market power must be costorientated. However, Oftel will not adopt an interventionist approach and determine the prices that BT must charge. Instead, if necessary, it will rely on provisions in BT's licence designed to control anticompetitive behaviour, such as Condition 17, the unfair crosssubsidy rules and the Fair Trading Condition.
2.7 The elements of the pricing policy are set out below.
(1) Changes to Condition 15
2.8 Condition 15.3 to 15.9 of BT's licence obliges it to provide services to "Service Providers" (defined in paragraph 15.8 of BT's licence and meaning "systemless" resellers) on the basis of the retail price minus net cost savings and gives the Director General the power to determine charges made by BT in accordance with this "retail minus" approach. Oftel believes that these provisions are no longer necessary or appropriate. Under the policy outlined below, BT is expected to offer all independent service providers prices which take account of cost savings compared to serving end users. It is intended therefore to delete Condition 15.3 to 15.9. Statutory consultation on this modification was undertaken when the June 1996 Statement was published. No objections to the modifications were received. Oftel therefore proposes to proceed to implement the modifications. It is not proposed to delete or modify Condition 15.1 and 15.2 of BT's licence, which require BT to allow lawfully connected service providers to provide services over its system.
(2) Freedom for BT to offer independent service provider prices
2.9 As noted in the June 1996 Statement, network services supplied to end users typically contain one or more elements which are not required by independent service providers, or at least not to the same extent or in the same form, as are supplied to end users. Depending on the nature of the service to be provided by an independent service provider, examples of such elements could include billing, finance, marketing and sales, customer service, and operator services. Oftel therefore expects BT to move to offer prices to independent service providers for network services that are below prices charged to end users to take due account of the net cost savings in providing services to independent service providers. In principle, Oftel would not expect to consider this to be undue discrimination or preference within the terms of Condition 17 of BT's licence. Independent service provider prices should be published and should not be targeted at an excessively narrow class of customer. Service providers are defined in Annex B to this Statement.
(3) Nondiscriminatory treatment of independent service providers
2.10 Condition 17 of BT's licence, amongst other things, prevents BT from unfairly favouring its Supplemental Services Business (SSB) to a material extent so as to place at a competitive disadvantage persons competing with that business. In applying Condition 17, Oftel would consider whether any action by BT was having, or was likely to have, an anticompetitive effect. For example, where BT wishes to use a network service as an input to one of is own enhanced services, it must supply this, or a functionally equivalent service, as a product to independent service providers on the same terms. This was the case with BT's Telemetry service, "No Ring Call" service, and backhaul transmission circuits used in satellite uplinking services. Moreover, if the creation of a new product equivalent to a network service provided to the SSB gives rise to significant development costs, the SSB, as a customer of BT's Systems Business, should bear an appropriate share of these costs through the price charged for the new product. BT'should not seek to load such costs onto independent service providers by charging them more than it charges the SSB.
2.11 The requirement to treat independent service providers on a nondiscriminatory basis extends beyond issues concerning the obligation to supply and pricing. In principle it could also apply to such things as the unbundling of network services (see paragraph 2.13 below), billing, marketing and branding, the announcement of new services or technical interfaces, and the use of confidential customer information (see Chapter 9).
(4) Volumerelated discounts
2.12 Independent service providers will be entitled to any volumerelated discounts BT may offer to retail customers, assuming they purchase the services in sufficient quantities. Where BT introduces a network service aimed specifically at independent service providers, it may incorporate volume discounts into the price structure for that service, but must not do so in an anticompetitive way. There is a risk that BT, in the form of the SSB, as potentially one of the largest service providers in the UK, could benefit disproportionately from any volumerelated discounts. BT must ensure therefore that any volumerelated discounts available to independent service providers appeal to a broad range of customers, and do not unduly prefer its own SSB.
(5) Unbundling of network services
2.13 As a matter of general principle, independent service providers should not normally be obliged to pay for services or elements of a service that they do not use. Depending on its actual or intended effect, bundling of services can be an example of anticompetitive behaviour which could be prohibited under the Fair Trading Condition. In cases where BT is supplying elements of a new network service to its SSB or directly to endusers in unbundled form, yet those elements are not available to independent service providers, Oftel would be likely (subject to economic and technical feasibility considerations) to regard this behaviour as an undue preference of its SSB, or an undue discrimination against independent service providers competing in any of the markets for those services.
2.14 Oftel believes that, if BT develops a new enhanced service without regard to potential demand for the underlying network service(s) from independent service providers, there is a risk that it will prove prohibitively expensive subsequently to unbundle those underlying network services and provide them in retail form to independent service providers. Oftel considers therefore that where BT plans to develop a new enhanced service it should, from the outset, configure it in such a way that the underlying network service, or its functional equivalent, is capable of being provided to independent service providers and is charged on the same basis as to the SSB. Oftel's view is that, the very fact that BT itself requires the network service as an input to its own enhanced service implies that demand exists, and suggests that there could be demand from independent service providers. In other words, for the purpose of establishing whether demand for a network service exists, BT'should treat the SSB as though it were an independent service provider.
2.15 However, Oftel is aware that there are limits to the degree of disaggregation that is economically or technically feasible. It would therefore consider on a casebycase basis any complaints made to it about BT's refusal to provide unbundled services.
C Timescale for Implementation
2.16 Oftel will formally propose to BT the deletion of Conditions 15.3 to 15.9 and, subject to BT's agreement, will then make the licence modification. The pricing policy set out in this Chapter will be implemented at the same time, along with the arrangements in the next Chapter for defining service providers.
A The need for a definition
3.1 A service provider definition will act as a means of identifying those who will be entitled to independent service provider prices from BT (see Chapter 2). Oftel is seeking to devise a definition wide enough to encompass the potentially diverse range of activities involved in providing services over telecommunication networks, while at the same time providing both BT and the rest of the industry with a reasonable degree of certainty as to who would come within the terms of the definition. Oftel's definition is contained in Annex B, and covers those who carry on a business which is based on the provision of any service for reward to the public, which is delivered entirely by means of telecommunication systems. The definition derives from the factors set out below.
B Those to be covered by the definition
3.2 Following publication of the June 1996 Statement, a number of consultees commented that service providers who are also network operators (in other words, those running Relevant Connectable Systems) should be entitled to independent service provider prices from BT for services where there is no equivalent interconnect (that is, "Condition 13") price. Oftel recognises that, were BT to introduce an independent service provider price in such circumstances, it would be inconsistent with the overall policy of promoting alternative infrastructure if network operators were not entitled to that price but had to pay the full retail end user price. Thus, network operators who are also service providers should come within the service provider definition. Consequently, the definition refers to service providers rather than independent service providers .
3.3 Those providing, reselling, or adding value to telecommunication services are clearly providing services by means of telecommunication networks and should be included within the scope of the definition. This would include:
(1) those providing or reselling basic PSTN services like voice telephony, or basic data services such as Frame Relay, IP routing, and ATM;
(2) those adding value to telecommunication services in the form of, for example, number translation, personal numbering, calling cards, automatic call handling, voice mail and messaging, electronic mail and messaging, audio conferencing, fax store and forward, electronic data interchange, electronic fund transfer (including at point of sale), and remote file access, download and transfer; or those combining different media such as voice and video as with videoconferencing.
3.4 In addition, there are services involving the provision of information or content delivered entirely by means of telecommunications. Examples of the activities of businesses providing such services include:
(3) those providing remote, realtime database access, and possibly enabling downloading of data, such as online information providers and Internet access providers;
(4) those providing broadcast television by means of a telecommunications network (although it should be noted that some network operators, including BT, may not convey such services to the home over their main networks);
(5) those providing interactive audio or videobased services such as music or television ondemand, and networked interactive games;
(6) Premium Rate Service (PRS) providers, and information or advice services provided entirely via the telephone, including directory enquiry services.
C Those not covered
3.5 The definition would exclude those not selling services that are delivered to the public by means of telecommunications. Thus, those providing goods and services part of which are not conveyed to the customer by means of a telecommunication network, would not be covered even though they may make extensive use of telecommunications in the course of their activities. In Oftel's view, such businesses use telecommunications as end users rather than service providers. Examples of activities covered by this category are: retail sales (eg food, clothes, consumer goods); vehicle and equipment rental; cinema, theatre and similar entertainment presentations; travel agencies and tour operators; and, in their traditional forms at least, banking and other financial services.
3.6 Many companies are engaged in a variety of activities, some of which may consist of services delivered entirely by means of telecommunications, and some which may be delivered to the customer by other means. In order to capture those who are predominantly engaged in service provision by means of telecommunications, the definition would only cover those that earn substantially all (that is, around 80%) of their revenue from providing services delivered entirely by means of telecommunications. The provision of some services falling within the definition may entail the provision of software or apparatus required to access the service. Oftel would not wish those providing such services to be excluded from the definition simply because the value of such ancillary items reduced the proportion of revenue derived from provision of the service itself. Thus, the value of any such items, so long as they are supplied in direct relation to the provision of the service itself, need not be subtracted from the revenue derived from provision of the service.
3.7 Businesses providing services substantially within their own Group (that is, deriving around 80% of their revenue from such sales) would not be deemed to be providing services to the public. Oftel intends to use the definition of a "Group" contained in most Telecommunications Act licences including the "Telecommunication Services" Class Licence (TSL) and the "SelfProvision" Class Licence (SPL), that is, a parent undertaking and any subsidiary undertakings, within the meaning of section 258 of the Companies Act 1985 as substituted by section 21 of the Companies Act 1989.
3.8 Businesses selling services only to members of a Closed User Group would not be deemed to be providing services to the public. Oftel intends to adopt a definition of Closed UserGroups developed from that contained in Communication by the Commission to the European Parliament and the Council on the status and implementation of Directive 90/388/EEC on competition in the markets for telecommunications services dated 4 April 1995, and meaning a group of persons with a lasting relationship among themselves and whose internal telecommunication requirements result from the common interest underlying this relationship. Businesses selling services to members of an organisation set up for the purpose of obtaining telecommunication services at cheaper rates than they would otherwise obtain as end users, would also be excluded from the service provider definition.
3.9 Certain forms of facilities management and outsourcing would also be excluded from the service provider definition where these activities consisted merely of management or ownership of a single customer s discrete network. In Oftel's view, this would constitute a Closed User Group of one customer, and would fall outside the service provider definition for that reason. However, where outsourcing entails the provision of services to multiple customers, Oftel would consider that a company providing such a service falls within the service provider definition, subject to the other criteria set out above being met.
D Enforcement of the definition
3.10 One of the key concerns of many of those that commented on the June 1996 Statement was how a service provider definition would be enforced and policed. BT will wish to know with a reasonable degree of certainty whether it may offer lower prices to a particular person without falling foul of the prohibition on undue preference and discrimination in Condition 17 of its licence. However, it would not be appropriate for BT to request confidential business information from prospective service providers in order to verify that they fall within Oftel's definition. Prospective service providers will also need to know whether they fall within the terms of the definition because they will wish to know what prices they will be able to obtain from BT. In addition, other network operators competing against BT in the provision of network services to independent service providers will wish to know which businesses are likely to benefit from any service provider prices that BT introduces.
3.11 Some consultees, including BT and a number of other network operators, pressed for a registerable class licence on the grounds that this would provide certainty as to who could benefit from service provider prices, that the licence could contain sanctions in the event that a person falsely claimed to be a service provider, and that it could contain requirements to provide specific information on request to verify eligibility.
3.12 Oftel has carefully considered these points but concluded that it is not necessary to incorporate the definition in a new class licence. In the June 1996 Statement Oftel'said that it did not wish to adopt the approach of registration under a class licence because it would require a decision on registrability in every case, and that this would be interventionist, timeconsuming and resourceintensive. The service provider definition contained in Annex B is a means of specifying the members of a class to whom independent service provider prices can be offered. If any question arises as to whether, in offering an independent service provider price, BT has breached Condition 17 of its licence, then this is for the Director General to determine (under Condition 17.3). Anticipating that such questions may arise, Oftel will require BT to supply it, from time to time, with a list of businesses who have stated that they come within the service provider definition and to whom it is offering independent service provider prices. Oftel will keep the list in its library for public inspection and will publish the details on the Internet. Oftel would consider any complaint brought by a third party that a particular person should not receive independent service provider prices from BT on the basis that that person did not fall within the relevant class.
3.13 Each case would be looked at on its merits, and the companies or persons concerned would be fully consulted before any action was taken. If the Director General considered that the terms on which BT was supplying to that person did constitute an undue preference, the Director would determine this and might well make an order for BT to amend the service contract with the person in question so that the appropriate retail end user price applied.
E Timescale for implementation
3.14 Oftel will implement the pricing policy relating to service providers at the same time as modifying Condition 15 of BT's licence (see paragraph 2.15) .
A The meaning and importance of RCS status
4.1 The fundamental objective behind the concept of Relevant Connectable Systems is to ensure that the networks run by the Public Telecommunication Operators (PTOs) such as BT, Kingston, Mercury, MFS, Energis, Ionica, COLT, and the cable operators are capable of being interconnected. Thus all PTOs (in principle) have an obligation to interconnect with those running Relevant Connectable Systems when requested to do so. In this way, theoretically, any customer of a PTO can reach any customer of another PTO over the Public Switched Telecommunication Network (PSTN) .
4.2 The precise meaning and importance of Relevant Connectable System (RCS) status is explained in the Guidelines contained in Annex C. In essence, it enables the holder to request a PTO to provide interconnection at points other than the retail Network Termination Points (NTPs) offered to end users. In theory, any system falling within the definition has RCS status in relation to each PTO system separately, but in practice, the status is conferred in relation to all PTO systems. The Director General has the power, under each PTO licence, to determine that any operator should not be deemed to have RCS status in relation to that PTO system, thereby relieving the PTO of the obligation to interconnect with the person concerned.
4.3 RCS status in relation to BT entitles the holder, amongst other things, to request interconnection services from BT at standard charges. The charges for most of these services are currently determined annually by the Director General under Condition 13 of BT's licence ("Condition 13 prices"). From August 1997 it is proposed to replace the annual determination of charges with a new system of network charge controls, modelled on the retail price caps, with the extent or degree of direct control over charges for individual services being dependent on the degree of competition, or expected competition, in the market for the service in question.
4.4 BT is obliged to keep a list of all interconnect agreements it enters into and to send copies to any person who requests it. Any determinations with respect to a person s RCS status would be entered on the public register maintained by Oftel.
B Limitation of entitlement to RCS status
4.5 As stated in Chapter 1, Oftel considers that the significance, in terms of pricing, of having RCS status will diminish and eventually disappear by 2001. In the meantime, the June 1996 Statement confirmed the policy that, as from 5 February 1996, anyone applying for an individual Telecommunications Act licence would be entitled to RCS status only if they were a network operator making a significant contribution to infrastructure competition in the UK market in terms of installing transmission, or an international simple resale (ISR)operator making a significant contribution to competition in the international market until such time as competition in the international facilities market is fully established.
C Network operators
4.6 The Guidelines at Annex C explain that there is likely to be a close correlation between those designated as PTOs by the Secretary of State for Trade and Industry and network operators entitled to RCS status. This is because the DTI s policy has been to designate as PTOs those installing infrastructure to offer services to a substantial class of customer and those installing long distance networks. In addition, there are a number of nonPTOs who have invested significantly in networks of transmitting and receiving base stations for wireless transmission. Included in this category are operators of mobile data, radiopaging and public access mobile radio services. In Oftel's view such operators make a significant contribution to transmission infrastructure competition and should therefore be entitled to RCS status.
D International Facilities licensees and ISR operators
4.7 In June 1996 the Secretary of State for Trade and Industry announced that the licensing of international facilities would be liberalised. Up to then only BT and Mercury had been licensed to provide international facilities to and from the UK. Applications were invited from other operators for International Facilities Licences, and in December 1996 more than 40 new licences were issued. In order to compete in the international market, these new licensees, which have been designated as PTOs, will be entitled to RCS status so that they can interconnect with BT's network at Condition 13 prices.
4.8 While BT and Mercury were the only operators licensed to provide international facilities, a limited amount of competition on certain international routes has been provided by ISR operators who were granted RCS status in order to encourage competitive rates for international telephony on the designated routes. Oftel's June 1996 Statement made clear that ISR operators would be entitled to RCS status only until such time as competition in the international facilities market is fully established. In the meantime, Oftel believes that ISR operators will be likely to continue to provide important competition on the routes where they operate. It will, though, carefully scrutinise applications for ISR licences to ensure that applicants will indeed be providing ISR and making a significant contribution to international competition, and not simply seeking to obtain interconnect prices from BT for essentially national traffic.
E RCS status in relation to other PTOs
4.9 As explained above, RCS status is held separately in relation to each PTO, and entitles the holder to request interconnection with each PTO. The June 1996 Statement focused primarily on interconnection with BT's network, and the charges for doing so. However, it would not be consistent with Oftel's and the Government s overall policy if PTOs other than BT were obliged to offer interconnection to someone who did not have RCS status in relation to BT. Oftel is making clear therefore that any person not having RCS status in relation to BT as a result of the policy set out in this Statement, would in principle also not be entitled to RCS status in relation to all other PTOs.
F RCS Guidelines
4.10 Annex C contains draft guidelines on the application of the policy set out in this Chapter, and the procedure that Oftel ould expect to follow. Oftel intends to publish these guidelines in order to provide guidance to prospective licence applicants as to whether they would be likely to be entitled to RCS status.
G Review of RCS policy
4.11 In the June 1996 Statement Oftel recognised that there could be some transitional problems in implementing this policy. This is because some operators not falling within the categories at paragraph 4 of the draft Guidelines at Annex C applied for individual licences before 5 February 1996 and thus acquired RCS status and entitlement to Condition 13 prices from BT; others applying for licences after that date, yet running similar telecommunication systems to the pre5 February licensees, and also not falling within the relevant categories, would not be entitled to RCS status or to obtain Condition 13 prices. The only difference between these two categories of operator is the time at which they applied for their licences. The differences in prices offered to these two different classes could give rise to discrimination or distortion of competition.
4.12 Whilst Oftel has always recognised that some problems could arise as a result of its policy on RCS status, no material problems have arisen so far. Oftel believes that any problems which might arise would be likely to be purely transitional because, as has been stated, it considers that the significance, in terms of pricing, of having RCS status will diminish and eventually disappear. However, Oftel intends to keep the situation under review. If a complaint about discrimination or distortion of competition as a result of the implementation of this policy is received, Oftel will investigate the extent of any such discrimination or distortion and consider how best to remedy it in a way that minimises the impact on those affected. If necessary, this could include taking away entitlement to RCS status in respect of licences applied for on or before 5 February. Oftel would, of course, carry out a full consultation of all those affected before taking any steps in connection with this.
A Rationale for Changes
5.1 Oftel's objectives were set out in Chapter 5 of the June 1996 Statement. Broadly these were to ensure that BT does not leverage the dominance it has in many network services into the enhanced services market, in particular, by means of unfair cross subsidy between the SB and the SSB or by means of undue discrimination and undue preference. The SB/SSB split is crucial to these objectives because it determines the prices which BT charges itself for network services.
5.2 BT is a vertically integrated company providing both network services and enhanced services and it is dominant in the supply of many network services. BT is subject to a number of requirements which are placed upon it in order to ensure that it does not abuse its market power. These include a requirement to provide separate accounts for its SB services (ie network services) and SSB services (ie. enhanced services).
5.3 Network services are the underlying inputs to enhanced services and therefore essential to service providers, who must be able to buy these services on the same basis as BT's SSB in order to be able to compete with it. Oftel has reviewed the current SB/SSB split to consider whether it is operating effectively and without anticompetitive effect as regards independent service providers.
5.4 However, whilst Oftel wants to encourage independent service providers to compete in as many services as possible, it does not wish this to lead to inefficiencies which would be harmful to the market in the longterm. Network operators need to be able to exploit their advantages of economies of scope and scale and network topology for the benefit of all.
5.5 Developments in technology are also driving the need to redefine the allocation of services between the SB and the SSB. In the past, voice and data have been treated differently reflecting an earlier regulatory model where data networks were capable of being competitively provided without adversely impacting upon infrastructure competition with respect to voice services. Data services were therefore placed in the SSB. However, with the development of digital technology and the emergence, in particular, of Asynchronous Transfer Mode (ATM) as a converged network technology, it is becoming increasingly clear that to treat voice and data differently from a regulatory point of view is no longer a logical standpoint. Oftel has therefore been looking again at the division with reference to the new technology.
B Definition of Network Services
5.6 Oftel's overall approach to defining what services should be placed in the SB (that is, the network services) was set out in its June 1996 Statement. In addition, in that Statement, Oftel'set out how it proposed to modify BT's licence to reflect this new definition of network services. These proposed modifications, which relate to Condition 18.3 of BT's licence, are restated in Annex D of this Statement.
5.7 Oftel confirms that the definitions of network services and relevant services (that is enhanced services), which it proposed and upon which it consulted with the industry in the June 1996 Statement, with minor amendments, as described below, will now be implemented. network services will therefore include:
(a) All those services which are "basic conveyance services" together with any services which are necessarily incidental to those services. (Category (a) services).
(b) All those services which consist entirely of one or more elements which could not practicably be provided to any end user in identical form by anyone other than BT by virtue of its provision of a basic conveyance service to that end user. (Category (b) services).
(c) Any service, which would otherwise be an enhanced service (and therefore in BT's SSB) because it does not meet the category (a) and (b) criteria, but where the service is one specified on the list of category (c) network services as agreed between the Director General and BT on 1 April 1998 and as amended from time to time by BT following the consent of the Director General provided that no service may be specified on the list unless interested parties have been consulted. This may happen where there are policy considerations which make it undesirable to place a service in the SSB. (Category (c) services).
5.8 The minor amendments to the proposals upon which consultation was carried out pursuant to the June 1996 Statement involve describing Relevant Services as telecommunication services, and the following changes to the definitions of category (b) and category (c) services as described in that Statement.
5.9 As to the change to the category (b) definition, a service can consist of more than one element, some of which can be provided in identical form by any other person, and some of which cannot. The amendment therefore clarifies that it is only those services consisting entirely of one or more elements which cannot be so provided, as a matter of practicability, and by virtue of BT's provision of a basic conveyance service, that are intended to be caught.
5.10 The June 1996 Statement proposed the following wording for modifications to BT's licence:
(b) the Licensee is able to provide the service, being one which could not practicably be provided in identical form by any other person to any Enduser solely by virtue of providing a Basic Conveyance Service to that Enduser.
5.11 Annex D of this Statement proposes the following wording for modifications to BT's licence:
(b) the service consists entirely of one or more elements which could not practicably be provided to any Enduser in identical form by anyone other than the Licensee by virtue of its provision of a Basic Conveyance Service to that Enduser.
5.12 As to the change to the definition of category (c) services, this has been made in order to clarify precisely what kind of services will be comprised in the category.
5.13 The June 1996 Statement proposed the following wording for modifications to BT's licence:
(c) the service is one which the Director and the Licensee have agreed, following consultation with Interested Parties, should be provided by the Licensee as a Network Service.
5.14 Annex D of this Statement proposes the following wording for modifications to BT's licence:
(c) the service is one specified on the list of category (c) Network Services as agreed between the Director and the Licensee on 1 April 1998 and as amended from time to time by the Licensee following the consent of the Director provided that no service may be specified on the list unless Interested Parties have been consulted.
C Timescale for the Changes
5.15 Oftel recognises that the changes involved in the redefinition of the SB/SSB split will need to be absorbed by the industry before they are implemented. Oftel wishes to give the industry ample time to do so and is therefore announcing now that the implementation of the new split as regards all moved and new products should only be effective as from 1 April 1998.
5.16 Annex E sets out a list of the services which will be included with each category of network services, insofar as it is possible to say at this point. It should be emphasised that the services listed in Annex E only reflect information known to Oftel about those services at the time of writing and that those services listed under category (c) are merely intended as a guide to what kinds of services might be included in that category following appropriate consultation. It may also be that some of the services listed will be altered in future to include enhanced features. If that is the case, those services may no longer be regarded by Oftel as SB services.
5.17 In line with this policy, Oftel has recently been considering the position of personal numbering services. In the June 1996 Statement these were listed as category (c) type services because, in their basic form, this is likely to be an appropriate category for them. Since then, it has come to Oftel's attention that BT has launched a personal numbering service and it appears that that service either does, or may in future, include such features as voice mail boxes, fax mail boxes, and text to voice and text to fax conversion. In cases where such additional enhanced features are appended to a network service, Oftel the service will be regarded as a new service , which, in the absence of agreement to the contrary, following consultation in the appropriate way, must be provided from the SSB. In addition, it is Oftel's policy that the basic inputs to such services should be provided in unbundled form from the SB so as to allow access by independent service providers to the ones that they require. BT's SSB will continue to be required to purchase its inputs on the same basis as independent service providers.
5.18 BT has contended that the voice mailbox presently included with the personal numbering service could not be unbundled and offered as a standalone service in a costeffective manner. Irrespective of its position as regards the future SB/SSB split, Oftel is of the view that, by offering a personal numbering service which includes a voice mailbox, BT is in breach of its existing licence. Oftel has informed BT that it is in breach of its licence and has asked for remedial action to be taken to avoid formal enforcement action having to be taken. Oftel has said that, in principle, it would not object, for example, to BT providing a basic personal numbering service from the SB while offering enhanced features as separate products from the SSB. Oftel awaits confirmation from BT of its timetable for implementing the necessary changes.
D New SB service categories
Basic data services in category (a)
5.19 Oftel considers that basic data services which will reside in the SB should be defined for the sake of clarity. Basic data service are basic conveyance services, with no enhanced functions such as content manipulation or protocol conversion , unless such manipulation or conversion is incidental to the conveyance and is not offered as a benefit to the customer. Service management features would also be excluded from any basic conveyance services, as would the provision and maintenance of customer premises equipment.
5.20 Oftel expects BT's specific basic data offerings, which it would expect to be SB services, to conform to the descriptions contained in Annex F, although these basic offerings may change over time in response to evolving standards and market requirements.
For any service run from the SB, Oftel expects BT to make appropriate arrangements to agree services and interfaces with the industry and make adequate advance declaration of customer interfaces. Further details will be contained in Oftel's forthcoming Statement on Interoperability.
Category (c) services
5.21 Oftel recognises that there needs to be the maximum possible clarity in determining category (c) services, though the discretionary nature of the category makes it difficult to quantify precisely what services may fall within it. The proposed mechanism is that Oftel, subject to consultation with interested third parties, should agree with BT that a particular service should be provided out of the SB rather than the SSB and then take steps to formalise that agreement.
5.22 As was noted in the June 1996 Statement, any type of service which does not fit either categories (a) or (b) is presumed in the first place to be an enhanced service, and therefore an SSB service. However, Oftel recognises that there may be cases, where, for example, the enhanced element is small and in practice the service can be more efficiently provided by network operators than by independent service providers. This would be a contributing factor in determining that a given service should be provided from the SB. An example might be where the cost of configuring the underlying SB service before its launch (so that it could be provided to independent service providers) might outweigh the benefits to the market, and to consumers, of competition from independent service providers, particularly where competition already exists in the provision of that service from other network operators.
5.23 As indicated above, for any category (c) SB service which is subject to later modification by the addition of further enhanced features, such features might alter the balance of judgement made that such a service should fall within the SB. This is likely to be the case where the additional features involve the storage or manipulation of the content of conveyed messages. Therefore, any alteration to a category (c) service will be regarded as a new service and, as such, should be provided from the SSB in the absence of specific agreement following consultation in the normal way. That SSB business would then being obliged to buy underlying SB services as inputs priced at normal retail rates.
E Services highlighted in the June 1996 Statement
5.24 Oftel's June 1996 Statement highlighted the need for further consideration of the treatment of certain specific services, within the overall framework set out above. Those services were Internet services, Directory Enquiries and Call Minder. Each is considered in turn below.
Internet services
5.25 Definitions:
Internet services means the telecommunications services offered to customers allowing for connection to and use of the Internet as a whole;
IP Access service means a service which connects users to the Internet Protocol network, being an input to the provision of Internet services; and
IP Routing service means a data conveyance service, consisting in the conveyance of Internet Protocol datagrams across networks of routers and bearers conforming to the Internet Protocol, which is an input to the provision of Internet services.
5.26 In the June 1996 Statement, Oftel was still considering whether the IP Routing service (which it described as "Internet Protocol Transport" in that document) should be provided from the SB or the SSB. Currently, in accordance with its licence the service is provided by trading divisions in BT's SSB known as BT Net and BT Internet . They purchase transmission (usually in the form of private circuits or SMDS services) from the SB, add routers, servers and other services to these SB products, and sell the total package of services from the SSB. Within these packages there is a service which is, in effect, simply the conveyance and routing of packets of data. This service, which we shall refer to as IP Routing service, is essentially a data conveyance service which is an input to the provision of Internet services as a whole.
5.27 The precise elements of Internet services are difficult to enumerate and differentiate, given the various methods available of supplying these elements and the different services that service providers decide to offer to their customers. However, within these service offerings there will be a service consisting in the conveyance of Internet Protocol datagrams across networks of routers and bearers conforming to the Internet Protocol. It is this service that Oftel considers to be the IP Routing service and which Oftel considers ought logically to be provided from the SB. It fits into category (a) of the definition of network services, as a basic conveyance service.
5.28 Oftel'stated in the June 1996 Statement, however, that it was still considering how the IP Routing service should be treated, since there is a need to ensure that competition in the provision of Internet services should continue to flourish. Oftel had received representations at that time which suggested that the proposed move might threaten that competition.
5.29 Having considered these representations fully, Oftel has now reached the firm conclusion that the IP Routing service as defined above should be capable of being provided by BT from its SB as a separate category (a) network service, while enhanced elements of the existing BT Net and BT Internet services, such as email, Usenet feeds and high level support services, should continue to be classified as services provided from the SSB. (See Annex G for a an explanation of where different elements of the Internet services should reside.)
5.30 The definition of network services is drafted bearing in mind the service offered to an end user, as opposed to an intermediate wholesale party. Traditionally, the classification of data services has followed various layered models, such as that defined by the International Standards Organisation. However, that approach, being based on objective characteristics of the data protocols does not necessarily provide a sound basis for allocating data services between the SB and the SSB. In particular, Internet services give rise to a number of apparent anomalies. The Border Gateway Protocol (BGP) and the Domain Name Service (DNS) use data protocols within the network which, if provided between end users, would be likely to be regarded as enhanced. However, as the ultimate purpose of both BGP and DNS is simply to allow Internet Protocol packets to route across the worldwide Internet, they do not in themselves provide any higher level functions between end users. Thus BGP and DNS would be considered to be type (b) network services for these purposes. This might at first sight seem counterintuitive, but makes sense when compared to simple voice telephony, where quite complex C7 signalling protocols are used between exchanges but, as far as the end user is concerned, provide only for the simple conveyance of voice messages across a network.
5.31 The existing products sold by BT Net and BT Internet which include some enhanced elements, will continue to be sold from BT's SSB following the implementation of the new regime in April 1998. However, it will be open to BT at that point to provide the IP Routing service as a standalone product, and this product can be sold from the SB. In turn, this SB product can be what BT Net and BT Internet buy from the SB at retail rates as an input to the enhanced products currently sold by them. The IP Routing service will be available to any other customer of BT on exactly the same terms as it is available to BT Net, BT Internet and BT's SSB generally.
5.32 There is a further element to the Internet service which will be provided from BT's SB. The "IP Access service" connects users to the Internet Protocol network and is capable of being developed as a separate product supplied by the SB both to the SSB and independent service providers. At present, an equivalent service is provided by means of private circuits, dialup access via the PSTN/ISDN or virtual circuits provided by other data networks such as Frame Relay, X25, SMDS or ATM.
5.33 Oftel'sees a number of advantages stemming from these developments:
PTO s, other than BT, can provide Internet services by connecting routers directly to their transmission systems. By virtue of the existing rules BT must make such connections using private circuits, which means having to pay for either actual or notional "local ends". Since the IP Routing service will be regarded as a basic conveyance services under the new regime, Oftel'sees no continuing justification for this restraint on BT. Although independent service providers will continue to buy such locals ends, they will also have opportunities to colocate with other operators systems and any disadvantage to them relative to BT'should be offset by their dynamic efficiency and lower overhead costs.
BT could also, if it chose, develop a special access service for linking customers to the Internet network (for example, to replace 0345 or geographic number dial up) based on a different tariff structure to that applying to PSTN calls. This tariff structure could be better suited to the particular characteristics of Internet access (eg to reflect the fact that individual "calls" tend to be longer than normal voice calls).
Oftel believes that the ability to offer the IP Routing service from the SB would allow BT to price the IP Routing service at a modest discount to the equivalent service were it to be sold from the SSB under the existing arrangements. Thus, those Internet service providers who do not require any of the enhanced elements, for example, because they provide them themselves, should be able to buy the inputs they want from BT at a lower price than at present. BT's ability to create these new SB products should also put more competitive pressure on other PTOs who can already provide such products. Many independent service providers will, therefore, benefit along with BT Net and BT Internet from these potentially cheaper inputs to their services.
5.34 Oftel is aware, however, that the opportunity to create new tariff structures and services as inputs to enhanced services could be used as a means to exclude from the market those who wish to buy separate, or different, components from BT's SB in order to compete with BT Net or BT Internet in the Internet service provision business. For example, were BT to bundle a new IP Access service with any new basic IP Routing service, refusing to supply each component separately, this could have the effect of driving out of business those independent service providers who are not interested in purchasing the bundled product because they are selfproviding one or more of the components. Pricing the basic IP Routing service in a markedly different manner to private circuits which are available to independent service providers wishing to provide an IP Routing service could also have a similar effect.
5.35 In the light of the concerns that Oftel has expressed about this sector of the telecommunications market, Oftel expects BT, when pricing components of IP Access and IP Routing services, and when developing new offerings bundling such services which are or could be aimed at those in the Internet service provider business, or those who compete directly with such businesses, to exercise extreme care in order to ensure that its prices, tariff structures or any other aspect of its offerings do not give rise to any possibility of a contravention of Conditions 17 and/or 18A of its licence. Oftel expects BT to liaise very closely with it in developing products for this market and will take prompt action to secure compliance with those provisions if evidence of a breach is apparent.
5.36 For example:
5.37 In particular, any new or altered IP Routing service, or IP Access service, that BT wishes to sell from its SB is required, pursuant to Condition 16 of BT's licence, to be notified to Oftel 28 days before the launch of the product. This is because all SB services are regulated services and are subject to publication, pricing and other requirements. This is in contrast to SSB services, which are not regulated and can therefore be offered onto the market at any time, without prior notice and without regulatory control. Thus, should such a new or altered SB service be offered by BT, Oftel would expect BT to have available information which demonstrates that its pricing structure and any other relevant conditions attached to the offering are fair. If the pricing and/or other conditions showed a breach of BT's licence, then the Director General would act on his duty to issue an order, and would require BT to take action to remedy the situation within a given time limit.
5.38 During the course of dealing with the representations made on this issue, two other specific issues have been raised:
Intranet services
The IP Routing service could be used to provide Intranet services to customers as long as any enhanced services, equipment or high level support associated with the provision of that service is provided from the relevant BT regulatory business (whether the SSB, the Apparatus Supply Business or otherwise.)
Combined dialup and authentication
BT has requested clarification by Oftel as to where it might place a combined dialup access and authentication service in the new SB/SSB split. Such a service would convey the customer s call over the PSTN/ISDN and then answer the call with a modem (for analogue access) and exchange user name and password. It would then arrange for authentication in conjunction with an external database owned by the independent service provider for whom the service was being provided. Once authentication was completed, it would provide an Internet Protocol address for the customer s terminal to use in subsequent Internet Protocol dialogue and extend the Internet Protocol connection to the relevant service provider. Oftel is of the view that this service should be located in the SB as a category (c) service, since the Internet Protocol connection which is finally offered to the independent service provider s system is analogous to the kind of IP Routing bearer that would be provided by a fixed real or virtual circuit alternative to the dial up connection, that is, connections provided via private circuits, Frame Relay, SMDS or ATM virtual circuits. BT will be permitted to provide a service to those service providers who do not wish to carry out all the authentication functions and this will allow for the sharing of larger modem pools than they might otherwise be able to justify. As stated above, Oftel believes that this service may fall into category (c) of the network services definition and will carry out the formal consultation required in accordance with the new SB/SSB policy at an appropriate time.
5.39 During consultation, independent service providers have also suggested a number of other scenarios in which they felt that BT may have freedom to configure services (or take advantage of existing configurations) so that a relative advantage is conferred upon BT's Internet services (as opposed to those of independent service providers). Oftel's analysis is that the combined effect of Conditions 1, 17 and 18A is such that here is no such advantage in most cases. In one or two cases presented to us, BT may have an advantage arising from its position as a network operator but Oftel considers that the impact of this would not be significant.
5.40 The precise argumentation varies from case to case. This, and the fact that the number of potential scenarios is very large indeed, makes it inappropriate for Oftel to lay out its detailed reasoning in this Statement. Oftel does however expect to be discussing these issues with independent service providers and BT over the coming months and will be happy to set out its reasoning and likely stance on enforcement in any particular case.
Directory enquiry services
5.41 In the June 1996 Statement, Oftel noted that the market for directory products and services is the subject of a major review by Oftel. This is driven by the objective of liberalising the market so as to promote competition and allow new players into the market. Oftel is seeking a solution which will encourage competition and market entry, both to network operators and to service providers and which will benefit consumers.
5.42 Oftel published a Consultative Document in October 1995 entitled "Use of Directory Information". It has since analysed responses to this Document and held two workshops for industry and consumer representatives to explore the structural and commercial issues surrounding the liberalisation process, but it will be further consulting with the industry in the near future with a view to deciding, inter alia, where BT's directory enquiry business should reside within the new SB/SSB split.
5.43 From Oftel's initial analysis, however, it is apparent that directory enquiry services are complex and comprise elements of both basic conveyance, belonging in the SB and enhanced features, belonging in the SSB. It is therefore possible that some parts of them will be required to be made available in unbundled form so as to allow competition from independent service providers.
Call Minder
5.44 As was explained in the June 1996 Statement, this service is the subject of a formal complaint to Oftel. The complainant alleged that the fact that Call Minder resided in the SB was 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 the SSB pursuant to the terms of its existing licence. The complainant believed that by operating Call Minder from the SB and bundling its components, BT was failing to make available a platform from which others could offer enhanced services on a viable basis. The complainant alleged that this both restricted competition generally and favoured BT's SB over competitors. Oftel'supports this view in principle. Certainly, Oftel considers that Call Minder should be an SSB service under the terms of BT's existing licence because it falls within the present definition of Relevant Services in its licence. It is also Oftel's view that, by not making underlying services available to independent service providers, BT may be unduly discriminating against third parties, who do or may wish to purchase them from BT in order to offer a service which competes with Call Minder. BT has been informed of this.
5.45 BT has contended that Call Minder is a natural SB offering and indeed that new systems will have the main components of it embedded in them. For the present, while it is technically possible to unbundle the components and offer them to third parties, it would not provide an economic basis on which either BT or competitors could offer the service. If BT were to offer it as a retail service from the SSB, the cost of the inputs would increase the price the product to a level where demand would, according to BT's market research, be choked off (some four times the current offered price). The cost of the components which independent service providers would need to acquire would put any product they offered in the same position.
5.46 However, Oftel remains of the view that BT is in breach of its licence. It has informed BT that it requires further justification for BT's view of the economics of unbundling. Whilst BT has stressed that no independent service providers have approached it requesting provision of Call Minder components, BT has not sought to establish whether such demand exists. However, Oftel has found evidence of demand on the part of the complainant and a handful of others, but has not sought to verify its full extent, which components are demanded, or the correct price for them, as it is not for Oftel to do so. BT is in the process of discussing with independent service providers the nature of their needs and to see whether taking these into account could form a basis for more imaginative tariffing of the components and the service overall. Before considering appropriate regulatory action, Oftel awaits the results of BT's economic analysis and its enquiries with independent service providers.
5.47 Looking ahead to the new regime in April 1998, Call Minder would, in any event, fall within the new definition of an SSB service, so that consultation and consent would be necessary to enable it to be regarded as an SB service.
F Redcare Alarms
5.48 In the June 1996 Statement, Oftel'stated that it considered this service should reside in the SSB on the basis that the total service was an enhanced service. However, it has since emerged as a result of detailed consultation that BT does not provide the total service, but only the network service element (which BT calls "Redcare Alarms"). The total service comprises:
(1) the sale/rental of "premises alarm communication equipment" (PACE) to the customer by an independent service provider (not being BT) and its installation in the customer s premises;
(2) the conveyance of up to eight on/off signals through BT's network; and
(3) alarm monitoring by the independent service provider (not being BT).
5.49 Oftel now wishes to clarify that only the first and third
of these elements are enhanced elements of the service and these
are provided by independent service providers, not BT. The second
element (which BT does provide), the conveyance of signals, known
as Redcare Alarms, is a category (b) network service. Redcare
Alarms should therefore reside in the SB.
6.1 If the new SB/SSB split is to work effectively, certain changes will be required to BT's accounting obligations to allow for proper monitoring of the arrangements by Oftel. Oftel's key objectives are to ensure, inter alia, that:
Requirements
6.2 Oftel intends to achieve the following changes in the form and content of the Financial Statements that BT is obliged to publish:
(i) That each Retail SB Profit and Loss Account by Activity and Access (residential and business) should show the value in pounds sterling of services sold to the SSB. This involves splitting the Turnover Line between sales to the SSB and to Other. This may necessitate changes to the definitions of disaggregated activities, so that each disaggregated activity, eg. local calls shows these sales splits. See Annex H, Part 1 for a list of the disaggregated activities in the SB These disclosures would be shown as a numbered note on the Profit and Loss Account and contained within the "Notes to the Financial Statements". The Notes are subject to audit.
(ii) That a note to the Retail Systems Business and Access Business Financial Statements, which will be audited, should confirm that the SSB has purchased all services in accordance with the price list ruling at the time the service was performed. The combination of (i) and (ii), plus an unqualified Audit Report, should provide confidence in the market that no undue discrimination or preference has taken place.
(iii) That the SSB Profit and Loss Account should show the total amount of services purchased from the Retail Systems Business and Access Business as a whole. A Note to the Account should show the figures for individual sales to the SSB drawn directly from the Profit and Loss Accounts for the Retail Systems Business by Activity and from the Access Business, adding to the total of purchases in the SSB. Any differences between the addition of these services and the purchases shown in the SSB Profit and Loss Account should be explained in detail. This requirement should enable sales from the SB to the SSB to be traced and reconciled.
(iv) That all the services sold from the SSB should be listed individually in a Note to the SSB Profit and Loss Account. (See Annex H, Part 2 for a list of examples of SSB products known to Oftel at this point. )
Note that the final details of the above proposals may change provided that the disclosures they involve remain the same.
7.1 As a general rule, under Condition 13 of BT's licence (and the equivalent Condition in other PTO licences) only those with Relevant Connectable System (RCS) status are entitled to interconnect with BT (or another PTO) at what are known as "Points of Connection". Interconnection at such points allows the sending and receiving of C7 signalling messages which enable calls to be set up and cleared and enables other information associated with individual calls to be transferred, such as information relating to the type of call and the identity of the calling party. In order to help avoid problems of network security and integrity, BT and other network operators carry out mutual testing of their equipment as part of the interconnection process. Those that do not have RCS status may connect approved apparatus at "retail" interfaces, which do not presently provide the relatively sophisticated functionality associated with C7 signalling.
7.2 The June 1996 Statement said that Oftel was not clear if there are independent service providers without RCS status who would need, in the short term, the full functionality that C7 signalling provides in order to deliver their services to customers. In the medium term, Oftel'said that it expects that the industry would want to explore the provision to independent service providers of more sophisticated functionality than is currently available at retail interfaces.
7.3 The proposed EU Interconnection Directive and Amended Voice Telephony Directive will almost certainly place requirements on network operators with significant market power to meet all reasonable requests for access to the network including access at points other than the network termination points offered to the majority of end users, and will oblige the Commission, where appropriate and in consultation with the ONP Committee, to request ETSI to draw up standards for new types of network access.
7.4 Oftel has raised the issue of "special network access" with independent service providers and understands that there might be situations in the short term where some independent service providers need access to C7 signalling due, for example, to the lack of DASS access to BT's tandem switches, or to the need to access the network management aspects of C7 signalling. However, these views must be formulated and quantified by the service provider industry in more detail for this debate to be taken further forward.
7.5 In addition, Oftel understands that, in the medium term, independent service providers may require functionality that is not currently provided via C7 signalling. For example, Oftel believes there is potential demand for more efficient routing capabilities (referred to in the February 1996 Consultative Document as "Controlled Routing Services"), coupled with billing information to enable independent service providers to charge for calls rerouted by them. A possible use of Controlled Routing Services is where a calling party dials a personal number, which is routed to an independent personal number service provider, who then redirects the call to its required destination either by dropping the call back to a more appropriate point in the network for onward routing, or by signalling to an Intelligent Network Service Control Point that the call should be sent by an efficient route to its new destination. However, the extent of the need for such facilities also remains unquantified.
7.6 BT has stated that it is keen to develop interfaces that will provide independent service providers with extra capabilities and will increase network usage, and Oftel has been informed that BT is evaluating opportunities. However, BT has commented that it is having some difficulty judging the scope and scale of the requirements of independent service providers for more functional interfaces, because of the limited approaches by independent service providers to date.
7.7 Oftel is disappointed that the independent service provider community has not come forward more strongly with its requirements in respect of interfaces. Oftel has posed specific questions to the Network Interoperability Consultative Committee (NICC) to help stimulate such debate, and expects network operators, independent service providers and equipment suppliers to participate in responding to Oftel's questions. To this end, a Service Provider Interest Group (SPIG) was set up under the auspices of the NICC to represent the interests of independent service providers within the NICC, and Oftel would encourage independent service providers with an interest in technical interface issues to participate in SPIG and the specific Task Group being set up to address Oftel's questions. Oftel hopes that an informed and constructive exchange within the NICC will play its part in achieving a wider range of services and a more dynamic and innovative marketplace, which Oftel believes the consumer deserves.
7.8 Anyone wishing to know more about the NICC, its various Interest Groups, or the Task Group set up to address the questions on interfaces, should contact:
Peter Howick
Branch 5
Oftel
50 Ludgate Hill
London EC4M 7JJ
Fax: 01716348945
Email: technof.oftel@gnet.gov.uk
7.9 In the June 1996 Statement Oftel'said that it was considering with the DTI the possibility of a new class licence which would, amongst other things, authorise more sophisticated interfaces with the PSTN for independent service providers operating under it. It is possible that fundamental changes to both the individual and class licensing framework under the Telecommunications Act will flow from implementation of the proposed EU Licensing Directive and other EU Directives which will have to be implemented in the UK no later than 31 December 1997. Oftel and DTI will be considering over the next several months what changes will be necessary, including changes to provisions governing connection of apparatus and systems to the PSTN. In the meantime, Oftel believes there is sufficient flexibility, for the short term, in the existing provisions of the TSL to allow the Director General, if necessary, to authorise appropriate arrangements for the connection of independent service providers systems and apparatus to the PSTN at a more sophisticated level.
8.1 Under the current Numbering Conventions published by Oftel, which regulate the allocation of numbers from the UK Numbering Scheme, only those operators with an individual Telecommunications Act licence containing the "Relevant Numbering Condition" may obtain numbers directly from Oftel. The Numbering Condition contained in those individual licences requires the licensee to adopt a Numbering Plan which allocates numbers in accordance with the UK Numbering Scheme, and to comply with Oftel's Numbering Conventions. Up to now, relatively few independent service providers have obtained individual licences in order to acquire numbering capacity in their own right. Oftel is aware though that independent service providers are increasingly interested in obtaining numbers in order to provide their services.
8.2 In August 1996, Oftel published a Consultative Document on the National Numbering Scheme which proposed giving independent service providers, along with end users, rights to direct allocations of 08 numbers (for special services up to national rate tariff) and 09 numbers (for premium rate and multimedia services). It also proposed allowing more direct allocations of blocks of numbers in other ranges to independent service providers when the primary purpose is to use those numbers in the provision of services to third parties. Following consideration of responses to its consultation, Oftel confirmed these proposals in its Statement on the National Numbering Scheme published in January 1997. Oftel intends to proceed with the allocation of numbers from parts of the Numbering Scheme directly to independent service providers as soon as this is practical. At the same time, it will be necessary to impose relevant obligations on them to ensure efficient use of the numbering resources.
8.3 Oftel intends to move to a situation where it is not necessary to have an individual licence in order to obtain numbering capacity, but where numbers can be allocated to those operating under a class licence or by some other means. However, the "Telecommunication Services" class licence (TSL), under which most independent service providers currently operate, does not contain an obligation to draw up a numbering plan for numbers from the Numbering Scheme nor does it contain other obligations such as the reciprocal provision of number portability. One option is to modify the TSL to include these and other obligations so that those operating under it would be given rights to direct allocations of numbers. It is possible that several changes to the TSL and other licences will flow from EC Directives which are coming into force on 1 January 1998. Oftel will therefore consider with the Department of Trade and Industry modifications to the Numbering Condition contained in the TSL and any other relevant class licences as part of the move to a general review of the licensing framework to be conducted over the coming months.
8.4 In the meantime, independent service providers who require direct allocations of numbers from Oftel for the provision of services to third parties, may continue to apply for individual licences which would contain the necessary obligations to ensure efficient use of the Numbering Scheme. However, independent service providers granted individual licences for the purpose of obtaining numbering capacity, would not thereby be entitled to Relevant Connectable System status. (See Chapter 4 of this Statement.)
Number portability
8.5 Number portability, that is, customers ability to keep their existing numbers when changing from one network operator or service provider to another, is being introduced gradually to different categories of service. The need to change number often discourages customers from switching to a new network operator or service provider. Portability removes this barrier and promotes competition. Portability of geographic (01) numbers is now being offered in some parts of the UK. Work is currently underway to allow the introduction, by this summer, of portability of specially tariffed services numbers (such as freephone, local rate, and national rate). Portability of premium rate service numbers should follow later in the year. Oftel considers that portability should also be extended to personal (07) numbers, subject to an examination of the technical feasibility.
8.6 In principle, independent service providers with direct allocations of numbers would, like network operators, be obliged to provide number portability. The modifications to the TSL referred to above would therefore include provisions requiring number portability by those given direct allocations of numbers, and Oftel will shortly be proposing modifications to individual licences held by independent service providers and to International Simple Resale licences, introducing a new requirement to provide portability. Number portability must work on a reciprocal basis. Oftel will be proposing a framework which ensures that those who are able and willing to provide portability can, in turn, request portability from another service provider or network operator. In addition, Oftel believes that, in order for number portability to be fully effective, those with indirect allocations of numbers provided to them by other operators, should also provide portability. Oftel is examining ways of allowing such number portability.
9.1 Oftel is concerned to ensure that fair competition remains the underlying principle upon which both network operators and independent service providers run their businesses. In order to ensure that any decisions it takes are soundly based, it is important that Oftel knows about developments within the industry, the players in the market, the services they offer or plan to offer, and the issues they face that are relevant to Oftel. As part of this, Oftel wishes to develop closer contacts with, and deepen its knowledge of, the independent service provider sector. Oftel would like, in the first instance, to achieve this through the Independent Service Provider Forum described at (A) below. There are also certain issues which may be of interest to independent service providers which Oftel would like to look into further. These are outlined at (B) below. Finally, Oftel considers it to be of primary importance that complaints of anticompetitive behaviour affecting independent service providers should be handled speedily and effectively. Oftel's procedures for dealing with such complaints and the information necessary for investigations to take place are discussed at (C) below.
(a) Improving knowledge of the independent service provider industry
(i) Independent Service Provider Forum
9.2 Oftel intends to set up a Forum for independent service providers so that it can understand their needs more clearly and the problems they may encounter in seeking to provide services over the telecommunication networks of other operators. Oftel has set up a number of similar for a, such as the Interconnect Policy Forum and the European Operators Forum, which have proved a helpful means of consulting the industry. To date there has been no established forum in which independent service providers can debate regulatory issues of mutual interest and discuss them with Oftel, or in which Oftel can consult independent service providers. OFTE hopes that the new Forum will provide a means for such discussion and consultation.
9.3 Oftel would like the Forum to embrace a wide variety of independent service providers. In order to focus clearly on the interests of independent service providers, participation in the Forum would not generally be open to network operators since they already have established for a in which they can represent their interests to Oftel.
9.4 Oftel would therefore encourage independent service providers and relevant trade associations to participate in its proposed Forum and invites expressions of interest to be sent to:
Philip Sack
Oftel
50 Ludgate Hill
London EC4M 7JJ
Fax: 0171634 8731
Email: intsection.oftel@gtnet.gov.uk
(ii) Collection of information
9.4 Oftel has spent a considerable amount of time in researching some very specific issues for the preparation of the documents culminating in this Statement. Clearly, the more that it knows about and understands the service provider industry in general, the more informed and better its regulatory decisions will be. Thus, in addition to meetings of the Independent Service Provider Forum Oftel intends to develop its knowledge of individual sectors, companies and their services through both onetoone meetings and, on occasions, written requests for information and data.
(b) Additional issues of relevance to independent service providers
9.5 There are several issues that Oftel considers may be of interest to independent service providers. These are set out below.
9.6 Confidentiality of customer information - Network operators should not misuse confidential information obtained from independent service providers about their proposed services and commercial strategy as a result of their role as providers of network services. This is particularly important in respect of BT'since the ubiquity of its network means that many independent service providers are reliant on it in order to reach their customers. BT and some other network operators have specific licence obligations requiring them to draw up Codes of Practice relating to the use of confidential customer information which prevent such information being passed to other parts of its business without the customer s consent. This is essential in ensuring that the wealth of information in BT's possession about its customer base is not misused, particularly for marketing and advertising purposes. Oftel is currently reviewing this area of policy in the context of the relevant provisions of BT's licence.
9.7 Billing, marketing and branding - Oftel is concerned that BT could use its sophisticated billing and marketing systems set up primarily to service its network business in ways which unfairly favour its own SSB activities, thereby restricting the development of innovative services by independent service providers. BT's SSB could gain a highly advantageous position relative to other service providers if it were able to bill for, or market, enhanced services like Internet access via the telephone bill, while other service providers do not have the same ability. Oftel has already looked at the question of joint billing in the context of apparatus supply, where it has made clear its view that inclusion of the bills for apparatus in the bills for SB services could constitute a breach of Condition 17 of BT's licence if it unfairly favours BT's own apparatus supply business over its competitors. Oftel will be widening its examination of these and similar issues, such as joint marketing and branding, during 1997 as part of its fixed/mobile convergence project.
9.8 Timely announcement of new services and new interfaces - Oftel is concerned to ensure that the launch of new services is announced sufficiently far in advance to give independent service providers the chance to plan accordingly. In order to avoid breaching its licence conditions on undue preference, it is essential that BT's SSB should not be privy to information about new network services, or associated technical interfaces, before independent service providers if that could be detrimental to independent service providers. If BT wishes to take advantage of its position as the largest network operator by launching a new service from the SSB acting on information it has about new services soon to be launched from the SB, it will avoid breach of Condition 17 only if it makes sure that other interested parties are also given notice of the new SB service so that they may take equal advantage of the information.
9.9 The issue of timely announcement of new services arose in the context of BT's introduction of its Education OnLine tariff for schools and colleges of further education. In rolling out this tariff, BT failed to give to known competitors the same period of advance notice as it gave to its own SSB product Campus World, and also failed to publish and specify the terms on which the tariff was available to independent service providers, Oftel made it very clear to BT that procedures needed to be put in place to ensure that its services are not disclosed to the SSB prior to independent service providers in a way which is detrimental to them, and that it would monitor closely the operation of those procedures should BT wish to introduce further pricing or product range innovation. BT has now put in place procedures to enable independent service providers to offer the Education OnLine tariff to their customers and these procedures seem to be working well.
9.10 In addition, BT has developed inhouse guidelines aimed at avoiding a repetition of the problem which occurred with the Education OnLine tariff. These guidelines commit BT to give sufficient notice about new products, services or tariffs to service providers and equipment suppliers who have registered a general interest in receiving such information. By adhering to its guidelines BT will ensure that other service providers are given adequate time to enable them to adapt their systems and prepare their marketing and promotional material to take advantage of new BT offerings. A copy of the guidelines is contained at Annex I.
(c) Handling of Complaints about AntiCompetitive Practices
9.11 Oftel is particularly concerned to ensure that it is able to react effectively when instances of anticompetitive practices are identified. Oftel recognises that the speed of its response to such incidents is crucial, as independent service providers businesses may be at risk if they have to wait a long time for their cases to be dealt with. Oftel is currently trying to ensure that complaints are dealt with quickly and that complainants are regularly informed of the progress of Oftel's investigations.
9.12 Independent service providers should be aware that Oftel's Licence Enforcement and Fair Trading Branch (Branch 4) holds regular competition surgeries to enhance the channels of communication between Oftel and complainants. The last Wednesday in each month is currently set aside for these and a senior member of Branch 4 is available on that day for consultation. Alternatively, Branch 4 has recently set up a new competition hotline on which complaints can be made. The hotline number is 0171 634 8833 and it is open from 9am to 5pm every weekday.
9.13 Oftel has also introduced a quarterly Competition Bulletin as part of its commitment to greater transparency in its competition investigation procedures. The Bulletin aims to make Oftel's work in relation to competition policy and casework more visible; to improve communication with all players in the industry; and to invite comment, where appropriate, on Oftel's work in this area. Copies of the Bulletin are available on request.
9.14 In order for Oftel to be able to pursue any complaint a certain minimum amount of information is always required to be provided by the complainant. In the past, complainants have not always provided sufficient information for an investigation to be carried out and this has sometimes led to disappointment and confusion when, as a result, complaints have not been successful, or have taken longer than expected to investigate. This may partly have been because the industry has not known how much information is needed by Oftel in order for a case to be conducted. However, Oftel's intention is not to be overly formalistic and it believes that the minimum information it needs should be relatively easy for complainants to provide.
9.15 That minimum information is as follows:
(i) basic information such as the name, address, telephone number and fax number of the complainant;
(ii) a full description of the service/product involved;
(iii) basic information about the person/entity which is the subject of the complaint;
(iv) a description of the nature of the complaint itself;
(v) some indication of the nature and scale of the economic effect of the conduct which is the subject of the complaint, on the complainant and on any other person/entity;
(vi) some details about the relevant market: its size, turnover, the names of the main participants in it and their market shares (if known);
(vii) if possible, the licence condition(s) or the law that is allegedly being breached or is otherwise relevant; and
(viii) an indication of what action the complainant hopes Oftel might take.
9.16 In investigating complaints of anticompetitive behaviour Oftel adopts the following process: it aims to acknowledge complaints quickly, to send a preliminary reply soon after receipt of the complaint and to provide regular reports to complainants on the progress of the ensuing investigation. Investigations have two phases: the Preliminary Enquiry Phase, when initial consideration is given to determine whether there is a case to answer and whether to proceed to a full investigation; and the Investigation Phase, involving the gathering, analysis and assessment of information to decide whether there has been a breach of legal obligations. If a breach has occurred, the target of the complaint is given an opportunity to remedy the situation. If remedy is not made, necessary enforcement action will be taken by Oftel. Investigations vary in length. Some complaints will be complex to resolve but a successful and speedy resolution is more likely when a complainant provides Oftel with all relevant information. Upon completion of an investigation both the complainant and the complainee are advised of Oftel's findings and n "Assessing Complaint Satisfaction" questionnaire is sent to ask the complainant to comment on the way its complaint has been handled.
9.17 Internet service providers will be aware of Oftel's investigation into BT's Internet related activities. BT's entry into the Internet market in December 1994 sparked a complaint from Unipalm/Pipex (now known as UUNET/Pipex) against BT's BT Net product which provides access to the Internet. Unipalm alleged, among other things, that BT was disadvantaging it by acting in a predatory manner. Similarly, when in September 1995, BT introduced its Campus World product which provides online access and supplies content to educational establishments, Oftel received complaints from two Internet service providers, one being a direct competitor to BT's service, alleging that Campus World was being crosssubsidised.
9.18 Prior to receiving these complaints Oftel had already been investigating a complaint from PMS(DIALNET) alleging that BT was crosssubsiding its Campus Connect service which supplies online data communications and administration services to the educational sector and commercial suppliers to educational establishments. It is Oftel's view that Campus Connect has had a long start up period. Unless the product is on track in meeting targets for 1996/97 set out in Campus Connect s Business Case, the Director General would need to consider whether he should issue a direction requiring BT to ensure that the product moved into profitability in the coming financial year. BT has been informed of this.
9.19 It is expected that any new service would suffer losses while it establishes itself. In relation to BT Net, it is Oftel's view that it has had two years to establish itself. According to BT's projections BT Net is likely be able to support itself and move into profitability in 1997/98. Similarly, BT's projections on Campus World indicate that it is likely to move into profitability in 1997/98. In both these cases Oftel proposes to take similar action to that which it proposes in relation to Campus Connect.
9.20 Anyone wishing to make a complaint to Oftel relating to anticompetitive behaviour is requested to provide the details outlined in paragraph 123 above to:
Mohinder Mahi
Branch 4
Oftel
50 Ludgate Hill
London EC4M 7JJ
Fax: 0171 634 8949
Email: press.office.oftel@gtnet.gov.uk
10.1 Oftel's policy is, in summary:
Pricing of Network Services to Independent Service Providers(Chapter 2)
(1) BT will be expected to move to offer prices to independent service providers for network services that are below prices charged to end users to take due account of the net cost savings in providing services to independent service providers. Depending on the nature of the service to be provided by an independent service provider, examples of such elements could include billing, finance, marketing and sales, customer service, and operator services. In principle, Oftel would not expect to consider this to be undue discrimination or preference within the terms of Condition 17 of BT's licence. Service providers are defined in Annex B to this Statement.
(2) Independent service providers should not normally be obliged to pay for services or elements of a service that they do not use. Where BT is supplying elements of a new network service to its SSB or directly to end users in unbundled form, it should do so to independent service providers as well. Subject to economic and technical feasibility considerations, in developing new enhanced services BT'should have regard to potential demand for the underlying network service(s) from independent service providers, and therefore should, from the outset, configure it in such a way that the underlying network service, or its functional equivalent, is capable of being provided to independent service providers and is charged on the same basis as to the SSB. The very fact that BT itself requires the network service as an input to its own enhanced service implies that demand exists, and suggests that there could be demand from independent service providers.
(3) Oftel considers that the provisions in Condition 15.3 to 15.9 of BT's licence, which oblige BT to provide services to "systemless" resellers on the basis of the retail price minus net cost savings, are no longer necessary or appropriate because, under the policy set out in Chapter 2, BT is expected to offer prices to all independent service providers for network services that are below prices charged to end users to take account of net cost savings in serving them. Following statutory consultation on the proposal to delete these provisions, which met with no opposition, BT's consent will be sought and the provisions deleted accordingly.
Definition of Service Providers(Chapter 3)
(1) A means of identifying those entitled to independent service provider prices from BT is required. Oftel will use the definition contained in Annex B of this Statement as the basis for applying Condition 17 of BT's licence with respect to independent service provider prices. The definition would cover those providing or reselling basic PSTN services, those adding value to telecommunication services, and those providing information or content delivered entirely by means of telecommunications.
(2) BT will be obliged to provide Oftel, from time to time, with a list of companies to whom it is offering independent service provider prices. Oftel will keep the list in its library and publish details on the Internet. Oftel would investigate and take appropriate action, including issuing an enforcement order if necessary, in the event that a person not coming within the definition was obtaining independent service provider prices from BT.
Implementation of policy on RCS status(Chapter 4)
(1) Entitlement to Relevant Connectable System (RCS) status will in future be limited to network operators installing significant transmission infrastructure, who will usually be PTOs (but will also include mobile data, and radiopaging, and public access mobile radio operators); international facilities operators making a significant contribution to infrastructure; and, until such time as international facilities competition is fully established, International Simple Resale (ISR) operators making a significant contribution to competition in the international market.
(2) Oftel will publish guidelines on the application of its RCS policy. Draft guidelines are contained at Annex C of this Statement.
(3) Oftel will keep its policy on RCS status under review in the event that a complaint is made which clearly demonstrates that significant discrimination or distortion of competition lasting an unacceptable length of time would be likely to occur as a result of some independent service providers having already acquired RCS status . Oftel would consider how best to remedy any discrimination or distortion of competition in a way that minimises the impact on those affected. If necessary, this could include taking away entitlement to RCS status in respect of licences applied for on or before 5 February 1996, though Oftel would carry out a full consultation of all those affected before taking any steps in connection with this.
Split between BT's SB and SSB(Chapter 5)
(1) Oftel has proposed to redefine the split between the SB and the SSB in order to ensure that BT does not leverage its dominance in network services into the enhanced services market. To this end Oftel has produced a definition of network services, which will comprise the services to be offered from the SB, as set out in Annex E. Network services are to be divided into (a), (b) and (c) type services, of which (a) are basic conveyance services; (b) are services which consist entirely of one or more elements which could not practicably be provided to any end user in identical form by anyone other than a network operator; and (c) are services which it has been agreed, following consultation with all interested parties, should be provided from the SB. Following statutory consultation on the proposed modifications to both the definition of "Relevant Services" and Condition 18 of BT's licence, BT's consent will be sought and the modifications made. The implementation of the new split will not take place until 1 April 1998, in order to give the industry time to adjust to the change.
(2) Oftel has concluded that the IP Routing service should reside in the SB as a category (a) network service. BT Net and BT Internet should continue to be provided from the SSB on the basis that the services they offer are enhanced. BT Net and BT Internet will be obliged to buy their inputs from the SB at retail rates. Oftel intends to keep a close eye on developments in the Internet access market with a view to ensuring that BT is prevented from behaving in ways which might disadvantage independent service providers.
(3) Oftel is considering taking action in relation to the Call Minder service to enforce BT's compliance with Condition 17 of its licence. It would appear that BT has shown undue discrimination against service providers in the way in which it has chosen to offer the service, effectively excluding them from the possibility of competition.
Accounting arrangements(Chapter 6)
(1) Certain changes are to be made to the form and content of the Financial Statements which BT is required to publish from time to time with the aim of ensuring that Oftel is in a position to monitor the SB/SSB split, so as to be able to identify unfair crosssubsidy from taking place between separate parts of BT's business.
Access by Independent Service Providers to Network Interfaces(Chapter 7)
(1) Oftel has asked the NICC to consider the definition of interfaces with BT's network and other operators networks that independent service providers will need access to, both in the short and medium term, in order further to develop their service offerings. Oftel encourages independent service providers to participate in this debate.
Access by Independent Service Providers to numbers(Chapter 8)
(1) Oftel will proceed with the allocation of numbers directly to independent service providers as soon as this is practical. It will be necessary to impose relevant obligations on them to ensure efficient use of the National Numbering Scheme.
(2) Oftel will consider