Statement and Direction issued by the Director General of Telecommunications

10 October 2001

Contents

Chapter 1 - Summary and amendments to the direction in relation to co-mingling at BT exchanges

Chapter 2 - Assessment of responses received to the consultation and conclusions reached

Annex A - Direction in relation to co-mingling at BT exchanges

Annex B - Summary of responses received on consultation

Annex C - Glossary

Chapter 1 – Summary of comments received to Oftel's consultation

1.2 Co-mingling is a form of physical co-location where an operator’s equipment is fitted and operated in an area within a BT exchange where BT could or does house its own equipment, without a permanent barrier between them. This differs from existing physical co-location arrangements (‘hostel’, ‘mini-hostel’ and ‘bespoke’ products), which require operators to have equipment housed in a separate room partitioned off from the rest of the exchange. A definition of co-mingling can be found in the Direction.

1.3 Having considered the comments received during the period of this consultation, the Director General has decided to make the Direction (at Annex A), which provides that:

Background to the consultation

2.1 Bulldog Communications (‘Bulldog’) told Oftel that on 15 February 2001 it had requested co-mingling from BT at a BT exchange. In its response of 23 March (copied to Oftel), BT advised Bulldog that it believed that to progress a co-mingling solution would be premature and that as space existed at the site for a mini-hostel (a standard specification for co-location space at an exchange) (see note 1 below) it would urge that a mini-hostel solution to Bulldog’s requirement was pursued. BT did not offer a co-mingling solution as an alternative. While Bulldog did not state that a dispute had arisen, it appeared to Oftel that BT was refusing a request for co-mingling and so Oftel initiated an own-initiative investigation on 23 March 2001.

2.2 On 27 June 2001 Oftel published Local loop unbundling: provision of co-location in the form of co-mingling for comment. The document set out Oftel’s preliminary conclusion that BT should meet any request for co-mingling (a form of physical co-location), unless there are objective criteria on the grounds of technical feasibility or the need to maintain network security. Oftel proposed a Direction to this effect and asked for comments on the draft Direction to be provided to Oftel by 25 July 2001. A two-week period was then allowed for further comments to be made on any representations submitted to Oftel.

2.3 Oftel received four responses to its consultation and draft Direction, from BT, Bulldog Communications Ltd (submitted on behalf of Bulldog Communications Ltd, Colt Telecommunications Ltd and Kingston Communications plc), Easynet Group plc and the Northern Ireland Advisory Committee on Telecommunications (‘NIACT’). Comments on representations made were received from BT, Bulldog Communications Ltd and Easynet Group plc. Annex B lists the principal points raised in each of the responses. These points and the changes made to the original proposed Direction are discussed in paragraphs 2.4 to 2.38 below.

Oftel's powers of intervention

(i) Need for a formal dispute

2.4 BT believes Oftel’s proposed Direction to be a disproportionate and unjustified use of regulatory powers, as there has been no formal dispute between Bulldog and BT as required by Article 4.3 of the Regulation. Bulldog has argued that it did not enter into a formal dispute with BT as it felt that it was unable to get a reasonable reply from BT.

2.5 Article 4.3 of the Regulation allows an NRA (National Regulatory Authority) to act on its own initiative in order to ensure, amongst other things, economic efficiency and maximum benefit for users. Oftel’s assessment of the available evidence is that co-mingling appears to have inherently lower start up costs than other forms of physical co-location. Co-mingling does not have the start-up costs of a separate room build and the costs associated with it, for example; discrete access to the co-location facility and design restrictions involved in finding space for a separate room. A situation can also arise with the current physical co-location options where both BT and an LLU operator (‘LLUO’) require separate ventilation and this is not used to full effect (eg additional ventilation is installed despite spare capacity already being available but remaining unused). This could raise start-up costs that could be avoided with co-mingling.

2.6 Lower start-up costs could be partially offset by additional recurring costs, most notably for access control (access is discussed further in 2.32 to 2.34). One of the main contributions to these recurring costs is the escorted access charges levied by BT on LLUOs when they wish to visit their co-mingled locations. Even where recurring costs remain, the trade-off of lower start-up costs may be attractive to some operators in some circumstances. With charges for the current physical co-location options and co-mingling that reflect their respective costs, operators would be able to choose the most cost-effective method of co-location for their own business needs. This would promote economic efficiency.

2.7 Furthermore, because co-mingling could offer significant reductions in start-up costs, this could encourage a broader roll-out of LLU-derived services and thus maximise benefits to end-users. Even if this is offset by additional recurring longer term costs, it is clear that the trade-off could be attractive to some operators and therefore also promote a wider availability of LLU based services to end users.

2.8 Oftel does not agree with BT that its actions are not justified because there has been no formal dispute between BT and Bulldog. Even without a formal dispute, Oftel can still act on its own initiative, to achieve the benefits described in 2.5 to 2.7 above.

(ii) Lack of demand for co-mingling

2.9 BT believes that there is a lack of evidence of demand and thus Oftel’s intervention is premature. Bulldog, however, argued that the lack of orders for co-mingling reflects a belief that an order would be rejected by BT, adding that co-mingling is its preferred option. Easynet added that demand has been made obvious to BT at industry meetings and it has itself requested co-mingling (not met by BT).

2.10 Oftel disagrees with BT’s views that the proposed Direction is an excessive and premature use of regulation on the basis of lack of evidence of demand. Bulldog has stated that co-mingling is its "product of choice where it offers the most cost-effective solution". Oftel notes Easynet’s response that demand has been made obvious at various industry meetings, some of which have been attended by both Oftel and BT. Also both Bulldog and Easynet have requested co-mingling but have not been offered a co-mingling product by BT. This supports Bulldog’s view that the lack of orders for co-mingling reflects a belief that any order would be rejected. Oftel believes that there is a demand for co-mingling. Further, it is Oftel’s view that where co-mingling shows benefits (discussed in paragraphs 2.28 - 2.30), it would become the product of choice for some operators.

(iii) Availability of alternatives to co-mingling

2.11 BT argues that Oftel’s proposed Direction is excessive use of regulation given the availability of satisfactory alternatives. Bulldog’s view is that in fact the alternatives are restricted to two basic products – hostels and distant co-location.

2.12 BT cites ten "…alternative arrangements available which complement local loop unbundling and which add to the range of options which operators have for the provision of broadband services". Oftel considers this misleading since the list contains only two significantly different forms of co-location: physical co-location in a separate room (‘hostel’, ‘mini-hostel’ and ‘bespoke’) (see note 2 below) and distant co-location (‘distant in nearby building’ – two types and ‘distant in a street cabinet’ – again two types cited).

2.13 BT further cited; BT ADSL/ATM interconnect and BT ADSL with a point of connection at the DSLAM, as two further alternatives. Oftel also considers this misleading as neither of these products are as yet available to Operators. The first is being considered by Oftel following a request for a Determination, the second product has yet to be agreed despite on-going negotiation between BT and operators and currently there is no interest in this product. Further, a third alternative – "BT wholesale …where BT provides a local loop equipped with ADSL and a virtual channel back to the operator’s node" - are ADSL based products which are ‘end to end’ and available to independent service providers, other licensed operators and business customers on the same terms. Therefore, in Oftel’s opinion they are not a satisfactory alternative for competing operators as they require operators to take BT’s ADSL and do not allow the operator to tailor the upgrade of the local loop to the end user’s requirements.

2.14 Since Oftel’s consultation on co-mingling, BT has launched ‘LLU Shout’ – a service with BT acting as a third party contractor to an LLUO, with BT installing and then leasing a DSLAM and providing first line maintenance. The LLUO, however, is still required to take a standard co-location space to an agreed specification. It is Oftel’s view that LLU Shout is not co-mingling and does not offer an equivalent to co-mingling.

2.15 Regardless of the alternatives available, it is Oftel’s view that it is not for BT to decide on the form of co-location a LLUO is offered. Rather, it is for operators to decide how best to provide a competitive offering to consumers – it is this principle that can provide maximum benefit to end-users.

(iv) Intervention in accordance with Community law

2.16 BT has argued that Oftel must act in accordance with Community law including Community competition law (in particular Article 82). BT’s view is that Oftel has failed to do so – particularly when taking into consideration the findings of a previous Oftel investigation – and that its actions are disproportionate. Bulldog’s view is that BT should not rely on the previous investigation as BT is dominant in the local access network, Oftel does have the right to intervene.

2.17 Oftel agrees that intervention must be in accordance with Community law (and in particular, the Regulation). But, Oftel does not agree with BT’s assertion that action can only be taken where BT has been shown to be dominant. The Regulation provides that …the national regulatory authority may, in accordance with Community law, intervene on its own initiative in order to ensure…economic efficiency and maximum benefit for end users. It is Oftel’s view that the words "in accordance with Community law" provides an over-arching requirement to ensure that a national regulatory authority does not impose obligations that might place a party in contravention of any Community law obligations or requirements. This is a reflection of the duty not to take action that would impede the effective application of EC law (including competition law) in Article 10 of the EC Treaty itself. Therefore, it is Oftel’s view that it acts in accordance with Community law if it acts in a manner that is not inconsistent with Community (competition) law.

2.18 Oftel does not believe that it has acted disproportionately. The Regulation requires BT to offer co-location and co-mingling is a form of co-location. BT is entitled to specify and take proportionate steps to protect the public interest in network integrity. BT will also not be requested to provide co-mingling where it can show that it would be impractical to do so on technical grounds. Given these safeguards, Oftel does not believe that the requirement on BT to offer to provide co-mingling in other circumstances is unnecessary or disproportionate.

(v) Regulation does not refer to co-mingling

2.19 BT has stated that the Regulation does not specify co-mingling as a form of co-location. It is true, but in Oftel’s view irrelevant, that co-mingling is not explicitly mentioned in the Regulation.

2.20 Oftel notes that the Regulation refers to the requirement to provide physical co-location, virtual co-location and distant co-location. Oftel notes that point B.2 of the Annex to the Regulation states co-location options "..including physical co-location and, as appropriate, distant co-location and virtual co-location" (emphasis added) must be offered. As discussed in paragraphs 2.24 – 2.25 below, Oftel considers co-mingling to be a form of physical co-location.

(vi) Reasonable requests

2.21 BT argues that, under the Regulation, a request must be reasonable and this has not been the case with Bulldog as no specification of requested works or a reference to an already specified product was made.

2.22 It does not follow that, because Bulldog did not submit a full specification, BT is entitled to dismiss all requests for co-mingling as unreasonable. Indeed, BT has said that it has never done this. But it is unacceptable for BT to refuse to respond to requests for co-mingling from other operators on the grounds of its view as to what is reasonable. The Direction accompanying this statement therefore requires BT to justify, on the grounds of technical impracticability or network integrity, any such refusal. The argument that a request for co-mingling is prima facie reasonable is also supported by the fact that BT already provides an equivalent to co-mingling to itself (discussed in paragraph 2.24), and that co-mingling could confer some advantages over current forms of co-location (discussed in paragraph 2.28-2.30).

2.23 Oftel recognises that it is unlikely that a standard product for co-mingling will be made available and therefore in some cases, co-mingling could require some additional work by BT. In Oftel’s view this does not make co-mingling unreasonable as, where extra work is justifiably included, BT can recover the costs though cost-oriented charges.

Definition of co-mingling

2.24 Oftel notes BT’s argument that Oftel’s proposed definition states that co-mingling refers to a third party, thus BT does not co-mingle with itself. However, BT locates its equipment for providing DSL services without the need for separate rooms and this will often occur alongside other operational equipment. This placing of equipment without separate room build is the essence of co-mingling and distinguishes it from other forms of physical co-location. The definition of co-mingling in the draft Direction refers to a third party and therefore does not describe directly the situation where facilities are provided by BT for its own services (ie by one part of BT for another part of BT). But the proposed definition does describe facilities equivalent to those provided by BT’s own services. Article 3.2 of the Regulation requires BT to "..provide beneficiaries [other operators] with facilities equivalent to those provided for their own services or associated companies, and with the same conditions and timescales". The manner in which BT locates its DSL equipment is the same as it would for the third party as described by the definition in the draft Direction. This would, in essence, include any area that could be cleared and prepared for the installation and operation of equipment for providing DSL services.

2.25 Oftel notes that virtual co-location is specified in the Annex to the Regulation and that it is a form of co-location that may be provided without the need for segregation of equipment (such as by the use of separate rooms). Oftel considers that virtual co-location is not the same as co-mingling. Whilst the express requirement for BT to offer virtual co-location does not mean that BT is expressly required to offer co-mingling, the Annex to the Regulation does not expressly exclude co-mingling as a form of physical co-location. But the Annex does require BT (and other notified operators) to offer a form of co-location without physical separation of BT’s and other operator’s equipment. It therefore supports Oftel’s view that it is reasonable to require BT to offer such a service.

2.26 Both Easynet and Bulldog submit that Oftel’s definition should be widened beyond those areas used to house DSLAMs used by BT’s own services. Easynet has suggested that the definition should be broadened to include any area that is capable of supporting the requirements of the LLUO and suggests that this could include areas used by BT for HDSL services. In its comments on Easynet’s response, BT contends that the definition should remain as proposed in the draft Direction. BT cites security and avoidance of ‘protracted debates’ as reasons and includes specific arguments against extending the definition to include areas housing HDSL equipment.

2.27 BT houses HDSL equipment in exchanges. Oftel does not agree with BT’s argument that because HDSL is not a ‘service’ offered by BT, operators cannot co-mingle in the same area. Additionally, whilst HDSL may have different ventilation requirements to ADSL, this does not automatically preclude co-mingling in the same area. Oftel’s view is that no area that can be used for BT’s own services should be excluded to other operators, unless there are objective technical or network integrity reasons raised by the conditions of the site in question. Refusal to offer co-mingling on this basis is discussed in paragraph 2.31 below.

Perceived advantages of co-mingling

2.28 The Operators argue that co-mingling confers benefits in terms of speed of installation and lower costs. As is noted in Easynet’s comments, costs are unclear. However, Oftel’s view continues to be that by using a co-mingling solution, operators could avoid the significant start-up costs that appear to be associated with current physical co-location offerings. This is borne out by the indicative figures provided to Oftel by BT for a specific site, which estimated costs for co-mingling at £33,284, whereas an indicative figure of "a minimum of £90,000" for a minimal hostel re-design (see note three below) was provided to Bulldog by BT.

2.29 Independent analysis of co-location build costs has shown that the security arrangements specific to current physical co-location options create costs, some significant, that could be avoided by the introduction of co-mingling. Oftel recognises there are concerns that co-mingling could potentially incur higher ongoing costs as a result of access costs (such as through charges for escorted access). However, in its consultation (Local loop unbundling: access to BT's exchanges for third parties, www.oftel.gov.uk/publications/local_loop/escac1001.htm) Oftel proposes that BT should apply the same objective criteria when authorising LLUO staff and contractors so that they can gain unescorted access to their physical co-location space using existing access control arrangements. Overall, whilst costs are not known, operators believe that co-mingling in many cases could be cheaper and faster to provide than other forms of physical co-location. This, combined with Oftel’s provisional analysis suggesting that co-mingling may have lower start-up costs, has led to Oftel concluding that there is a sufficiently strong argument to believe that co-mingling as a physical co-location option could offer benefits to end-users.

2.30 In its comments on BT’s response, Bulldog makes comparisons between co-mingling and the current co-location options, asserting that the latter are not cost-effective, with the high costs of hostels precluding roll-out by BT’s DSL competitors. Again, very little data has been provided to support this, but Oftel acknowledges that these are not readily available as co-mingling has not been offered by BT in the UK. However, the average cost of hostels – particularly where only one or two operators intend to co-locate – has risen to levels far higher than at first expected by industry and it is Oftel’s view that it is likely that a significant portion of these start-up costs could be avoided at some exchanges by the introduction of co-mingling. Costs of wall build will be avoided by providing co-mingling instead of other forms of physical co-location currently offered and in some circumstances co-mingling could reduce or even avoid the need for additional ventilation. These costs could be reduced still further if the outcome of the consultation on access to BT’s exchanges circumstances is that operators should be allowed unescorted and non-segregated access to BT’s exchanges in certain.

Technical grounds for refusal

2.31 BT raised a number of technical constraints to co-mingling in its response to Oftel’s consultation, focussing in particular on the risk that one operator's equipment may pose to another’s. Oftel notes that Bulldog believes that technical concerns regarding equipment are not a reason to refuse co-mingling, whilst Easynet agrees that all equipment should be ‘compatible’. Oftel agrees that any equipment should be compliant with the appropriate standards. However, it seems that the technical issues raised could be dealt with by negotiation between the operators and BT (subject to any necessary intervention required from Oftel). These technical issues do not appear to provide sufficient reason to refuse co-mingling on a blanket basis. Where technical grounds do preclude co-mingling, the Direction does allow for a refusal. Oftel takes the view that these should be demonstrated by BT against published criteria.

Access

2.32 BT has argued that co-mingling necessitates the use of escorted access. LLUOs appear to agree that BT should not be able to enforce this and Oftel notes that they believe that the conditions currently applied by BT for third party access should be used for LLUOs who co-mingle. Further, BT has stated that because BT has control over its contractors it is able to take over the work if the contractor ‘fails to perform’. BT adds that indemnity payments suggested by Easynet do not ensure maintenance of service.

2.33 The further argument provided by BT that LLUOs do not themselves provide unescorted access is spurious, given that there is no LLU obligation placed on the operators. Oftel notes that the threat of having to make indemnity payments may discourage activity by third parties that would raise security issues, but does not remove all risk. However, Oftel fails to see how taking over the work of contractors that ‘fail to perform’ is fundamentally better in avoiding risk to service, as both are retrospective actions.

2.34 Oftel’s provisional view is that escorted access may not be required in many cases and accepts that the access arrangements currently applied by BT for third parties could be extended to LLUOs. Relevant comments received as part of this consultation concerning the requirement for escorted access have formed part of the consideration of Oftel’s document Local loop unbundling - access to BT’s exchanges for third parties, www.oftel.gov.uk/publications/local_loop/escac1001.htm).

2.35 Oftel notes BT’s view that the proposed Direction represents a disproportionate intrusion into BT’s rights to the quiet enjoyment of its property. However, as has been discussed in this Statement, Oftel does not consider its action to be disproportionate.

Reporting requirements, pricing and specification

2.36 As part of Oftel’s investigation of LLU co-location pricing, Oftel has recognised that the provision of a co-mingling product could be undertaken by BT ‘in-house’ (rather than current arrangements, whereby BT uses a third party contractor) and this could confer cost savings to LLUOs. It is Oftel’s view that during the period when LLUOs discuss a specification for a co-mingling product, there should be direct consideration by BT and LLUOs of the cost benefits of taking the provisioning ‘in-house’.

2.37 Whilst BT considers the reporting requirement in the draft Direction to be an ‘onerous burden’ and requests that it is removed, Oftel notes that Bulldog and Easynet both raise concerns over BT’s timely delivery of co-mingling. In its consultation document Local loop unbundling: service level commitments and compensation (23 August 2001), Oftel proposes that service level agreements and compensation arrangements for co-location would equally apply to co-mingling. The comments raised regarding reporting requirements will be considered as part of this service level agreement consultation.

2.38 The Direction does not provide for any control on pricing of co-mingling beyond the requirements already in place, under the Regulation and Condition 83 of BT’s licence to ensure that prices offered for co-mingling are transparent, non-discriminatory (recalling that BT provides itself with equivalent services) and cost-oriented.

Notes:

1. The standard unit of space in a hostel is a threerack bay which has a footprint of 1.8m x 0.8m and a total area (including circulation space) of 10 square metres. A 'mini' hostel has been developed where fewer than four operators wish to co-locate at a particular site.

2. BT offers a 'bespoke co-location solution'. Based on current offerings, Oftel would group this with 'hostel' and 'mini hostel' as a form of physical co-location using a separate room, although its name suggests that it does not preclude any other form of co-location, such as co-mingling.

3. This was an alternative to the original hostel designs, which BT advised would increase in cost by 'well above 50%' as a result of the low level of hostel occupancy.

Direction made under Article 4(2)(a) and (b) and Article 4(3) of Regulation (EC) 2887/2000 on unbundled access to the local loop and under Condition 83 of the public telecommunications licence granted to British Telecommunications plc pursuant to section 7 of the Telecommunications Act 1984

WHEREAS

1. The Secretary of State granted to British Telecommunications on 22 June 1984 a licence (the "BT Licence") under Section 7 of the Telecommunications Act 1984 (the "Act") for the running of the telecommunication systems specified in Annex A to the BT Licence (the "Applicable Systems").

2. By virtue of Section 109 of and paragraph 20 of Schedule 5 to the Act, the BT Licence has effect as if granted to British Telecommunication plc ("BT").

3. Condition 83 (the "Condition") of the BT Licence obliges BT to make available access to its local lines to consumer premises, space in its exchanges, use of certain circuits and reasonably necessary ancillary facilities (together "Access Network Facilities") so that other licensed operators having interconnection rights under the Interconnection Directive and the regulations made under it ("OLOs" or "Operators") can provide telecommunications services (including DSL based services) over those lines. The process is known as local loop unbundling.

4. Paragraph 19 of the Condition requires BT to secure that the offer of an agreement to provide any of the Access Network Facilities under the Condition contains only terms and conditions which are reasonable.

5. On 18th December 2000 the European Parliament and the Council adopted a regulation on unbundled access to the local loop (EC/2887/2000) (the "EC Regulation").

6. Article 3(1) of the EC Regulation requires notified operators (as defined in the EC Regulation and of which BT is one) to publish from 31 December 2000 and keep updated, a reference offer for unbundled access to their local loops and related facilities, on terms set out in the EC Regulation. The reference offer for unbundled access to local loops run by BT is known as the Access Network Facilities Agreement ("ANF Agreement").

7. Article 4(2) gives the national regulatory authorities in each member State (which in the United Kingdom is the Director General of Telecommunications - the "Director") the power to impose changes where justified on the reference offer for unbundled access to the local loop and related facilities.

8. It is appropriate that this Direction be based on the Director’s powers under both the EC Regulation and the Condition. It is required in order to ensure economic efficiency and maximum benefit to end users.

9. In a letter dated 16 March 2001, Bulldog Communications Ltd ("Bulldog") drew to the Director’s attention the fact that BT was refusing to supply Bulldog with ‘co-mingling’ at the BT exchange site in Skipton. Bulldog described ‘co-mingling’ as "the ability to site Digital Subscriber Line Access Multiplexer ("DSLAM") equipment within the same room in the building housing the main distribution frame ("MDF Site") as BT sites its DSLAM equipment, rather than in a separate room designated for Operators. However, Bulldog was unable to confirm that a dispute had arisen on this issue;

10. Article 3(2) of the EC Regulation requires BT to meet reasonable requests from beneficiaries for unbundled access to the local loop and related facilities. One such related facility is ‘co-location’ - the provision of physical space and technical facilities necessary to reasonably accommodate and connect the relevant equipment of another operator. The requirement to meet reasonable demands for co-location is reflected in paragraph 3 of the Condition. BT is only permitted to refuse such requests on the basis of objective criteria, relating to technical feasibility or the need to maintain network integrity;

11. BT argued that, although it had not agreed to provide ‘co-mingling’ to Bulldog at the Skipton exchange, it had not refused to provide co-location since it had offered to construct a separate room for Bulldog to house its DSLAM equipment;

12. The Director therefore decided to open an investigation in to whether the request for ‘co-mingling’ made by Bulldog is a reasonable one for the purposes of Article 3(2) of the EC Regulation;

13. The investigation and its findings are described in the explanatory document accompanying this Direction. For the reasons given in that document, the Director is of the view that a request for ‘co-mingling’ is a prima facie reasonable one for the purposes of the EC Regulation.

14. On 23 August 2001 the Director published a draft direction requesting comments on further proposed amendment to the ANF Agreement which would require BT to offer service levels and fixed timescales for the delivery of Access Network Facilities and to pay pre-estimated compensation in the event of failure to meet them. The Access Network Facilities comprised in the draft Direction include co-location;

15. Co-mingling is a form of physical co-location and, therefore, any service level commitments which are offered in respect of other forms of physical co-location should apply to co-mingling. However, given the differences between co-mingling and other forms of physical co-location currently offered by BT, it is possible that the service levels for co-mingling (in particular, the time within which co-mingling can be delivered) could reasonably be improved. The EC Regulation indicates (recital 10) that commercial negotiation is the preferred method for reaching agreement on technical and pricing issues for access to the local loop. Accordingly, it is appropriate to direct BT and the Operators to negotiate in good faith for a period to reach a revised agreement on this matter;

Pursuant to Article 4(2)(a) and (b) and Article 4(3) of Regulation (EC) 2887/2000 and to Condition 83 paragraph 19 of the public telecommunications licence granted to British Telecommunications plc under section 7 of the Telecommunications Act 1984, the Director General of Telecommunications makes the following Direction;

1. Subject to paragraph (2), BT shall meet all requests for Co-mingling made by Operators at any MDF Site (a "Co-mingling Request").

2. BT may only refuse to meet a Co-mingling Request where it can demonstrate that meeting that Co-mingling Request either;

1. is impracticable on technical grounds; or
2. would directly and necessarily impair the integrity of any Applicable System run under the BT Licence

provided that, in relation to each MDF Site at which BT refuses a Co-mingling Request, BT shall

3. promptly supply to the Operator making the Co-mingling Request a non-confidential written statement of reasons for refusing that request; and
4. except as otherwise agreed in writing by the Director, promptly supply to the Director a full written statement of reasons for refusing that request, with any confidential information clearly marked as such.

3. BT shall, within 28 days of the date of publication of this Direction, make available to all Operators having signed an ANF Agreement a complete description of all of the criteria to be applied by BT if it refuses to supply Co-mingling for any reason within the scope of paragraphs 2(a) and 2(b), except to the extent that the Director considers such disclosure inappropriate.

4. BT shall

1. from the date of publication of this Direction offer to any Operator whose Co-mingling Request is accepted by BT the same contractual terms (including as to service levels) as BT offers for the supply of Co-location (as that term is defined in the ANF Agreement) or any replacement service, as those terms may be varied from time to time and;
2. promptly invite Operators to enter into negotiations in good faith with the intention of agreeing timescales for the provision of Co-mingling which are shorter than those for the provision of Co-location under the ANF Agreement, provided that, if agreement is not reached within 45 Working Days from the date of publication of this Direction, either BT or an Operator may refer the matter to the Director for determination.

5. For the avoidance of doubt, Head 5 of the Annex to the ANF Determination shall in addition apply to any dispute as to whether paragraph 2(a) or 2(b) applies in respect of any Co-mingling Request

6. For the purposes of this Direction the following terms shall have these meanings:

2. the terms defined or described in the recitals to this Direction shall have the meaning so defined or described;
3. terms defined in the EC Regulation and the BT Licence shall have the same meaning;
4. paragraph 4 of the BT Licence shall, with the necessary changes, apply to this Direction as it applies to the BT Licence.

7. Except as otherwise provided, this Direction shall come into force one month after the date of its publication.

Keith Long

Director of Compliance

10 October 2001

A person duly authorised by the Director General under paragraph 8 of Schedule 1 to the Telecommunications Act 1984.

Annex B – Assessment of responses received to the consultation

BT

• BT does not agree with Oftel’s proposed action. BT contends that Oftel’s proposed Direction is a disproportionate and unjustified use of regulatory powers and, as there has been no formal dispute between Bulldog and BT, Oftel’s actions are not justified under Article 4.3 of EC Regulation 2887/2000 on unbundled access to the local loop (the ‘Regulation’);
• Oftel’s proposed Direction is an excessive use of regulation given the lack of evidence of demand. Oftel's intervention is thus premature;
• Oftel’s proposed Direction is excessive use of regulation given the availability of satisfactory alternatives;
• under the Regulation, any own initiative intervention must be in accordance with Community law. Article 82 of the EC treaty requires NRAs (National Regulatory Authorities) not to intervene unless an organisation is first shown to be dominant in the relevant market and then it is shown to be abusing that position of dominance. Based on the market definitions used by Oftel in its Statement of 11 July 2001 (Local loop unbundling - BT’s non-participation in the Bow Wave Process (the ‘non-discrimination complaint’), BT was not found to be dominant and therefore Oftel’s actions are disproportionate. BT also argues that the relevant market used – "space" – is incorrect and instead should be "access to high bandwidth services by end users";
• the Regulation refers to the requirement to provide physical co-location, virtual co-location and distant co-location, but does not refer to co-mingling;
  
• the Regulation requires that for a request to be met, it must first be reasonable. Bulldog’s request was not reasonable as it did not include a specification of requested works or a reference to an already specified product, which is the custom and practice within the UK telecommunications industry;
• BT does not co-mingle with itself, as the definition used requires a third party to site equipment within BT’s operational space. BT plc, rather than a third party, locates equipment alongside other BT plc equipment;
• without prejudice to BT’s assertion that the Direction is inappropriate and unjustified, the Direction should be amended to refer to "reasonable co-mingling Requests" and that the requirement under paragraph six of the draft Direction – the reporting requirement – imposes an onerous burden and should be removed;
• co-mingling necessitates the use of escorted access, on the grounds of network integrity, network security and data protection;
• BT has never said it would not, under any circumstances, provide co-mingling, although it maintains that it should be a last resort when all other options have been exhausted;
• Oftel’s proposed Direction represents a disproportionate intrusion into BT's rights to the quiet enjoyment of its property; and
• co-mingling increases the risk that one operator’s equipment could have a detrimental effect on another’s and would necessitate electro-magnetic compatibility, NEBS testing and responsibilities concerning materials used, disposal of equipment and health and safety.

BT’s comments on Easynet’s response

• BT prefers Oftel’s definition over Easynet’s to avoid ‘protracted debates’ over which areas are suitable for co-mingling. BT considers it inappropriate to mandate co-mingling in ‘high risk’ areas;
• HDSL is not a service offered by BT. A definition including areas housing HDSL equipment is not appropriate as HDSL does not have the same ventilation requirements as ADSL;
• BT agrees a proposal for a 45 day period for negotiations with industry, should co-mingling be mandated; and
• escorted access did not form part of Oftel’s consultation and should be consulted on separately. Oftel cannot mandate any changes to BT’s policy otherwise. In asking for unescorted access, operators are asking for something they themselves are unwilling to offer. BT does not accept Easynet’s arguments concerning escorted access, as BT has control over its own contractors and can take over the work if the contractor fails to perform. Indemnity payments can never be a complete substitute for maintenance of service – BT believes that a relaxation of rules "…would significantly increased [sic] the risk to the nation's major communications backbone".

Bulldog on behalf of Bulldog Communications Ltd, Colt Telecommunications and Kingston Communications plc ("the Operators")

• the operators broadly agree with Oftel’s provisional conclusions;
• the definition of co-mingling used by Oftel is too narrow as it implies that it can only take place where equipment used to provide BT's xDSL services is located;
• BT’s legal requirement is that LLU operators should be in a position to enjoy products and cost profiles enjoyed by other divisions of BT;
• co-mingling offers an effective solution to the high costs of physical co-location sites housing only one or two operators, being both faster and cheaper to provide;
• BT should not be able to enforce escorted access. Access should be based on standards already used by BT for its own contractors / contractors working for BT subsidiaries or joint ventures. Security should be addressed on a case-by-case basis;
• the Operators support the view that the burden of proof should be on BT where it cites technical feasibility as a reason for refusing co-mingling;
• the Operators also agree that refusal should be decided on an exchange-by exchange basis; and
• the Operators welcome Oftel’s intention to include co-mingling in the reviewed SLAs. Pricing and specification will need to be discussed [by industry]. A time scale should be set by Oftel for agreement [by BT and industry] of a product specification and pricing.

Bulldog’s comments on BT's response

• intervention is not premature: low volumes of orders for co-mingling reflects a belief that any order would be rejected. Co-mingling is Bulldog’s product of choice for all sites where it offers the most cost-effective solution – Bulldog believes this to be the case in the majority of cases;
• co-mingling has been introduced in the USA without the network security problems feared, and solutions proposed, by BT;
• BT is unwise to rely on Oftel’s findings of 11 July 2001. As stated in Oftel’s Guidelines on Condition 83 (Sept 2000), BT is dominant in the local access network and accordingly, Oftel has the right to make an own initiative investigation;
• the issue is not of BT’s dominance, but instead the manner in which space is made available/the availability of a cost-effective solution;
• BT is unwise to rely solely on Article 82: Article 81 also prohibits agreements that apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage. Bulldog asserts that Concert co-mingles and is allowed unrestricted access to BT sites – this demonstrates the application of dissimilar conditions, thereby providing Oftel with the right to intervene on its own initiative;
• Bulldog did not enter into a formal dispute with BT as it felt that it was unable to get a reasonable reply from BT. Further, Bulldog did not pursue dispute procedures once it was aware that Oftel was investigating
• Bulldog disagrees with BT’s assertion that there is a plentiful supply of alternatives to the provision of space. Co-mingling was requested because Bulldog foresaw problems inherent in the hostel design process;
• Bulldog’s analysis shows that [through co-mingling] elements of the physical hostel design can be reproduced with a smaller footprint and at lower costs;
• key to the definition of co-mingling is the requirement for non-segregation of equipment by walls/security;
• BT does not currently offer a [co-location] option that allows operators to deploy widely and rapidly in a cost-effective manner. The high cost of hostels precludes roll-out of DSL services by BT’s competitors. Co-mingling would allow Bulldog to build out more widely;
• BT’s reference to alternative arrangements available is based on two basic products. Bulldog’s assertion is that physical hostels are prohibitively expensive and the alternative – distant location – offers inferior technical performance;
• as no objective criteria for refusal has been presented, Bulldog considers it reasonable to request and to obtain the option of co-mingling;
• the burden of proof should be on BT to provide specific reasons for denying co-mingling. Oftel should closely define ‘reasonable’;
• given BT’s resistance [to offering co-mingling], the reporting obligations are an important requirement;
• escorted access is unwarranted and is potentially a barrier to the adoption of co-mingling. BT should allow access on a non-discriminatory basis with respect to the way ‘BT carries out subcontractor work or engages in joint ventures’. Prices for escorted access are not cost-oriented; and
• BT’s technical concerns regarding equipment is not a reason to refuse co-mingling.

Easynet Group plc ("Easynet")

• Easynet generally agrees with the proposed Direction;
• Oftel’s definition of co-mingling is too narrow and should be extended to any area that is capable of supporting the requirements of the LLU operator. Easynet also suggests that the definition could include areas used by BT for HDSL Kilostream and Megastream and could further be widened to include any area used to provide copper based network services to BT’s end customers;
• as costs are unclear, Easynet is itself unclear about whether co-mingling is both practical and cheaper and would thus welcome further investigations by Oftel, with consultation if appropriate, before a final Direction is made. Pricing principles behind the product are required to avoid a period of negotiation and potential dispute with BT;
• BT should not be entirely responsible for setting timescales for the provisioning of co-location in case these are set at, or close to, current timescales for physical co-location;
• BT should have 45 days to negotiate timescales, pricing principles and procedures with industry. If after 45 days the negotiations have failed, Oftel should then determine terms, timescales and SLAs. A maximum time scale for the provision of co-mingling should be set within any associated SLA;
• the proposed reporting requirements should be on a monthly basis in the first year, rather than Oftel’s suggested three months, so as to reduce the opportunity for BT to delay the provision of co-mingling; and
• BT should offer the same conditions to Easynet as it offers to other contractors for access to BT’s exchanges. Oftel should consider the criteria for escorted access, outlining either the terms where it is required or setting a time scale for BT to provide access to exchange terms that are the same as those offered to BT’s building contractors and current Exchange equipment suppliers. Easynet also requests that Oftel investigates the pricing by BT for escorted access to ensure cost orientation.

Easynet’s comments on BT's response

• the Regulation requires BT to provide virtual co-location. Easynet argues that it is recognised throughout the US and most other European countries that the term ‘Virtual Co-location’ relates to co-mingling. Easynet also states that the recent report by the Belgian Telecomms Regulator (BIPT) comes to the same conclusion and thus Easynet believes both that BT is in breach of the Regulations by not providing co-mingling and that intervention by Oftel is justified;
• demand for co-mingling has been made obvious to BT at industry meetings;
• Easynet requested co-mingling at Manchester Central on 16 March 2001 and this request has not been satisfied by BT;
• it is not for BT to decide whether a request for co-location is reasonable or economically viable;
• Easynet would welcome Oftel consulting on pricing principles and charges applied to co-mingling, but would not want to see either Oftel or BT dismissing a product on the basis of it being uneconomic or without merit in terms of benefits;
• because operators have different business plans and do not always agree on pricing levels and OPEX vs CAPEX, Easynet disagrees with BT’s assertion that Oftel should not direct that co-mingling should be provided because the costs are unknown;
• BT should apply the same security procedures to LLU operators as it does for its own third parties and could include an indemnity provision in the contract;
• all equipment deployed must be "compatible equipment" and conform to appropriate EMC (Electromagnetic Compatibility) regulations; and
• the draft Direction offers the opportunity for BT to address any issues it has regarding reasons for refusing co-mingling, rather than making general statements which have no apparent or documented factual basis behind them.

NIACT

• NIACT agrees that BT should be required to supply all co-location options on reasonable request, and that unless BT is unable to meet the request, co-mingling should be also available where possible; and
• NIACT would support any initiative which would reduce the costs of co-location to OLOs and any initiative to increase the speed at which local loop unbundling can take place.

Glossary of terms

Access Network Facilities Agreement (ANF Agreement): The contract which operators need to sign to take LLU facilities.

Access Network Frequency Plan (ANF): A plan that defines the maximum levels of signal that can be injected into the Access Network. All equipment connected to the network must comply with the plan.

Asymmetric Digital Subscriber Line (ADSL): A technology that provides high-speed data on an asymmetric basis. Typically a copper line is used 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. Currently used for speeds of up to 2 Mb/s.

ATM: Asynchronous Transfer Mode technology – the internationally agreed basis for broadband.

Broadband: Most people connect to the Internet over a phone line, typically using a modem with a maximum speed of 28.8 or 56 kilobits per second. This ‘narrowband’ communication requires users to wait while a dial up connection is made before they can access the Internet. Broadband services offer significantly faster data rates, enabling the delivery of services such as high speed Internet access and video on demand. Generally defined as a bandwidth of over 2Mbit/s.

Co-location (physical co-location): The ability for other operators to install equipment in BT’s local exchanges in order to supply services over the local loop.

Digital Subscriber Line (DSL): A technology that allows the use of a copper line to send higher bandwidth services, such as fast internet and video, to a customer’s premises.

Distant co-location: This is where an operator houses its equipment away from the exchange and uses an external tie cable to connect the exchange with this remote site.

DSL technology: Digital subscriber line technology. A family of technologies generically referred to as DSL, or xDSL, capable of transforming ordinary phone lines (twisted copper pairs) into high speed digital lines, capable of supporting advanced services such as fast internet access and video on demand. ADSL (Asymmetrical Digital Subscriber Line), HDSL (High data rate Digital Subscriber line) and VDSL (Very high data rate Digital Subscriber Line) are all variants of xDSL.

DSLAM: Digital Subscriber Line Access Multiplexer. Located in the co-location space of an Operator at an exchange site. It is composed of a multiplex and the DSL modems necessary to operate DSL services over the loops served by the Operator from the exchange.

Escorted Access: Third parties being escorted by BT whilst on BT exchange premises.

HDSL: 'High-speed' or high data rate DSL technology.

Hostel: A room that is built to a standard design to house a number of operators. The basic unit of capacity is the ‘equipment bay’. The standard unit of space in a hostel is a three rack bay which has a footprint of 1.8m x 0.8m and a total area (including circulation space) of 10m². In addition to the standard hostel, a ‘mini’ hostel has been developed where fewer than four operators wish to co-locate at a particular site.

Local loop: The access network connection between the customer’s premises and the local telephone exchange, usually a loop comprised of two copper wires.

Local loop unbundling (LLU): The process where the incumbent operator makes its local network (the connection between the customer’s premises and the local exchange) available to other companies. The customer is then able to choose another supplier other than the incumbent to provide service.