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| Mixing PSTN traffic on Partial Private Circuit infrastructure - 18 October 2002 | |
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Contents
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Total number of SMA4 Muxes on which mixing is requested in the first year |
Number of ISH SMA4 Muxes on which mixing is requested in the first year |
Share of set-up costs to be recovered from ISH Muxes in the first year |
Set-up charge for ISH Mux |
Average increase of connection charge for ISH Mux if set of set-up charge is included |
|
15 |
10 |
280,000 |
28,000 |
59.57% |
|
25 |
17 |
280,000 |
16,471 |
35.04% |
|
40 |
27 |
280,000 |
10,370 |
22.06% |
|
50 |
33 |
280,000 |
8,485 |
18.05% |
|
60 |
40 |
280,000 |
7,000 |
14.89% |
|
75 |
50 |
280,000 |
5,600 |
11.91% |
|
80 |
53 |
280,000 |
5,283 |
11.24% |
|
90 |
60 |
280,000 |
4,667 |
9.93% |
|
100 |
67 |
280,000 |
4,179 |
8.89% |
Table 1(b): BT’s range of PSTN/PPC prices- CSH
|
Total number of SMA4 Muxes on which mixing is requested in the first year |
Number of CSH SMA4 Muxes on which mixing is requested in the first year |
Share of set-up costs to be recovered from CSH Muxes in the first year |
Set-up charge for CSH Mux |
Average increase of connection charge for CSH Mux if set of set-up charge is included |
|
15 |
5 |
120,000 |
24,000 |
20.00% |
|
25 |
8 |
120,000 |
15,000 |
12.50% |
|
40 |
13 |
120,000 |
9,231 |
7.69% |
|
50 |
17 |
120,000 |
7,059 |
5.88% |
|
60 |
20 |
120,000 |
6,000 |
5.00% |
|
75 |
25 |
120,000 |
4,800 |
4.00% |
|
80 |
27 |
120,000 |
4,444 |
3.70% |
|
90 |
30 |
120,000 |
4,000 |
3.33% |
|
100 |
33 |
120,000 |
3,636 |
3.03% |
Notes to Table 1 (a) and (b) :
1. the PPC muxes
are SMA-4s
2. the PPC ISH and CSH connection charges are calculated as a weighted
average for the three types of SMA-4 ISH and CSH muxes as per BT’s current
price list.
Description of BT’s indicative charges
1.3 BT has formulated its indicative charges on the basis that it should recover the £1.13 million development costs over a three-year period, ie £400k recovered equally over the three years. BT has also assumed an ISH/CSH ratio of 2:1 based on an analysis of PPC muxes acquired by OLOs over the last year. Therefore, BT has allocated development costs of £280k and £120k per annum for ISH and CSH respectively and set indicative prices for ISH and CSH accordingly.
1.4 BT has then calculated a range of set up charges assuming different levels of demand for PSTN/PPC muxes. BT has not considered in its calculations any cost savings that may result from not requiring separate muxes for PSTN circuits.
Design 1 – included in BT’s feasibility study
1.5 In the feasibility study submitted to the Director, BT proposed the following design (‘Design 1’) for mixing new PSTN traffic over PPC infrastructure. BT states that the design would permit the delivery at the 2Mbit/s circuit level in the BT exchange off an SMA-4 mux. BT claims that this delivery method only works for SMA-4 and that this design is only for mixing new PSTN interconnects over PPC muxes. BT suggests that the solution can be applied to existing PSTN, on the basis that operators cease an existing link and subsequently order a new link – which is subsequently provided as new on new PPC infrastructure. Figure 1 below illustrates how the design 1 works.
Design 2: BT’s preferred mixing solution
1.6 On 24 September 2002 BT informed Oftel that it was in receipt of Statement of Requirements (SORs) from a number of OLOs requesting the mixing of other services such as DSL and ATM on PPC infrastructure. BT has therefore considered what options could meet these wider requirements and on 27 September BT proposed an alternative design (‘Design 2’) to Oftel, modelled on the PSTN/PPC design suggested by the Director in the Phase 1 Direction. BT states that this design will facilitate future product mixing, ie DSL, ATM and LLU backhaul on PPC infrastructure at the SMA-4 and SMA-16 level and can be implemented within the timescales suggested in the Phase 1 Direction. The Director acknowledges that design 2 closely matches the SORs submitted by the OLOs, however, he also notes BT claims that it does not have indicative cost and prices for this solution and that it could take a longer time to provide. The Director is not proposing to take a view on which design BT should proceed with, he believes that OLOs are better placed to decide which design suits their requirements and therefore invites OLOs to express their preference in their consultation responses to this draft Direction.
The Director’s views on BT’s PSTN/PPC solutions
1.7 In relation to BT’s statement that the feasibility study only relates to new PSTN interconnects the Director notes that prior to the draft Phase 1 Direction BT stated that mixing of new and existing PSTN over PPC infrastructure raised different issues, thereafter, BT has consistently maintained that the mixing of existing PSTN on PPC infrastructure raises the same issues as mixing new PSTN on PPC infrastructure. BT has not provided any evidence to the Director to suggest that this raises different costs and technical issues, other than rendering (in the case of design 1) the PSTN muxes, through which the existing PSTN interconnects were originally provided, redundant. However, the Director notes that these PSTN interconnect muxes may alternatively become ‘spare’ for a period of time or be available to be used elsewhere in BT’s network.
1.8 Therefore, in the absence of any evidence contrary to that submitted by BT in the PSTN/PPC feasibility report, the Director proposes to proceed on the basis that BT will resolve the same technical issues for mixing both new and existing PSTN over PPC infrastructure. The Director believes that the costs incurred in developing the existing PSTN product will be similar (apart from the potential issue of redundancy of PSTN muxes). In chapter 2, the Director addresses the cost issues relating to PSTN muxes becoming redundant, as a result of mixing existing PSTN over PPCs. The Director also believes that BT will incur the same or similar set up charges whether it adopts design 1 or design 2 as both designs will involve the same OSS and process changes. Therefore in the absence of evidence from BT to suggest otherwise he proposes to set the PSTN/PPC set up charges on the development costs assessed by BT in its feasibility study.
1.9 Proposal 1: The Director expects BT to provide one of these high level designs on the proviso that OLOs binding forecasts meet the minimum threshold for reasonable demand as set out in table 2.1 in chapter 2. As stated in the Phase 1 final document, the Director does not propose to specify detailed technical requirements (ie the Director will not mandate a specific design), as this is more appropriate for BT and the OLOs to identify and agree upon. However, the Director will require BT to have the utmost regard to the requirements of the Operators when designing and supplying the PSTN/PPC mixing product. To aid this process the Director requests views on which of the two designs described in paragraphs 1.5 to 1.8 industry would prefer to base PPC/PSTN mixing on.
1.10 The Director notes that design 2 will allow the OLOs to mix other types of traffic on PPC infrastructure but that this design implies that PSTN muxes will still be necessary, whereas with design 1 the BT PSTN muxes becomes redundant. This implies that there may be more cost savings with design 1. Please see chapter 2 for further discussion on the redundancy issue.
Assessing reasonable demand
1.11 In August 2002, the Director invited OLOs to identify the BT exchanges in which their existing and planned PSTN and PPC requirements coincided or were likely to coincide. This exercise highlighted the sites where mixing of PSTN and PPC traffic was a distinct possibility. After receiving BT’s feasibility study, Oftel then circulated a range of indicative charges (similar to those set out in table 2.1) to the interested OLOs and was able to estimate indicative level of demand for muxes on which to mix PSTN and PPC traffic. The Director is aware that the actual level of demand will depend on the level of the set-up charge and has therefore used the information collected from the OLOs together with the information contained in BT’s feasibility study to arrive at a range of charges as set out in table 2.1 in chapter 2.
The Volume Threshold
1.12 The Director believes a minimum volume threshold for PSTN/PCC mixing should be reached before BT is requested to provide this product. This would ensure that there is reasonable demand for the product, which in turn ensures that BT can reasonably expect to recover its set up costs. The Director believes that this threshold should be set for demand in the first calendar year after launch of the PSTN/PPC product. The Director considers that the minimum level of demand for the first year should be such that the set up charges determined by Oftel, will ensure one third development cost recovery. This is consistent with BT’s proposals that one third of the costs should be recovered in the first year. Generally the Director would consider a five-year period for cost recovery. However, in this particular case, he believes that it is reasonable to ensure that BT recovers a significant proportion of the PSTN/PPC set up costs in the first year and additionally that OLOs should not have to be tied into long term binding forecasts. Therefore, the Director believes that a three-year cost recovery period and one year binding forecast agreements together strike a fair balance in the interests of both BT and OLOs. The Director believes that provided BT recovers a third of its costs in the first year then this is sufficient evidence to suggest that it is likely that it will continue to recover costs in years two and three.
1.13 Proposal 2: The Director proposes to set the year one volume threshold within the range set out in table 2.1 in chapter 2 for SMA-4 PSTN/PPC enabled muxes. The Director believes that this range represents a reasonable level of demand, which provides a reasonable expectation that BT will recover its development costs. After considering responses from interested parties to this consultation as to whether the range of set up charges stimulates an appropriate level of demand, the Director will opt for a point in the range as his minimum volume threshold.
The Forecast penalty
1.14 As set out in the final Phase 1 Direction, the Director intends to set a forecast penalty based on BT’s indicative costs of the PSTN/PPC which is payable by individual OLOs in the event that their respective forecasts are not met. The aim of the penalty is to ensure that BT recovers one third of its development costs in the first year.
1.15 Proposal 3: Accordingly, the Director considers it appropriate to set one year PSTN/PPC forecast penalty equivalent to the PSTN/PPC set up charges as detailed in table 2.1 in chapter 2.
1.16 OLOs will not incur a forecast penalty if the aggregate SMA-4 muxes ordered by industry in the first year after product launch meet the volume threshold set by the Director because BT will have recovered one third of its development costs. However, if industry orders do not meet the volume threshold in the first year, than individual OLOs will incur the forecast penalty for each SMA-4 mux that is not ordered in respect of the binding forecast agreements.
Invitation to enter into binding PPC/PSTN forecasts
1.17 upon confirmation of the set up charges in the final Direction, the Director will invite interested parties to submit one year forecast agreements to BT, as evidence of reasonable demand for the PPC/PSTN mixing product.
1.18 the Director has already set a time limit of fourweeks in the final Phase 1 Direction within which interested parties must enter into a one-year binding forecast agreement with BT for PSTN/PPC mixing. If the aggregate total forecasts either meets or exceeds the volume threshold set by the Director, then BT shall commence detailed product design and development with a view to provide PSTN/PPC mixing within 24 weeks of the final Direction.
1.19 Proposal 4: In order to give OLOs sufficient time to decide whether to enter into binding forecast agreements BT must make binding forecast agreements available to interested OLOs within 10 working days of the final Direction.
1.20 as set out in the draft Phase 2 Direction, the Director believes it is necessary to amend paragraph 4.4 of Phase 1 Direction in order to allow him to set PPC/PSTN charges and delete paragraph 4.9 to merge the process to establish reasonable demand for mixing new and existing PSTN services over PPC infrastructure.
1.21 BT states in its response to the Director’s Phase 2 proposal to align the process for mixing existing and new PSTN circuits over PPC infrastructure that its current network design (design 1) shows only a minimal reduction in the network elements used and therefore it doubts whether sharing will provide sufficient financial benefit to the OLOs. BT adds that mixing existing PSTN will entail network engineering, which would increase the cost of migrating existing PSTN circuits. BT also claims that the benefits of sharing cannot be accurately quantified until all development costs are identified.
1.22 In response to BT’s arguments, the Director believes it is appropriate for the OLOs to decide whether mixing PSTN over PPC infrastructure provides a sufficient financial benefit. In relation to increased costs of mixing existing PSTN circuits, the Director refers BT to paragraph 1.8 above. The Director required BT, in the final PPC Phase 1 Direction to provide a robust assessment of development costs charges and indicative charges as part of its feasibility study, therefore the Director believes it is appropriate to base his set up charges on the results of the feasibility study.
1.23 Conclusion 1: Accordingly, paragraph 1 of the Direction amends Paragraphs 4.4 and deletes paragraph 4.9 of the Phase 1 Direction issued by the Director on 14 June 2002.
Recent developments
1.24 BT has recently informed the Director that in some isolated cases, it already mixes PSTN and Private Circuit services. At this time BT has been unable to explain how it is currently mixing the two services.
1.25 As set out in paragraph 3.26 of the explanatory document to the Phase 1 Direction, the Director in assessing the extent of sunk costs; will take into account whether or not BT provides such a service to itself. The current assessment of set up costs is based on the assumption that BT does not currently mix PSTN and PPC traffic. The Director proposes to investigate this recent development during the consultation period and if necessary he may reassess set up costs, which may alter the set up charges.
Background
2.1 As part of their request for determination on PPC, OLOs have requested that BT permits PSTN interconnect circuits and PPCs to be mixed onto a single infrastructure. Some OLOs have requested to mix only new PSTN interconnect circuits with PPCs, whereas other have asked to mix also existing PSTN interconnect.
2.2 If the product is introduced, the Director is proposing the following charges:
1. a set-up charge OLOs will pay to BT on each new PPC MUX on which mixing is requested. This charge will allow BT to recover the set-up costs reasonably and efficiently incurred to introduce PPC/PSTN mixing.
2. a one-off rebate that BT will pay to OLOs on the intra-building circuit connection charge (which the OLO pays when he orders a new PSTN interconnect circuit) for each new PSTN interconnect circuit that is terminated on a PPC Mux. This rebate will ensure that BT does not over-recover equipment costs. A one-off rebate will also be paid on each existing PSTN interconnect circuit that is terminated on a PPC Mux.
3. a regular rebate that BT will pay to OLOs on the intra-building circuit rental charge (that the OLO pays regularly for each PSTN interconnect circuit it has) for each new and existing PSTN interconnect circuit that is terminated on a PPC Mux. This rebate will ensure that BT does not over-recover infrastructure costs.
2.3 These charges are discussed more in detail below.
(1) Charge to recover set-up costs
2.4 As mentioned above BT will incur some set-up costs to enable this PPC/PSTN mixing. BT’s feasibility study estimates these costs to be £1,129,000 (for more details see Annex B). The Director considers that BT should levy a set-up charge to recover these costs. This charge will be paid on the top of the connection charge for each new PPC Mux on which OLOs wish to mix PPC and PSTN circuits. The Director is proposing a range of set-up charges. These charges depend on the level of demand expected in the first year after the launch of the product.
Consultation requirement:
The Director invites the OLOs to submit in their consultation responses an indication of their demand for new SMA4 Muxes on which they wish to mix PPCs and PSTN interconnect circuits in the first year after the launch of the PSTN/PPC product. On the basis of this information the Director will select the most appropriate set up charge and the minimum threshold for the introduction of the product.
Proposal 5: Range of set up charges proposed by Oftel to allow BT to recover set-up costs and corresponding minimum volume threshold of new SMA4 PPC Muxes on which to mix. Set up charges will apply to both design 1 and design 2 described in Chapter 1.
Table 2.1: Set-up charge proposed by Oftel for each level of demand in the first year
|
Set up charge/Forecast penalty per SMA4 MUX (£) |
Volume Threshold – minimum number of Muxes requested in the first year |
|
30,347 |
14 |
|
16,995 |
25 |
|
14,162 |
30 |
|
10,622 |
40 |
|
8,497 |
50 |
Charging principles
2.5 This proposed set-up charge has been based on the following principles:
a. The charges should be such that BT can reasonably expect to recover all costs that it has reasonably, efficiently and necessarily incurred to offer PSTN/PPC mixing. The costs should include an adequate return reflecting the opportunity cost of the money spent by BT to offer this product and recovered over an appropriate number of years. This return has been set equal to the regulated rate of return of 13.5%. (More details on how this rate has been arrived are contained in Annex E of the Proposal for Network charge and retail price control from 2001 – February 2001)
b. BT should recover these set-up costs only from OLOs that choose to mix PPC and PSTN traffic on their PPC Muxes.
c. BT shall contribute to the recovery of these costs if it decides to take advantage of this form of infrastructure sharing and pay a corresponding contribution towards the set-up costs.
d. The costs should be recovered over a reasonable period of time. The Director considers BT’s proposal of a period of 3 years to be adequate (see paragraph 1.12 above).
e. The recovery of these costs from the beneficiaries should take place through a set-up charge to be paid on each new SMA4 PPC Mux, when sharing of that Mux is requested.
f. The set-up charge should be constant, independent of the specific type of SMA4 Mux (ie regardless of whether it is ISH or CSH and single or dual fibre). The Director does not agree with BT’s proposals that the charge should be higher (in absolute terms) for ISH Muxes than for CSH Muxes. In the information and charge proposal provided by BT there is no justification of why a larger share of the set-up costs should be recovered from one type of Mux. Therefore, the Director, on the basis of the information at his disposal, considers that each Mux should contribute equally to recovery of the set-up costs and that only one charge should be levied.
g. The charge shall remain constant in nominal terms over time and should not change if demand for Muxes varies over time. Hence if 3 years proves not to be the correct period of time to recover all the costs identified under (a), BT shall extend or reduce the period to ensure that the recovery of costs is complete. Therefore, BT should levy the charge until all the costs identified under (a) have been recovered. After such time, OLOs will not incur a set up charge.
Detailed calculations
2.6 The range of set-up charges proposed in table 2.1 above has been calculated using BT’s estimate of the set-up costs necessary to allow PPC/PSTN mixing. The Director has assumed that these set-up costs should be recovered in the first three years after the launch of the product and that the level of demand remains constant for these first three years (as proposed by BT). Up to this point the approach used by Director is the same as the approached proposed by BT (see paragraph 1.3 and 1.4 above) in setting its indicative charges. The calculations then differs, as the Director considers that BT should be allowed an adequate return reflecting the opportunity cost of the money spent by BT to offer this product and recovered over an appropriate number of years and has included a return of 13.5%. Therefore to recover £1,129,000 over a three-year period and assuming that demand stays constant (ie that the same amount of costs should be recovered each year), BT should recover £424,864 each year.
2.7 The Director is proposing just one single set-up charge for all SMA4 Muxes. The Director does not agree with BT’s proposals that the set-up charge should be higher for ISH Muxes than for CSH Muxes. In the information and set-up charge proposal provided by BT no justification is provided for why BT is proposing to recover a larger share of the set-up costs from one type of Mux. The Director considers that the set-up charge should be constant regardless of whether the Mux ordered is ISH or CSH and single or dual fibre, as each Mux should contribute equally to recovery of the set-up costs.
2.8 On the basis of indicative forecasts provided by some OLOs (see paragraph 1.11 above ) the Director has assessed a range of likely levels demand for SMA4s on which PPC/PSTN mixing will be requested in the first year. The corresponding set-up charges have thus been obtained by dividing the share of costs that should be recovered each year by number of SMA4 Muxes demanded in the first year.
2.9 If the assumption on the level of demand proves correct, BT shall recover its costs in three years. However, if demand for Muxes over which to share PPC and PSTN traffic shall prove different, BT shall adjust the length of time over which it levies the charges so that recovery of the costs incurred is ensured, but it shall not vary the amount of the charge. Hence, if for example BT was to recover all set-up costs before the end of the third year due to a higher level of demand, it should stop levying the charge.
2.10 Proposal 6. The recovery of PSTN/PPC mixing development costs through the set-up charges shall be complete as soon as the Present Value of the revenues thus earned is equal to £1,129,000.
The Present Value shall be calculated as the sum of the revenues from the set-up charges, where the revenue in each year t shall be divided by 1 plus 13.5% raised to the power of t minus 1:-
Present Value = Σ (Rt ÷ (1+ 0.135)t-1)
Where:
Once BT has recovered its development costs it will not charge a set up charge for PSTN/PPC enabled muxes.
(2) And (3) Rebates to avoid over-recovery of equipment costs.
2.11 These rebates will only apply if PPC/PSTN mixing is implemented following Design 1 (see Chapter 1). On the basis of the information currently available from BT, if Design 2 is adopted there appears to be no cost-savings therefore no rebates will be payable.
2.12 Mixing PSTN and PPC traffic on PPC infrastructure following Design 1 implies that this infrastructure will be used more efficiently and that unnecessary duplication of infrastructure may be avoided. This can result in cost-savings that should be enjoyed by the OLOs that are using the infrastructure more efficiently. However, under the current charging regimes for these products, BT would keep these cost savings and, thus, over-recover the costs it incurs in providing the relevant infrastructure. Currently, on the basis of the information available, the Director considers that the only cost-savings BT may enjoy are relative to PSTN Muxes.
2.13 The reason why BT may be over-recovering mux costs is due to difference between the charging structures for PSTN interconnect circuits and PPCs. Currently, PPC Mux at the POC end are charged on a capacity basis, ie whenever a new Mux is necessary its cost is charged up-front (the Director’s Phase 2 proposals do not alter capacity charging for Muxes located at the POC end). The POC-end Mux is then dedicated to that OLO, which can terminate circuits on it until spare capacity is exhausted.
2.14 The cost of the PSTN Muxes instead is charged on a service basis, ie the intra-building rental and connection charges paid by the OLO for each PSTN interconnect circuit include the recovery of a share of this cost. Therefore, if an OLO were to terminate a PSTN interconnect circuit on a PPC Mux it would have already paid the whole costs of the Mux to BT through the PPC charge for the POC-end Mux, but it would also pay a contribution for the use of a Mux through the intra-building rental and connection charges that it pays on the PSTN interconnect circuit. BT has not provided any detailed information on how exactly the costs of the PSTN Muxes are recovered through the intra-building charges. However, the Director believes it is correct to assume that most of the capital cost of the equipment is recovered through the intra-building connection charge and that the intra-building rental charge mostly recovers the on-going costs. This conclusion has been arrived at on the basis of the information available on the intra-building charges, which are included in the network charge control, and on the cost of the PSTN Muxes.
Proposal 7: Accordingly, the Director proposes to introduce two rebates which only apply if design 1 is adopted:
These rebates are set out in Table 2.2 below.
Table 2.2: Rebates proposed by Oftel for each new and existing PSTN interconnect terminated on a PPC MUX
|
Connection rebate (one-off rebate) |
£89 |
|
Quarterly Rental rebate (regular rebate) |
£6 |
Pricing principles
2.16 The proposed rebates has been based on the following principles:
a. BT should pay a one-off connection rebate to the OLOs every time there is a request for a new or an existing PSTN interconnect circuit to be terminated on PPC infrastructure;
b. BT should pay a regular (quarterly) rental rebate on the intra-building rental charge for each new or existing PSTN interconnect circuit that terminates on PPC infrastructure.
c. The Director considers that this approach complies better with the principle of cost causation than a generic rebate based on the expected average number of PSTN interconnect circuits that are terminated on a PPC Mux. The rebates proposed by Oftel reflect more directly the cost-savings generated by the choice to terminate a PSTN interconnect circuit on a PPC mux and provides the OLOs with the correct incentive to exploit the opportunity to mix traffic on the same infrastructure.
d. This rebate should reflect the costs that BT would otherwise recover twice, ie the share of the PSTN infrastructure cost that is included in the intra-building rental and connection charges for the PSTN interconnect circuits.
e. The Director considers that to avoid any alterations to the charges included in the network charge control these cost-savings should be transferred to the OLOs via rebates rather than by setting different intra-building charges for PSTN interconnect circuits terminated on PPC infrastructure.
2.17 BT has argued that the overall concept of having these rebates is incorrect and that if these are introduced it would be under-recovering the cost of the PSTN Muxes. BT claims that if PSTN interconnect circuits are terminated on PPC Muxes rather that PSTN Muxes, the fill rates on these Muxes will be lower and BT will not average recover all the cost of this equipment. BT also provided figures on the average fill rates of ISI and CSI PSTN Muxes to show that these are below the fill rates used to set the intra-building charges in the network charge control.
2.18 The Director does not agree with BT’s argument. The network charge control is there to provide BT with the incentive to be efficient in running its network and thus the fact that at present fill rates are below those used in setting it is not going to affect the Director’s proposals. What matters is the effect of introducing PSTN/PPC mixing on the fill rate of PSTN muxes but not whether BT is currently close to, or below, the fill rate used to set the intra-building charges in the Network charge control.
2.19 The Director believes that there are two issues at stake here. One is the impact on the increase in fill rates of existing PSTN Muxes due to the fact that some new PSTN circuits will be terminated on PPC Muxes rather than on these PSTN Muxes. The second is BT’s ability to recover the cost of the capacity left free on the existing PSTN Muxes by existing PSTN interconnect circuits that are transferred onto PPC Muxes. It is too early to estimate what the joint impact of these two effects will be, however, the Director expects that the capacity still available or freed up could in many cases be re-used. The Director accepts that in the case of CSI PSTN Muxes, as these Muxes are dedicated to a specific OLO and located in its premises, re-use in the same location is extremely difficult and the cost of moving and re-deploying them in other parts of the network is too high. However, in the case of ISI PSTN Muxes, which are located in BT’s premises, re-use is more likely though it may not always be possible. In addition, when no spare capacity is available on existing PSTN Muxes BT would have had to install new PSTN Muxes to terminate new PSTN interconnect circuits, however this becomes unnecessary if the new PSTN interconnect circuits are terminated on PPC Muxes. This would result in savings for BT.
2.20 The Director has taken all the factors discussed above into consideration when setting the rebates (see para 2.21 to 2.23 below for more details).
Detailed calculations
2.21 The rebates proposed by the Director are based on the best information available to Oftel on the share of the PSTN infrastructure costs that are reflect in the intra-building charges paid by the OLOs for PSTN interconnect circuits. The charges paid by the OLOs for PSTN interconnect circuits (the intra-building charges) are included in the network charge control.
2.22 In 1997 when the starting network charges were set, Oftel determined specific charges that were meant to allow BT recover the costs of the PSTN muxes – the SDH Mux connection and rental charges and the PDH mux connection and rental charges. These charges reflected system capacity and fill rates as well as labour and equipment costs. The main items of equipment comprise ‘basic and support items’, tributary cards and terminals. Maintenance, overheads and working capital were also allowed for, at conventional percentage rates. It was considered that these charges were likely to approximate to incremental costs given the absence of significant common costs. More details can be found in Annex E of the 1997 Statement on Network Charges from 1997
2.23 From 1998 onwards BT to simplified the charges for PSTN interconnect and included a number of charges, including the ones for the PSTN muxes, into the intra-building connection and rental charges. This sum was a weighted average, whose weights were specific usage factors. (the calculations performed by BT are explained in NCCN1 from 1997 available at www.btinterconnect.com).
2.24 This implies that currently there are no separate charges that recover only the costs of PSTN Muxes. Thus the Director had to assess the share of the PSTN infrastructure costs that are included in the charges paid by the OLOs for PSTN interconnect circuits from the information available from the intra-building charges for the last 5 years. The Director has started from the PDH and SDH charges set in 1997 and has applied to it the percentage change incurred by the intra-building connection and rental charges between 1997 and 2002. Having thus derived a proxy of the PSTN Mux cost included in the intra-building charges in 2002, the Director has eliminated the share of costs relative to CSI Muxes. This reduction is meant to reflect the fact that the Director believes that CSI PSTN Muxes cannot easily be re-used and, thus, BT should be allowed to recover their costs from all PSTN interconnect circuits independently of the Muxes on which they terminate. In addition, the Director has also reduced the share of costs relative to ISI Muxes to consider that their re-use may not always be possible.
2.25 To separate the costs relative to CSI muxes and those relative to ISI muxes, the Director has used information provided by BT on the composition of the current population of PSTN muxes. As for the reduction of the ISI costs, due to the lack of specific information on the level of re-use, the Director assumes 25% to be a reasonable reduction. The details of the calculations are described in Table Y below.
Table 2.3: Figures used in the calculation of the Connection Rebate
|
Multiplexer service for SDH Connection Charge in 1997 (from statement on Network charges from 1997) |
£486 |
|
Multiplexer service for PDH Connection Charge in 1997 (as above) |
£282 |
|
Usage factor for Multiplexer service for SDH Connection Charge (From NETWORK CHARGE CHANGE NOTICE FOR INTERCONNECT SPECIFIC BASKET - NCCN NUMBER 1 EFFECTIVE DATE 17/1/98 (www.btinterconnect.com) |
0.0361 |
|
Usage factor for Multiplexer service for PDH Connection Charge (As above) |
0.6871 |
|
SDH PSTN Multiplexer cost included in the intra-building connection charge in 1997 = (Multiplexer service for SDH Connection Charge in 1997*usage factor) |
18 |
|
PDH PSTN Mux cost included in the intra-building connection charge in 1997 = (Mux service for PDH Connection Charge in 1997*Usage factor) |
£194 |
|
Change of Intra-building Circuit Connection Charge over the period 1997-2002 (From NETWORK CHARGE CHANGE NOTICE FOR INTERCONNECT SPECIFIC BASKET - from 1997 to 2002 (www.btinterconnect.com) |
-34% |
|
Assumed SDH PSTN Mux cost included in the intra-building connection charge in 2002 |
£12 |
|
Assumed PDH PSTN Mux cost included in the intra-building connection charge in 2002 |
£127 |
|
Assumed total PSTN Mux cost included in the intra-building connection charge in 2002 |
£139 |
|
Share of these costs relative to ISI Mux in 2002 |
£119 |
|
Share of these costs relative to CSI Mux in 2002 |
£20 |
|
Reduction applied to the ISI Mux costs |
25% |
|
REBATE = (Share of costs relative to CSI Mux in 2002*0) + (Share of costs relative to ISI Mux in 2002*0.75) |
£89 |
Table 2.4: Figures used in calculations of the Rental Rebate
|
Mux service
for SDH Rental Charge in 1997 |
£106 |
|
Mux service for PDH Rental Charge in 1997 (As above) |
£16 |
|
Usage factor for Mux service for SDH Rental Charge (From NETWORK CHARGE CHANGE NOTICE FOR INTERCONNECT SPECIFIC BASKET - NCCN NUMBER 1 EFFECTIVE DATE 17/1/98 (www.btinterconnect.com) |
0.0403 |
|
Usage factor for Mux service for PDH Rental Charge |
0.532 |
|
SDH PSTN Mux cost included in the intra-building rental charge in 1997 = (Mux service for SDH Rental Charge in 1997*usage factor) |
£4 |
|
SDH PSTN Mux cost included in the intra-building rental charge in 1997 = (Mux service for SDH Rental Charge in 1997*usage factor) |
£9 |
|
Change of Intra-building Circuit Rental Charge over the period 1997-2002 ( From NETWORK CHARGE CHANGE NOTICE FOR INTERCONNECT SPECIFIC BASKET - from 1997 to 2002 (www.btinterconnect.com) |
-30% |
|
Assumed SDH PSTN Mux cost included in the intra-building rental charge in 2002 |
£3 |
|
Assumed PDH PSTN Mux cost included in the intra-building rental charge in 2002 |
£6 |
|
Assumed total PSTN Mux cost included in the intra-building rental charge in 2002 |
£9 |
|
Share of these costs relative to ISI Mux in 2002 |
£8 |
|
Share of these costs relative to CSI Mux in 2002 |
£1 |
|
Reduction applied to the ISI Mux costs |
25% |
|
REBATE = (Share of costs relative to CSI Mux in 2002*0) + (Share of costs relative to ISI Mux in 2002*0.75) |
£6 |
Consultation
3.1 The purpose of this consultation exercise is to seek views on the Director’s proposals to establish reasonable demand and set charges for PSTN/PPC mixing. In particular, the Director seeks the specific views of the parties in dispute and Annex II OLOs who are likely to purchase PSTN/PPC enabled muxes. The Director will consider all relevant comments before confirming this Direction.
3.2 The Director is publishing the draft Direction together with this explanatory memorandum so that interested parties may have a reasonable opportunity to make representations. Having considered any such representations, the Director will, if appropriate, adopt a Direction and will explain his reasons for making it.
3.3 On 2 October 2002, the Director issued an advance notice in which he stated his intentions to shorten the standard 28 day public consultation period to two weeks for this specific issue and asked interested parties to comment on the reduced consultation period. The Director received comments on this issue from BT, Global Crossing and the PPC Operators Group. BT agreed that that a shorter consultation period, would be appropriate for issues already consulted upon, but added that if the Director was going to address new issues, then these should be subject to a longer consultation. Global Crossing agreed with the Director’s proposals for a shorter consultation. In their response to the draft Phase 2 Direction, the PPC Operator Group (PPC Operator Group members: include Colt, Energis, Global Crossing, Kingston Communications, Thus, WorldCom and Your Communications) question whether 14 days gives sufficient time for PSTN/PPC mixing to be fully considered and adequately debated. The Director does not believe that the issues of reasonable demand and set up costs merit further debate considering that BT has already submitted a detailed feasibility study to Oftel and to interested OLOs, from which the Director is basing his set up charges. This leaves only one new issue, PSTN rebates, on which the Director does not believe it to be necessary to launch a four week consultation given its precise and limited nature. Accordingly, the Director believes that a two-week consultation period is adequate
3.4 Representations must arrive at Oftel no later than close of business on 4 November 2002. Representations received after this time will not be taken into account, and no extensions to the deadline will be permitted.
3.5 Where possible, comments should be made in writing and sent by email to kalpesh.brahmbhatt@oftel.gov.uk. However, copies may also be posted or faxed to the address below. If any stakeholders are unable to respond in one of these ways, they should discuss alternatives with:
Kalpesh Brahmbhatt
Oftel
50 Ludgate Hill
London
EC4M 7JJ
Tel: 020 7634 8826
Fax; 020 7634 8772
Further copies of this document
3.6 This document can be viewed on Oftel’s website, www.oftel.gov.uk. Paper copies and more accessible formats such as large print, Braille, disc and audio cassette can be made available on request. Please contact Oftel’s Research and Information Unit by telephoning 020 7634 8761 or by sending an e-mail to infocent@oftel.gov.uk.
Publication of representations made by stakeholders
3.7 On this occasion, the Director is not inviting stakeholders to comment on the representations made by others. However, in the interests of transparency, all representations will be published, except where respondents indicate that a response, or part of it, is confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly identified as containing confidential material. Oftel will take steps to protect the confidentiality of all such material from the moment that it is received at Oftel’s offices. In the interests of transparency, respondents should avoid applying confidential markings wherever possible.
3.8 Non-confidential representations can be viewed on Oftel’s website in the Publications section under Responses to Oftel consultations. They can also be viewed at Oftel’s Research and Information Unit. Appointments must be made in advance by telephoning 020 7634 8761 or sending an e-mail to infocent@oftel.gov.uk.
|
Stages |
Timeline |
Milestones |
Activity |
|
Phase one Final Direction |
Maximum timeline – 44 weeks |
OSS work stack –maximum 20 weeks OSS changes & product delivery – 24 weeks |
Oftel allows BT maximum 20 weeks to place PSTN/PPC mixing on OSS work stack to embark on feasibility study – includes consulting with OLOs |
|
Stage 1 |
Delivered on 29 July 2002 |
BT to complete feasibility study within 6 weeks & provide Oftel with indicative costs & charges |
BT undertakes feasibility study & must have relevant regard to OLOs – technical requirements OLOs provide indicative PSTN/PPC forecasts to Oftel |
|
Stage 2 |
October 2002 |
Oftel reviews BT’s costs and charges and sets PPC/PSTN minimum volume threshold and forecast penalty. |
Oftel launches consultation on PPC/PSTN cost recovery issues, proposing PSTN/PPC charges, volume threshold and forecast penalty |
|
Stage 3 |
November 2002 |
Oftel confirms Phase 2 Direction – including the minimum threshold and forecast penalties & invites OLOs to submit binding forecasts for PPC/PSTN mix |
Oftel publishes PPC/PSTN charges in Line with Phase 2 Final charges. Thereafter OLOs have 4 weeks to submit binding forecasts for PSTN/PPC mixing. |
|
Stage 4 |
Mid December 2002 |
Oftel determines whether there is reasonable demand |
if reasonable demand confirmed – Oftel will require BT to commence product development |
|
Stage 5 |
24 weeks |
BT undertakes OSS developments concurrently with product design |
BT must be in a position to notify Oftel (28 days) of PSTN/PPC charges within 20 weeks |
|
BT draws up final Contract changes |
BT ready to take orders for PPC/PSTN services |
BT’s non-confidential PPC/PSTN feasibility report
This document is available as a pdf to download only. Please click here to obtain it.
Asymmetric Digital Subscriber Line (ADSL) (also known as xDSL) – a technology that allows the use of a copper line to send a large quantity of data (eg a television picture) in one direction and a small quantity (eg a control channel and a telephone call) in the other.
Annex II (of the ICD): Annex II operators are those who have rights and obligations to interconnect with each other under Article 4(1) of the Interconnection Directive for the purpose of providing publicly available telecommunication services. Also known as a Schedule 2 Public Operator in BT’s licence.
Bandwidth: the physical characteristic of a telecommunications system that indicates the speed at which information can be transferred. In analogue systems, it is measured in cycles per second (Hertz) and in digital systems in binary bits per second (Bit/s).
Customer Sited Handover (CSH): interconnection occurs at an OLO’s premises.
DLE (Digital Local Exchange): the telephone exchange to which customers are connected, usually via a concentrator.
DMSU (Digital Main Switching Unit): connects calls between DLEs and also other DMSUs and form the backbone of the trunk network.
In Span Handover (ISH): interconnection occurs at a point between BT’s premises and an OLO’s premises.
Leased line: a permanently connected communications link between two premises dedicated to the customers’ exclusive use.
Mbit/s: megabits per second. A measure of speed of transfer of digital information.
MSH: Marconi Synchronous Hierarchy (also known as Marconi Broadband Overlay Network). Similar to SDH method of transmission but at higher bandwidths (155Mbit/s to 2.4Gbit/s).
Multiplexor (or mux): equipment enabling the removal or addition of bit-streams from larger assemblies.
PPC: A generic term used to describe a category of private circuits that terminate at a point of connection between two operators’ networks. It is therefore the provision of transparent transmission capacity between a customer’s premises and a point of connection between the two operators’ networks. It may also be termed a part leased line. It includes terminating segments.
Points of Connection (POC): also known as a Switch Connections ie where an operator’s network interconnects with BT usually at a Digital Main Switching Unit (DMSU) or Wide Area Tandem (WAT).
STM (Synchronous Transport Module): transmission of bit-streams at either 155 Mbit/s, 622Mbit/s or 2.4 Gbit/s.
Synchronous Digital Hierarchy (SDH): a method of digital transmission where transmission streams are packed in such a way to allow simple multiplexing and demultiplexing and the addition or removal of individual streams from larger assemblies.
Tributary cards: a tributary card sits in a multiplexor receiving a tributary enabling the multiplexor to combine inputs from each of the tributary cards in the multiplexor. For example, in an SMA-4 multiplexor, there can be up to 4 STM-1 tributaries connected via tributary cards. The multiplexor combines the 4 STM-1 tributaries into an STM-4 transmission bit stream.
