CONTENTS
Foreword by the Director General
Chapter 1 Introduction
(The consultation . The response)
Section I - INTERCONNECTION, RETAIL TARIFFS AND UNIVERSAL SERVICE
Chapter 2 Interconnection - Option 3
(Introduction . Consultation . Oftel's proposals . Effective competition . Cost methodologies for regulatory purposes)
Chapter 3 BT's Retail Tariff Structure
(Choice for residential customers . Rental and call charges . Lifting RPI+2% - the impact on customers . Lifting RPI + 2% - competitive impact . Conclusion - licence modifications)
Chapter 4 Universal Service
(Background . Definition of universal service . Geographic accessibility . Affordable access . Equitable access . Level of service . New directions for universal service . Monitoring and review . The cost of universal service . Universal service funding and delivery)
Chapter 5 Summary of Proposals in Section I
(Interconnection . BT's retail tariff structure . Universal service)
SECTION II - COMPETITION
Chapter 6 Provisions on Anti-competitive Behaviour
(Introduction . Enforcement methods and procedures . A general licence Condition dealing with anti-competitive practices . Structural remedies)
Chapter 7 Tariff Flexibility
(Targeting of large volume customers . Scope of Condition 17A . Geographic de-averaging)
Chapter 8 Summary of Proposals in Section II
(Anti-competitive behaviour . Tariff flexibility)
Section III - ISSUES REQUIRING FURTHER CONSIDERATION
Chapter 9 Service Providers
(Regulatory distinctions . Tariffs . Network interfaces for service providers)
Chapter 10 Alternatives to Pence per Minute Charging
(Views of respondents to the Consultative Document . Progress on Oftel's suggested ways forward . Oftel's current position . Timing)
Annex A Lifting RPI+2% - Price Cap Mechanics
Annex B Licence Modifications to Lift RPI+2% and Abolish ADCs and Modified Residential Low (Light) User Scheme Guidelines
Annex C Maintenance of Effective Competition: Proposed New Licence Condition
Annex D Condition 17A - Differential Charging
Annex E Work Programme
Annex F Glossary of Terms
The Consultative Document which Oftel issued in December sought views about the path regulation should take towards the goal of a competitive marketplace from which detailed regulation could withdraw. It asked about the pace of change.
I am grateful for the many responses we had. They have greatly helped Oftel to clarify the issues. In my view, the way regulation now needs to evolve is very clear - the path ahead is marked out. The issue remains that of pace - how fast, and under what conditions.
The Consultative Document centred on interconnection. Other issues rather took second place. In fact, consultation has made it clear that the primary focus has to be getting the overall competitive framework right. How Oftel is equipped to act against anti-competitive behaviour and how effectively it carries out its role as a competition authority are, therefore, central to this Statement.
' Framework for Action' is an appropriate title - there will be a great deal of work for Oftel and others flowing from this document! The issues here will also have an impact on other parts of our work. I am sending out separately in a short note, 'Oftel's Agenda', the major issues we will be tackling up to 1998. It sets the content of this Statement in the broader context of regulatory policy in the period ahead.
A workplan listing forthcoming work projects and consultation meetings is at Annex E. This Statement contains draft modifications to BT's licence (abolishing ADCs and the RPI+2% exchange line rental sub-cap, introducing a general Condition on anti-competitive behaviour and modifying Condition 17) and draft modifications to the Low (Light) User Scheme Guidelines. These are at Annexes B, C and D. Before engaging in the formal process of statutory consultation, Oftel invites preliminary comments on these draft modifications.
Comments are to be received by 15 September 1995 and should be sent to:
Neil Feinson
Oftel
50 Ludgate Hill
LONDON EC4M 7JJ
Comments on the study of "The Costs, Benefits and Funding of Universal Service in the UK" referred to in Chapter 4 should be sent to Christine Farnish at the same address by 22 September 1995.
A workshop on Interconnection Charging and the Price Control Review will be held on 20 October 1995. Details will be circulated in September 1995. Comments on related issues raised in Chapter 3 of this Statement should be received by Oftel before the end of September 1995.
These comments will be made publicly available in Oftel's library. Those responding are requested to separate out any confidential material into a confidential annex which is clearly marked as such.
Comments (providing they are relatively short) can be sent to Oftel by filling in the form on these Web pages.
Oftel intends to set up a link between this Statement on Oftel's pages and any responses placed on respondents' own Internet pages. Please contact Mary-Ann Auckland at Oftel on 0171 634 8751 to organise this.
Any confidential material should be clearly marked and sent to Oftel via ordinary mail, not via Internet.
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1.1 In December 1994 Oftel published a wide-ranging and far-reaching consultative document, A Framework for Effective Competition (the 'Consultative Document'), which examined the path and pace of evolution of the regulatory framework in the UK. It considered the changes which would best contribute to the achievement of a competitive market place from which detailed regulation could withdraw. This involved critical examination of the rules governing interconnection, including the future of Access Deficit Contributions (ADCs), whether interconnection should be priced on the basis of incremental costs instead of fully allocated costs and whether and how Oftel could move away from detailed involvement in setting interconnection charges. Related issues, such as Oftel's powers to contain anti-competitive behaviour and matters of concern to consumers, such as the future of universal service and BT's tariffing freedom, especially the RPI+2% provision on exchange line rentals, were also addressed in some detail.
1.2 In the months following publication until 31 March 1995 Oftel conducted the largest and most important consultation exercise in its history. Well attended public meetings were held in England, Scotland, Wales and Northern Ireland and an industry meeting held in London. Comments were received both on the telephone hotline and by written submission. More than 120 written responses, from a wide range of interests, including consumer bodies, local authorities as well as the industry, have been put in Oftel's library and are available for public inspection.
1.3 Oftel was pleased both by the level and quality of the response and by the recognition of the importance of the issues raised. Oftel's overall approach and some of its key proposals, such as for ADCs, the exchange line rental provision and universal service, received considerable support. But it was also clear that other issues, such as service providers and alternatives to pence per minute charging for interconnection, would require further consideration, perhaps further consultation too, before firm proposals could be made. And issues which were closely related to overall price controls on BT would need to be assessed further in the context of the forthcoming price control review.
1.4 This statement sets out Oftel's view of the way forward on the issues raised in the Consultative Document. It does not repeat all of the arguments put forward then. The two documents should therefore be read together.
1.5 The statement falls into three sections, which together set out a coherent approach to establishing a regulatory framework for the promotion of effective competition in telecommunications. This means a framework which is transparent and which avoids uncertainty, but which is also flexible and progressively less intrusive without jeopardising its effectiveness
1.6 Section I covers:
1.7 Oftel intends to make certain changes to the regulatory framework straightaway. These include:
1.8 Section II deals with competition issues.
It covers Oftel's proposals for:
1.10 Annexes B-D contain draft modifications to BT's licence to effect the changes which Oftel wishes to implement without delay. A work programme is set out at Annex E for taking forward issues requiring further consideration or consultation.
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2.1 Interconnection charges are a major component of the costs of operators competing with BT. Ensuring that interconnection charges are fair and appropriately reflect underlying costs is, therefore, a central requirement of the competitive framework. The Consultative Document recognised the increasing pressure for changes to the present system of determining interconnection charges in order to meet the needs of a rapidly evolving market. It set out four options to address this:
Option 1 a number of small adjustments to how ADCs are calculated;
Option 2 a move to incremental costs as the basis for Oftel's determination of BT's interconnection charges;
Option 3 as Option 2 but lifting BT's exchange line rental price constraint and getting rid of ADCs; and
Option 4 the ultimate aim of a switch from systematic regulation through detailed licence conditions to a policing of the market through competition rules. It also flagged possible staging posts on the way to this position.
2.2 In considering changes to the present regime Oftel is concerned to ensure that interconnection charges better reflect how a business operating in a normal, competitive market would set its charges. Interconnection charges which provide the appropriate economic signals will promote efficient and sustainable competition in infrastructure and services and encourage effective, competitive pressures to reduce costs. Oftel also aims to reduce the complexities of current regulation. Without change these complexities will increase and so will the uncertainties for firms considering investing in new infrastructure and services in the UK. Greater clarity in regulation is good for operators and for consumers too. Oftel made clear in the Consultative Document its strong preference for abolishing ADCs, for moving towards incremental costs as the basis for interconnection charging and for moving as far towards Option 4 as the extent of effective competition in the market would allow.
2.3 In the light of consultation, Oftel has decided to go for a stretched version of Option 3 from 1997 onwards. This Chapter sets out proposals for how this might be done and seeks further comments on detailed implementation.
2.4 The results of consultation showed a large degree of consensus.
Not Option 1
2.5 There was strong agreement that the problems with ADCs which Oftel had set out in the Consultative Document (uncertainty in administration - particularly waivers - complexity, even difficulties of quantification) were hindering the establishment of a transparent and properly competitive interconnection charging system. All industry respondents considered that the sort of adjustments to the system proposed under Option 1 in the Consultative Document were inadequate to address these problems. If they were considered at all, it should only be as part of an interim move towards a better long term solution. BT also rejected Option 1 as tinkering with effects and not addressing causes. Consumer groups who addressed this issue saw no benefit in Option 1.
Not Option 2
2.6 There was general support from other operators for the use of incremental costs as the basis for interconnection charging, although a divergence of views on the appropriate type of mark-up (see paragraph 2.12). BT also supported work to develop an incremental costing methodology. Support for Oftel's proposal to remove the RPI+2% constraint on exchange line rental was more cautious but, given the manifest difficulties with ADCs, a majority of operators favoured the move. Once this had gone ADCs would fall away with all the benefits that would bring for improving the clarity of regulation. Consumer groups' initial views were that removal of RPI+2% was a risk.
Not a "hands off" Option 4
2.7 Oftel's underlying approach to its role is to seek to withdraw from detailed regulation towards a less interventionist role of policing fair trading wherever industry structure and competitive pressures will allow. Competition will then supply the discipline and constraints on abuse of market power which Oftel currently imposes through detailed licence conditions or which are provided by general competition law. Several variants of Option 4 were included in the Consultative Document as examples of varying degrees of withdrawal from detailed intervention.
2.8 Responses from other operators (and subsequent consultations with them) indicated that, even looking ahead to the period of the next price control, 1997-2001, there was unlikely to be effective competition in a sufficient number of market sectors in the retail and network markets to consider a "hands off" regulatory approach which relied substantially on fair trading rules. Detailed regulation would continue to be needed in some areas. BT, however, endorsed the proposals in Option 4 for an early commitment to deregulation. Consumer bodies generally wanted to see real competition in place before considering relaxation.
2.9 The responses to the Document, however, clearly indicated that, while a "hands off" approach was premature, many operators felt that some of the ideas covered within Option 4 (eg a network price cap) could well be appropriate for the market as it is likely to develop after 1997. Any movement in this direction, however, would be contingent on a more genuinely competitive environment developing between now and then and Oftel having strong and effective powers to deal with anti-competitive behaviour, and using them.
Option 3
2.10 The Consultative Document set out why fully allocated historic costs were an inadequate basis for determining interconnection charges. Oftel made clear it considered incremental costs were a better measure because they more closely reflect the way businesses take decisions about setting prices. Incremental costs measure the change in cost resulting from a change in output level compared with an alternative base case. For interconnection charging purposes the total output of all conveyance services is regarded as the increment for determining incremental costs. (This is explained more fully in the glossary at the back of this document.)
2.11 The Consultative Document also set out alternative proposals for mark-ups additional to the incremental costs. Mark-ups are necessary if a business is to recover those common costs necessarily incurred.
2.12 As indicated above, there was strong support for a move to incremental costs for interconnection charging. There was less agreement on what type of mark-up regime would be appropriate. The complexities of Ramsey or ECPR mark-ups (see glossary for explanation) were generally recognised. No-one supported Ramsey mark-ups for that reason. BT and one other operator supported ECPR, with the caveat that it applied only to substitutional traffic. Several consultees argued that zero mark-ups would be more appropriate, either because this was necessary as a form of entry assistance or because, if incremental costs were set properly, there would be no common costs to be recovered through mark-ups. Others recognised that a regime of equal mark-ups provided a straightforward, simple, evolutionary approach, albeit far from ideal in terms of economic theory.
2.13 The clear message Oftel draws from the consultation responses is that interconnection charges need to be derived from an incremental cost methodology; but that, looking ahead to beyond 1997, it may not be necessary for Oftel to continue to determine all interconnection charges in detail. The central question remains very much that posed in the Consultative Document: at what pace and under what conditions to move away from detailed, intrusive regulation from 1997? Consultation indicated that the regime can safely move to Option 3. But can it be stretched a stage beyond it? Oftel thinks it can.
Methodology and Timing
2.14 Oftel wants to press ahead with proposals for using incremental costs as the basis for interconnection charging. The Interconnection and Accounting Separation Task 19 Working and Steering Groups have done a great deal of work examining two alternative approaches to calculating network costs of conveyance - a bottom-up approach based on a model of an efficient network and a top-down approach based on BT's current cost accounting data. (The model covers a complete network, including the costs of conveyance and the non-traffic sensitive costs of the access network.) In due course the remit of the Groups will need to be extended to look at charges for non-conveyance interconnection services (eg data amendment charges). These are mainly labour based. Estimates will be needed of efficiently incurred costs of labour, materials and, where appropriate, equipment.
2.15 In response to consultation BT favoured the top-down approach, arguing that charges ought to be firmly based on actual costs. All other operators favoured the bottom-up approach.
2.16 The Task 19 Groups have made good progress but much remains to be done. It will be several months before robust, reliable and generally acceptable calculations of interconnection charges are available. There are a number of real difficulties to be overcome before a valid methodology can be established. These include the reconciliation of conflicting data inputs from operators to the model: this involves detailed analysis of complex issues of definition and the investigation of alternative assumptions made by different contributors of data. In addition there needs to be a reconciliation between the top-down and bottom-up approaches. Oftel is optimistic that an acceptable methodology can be agreed but, because of the timetable for the price control review, it needs to be clear in the next few months whether this will be possible. It is now down to those in the industry to work hard with Oftel and to commit extra resources in order to sort out the problems remaining and to deliver sound proposals.
2.17 Given the present state of play there is clearly no prospect of having proposals sufficiently developed to put forward in the form of licence modifications before Oftel begins consultation on the price control review at the beginning of December. An early move to incremental costs could also create tension with the present price cap arrangements (which are based on fully allocated historic costs) and there will clearly be implications for the next price control. For all these reasons Oftel considers that it would make sense to carry forward detailed consideration of the future interconnection charging regime as part of the price control review.
2.18 Oftel intends to consult further on the proposals set out below with a view to having firm proposals by December. Thereafter Oftel would produce draft licence modifications to cover a new interconnection pricing regime by April 1996 (when draft modifications for the rest of the price control regime will be put forward for informal consultation) in order to have the new interconnection regime in place in 1997. It is necessary to allow an extra year in this timetable in case BT do not agree the proposals. In that case, the Director General will refer the issue to the Monopolies and Mergers Commission and it could take 9-12 months for the issue to be resolved. Up to 1997 the present regime of Oftel-determined standard charges based on fully allocated costs and underpinned by detailed cost information will continue.
2.19 Given the unavoidable delay in introducing a new interconnection regime based on incremental costs Oftel has considered in the proposals below whether the state of competition in the market from 1997 to the end of the century is likely to justify stretching the new regime beyond Option 3 as it was set out in the Consultative Document. It has considered whether the time would be right to take a step away from detailed regulation of all interconnection charges and to examine whether in some areas a more broad-based approach would be appropriate.
2.20 It is important, however, to be absolutely clear about the regulatory backdrop against which possible proposals for a new interconnection regime must be viewed. Oftel would continue to have powers to determine what interconnection services would be offered, the required quality of service and technical requirements (with BT's agreement where possible). Oftel would need to have and be using effectively powers to prevent anti-competitive pricing behaviour (this is dealt with in Section II); and there would continue to be a non-discrimination requirement for interconnection and transfer charges and other aspects of service provision. The present arrangements for publication of separate, audited accounts for BT's businesses and of details of costs would continue.
Treatment of Different Services
2.21 Oftel has considered how charges for different types of interconnection service should be dealt with in the regime for 1997 and beyond. Distinctions need to be made between different classes of service:
Competitive Services
2.22 Under the new Condition 16B of the licence modifications which came into effect on 31 March 1995, BT or another operator can ask the Director General to examine whether the market for the provision of an interconnection service is competitive. If after investigation the Director General finds this to be the case then the charges for that service are no longer annually determined by Oftel. At the moment no interconnection services are considered competitive. Oftel will shortly be consulting on non-binding guidelines which the Director General would use in examining services put forward as potentially competitive.
2.23 The process of excluding from detailed regulation charges for services which are deemed competitive would continue in a new regime. Charges for these services would continue to be subject to non-discrimination requirements and anti-competitive provisions.
Call Termination Services
2.24 Oftel considers 'call termination' to cover call completions to customers through a digital local exchange (DLE) and, where relevant, a single digital main switching unit (DMSU), and equivalent arrangements in other operators' local networks. This probably covers around a third of network conveyance services.
2.25 The retail market in the UK will certainly become more competitive over the next five years. Most customers will have a choice about which operator will provide access to them but, having decided, they will then be tied to that operator for delivery of all services. That operator has exclusive 'bottleneck' control over call termination access to that customer even for delivery of services initiated on other operators' networks. In the period to 1997 and beyond BT will remain dominant in the access market as a whole. It will retain bottleneck control over services to its own customers just as other access network operators will have bottleneck control over access to their customers.
2.26 Oftel considers that the market for call termination services providing final delivery to the customer may well need to be subject to regulatory oversight for the foreseeable future. The level of termination charges is an important part of other operators' costs and of charges to customers. If these charges were not subject to Oftel scrutiny and determination but left to be decided in negotiation between access network operators the outcome may be expected not to be sufficiently pro-competitive, economically efficient or fair to other operators, particularly new or smaller operators, or to service providers.
2.27 Oftel, therefore, considers that charges for these services must continue to be determined by Oftel. How charges would be set is set out below (paragraph 2.41). Oftel's starting point is that certainly BT's charges will need to be set in this way. But clearly there are arguments that call termination rates for other access network operators should also be determined by Oftel.
2.28 This might be handled, as now, with operators applying to Oftel for charges to be determined when they cannot agree. Alternatively Oftel might need to take a wider approach and set a standard UK rate for all call terminations (a different standard charge might need to be set for calls to mobile operators). Oftel would welcome views on this issue, particularly on the idea of standard call termination rates for BT and other access network operators.
Other Services
2.29 These are all interconnection services other than competitive and call termination services. There is increasing competition in the supply of these services and other operators generally have a choice of who to buy from. Oftel considers that detailed annual determination of individual charges for these services may be unnecessary. A fair and efficient level and structure of interconnection charges could probably be achieved by more broadly based controls.
2.30 As a first step away from annual determination Oftel could set an initial charge for each such service in 1997 and specify a deflator (same for all charges) for prices in subsequent years. This would introduce a measure of incentive regulation but would still involve detailed regulation of relative prices.
2.31 A further step would be not to set individual charges but instead to have a network price cap working on a basket of wholesale charges, in the way the current retail price cap operates on retail prices. Individual charges, while not specified by Oftel, would, however, also be subject to the further constraint that they had to be above a cost floor (based on incremental costs) and below a ceiling (perhaps based on stand alone costs). Within these constraints BT would be free to set its charges as it chose, subject to meeting the overall basket constraint. (BT would, of course, have to charge itself the same as it charged other operators for each service.)
2.32 Oftel sees considerable advantage in this second approach of a network price cap. It would avoid the complexity and uncertainty of annual determinations and, more importantly, it would place a direct requirement on BT to improve the efficiency of its network. Present interconnection arrangements give BT a guaranteed rate of return on its network services without placing any efficiency requirements on it, although the overall price cap acts as a strong indirect spur.
How would charges be set?
2.33 As a first step the incremental cost methodology which emerges from the ICAS Task 19 Groups would be used to determine the incremental costs of all interconnection services taken together and, separately, the incremental costs of the access network.
2.34 The issue then arises as to what mark-up it would be appropriate to add to incremental costs to represent the separate contributions from conveyance and access to the funding of costs common to both. It remains to be established from the modelling process whether these common costs are significant. This depends on detailed analysis of the way costs are incurred in telecoms networks.
2.35 Responses to the Consultative Document revealed a general lack of enthusiasm for Ramsey or ECPR mark-ups because of their complexity and because they both depend to a degree on subjective assessments of key elements of the calculations. In addition, the ECPR suffers from the defect that, because it is based on BT's retail call prices, competitors would be under pressure to price their calls in a way that reflected BT's retail pricing choices. On the other hand, an equal proportionate mark-up regime, though simple in concept, means that in practice the structure of charges is determined without any relation to market conditions. In an increasingly competitive market the level of cost recovery for each service ought to be determined by the competitive conditions in the different markets for different interconnection services.
2.36 How costs can be recovered should be determined by commercial decisions. It is inappropriate and probably inefficient for Oftel to be involved in detailed questions abut cost recovery. Oftel sees it as its job to set a framework for the recovery of common costs which is efficient, fair to BT (in that efficiently incurred common costs can be recovered) and other operators and then to leave BT to decide its interconnection charges within the constraints imposed.
2.37 At the same time the framework needs to be easily understood. To achieve this Oftel proposes that common costs should be apportioned between BT's conveyance and access network activities on the basis of equal mark-ups (that is in proportion to the total of incremental costs appropriate to each business). Access network costs - both incremental and the appropriate equal mark-up - would then be recovered as BT chooses through its retail prices. No access costs - the non-traffic sensitive costs of the network - would be recovered through conveyance charges.
2.38 The total costs recoverable from all interconnection services will be the incremental costs of interconnection services plus the appropriate equal mark-up proportionate to these costs. These costs would form the starting point for any network price cap calculations. Oftel would propose to adopt a standard price cap methodology of establishing a set of base interconnection charges and associated revenue weights and specifying through a price cap formula how the product of annual charges and associated weights should reduce each year of the price control period. Oftel will consult on this in the price control consultation document in December.
2.39 It would, of course, be necessary to ensure that the operation of separate price caps - network and retail - was consistent. This raises questions about the cost basis for the network and retail price controls. An incremental cost basis for network charges may create too many tensions with an historic cost accounting approach to retail price controls, depending on their nature and scope. All this will need to be considered further in greater detail in the price control review.
2.40 The mechanics of a price cap could operate differently depending on how call termination services are dealt with.
2.41 As indicated above, Oftel considers BT's charges for call termination services should continue to be set by Oftel. Oftel proposes that this should be done on the basis of the incremental cost for the services concerned as derived from the Task 19 methodology, plus a proportionate share of the common costs which are to be recovered from conveyance services. These charges could be determined annually or, alternatively, a starting charge set and a defined annual percentage change specified.
2.42 If charges for call termination services are redetermined annually, the costs relevant to them would have to be removed from total interconnection costs to get the total which would provide a starting point for calculation of the network price cap. If not, call terminations could alternatively be subjected to a sub-cap rule within the overall network cap and their costs kept within the total. Oftel would welcome views on which approach would work better.
Efficiency
2.43 In the Consultative Document Oftel asked whether an adjustment should be made to the costs BT is allowed to recover through interconnection charges to eliminate any excess costs which were due to BT's inefficient operation. BT argued that interconnection charges should be based on real not theoretical costs; that if BT were inefficient this would provide an opportunity to competitors, and that the complexities of seeking meaningful efficiency adjustments were unlikely to be worth the effort. Most other industry respondents considered an efficiency adjustment an attractive proposal, in theory, although a majority considered that the time and effort required to find an appropriate comparator for BT and to agree a methodology was likely to be disproportionate to the benefit.
2.44 As part of the price control review Oftel will need to take a view on how BT's interconnection charges at the start of the period compare with those available elsewhere; and on what level of efficiency savings in network costs BT is likely to be able to secure over the price control period. The details of how efficiency adjustments for 'inefficient' levels of charges at the start of the period and for dynamic changes over the period are treated in the price cap will need to be covered in the consultation on price controls. Different treatments will have different incentive effects on BT. This is a complicated issue and it is not necessary to consider it further here. It is important, however to recognise that, once the price cap is set, further scrutiny of interconnection costs to squeeze out inefficiencies would be unnecessary. If this were to be done during the price control period, it would be equivalent to reopening the price cap during its term. Oftel, therefore, considers no further efficiency adjustments beyond those to be incorporated into the future price control arrangements will be necessary.
Burden of Proof
2.45 The Consultative Document suggested that BT should be required to justify why particular costs needed to be included in calculating interconnection charges, rather than as now where Oftel needs to challenge and exclude any costs it considers should not be recovered. In response, BT argued that this seemed to add little to what already takes place and, further, to run the risk that BT would be prevented from fully recovering its legitimate costs. There was a broad consensus from other operators that Oftel should be able to exert greater scrutiny over the make up of interconnection charges from the underlying costs.
2.46 Oftel will clearly need to keep this issue under review as the nature of the interconnection model is clarified over the next few months. There are two aspects to be considered:
The latter issue will need to be addressed in the construction of the interconnection model and the consideration of if and how adjustments are to be applied. To the extent that there are still doubts about this Oftel will need to consider whether new powers of scrutiny and exclusion are appropriate.
2.47 The issue of appropriate allocation/ apportionment of costs to interconnection or to individual services can be dealt with under the procedures which have now been put in place as part of the Interconnection and Accounting Separation Framework. BT now has to produce a Detailed Attribution Methodology document which will demonstrate how costs are allocated and apportioned and which will be used to show whether inclusion of costs in conveyance or to a particular service is appropriate or not. The separated accounts will also give the figures required to determine the appropriate network costs. These figures will be audited.
2.48 Oftel will be scrutinising the Detailed Attribution Methodology document with BT and other operators and with external advisers in the autumn. If allocations look questionable, Oftel will be able to ask for further detailed information and will have the power to investigate possible deficiencies and, if necessary, seek changes in inappropriate allocation methods.
2.49 Whatever model is chosen for the future interconnection charging regime the equivalent of the current Detailed Attribution Methodology will be needed to determine the total of network costs and to set floors and ceilings for charges. How far this will be based on BT's costs will depend on whether the bottom-up model is chosen or the top-down model based on BT's current cost accounting figures.
2.50 It is clearly important that the accounting separation framework, which is only now coming into operation, is sufficiently robust to provide the detailed information about cost allocations and total costs which is necessary both for the current interconnection regime and to underpin any future one. If there is any doubt about the adequacies of the information becoming available Oftel will look again at whether further information, and licence modifications to require it, are needed.
2.51 This document is about effective competition and the framework for promoting it.
2.52 The UK has one of the most open telecommunications regimes in the world. We have a large number of operators across all sectors of the market. But BT is the only operator with a national network which is active in all sectors of the market. BT still has over 95% of all exchange lines. It is only now beginning to face serious competition in the access network from some cable companies and other alternative access suppliers while radio-based competition has yet to begin service. Dominance in the access market has consequences for competition in other market sectors as well. There is lively competition in the UK market as a whole. It is growing and thriving. But it is not yet sufficiently effective that market forces and general competition law could start to take over from specific regulation.
2.53 In the period beyond 1997 the level of effective competition in the various sectors of the telecommunications market will be a key factor in Oftel's judgements as to when the time is right to remove further detailed regulation and place greater reliance on broad-based licence provisions and general competition law. It will also be central to Oftel's advice to Government on the appropriate time to remove scope of business or technology restrictions on BT.
2.54 Since the level of effective competition in the market will be the key criterion Oftel will use to determine the pace at which regulation can be rolled back, it is important that Oftel, BT and other operators share a common understanding of what this means. Oftel has already had discussions with BT and other operators on this. In Oftel's view there are three elements:
The Competitive Environment
2.55 Oftel will be looking closely at the level of competition in all the different sectors of both the retail and network markets. Assessing the extent of competition will involve monitoring a variety of market features. For those markets covered by price controls a key measure may be the extent to which such controls have effectively become redundant in that they cease to be a constraint on prices. More generally, it will be necessary to have regard to how far entry has occurred and whether this has been associated with market share changes between operators. Assessment will also need to take account of the ease of entry into the market and the extent to which entry barriers such as sunk costs are likely to inhibit vigorous competition. Patterns of price behaviour between operators and the rate of introduction of innovative services will also be indicators of the extent of competition. Underpinning this assessment will be the need to ensure that markets are properly defined on the basis of the most relevant and up-to-date data. Oftel will be consulting shortly on non-binding guidelines which will set out the approach Oftel will take towards determining when a market might be considered competitive.
2.56 The dialogue Oftel has started with the industry on these issues will be continued in the coming months as vital input to the price control review. The exercise needs to develop to look more closely at how the market should be segmented, how market shares are likely to develop to the end of the century and what factors need to be taken into account in making an assessment. Oftel recognises that these are difficult issues and involve a large measure of judgement but Oftel needs to have an up-to-date and informed view as input to its thinking on the price control review and future regulatory developments. Oftel intends that this exercise will be a permanent feature of Oftel's continuing dialogue with the industry and its customers.
2.57 The extent to which there are barriers to entry to a market or to the development of competitors' businesses will be a key element in the analysis of whether a market is competitive. Chapter 10 of the Consultative Document discussed barriers to sustainable competition in the UK telecoms market and generated some thoughtful responses on the nature of the barriers confronting BT's competitors.
2.58 Some operators put forward a helpful classification of barriers between those market advantages which BT will continue to have in the immediate future solely because of its dominant position and where any abuse would need to be dealt with under specific licence conditions and general competition law; those control barriers which BT derives from its previous monopoly position (control of the Numbering Information System, lack of Number Portability), which should be dealt with by dismantling them; and structural advantages which BT has because of its scale and scope and which might be addressed by giving competing operators some time-limited assistance to help them to get into the market and to compete on more even terms.
2.59 Several respondents suggested that BT should be given incentives to dismantle control barriers through financial penalties which continued as long as the barriers remain. One incentive suggested was that discounts should be imposed on interconnection charges by Oftel, with the duration and level of discount being directly linked to the life, nature and effect of the barrier. Structural barriers might also be compensated for by time-limited, discounted interconnection charges.
2.60 Oftel sees the logic of applying regulation in a way which gives BT an incentive to remove control barriers but sees substantial difficulties with the idea of discounting interconnection charges:
2.61 Oftel considers that these difficulties greatly outweigh any advantages to the competitive framework. Oftel's approach to control barriers has been to tackle them directly. Oftel has, for example, taken over numbering administration. The delay in the introduction of number portability is a disappointment but Oftel has been pursuing this issue through a licence modification and now through the Monopolies and Mergers Commission. Oftel will also be consulting in the next few months on a number of issues, including access to the Numbering Information System for directory enquiries and related purposes. Oftel proposes to continue to take direct action wherever possible to dismantle remaining barriers.
2.62 Oftel is, however, attracted to the general idea of giving BT incentives to encourage it to operate consistently with Oftel's objectives of effective competition. Any incentive should, however, be quite separate from interconnection charging levels. It might relate, for example, to conditions under which Oftel would review or advise Government on the restrictions imposed on BT (eg constraints on tariff flexibility, use of radio in the access network). Oftel would like to consider further with BT and the industry how this idea could be developed. It would be important to be clear what behavioural changes were being sought and what milestones/ deliverables might be set for this. Oftel would welcome comments and ideas on this which will feed into our broader consideration of the level of effective competition in the market and the competitive environment.
2.63 On the issue of discounted interconnection charges to compensate for structural advantages, Oftel does not consider that, after 1997, any general assistance to competitors through blanket discounts on interconnection charges is appropriate, even if time-limited. The changes being considered in this document will mean that ADCs are abolished and that after 1997 interconnection charges will be set on a basis that more properly reflects costs. BT will have to seek to recover any deficit on the access account through retail prices not interconnection charges. BT's interconnection pricing freedom will be constrained between incremental cost floors and stand alone ceilings. The new regime will give appropriate economic signals about pricing in the market and will be fair to BT and other operators.
Action against Anti-Competitive Behaviour
2.64 The second element of effective competition is that Oftel must have robust powers to stamp on any anti-competitive practice and must use them effectively in order to promote effective competition in the market. Oftel proposes to introduce a licence condition to control anti-competitive behaviour and also to improve how it deals with cases of anti-competitive practices in future. This is dealt with in detail in Section II.
BT's Behaviour
2.65 And thirdly, it is important that BT should recognise that its own behaviour will be a major determinant of whether the UK market can be considered one of effective competition. At the moment BT too often appears reluctant or unwilling to address with Oftel and the industry issues of clear regulatory concern. It needs to have a more positive approach to improving the competitive framework in the UK. It needs to have in place convincing and effective internal measures to ensure the compliance of the whole organisation with regulatory and competition rules. It should be able to point to an internally independent compliance function and management systems if it is to convince Oftel that it is serious about competing fairly within the rules of a less interventionist system. BT also must be able to demonstrate to Oftel that it has in place the management information systems necessary both for Oftel and its own management to know whether or not it is complying with its licence obligations. Recent cases have demonstrated the inadequacies of BT's systems, although the introduction of accounting separation and the detailed reporting requirements it includes should greatly improve this.
2.66 At the moment regulatory decisions and rules are based on a mixture of fully allocated historic costs and incremental costs (the latter have been used for determining connection charges, and for the use of some network facilities on a short run basis). However, fully allocated costs are the main basis for regulating BT and are used in assessing the retail price controls, for determining interconnection charges paid to BT by competing operators and have been used for assessing major allegations of cross-subsidy on the part of BT.
2.67 Oftel proposes in future to follow the lead of well run competitive businesses, and to use the appropriate costing methodology for the decisions before it. Usually such decisions would be based on some form of long run incremental costs, sometimes short run incremental costs, but rarely fully allocated costs. The aim must be, as we approach the development of competitive markets, better to reflect the basis on which business decisions are made, to generate better pricing signals and to prompt efficient investment decisions.
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3.1 This Chapter is concerned with two separate aspects of BT's retail tariff: first, the provision by BT of a range of flexible and more customer oriented charges and services to better meet the needs of residential customers and to offer them choice; second, the question of the relative levels of BT's rental and call charges.
3.2 In the Consultative Document Oftel set out a number of objectives, the second of which was to ensure that the regulatory regime results "in a fair distribution of costs and benefits amongst both residential and business customers". Because BT still directly serves 95% of the residential market, Oftel's attention will inevitably focus on BT's plans to deliver flexibility and choice to ordinary households. While residential consumers have seen increasing benefits from BT's price reductions under the price cap over the last two years, many still have very little choice in terms of the service and tariff offerings available to them. Oftel would like to see a greater range of service packages available to residential customers, so even where they have no choice of operator they may choose the offering which most suits their needs. Oftel's research indicates that not only would such diversity better meet the needs of existing customers, it could also help encourage more households onto the network. In addition, packages which helped customers control their costs could enhance customer retention and reduce the need for disconnections. Research indicates that the unpredictability and difficulty in controlling household telephone bills can cause payment problems for existing customers. Many "unphoned" households would be more likely to join the network if they were offered a set price service package and if up-front fixed charges could be reduced.
3.3 Responses to the Consultative Document, particularly from those representing consumers, showed universal support for a variety of services and tariffs to be available, and for measures to be introduced to better help customers manage their telephony costs. In particular, a "spread" connection charge, fixed sum packages and "pay as you go" schemes were well supported. A monthly billing option, and the availability of free selective call barring also proved popular.
3.4 BT, responding to the Consultative Document, stated that it saw such service and pricing packages as the most effective way of increasing penetration and bringing the benefits of competition to residential customers. BT indicated that it had been actively exploring a number of the suggested packages.
3.5 An initial connection charge can act as a barrier to access for poorer households. This could be overcome if the costs of connection were recovered from the customer through either a slightly increased regular fixed charge or through call charges. Some operators in the USA avoid up front connection charges and still provide a commercial service to customers. This has helped increase the penetration rate. Some cable companies in the UK now offer low cost connections. BT have recently moved to a three-tier charge with no payment for customers who take over service on the same day, and a considerably reduced charge for customers who move into a property already service with a line. However, Oftel would encourage all relevant operators to make the take up of service more attractive for new customers on limited incomes. BT has confirmed that it is keen to develop packages which make it easier for customers to join the network.
3.6 A further barrier to service access can be the lump sum deposit which is often required before service is provided. "Usage Limits", whereby a financial ceiling on call expenditure is negotiated and agreed with new customers, would be a welcome alternative to deposits. BT is committed to implementing such a scheme in 1996. Some cable companies already offer service without charging deposits, and provide measures such as monthly billing and automatic barring of premium rate numbers to help customers manage and control their telephony expenditure. Pending BT's introduction of usage limits, Oftel intends to ensure that BT's deposit policy is revised so that only new customers with a previous history of bad debt would need to pay a deposit. Once usage limits have been introduced, Oftel would expect BT to make the service available on request to existing customers who wish to use it to help them manage their costs.
3.7 Fixed sum packages can be attractive to many residential customers, particularly where they offer a regular monthly payment covering rental and a fixed volume of local calls (or a mix of local and national calls). Such packages make it easier for people on limited budgets to control their costs. Some USA companies offer a range of these packages, with customers choosing the scheme most suitable to their particular budgets and calling patterns. Kingston Communications has a scheme whereby a regular fixed payment covers line rental and all local calls. BT is actively researching various options.
3.8 A "pay as you go" type scheme, allowing people to pay for their calls as they make them with no fixed charge, would also be popular. Such a tariff offering would bring telephony into line with most other goods and services: people would pay for what they used. Clearly there could be some credit risk for telephone companies if such a scheme were introduced without any customer screening, without any usage limits, or without any up front "deposit" payment. However, Oftel considers these problems are not insurmountable and believes this type of service package could be designed to be commercially attractive.
3.9 A further service/tariff package which Oftel would like to see available is one designed for tenants or residents of buildings in multiple occupation - houses converted to flats or bedsits; sheltered accommodation units; residential homes; and blocks of flats. This service could offer discounted fixed charges - connection and rental - in recognition of the economies of scale in providing service. Such a service package could particularly benefit people in public and private rented accommodation. Penetration rates for such households tend to be significantly lower than average. BT is examining various charging options for this package.
3.10 Oftel would also like to see the development of a public voice mailbox system similar to Messagepoint which BT has recently trialled. This would offer a message receiving service, like an answerphone but on the network, for use by young people, people on the move and those without permanent homes. A voice mailbox can be accessed via a payphone or any other phone and does not require an individual connection to the network. The charges for such a service could be significantly less than charges for a connection and line rental. BT is currently reviewing the trial data to find new ways of marketing the service.
3.11 Oftel is concerned about the level of customer disconnection for debt. BT's recent disconnection figures are now publicly available and indicate that around 60,000 customers are disconnected for debt each month. About 25,000 of these do not pay their outstanding bills shortly after disconnection and remain cut off from the network. There is considerable scope for reducing the need for disconnection of customers who "can't pay" (as opposed to those who "won't pay") by adopting a more flexible approach, with disconnection as an absolute last resort. Oftel expects BT to move swiftly to a policy of no disconnections for debt for customers with temporary payment difficulties, as opposed to cases of wilful fraud. In place of disconnections, Oftel would expect BT to offer "Outgoing Calls Barred" (OCB) service, which enables customers to receive incoming calls and also contact operator and emergency services. This OCB would remain in place until any outstanding debt had been repaid on a basis negotiated and agreed between BT and the customer. Oftel will in future be monitoring disconnection and churn rates across all relevant operators, as part of its universal service work.
3.12 Selective call barring offers customers a means of better controlling their household's telephone expenditure. This could cover long distance, international and/or premium rate calls of different types. In extreme cases, barring of all outgoing calls except emergency and operator calls and a small number of local "lifeline" numbers (such as a doctor, close relative, social worker) could prevent customers incurring further call charges but still allow them to remain on the network. Other ways of reducing the risk of customers accumulating costs which they cannot pay include a "Call Your Bill" facility, offering a free update on the size of the current bill and, in households where several people make calls, the use of PIN numbers to allow each user to be separately billed. Oftel is proposing that free selective call barring, and itemised billing, should in future be available to all customers on a universal basis (see Chapter 4).
3.13 As BT is still providing direct service to 95% of residential customers, Oftel would expect BT to respond positively and with vigour to the expressed demands of its residential customer base for more flexibility and choice and for a more customer service oriented approach to this market.
3.14 BT has stated that: "BT will continue to aim to provide good value for money for all its customers and specific support for those least able to pay. To this end BT is working to develop pricing plans which encourage network usage and the take-up of new services. Pricing plans will be designed to allow customers a choice of means by which they can more closely meet their needs within their budget. Specifically, BT might expect to be able to offer the following innovations:
3.15 The Consultative Document identified one of Oftel's aims as that of achieving a regulatory system which would "be compatible with progress towards the goal of efficient, free and competitive, multi-operator markets with minimal regulation and market-determined prices". Currently BT's retail tariff and its structure are constrained by, amongst other things, price controls - the overall RPI-7.5% cap, the RPI+0% sub-cap on individual prices other than line rental charges and the RPI+2% sub-cap on line rentals ("RPI+2%"). "Wholesale" line rentals, that is for lines used by a customer of BT to convey the messages of third parties for profit eg those connected to private call boxes, are subject to a separate cap of RPI+5%.
3.16 These price controls run until July 1997. The forthcoming price control review will assess what future controls on retail and conveyance prices will be needed beyond that. A first consultative document on this will be issued in December 1995.
3.17 Oftel considers, however, that the seriously distorting effect of RPI+2% on the regulatory regime needs to be addressed now in advance of the broader review of the overall price control arrangements. RPI+2% is intended to ensure that residential customers, particularly those with low call charges, do not experience a sharp increase in their bills (notwithstanding the overall RPI-7.5% price cap) as a result of BT adjusting the relative price levels of its retail calls and rental charges. This has, however, given rise to distortions which have had a harmful effect on both customers and other operators.
3.18 RPI+2% has left BT unable to recover the accounting costs of the access network through retail charges. This has led to the creation of ADCs which were intended to assist BT to recover the deficit from interconnection. The problems with ADCs were rehearsed in the December Document - their basis in fully-allocated costs, their complexity of administration and the uncertainty they create in the market place. They have become a major source of uncertainty for those considering investing in the UK telecommunications market.
3.19 Because RPI+2% has disturbed the relationship between retail prices and underlying costs, it also risks continuing distortion of competition by encouraging entry based on BT's retail tariff. To continue with ADCs would institutionalise a significant distortion of the market.
3.20 These distortions in the competitive market impact directly on other operators but ultimately, of course, such impediments to competition harm the interests of the customer as well as the competitor.
3.21 Lifting RPI+2% would be an important deregulatory step in its own right, drawing back from regulatory interference in the detailed structuring of BT's retail tariff.
3.22 BT is in favour of RPI+2% being lifted. It believes that it distorts competition by encouraging potentially inefficient entry in national and international calls and by discouraging infrastructure competition in the access network; and considers that use of BT's network is not maximised since all users pay too much for calls. BT is also concerned that there is a discontinuity between cost-based interconnect and non-cost based retail prices which gives rise to arbitrage opportunities for its competitors when the gap between the two is large. BT has argued for greater flexibility in Oftel's application of price cap rules in order to allow it to "rebalance within a range of customer choices" and in a customer-friendly way. BT argued that it should be allowed to focus future call price reductions under the price cap on "customers who have opted for rebalanced charging options" rather than such targeted cuts being treated as large user discounts.
3.23 Most of the other operators also supported the lifting of this provision, expressing the view that they did not believe that BT would make significant increases in its line rental if it were given the freedom to do so. A small number opposed such a move arguing that BT was still dominant in the access network and so would not be constrained by competitive forces from raising its line rental charge. Furthermore, the potential reduction in BT's national and international call charges could harm the competitive position of companies whose business plans had been based on the continued existence of the RPI+2% provision.
3.24 Consumer representatives saw that there were strong arguments for removing the provision but some were seriously concerned that certain residential customers could be worse off and supported some form of protection of total bill costs for such customers.
3.25 Having weighed carefully the responses to the consultation, Oftel's conclusion is to propose the abolition of RPI+2% (and RPI+5%) while introducing new safeguards for residential LUS customers. BT would have pricing freedom on its rental charges and any decision to under-recover fully allocated access costs from line rentals would be one of commercial policy. There would be no reason, therefore, to require BT's competitors to contribute towards any shortfall. Thus ADCs would become redundant, and Oftel consequently also proposes abolishing the system of ADC payments and waivers. Oftel expects this abolition to contribute to the creation of a transparent, predictable, fair and credible interconnection system in the UK which commands the confidence of all operators and will be to the benefit of customers.
3.26 Oftel expects that the removal of RPI+2% will bring benefits to BT's customers both indirectly as a result of improving the competitive operation of the UK telecoms market, and directly from a more customer-responsive range of tariff choices. The provision has, however, been a means of limiting the size of the total bill of some residential customers and Oftel needs to consider how some continuing protection could better be provided. If BT raises rentals it will need to reduce call prices substantially to meet the overall RPI-7.5% price cap. Those customers making a lot of calls will see their overall bills fall. Those making few calls could experience an increase in their overall bills. Oftel is concerned not only to safeguard the interests of those customers on the existing Light User Scheme (LUS) but those of all other residential customers who might face increases in excess of inflation in their overall bill. Under most scenarios this last group consists of the 20-30% of BT's customers who are moderate users of the telephone, making fewer calls than those whose overall bills will fall.
3.27 Given the downward pressure exerted by the RPI-7.5% price cap on all customers' bills, however, one-off increases in line rental charges would have to be very large before any group of customers experienced a significant real increase in their bill.
3.28 Furthermore, and as Oftel stated in the Consultative Document, it does not consider that it would be in BT's own interest to make a significant increase in line rental charges once RPI+2% had been lifted. BT did not dissent from Oftel's arguments and the responses to the Consultation Document from BT's competitors shared this view. Indeed, Oftel would expect BT's commercial response to having greater tariffing flexibility to be to ensure that no group of customers faces a real increase in their bills. There are a number of reasons why this makes business sense:
3.29 BT, in its response to the Consultative Document, describes "unbalanced" retail prices as a distortion which encourages competition to BT in trunk and international markets but discourages competition in local infrastructure. In respect of its customers, BT states that it "... would prefer not to re-balance at a pace and in a way which caused sudden or unwelcome increases in customers' bills ... Our preference is to avoid rapid rebalancing as it is not in the interests of all customers, and to opt for a more imaginative and customer focused migration of charges over time."
3.30 In subsequent discussions with Oftel, BT has clarified its position: "BT would prefer to see all of the matters related to the price control regime tackled together. However, BT has also argued for many years that aligning its prices more closely to the underlying costs makes a great deal of economic and practical sense. Therefore, if Oftel wish to press ahead with a change to the present rules, BT is willing to work with Oftel to agree a framework within which BT's pricing decisions would be beneficial to customers as a whole and lead to no significant real price increases for any major group of customers. With goodwill, we have high hopes that a way can be found to achieve this."
3.31 Oftel, in its analysis of the impact of abolishing RPI+2% has concluded that it would not be in BT's commercial interest to use any new tariffing freedom to increase in real terms the bills of any of its customers. This includes both moderate users and most of those currently on the LUS - BT has few uneconomic customers. This is, however, a judgement and BT could choose to act differently. Oftel aims to guarantee that LUS customers are fully protected. It intends to propose to BT amendments to the LUS Guidelines to ensure that, whatever increase in the standard line rental BT may introduce once RPI+2% is lifted, customers eligible for the Scheme would face no real increases in their bills for the same usage. The LUS formula (which currently offers a maximum rebate of 60% on the standard rental if no calls are made, with the rebate reducing as the call bill rises up to a maximum call bill of £10.80) would need to be changed to define the "no real increase in the overall bill" principle. This protection for the bottom one in five customers by usage would extend through to the end of the current price cap in July 1997.
3.32 In addition and as a matter of priority, Oftel proposes over the next twelve months to review the operation of the LUS as part of its work on universal service (see Chapter 4). In doing so, Oftel would expect BT to instigate research to gather robust data on LUS customers in order to enable Oftel to reach decisions on the future of the Scheme.
3.33 Oftel's objective in this review would be to identify the extent to which the LUS, and other service/tariff packages introduced or planned by BT and other operators, succeeded in ensuring all customers reasonably requesting access to basic voice telephony could get it on affordable terms. Should it prove necessary, Oftel would seek to ensure an appropriate replacement scheme, or a revised LUS, was in place to achieve this objective from August 1997.
3.34 BT has indicated that were it to introduce packages for low and moderate users at a discount to a new restructured tariff in order to mitigate the effects of higher standard line rentals, it would expect to be allowed to count the cost of these discount packages towards the overall price reductions required by RPI-7.5%. Currently, discounted prices necessitated by the LUS are the only discounts that count towards price cap reductions.
3.35 In discussions with Oftel since the end of the consultation period, BT has made it clear that if parts of the present price cap package are to be changed in advance of the forthcoming overall review then the mid-term changes should not disadvantage BT. Otherwise the changes would be equivalent to tightening the price cap. BT has specifically set out four conditions on which it would need to be satisfied if changes were to be acceptable:
3.36 Oftel agrees that changes to the price control arrangements have to be considered with great caution. Its aim is to ensure that, if it lifts RPI+2%, not only is the position of customers on the LUS safeguarded, but also that the effect of the change on BT's overall commercial position is broadly neutral. This means taking into account not only the effect on the 1993 price control agreement but also broader changes in BT's competitive and financial position which may result from the change. Assessing the impact of the various factors on BT's position inevitably involves a considerable element of judgement but Oftel considers that lifting RPI+2% in the following conditions will achieve its aim.
3.37 Oftel proposes to lift RPI+2% and not to alter the current price cap rules under which only the discounts of the current LUS are allowed against the price reductions required under the price cap. Any additional discounts BT wishes to introduce for moderate users, or any increase in the cost of the LUS resulting from increases in line rental charges, would not be eligible. Oftel will, however, allow BT to count these discount packages towards the Discount Yield (the amount of revenue it must give away in discounts each year if the price cap is not to be tightened). The implications of how Oftel proposes to treat protective discounts are, broadly, that by excluding them from the main basket, call charges for all customers will need to fall further than they would have done if the discounts were included - so all customers benefit; allowing BT to count packages as part of the Discount Yield will moderate BT's ability to focus price cuts on discounts to high users.
3.38 The mechanics of the price cap arithmetic and the rules governing the regulatory treatment of discounts are complex and explored more fully in Annex A. It should finally be noted that Oftel is not proposing any change to the RPI+0% sub-cap on increases in individual Condition 24A General Prices.
3.39 In assessing the impact of lifting RPI+2% under these conditions on BT's commercial position Oftel has taken into account:
3.40 Oftel believes that the importance of the reduced call charges and greater tariffing freedom this change would give BT together with the degree to which its competitiveness towards profitable large users would be enhanced are such as to outweigh the loss of ADC receipts, accounting rate payments or reduced competitiveness on access. Oftel judges that the impact on BT's overall commercial position would be broadly neutral.
3.41 Oftel therefore intends to introduce licence modifications:
Annex B sets out draft licence modifications and proposed amended LUS Guidelines as a basis for informal consultation. Any comments on these proposals should reach Oftel by 15 September 1995. See inside front cover for full details.
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4.1 In the Consultative Document Oftel asked the following questions:
4.2 Oftel has analysed the responses made, both during the public meetings held and in written responses from the industry and from consumer representatives. Oftel has also taken account of the further research it commissioned on the cost of universal service and funding options ( The Costs, Benefits and Funding of Universal Service in the UK), which is being separately published by Oftel alongside this statement. Oftel's conclusions and proposals are set out below.
4.3 Without exception all respondents including licensed operators, service providers, voluntary bodies, local authorities and other public agencies supported the universal service policy principles put forward in the consultative document. These were:
4.4 Oftel therefore proposes that the definition of universal service in the UK should be:
"Affordable access to basic voice telephony (or its equivalent) for all those reasonably requesting it regardless of where they live"
The different elements of this definition and its implications are discussed further below. Oftel intends to amplify this definition in more detail, in consultation with others, over the coming months.
4.5 Oftel recognises the importance of ensuring that access to basic phone service is available to customers in remote rural areas on the same terms as it is to customers elsewhere. It therefore proposes no changes in the principle of geographic averaging of BT's prices for basic voice telephony, and intends to maintain this principle if the level of universal service is upgraded in future.
4.6 Respondents were unanimous in their support for the need for service to be affordable for existing and potential new customers. With a penetration level of just over 90%, and one and half million householders still waiting to be satisfied with access to affordable telephony, respondents wished to see measures introduced to better help people take up service in the first place, and manage their costs once they were on the network. However, any move towards means testing was largely rejected, because of 'poverty trap' and administrative difficulties, and because many of the measures that could help make service affordable (eg selective call barring, usage limits, reduced up front charges, and choice of service tariff packages) would be welcomed by the majority of residential customers, and would be introduced by operators on commercial grounds.
4.7 Oftel proposes to take action on a number of fronts. Firstly, access on request to full selective call barring and itemised billing, to help customers manage their phone costs, are included in the definition of basic telephone service. Secondly, Oftel is encouraging other measures to reduce the need for fixed, up-front charges such as deposits and connection charges. Thirdly, Oftel plans to take vigorous action with operators aimed at bringing outright disconnections to an end, unless for wilful fraud. Disconnection of service would be replaced by "outgoing calls barred", with service limited to incoming calls, access to 999, operator service and possibly a "lifeline" local number only. Fourthly, more varied service and tariff packages are being actively encouraged. Finally, the Light User Scheme is to remain up until 1997 and will give firm protection to the bottom one in five customers by usage. Oftel recognises that the targeting of protection to better help customers with affordability difficulties could be improved. It therefore plans to urgently review the Light User Scheme as part of its programme of work on universal service delivery, so new arrangements can be in place from 1997.
4.8 Oftel does not believe it is possible to specify in detail the meaning of 'affordable' and 'reasonable' in the universal service definition. What is affordable to one person may not be affordable to another. And affordability for any customer can change over time. Oftel believes the test of success in achieving universal service policy will be demonstrable improvements in penetration levels. Oftel therefore proposes to carry out close monitoring of penetration, and of levels of churn (ie people coming off the network, for whatever reason). Oftel will also commission customer research and take other steps to maximise feedback and ensure customer interests are fully represented.
4.9 Not one respondent dissented from the principle of functional equivalence for access - so customers with special needs can get access to services which perform an equivalent function to those enjoyed more generally by other customers. It was felt that an upper limit, or test of what provision was 'reasonable', should be applied to the concept of functional equivalence, as meeting all rather than most needs may have serious cost implications.
4.10 Oftel proposes to have detailed discussions with groups representing the interests of customers with special needs and disabilities in the autumn, to ensure that the universal service definition can be developed in enough detail to enable affordable access to meet their needs. This can proceed in parallel with implementation proposals for the Disability Bill which is expected to receive royal assent shortly.
4.11 Respondents' views were also sought on the appropriate level for universal service in the UK for now and for the next few years. Five possible service levels were put forward:
4.12 Over 90% of respondents thought the level of basic telephone service universally available in the UK should be individual access to the telecommunications network via exchanges capable of offering touchtone dialling, fast call setup, itemised billing, selective call barring, and other services now available via digital technology.
4.13 Oftel therefore proposes that "basic voice telephony" should be defined as:
Individual access to the telecommunications network via switches capable of providing voice telephony, with free services of itemised billing and selective call barring, and some supplementary services available (such as call diversion and call waiting).
BT and Kingston Communications (KC) are now able to offer this level of service to customers in their respective areas of operation throughout the UK, although universal access to free selective call barring is not currently offered.
4.14 Universal service is essentially about offering all consumers a common (or equivalent) level of service. It has been suggested that this is not necessarily the only way to view the telecommunications needs of society. Why not include services aimed at specific economic or social goals? The goal that is most discussed is to inform, educate and train people to cope with and exploit the new information age. If everyone cannot have access to a higher level of universal service, could not schools, colleges, universities, libraries and training centres?
4.15 Oftel considers that such an approach is possible within the proposed framework for defining, costing and funding universal service, and wishes to consult with interested parties on how this new direction for universal service should be handled. Preliminary views are that educational, training and certain other public service organisations should have a right to be connected to affordable ISDN or wideband service levels. This is an obligation similar to the commitment given to schools by the Cable Communications Association on behalf of its members. However, while educational establishments are known to welcome free or low cost connection, key issues for them are affordability and predictability of usage charges and access to relevant services. Achieving real educational value will also call for suitable equipment (raising obvious budgetary issues) as well as well-balanced, educationally relevant services and materials for pupils, students and others in the education sector.
4.16 Oftel, in association with the DTI, the Department for Education and Employment (DEE) and other relevant Departments, intends to prompt the industry to engage in more pilot projects and to learn from existing trials and applications, with a view to preparing detailed, costed proposals for implementation. This will build on valuable work already in hand: for example, the DEE's Superhighways in Education consultative exercise and resulting pilot studies, and the DTI's 'Schools Online' project which encourages businesses to 'adopt' local schools and held them connect to the Internet for educational purposes.
4.17 Most respondents recognised that it was important to monitor universal service delivery to ensure that policy objectives, especially affordability, were being achieved. Oftel's proposals are set out in paragraph 4.8. Oftel intends to publish the results regularly in its Annual Report.
4.18 It was also widely felt that in a fast moving market place, driven by rapidly developing technological capabilities and the development of competition, it would be important to keep the level of universal service under close review. This point will be emphasised in Oftel's forthcoming consultative document Beyond the Telephone, the Television and the PC. A review mechanism would ensure that, as new levels of service became commercially available and penetrated different market sectors, if they reached a point when unacceptable social and economic disadvantage was placed on customers lacking access to those services, then the universal service level could be upgraded accordingly.
4.19 Oftel recognises that the level and scope of universal service for telecommunications is a matter of broad public interest. Many have legitimate concerns in this policy area: it is not a matter solely for Oftel. There is a need to bring these interests together, and to co-ordinate policy development and implementation. Were Oftel to perform this role then the Director General would need to consult widely with consumer representatives, with the industry, and with the relevant Ministers, before any proposals for change were envisaged. Because of this, there may be merit in setting up a broadly based Advisory Group to which the Director General would remit specific tasks. These could include review of the universal service level; development of projects; and monitoring the effectiveness of universal service delivery. Oftel would be interested in respondents' views on this possibility. Were such a group to be set up it would be in addition to full public consultation for any proposals for change.
4.20 The results of the Stage I Universal Service Costing Study commissioned by Oftel were published in the Consultative Document. They indicated that the cost of current universal service provision by BT, to serve uneconomic customers and uneconomic areas, fell within the range £50m-£120 m. This was before account was taken of any benefits accruing to BT because it was the universal service provider.
4.21 Further work on the net cost of BT's and KC's universal service provision has now been completed. This work has still not been able to reach firm conclusions on universal service costs. This is because BT and KC have been unable to provide the necessary data, disaggregated by customer type and location especially in respect of incoming call revenue. The consultants therefore had to base their estimates on a number of assumptions. A full report of the methodology and findings of the study ( The Costs, Benefits and Funding of Universal Service in the UK) is being published separately and is available on the Internet at http://www.analysys.co.uk./oftel/. It followed a similar approach for assessing universal service costs as the Stage I study - using long run avoidable costs. It also sought to quantify the benefits to operators of being the universal service provider. These include corporate reputation, marketing and brand recognition, ubiquity, and lifecycle effects. For example, BT's corporate reputation with customers, shareholders and the government benefits from its position as a universal service provider. Universal provision of public payphones has a marketing and brand value, and also a ubiquity value. Lifecycle effects mean that although customers may be 'unprofitable' at any point in time, it is often in a company's commercial interests to retain their custom in order to keep alive opportunities to sell them services in the future. The study also assessed the possible costs of a number of alternative universal service scenarios, and investigated universal service funding issues.
4.22 The results of the study indicate that around 10% of BT's and KC's customers and areas served, taken together, may be 'uneconomic' to serve on strict financial grounds, before account is taken of any benefits. The gross cost of service to these customers and areas was found to be around £58m-£89m. Oftel would expect these costs to be lower once the relationship between incoming and outgoing call revenues for different groups of customers has been fully researched. The net costs, once benefits have been taken into account, of serving the uneconomic customers and uneconomic areas that a commercial operator would choose not to serve, fell within the range £4m-£40m. Oftel believes that this quantification of net costs may be an overestimate. For other possible components of universal service - public payphones and services for people with disabilities - the costs net of benefits could be as low as zero, but in any case no higher than £22m. The work on alternative universal service scenarios was limited, but indicated some reduction in costs resulting from improved efficiency and use of alternative technology; some increases from increased penetration; and very significant increases (based on current costs) from upgrading the universal service level to ISDN.
4.23 Oftel has asked BT and KC to put the necessary systems in place to ensure that data is collected to enable more accurate universal service costing, as a matter of urgency. Until such data is available, however, Oftel is unable to come to any precise conclusions about universal service net cost, but has concluded that it is currently de minimis for the operators concerned.
4.24 On the basis of the information currently available, it would appear that the net cost of universal service provision at present is low and tending towards zero. In principle Oftel believes that even if the overall universal service costs are small, they should be funded by the industry as a whole on a fair, transparent and proportional basis. These principles commanded widespread support during the consultation. There was general agreement that industry funding was appropriate, in view of the fact that all telecommunications users benefit from the increased scope of infrastructure in place as a result of universal service. There was also general support in principle for the setting up of a universal service fund (USF), rather than the alternative approach of funding via interconnection charges. This latter approach lacks transparency and has a number of other disadvantages.
4.25 Before effective arrangements for setting up universal service funding can be introduced, a number of issues need to be resolved. These include:
These issues (apart from 'pay or play', which was outside the terms of reference) are explained in some detail in the published study, which recommends funding via a universal service fund of any residual costs borne by operators of serving customers they would not serve voluntarily in a competitive market. The study recommends that funding contributions be made by public fixed link, cable, local delivery, cellular, PCN and ISR operators on the basis of their systems business revenues less certain exclusions, and subject to a net revenue threshold.
4.26 Oftel was encouraged by the overall positive response to the possibilities of 'Pay or Play' or of competitive franchising for elements of universal service delivery in future. Oftel will be taking discussion forward on these issues in the autumn, alongside general funding considerations.
4.27 Oftel hopes that the publication of the study's findings will stimulate debate on these issues. Oftel requests comments from licensed operators and others with an interest in universal service funding and delivery by 22 September (addressed to Christine Farnish at Oftel). Oftel plans to work up detailed proposals for future universal service funding and delivery during the autumn. A Consultation Paper outlining the proposed new arrangements will be issued in December, for consideration by consumer interests and by the industry. Subject to responses on this document more detailed proposals, together with draft licence conditions, will be published in April for consultation, with a view to reaching agreement on future universal service funding and delivery arrangements by June 1996. These arrangements would be brought into effect no later than August 1997.
4.28 This approach will allow arrangements in the UK to develop in line with thinking at a European level. It will also enable requisite data collection systems to be put in hand by BT and KC. It is important, however, that BT and KC continue to carry the obligation to provide universal service until the new arrangements are in place. Condition 19 in BT's licence and Condition 18 in KC's licence would still stand. Oftel would, however, expect to follow the approach outlined in the universal service costing study for the purpose of evaluating the extent of any costs or losses incurred in providing universal service, and in the determination of any access charges under these licence conditions.
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5.1 Oftel wants to consult further as part of the price control review on its proposals for a new interconnection charging regime. There will be a workshop on this on 20 October 1995. Further details will be available in September. It would be helpful if comments on this section could be sent to Oftel by end September 1995 so as to inform the discussion at the workshop.
5.2 Oftel endorses a move to incremental costs as the basis for interconnection charges. It is now down to the industry and Oftel in the ICAS Task 19 Groups to come up with an acceptable methodology. This must be done in the next few months if incremental costs are to be the basis of costing for the forthcoming price control review.
5.3 Oftel proposes that the new interconnection regime should be introduced in 1997 in parallel with the new price control arrangements. Charges for BT call termination services - which Oftel considers to cover call completion via a digital local exchange or digital main switching unit - would continue to be set by Oftel, although not necessarily redetermined annually (they might instead be subject to an annual indexation). They would be based on incremental costs plus an equal mark-up. There may be a need for Oftel to determine call termination rates for all operators. Charges for competitive network services would not be set by Oftel. Charges for other services would be set by BT subject to constraints: the charge for each service would have to lie between the incremental cost of the service and the stand-alone cost; in addition interconnection charges would be subject to a network price cap.
5.4 In determining total interconnection costs (which would be the starting point for developing price control proposals) Oftel would take the incremental cost of interconnection derived from the (to be agreed) Task 19 methodology and would add to this a share of the common costs. These common costs would be apportioned using an equal mark-up approach, that is in direct proportion to the incremental costs derived from the agreed methodology for interconnection and access.
5.5 The price control review will address the issue of an efficiency adjustment. The development of the new interconnection methodology will address the issue of excluding inappropriate costs from interconnection. Oftel will revisit the issue of whether further powers are needed to exclude costs from interconnection charges as the new methodology is clarified.
5.6 Effective Competition is the yardstick by which Oftel will determine whether detailed regulation can be rolled back. Oftel has started a dialogue with the industry on market developments to the end of the century. This will be taken forward as part of the price control review and will be a permanent, on-going exercise.
5.7 Oftel will press ahead with dismantling barriers to market entry which derive from BT's historic ownership of certain network and numbering operations. Oftel does not see any advantage in tying dismantling of barriers to discounted interconnection charges: it would be too complex. Nor does Oftel see any need for continuing blanket reductions from interconnection charges after 1997.
5.8 Oftel wants to consider with BT and the rest of the industry whether specific incentives might be used to encourage BT to operate in line with promoting the objectives of effective competition. BT also needs to adopt a more responsive approach to regulatory concerns.
5.9 Oftel expects BT to introduce a greater choice of service/tariff packages, to meet residential customers' needs, to encourage new customers onto the network and to help people manage their telephony costs. Options include "spread" connection with costs recovered through other charges; fixed sum packages covering rental and specified volume of calls; "pay as you go"; usage limits to avoid the need for deposits from new customers; flexible measures such as selective call barring to reduce the need for disconnection; discounted access charges to multi-tenanted buildings; and public voice mailboxes.
5.10 Oftel proposes to abolish the RPI+2% constraint on increases in BT's exchange line rental charges (and the RPI+5% cap on wholesale line rentals). It does not believe that it would be in BT's own commercial best interest to make significant increases in exchange line rental charges. Oftel proposes, however, amending BT's LUS Guidelines to ensure that LUS customers (the bottom 20% by bill size) face no real increases in their overall phone bills (for the same usage). Oftel will also review the scheme, assisted by BT research data, with the aim of having new arrangements in place from August 1997.
5.11 As a result of lifting the RPI+2% provision, Oftel also proposes to abolish ADCs and ensure that all discounts, not just those to large users, can count towards the Discount Yield. The draft modifications to BT's licence and the LUS Guidelines necessary to effect these changes are contained in Annex B and comments are invited by 15 September 1995.
5.12 Oftel proposes that the current level of universal service should be basic voice telephony (or its equivalent) with free services of itemised billing and selective call barring available. There may be benefits in providing the education sector with a higher lever of service. As the market develops, with technological progress and increasing competition, this level will need to be reviewed, and perhaps upgraded when it appears that customers without more advanced services are being disadvantaged unduly.
5.13 Costing the universal service has not proved straight-forward, as BT and Kingston Communications (KC) lack some of the data which would enable a definitive cost to be established. Latest figures for the net cost of serving uneconomic customers and uneconomic areas, after deducting the benefits that the universal service provider derives, are in the range of £4m-£40m. Oftel has asked BT and KC to gather additional data urgently so that a more accurate figure can be worked out.
5.14 Oftel considers, in principle, that universal service should be funded by the industry on a transparent and proportional basis. A universal service fund could enable service to be delivered to customers whom operators would not serve on a commercial basis. Other means of providing universal service, which Oftel will be exploring further in the autumn, include 'pay or play' or competitive franchising. A Consultation Document will be issued in December with draft licence conditions to be produced in spring 1996, for implementation by August 1997. In the meantime BT and KC will carry the obligation to provide universal service.
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6.1 Oftel is committed to a competition policy which has the interest of consumers as its primary focus and which therefore stimulates efficient, free and competitive, multi-operator markets. Oftel believes that this policy should have a direct effect on the conduct and philosophy of participants in this industry without imposing unnecessary administrative burdens.
6.2 The responses to the Consultative Document revealed a widespread dissatisfaction with the effectiveness of the current regime in dealing with various forms of anti-competitive behaviour in the telecommunications market. Only BT felt that existing controls were adequate. In particular there was concern about:
6.3 Many of the responses expressed the view that the scope of the consultation, by excluding the possibility of legislative change, was too limited. Many respondents called for new legislation to provide enhanced enforcement powers, including injunctive remedies for Oftel and for third parties; penalties and damages for abuse of a dominant position; and an increased ability to obtain information, if necessary through search and seizure powers. All these steps would require primary legislation.
6.4 Suggestions were also made for more speedy and robust use of Oftel's current powers, including the introduction of a new general condition on anti-competitive behaviour. Oftel agrees that steps can be taken to improve its effectiveness in dealing with anti-competitive behaviour within the current legislative framework set-out in the Telecommunications Act.
6.5 Even more than in the past, and due to the nature of the telecommunications market, Oftel is having to deal with a wide and increasingly complex range of new issues, with new forms of potentially anti-competitive behaviour, and with the need to react flexibly and fast to new problems. In consequence, Oftel is to strengthen its enforcement methods and procedures against anti-competitive behaviour within the framework of its existing powers under the Telecommunications Act. However, this alone is not enough. In Oftel's view a new condition on anti-competitive behaviour will assist this process. If the above steps prove to be insufficient to enable Oftel to promote effective competition in the telecommunications market, Oftel will recommend that Government should review the need for legislative change.
6.6 This chapter sets out how Oftel proposes to strengthen its enforcement methods and procedures using existing powers and to introduce a new general condition on anti-competitive behaviour.
6.7 Oftel has reviewed its methods and procedures for dealing with cases of alleged anti-competitive behaviour and is to strengthen them in a number of respects in order to achieve improved efficiency and effectiveness.
Internal Resources and Procedures
6.8 Enforcement casework has grown considerably over the last 18 months. The multi-operator environment which has developed following the end of the BT/Mercury duopoly is resulting in more cases in which fair trading issues arise. The increasingly competitive marketplace has stimulated competitive responses and, in turn, concerns as to predatory pricing, undue discrimination, unfair cross-subsidy and similar phenomena.
6.9 Oftel sees enforcement casework as a major internal priority requiring increased commitment. It is strengthening the resources devoted to this work and will keep those resources under continuing review. It is also improving its internal decision-taking arrangements and management information systems.
Transparency
6.10 To date Oftel has considered a substantial number of cases of possible breaches of licences issued to telecommunications operators. In many cases, it has secured remedial action on the part of the operator about whose conduct the complaint has been made. In a few cases, the complaints made, the conclusions reached, and the remedial action taken, have been publicised. However, it has not been Oftel's general practice to make the results of its actions publicly known. In most cases, therefore, the case and its outcome have been known only to Oftel, the operator concerned and any other party involved (usually the complainant).
6.11 Oftel now proposes to move to greater transparency of its enforcement and fair trading casework. It proposes to do so because:
6.12 Oftel will shortly consult on specific proposals for greater transparency in the field of enforcement. It will propose that Oftel:
Guide to Licence and Fair Trading Enforcement
6.13 Oftel has a statutory duty under Section 16 of the Telecommunications Act to secure compliance with licences issued by the Secretary of State. This duty applies to all licence conditions. There are currently 60 operator licences. BT's licence contains 76 conditions, Mercury's 60. Even a so-called "slimline" licence typically contains some 25 conditions.
6.14 In practice, the great majority of enforcement activity at present relates to BT. Some relates to Mercury. A small proportion relates to other operators. This reflects the differences in market power. The bulk of enforcement activity in relation to BT on matters of fair trading in practice falls under a small number of BT's licence conditions, such as Conditions 13 (interconnection), 16 (publication of charges, etc), 17 (undue preference and discrimination), 18 (cross-subsidies), and 20B (separate accounts). Oftel considers that it will assist its enforcement effort to issue a booklet which identifies the main licence conditions which, experience suggests, are relevant to the fair trading concerns which arise in a competitive market, describes the purpose and implications of those conditions, and indicates the kinds of conduct which have resulted, or in Oftel's view, are likely to result, in action by Oftel. The guide will also cover the use of provisional and final enforcement orders under the Telecommunications Act 1984.
6.15 Oftel proposes further, in the same guide, to describe the provisions of the Fair Trading Act 1973 and the Competition Act 1980 (as amended by the Deregulation and Contracting Out Act 1994) under which the Director has concurrent jurisdiction with the Director General of Fair Trading.
6.16 Oftel considers that this guide will promote better understanding of the specific legislative context in which it operates, the legal powers available to it and the purposes for which they may be used, thereby enhancing the clarity and certainty of the licensing regime.
Complaints to Oftel
6.17 In January 1995, Oftel published Doing Business with Oftel. This was intended to give readers the information necessary to approach Oftel in the most effective and efficient way. In this booklet, Oftel briefly summarised the legislative framework within which it operates, including the powers available to it. It gave (in paragraphs 4.4 and 4.5) guidance as to how complaints could best be formulated to help Oftel deal with them quickly. However, complaints to Oftel still typically contain only very cursory information.
6.18 Oftel remains of the view that it is reasonable to look to complainants, most of whom are sophisticated corporate entities, to put a reasoned, informative case to Oftel at the outset. This will help the speedy handling of a case, by assisting Oftel focus on the real matters of concern. Moreover, Oftel considers it reasonable for the target of a complaint to expect Oftel to act in a focused manner, to seek information only as necessary for the purposes of a thorough investigation, and to have a clear understanding at the outset of the grounds for concern.
6.19 Oftel accordingly proposes to incorporate in the booklet referred to in paragraph 6.14 above more detailed guidance as to how a complaint should be made.
6.20 Oftel is also meeting with licensees to explain directly to them how its enforcement activities are conducted, so that licensees better understand Oftel's internal procedures and are able to bear them in mind in making or responding to a complaint.
Systemic Issues
6.21 Although Oftel's enforcement effort is largely directed at particular cases, there is a continuing interaction between casework and policy. A number of cases can and do arise which raise the same policy question. Oftel is addressing a number of such systemic issues at present.
6.22 In Autumn 1995 Oftel will issue consultation papers, in some cases with proposals for licence modifications, on the following topics, each of which has been the subject of several cases brought to Oftel's attention:
6.23 Oftel is also pursuing other areas which have given rise to general concerns, such as the time taken for, and the difficulties that have arisen in, the negotiation between BT and other operators of interconnection agreements for new services.
6.24 Oftel considers that the steps set out above strengthening Oftel's procedures of licence enforcement are necessary but not sufficient to deal with the problems highlighted in the responses to the Consultative Document. There was a general view that there were gaps in the existing conditions of licences, particularly that of BT. In other words there are, and are increasingly likely to be, types of anti-competitive behaviour - such as predatory pricing, collusive activity, refusal to supply - which, however effective Oftel's existing enforcement procedures, would not be caught effectively by the licence condition on undue discrimination and other "fair trading" conditions.
6.25 Due to the complex nature of the telecommunications market and the practices to be controlled in that market, it is very difficult to draft detailed "behaviour specific" licence conditions to deal with all possible manifestations of anti-competitive