Foreword and Consultation details
Chapter 3: Criteria for Evaluating Options
Chapter 4: Market Distortions and Prospects for Liberalisation
Chapter 5: Evaluation of Options for IDD and Conclusions
In my statement on Interconnect Charges for International Direct Dialled Calls issued on 3 October 1995 I undertook to issue a consultation document on this subject. This Consultation Document discharges that undertaking.
Don Cruickshank.
Representations should be sent to:
Peter Davies
Oftel
50 Ludgate Hill
LONDON EC4M 7JJ
All Representations 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. Any confidential material should be sent to Oftel by ordinary mail, not via the Internet.
Representations are to be received by 15 February 1996. After this a second stage "period for review" will take place. This period is intended to allow parties to make comments on the first stage Representations. Any second Representations are to be received (at the same address) by
29 February 1996 (NB: this is a shorter period than Oftel normally gives for consultations of significance. Oftel believes that comments are required within this timescale to enable conclusions to be reached and the current uncertainty about future arrangements on IDD and related matters to be resolved by April 1996).
Comments (provided they are relatively short) can be sent to Oftel by filling in the Form on the Web pages or by sending them to the e-mail address:
press.office.oftel@gtnet.gov.uk
Oftel intends to set up links between this Consultative Document on Oftel's Web pages and responses placed on respondents' own Internet pages. Please contact Mary-Ann Auckland at Oftel on 0171 634 8751 to organise this.
1.1 The Director General has been asked to determine, under Condition 13 of BT's licence, its interconnection charges for International Direct Dialled calls (IDD) from the UK. The Director General has proposed that the basis of the determination of IDD charges for the period 1 April 1995 to 31 March 1996 should be "gross accounting". Under gross accounting, the value of receipts to BT in respect of incoming international calls are excluded when considering the costs to be included in the calculation of the charges. Only the out payments made to foreign operators are taken into account.
1.2 In his statement of 3 October 1995 entitled "Interconnect Charges for Direct Dial Calls", the Director General indicated that, in the absence of significant moves to liberalise the international telecommunications market, he was minded to issue determinations for subsequent years on the basis of "net accounting". Under net accounting, the cost base on which the charge is calculated would be reduced by the value of payments received by BT from foreign operators in respect of incoming international calls. A full explanation of gross and net accounting is set out below. The purpose of this Document is to elaborate and seek views on this proposal in the light of the uncertainties about the implementation of international facilities liberalisation in Europe and worldwide. There are close links between progress towards liberalisation and the selection of the appropriate method to determine interconnection charges for international calls. It should be noted, however, that whilst the determination of interconnection charges is a matter for the Director General, the granting of international facilities licences is a matter for the Secretary of State for Trade and Industry.
1.3 Much progress has been made in recent years to open up the UK's domestic market to the full forces of competition. The obstacles to progress have been greater on the international front, however, not least because of the difficulties of persuading other governments to take appropriate steps towards opening up their telephony markets.
1.4 International telephony arrangements are still largely based on a long-established series of agreements between state-owned monopolies under the auspices of the International Telecommunications Union. The system is based on co-operation and the need to maintain full connectivity, rather than on competition and market forces: the accounting arrangements, and the prices which flow from them, are therefore only very loosely related to the costs of providing the services.
1.5 Every international call involves at least two international operators (some transit traffic may involve three or more international operators). The originating operator is the operator who collects international traffic in one country, either from its own network or (in countries such as the UK and USA) from the networks of other operators not licensed to handle international traffic. It will then hand over the call to the international operator at the other end (the terminating operator) at a notional mid-point in the international circuit. The two operators account to each other using international accounting rates which have been agreed between them. Each time a call is handed over by the originating operator to the terminating operator, a payment is due from the originating operator to the terminating operator based on the settlement rate (normally half the accounting rate). Since international telephone traffic passes in both directions on any route, an international operator at one end will incur liability for calls terminated by the other operator and will be entitled to payments for the calls it itself terminates as return traffic. Where the settlement rate is approximately the same (as it usually is) and the traffic is in broad balance, little if any payment will be due from one operator to the other, the debits and credits cancelling each other out. These international accounting rates are contractual arrangements made between two international operators under guidelines issued by the International Telecommunications Union and are generally pitched significantly above the actual costs incurred in terminating international calls. On routes where traffic is not broadly in balance, this system rewards unduly those with a surplus of incoming traffic. This can itself cause a distortion in traffic flows as parties seek to take advantage of this characteristic of the system.
1.6 The level of accounting rates exerts a strong influence on prices charged to customers for international calls (often called "collection rates"), though they are not the only determinant of them. The influence is because, at the margin, an extra outgoing call will "cost" the operator the full amount of the settlement rate (ie generally half the accounting rate), on top of the actual costs incurred on the home end of the route. So excessively high accounting rates tend to act as a brake on reductions in international call tariffs, even where - as in the UK - there is more than one international operator and therefore the potential for price competition. On routes where there is no competition at all, or where the operators collude, international call tariffs tend to be higher still.
1.7 Up until now only the United States has published its international accounting rates with other countries. In his statement on 3 October the Director General announced that in future international accounting rates between BT, Mercury and international operators overseas would be published by Oftel, initially for routes between the UK and OECD countries only. The first set of these international accounting rates was published on 11 December 1995. Within the next 12 months Oftel will reconsider the position with a view to publication of all international accounting rates between the United Kingdom and overseas international operators.
1.8 BT and Mercury alone are licensed to provide the full range of international services out of the UK over their own facilities, including public switched telephone services, leased circuits and telex, using the facilities of their choice - generally satellite, undersea cable or, in a few cases, radio. Any other telecommunications operator wishing to undertake those international services which they may be permitted to undertake, must obtain facilities from either BT or Mercury. Generally these facilities will be of two kinds: interconnection for individual IDD calls, or provision of leased circuits by BT and Mercury over which these other operators can carry out international simple resale (ISR) (where the calls start and end on the public network), or one end breakout, (where the call starts or finishes on a private network, using the public network only at one end).
1.9 The UK government decided in 1991 that the duopoly policy in respect of new international operators should be ended, but that the Secretary of State for Trade and Industry was unlikely to grant new international operating licences in the short term. This descision was influenced by the constraints then present on effective competition in the international field. The Government undertook to keep the position under review and to continue to press for a more open international telecommunications market. For these reasons the Government instead sought to achieve some of the benefits of competition through operators individually licensed to provide services to users by means of ISR on those routes where the other end has an equivalent competitive regime. ISR to and from the UK for both voice and data is allowed to six designated countries namely the United States, Canada, Australia, New Zealand, Sweden and Finland. International simple resale of data only is allowed to and from all the countries of the European Economic Area. An individual licence is always required to carry out voice ISR and at present there are 25 granted to operators specifically to carry out ISR; most of the public telecommunications operators may also carry out ISR within the terms of their licence. The two international facilities operators, BT and Mercury, may carry out ISR by means of subsidiary companies which have been granted separate ISR licences.
1.10 This is a system similar to ISR except that where it involves basic telephony a breakout on to the public telecommunications network is only allowed at one end of the route. However, breakout at both ends is allowed in respect of value added services (see below). For example, an operator can collect traffic in this country off the public telecommunications network and pass it through its switch onto a leased circuit to its ultimate destination abroad. Alternatively an operator can assemble traffic in this country by setting up private leased circuits from all the points of origin and then sending the traffic over international private leased circuits obtained from BT or Mercury, breaking out onto the public telecommunications network in the foreign country concerned. No individual licence is required for operators to provide this service which they may do under a class licence known as the Telecommunications Service Licence (TSL).
1.11 Value added services include services such as e-mail, voice mail, storing forward, fax and video conferencing. In the UK international value added services can be provided to and from all countries under the TSL.
1.12 Users of international leased circuits who do not provide services to third parties are licensed under another separate class licence, known as the Self Provision Licence (SPL). The licence requires that the telephone calls must either originate or terminate (or both) with the licensee or a member of the licensees group. Neither the licensee nor any member of the licensees group may receive financial benefit by providing services to third parties. Any individual or corporate organisation is therefore able to make international calls by leasing international circuits from BT or Mercury together with leased circuits either in the UK or in the overseas country, provided it does not break out onto the public service network at both ends of an international route.
1.12 All of these methods of handling international telecommunications traffic have served to put some downward pressure on the price of international telephone calls, although the bulk of international traffic, in the form of IDD calls, is still handled by BT and Mercury as the only two international operators licensed to operate their own facilities. The impact on the vast majority of residential customers in the UK in particular has been limited. Prices have been coming down by about 5% per year in actual terms over the last 3 years, partly as a result of price cap pressure, but are still higher than they should be under a fully competitive, cost-based regime. The current regime is allowing the two international facilities operators to make returns considerably in excess of their cost of capital. UK customers and the UK economy would benefit substantially, and the revenues of the current duopoly facilities operators would be substantially reduced, in the event of full liberalisation.
2.1 One method of calculating BT's cost base for IDD calls is to ignore receipts to it in respect of incoming calls and to take account only of the payments made to foreign operators. As the accounting rate payment is based on the gross settlement rate and there is no offsetting allowance for receipts in respect of incoming calls, this arrangement is known as "gross accounting". On a hypothetical route where the direct cost of handling an outgoing or incoming call were the same at 5 pence per minute (including an allowance for a reasonable return), the accounting rate was 30 pence, the settlement rates equal to half of this, then the interconnection charge based on gross accounting would be 20 pence per minute (ie 5 pence per minute plus half of 30 pence per minute).
2.2 "Net accounting" describes a situation where the accounting rate payment is considered to form a part of the cost base only in so far as payments are made in respect of the net balance of traffic between the two countries. The costs to BT of handling incoming calls would be taken into account in calculating the charge so that net accounting would offset the final charge only to the extent that the inpayment (ie the settlement rate) exceeds the actual cost of handling the call. A determination based on this approach would therefore allow interconnecting operators to share with BT and Mercury the benefit of the profits due from return traffic, much as they would do if those interconnecting operators operated their own international facilities. Net accounting would effectively require the international facilities operators to share the benefits of the duopoly with other operators. In the hypothetical example described in paragraph 2.1 above, and assuming that the traffic is evenly balanced, the interconnection charge based on net accounting would be 10 pence per minute (ie just the direct costs of handling the outgoing and incoming calls, as the outpayments and inpayments cancel out), compared with 20 pence for gross accounting.
2.3 The impact of this accounting method on consumer prices and on operators' profits is not entirely predictable, as much depends on the initial pricing behaviour of interconnecting operators, the consumer response to this in terms of choice of operator and volume of calls, and subsequent responses by any or all of the operators. If prices came down substantially, there could be a "call reversion" impact - whereby the balance of traffic between incoming and outgoing calls is affected as users switch formerly incoming calls to originate in the UK in order to take advantage of lower prices. Existing studies and analysis of experience in the US does not, however, suggest that any call reversion effect is likely to be very significant. Some studies have found no significant effect whilst an informal analysis by Oftel suggested that a price differential of 20%, could be expected to cause only 2% of calls to revert. Even a price differential as high as 50% might only lead to about 12.5% of calls reverting.
2.4 A hybrid method would produce charges in between the two extremes of gross and net accounting.
2.5 One such intermediate scheme, which could be described as Modified Net Accounting, is based on the scaling down of the allowance for incoming traffic by a chosen factor. There is a precedent for this in the 1987 BT/Mercury International Telex Determination and the 1988 BT/Mercury International Telephony Determination where a factor of 0.9 was applied to incoming traffic. This was intended to prevent instability in interconnection charges that might arise because they depended upon the traffic balance which would, in turn, depend upon the price of calls. The effect was that only 90% of settlement rates/receipts in respect of incoming traffic were to be offset against payments for outgoing traffic in calculating the charge for conveyance of outgoing calls.
2.6 If a factor of 0.5 were chosen under this method, this would mean that any supernormal profit on incoming calls would in effect be divided equally between the facilities operator and the originating operators of outgoing calls. This method would be similar in effect to making a credit to the fully allocated costs of outgoing calls.
2.7 A second intermediate proposal may be described as "Partial Net Accounting". This has been suggested by a firm of consultants acting on behalf of a telecommunications company. This particular proposal involves an adjustment factor of 0.55, that is, 55% of inpayments being netted off against out-payments. This provides an option which is virtually half way between net and gross accounting. The figure of 55% is the outcome of calculations of the net cost to BT of carrying a minute of traffic on behalf of another operator given that, because of the proportionate returns system, the extra outgoing minute increases BT's revenues from incoming traffic.
2.8 A difficulty with this proposal is that it depends upon assumptions that are largely arbitrary. The figure of 55% applies to what the consultants considered to be a "typical route" and is dependent upon assumptions about the level of the settlement rate, the cost of delivering incoming calls, the traffic balance, the percentage of calls which would otherwise have been carried by Mercury or would have bypassed the international settlement system and BT's market share. In reality, all these may vary considerably from route to route and the percentage of calls which would otherwise have been carried by an alternative operator is inherently difficult to estimate accurately.
2.9 A further drawback is that this method does not measure the full cost of BT carrying an extra minute of traffic. Whilst it may measure the cost to BT, it ignores the fact that part of the cost is in fact borne by Mercury. As BT's share of outgoing traffic (and hence, under proportionate returns, the benefits of incoming traffic) goes up, Mercury's goes down. Mercury's receipts from incoming calls therefore fall, and Mercury bears some of the cost of carrying the interconnecting traffic. In other words, there is an externality that this particular formula omits.
2.10 A third possibility concerns "Return Call Stimulation". This would involve an adjustment reflecting the belief that a minute of outgoing traffic which is additional in total, rather than simply gained at the expense of another operator, directly generates a fraction of an additional minute of incoming traffic. This generates an increased inpayment which partially offsets the additional outpayment. As long as incoming calls are profitable, it will be optimal to price outgoing calls at somewhat less than full gross accounting cost in order to generate additional, profitable, incoming traffic. A difficulty with this approach is that there is no conclusive evidence of what an appropriate value for the fraction would be.
2.11 Some doubt has been expressed about the extent of the Director General's power under BT's licence to determine that the charges should be calculated on the basis of net accounting (or any "hybrid" variations of net accounting). Condition 13 requires that charges cover the fully allocated costs of conveyance (including relevant overheads) and a return on relevant capital employed. It is averred that the Director General has no power to do other than determine a charge which recovers the full cost of the settlement to be paid to the overseas operator, although the adoption of one of the hybrid options might resolve this potential problem. Oftel would be pleased to receive views on these legal arguments. If, on further consideration of the legal arguments, there is significant doubt about the legal basis to adopt a net or hybrid accounting basis, Oftel would have to seek to modify Condition 13 of BT's licence and Condition 12 of Mercury's licence to make it clear that a net accounting option may be used.
3.1 In evaluating the options described in Chapter 2 above, Oftel considers it appropriate to judge each of them against Oftel's overall goal of promoting the best possible deal for (UK) customers in terms of quality, choice and value for money. In the international context, there are a number of other objectives, including in particular:
3.2 It should be noted that some of these objectives can be seen to be in conflict with each other, particularly in the short-term. Immediate benefits for users might only be achievable at the expense of immediate reductions in revenue for UK operators; similarly protection of UK operators in the short-term can only be secured at the expense of users. Long-term effects may not, however, be so starkly conflicting, particularly where an option leads to benefits through increased competition and liberalisation. It is important to view the options by reference to their long-term implications and with the interests of all those affected in mind.
3.3 It is also clear that the options must be evaluated with an eye to the current distortions in the international marketplace, and to foreseeable developments in this marketplace.
4.1 It is clear that none of the options in Chapter 2 is satisfactory from the point of view of all groups of operators and customers, in a market where rights to operate international facilities into and out of any country are restricted to one or two operators. If and when international markets are fully liberalised, net accounting would be inappropriate as it would destroy incentives to invest in infrastructure. Gross accounting in these circumstances would be acceptable; business decision could be made to invest in infrastructure and receive the long term benefits of low cost facilities, with the inherent risk which such investment attracts. Alternatively, facilities could be obtained at little risk, although at greater cost, from another facilities operator.
4.2 Where new operators are not permitted to operate international facilities, however, gross accounting does not secure a good deal for customers, who are denied the benefits of competition in terms of widening choice and pushing down prices. However, while net accounting would provide a better deal for customers in these circumstances, it could cause instability (and probably sudden reductions) in UK facilities operators' international revenues. Hybrid options might offer a compromise between these extremes, but are unlikely to satisfy any operators or customer completely.
4.3 The root of this unsatisfactory range of options lies in the distorted nature of the international telephony market. If multilateral liberalisation of international facilities(with an effective framework for ensuring competition) were to be achieved very soon, accounting rates (and therefore interconnection based on gross accounting) would become cost-based. Gross accounting in a fully liberalised, competitive world would therefore allow all market participants to reap their share of the benefits of competition. It is therefore necessary to explore the prospects for such liberalisation.
4.4 ISR has already had some effect in bearing down on consumer prices, as it enables bypass of the accounting rate system on the routes to which it is applied. In practice, however, the effect of ISR has been restricted by the potential for payment of Access Deficit Contributions (ADCs). Currently, ADCs can only be waived on a maximum of 15% of the international market, and the Director General may only waive contributions up to 30 June 1997. So the threat of having to pay ADCs has had a dampening effect on the growth of ISR. If ADCs are abolished, the prospects for effective ISR competition would be much improved on those routes where it is permitted. Competitors would still have the disadvantage, however, of having to use circuits leased from the facilities operators. Oftel will shortly be issuing a draft Determination on the charges for BT's provision of International Private Leased Circuits. It is Oftel's view that the provision of these circuits is covered by Condition 13 of BT's licence, and in the cases at issue a determination of charges on the basis of fully allocated costs, rather than retail prices, is therefore justified. Cost-based international circuits should help to promote more effective competition from ISR operators.
4.5 Apart from the developments of ISR, other circumstances have changed since 1991 in the international market and the prospects for further liberalisation are looking brighter than ever before. The USA now has a generally liberalised regime and the Federal Communication Commission has now adopted an Order which clarifies the approach they will take towards foreign investment in telecommunications. There is still some way to go, however, before the US market has fully dismantled its barriers to foreign entrants. Negotiations under the auspices of the World Trade Organisation, which are set to end in April 1996, are also tending towards multilateral liberalisation. EU Member States have made a political commitment to liberalise infrastructure and all remaining unliberalised services by 1998 ( possibly later for a few Member States). The European Commission are proposing a Directive under Article 90 of the EC Treaty designed to liberalise "alternative infrastructure" for liberalised services within the EU within the next year, and for all services (including voice telephony) by 1998; and Directives under Article 100A on Licensing and Interconnection to put in place the framework for effective liberalisation within the EU by 1998.
4.6 These Directives are intended to be in place in time for the 1998 deadline. There may, however, be some slippage in adopting them, and there remain uncertainties about the detailed implementation of the general commitments on liberalisation. Experience of liberalisation within the UK market and elsewhere suggests that the framework for effective competition may take even longer to put in place. The Director General considers, therefore, that in view of the objectives listed in paragraph 3.1 above, it would be in the UK's interests to take action as soon as possible to liberalise unilaterally the UK end of international routes (not just EU routes). He believes that such action would be beneficial and can be accompanied by safeguards in the UK against anti-competitive behaviour or one-way bypass on the part of monopoly operators at the far end. While there would inevitably be some costs for UK operators in taking this step, the Director General is satisfied that there would be a net economic benefit to the UK from adopting such a course. He has advised the Secretary of State for Trade and Industry accordingly.
5.1 The previous chapter examined the prospects for multilateral liberalisation. While these prospects look very encouraging for the medium and longer term, Oftel considers that the prospects for speedy and detailed implementation are still too uncertain to be relied on to bring the benefits of competition to the consumer in the short term. In the absence of early multilateral liberalisation, Oftel considers that unilateral liberalisation by the UK of international facilities could bring many of the benefits of competition to the UK customer. This is, however, a decision for the Secretary of State for Trade and Industry to take in the context of his responsibility for granting new licences.
5.2 In the absence of a clearer picture of the likely pace of liberalisation of international facilities, and in particular if further moves towards liberalisation are not made in the very near future either by the EU or by the UK unilaterally, a decision will have to be taken in early 1996 on the appropriate basis for the determination of BT's IDD interconnect charges for the financial year starting April 1996 in the context of a less than fully competitive facilities market. The basis of this decision will have to be reviewed in later years depending on the degree of liberalisation achieved.
5.3 On the basis of the criteria set out in Chapter 3 above, it is clear that gross accounting is not an acceptable option in a world where facilities remain unliberalised, as it does not secure the goal of promoting the best deal for customers. Net accounting would go some considerable way towards this, so subject to the views of consultees, the Director General is minded to issue determinations for IDD for periods after April 1996 on this basis.
5.4 The Director General is however aware that this option could have undesirable effects in terms of instability and a sudden reduction in BT's and Mercury's international revenues. He is therefore prepared to consider the introduction of a hybrid method of determining interconnection charges, which would lessen the impact on BT and Mercury stemming from the introduction of net accounting while allowing a substantial part of the benefits to consumers of net accounting (ie more competitive prices) to be realised.
5.5 The principal questions on which the views of consultees are sought can be summarised as follows:
(a) does Oftel's assessment in Chapter 4 of the prospects for liberalisation and of its economic impact above, accord with the views of those operating in the market?
(b) in view of the answer on the above, does it follow that consideration should be given to options other than gross accounting from April 1996?
(c) which of the options described in Chapter 2 is most likely to secure the objectives described in Chapter 3?
(d) are there any other "hybrid" options in addition to those described in paragraphs 2.4 - 2.10, which should be considered?
Access Deficit The amount by which BT's revenue from
exchange line connections and line
rentals falls short of the fully
allocated costs plus applicable rate
of return.
Access Deficit Contribution (ADC) BT's access deficit arises in part
from regulatory restrictions on BT's
price charges to customers for line
connection and line rental, which
mean that BT funds its access deficit
from call revenues. By paying ADCs
as part of the interconnection
charge, some operators pay out of
their call profits contributions to
the funding of BT Network's access
deficit equivalent to those paid out
by BT Retail Systems. Therefore,
these operators face costs of
supplying calls similar to the costs
that BT Retail faces because of its
need to fund the access deficit.
Accounting Arrangements Agreements made between two
international operators at each end
of a particular route for the
handling of international calls.
They include arrangements for each
operator to pay the other for the
termination of calls in the other's
country.
Call Reversion Where there is a significant
disparity in the cost of
international calls between two
countries, customers may have an
incentive to arrange for the majority
of calls to be originated (and thus
paid for) in the country where the
collection rate is lower. Such
switching of the direction of calls
is known as call reversion.
Collection Rate The price paid by a retail customer
to an international operator for an
international call.
The Duopoly The special rights enjoyed by BT and
Mercury as the only two UK operators
currently permitted to own and
operate their own facilities for
international telephone traffic.
Gross Accounting The method of calculating the cost
base for interconnection charges for
outgoing international calls, where
in-payments received from overseas
international operators for
terminating calls in the UK are
ignored. The full settlement rate is
included in the charge for the
outgoing call.
Interconnection Charges for Charges paid by the new UK licensed
International Direct Dialled Calls operators to BT and Mercury for the
international traffic which the
operators accept from customers and
then pass to BT or Mercury for
international transit.
International Accounting Rates The rates at which international
operators account to each other for
the calls they originate and
terminate. The rates are divided
into shares (which are frequently the
same) for the originating and
terminating operator. In many cases
allowance is made for a share to be
retained by a transit operator.
International Direct Dialled (IDD) Calls made by subscribers dialling
Calls direct to other countries using the
facilities offered by BT or Mercury
in the UK. When a customer
subscribes to another operator's
network then that other operator will
require interconnection to BT or
Mercury in order to provide
international telephone services to
its customer.
International Facilities Networks owned and operated by a
licensed operator for handling
international calls. In the United
Kingdom only BT and Mercury are
licensed to own and operate
international facilities. Any other
operator wishing to generate
international traffic is required to
use the facilities of BT or Mercury.
International Private Leased Circuits leased from international
Circuits facilities operators (in the UK, only
BT or Mercury) by other operators
wishing to provide an international
service.
International Simple Resale (ISR) An international service which some
licensed operators are able to
provide to customers using the
facilities of BT and Mercury. In
the case of an outgoing call, the
operator collects traffic from the
public telecommunications network,
transfers it to a line leased from BT
or Mercury, and then hands it over to
a public telecommunications operator
in an overseas country who will
deliver the call to its destination.
It therefore involves "breakout" onto
the public telecommunications network
at both ends, but with the
international leg of the call being
carried on leased circuits.
Leased Circuits These are dedicated lines which are
leased, usually from a public
telecommunications operator by a
particular customer or another
operator.
Net Accounting A method of calculating the cost base
for interconnection charges for
outgoing international calls where
the settlement rate is considered to
be part of the cost of a call only
insofar as payments are made in
respect of the net balance of
traffic. The receipts which BT and
Mercury obtain from inpayments made
by overseas operators for terminating
international calls will be taken
into account in calculating
interconnection charges.
One End Breakout Use of the network which involves
breakout onto the public
telecommunications network only at
one end. For example, an operator in
the UK could collect traffic on
leased lines, switch it to a leased
line for onward transit to the
destination country, and then break
out onto the public telecommunication
network there. Alternatively an
operator in a foreign country could
collect traffic off a private network
abroad, and terminate it on the
public telecommunications network in
the UK.
One Way Bypass If an operator with an international
facilities licence at the other end
of an international route were
granted an international licence in
the UK, it could use its position to
avoid making accounting rate
outpayments to BT and Mercury. It
would accept UK traffic from BT and
Mercury and the inpayment for
terminating the traffic in the
overseas country, but would then
route its return traffic over its
facility and thus avoid the
obligation for the outpayment. If
this were permitted, BT and Mercury
would be seriously disadvantaged
since they would incur obligations
for large outpayments without the
entitlement to corresponding
inpayments.
Public Switched Telephone Network The network of switches and lines
which public telephone operators make
available to their customers. Every
telephone subscriber has direct
access to the public switched
telephone network.
Settlement Rate The rate of payment usually based on
call minutes, due from one operator
to another for terminating calls.
The settlement rate is usually 50% of
the accounting rate.
Transit Traffic Although the majority of traffic is
sent directly from one country to
another, traffic is often routed
through intermediate countries to
make best use of the international
network. Transit traffic is traffic
which is accepted by an operator in
one country to be passed on to
another international operator in a
third country.