July 1998
Information collected and information published
Annex I - Liberalised and potentially Liberalised routes
1 Oftel published a Consultative Document, The Collection and Publication by Oftel of Information on the International Market, on 9 September 1997 setting out initial proposals on this subject. This statement sets out Oftel’s policy in the light of the responses which were received.
2 Oftel will collect and publish information quarterly on the volume of calls carried between the UK and overseas and on the prices agreed between operators for the termination of international calls. These rates are known as the “settlement rates” and, generally, they are half of the relevant “accounting rate”. Throughout this Statement the term “accounting rates” is used generically to refer to the charges paid by an originating operator to a terminating operator for carrying international calls.
3 The only substantive change to the September proposal is that the accounting rates for operators without significant market power on a given route will not be published when that route has been liberalised, or is expected to be liberalised shortly. This change reflects Oftel’s view that, since such operators are unlikely to be able to affect adversely the market on these routes, publication of their accounting rates would restrict and not increase their ability to compete actively.
4 Since January 1997 telecommunications operators have been able to provide international call services under an International Facilities Licence (IFL). This liberalisation (together with similar moves throughout the EU and the rest of the world) is delivering huge benefits to consumers through an increased choice of suppliers and cheaper calls. During the transition from a market where entry is severely restricted to a fully competitive one, some operators will retain a degree of market power. Until such markets become fully competitive a degree of regulation and monitoring is needed.
5 The UK market is completely liberalised, and Oftel is working to ensure that any remaining barriers to entry are reduced. Thus, the development of full competition on routes to and from the UK is now largely dependent on progress on liberalisation overseas. As liberalisation has become the subject of international agreements involving many countries, rather than the result of individual governments’ actions in a few countries, we can have more confidence that full competition will develop in those countries.
6 Oftel monitors the development of competition on all routes in terms of volumes, prices and market shares. This is necessary both to enforce rules that require this information and to identify potential problems. As each route can be thought of as a separate market for some purposes, this monitoring function requires collecting information separately for each route.
7 For information to be useful it has to be up to date. Quarterly collection of information is a reasonable balance between the need for up to date information, and Oftel’s desire not to overburden the industry.
8 BT, CWC, France Telecom, a representative group of OLOs (Other Licensed Operators) (AT&T, MFS, Energis, Scottish Telecom, Telia, ACC ,Global One, Eurobell, NTL and Racal Telecom) and Long Distance International Ltd all commented on the Consultative Document.
9 In its response BT argued for the publication of traffic information for the larger operators on each route, to monitor anomalous traffic flows. In Oftel’s view publication of the total traffic volumes will allow operators to monitor the market effectively. It is felt that the benefit gained by publishing individual operators’ information does not outweigh considerations of commercial confidentiality.
10 The OLO group argued against publication of any accounting rates. They stated that even on routes which are currently uncompetitive they could introduce an element of competition to the benefit of UK customers, and that the publication of accounting rates could stifle this extra competition. However, Oftel considers that there is a danger that, in the absence of publication, dominant far-end operators may be able to exploit their position by routing all traffic from their countries to the UK through one of their own subsidiaries (“one-way bypass”) or forcing competing UK operators to agree changes in settlement rates which benefit the dominant operator to the UK’s disadvantage (“whipsawing”). Oftel considers that on balance, the risk of accounting rates being manipulated in these ways outweighs the potential benefits of increased competition through not publishing this information.
11 France Telecom stated that the level of accounting rates is a purely commercial matter between operators and that commercial confidentiality requires that these rates should not be published. Oftel, though, takes the view that the principles of transparency, non-discrimination and equality of access should apply to all operators with significant market power (see also the EU Interconnection Directive 97/33/EC). Where, then, operators retain significant market power despite growing liberalisation measures such as publication of accounting rates (which would not be necessary in a completely competitive market) are justified.
12 CWC, while acknowledging the potential benefits of publishing accounting rates, felt that this should apply either to all operators or to none at all so as not to discriminate against some operators. Oftel considers that the using the WEIO test (see Glossary) to decide whether to publish an accounting rate would be reasonable. Oftel proposes to impose minimal regulation, only requiring publication for those operators who could adversely affect the market. If CWC no longer has market power on certain routes, Oftel will remove its WEIO status on those routes, as has already happened on the US route. The Consultative Document set out Oftel’s plans bearing in mind the need to balance openness and transparency with commercial confidentiality.
13 Publication of information by Oftel has three purposes. First, it reduces the information asymmetry between the incumbent(s) and new entrants, reducing the uncertainty for potential entrants and thus accelerating the development of competition.
14 Secondly, the publication of price information acts to make it more difficult for dominant operators to engage in anti-competitive practices. Detection of unfair discrimination, one-way bypass and whipsawing (as explained at paragraph 10), for example, becomes much easier when data as to traffic volumes and accounting rates are published. Oftel will publish information on accounting rates agreed with dominant overseas operators even when they are dealing with UK operators who do not have market power on the route. Moreover, rates for UK operators who continue to have a degree of market power even on liberalised routes will be published in order to prevent or detect any anti-competitive abuses of that power. This situation will be kept under review.
15 The third reason for publishing information is to enable UK operators to help identify potentially anti-competitive behaviour themselves. One corollary of the trend towards liberalisation is that regulation, even where applied to countries with monopoly operators, becomes more difficult to enforce. Monitoring by Oftel may only identify ‘first order’ abuses, with other more subtle abuses slipping through the regulatory net. The publication of information enables operators to potentially identify some ‘second order’ abuses which involve rerouting of traffic.
Information collected and information published
16 Every quarter, Oftel will collect information for each route/country on the volume of calls, in call minutes, switched by the IFL operators into and out of the UK. In addition, information will be collected on the accounting rates agreed between UK operators and operators overseas. Information will also be collected on any other agreements between UK and overseas operators for the delivery of UK originated traffic overseas and the termination of overseas traffic in the UK.
17 Oftel will apply different publication rules depending on whether the route is competitive or has the potential to be competitive. Annex 1 contains a list of countries which Oftel considers allow alternative operators to compete with the incumbent (“Liberalised and Potentially Liberalised Routes”). The list has been drawn up after consideration of the possibility of bypassing the accounting rate system, whether by resale or self-termination of calls, on those routes.
Liberalised and Potentially Liberalised Routes
Traffic Flows
18 For each route listed at Annex 1, Oftel will publish aggregate figures for all operators, for the volume of inbound and outbound traffic. Oftel will not publish traffic information for individual operators (although no attempt will be made to avoid disclosure where an individual operator has a large share of traffic on a route).
Accounting Rates
19 Except as stated at paragraph 20 below, Oftel will not publish accounting rates or other agreements between UK and overseas operators.
20 Oftel will continue to publish all accounting rates for BT, and for all WEIO operators on each route.
Traffic Flows
21 For each route or country not listed at Annex 1, Oftel will publish aggregate figures for all operators, for the volume of inbound and outbound traffic. Oftel will not publish traffic information for individual operators (although no attempt will be made to avoid disclosure where an individual operator has a large share of traffic on a route).
Accounting Rates
22 Oftel will also publish all accounting rates or other agreements between UK operators and the operators at the far end of the route in order to identify any anti-competitive abuses and to deter future anti-competitive agreements.
Liberalised and potentially Liberalised routes
1. Australia
2. Bermuda
3. Canada
4. Chile
5. Dominican Republic
6. El Salvador
7. The Countries of the European Union
8. Guatemala
9. Iceland
10. Israel
11. Japan
12. South Korea
13. Liechtenstein
14. Malaysia
15. Mexico
16. New Zealand
17. Norway
18. Philippines
19. Switzerland
20. USA
CWC – Cable and Wireless Communications Ltd (the company which holds the Mercury licence).
IFL – International Facilities Licence. An individual licence granted to an operator to enable it to provide international telecommunications facilitites.
Incumbent – The incumbent operator is the dominant operator in any given country - usually the state-owned, or formerly state-owned monopoly provider of telecommunications services.
OLO – Other Licenced Operator. The group of telecoms operators who are licenced to provide an international telecommunications service other than BT and CWC.
WEIO – “Well Established International Operator”. This is a test for market power whereby an operator has control over either:
Currently CWC (through their Mercury licence) has been designated as having WEIO status on all routes except the USA for all services, and Canada and Germany for retail services. Its WEIO status is currently under review.
