Promoting Competition in Services over Telecommunications Networks

CHAPTER 2: PRESSURES FOR CHANGE AND Oftel'S OBJECTIVES

2.1 Oftel received 41 responses to the chapter on service providers in its December 1994 document "A Framework for Effective Competition". These are summarised briefly at Annex B. The workshop held on 19 October 1995 also highlighted the concerns of both independent service providers and network operators. In addition, Oftel is currently handling a number of complaints from independent service providers about alleged unfair competition in the market. As a result, it believes that regulation does need adjustment to encourage the growth of a more innovative and competitive market in independent service provision. The main issues to arise from the consultation process, the workshop and the current fair trading complaints are:

1. whether BT is benefitting disproportionately in the enhanced services market from its position as the dominant UK network operator. These concerns relate both to pricing of end-to-end network services and access by BT to its competitors' information. It was suggested that BT has an unfair advantage in the enhanced services market because many competitors are dependent on it for the supply of the end-to-end network services they need to provide their own services. Some commentators considered that it was only by putting BT's network and enhanced services activities in different ownership that fair competition could be ensured;
2. prices charged to independent service providers for access to BT's network. Some thought lower prices would help stimulate the market for enhanced services, and a number thought that no distinction should be made between the prices charged to other network operators and to independent service providers. There was a strong view though that service providers should be treated differently from end users;
3. the fact that it is necessary to obtain an individual licence in order to obtain Condition 13 charges from BT, and that this was unnecessarily time-consuming. The alternative of obtaining cheaper BT services indirectly through another network operator who is entitled to Condition 13 charges from BT was not ideal because independent service providers might prefer to deal directly with BT and the other network operator is not required to offer these prices (or, indeed, the service at all). In addition, the other network operator will have its own costs to recover;
4. whether BT is unfairly cross subsidising enhanced services from other BT activities;
5. whether BT should be required to "unbundle" the services it offers so that independent service providers can obtain only the services they want (and be charged accordingly), rather than having to buy additional elements included in the retail "packages" put together by BT;
6. whether technical interfaces should be open and/or BT should agree to attach non-approved apparatus so that service providers could connect with BT's network at a more sophisticated level. There was also concern about the functional difference between network services offered to independent service providers and to other network operators, particularly services based on "embedded" network features. In addition, the timely declaration by network operators of new interfaces was considered vital if independent service providers were to be ready to launch competing services in parallel with network operators;
7. whether independent service providers should have the same access to numbers as network operators.
8. the benefits accruing to BT from integrated marketing, billing and branding etc over the whole range of its activities;
9. whether the regulatory regime should distinguish between fixed and mobile networks (since some independent service providers want to provide services to customers over both types of network) or between voice and data services (since the two are increasingly sent over the same network or types of network infrastructure).

2.2 This document concentrates on the charging and fair trading issues (a to e) above. Issue (f) will be considered in the context of further consultation on customer interfaces. Proposals are expected to be published in the spring. Access to numbers (issue g) will be considered in the current numbering policy review, the conclusions of which will be published in the autumn. The issues at (h) are not exclusive to the service provider market and will be pursued as appropriate, in relation to the telecommunications market as a whole. Oftel recognises the force of the point at (i) - that service provider regulation should be the same in the mobile and fixed markets. There are, however, complex reasons why the two systems are different resulting mainly from BT's retail price structure and its relationship with interconnection prices. Therefore, Oftel does not believe that it is appropriate, at present, to align the structures for service providers in the mobile and fixed markets more closely.

European Union (EU) Directives

2.3 Oftel needs to consider its regulatory regime in the light of the proposals currently under negotiation on the draft Interconnection and Licensing Directives under the EU Treaty. The draft Interconnection Directive aims to establish a charging regime for network services based on "cost orientation" principles for certain market players. The draft Licensing Directive proposes a class licence system and aims to limit individual licences to those with access to scarce resources (eg radio spectrum or code powers). The UK regime currently has a large number of individual licences.

2.4 It is currently expected that the draft Directives will be agreed in principle by summer 1996, formally adopted in the course of next year, and will need to be implemented in 1998 (to coincide with the deadline for liberalisation of the EU telecommunications market).

2.5 Any changes to the UK regime will need to take account of the progress of EC directives.

Oftel'S OBJECTIVES

2.6 Oftel intends to consider any proposals for change in the light of the following objectives.

2.7 Oftel's overall goal is "to seek the best value for the customer in terms of quality, choice and value for money". Although this document is primarily concerned with the development of competition from independent service providers, it must be read against the background of Oftel's continued commitment to the development and maintenance of competition from and between network operators (infrastructure competition). Although competition from and between service providers can provide increased choice for consumers, this is not an adequate substitute for competition between networks. Only competition between networks can deliver competition in the supply of network services which are a necessary input into basic retail or enhanced services for consumers. Without network competition, even vigorous competition between service providers will not prevent customers being disadvantaged by any inefficient and/or expensive provision of such network services. While believing that there is a need to encourage more effective competition between and from service providers, Oftel is concerned not to undermine network competition.

2.8 In considering proposals for change, Oftel has also identified three subsidiary objectives:

• to secure fair and sustainable competition in theindependent service provider market by ensuring that abuse of dominance is contained and that anti-competitive practices are deterred;
• to withdraw from detailed regulation of the market and seek, where possible, to regulate, where required, through broad, simple, non-intrusive controls;
• to clarify how regulation will operate in particular circumstances so that all service providers know where they stand.

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