The Determination will specify the charges based upon reasonable costs for the provision by BT of Carrier Pre-Selection Standard Services under the provisions of Condition 50A of BT's Telecommunications Act Licence

Contents

Notice of proposed determination

Explanatory Document

NOTICE OF PROPOSED DETERMINATION

(Under Paragraph 6 of Part 1 of Schedule 1 of BT’s Licence)

Whereas:

1. Condition 50A.4 of the Licence granted by the Secretary of State for Trade and Industry to British Telecommunications on the 22 June 1984 ("BT") under section 7 of the Telecommunications Act 1984 (the "Licence") permits the Director General of Telecommunications ("the Director") to determine the Licensee's charges for providing Carrier Pre-selection Standard Services having regard to BT's reasonable costs;

2. The Director issued a Determination of the charges applicable under Condition 50A.4 for the provision by BT of Carrier Pre-selection Standard Services on 8^th January 2001 (the January 2001 Determination), which specifically excluded charges for BT’s FeatureNet, FeatureLine and Embark customers;

3. The Director issued a Determination of the charges applicable under Condition 50A.4 for the provision by BT of Carrier Pre-selection Standard Services for BT FeatureNet, FeatureLine and Embark customers on 26 November 2001 (the November 2001 Determination);

4. Under Condition 50A.4 the Director may make a determination at any time, or on request;

5. The Director has decided to review the charges set in both the January 2001 and the November 2001 Determinations;

6. Such determinations are subject to the consultation procedure set out in Paragraph 6 of Part 1 of Schedule 1 of the Licence.

NOW THEREFORE THE DIRECTOR, FOR THE PURPOSES OF CONDITION 50A OF THE LICENCE, HEREBY GIVES NOTICE THAT:

2. At the end of the consultation period the Director intends to adopt a determination which will set the charges applicable under Condition 50A.4.

PETER WALKER

A person authorised in that behalf under Section 8 of Schedule 1 of the Telecommunications Act

13 May 2002

EXPLANATORY MEMORANDUM

CONTENTS

1. Background
2. Reasons for this Notice
3. The consultation procedure

1. Background

1.1 Customers on BT’s network can at present use alternative carriers by dialling 3- or 4-digit access codes. These codes allow the calls to be routed to the carrier of their choice. This system is known as indirect access, and it requires customers always to dial the extra digits to use an alternative carrier. This process can be automated when a customer has special dialling equipment, called an autodialler.

1.2 Carrier Pre-Selection (CPS) is a mechanism which allows users to select alternative operators in advance without dialling additional codes on the telephone. The customer subscribes to the services of one or more alternative operators and chooses the type of calls (e.g. all national calls) that will be routed through the alternative operators.

1.3 EC Directive 98/61/EC (the Amending Interconnection Directive) required CPS to be made available throughout the European Community from 1 January 2000 by operators with Significant Market Power (SMP). In the UK, British Telecommunications (BT) and Kingston Communications Ltd (KCL) have been determined by the Director General of Telecommunications (the Director) as having SMP in fixed telephony. Thus they are required, under the Directive, to provide CPS. CPS was made available from KCL’s network on 1 January 2000. BT’s switches, unlike those used in other Member States, have no inherent capacity for CPS. Therefore the UK obtained from the European Commission a delay of 3 months for the provision of CPS by BT. Thus CPS had to be available on BT’s network from 1 April 2000. The type of CPS introduced on BT’s network from 1 April 2000 involved the use of autodiallers. This solution is known as ‘Interim CPS’ (ICPS).

1.4 ‘Permanent CPS’ (PCPS) using software at BT’s switches to route calls to alternative operators was introduced in two phases. PCPS for national and international calls was available on BT’s network from 12^th December 2000. Phase 2 of PCPS, allowing customers to choose PCPS for international, national, both international and national or all calls (excluding certain special categories) was available on BT’s network from 12^th December 2001. Implementation of PCPS requires an agreement between BT and the PCPS operators (CPSOs) on how the costs of implementation are going to be recovered. Oftel has developed six principles of cost recovery to help assess the validity of alternative cost recovery mechanisms. The recovery of the costs incurred to implement the functionality of PCPS is achieved by agreeing on a set of charges that reflect the six cost recovery principles. Some of these charges are paid by all operators (system set-up costs) and some are paid only by CPSOs (per-customer and per-operator costs). For a detailed explanation of the six principles, their application to PCPS and Oftel's reasoning leading to the PCPS cost recovery methodology, please refer to Oftel’s statement Implementation of Carrier Pre-Selection in the UK, February 1999.

1.5 In brief, Oftel’s initial consideration of the cost recovery principles (cost causation; distribution of benefits; cost minimisation; effective competition; reciprocity and practicability) in relation to PCPS leads to recovering the per-transaction and the per-operator costs from CPSOs. The same principles lead to system set-up costs being recovered through a surcharge on all relevant originating call minutes (thus system set-up costs are borne by BT, CPSOs and all other operators originating minutes on BT's network).

1.6 On 8^th January 2001, Oftel issued a determination of charges for the provision by BT of Carrier Pre-selection Standard Services (which, according to the definition in BT’s licence, comprise Per Operator Set-Up Facilities and Per Customer Line Set-Up Facilities). This determination explicitly excluded consideration of charges for BT’s FeatureNet, FeatureLine and Embark customers, as CPS functionality for these types of customers had not been developed at that point in time, and as a result, the per line costs were not available. However, by 26 November 2001, Oftel was able to issue a determination of the charges for the provision by BT of Carrier Pre-selection Standard Services for BT FeatureNet, FeatureLine and Embark customers, as by that point in time, this functionality had been developed and costs were available. Oftel is using this consultation procedure as an opportunity to bring the per line charges for all types of BT customers together in one place.

2. Reasons for this Notice

2.1 Since the introduction of PCPS, BT and CPSOs have agreed significant changes to the PCPS ordering process. In particular, it is currently planned that from July 2002, a paper-based order confirmation (known as a ‘reply slip’) will no longer need to be sent by the customer to BT. As a result, some of the costs BT incurs for setting up CPS on a customer’s line (specifically those costs related to receiving and processing the reply slip) will no longer be incurred. The charges determined by Oftel in January 2001 and in November 2001 include these costs, and therefore will not correctly reflect BT’s costs when the new customer ordering process is introduced.

2.2 On 5^th April 2002, BT proposed new charges for setting up CPS on customers’ lines, to take effect when the new PCPS customer ordering process is introduced. BT issued a slightly amended version of this proposal on 22^nd April 2002. On 30^th April 2002, BT proposed new charges for setting up CPS on the lines of FeatureNet, FeatureLine and Embark customers. For reference, BT’s proposed new charges are set out in tables in Annexes A and B to this Explanatory Memorandum. The existing charges are shown in the same tables in brackets, again for ease of reference. Oftel has not provided further explanation of these costs in this Notice because BT has in the past provided both Oftel and Industry with detailed information about how the current per line charges for CPS were derived (although clearly only Oftel has had access to commercially sensitive data). BT’s revised per line charge proposals are very similar to the current charges, except that costs relating to receiving and processing the reply slip are not included. If the Industry requires more information, Oftel would encourage the Industry to approach BT directly. No agreement between BT and CPSOs has yet been reached as far as Oftel is aware on these revised charges, although Oftel welcomes the fact that positive discussions are continuing.

2.3 Oftel is reviewing whether the new charges proposed by BT will accurately reflect BT’s costs when the reply slip is removed from the PCPS customer ordering process. In particular, Oftel is currently investigating the costs of reply slip handling, and the stage of the CPS process at which these costs are incurred.

2.4 Oftel wishes to ensure that if a determination is necessary, the required consultation procedure will have been followed so that the Director can publish a Final Determination to co-incide as nearly as possible with the introduction of the new customer ordering process from July 2002. To achieve this timetable for a determination, Oftel also proposes to limit the scope of the current review of BT’s charges to reply slip handling costs only.

2.5 Oftel does have concerns in relation to other aspects of BT’s charges, for example:

• The appropriate order volumes to use when calculating the per line charges.
• The appropriate number of inbound calls to BT customer services per line that should be allowed for in the charges.

However, Oftel proposes to review these aspects of BT’s charges (and any other aspects of the per line charges as necessary) three months after the launch of the new customer ordering process. This will allow time for order volumes using the new process to stabilise, and for real data on both order volumes and inbound call volumes under the new process to become available.

2.6 . Oftel seeks the views of interested parties on BT’s charge proposals and Oftel’s suggested approach to reviewing these proposals as outlined above.

3. The consultation procedure

3.1 The Director has power to specify the charges for providing Carrier Pre-selection Standard Services under Condition 50A.4 of BT’s Licence. Where he does so, the long consultation procedure set out in paragraph 6 of Part 1 of Schedule 1 of BT’s licence must be adhered to. (See Condition 50A.10).

3.2 The present Notice is to inform all interested parties that, for the reasons set out above, the Director intends to prepare a Draft Determination of modified charges for Carrier Pre-slection Standard Services, which he will consider imposing in the light of the outcome of consultation if the parties involved do not reach a commercial agreement.

3.3 After publication of the present Notice there will be a 28-day period ending at the close of the day on 10 June 2002 during which all interested parties may make representations. Oftel will publish the representations made at the end of this period. A subsequent 28-day period will allow interested parties to make observations on the published representations. At the end of the second 28-day period having considered all representations and observations the Director will, if appropriate, publish a Draft Determination, where the Director will set out in detail the revised charges. All interested parties will have a further 14-day period to comment on the Draft Determination before the Director publishes a Final Determination.

3.4 Comments are invited on the present Notice by close 10 June 2002. They should be addressed to:

Caroline Wallace
Chief Engineering Advisor
Oftel
50 Ludgate Hill
London
EC4M 7JJ

Tel: 020 7634 8917
Fax: 020 7634 8893
E-mail: caroline.wallace@oftel.gov.uk

Annex B

BT’s proposal of 30^th April 2002 for revised CPS charges for FeatureNet, FeatureLine and Embark

(Current charges shown in brackets)

* There is no renumber process for BT’s FeatureNet customers

CLI = network calling line identity

MNN = Main Network Number (for FeatureNet). This is the main number of the FeatureNet site in question.

BG = main Business Group number (for FeatureLine). This is the Business Group number associated with the FeatureLine customer in question.

n = number extensions on which CPS is to be provided at the site (for FeatureNet)

n = total number of lines within the Business Group (for FeatureLine and Embark)