A joint consultation document issued by Oftel and the DTI

Summary

S.1 This document is a consultation on implementation of Carrier Pre-selection (CPS) in the UK. At present if a customer directly connected to either BT or Kingston Communications Ltd (KCL) wishes to choose another carrier for his or her calls, the customer has to dial a short access code before each number. With CPS a customer can select another carrier automatically. Once pre-selection has been made, all calls made by the customer will be automatically carried by the selected carrier without the customer having to dial an access code. The customer will be able to choose different carriers for different classes of calls eg national or international calls.

S.2 EC Directive 98/61/EC – the Numbering Directive (which amends Directive 97/33 EC – the Interconnection Directive) requires CPS to be available from 1 January 2000. All operators with Significant Market Power (SMP) in the market for fixed telephony must provide CPS. In the UK the Director General of Telecommunications has determined that both BT and KCL have SMP in fixed telephony, and so they will have to provide CPS. For technical reasons, the UK has sought deferment of the implementation of CPS by BT. The European Commission has not yet made a formal decision, but has indicated that BT will have to provide CPS from 1 April 2000. KCL is required to provide CPS from 1 January 2000.

S.3 This consultation, which is being undertaken jointly by Oftel and DTI, sets out, and seeks comments on, the draft Regulations and licence modifications to implement the Directive’s requirements concerning CPS.

S.4 Comments are invited by 8 December on the licence modification and draft Regulations set out in this document. Comments should be addressed to:

Nic Green

Oftel

Regulatory Policy Directorate

50 Ludgate Hill

London

EC4M 7JJ

Tel: 0171-634 8891

Fax: 0171-634 8924

e-mail: nic.green@oftel.gov.uk

Oftel will copy any comments received to the DTI for convenience.

For full details on the consultation arrangements click here

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1.1 This consultative document contains:

• draft Regulations to implement provisions of the EU Numbering Directive relating to Carrier Pre-selection (CPS);

• draft conditions to be added to the licences of all fixed public telecoms operators (PTOs) in the UK which will have the effect of requiring operators determined by the Director General of Telecommunications as having Significant Market Power (SMP) in fixed telephony to provide CPS to customers who request it. (BT and Kingston Communications Ltd (KCL) have been determined as having SMP in fixed telephony and so the new condition will be effective for them immediately it is added to their licences);

• an explanation of how CPS will work in the UK.

1.2 Currently, customers on BT’s and KCL’s network are able to select alternative carriers by dialling 4-digit access codes which route calls to the carrier of their choice. This system is known as indirect access. Unless they have special dialling equipment (eg autodiallers) installed, customers wishing to choose an alternative carrier have to dial the extra digits for every call which they wish to route via that carrier. This system has operated in the UK since 1985 and has been successful in providing customers with a choice of call providers. There are currently over 150 operators offering indirect access services in the UK.

1.3  CPS will enable customers to choose in advance to route all their calls of a particular type (eg national calls) via an alternative operator without having to dial an access code. CPS can be overridden on a call-by-call basis by dialling extra digits and hence selecting another operator to carry a call.

1.4 By removing the need to dial access codes for all calls routed to alternative carriers, CPS will make it more straightforward for customers directly connected to the BT or KCL networks to choose alternative carriers for calls. Currently, the need to dial a short code for indirect access means that, if the code is not dialled (perhaps because the customer forgets), the call will automatically be carried by BT or KCL. CPS will enable customers to select carriers in advance. All the calls they make of the class for which a carrier has been pre-selected will then be routed to the carrier of their choice without the need to dial an access code. This will enable alternative carriers to compete more effectively with calls made over the BT and KCL networks and hence further enhance competition and choice in the UK market.

1.5 CPS is required by EC Directive 98/61/EC (the Numbering Directive which amends Directive 97/33 EC – the Interconnection Directive) to be made available throughout the European Community from 1 January 2000. Under the Directive, National Regulatory Authorities (in the UK, Oftel) have to require operators with at least Significant Market Power (SMP) in fixed public telephony to provide CPS. To fulfil this requirement, a new condition (draft included with the annex to this document) will be added to the licences of all fixed PTOs in the UK. This condition will be activated in respective licences if the Director General determines that the licensee has SMP in fixed telephony. In the UK, BT and KCL have been determined by the Director General of Telecommunications as having SMP in fixed telephony and so the condition will be effective immediately it is added to their licences.

1.6 Discussions on implementation of CPS in the UK took place throughout 1998. Oftel published a consultation document in July 1998 which set out proposals for CPS implementation. Oftel also consulted specifically on cost recovery principles for CPS. Conclusions on the specification for CPS in the UK were reached following consultation and communicated to the industry in August 1998. A Statement setting out detailed policy on CPS implementation was published in February 1999. All of the relevant documentation is available on Oftel’s website.

1.7 Through public consultation and discussion with industry and consumer representatives, the UK adopted a specification for CPS which would enable customers to choose any one of the following options for routing calls via a CPS operator.

1.8 This option enables customers to pre-select a carrier other than BT or KCL for all their international calls.

1.9 This option enables customers to pre-select a carrier other than BT or KCL for all their national calls.

1.10 Options 1 and 2 may be combined so that the customer has pre-selects for both national and international calls. The pre-selected operator may be the same or different for each call type.

1.11 Under Options 1 and 2, calls for which the customer does not pre-select an operator – ie everything but international and/or national calls – would continue to be routed by the originating direct access operator. Thus BT or KCL would continue to provide local, mobile and specially tariffed calls etc.

1.12 This option enables a customer to pre-select an operator other than BT or KCL to carry virtually all of their calls. BT or KCL would continue to provide the line to the customer’s premises and would bill for line rental. But the only calls which BT or KCL would route and deliver would be calls using short codes to special services eg emergency services, directory enquiries and operator assistance. All of the customer’s calls to international, national, local, specially tariffed (eg freephone, local rate, national rate and premium rate), mobile, personal numbers and paging calls would be routed to the pre-selected operator. It is important to emphasise that all of these call types would have to be provided by one carrier as the all calls package cannot be broken up.

1.13 With all CPS options, customers would be able to override their pre-selected choices on a call by call basis by dialling a prefix of 4 extra digits, having made arrangements to do so with alternative operators (which could include BT or KCL).

1.14 These options have been adopted in the Functional Specification for CPS in the UK.

1.15 In October 1998, the UK submitted a request to the European Commission for a deferment in the implementation by BT (but not KCL) of CPS. The UK requested a delay of up to 12 months until December 2000 for implementation of CPS for Options 1 and 2 – national and international calls, and until December 2001 for Option 3 – all calls. This request was made on technical grounds. For historical reasons, BT’s switches, unlike those made by the same manufacturers and used in other Member States, have no inherent capacity for CPS and therefore major software development has to be undertaken by the switch manufacturers.

1.16 The Commission has made it clear that it will not grant the deferment on the terms requested by the UK. Nevertheless, it is not possible for BT’s switches to be upgraded to allow CPS ahead of the dates set out in the request (ie December 2000 for Options 1 and 2, and December 2001 for Option 3). At the request of the Commission, the UK has therefore considered how an interim solution might be arranged ahead of availability of the permanent switch-based solution.

1.17 During August 1999, Oftel consulted the industry and consumer groups on 2 proposals for interim solutions for CPS on BT’s network. These were implementation of CPS using autodiallers – smart boxes installed at the customer’s premises which automatically dial the prefix to route calls to the selected CPS operator – and ‘Virtual CPS’ – a system based on resale of BT end-to-end calls. Consultation revealed that autodiallers were the only option through which the terms of the Numbering Directive could be met ahead of availability of the permanent switch-based solution.

1.18 Consultation also revealed concerns that an interim solution will not provide net benefits to UK consumers and that an interim solution might reduce the benefits of the permanent solution when it is available. This concern reflects the high cost of autodiallers when compared with the permanent switch-based solution, and the less customer-friendly process of installation. Nevertheless, discussions with the Commission have made it clear that a full deferment will not be granted and that it is more likely that a deferment of 3 months will be granted on the basis that CPS can be implemented on BT’s network using autodiallers to that timescale.

1.19 Therefore, the UK is now working towards implementation of CPS on BT’s network using autodiallers for all 3 CPS options by the end of March 2000. The details of practical implementation will be taken forward through a new industry group established specifically for the purpose. The more efficient permanent switch-based solution will still be available in the timescale originally envisaged.

1.20 The costs of CPS will be recovered between BT and CPS operators in accordance with the six principles of cost recovery which Oftel has developed and applied in a number of different contexts. The six principles are:

• cost causation – costs should be recovered from those whose actions cause the costs to be incurred at the margin;

• distribution of benefits – costs should be recovered from the beneficiaries especially where there are externalities;

• effective competition – the mechanism for cost recovery should not undermine or weaken the pressures for effective competition;

• cost minimisation – the mechanism for cost recovery should ensure that there are strong incentives to minimise costs;

• reciprocity – where services are provided reciprocally, charges should also be reciprocal;

• practicability – the mechanism for cost recovery needs to be practicable and relatively easy to implement.

1.21 Applicability of these principles and the appropriate charging methodology for the permanent solution was explained in detail in the February 1999 Statement.

1.22 Oftel has discussed with the industry how the principles should be applied to an interim autodiallers solution. Oftel’s conclusion is that the total costs of the interim solution should be shared between BT and CPS operators. The principles of cost minimisation, effective competition, and distribution of benefits have been key in reaching this conclusion. Oftel will shortly publish a detailed Statement on cost recovery for the interim solution.

1.23 The applicability of each of the principles is explained below.

1.24 As with the permanent solution, cost causation is difficult to define for the interim solution as the service is being introduced as a result of a regulatory decision. It therefore provides little indication of how costs should be recovered.

1.25 All customers, including those not using the interim CPS service are expected to benefit from its competitive impact. This indicates that all BT customers, including those who use BT only or indirect access operators, should contribute to the costs.

1.26 The cost recovery system should be neutral in terms of competition between BT and CPS operators. Thus the recovery of costs should not give an advantage to one or other party. This indicates that a system of cost sharing is best.

1.27 The system for cost recovery must not provide incentives for either BT or CPS operators to increase costs above their efficient level. Incentives for cost minimisation can be skewed where the level of costs is controlled by one party and those costs are recovered by the other party. In this situation, the party controlling the costs has an opportunity to increase the costs of the other party. The importance of good incentives for cost minimisation tends to indicate that cost sharing is appropriate.

1.28 Reciprocity is not applicable in this case as the interim solution for CPS will only be available from BT.

1.29 The cost recovery system should be based on variables which are relatively easy to measure.

1.30 Oftel will determine the efficient level of costs for provision of CPS using both single line and multiline analogue autodiallers, and the proportions to be recovered from BT and CPS operators.

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2.1 The UK has not yet received a formal response to its request for deferment of implementation of CPS by BT. Oftel and DTI are undertaking this consultation on the basis of discussions with European Commission officials on the Commission’s likely response. The Regulations will not be laid until the Commission’s formal response to the deferment request has been received. It has been necessary to consult in advance of this in order to meet the implementation deadlines contained in the Numbering Directive.

2.2 Draft regulations are included with the annex to the document. The specific purpose of the Regulations is to implement the terms of the Directive in UK law.

2.3 The draft Regulations are to be made under section 2(2) of the European Communities Act. They would amend the Telecommunications (Interconnection) Regulations 1997 which are available from HMSO’s website at http://hmso.gov.uk.

2.4 The Regulations transpose the provisions on CPS by imposing a duty on the Secretary of State and the Director General of Telecommunications, when exercising their functions under the Telecommunications Act 1984 ( particularly concerning licensing), to ensure that the provisions of the Directive are complied with.

2.5 The proposed licence condition will be added to all fixed PTO licences. Full text of the licence modification can be found in the annex to this document. The condition will be activated in respective licences if the Director General determines that the licensee has SMP in fixed telephony.

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Oftel and DTI seek the views of operators, service providers, consumers, consumer groups, and any other interested parties on the proposed licence modification and implementing Regulations proposals contained in this consultation document by 8 December 1999.

The Regulations will be revised in light of comments received, before they are made and laid before Parliament. We propose that they should be laid before Parliament before the end of the year.

Views and comments should be made in writing and sent to :

Tel: 0171-634 8874

Fax: 0171-634 8784

e-mail: nic.green@oftel.gov.uk

To make the consultation process simpler, Oftel will remain the single contact for this public consultation. However Oftel will copy all responses to DTI.

Written comments will be made publicly available in Oftel’s Research & Intelligence Unit except where respondents indicate that their response, or parts of it, are confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly identified as containing confidential material. In the interests of transparency, respondents are asked to avoid confidentiality markings wherever possible.

Appointments to view written comments in Oftel’s Research & Intelligence Unit, which must be made in advance, can be arranged by calling 0171-634 8761.

Oftel would like to set up a link between this Consultation Document on Oftel’s Web site and any responses on respondents’ own Internet pages. Please contact Lauren Ryner at Oftel on 0171-634 8753 to arrange this.

The summary is available in large print, Braille and tape formats. Please contact the Oftel Research and Intelligence Unit on (0171) 634 8761, or by e-mail, or call textphone (0171) 634 8769 for more information.

In considering proposals for new or amended Regulations the Government seeks views from business on how it views the likely impact of the Regulations. To measure the impact a Regulatory Impact Assessment incorporating a Compliance Cost Assessment is produced for all UK and European Community regulatory proposals affecting business, which is made available on request. To aid the production of this assessment, It would be helpful if you could comment on the likely cost implications (and any cost savings or other factors) which you believe would be likely to arise for your organisation as a result of the proposals in this document. Please note that we may make copies of your response publicly available unless you indicate that it is confidential.

It would be helpful if you could outline the areas where the main costs and benefits (broken down for each area into recurring and non-recurring costs at current prices) might occur for you as a result of the proposed implementation of the CPS provisions of the Numbering Directive. It would also be helpful if you could give the total recurring costs and total non-recurring costs as a percentage of your annual turnover.

Returns on the Regulatory Impact Assessment are requested by 8 December 1999.

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STATUTORY INSTRUMENTS Draft 15-11-99

1999 No.

1. the Director may determine that a cost is not reasonable if he considers that the Licensee could at the relevant time have used lower cost methods in implementing the relevant aspect of any Carrier Pre-Selection Standard Service and in that event the Director may disallow the item of cost in question in whole or in part as appropriate;
2. in respect of any individual item of cost the Director may determine into which category of cost it falls, and if he considers that any such item of cost cannot reasonably be categorised as System Set-Up Costs, Per Operator Set-Up Costs or Per Customer Line Set-Up Costs, the Director may determine whether and to what extent the Licensee may reasonably recover such costs;
3. in the event that, in making any determination under paragraph 50A.4 the Director considers that the cost basis of any charges for a Carrier Pre-selection Standard Service in any preceding period has been inaccurately estimated, he shall make an adjustment to such a charge determined by him as he considers is appropriate for rectifying the matter.

1. Any determination specifying costs or charges made under paragraph 50A.8 shall:
1. unless some other cost-basis shall have been substituted by the Director, be based upon the Licensee’s long-run incremental costs of providing Carrier Pre-selection Facilities;
2. be calculated on the basis of information provided by the Licensee to the Director in accordance with related provisions of this Licence and in response to any written request by the Director which shall be responded to within the reasonable time limits specified in the request;
2. The following provisions shall also apply with respect to any determination made under paragraph 50A.8:
1. the Director may determine that a cost is not reasonable if he considers that the Licensee could at the relevant time have used lower cost methods in implementing the relevant aspect of any Carrier Pre-Selection Facility and in that event the Director may disallow the item of cost in question in whole or in part as appropriate;
2. in the event that, in making any determination under paragraph 50A.8 the Director considers that the cost basis of any charges for a Carrier Pre-selection Facility in any preceding period has been inaccurately estimated, he shall make an adjustment to such a charge determined by him as he considers is appropriate for rectifying the matter.

1. the request for the provision of Carrier Pre-selection or Carrier Pre-selection Facilities, taking into account the technical and operational characteristics of the Licensee’s Applicable Systems, and, if relevant, those of the applicable systems of the Pre-selected Operators;
2. the costs of providing Carrier Pre-selection or Carrier Pre-selection Facilities;
3. the categorisation of costs;
4. the proposed use or use of a higher cost method in proposing to implement or implementing any aspect of Carrier Pre-selection where a lower cost method could or ought to have been used;
5. the charges to be made for providing Carrier Pre-selection Facilities;
6. the basis for calculating such charges.

1. choose certain categories of Publicly Available Telephone Service to be carried by the Pre-selected Operator without having to dial an Access Code prefix or follow any other procedure to invoke such routing; and
2. suspend any pre-selected choice in (i) above for individual calls on a call-by- call basis by dialling an Access Code prefix having made arrangements to do so with alternative Operators.

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Autodiallers – smart boxes installed at the customer's home which automatically dial the prefix to route calls to the selected CPS operator.

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