Oftel - SERVICE DELIVERY AGREEMENT

SERVICE DELIVERY AGREEMENT

Contents

Statement of accountability

Delivering key results

Improving performance

Consumer focus

Managing people

Electronic government

Policy and strategy

Technical Annex

STATEMENT OF ACOUNTABILITY

This SDA covers the Office of Telecommunications (Oftel). The Director General of Telecommunications is responsible for its delivery.

DELIVERING KEY RESULTS

Oftel’s aim is to provide the best possible deal for telecommunications customers in terms of quality, choice and value for money through effective competition. The following four outcome based objectives have been set to achieve this:

effective competition in all main UK telecoms markets – providing benefits in terms of value for money to consumers in existing services and a wide range of new and innovative services;
well informed consumers able to take advantage of choice;
adequately protected consumers;
prevention of all significant anti-competitive practices.

In pursuing these objectives Oftel aims to regulate ‘appropriately’ eg to avoid over- regulation which while it could produce short term price reductions would also lead to disincentives to invest, and to avoid under-regulation in areas where competition is not in prospect. The balance between the dangers of over and under regulating is likely to change over time as the market becomes more competitive. The measures set out in this SDA need to be understood in that light of developing markets ie the impact of regulation needs to be seen in a longer term context.

Key Performance targets

Target	Measures
1. Increase the extent to which the market is effectively competitive or effective competition is in prospect. Objective 1	We will maintain a table of the main markets showing which of these are not competitive, competition in prospect, competition achieved (underpinned by a range of quantitative indicators) - the target is for this table to indicate an increase in effective competition. We will be looking for evidence that competition is delivering benefits to consumers: An increased proportion of consumers for whom prices are set by competitive forces rather than by price cap regulation Improved value for money for consumers as seen by declining prices and at least maintained quality of service UK moving towards/maintaining a good relative position vis-à-vis other competitor countries on price and quality In the absence of such evidence, we will act through the various levers set out in our strategy to secure these benefits.
2. Increase: The awareness amongst consumers of the choices available to them; the availability of useful information on price and quality comparisons provided by the industry/private sector initiatives; the proportion of consumers making well informed choices. Objective 2	We will be targeting an increase in the proportion of consumers: aware of the fact there is a choice of supplier using advanced services aware of and using price & quality comparison information provided by industry/private sector
3. All consumers protected by: Effective competition or regulation where competition is not effective; Ensuring access to basic telecoms services at affordable prices on reasonable request. Objective 3	We will be: Targeting no real price increase for any significant group of residential consumers for basic telephony Targeting an increase in the number of residential consumers whose basic telephony needs are being met
4. Encourage and secure a reduction in significant anti-competitive practice by taking effective action. Objective 4	We will be: Targeting reductions in anti-competitive behaviour Targeting completing rigorous investigations within time frames set to be stretching but achievable Establishing a basis for use of the Competition Act to prevent anti competitive behaviour
5. Spending on Oftel will deliver "value for money"*	Improvements in the rate of change of telecoms consumer benefits as measured under Target 1 (eg in terms of price reductions, international comparisons, increase in extent of competition) will exceed the rate of change of Oftel funding.

*see also sections C.1 and C.2.

The key performance targets include factors outside Oftel's direct control as many of the targets relate to future market development and what happens in the market is only in part a result of action taken by Oftel.

Details of how Oftel intends to achieve its targets are given in the Oftel Strategy Statement and Management Plan.

Objective 3 in particular addresses issues of social and economic inclusion.

Measuring performance

Performance indicators will be subject to internal checking. Most of the information is published and hence subject to industry and consumer group scrutiny.

IMPROVING PERFORMANCE

Strategies for Improving Performance

Performance improvement projects and programmes are normally specified in Oftel’s Management Plan and are monitored on a quarterly basis. The key priorities of our improvement programme include:

A review of differences in performance between the statutory utility regulators with a view to improving performance by the end of 2001 (a new priority); The review will focus on the report of external consultants into the efficiency with which resources are used by each regulator and the identification of best practice;

The introduction of a revised pay and grading system to support Oftel’s performance management system.

Oftel will review and implement, as appropriate, recommendations of the external efficiency review and agree with HM Treasury by end March 2001 a timetable for implementation.

A review of Oftel’s ways of working and internal organisation was undertaken in 1998 and a major restructuring of the department was carried out towards the end of that year. The review covered all posts in Oftel.

Value for Money Targets

Oftel's aim is to provide the best deal for the consumer. We seek to deliver this outcome in a cost effective way. The extent to which this goal is being achieved can be monitored at a high level by considering the "benefits to consumers" reflected in a range of measures ie:

declining prices - with quality monitored to ensure it is at least maintained

maintaining or achieving favourable rankings for UK consumers in international price benchmarking comparisons

an increasing proportion of the telecoms market that is effectively competitive.

The effect of our internal projects and programmes to help Oftel operate efficiently and effectively (specified in the management plan and including IT, personnel policy, training, budget management and knowledge management) together with the external performance review (see section C.), will ensure Oftel delivers the outcome for consumers in a more efficient way.

A broad measure of the "value for money" that Oftel provides can be determined by considering the "benefits to consumers" in relation to Oftel's costs. Trends in consumer benefits will be tracked against changes in Oftel’s funding, ie by comparing over time the average rate of change in consumer benefits against the average rate of change of Oftel’s costs.

However, it should be noted that there are many factors outside Oftel's control that influence the benefits seen by consumers.

Variations in performance

Oftel is currently being benchmarked, through an exercise commissioned by the Treasury, against other utility regulators and against comparable organisation(s). Further benchmarking will be carried out periodically.

Procurement

Oftel will work closely with the Office of Government Commerce (OGC) to contribute to economies of scale across government and will comply with OGC gateway processes for all large, complex or novel projects. Key performance indicators will be developed in consultation with the OGC from March 2001.

Fraud

Oftel’s fraud policy was reviewed during 1999.

CONSUMER FOCUS

Consumer complaints

The following output targets have been set:

Response for written cases (letters, faxes and e-mails) within 5 working days.

From October 2000 response time to E mails to be reduced to 24 hours wherever possible.

Phone calls – same day resolution.

MANAGING PEOPLE

Civil Service Reform

As part of the civil service Oftel aims to create a more open, diverse and professional organisation. One in which people will put the public’s interests first; innovate, create and learn; take personal responsibility; work in partnership with others; use new technology to deliver results of high quality and good value; and maintain Investor in People accreditation.

Stronger leadership with a clear sense of purpose

i. Oftel will use the new leadership competencies (once be defined by the Cabinet Office) for targeted recruitment/promotion.

ii Because a key criterion for good leadership is self-awareness, Oftel has extended 360-degree feedback and personal development programmes to everyone in the Senior Civil Service (SCS).

Better business planning

iii Oftel ensures that key targets are owned by individuals and teams who are accountable for their delivery, ensures that regular rigorous reviews involving all managers are carried out to monitor progress against targets and ensures that targets are cascaded down to Personal Forward Job Plans.

iv The EFQM Excellence Model has been evaluated as a possible tool for driving measurement and benchmarking, but we have decided to concentrate our resources on maintaining our Investor in People status achieved in October 1999. We are due for a post recognition review in November 2000.

v Oftel consults annually with stakeholders (including consumers and the telecoms industry) on its draft Management Plan. The external efficiency review of utility regulators, referred to earlier, will involve a review of business planning.

Sharper performance management

vi. Oftel will work towards new pay and appraisal systems, drawing on the work the Public Services Productivity Panel is doing with several departments/agencies. The new system for the SCS (under development by the Cabinet Office) will be introduced as soon as possible.

vii. Oftel has redirected its training programme to support the capability of managers at all levels to manage performance. The programme will be further improved drawing on best practice.

A dramatic improvement in diversity

viii Oftel has produced an action plan (to include staff training and detailed diversity monitoring) and will prepare six-monthly reports on progress made against the recommendations of the Diversity Group Report (including equality-proofing its processes, especially for recruitment, appraisal and promotion).

A more open Civil Service which brings on talent

ix. Oftel will support a new drive to increase departmental interchange targets for secondments in and out at all levels, and to raise the existing target (that by 2005 50 per cent of the SCS should have had experience outside the Civil Service) to 65 per cent.

x. Oftel regularly recruits through open competitions and will continue to bring in new thinking and people who have skills that are currently in short supply in the Service.

xi. Oftel will continue to actively ‘talent spot’ and to improve its staff development programme.

xii. To open up mobility between departments, Oftel will work with the Cabinet Office to ensure that Oftel’s vacancies can be posted on a new Civil Service website.

xiii. Oftel gives its best and most promising performers experience in areas of frontline delivery, and will set the presumption that in the future to reach the SCS, people will have had experience both of frontline delivery or operational management and of working in more than one culture.

A better deal for staff

xiv. Oftel will regularly look for improvements in the deal that it is offering to staff. A pay and banding review is currently under way proposals for change will be drawn up by early 2001. This will include non-financial rewards.

Sickness absence and ill health retirement

i. Oftel will aim to reduce sickness absence to 4.7 days sickness per staff year by 2001 and to 4.2 days by 2003.

ii. Oftel will work towards the Cabinet Office target of 3.72 ill health retirements per 1,000 staff.

ELECTRONIC GOVERNMENT

Oftel will contribute to the Government target for electronic delivery of services: 100% of dealings with government should be capable of electronic delivery by 2005.

POLICY AND STRATEGY

Oftel's Strategy Statement sets out our approach to devising policy through a process of regular market and consumer protection reviews, key features of which will be:

Full consultation with stakeholders;
Evaluation of a wide range of measures of effective competition;
Use of a cost-benefit framework for taking decisions regarding regulatory action;
Encouraging self and co-regulation across all relevant policy areas.

October 2000

Oftel SERVICE DELIVERY AGREEMENT 2001-04 - Technical Annex

The following table sets out the full technical details of how the SDA for Oftel will be measured.

Target	Technical note
1. Increase the extent to which the market is effectively competitive or effective competition is in prospect. Objective 1
We will maintain a table of the main markets showing which of these are not competitive, competition in prospect, competition achieved (underpinned by a range of quantitative indicators) - the target is for this table to indicate an increase in effective competition.	We will set a base line for April 2001 which sets out, for each of the main market sectors, the state of the market sub-sections (ie Non Competitive, Competition in Prospect or Competitive) and the associated industry turnover. During each market review (as described in management plan) we will, for each segment of the relevant market, determine the current competitive "state" of the market and the associated turnover. Comparison with the April 2001 baseline will enable us to measure the progress towards effective competition. It is useful to consider 2 measures: 1. the turnover associated with markets that are competitive (expect to increase over time) 2. the turnover associated with markets that are either competitive or competition in prospect (expect to increase over time) Source: information collected as part of the market reviews
An increased proportion of consumers for whom prices are set by competitive forces rather than by price cap regulation	The number of consumers buying telephony services not covered by price caps as a proportion of all telephony consumers will be monitored (note only fixed "PSTN" services will be considered for this). Source: "Market Information" published by Oftel
Improved value for money for consumers as seen by declining prices and at least maintained quality of service	We will measure price declines on a % basis both for individual markets and for the overall market. Sources include: market information published by Oftel and specific price monitoring studies. Quality will be monitored to ensure this is maintained at a reasonable level. Key indicators are: Mobile: % of calls connected and completed successfully PSTN: faults per line and complaint handling
UK moving towards/maintaining a good relative position vis-à-vis other competitor countries on price and quality	For all of the main markets we will look to evaluate the UK benchmarking outcome on a scale of 1-5 (with 1 = poor and 5 = very good) taking into account: the UK ranking, the gap between the UK and the cheapest other country, the extent to which results are spread or clustered. We will monitor this "score" over time (both for each service and in terms of an overall average) Source: Oftel benchmarking studies plus other public sources
2. Increase: The awareness amongst consumers of the choices available to them; the availability of useful information on price and quality comparisons provided by the industry/private sector initiatives; the proportion of consumers making well informed choices. Objective 2
Targeting an increase in the proportion of consumers aware of the fact there is a choice of supplier	Oftel market research will ask consumers about their awareness of alternative suppliers
Targeting an increase in the proportion of consumers using advanced services	Initially we will consider fast internet access as an example of an "advanced service" and take up of this will be monitored through our market research. Other advanced services will be included as appropriate.
Targeting an increase in the proportion of consumers aware of and using price & quality comparison information provided by industry/private sector	We will monitor awareness and use of CPIs and phonebills.org. Source: Oftel market research and website "hits".
3. All consumers protected by: Effective competition or regulation where competition is not effective; Ensuring access to basic telecoms services at affordable prices on reasonable request. Objective 3
Targeting no real price increase for any significant group of residential consumers for basic telephony	No significant group of BT residential customers to experience any real increase in their bill over the price control period (based on same usage and normal calling pattern). Monitored as part of the price control monitoring.
Targeting an increase in the number of residential consumers whose basic telephony needs are being met	Percentage of consumers who are satisfied with their current calling method will be monitored through Oftel's market research. Data on disconnection rates and take up of special schemes (such as the low user scheme) will also be presented as these are also relevant to this measure
4. Encourage and secure a reduction in significant anti-competitive practice by taking effective action. Objective 4
Targeting reductions in anti-competitive behaviour	We will analyse the competition complaints that we receive and monitor the extent to which complaints recur - the target is to reduce any recurrence (ie once action has been taken, it is effective in deterring similar behaviour in future).
Targeting completing rigorous investigations within time frames set to be stretching but achievable	The current targets are: Complete preliminary enquiry in 30 working days for competition cases. Complete 80% of investigations within a further 6 months and all within one year. This is monitored by Oftel
Establishing a basis for use of the Competition Act to prevent anti competitive behaviour	Oftel will provide further clarity to stakeholders as to when and where we will use our Competition Act Powers, taking full account of changes to the EU and UK frameworks, and is aiming to publish a statement in Feb 2001. Measures to monitor compliance with the published statement will then be constructed and reported.
5. Spending on Oftel will deliver "value for money"
Improvements in the rate of change of telecoms consumer benefits as measured under Target 1 (eg in terms of price reductions, international comparisons, increase in extent of competition) will exceed the rate of change of Oftel funding.	The intention is to present the rate of change for the 3 measures reported under Target 1 considering price reduction, international comparisons and extent of competition compared to the percentage increase in Oftel funding. The relationship between consumer benefits and Oftel costs is complex and involves time lags. It is more meaningful to consider the trend over a period, rather than considering individual years. The measure will, therefore, be calculated on the basis of a 3 year moving average to provide some smoothing. Note lack of historic data for some of these measures will mean that initial reporting will focus on establishing the baseline. Note the rate of change of Oftel funding will reflect efficiency gains arising from the implementation of recommendations of the external efficiency review.

CSR PSA targets - relating these to SDA targets

The following lists Oftel's CSR PSA targets, comments on whether these are completed/ outstanding etc and then indicates how/if these are covered by the SDA targets.

CSR PSA target	Completed/ Outstanding etc	Covered by which SDA target?
i) Work with DTI to attempt to achieve changes to European Community telecommunications law that secure promotion of competition and consumer protection. Input to review in 1999-2000	Input to 1999/2000 review will be completed before SDA comes into effect.	Although work will continue in this type of area, this is no longer directly reflected in one of the SDA targets. The output of this work will contribute to our achievement of targets 1 and 3.
ii) Long term strategy for Oftel’s achievement of its goal and objectives to be developed and published by autumn 1999	Achieved	The new targets are consistent with the implementation of the strategy
iii) Policy statement on the review of competition in the mobile market to be published by summer 1999. iv) Identify whether there is a need for regulatory action in order to bring higher bandwidth services to the customer and statement of responses to consultation published by summer 1999.	Achieved	SDA Target 1 now relates to an outcome (an increase in the extent to which the market is effectively competitive) rather than the process of identifying the regulatory action required.
v) Complete preliminary enquiry in 30 working days for competition cases. Complete 75% of investigations within a further six months, and all within one year	Ongoing	SDA Target 4 includes this as a delivery measure.
vi) Monitor price control requirements: Weighted average price of BT’s basket of services to fall by at least RPI – 4.5% each year (where weights used relate to revenues from lowest spending 80% of BT’s residential customers) no BT residential customer to experience any real increase in their bill over the price control period (based on the same usage and normal calling pattern). Annually to July 2001	Ongoing	SDA Targets 1 and 3 include price monitoring as delivery measures.
vii) Review of need for new price controls on BT from August 2001 and publish initial consultation document by autumn 1999	Initial milestone achieved	SDA Target 1 now relates to an outcome (an increase in the number of market sectors which are effectively competitive) rather than the process of identifying the regulatory action required.
viii) Ensure publication of price comparison information for residential customers of fixed link telecommunications companies by summer 1999	Target met Autumn 1999	SDA Target 2 has delivery measures concerned with the outcome of whether consumers are aware of and using this type of information.
ix) Improve the responsiveness of the telecommunications industry to customer needs by reviewing progress each year in the UK telecoms market, and by assessing how a range of different customers – in both residential and business sectors – are doing in getting the ‘best deal’ from telecommunications.	Ongoing	As part of the process of regular market reviews we will be assessing the extent to which consumers are getting the "best deal" from telecommunications. The outcome of these reviews is reflected in SDA Target 1.