1.1 This is the second consultative document in Oftel's review of arrangements to replace the current controls on BT's retail prices which end in July 1997. The first consultative document, published in December 1995, contained Oftel's initial proposals for new arrangements for control of both BT's retail prices and its network charges.
1.2 This second consultative document contains Oftel's further proposals developed in the light of responses to the first consultative document. It sets out proposals for the coverage of price control, and illustrates how indicative values of X (for both retail and network caps) vary according to assumptions made about key parameters. The document also contains initial draft modifications to BT's licence to give effect to these proposals.
1.3 Oftel has received over 140 responses to the first consultative document, and a number of subsequent comments on these responses during the second phase of consultation. We are grateful for the considerable thought and effort which have evidently gone into these. Oftel notes that some consumer representative bodies have indicated that their substantive response will be to this document rather than to the first one, and acknowledges that it has consequently not yet heard the full weight of argument on some issues. Oftel has taken care to consider the interests of all those who will be affected by price control in developing the proposals contained in this document.
1.4 As foreshadowed in the first consultative document, Oftel hosted two Workshops on price control - one for the industry (on 23 January), and one for customers and their representatives (on 20 February). Both events were well attended and have contributed a great deal to the consultative process and the evolution of Oftel's proposals set out in this document.
1.5 Responses to this document should be received by Oftel by 26 April 1996. There will then be a two week second phase of the consultation to 10 May during which respondents can comment on the views which others have provided during the initial period. This is Oftel's standard procedure for allowing fuller debate and wider transparency in the consultation process. A less detailed document focussing on the implications of price control arrangements for residential customers will be published before the end of March. Residential customers will be asked for comments on this by 10 May.
1.6 Oftel will be holding a series of public hearings on price control in April and May. These will provide a forum for public discussion to feed into the consultative process on price control. Each hearing will be addressed by speakers from Oftel, a customer representative organisation, BT, and another telecoms operator. Anyone is welcome to attend any of the hearings. Dates for the hearings together with details of how to find out more about them are set out in the inside front cover of this document.
1.7 Following consultation, Oftel will further refine its proposals in the light of written responses and feedback from the public hearings. It will publish its statement of formal proposals for price control at the end of May. This will include final draft modifications to BT's licence for formal statutory consultation. Responses will be required by the end of June with the second phase of consultation (for comments on responses received during the first period) ending in mid-July. Final proposals will be put to BT towards the end of July. If it does not agree to them, the issue will be referred to the Monopolies and Mergers Commission. New price control arrangements must be effective from August 1997.
1.8 The review of price control arrangements must be seen in the context of other relevant regulatory developments affecting BT's revenues, costs, and pricing. These are:
1.9 Oftel published a Statement in December proposing the insertion of a new general provision in BT's licence prohibiting anti-competitive behaviour and making Oftel's powers more effective when dealing with such behaviour. The new condition would also be inserted into other operator's licences. Informal consultation ended on 16 February. The proposed provision is complementary to Oftel's proposals on price control because the increased pricing freedom for BT proposed by this document will only work if Oftel can effectively prevent and control anti-competitive behaviour speedily and effectively.
1.10 In February, Oftel published a consultative document containing proposals designed to encourage more competition in the provision of services over fixed networks by service providers who do not have networks of their own. Consultation on this document ended on 4 March. Oftel needs to assess the potential impact of these proposals on future price control arrangements. Oftel's initial assessment is that the impact will be relatively small and certainly less than that of some of the other parameters considered in this document. However, Oftel cannot be certain about this at the present time and so this issue will be considered further in the formal statement on price controls to be published in May.
1.11 A consultative document was published in December containing proposals for the future definition and funding of universal service. The document proposed the setting up of a Universal Service Fund to share the costs and benefits of providing universal service across all significant operators. Contributions to the Fund would be based on network revenues. BT would, on this basis, be the major contributor to the fund but it would also expect to be the major beneficiary. The document also presented options for alternative packages to provide more affordable services to low income households (to replace BT's current 'Light User Scheme'). The net costs of such packages could be reimbursed from the fund. Oftel considers that the impact of changes to the funding of universal service and the replacement for the 'Light User Scheme' will not be material to price control arrangements. Further proposals on universal service will be published for consultation later this year, with licence modifications to take effect from 1 August 1997.
1.12 Oftel proposes no change to the principle of accessibility on the same terms throughout the UK to services falling within the definition of universal service, and intends to maintain this principle if the level of universal service is upgraded in future.
1.13 As foreshadowed in the December Consultative Document, modifications to BT's licence to remove the RPI+2% constraint on increases in exchange line rentals were made in February. The Access Deficit Contribution regime was abolished in consequence.
1.14 Oftel is advised by a Consumer Panel and a Panel of Economic and Financial Experts established to provide advice and feedback on price control and other key issues. Details of these two panels were set out at Annex A to the first consultative document.
1.15 Oftel is also advised by the six Advisory Committees on Telecommunications (ACTs) - those for England, Scotland, Wales, Northern Ireland, disabled and elderly people, and small and medium sized businesses. 1.16 The advice Oftel has received has covered a range of options. The proposals here are Oftel's own.
Click here to go to next chapter