8.1 This Chapter lists key conclusions, proposals and questions contained in this document. Questions are identified in bold.
8.2 Oftel proposes that, for the purposes of defining relevant product markets within the telecommunications sector and the assessment of competitiveness within those markets, to use the approach set out in the first consultative document. In assessing the degree of competition of the market, Oftel believes that there is a need to take into account a range of factors and that a consideration of competitiveness that is limited to the number of firms or market shares within a market is inadequate.
8.3 Oftel concludes that the issue of the convergence of different delivery technologies is unlikely to be material to the value of X over the next review period and thus proposes to put this issue to one side for the purposes of this price control review. Oftel intends instead to develop its understanding of the issues surrounding network convergence through other approaches, in particular by taking forward the discussion generated in the responses to its Consultative Document Beyond the Telephone, the Television and the PC.
8.4 For the purposes of this price control review, Oftel proposes to treat network access and provision of call services as constituting separate product markets.
8.5 For the purposes of this price control review Oftel proposes to accept the distinction between local and national call markets.
8.6 For market definition purposes, Oftel proposes to treat country pair routings as the relevant product market in the IDD calls sector.
8.7 Oftel proposes to consider IDD call routes as competitive on the assumption that there will be increasing international liberalisation and that competition may well develop on a significant number of international routes by the end of the price control review period.
8.8 Oftel proposes to make a distinction between low and high capacity digital circuits at the 64kbit/s level (ie 64kbit/s and below as against greater than 64kbit/s) for the purposes of this price control review.
8.9 Oftel concludes that for the next price control period there is little prospect of competition in the provision of analogue private circuits. In the case of low capacity digital circuits, Oftel acknowledges that competition may emerge over this period but that this market will not be competitive by the start of the next price control period and development of competition is uncertain.
8.10 Oftel proposes to regard the market for high capacity inland private circuits as a competitive market.
8.11 Oftel proposes to define separate markets for basic rate and primary rate ISDN lines.
8.12 Oftel believes that competition is developing in the markets for both basic rate and primary rate ISDN lines although it acknowledges that it is likely to develop more quickly in the primary rate market faster than in the basic rate market.
8.13 For the purposes of this price control review, Oftel proposes to treat DQ services and operator assisted calls as separate product markets.
8.14 Oftel considers that DQ services will become competitive over the course of the price control review.
8.15 Oftel proposes to regard operator assisted calls as being subject to the competitive constraint of possible self-provision by other PTOs.
8.16 Oftel proposes to regard specially tariffed services as a separate product market from PRS for the purposes of this price control review.
8.17 Oftel believes that the specially tariffed voice services market will become competitive.
8.18 Oftel proposes to continue to define vision circuits as a separate product market from other forms of private circuits. It regards this market as competitive.
8.19 Oftel proposes to continue to define CCTV circuits as a separate product market from other forms of private circuits. It regards this market as competitive.
8.20 Oftel proposes to regard the payphone market as in the process of becoming competitive for the purposes of this price control review.
8.21 Oftel proposes to amalgamate the issue of market definition in respect of enhanced services with the responses to the service provider document to develop more considered proposals at the next stage of consultation.
8.22 Oftel has decided not to consider further the introduction of a global price cap.
8.23 Oftel proposes that it remains appropriate for the price control to be based on the all-items RPI.
8.24 Oftel has concluded that new services should not be included in price control. However, it will take appropriate action to deal with any anti-competitive behaviour which might be identified in relation to such services.
8.25 Oftel intends to set the value of X on the basis of a reasonable forecast of the benefits which BT might derive from shared use of common assets.
8.26 Oftel has decided that the present system of price control should not be modified to introduce an explicit profit sharing element.
8.27 Oftel has decided not to make any allowance for unanticipated growth in GDP or other exogenous factors in the price cap.
8.28 Oftel's view is that the appropriate duration of a conventional price control is four years.
8.29 Oftel has decided not to introduce formal 'roll-over' arrangements into the next price cap.
8.30 Oftel intends to continue with the prior year revenue
weighting system for the price control basket.
8. 31 Oftel intends to continue present arrangements for carry-over in future price-control rules.
8.32 Oftel intends to set X so that BT's expected rate of return on controlled activities reaches an acceptable level by the end of the four years from 1997.
8.33 Oftel does not intend to introduce formal controls on BT's investment.
8.34 Investment relating to non-price controlled markets will not be included in BT's investment plans for the purposes of setting the price controls.
8.35 Oftel proposes three network baskets, each subject to a charge cap formula of RPI-X. The call termination basket would include only call termination services. The general network basket would include call origination (and access to Number Translation Services), local-tandem conveyance, and inland low capacity digital private circuits. The interconnect specific basket would include interconnection circuits data management amendments (and possibly also access to the Number Information System). Oftel proposes that there would be no sub-caps on services in any of the three baskets.
8.36 Inter-tandem conveyance would be covered by a safeguard cap of RPI+0%. Each country pair routing in International Direct Dial interconnect would also be covered by a safeguard cap of RPI+0%. Oftel proposes no network controls for directory enquiries, operator assistance, inland analogue private circuits, inland high capacity private circuits, and international private leased circuits. A summary of the proposed regulatory treatment of the interconnection services is provided in Table 5.1. Oftel proposes that DQ should be outside of network controls.
8.37 Oftel would welcome comments on its proposal to have no network controls on either the main links or the terminating ends of high capacity private circuits.
8.38 Oftel proposes to exclude operator assistance from network controls, but would welcome comments on this proposal.
8.39 Oftel would welcome comments on its proposal to have not network controls for IPLCs, rather than safeguard caps on each country pair routing. The Cost Base
8.40 Oftel intends to set the initial cost base for the call termination basket and the interconnect specific basket using BT's incurred long run incremental costs rather than the costs of an efficient operator, because in general it does not favour one-off adjustments. Incremental costs would be derived from the reconciliation of top-down and bottom-up models, but without an adjustment for efficiency. Oftel would welcome comments on this approach.
8.41 Oftel proposes that BT should be permitted to vary charges for interconnection services within floors and ceilings.
8.42 Oftel proposes a presumption against flexibility for BT in setting interconnection charges according to end-use, but not a ban on such flexibility.
8.43 Whilst the charge for any particular component should be the same for all interconnection services within the same basket, Oftel proposes that the component charges may differ between services in different baskets.
8.44 Oftel invites views on its proposal that BT should give 60 days notice of any changes in its interconnection charges.
8.45 Oftel favours the principle of reciprocal payments, but does not intend to impose it. Oftel proposes to leave call termination rates on other networks to be decided in negotiation between operators.
8.46 Oftel considers that substantial problems concerning incompatibility of the levels or structures of the caps are unlikely to arise. It proposes separate retail and network controls with no pass-through of the network charges into the retail cap.
8.47 Oftel recognises that forms of bill control could play a useful customer protection role but is not persuaded by the arguments it has heard so far that bill controls should replace conventional price cap on a basket of services. Oftel remains of the view that this is the best form of price control for the next control period, although it will of course listen to further arguments on this. Oftel considers that the apparent attractions of bill control - simplicity and customer focus - cannot be realised in practice and do not meet the broad consumer protection and efficiency requirements of price control. Oftel will, however, continue to monitor the bills of those customer groups identified in Oftel's competition matrix and would consider re-opening the price control, or taking alternative action, if particular groups of customer seemed to be suffering discrimination as a result of BT's pricing strategies.
8.48 Public Payphones/Calls to Mobiles - Oftel considers that competition will be the best constraint on prices and, with new players in the market, there will be increasing choice very soon. Oftel does not therefore propose to extend price control now to payphones. Oftel proposes to pursue the issue of high charges for calls to mobile phones outside price control arrangements.
8.49 ISDN - With increasing competition in prospect and likely to be a reality at the start of the next price control period, Oftel at present considers it would not be appropriate to subject ISDN connection charges to price control. Oftel is, however, examining further the reasons for BT's high ISDN connection charges in the content of its overall charging arrangements. It will make the results of this investigation public, in due course, together with any proposals for further action by Oftel on ISDN prices. Oftel would welcome views on its proposed position on this and observations from the industry and users on the current level of BT's connection charges in relation to the reasonable costs of providing the connection.
8.50 Oftel considers that the current scope of the retail basket is the maximum appropriate for the increasingly competitive market in the period ahead.
8.51 Oftel preference is to stick to the present basket, removing only Specially Tariffed Voice Services, Directory Enquiries and Operator Assisted Calls for the next price control period. With a broad basket coverage like this there would be no services which might fall into the safeguard category and this mechanism would not be needed at the retail level for the PSTN basket. Oftel would nevertheless welcome views on whether a minimum basket of just local calls and access could be a realistic option.
8.52 Oftel considers that a price cap under conventional incentive regulation should be set on the basis of a 4 year control period, as at present.
8.53 Oftel sees three options for the next retail price control and would welcome views on these:
8.54 Oftel proposes that, for the next price control, analogue private circuits should be in a basket subject to an RPI+0% cap (as at present) and digital circuits up to and including 64kbit/s should be in a separate basket with an RPI+0% cap (currently all digital circuits are subject to such a cap). Oftel proposes to continue to impose separate sub-caps on individual private circuit prices (RPI+1% and RPI+2% respectively for those analogue and digital circuits in the baskets.) Oftel considers this remains necessary to prevent BT imposing large increases on particular circuits. Oftel would welcome views on this.
8.55 Oftel proposes to remove both the main links and the terminating ends from price control. There may be a case for arguing that BT has some bottleneck control of provision of digital ends but BT is currently trialling provision of a partial private circuit interconnective service and this should greatly reduce any bottleneck. Oftel would welcome views on whether terminating ends of high capacity circuits should be included in the digital basket.
8.56 Oftel would propose that international private circuits prices should not be controlled. Alternatively, given inevitable uncertainties about the speed at which effective competition would develop, there are arguments that they should be subject instead to safeguard caps - a separate cap for each route. Oftel would welcome views on this.