This eleventh issue of Oftel's Competition Bulletin contains details of developments in the competition and other regulatory enforcement casework handled throughout Oftel from 1 October 1998 to 31 January 1999. Readers should note that previous issues of Competition Bulletin are also available.
As usual, comments are welcome on any of the cases or other issues, especially new cases, where extra industry input would be useful. Please contact the relevant casework officer on the extension number listed (0171 634 + extn number). Alternatively, comments can be e-mailed to the Competition and Fair Trading Directorate. Alternatively, comments can be sent to:
Compliance Directorate; 50 Ludgate Hill; London WC4M 7JJ;
or faxed on: 0171-634-8949 marked for the attention of the relevant case officer.
Suggestions on the general layout or content of the Competition Bulletin can be sent to Philip Taylor (extn 8829) at the above address. In supplying comments or submitting complaints, you should indicate whether you are prepared to let us disclose the full details of the information supplied, including whether you are willing to be identified, in any subsequent correspondence Oftel has with the licensee under investigation or with other interested parties. Confidential material should be marked as such and not sent via the Internet address. It should be noted that Oftel's experience has shown that it can be difficult to pursue a case successfully if we are not able to provide all the necessary information to the subject of the complaint. For additional information on this point please see >Dealing with anti-competitive behaviour in telecoms' on Oftel's website or contact the Oftel library for a paper copy.
This issue was despatched at the end of January 1999. The next issue of Competition Bulletin will be despatched at the beginning of May 1999.
Every last Wednesday in the month a senior member of the Competition and Fair Trading Directorate will be available in person or on the Competition Hotline (0171 634 8833) for consultation on competition related issues. The surgeries aim to concentrate on new or potential complaints, rather than provide updates for complainants on existing cases. The surgeries also aim to give potential complainants guidance on the approach to be taken by the Directorate and the type of information needed by Oftel to pursue a particular issue.
Details of staff available are as follows:
| Date |
Available in person | available on telephone |
| 24 February 1999 | James Tickel | Karen Lee |
31 March 1999 |
Keith Loader | William Lea |
| 28 April 1999 | Don Wilson | Philip Taylor |
The Hotline is also available between 9.00 am and 12.00 am, and 2.00 pm and 5.00 pm Monday to Friday.
This section lists cases that Oftel has opened since the beginning of October 1998.
The Director General has a duty under the Telecommunications Act 1984 to investigate complaints of anti-competitive behaviour in relation to telecommunications (unless they are frivolous). The Act also allows the Director General to investigate issues on his own initiative.
The cases shown in this section represent the majority of the issues with which we deal formally. In addition, we conduct informal discussions or exchanges of correspondence where a potential complainant seeks clarification of our policy or of the possible application of licence conditions to a particular issue, but does not follow through with a formal complaint.
There are a variety of reasons why such exchanges may not lead to a formal complaint including:
Competition Bulletin records cases only where our initial view is that there is a case to consider. However, the opening of a case does not necessarily imply that Oftel has reached any more substantive view of the merits of the case.
Comments and questions regarding all cases outlined below are invited and should be addressed to the relevant case officer in the first instance. Case officers can be contacted direct on 0171 634 + extension number or by post, fax or e-mail.
Cross-Marketing by BT’s Account Managers
Complaint against: BT
Issue: Alleged abuse of market power
Relevant instruments: Conditions 18A, 38 of BT’s Licence
Case opened: 23 November 1998
Procom Europe ("Procom"), a telecommunications supplier and project manager, has complained that BT acted anti-competitively by cross-marketing one of its ASB products, an SDX-Index, to a customer on whose behalf Procom had requested an ISDN exchange line.
Procom alleges that BT offered to sell its customer an SDX-Index, despite the fact that BT knew that Procom had already secured an order from the customer to supply an SDX Index.
Oftel is investigating whether BT is in breach of its licence obligations.
Case officer: Karen Lee (extn 8922)
Case reference: BX/663/145
Complaint against: Vodafone
Issue: Undue Discrimination, Refusal to Supply
Relevant instruments: Condition 9, 45 Vodafone’s Licence
Case opened: 23 October 1998
Following receipt of a complaint by Cellcom, an independent service provider, Oftel has opened an investigation into Vodafone’s Pay As You Talk pre-paid service scheme ("PAYT"). Under the scheme, customers purchase an analogue or digital starter pack, which includes a handset and some service credit (i.e. the ability to make from and receive calls to the handset for a certain number of days) and calling credit. When service and calling credits have been fully used, customers can purchase "Top-Up cards" in varying increments in order to make/receive calls.
Cellcom’s complaint centres on:
Cellcom’s calculations appear to indicate that Vodafone’s direct business may be purchasing the underlying telecommunications service from Vodafone’s network business for no more than £48.00 annually or £4.00 per month. However, Cellcom, as a service provider, currently pays Vodafone up to £7.85 per month under the current standard service provider contract, for the same telecommunications service. Although Cellcom has repeatedly asked Vodafone to provide it with the underlying telecommunications service involved for £4.00 or less, Vodafone has refused each of its requests. As a result of Vodafone’s refusal to supply this service at that price, Cellcom and other independents allege that they are unable to retail their own pre-paid offerings.
Oftel is investigating whether Vodafone is in breach of its licence obligations. Oftel is also looking into Cellnet’s pre-paid offers to make sure similar issues do not arise.
Oftel has also received a complaint from another company regarding this issue.
Case officer: Karen Lee (extn 8922)
Case reference: BX/663/141
BT Contract for Non-geographic Number Portability
Complaint against: BT
Issue: BT's charge to operators porting single 0808 numbers
Relevant instrument: BT’s Licence
Case opened: October 1998
Early in 1998 BT introduced a charge for operators offering services on a new Freephone number range prefixed 0808. This charge covered BT's costs in manually re-programming several thousand older payphones to open Freephone service to the new number range. BT had estimated its total costs at around £155,000. It also estimated that eventually a total of 20 operators, including itself, would offer service on these numbers. This meant each operator seeking service has to pay a one off charge of £7,735.
Oftel examined BT's charge and found it to be justified. However, in October 1998, Scottish Telecom complained that BT was also proposing to raise the same charge on operators who had not opened 0808 ranges of their own but were being asked by customers to port in a single 0808 number.
Oftel's initial view is that the charge raised should be proportional to the number of lines held, that is, an operator with one 0808 line should pay 1/10,000th of the charge paid for a full 10,000 number block. This view has been put to BT for response.
Case officer: Geoff Brighton (extn 8925)
Case reference: BX/663/135
Complaint against: BT
Issue: BT has increased the discount level used to calculate the Deemed Retail Price for Number Translation Service (NTS) calls
Relevant instrument: Condition 13 BT’s Licence
Case opened: December 1998
When the NTS formula was determined in early 1996 it contained a figure for BT's average discounts applied to its actual retail price to obtain the deemed retail price used in the calculation of BT's retention and terminating outpayments for NTS. The average discount at that time was assessed at 7.5% and this figure has remained unchanged despite several changes to BT's discount offerings to its customers.
In December 1998, BT gave notice through operator charge control notices ("OCCNs") that it proposed to increase the average discount figure from 7.5% to 11.4534% to take account of increased discount levels over almost 3 years. On receipt, Scottish Telecom asked BT to justify the increase. But BT refused on the grounds that the detailed information on BT’s discounts was confidential. BT agreed to make the data available to Oftel if required. Scottish Telecom therefore sought Oftel’s view of BT’s proposal.
BT has since informed Oftel that a number of operators have formally rejected BT’s OCCN and that this dispute is being referred for determination. Oftel has requested BT’s supporting data and the Director General will give his decision based upon a detailed examination of the figures.
Case officer: Geoff Brighton (extn 8925)
Case reference: BX/663/146
Complaint against: Oftel own initiative (BT)
Issue: Retail pricing of calls to pagers
Relevant instrument(s): Condition C24A/C24F BT’s Licence
Case opened: October 1998
Oftel has started an own-initiative enquiry into the price of calling pagers.
BT’s retail price for calling a pager comprises two main costs:
Oftel has asked BT to provide cost information on the calculation of its retention for calling paging services, to enable Oftel to assess whether the retention for these calls may be excessive in relation to cost.
Case officer: Ursula Harnischfeger (extn. 8844)
Case reference: BX/663/134
One2One: Mobile Number Portability Charges
Complaint against: Cellnet and Vodafone
Issue: Pricing of mobile number portability charges
Relevant Instrument(s): Condition 19A of Vodafone’s and Cellnet’s licence
Case opened: December 1998
Mobile number portability ("MNP") was introduced on 1 January 1999 in the UK, enabling customers who wish to switch their mobile network to keep their mobile number.
One2One has made a determination request of the following Mobile Number Portability (MNP) charges in respect of its agreements with Cellnet and Vodafone.
The Donor Conveyance Charge (also known as "MNP Conveyance Rate", "Donor Transit Charge", "Conveyance Charge") is a charge paid by the recipient operator to the donating operator for providing mobile number portability. The Porting Administration Charge is a charge to make up for administrative costs in providing MNP. Oftel notes that all four mobile network operators have agreed on a zero charge on an interim basis.
The termination Rate for ported traffic is payable to the recipient for ported traffic. Oftel is seeking more information.
Case officer: Ursula Harnischfeger (extn. 8844)
Case reference: BX/663/148
Orange: Mobile Number Portability Charges
Complaint against: Vodafone and Cellnet
Issue: Pricing
Relevant Instrument(s): Condition 24 Orange’s licence
Case opened: December 1998
Orange has made separate requests for determinations against Cellnet and Vodafone of the following Mobile Number Portability (MNP) charges:
1. Donor Conveyance Charge (against Cellnet and Vodafone)
2. Termination Rate Differential (against Cellnet and Vodafone)
3. Clause 2.6 Service Provider Compliance (against Cellnet only)
The Donor Conveyance Charge is a charge paid by the recipient operator to the donating operator for providing mobile number portability. When Oftel determines the level of the charge, it will be backdated to 1 January 1999.
The Termination Rate Differential is a charge to make up for any differences in mobile termination rates. For some time after the introduction of MNP, ported calls will be indirectly routed (via the donating network) to the recipient network. This is because, at present, the originating fixed network cannot correctly analyse the called party number and identify the appropriate destination mobile network. Therefore, any differences in mobile termination rates could lead to over/ under recovery of termination rate revenues.
Oftel has been asked to determine the level and the terms and conditions of the charge. Clause 2.6 Service Provider covers terms and conditions of Service Provider’s compliance in providing MNP. Oftel is now seeking more detailed information on the rationale and the cost justification of the charges.
Case officer: Ursula Harnischfeger (extn. 8844)
Case reference: BX/663/149
This section lists cases resolved since 13 July 1998. It summarises the outcome of each case and gives a general guidance to Oftel=s approach, which we hope will be of use to the reader. It is not an exhaustive inventory of precedent.
If you wish to discuss the principles underlying decisions in more detail please contact the case officer listed. Case officers can be contacted direct on 0171 634 + extension
Complaint against: Cable & Wireless Communications
Relevant instrument: Condition 1.1 of CWC’s respective licence
Issue: Access to a cable TV service in Lambeth and Southwark
Case opened: 4 November 1998
Case closed: 17 December 1998
Oftel received a complaint regarding access to cable television. Such access is covered under Condition 1.1 of CWC’s licence
to operate in the franchise area of Lambeth and Southwark. The complainant informed Oftel that CWC had failed to offer cable television. His complaint was based on the assumption that as his street had been dug up in 1997 and green boxes installed every few hundred yards, cable had been laid. He therefore questioned whether CWC was entitled to refuse to offer a cable tv service where cabling had been installed and a request was received from the customer.
It appears from Oftel’s enquiries that the area has had ducting installed, but there was no cable installed. Under Condition 1.1 of the relevant licence, the franchise holder is not obliged to offer service where the applicable systems have not yet been installed. There does not appear to be a licence breach and Oftel has therefore closed this enquiry.
Case officer: Nina Barakzai (extn 8810)
Case reference: BX/663/143
Issue: Invalid Calling Circles
Relevant instrument(s): Conditions 16, 17 and 24F of BT’s licence
Case opened: July 1998
Case closed: January 1999
In June, BT reported to Oftel that it had given discounts on numbers nominated by a small percentage of Key Numbers customers outside the terms and conditions of the scheme.
Business customers who pay a one-off joining fee are entitled to a 5 percent discount on 10 numbers and a 10 percent discount on an eleventh number (applied to call charges calculated at the basic rate) on direct-dialled and self-dialled BT Chargecard calls. Following an investigation, Oftel concluded that by giving additional discounts to Key Numbers subscribers in contravention of the rules of the scheme, BT appeared to have breached Condition 16(1)(b) in that it departed from the terms and conditions as published in BT’s price list.
BT has informed Oftel that it has taken and/or intends to take a series of steps to remedy the breach and to avoid a recurrence. These steps include a review of BT’s billing systems, additional staff training and the generation of internal monthly reports listing any invalid calling circles with managers responsible for making the necessary changes to correct any errors.
Given these measures, the Director General is not satisfied that discounts given outside the terms and conditions of the scheme are likely to recur. This case has therefore been closed. However, Oftel will continue to monitor the situation with a view to ensuring that BT implements the various steps it has said it will take to avoid recurrence.
Case officer: Karen Lee (extn 8922)
Case reference: BX/663/113
BT’s Friends and Family Schemes
Issue: Invalid Calling Circles
Relevant instrument(s): Conditions 16, 17 and 24F BT licence
Case opened: May 1998
Case closed: November 1998
In May, BT reported to Oftel that it had given discounts on numbers nominated by a small percentage of its Friends and Family and BT Friends and Family Overseas outside the terms and conditions of those schemes.
The Friends and Family scheme entitles residential customers to a 10 percent discount on direct-dialled and self-dialled BT Chargecard calls to 11 nominated numbers. Under BT Friends and Family Overseas, upon paying a quarterly subscription fee, the customer receives a 10 percent discount on direct-dialled and self-dialled BT Chargecard calls to five nominated international numbers.
Oftel has concluded that, by giving additional discounts to some Friends and Family subscribers outside of the terms of the scheme, BT appeared to breach Condition 16(1)(b) of its Licence in that it departed from the terms and conditions as published in BT’s price list.
BT has told Oftel that it has taken and/or intends to take a series of steps to remedy the breaches and to avoid a recurrence.
These steps include a review of BT’s billing systems, additional staff training and the generation of internal monthly reports listing any invalid calling circles with managers responsible for making the necessary changes to correct any errors.
Given these measures, the Director General is not satisfied that discounts given in contravention of the rules of the Friends and Family schemes are likely to recur.
On this basis this case has been closed. However, Oftel will continue to monitor whether BT implements the various steps it has said it will take to avoid recurrence.
Case officer: Karen Lee (extn 8922)
Case reference: BX/663/113
Complaint against: BT
Issue: Charges for the input of OLO data to BT’s OSIS database
Relevant Instrument: Condition 17 BT’s Licence
Case opened: March 1998
Case closed: October 1998
Oftel originally initiated this investigation because of concern about the structure and level of charges levied by BT for the input of data onto the OSIS database – the number database from which directory information products are derived. The investigation focussed on the following issues:
Following Oftel’s investigation, BT stated in October that it would end all charges for input of data to OSIS, except where data is submitted in paper rather than electronic format. It has now done this. BT has also established a programme for transition to a system where OSIS pays for collection of data on a non-discriminatory basis, and has undertaken to review options for the ownership and running of OSIS.
Oftel is participating in industry discussions on BT’s programme for transition to non-discriminatory payments and review of the running and ownership of OSIS.
The competition case was therefore closed.
Case officer: Chris Taylor (extn. 8850)
Case reference: BX/300/007
Retrospection of Local Call Fee Access Interconnection Payments
Complaint against: BT
Issue: BT's refusal to offer revised charges backdated to 1st October 1997
Relevant instrument: Condition 13 BT’s Licence
Case opened: May 1998
Case closed: October 1998
Under the Oftel determined Number Translation Services (NTS) formula the Deemed Retail price (D) for calls to BT’s services or calls BT conveys to OLO’s services was based upon BT’s own retail price less its average discount (currently 7.5%).
This was always intended to be a temporary expedient until BT could establish a means of either collecting every operator’s actual price or calculating a price based upon the average prices charged by a representative number of operators. In late 1997 BT requested details of operators' specific retail prices for LCFA calls. Telewest, despite initial reservations, agreed to provide the information but were unable to do so before 31 March 1998. After this date, BT indicated that it would not allow the charges to be effective from 1 October 1997.
Following an Oftel enquiry, BT detailed its reasons for adopting this position and offered a further period to resolve the issue so that charges could take effect from 1 October 1997. At this point Oftel's Operator Policy Forum established a focus group to examine the working of the NTS formula under Network Charge Controls and to review the future of the formula itself. This group agreed a revised methodology for arriving at operator specific retail prices which in turn resolved Telewest's dispute.
Case officer: Geoff Brighton (extn 8925)
Case reference: BX/633/112
Vodafone’s Standard Service Provider Agreement
Complaint against: Vodafone
Issue: Allegation of anti-competitive agreements
Relevant instrument: Vodafone’s Licence
Case opened: August 1998
Case closed: December 1998
Oftel has been investigating a formal complaint by Cellnet (representing its associated service providers) that some of the terms in Vodafone’s current standard service provider agreement are discriminatory and unreasonable and therefore amount to a breach of Vodafone’s licence. After considering the representations made by Cellnet, Vodafone and others, Oftel has found no evidence of a current breach of Vodafone’s licence but has nevertheless reached the view that three aspects of Vodafone’s current draft agreement could, if enforced or implemented, amount to a breach of (in particular) Condition 9 of Vodafone’s licence (prohibition of undue preference or discrimination) and/or other licence conditions. The terms in question were:
The obligation on service providers not to entice subscribers away from any other Vodafone service provider by inducing the subscriber to breach his subscriber agreement with the first service provider. Oftel takes the view that if Vodafone chose to enforce this term only against independent service providers, and did not take action in similar circumstances against its associated service providers, this might constitute a breach of Condition 9 of Vodafone’s licence;
Vodafone’s right to unilaterally make or adopt directions or codes of practice. Oftel takes the view that any such unilateral changes to the agreement should be objectively reasonable. That is, reasonable notice of any changes should be given to service providers and, that unilateral changes should go no further than is necessary to ensure that Vodafone is able to run its network and provide services efficiently.
The requirement that, on termination of the service provider agreement, all subscriber numbers - whether then in use or not - administered by the service provider on termination shall revert to Vodafone, regardless of the wishes of individual subscribers. Oftel takes the view that this could in certain circumstances amount to a breach of the mobile number portability licence conditions when they come into effect on 1 January 1999.
Vodafone has responded to Oftel’s concerns as follows:
Vodafone does not agree that the terms of its service provider agreement are inconsistent with its licence obligations Vodafone has no intention of exercising its rights in relation to Clause 10.2 of its service provider agreement in a manner which would unduly prefer Vodafone Group or its wholly owned service providers, or which would unduly discriminate against service providers which are not wholly owned by the Vodafone Group;
Vodafone has no intention of issuing or adopting unreasonable directions and/or codes of practice; and
Vodafone maintains that the control of subscriber numbers (as opposed to their use by subscribers) must revert to Vodafone upon termination of the service provider agreement, as the service provider is, by definition, no longer providing services for Vodaphone. Vodafone would then be able to comply with the Numbering Plan under condition 19 of the Vodafone licence and ensure continuity of service to subscribers with regard to mobile number portability in accordance with the licence condition.
In the light of these responses, Oftel intends to close this investigation. Should evidence emerge that Vodafone is in fact applying the terms of its service provider agreement in a manner which is inconsistent with these responses, the operation of the agreement would be re-examined. This Oftel conclusion is also without prejudice to any action which the Director General may consider appropriate should Vodafone’s enforcement of its service provider agreement appear to him to amount to a breach of Vodafone’s licence or of other legal duties of Vodafone enforceable by the Director General.
Case officer: Karen Lee (extn 8922)
Case reference: BX/663/123
Complaint against: Embassy Windows.
Relevant instrument: Condition 6 Class Licence for the Running of Self Provided Telecommunications Systems ('SPL')
Issue: Repeated unsolicited telephone sales calls.
Case opened: 09 July 1998.
Case closed: 12 October 1998.
A complaint was made to Oftel by a Mr Morris of Swansea that he was receiving telephone sales calls from Embassy Windows despite having requested that it stop making such calls. This appeared to be a breach of Condition 6.1 (a) of the SPL, the licence under which Embassy operate their telecommunications systems. The SPL prohibits a licensee from sending messages including calls for the purposes of advertising or the provision of goods over their telecommunications system to any person whom requests that they cease sending such messages.
Oftel’s investigation indicated that Embassy had made a call to Mr Morris on 15 June 1998 despite having previously received requests from him to stop doing so. However, as the Director General has no evidence that Embassy has made any such call since that time, he is not, at the present time, satisfied that Embassy is likely again to breach Condition 6.1 (a) of the SPL, and in these circumstances has decided to close this case. Embassy has been informed that if it breaches Condition 6.1 (a) of the SPL again, Oftel will consider taking enforcement action.
Case officer: John Russell (extn 8830)
Case reference: BX/663/119
Complaint against: First Report Limited (acting under the name Tele-Check)
Issue: Sending unsolicited faxes after requests to cease
Relevant instrument: SPL
Case opened: 19 October 1998
A Mr L E Palmer has complained that he has received unsolicited faxes from Tele-Check after having requested that no more be sent. Under Condition 6 of the SPL licence, companies such as Tele-Check which operate under the SPL licence are prohibited from sending further faxes after requests to cease have been received. Oftel is investigating the matter to confirm whether there has been a breach.
Case officer: Lawrence Knight (extn 8747)
Case reference: BX/663/138
This section lists directions, determinations and orders issued under the Telecommunications Act 1984 to licensed operators under their licences since 13 July 1998 and also reports on the monitoring of licensed operators' compliance with previous orders, directions and findings on selected cases
Price of Calling Mobile Phones
Subject of inquiry: BT, Cellnet and Vodafone
Issue: Excessive pricing
Relevant instrument: C24A/C24F of BT's licence, C5 of Cellnet and Vodafone's licence
Case opened: June 1996
Oftel opened an investigation into the price of calling mobile phones in 1996 following concerns expressed by consumers that they were too high. A Consultative Document was issued in March 1997 setting out Oftel's preliminary conclusions and seeking views. Over 40 responses were received the majority of which agreed that the charges were excessive.
Despite several months of discussion, Oftel was unable to persuade the operators concerned to reduce their charges. So in March 1998, the Director General, taking into account the major impact of reductions in the charges on the operators involved and on others, asked the MMC to investigate whether the level of charges were in the public interest.
The MMC reported the results of their inquiry in December 1998. Their key conclusions were that both the interconnection charges made by Cellnet and Vodafone and BT's retention operate against the public interest because they are too high in relation to cost. The MMC concluded that the adverse effects could be remedied by modifications to the operator's licences, primarily to reduce and control the charges they make for calls to mobile phones for three years starting from April 1999. The effect of the MMC's recommendations is to reduce BT's retail prices during 1999/2000 by about 25%, the day time price, for example, falling from 30 pence per minute to about 22 ppm. The controls proposed for the subsequent two years are RPI-9 for Vodafone and Cellnet and RPI-7 for BT. The full reports of the MMC will be available from HMSO from 21 January 1998. A version containing just the key conclusions can be found on Oftel's website.
The Director General proposes to fully implement the MMC recommendations and expects to move to statutory consultation on appropriate modifications to the licences of the operators concerned by early February.
Case officer: Vince Affleck (extn 8819)
Case reference: BP/1158
Incremental cost information for BT’s retail businesses
A large number of competition investigations involve an assessment of the potential anti-competitive impact of an operator’s pricing strategy with reference to its underlying costs.
Recent Oftel documents and notices from the European Commission have stated that the appropriate measure of an operator’s underlying costs in the telecommunications sector is long-run incremental costs, also known as LRIC. This is because measures such as average variable costs - which may be appropriate in other industries - are very low in network based markets where a high percentage of costs are fixed. It is the total costs that are incremental to the provision of a particular product or service which will drive operators’ decisions to invest.
BT already produces incremental cost figures for its Network Business and these figures assisted the setting of initial starting prices for its network charges in October 1997 and continue to provide floor and ceiling cost information against which BT’s charges can be monitored. The methodology for the production of these incremental figures was agreed between Oftel and the industry.
Until now, however, there has been no established methodology by which BT can produce incremental cost figures for its retail services and products. A large share of Oftel’s investigations involve BT’s retail activities and an assessment of whether BT may be subsidising or cross-subsidising a particular product, and whether this has an impact on the ability of others in the relevant market to compete with BT.
In order that Oftel can incorporate incremental cost information in its investigation work, BT established a methodology that will produce incremental cost figures for its retail services and products as and when these are required to assess complaints about potential anti-competitive behaviour. This methodology was developed in consultation with Oftel and BT’s emerging proposals were shared with the industry in June 1998.
BT has now submitted a methodology to Oftel and is ready to implement the methodology to derive incremental cost figures in order that Oftel can assess BT’s pricing. It is Oftel’s intention to scrutinise closely any figures derived from this methodology in order to assess whether its use in practice reveals any concerns. Oftel needs to be satisfied that the methodology is sufficiently robust before regulatory decisions can be made on the basis of incremental costs until it is confident that the figures stand up to such scrutiny.
The use of incremental cost information as the basis on which Oftel makes judgements on the validity of BT’s prices will obviously impact on other operators, service providers and consumers. Oftel therefore feels it is appropriate that the industry is aware of BT’s methodology and is given an opportunity to raise any issues of concern.
Copies of Methodology for the Derivation of Long Run Incremental Costs for BT’s Retail Businesses and accompanying Guidance Notes are available from:
Financial Regulation and Accounting Manager
BT Centre, Room A620
81 Newgate Street
London EC1A 7AJ
For further Oftel information: James Tickel (extn 8826)
Oftel, in conjunction with the Office of Fair Trading, issued guidelines on the application of the Competition Act in the telecommunications sector, for consultation on 14 January. The consultation runs until 26 February.
The Guidelines focus on how concurrency will work; the legal issues raised by the Competition Act; the approach that will be taken towards defining markets; assessing market power; and assessing the impact of individual agreements and conduct on competition.
The guidelines are intended to assist those operating in the telecommunications sector, and those who consider themselves to have been affected by anti-competitive behaviour, to assess for themselves the circumstances in which particular types of behaviour are likely to be prohibited.
Guidelines on the application of the Competition Act in the telecommunications sector are available from Oftel’s web site and Oftel’s R & I unit telephone number 0171 634 8761. The Office of Fair Trading and the regulators have also issued a suite of Guidelines on the Competition Act. They are available on the OFT website.
For further information please contact: David O’Neill (extn 8861)
Oftel will be facilitating a Compliance Forum for telecoms operators during mid to late April (final date to be notified). The aim of the event is to discuss the role of compliance in the telecoms industry in the light of the new Competition Act and provide a forum to share best practice.
Oftel has been looking at the experience of the Compliance Institute. This was set up in response to the Financial Services Act, which placed compliance requirements on the financial services industry.
Given certain analogies between the financial services and telecoms industries, and the implementation of the Competition Act, Oftel believes that there could be useful lessons to learn about compliance from outside the telecoms industry.
The new competition legislation will bring a change of emphasis to the way the sector is regulated and the Competition Act requires proactive rather than reactive compliance. Companies will need to ensure that they operate within the terms of the Act. A compliance-based approach should help companies to meet the requirements of the Act and understand what they need to do to make effective complaints.
A half-day session is envisaged comprising speakers and an interactive discussion session. This event will be held in central London. Invitations will be sent out in the near future.
For further information please contact: Barbara Powell (extn: 8708)
National leased lines in the UK
In December 1997, Oftel opened a preliminary investigation into the pricing of national leased lines in the UK following representations that prices were excessively high relative to those in the US and certain other European markets. During the course of the investigation, Oftel has assessed BT’s financial information on its leased lines products and examined international benchmarking studies. Oftel has also met with a number of operators and users of leased lines in order to assess the current level and effectiveness of competition in the supply of national leased lines in the UK.
BT’s cost information showed that overall returns for leased lines are positive, but below those made by the Retail Systems Business in total. Furthermore, international benchmarking studies suggest that for an average basket of leased line lengths and for the majority of bandwidths, BT’s UK prices are not significantly above those in the major European countries and compared more favourably that the original representations suggested. Of course, without further information, it is difficult to ascertain whether BT was able to maintain higher returns on national leased lines than operators in other countries, or whether BT was providing leased lines at efficient costs. Oftel believes that the best deal for the customer is achieved through the promotion of effective competition and that regulatory interference in markets should be kept to a minimum focussing on those areas where competition is not sufficiently developed in order to protect the consumer.
Oftel’s investigation therefore focussed on establishing whether there are any significant barriers, in the UK, to the development of effective competition in the provision of leased lines.
The investigation concluded that competition in the provision of circuits of 2Mbit/s and above appears to be developing within the UK and this has acted as a constraint on these prices in the absence of regulatory price controls. Competition for the provision of analogue circuits and digital circuits below 64kbit/s is limited. However, the price cap on these baskets acts as a constraint on prices and an incentive to improve efficiency. This price cap will be reviewed as part of the 2001 Price Control Review which will begin during 1999.
Customers were concerned that effective competition may be limited because other operators will not always have sufficient infrastructure in place to offer customers a full end-to-end leased line service between any two locations and therefore may need to purchase "final mile" circuits from other operators. Customers felt this may impact on the quality of service they received on such a line compared to that received on a leased line provided end-to-end over one network.
Furthermore, Oftel was concerned that BT may be pricing these shorter distance ‘final mile’ circuits at relatively high levels in order to effect the competitiveness of other operators.
The investigation found that BT does not appear to be pricing such circuits in a manner which distorts competition, although where BT receives cost savings from providing such "final mile" circuits to other operators as opposed to other customers, these are not always reflected in the retail price charged.
Given these conclusions, it was not felt that regulatory action was appropriate. However, Oftel made two main recommendations to ensure that competition continues to develop:
BT should extend its partial private circuit product to all bandwidths and allow operators to receive the same volume and term discounts applicable to retail leased lines.
OLOs should address the perception, held by many customers, that the quality of service provided on lines which are part provided by them is much lower than that offered by an operator capable of providing a full end-to-end service. Copies of a summary of Oftel’s investigation are available on Oftel’s website (www.oftel.gov.uk).
Comments are invited on the conclusions and recommendations.
For further information please contact: James Tickel (extn 8826)
Closely linked to the issue of BT’s pricing of leased lines, Oftel has received two complaints about BT’s pricing of its Asynchronous Transfer Mode (ATM) service, BT CellStream. Providers of ATM services have a core ATM network linked to a number of ATM switches. Operators provide customers with access to these switches from their premises. The access links to the core network are at fixed bandwidths, usually 2Mb, 34Mb or 155Mb. Customers can then establish permanent virtual paths (PVCs) between premises utilising the core network of speeds up to a maximum set by the fixed access link. Customers are therefore usually charged access rental for each premises and PVC rental.
Alternative providers do not always have the infrastructure to provide direct access to their core ATM switches over their own infrastructure. Instead they may purchase leased lines from other operators on behalf of the customer. The complaints – both from operators offering a competing ATM service – claim that it is impossible for them to compete realistically with the rental charges for the CellStream product if they need to purchase a 34Mb or 155Mb leased lines from BT.
As set out above, Oftel has recently investigated BT’s pricing of leased lines and assessed the level and effectiveness of competition in the UK. Competition in the provision of circuits above 2Mb is particularly strong and this is acting as a constraint on prices. Furthermore, BT CellStream is offered from BT’s Systems Business and therefore does not need to purchase retail leased lines on the same terms as other operators. Neither is BT obliged to provide a wholesale leased line product to other operators at cost.
Given that other operators claim that they cannot compete with BT’s prices, the complaints may suggest that BT is offering CellStream below cost. Oftel has therefore also examined the costs and revenues of BT CellStream. It would appear from BT’s information that the issue of subsidy does not arise. However, Oftel is examining this information in more detail, particularly to confirm that the appropriate costs for the fixed access link have been included. Any assessment of whether a subsidy was unfair would need to identify the relevant market and the impact any subsidy had on competition in that market. Comments on this issue are welcome.
Both complainants suggest that the problems they are experiencing may only exist in the short run as they roll out access networks. As with the recommendation in the leased lines investigation, it would appear that the extension of BT’s partial private circuit to 34Mb and 155Mb would alleviate the impact on other operators of having to pay the full retail rates for BT’s leased lines when they actually require a slightly different product which would offer BT cost savings. Oftel’s view is that these cost savings should be passed on to other operators in the partial private circuit product. BT claims that there is no demand for such products. However, this may be due to the fact that substantial volume discounts available on retail leased lines cannot be carried over to partial private circuits. Oftel believes that if this were the case reasonable demand would emerge. Comments from other operators may help confirm this and operators requiring partial private circuits are advised to contact BT directly.
For further information please contact: James Tickel (extn 8826)
Copies of past Competition Bulletins and Oftel statements referred to in this issue are available on Oftel’s web site
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