A Statement by the Director General of Telecommunications

March 2000

Contents

Summary

Chapter 1         Introduction

Chapter 2          Responses to the Oftel consultation

Chapter 3          Oftel’s conclusions

Annex A            The Public Institutions Internet Caller Service

Annex B             List of respondents

Annex C             Definitions of the eligible public institutions

Glossary

Summary

S1 This Statement sets out a summary of the 35 responses, together with Oftel’s conclusions, to the consultation on BT’s offer of a Public Institutions Internet Caller Service (PIIC) to public libraries, FE colleges, citizens advice bureaux and to learning centres located in these institutions and schools ‘the eligible institutions’.

S2 The majority of respondents to the consultation welcomed BT’s offer of a PSTN and an ISDN service, at a special tariff, for the eligible institutions.

S3 The main concerns raised by respondents related to the price of the service, the lack of a broadband offering and the range of institutions to which the service will be available. In relation to the specific questions set out in the consultation document Oftel’s comments on the major issues raised by respondents are as follows:

Question 1: Are the definitions of the institutions adequate to secure ring fencing of the special tariffs?

S4 Respondents considered that the definitions of the eligible were adequate. A majority of respondents suggested that more institutions should be eligible. The consultation document however, explained that the service package, which was the subject of the consultation, would only be available to the defined public institutions. The industry (including BT) is only willing to offer special tariffs to the defined institutions.

Question 2: Do respondents have any comments on the application of the regulatory rules that apply to BT?

S5 The main focus of the respondents who commented on this question was the issue of the cost floors established by Oftel and the suggestion that these might need to be reviewed. Oftel believes that the cost model and the figures for the cost floor continue to be applicable.

Question 3: Do respondents have any comments on the proposed use of a special number range?

S6 Respondents generally indicated their support for this proposal, although one respondent advocated the use of a different number range.

Question 4: Respondents are invited to comment on BT’s proposed offer.

S7 Most of the comments on this question related to the proposed cost of the service or sought clarification as to why there was no broadband offering. The cost of the service is a matter for BT. Oftel is currently considering a BT proposal for a broadband service for schools and the eligible institutions.

S8 Oftel considers that the PIIC service meets the cost floors and other regulatory requirements imposed on BT. Oftel understands that the PIIC service will become available in April.

Chapter 1

Introduction

1.1 Ensuring that all consumers can benefit from the opportunities offered by the Internet is central to Oftel’s goal of securing the best possible deal for all consumers.

1.2 Oftel and the telecommunications industry have worked together over a number of years to facilitate increased access to the Internet. In 1997, the industry agreed to offer schools Internet access at a flat, low-rate charge.

1.3 The success of this initiative led the Director General to have further discussions with the major operators about securing special tariffs for public libraries, FE colleges and citizens advice bureaux.

1.4 Following extensive negotiations, in November 1999, Oftel published its consultation document on a proposed service offering by BT. Other telecoms companies had also agreed to offer services allowing cheaper access to the Internet for the eligible institutions.

1.5 The PIIC service is BT’s offer to the eligible defined public institutions. This service is based upon the SIC service and offers either ordinary dial-up access using the PSTN or access via an ISDN line.

1.6 PIIC will allow the defined public institutions access to any participating Internet Service Provider (‘ISP’) for 10 hours per weekday (Monday to Friday) between 8am to 6pm. In addition, for a small additional amount, the eligible institution (and schools) can purchase an evening and weekend service.

1.7 BT’s proposed prices for the services for the defined institutions are set out in Annex A. The prices quoted are per annum, payable quarterly in advance. Eligible institutions may purchase as many PSTN or ISDN connections as they need.

1.8 Due to BT’s strong market position, it would be possible for BT to offer tariffs that could exclude other operators and ISPs from this market. Tariff offerings by BT are therefore subject to the rules laid out in its licence to ensure that they are not anti-competitive.

1.9 There is also a rule against undue discrimination in BT’s licence. The rule exists to protect consumers. In this case, Oftel does not consider that the special tariff for the eligible institutions involves undue discrimination.

1.10 BT’s proposed service was explained in the consultation document Connecting Public Institutions – BT’s Public Institutions Internet Caller Service The consultation document focused on:

• the definition of public institutions to be covered by special tariffs;

• the importance of Internet access for these institutions;

• the regulatory rules that apply to BT (including the requirement that BT must price the service so that it covers the long run incremental costs of providing that service);

• the charges that BT have proposed for their Public Institutions Internet Caller Service.

1.11 Comments were sought on the offer and four questions were posed to respondents. A summary of the comments by respondents is set out in the next chapter together with Oftel’s response.

Chapter 2

Responses to the Oftel consultation

2.1 Thirty-five responses were received to the November consultation. A list of those who responded is set out in Annex B. Responses to the specific questions in the consultation are summarised below.

Question 1: Are the definitions of the institutions adequate to secure ring fencing of the special tariffs?

2.2 Five respondents (including BT) said that the definitions were adequate to secure ring fencing. One respondent said that consideration needed to be given to ensuring that there was no misuse of the preferential rates by a business connected to the network of a Further Education college.

2.3 Twenty-one respondents said that the definitions of eligible institutions were too narrow and should incorporate other institutions. The institutions suggested as being in need of special tariffs included all ‘learning’ centres, museums and galleries, advice centres that are members of the Advice Services Alliance, libraries in prisons, community centres and Higher Education colleges. There were also a number of suggested drafting amendments to the definitions set out in the Annex to the consultation document.

Oftel’s response

2.4 Oftel considers that, subject to a couple of minor amendments, the definitions are adequate and should achieve their aim of ring-fencing the special tariffs. In relation to the issue of ‘misuse’, it will be part of the terms and conditions of the PIIC service that it is to be used for educational purposes (including all services provided by public libraries) and in the case of CABx to assist in the provision of advice. Any commercial use would be outside the terms of the service.

2.5 In relation to the issue of other institutions being eligible for special tariffs, the consultation document explained that the document did not seek views about whether other parties should be able to benefit from this service package.

2.6 Oftel is aware that a number of institutions consider they should be entitled to special tariffs. The service package, which is the subject of this consultation, will however only be available to the defined public institutions. The reason for this is that this is a voluntary measure by the telecoms industry. BT is only willing to offer special tariffs to the defined institutions.

Question 2: Do respondents have any comments on the application of the regulatory rules that apply to BT?

2.7 In the consultation document, Oftel explained that BT’s prices to the defined institutions must cover the additional cost ( termed the ‘long run incremental cost’ [LRIC] ) incurred by BT for the provision of that particular service. The base level of the additional cost is called ‘the price floor’. Two respondents considered that the level of Oftel’s ‘price floor’ was very high. One respondent referred to a model that suggested that the LRIC of a local loop phone call in the United States was much lower than that used by Oftel. It was suggested that Oftel should use a new methodology for deriving LRIC figures

2.8 It was queried why Oftel used cost figures that could be considered to be out of date. In the consultation document, Oftel used the LRIC ‘price floor’ from the 1997 document Access to the Superhighway for Schools.

2.9 A major cable company explained that, in comparison to the BT offer, it had started to roll out cable modems at a flat rate of £40 per month. These modems enable access to the Internet at a speed of 512 kbit/s, compared with only 112 kbit/s for ISDN2. The service is also ‘always on’.

Oftel’s response

2.10 Oftel is interested in international comparisons of costs. However, the cost model referred to is one that is very different from that used by Oftel and is not comparable with Oftel’s regulatory price floors, given that: (a) the cost models use dissimilar input values resulting in different cost outcomes; and (b) the underlying networks cannot be adequately compared.

2.11 Oftel accepts that the figures for the cost floor estimates used in the consultation are based on data collected a number of years ago. It is the case that they are unlikely to be identical to the current costs incurred by BT. The reason for using these figures was however, explained in the consultation document. Oftel considers that they remain a reasonable approximation to the cost of providing the service. Since these costs were calculated, inflation would have increased costs but conversely, efficiency gains will have reduced BT’s costs. Oftel therefore considers that both the figures and the cost model used for their calculation remain valid.

2.12 In relation to tariff offerings by other companies, Oftel welcomes all services that will reduce the cost of access to the Internet.

Question 3: Do respondents have any comments on the proposed use of a special number range?

2.13 Three respondents commented that the proposal was reasonable, while a number of other respondents said they had no particular view on this matter unless there were technical issues that could cause problems. Two respondents considered that the special number range was restrictive and that it could be problematic. One respondent said that any extension of the 0820 service would require increased clarity, and that ISPs who already provide 0820 numbers should be consulted. One respondent advocated the introduction of an additional number range for the new service.

Oftel’s response

2.14 Oftel does not consider that the use of the 0820 number range should be problematic, nor does Oftel consider that there should be any associated technical issues. Oftel does not believe that there is a need for an additional number range for this service.

Question 4: respondents are invited to comment on BT’s proposed offer

2.15 Six respondents welcomed the guarantee of a maximum cost. However, quite a few respondents said that the price of BT’s proposed tariff was too high. These respondents considered that the price for the ISDN2 service was likely to lead to a low level of take-up.

2.16 A number of respondents stated that they considered there should be no differential rates for weekend and evening use or as between different institutions. It was suggested that instead, Oftel should examine and assess a single offer, perhaps in levels corresponding to bandwidth rather than there being separate offers for ISDN and broadband. Many respondents said that they would welcome proposals on tariffs for higher bandwidth services.

2.17 One respondent queried why, for daytime charges, the originating and termination charges are not equal (ie a 50/50 split for call origination and call termination)

Oftel’s response

2.18 Oftel is striving to reduce the cost of Internet access for all consumers. The range of services is expanding and the price charged for Internet access is falling. It is likely that over the coming months, new services will come onto the market that will reduce prices further.

2.19 BT (not Oftel) sets the level of its tariffs, including the PIIC service. Oftel’s involvement is to ensure that it the service is not anti-competitive and that is above the cost floor. The reason why this service is priced differently from the SIC service is that this was a decision by BT.

2.20 The reason why the split between the call termination and call origination element of the wholesale charge is not equal is because of the costs of the different network elements used.

Other issues raised by respondents

2.21 One respondent queried whether ISDN2 access is for 10 hrs on each line or 10 hours in total (ie 128kbit/s or 64kbit/s) as this will affect the performance level of a number of concurrent users. The answer is that ISDN2 access is for 10 hours on each line, with each line operating at 64Kbit/s.

2.22 Another respondent asked whether BT would be offering discounts to the eligible institutions for higher bandwidth services. BT has come forward with a proposal for a higher bandwidth service for schools and the defined institutions which Oftel is considering.

2.23 Confirmation was sought that the BT telephone network could handle the traffic generated by this service without adversely affecting the network, for example the ability to handle 999 calls. Oftel places the highest priority on the ability of all telecoms companies to handle all 999 calls. Oftel considers that any additional traffic generated by the Public Institutions Internet Caller Service should not cause problems for the BT network

2.24 Four respondents said there was a need to ensure that rural areas are not discriminated against because of the technical limitations of the remaining 213 UXD5 exchanges being unable currently to deliver ISDN2. Oftel made clear in the consultation document that it is concerned to ensure that all eligible public institutions should be able to have the type of high-speed digital access that ISDN2 allows. As also explained in the consultation document, BT has advised Oftel that if a school or defined public institution connected to a UXD5 exchange requests ISDN access, BT will use its best endeavours to upgrade such exchanges. This however, is subject to a technical constraint. This can only be done if there is a 2Mbit/s bearer between the UXD5 exchange and the larger exchange to which it is connected.

2.25 Finally, one respondent asked whether Oftel could advise them on collective purchasing (and how to approach BT). Oftel is unable to offer specific advice to individual institutions or organisations about purchasing of telecommunications services. Oftel does however, offer general advice through bodies such as the small business task force. Oftel has also held various meetings with Government departments and bodies such as the Library and Information Commission discussing with them the benefits of collective purchasing.

Learning Centres

2.26 The consultation document set out that Oftel hoped that the PIIC service could be offered to University for Industry and Capital Modernisation Fund assisted learning centres provided a satisfactory, ring fenced definition could be agreed. It has not yet been possible to agree a ring-fenced definition. Discussions are still continuing and it is hoped that they will be concluded shortly.

Chapter 3

Oftel’s conclusions

3.1 BT has confirmed to Oftel that its Public Institutions Internet Caller Service will be available from April.

3.2 The tariffs proposed comply with the cost floors previously established by BT. Oftel therefore considers that these tariffs can be offered to the defined institutions.

3.3 As Oftel has previously indicated, in order for special tariffs to be available to the defined public institutions, it is necessary to have a watertight definition of this class of customer to determine exactly which establishments are eligible for the service. Oftel has slightly amended the definitions set out in the consultation document on the basis of the comments received. The amended definitions are set out in Annex C.

3.4 Oftel hopes that other telecommunications operators in conjunction with various ISPs will be offering similar competing services.

3.5 BT has now come forward with its proposals for broadband access for schools and the defined institutions.

3.6 BT has indicated that as a result of the changes that are occurring in the market for Internet access, it will review both the SIC and PIIC tariffs after the launch of its proposed Surftime product.

Annex A

The Public Institutions Internet Caller Service

A1 The price of the PSTN daytime service for the defined institutions is £600 pa covering rental and calls plus a connection charge of £99 plus VAT. ISDN2 service incurs an annual charge for the daytime service of £1200 covering rental and calls with no separate connection charge. The service package for public institutions will be available 52 weeks a year.

A2 The proposed prices will apply to eligible defined public institutions connected to BT’s network using an Internet service provider that is connected to BT’s network. Different prices for service providers connected to other operators’ networks may apply depending on the other operator’s charges. For schools, a number of operators have chosen to price their service below that offered by BT.

A3 Table 2 shows the charge broken down into component parts. The ‘call origination charge’ is the sum that BT charges for the provision of the connecting line and for conveying the calls from the institution to a DMSU. The ‘call termination charge’ is the sum paid for carriage of the call from the DMSU to the service provider (whether on BT’s network or an alternative network).

A4 If public institutions want to access the Internet before 8am or after 6pm, normal business rate call charges would apply. However, two further services can be purchased by the eligible public institutions to obtain a 24-hour, 7-day a week service:

• An evening service allowing access from 6pm to 8pm Monday to Thursday, from 6pm to midnight on Friday and from midnight on Sunday to 8am on Monday. The cost of the service is £150 pa for the PSTN service and £300 pa for the ISDN service;

• A weekend service allowing access from midnight on Friday to midnight on Sunday. The price is the same as the evening service.

These services can only be obtained in conjunction with the daytime service,

A5 Tables 3-6 show the tariffs and their component elements.

A6 Evening and weekend tariffs will also be made available to all schools entitled to use BT’s Schools Internet Caller Service. BT’s prices for the school’s evening and weekend service are set out below.

A7 The price for schools for the evening service, available from 6pm-8 am Monday to Thursday and from 6pm to midnight on Friday and from midnight on Sunday to 8 am on Monday will be £110 pa for the PSTN service and £240 pa for the ISDN service.

A8 The price for schools for the weekend service, available from midnight on Friday to midnight on Sunday will be £75 pa for the PSTN service and £164 pa for the ISDN service.

Annex B

List of respondents

Responses were received from 35 organisations and individuals, namely:

• Association of Librarians and Information Managers;

• BT;

• Cable & Wireless Communications;

• Cambridgeshire Libraries and Information Service;

• Consumer Communications for England;

• DCAL;

• Department for Culture, Media and Sport;

• Department for Education and Employment;

• East of England Library and Information Services Development Agency (ELISA);

• East Midlands Regional Library System (EMRLS);

• Edex (The Education Exchange) Internet Ltd;

• Energis;

• English Advisory Committee on Telecommunications;

• Group for Large Local Authority Museums (GLLAM);

• Information North;

• ICT;

• Joint Information Systems Committee; Lincolnshire County Council;

• Library and Information Commission;

• Museum & Galleries Commission;

• Museums Association;

• National Association of Citizens Advice Bureaux (NACAB);

• Northumberland County Council;

• Northumberland Strategic Partnership;

• ntl;

• Oxfordshire County Council, Cultural Services;

• Mr. John Patterson;

• Peter Collins and Associates;

• RM plc;

• Scottish Enterprise;

• Scottish Executive (Education Department);

• Society of Chief Librarians;

• Suffolk County Council;

• The Campaign for Unmetered Telecommunications (CUT);

• Tyne & Wear Museums (T&WM); and

• Wirral Public Libraries.

Annex C

Definitions of the eligible public institutions

FE Colleges in England and Wales

FE Colleges in England and Wales are those institutions designated as eligible to receive funding from the Further Education Funding Councils for England and Wales (and their legal successors) respectively. Such institutions must provide one or both of the following:

A. Full-time education suitable to the requirements of persons over compulsory school age who have not attained the age of 19 years; and

B. Courses of further education.

FE Colleges in Northern Ireland

FE Colleges in Northern Ireland are those institutions recognised by the Department of Education for Northern Ireland under article 8 of the Further Education Northern Ireland Order 1987 and are tasked with educating young people and adults by providing both vocational and non-vocational course for anyone aged 16 and above.

FE Colleges in Scotland

FE Colleges in Scotland are those institutions within section 1 of the FHE Act for Scotland 1992. Further Education refers to any programme of learning not being school education provided for persons over school age being a programme falling under section 6 of the Act. Section 6 deals with programmes of learning including preparing a person for a vocational qualification and access to higher education.

Public Libraries

Public Libraries are those libraries, administered by the UK Public Library Authorities (currently 213) which provide services under the Public Library and Museums Act 1964, the Public Libraries Consolidation (Scotland) Act 1887 and the Education and Libraries (Northern Ireland) Order 1986;

Citizens’ Advice Bureaux

A Citizens’ Advice Bureaux is a generalist advice agency, operating a set of national quality standards, which is a member of the National Association of Citizens Advice Bureau or Citizens’ Advice Scotland and meets all the requirements of the Membership Scheme.

Glossary

Bandwidth – the physical characteristic of a telecommunications system that indicates the speed at which information can be transferred. In analogue systems, it is measured in cycles per second (Hertz) and in digital systems in binary bits per second. (bit/s).

Broadband – a service or connection allowing a considerable amount of information to be conveyed, such as television pictures.

Call origination – see originating operator.

Call termination – see terminating operator.

Copper line – the main transmission medium used in telephony networks to connect a telephone or other apparatus to the local exchange. Copper lines have relatively narrow bandwidth and so have limited ability to carry broadband services such as video unless combined with an enabling technology such as ADSL.

Dial-up connectivity – Connections made to a data network using the switched network to provide a voiceband or data bearer.

Digital – The representation of information in a binary fashion using two data items, ‘1’ and ‘0’.

DMSU – Digital Main Switching Unit. A telephone exchange primarily used for connecting long distance calls.

Integrated services digital network (ISDN) – a network based on the existing network that provides digital links to customers and end to end digital connectivity between them. ISDN2 provides a maximum bandwidth of 128kbit/s.

Interconnection – the connection of separate telecommunications networks.

Internet – a publicly accessible global network of interconnected networks. The Internet supports services such as the World Wide Web, e-mail and file transfer.

Internet service provider (ISP) – a service provider who provides access to the Internet. This is often bundled with other services such as email accounts and web space.

Leased lines – a fixed unswitched communication link between two points.

Local loop – the access network connection between the customer’s premises and the local exchange, usually a loop comprised by two copper wires.

Narrowband – a service or connection allowing only a limited amount of information to be conveyed, such as for telephony. This compares with broadband, which allows a considerable amount of information to be conveyed.

Originating operator – operator on whose network the call originates, ie the operator with the line to the school.

Originating segment – the network segment from the school to the first DMSU.

Price floor – the level which BT must price at or above if its prices are not to be regarded as anti-competitive.

Public Telecommunications Operator (PTO) – A network operator with powers granted by the Secretary of State for Trade and Industry under the Telecommunications Act 1984 to enable them to install their systems on public and private land, property etc.

PSTN – Public Switched Telephone Network. In this document PSTN refers to an ordinary telephone line connection to the Internet/on-line service.

Terminating operator – the operator on whose network the call terminates ie the operator with the connection to the Internet/on-line service provider.

UXD5 exchange – a small digital rural exchange used in parts of Wales and Scotland, which has limited facilities.