Chapter 4

Options for remedies in the UK excluding the Hull area

Introduction

4.1 This chapter assesses options for regulatory remedies in the UK wholesale market for unmetered narrowband Internet call termination, excluding the Hull area.

4.2 This chapter is only relevant if the Director was to find, after consultation, that the unmetered narrowband Internet termination market is not effectively competitive and that BT has SMP. The Director's initial view is that no single firm has SMP this market (see Chapter 3). If the Director reaches the same conclusion in his final statement then no such regulatory remedies will be imposed.

4.3 Clause 83(1) of the Communications Bill provides that where the Director (and Ofcom) has made a determination that a person is dominant in the market reviewed, he shall set such SMP conditions as he considers appropriate and as are authorised in the Bill. This implements Article 8 of the Access Directive.

4.4 The SMP conditions relevant to this review which may be set are detailed in Clause 83 of the Bill and Articles 9-13 of the Access Directive: They are:

• the provision of network access:

• no undue discrimination;

• transparency;

• cost accounting and accounting separation;

• pricing, including, in particular, price controls.

4.5 Oftel has set out its intention to consider the appropriateness of SMP conditions in its regulatory option appraisal guidelines.However, Oftel also notes Recital 27 of the Framework Directive which provides that ex ante regulation should only be imposed where there is not effective competition and where competition law remedies are not sufficient to address the problem. In this light, Oftel has considered this as part of its assessment as to the appropriateness of the SMP conditions – ie: a situation whereby no regulation was imposed and whether it would be sufficient to rely on competition law alone.

Aims of regulation

4.6 Clause 4 of the Communications Bill sets out the Community requirements for regulation. The Director in considering whether to propose any conditions has considered all of these requirements. In particular he has considered the requirement to promote competition and to secure efficient and sustainable competition. Therefore, the Director has particularly considered whether conditions are required to prevent market power in this market being used to distort competition in the downstream retail ISP market and allow competitors to compete on equal terms with BT.

What are the options for regulation?

4.7 Oftel has considered four different options for levels of regulation on BT in this market:

4.8 Any SMP conditions to be imposed must comply with the various tests set out in clauses 41 to 46 and 74 to 85 of the Communications Bill as applicable. The Director must also bear in mind the duties set out in clause 4 of the Communications Bill.

4.9 In particular, each SMP condition must satisfy the test set out in clause 43 of the Communications Bill, namely that each condition must be:

Question 4.1

Do you have any comments on the range of options that Oftel is proposing?

Option 1 - No ex-ante regulation

4.10 This option would rely on the use of ex post competition law to deal with SMP in the unmetered narrowband Internet termination market. A full discussion of the need for ex ante regulation is presented in Chapter 6.

Benefits and advantages

4.11 This imposes the lowest regulatory costs of all the options considered. Compared to option 2, this option would avoid any risk that publication of BT’s prices could dampen competition by setting a benchmark that other operators might follow.

Costs and disadvantages

4.12 Anti-competitive behaviour might be harder to detect in the absence of any public information about BT's pricing. Any alleged anti-competitive behaviour would most likely be investigated only on the receipt of a complaint from other operators or ISPs. This might result either in discriminatory behaviour being missed or in additional costs on all parties resulting from investigations of complaints that prove unfounded.

Option 2 - Publication of prices of services supplied to itself

4.13 BT would be under an obligation to publish charges, terms and conditions of wholesale unmetered narrowband Internet termination services provided to itself. This would include the publication of any of these services supplied to its subsidiary businesses, for example SurfPort24 services supplied to BT Retail and BT Openworld. However, BT would not be obliged to publish anything regarding services provided to any other undertakings. No advance notification of price changes would be required.

Benefits and advantages

4.14 Publication of prices facilitates the identification of anti-competitive behaviour relating to the leverage of power into the retail market and makes it easier for operators to raise complaints. For example, ISPs would clearly be able to identify if BT were supplying them at a higher price than its own ISP. In addition, competing operators might be alerted if they suspected services were priced too low. Any suspected anti-competitive behaviour relating to BT's supply of services either to itself or other ISPs could be investigated using ex post powers under the Competition Act 1998.

4.15 The ability to negotiate separately with ISPs provides incentives on BT to compete for business from ISPs and should support competition and innovation in the retail ISP market. For example, ISPs could request innovative tailor-made wholesale products without those products having to be made available to all other ISPs.

Costs and disadvantages

4.16 Some degree of price-following may be facilitated by using the published prices as a benchmark. However, current experience indicates that this is limited by countervailing buyer power in the retail market.

Option 3 - Requirements to provide network access, not to unduly discriminate, publish a reference offer, notify charges and publish technical information.

4.17 The proposed network access condition would require BT to provide access to its network on reasonable request. Oftel does not intend that all requests should be met and has set out how it might assess a reasonable request for access in its statement Imposing access obligations under the new EU Directives, September 2002.

4.18 The proposed requirement to publish a reference offer (RO) will require the published RO to include:

• a clear description of the services on offer;

• terms and conditions including charges, technical information and ordering and provisioning procedures. The RO should provide sufficient information to enable operators to make technical and commercial judgements such that there is no material adverse effect on competition;

• conditions relating to maintenance and quality (service level agreement). The inclusion of service levels, as part of the contractual terms of the RO, that provides for a minimum acceptable level of service, will ensure that services are provided in a fair, reasonable, timely and non-discriminatory fashion such that there is no material effect on competition; and,

• terms and conditions that are fair and reasonable. This will ensure that products are offered on terms and conditions as they would in a competitive market and that they are sensible, practical, and do not impose a margin squeeze on competitors.

4.19 The undue discrimination obligation would prohibit BT from providing products on terms and conditions that discriminate in favour of its own business and have a material adverse effect on competition. It would also prevent BT from discriminating between other operators. This does not mean that there should not be any differences in treatment between undertakings, rather that any differences should be objectively justifiable, for example by differences in underlying costs.

4.20 In addition, BT would be obliged to publish any changes to its wholesale charges 28 days in advance. The Director's initial view is that a longer notification period of 90 days would normally be appropriate where SMP is considered persistent. Therefore 28 days is more appropriate in this case where, if SMP is present, it is unlikely to be persistent.

4.21 BT would also be required to publish technical information about services 90 days in advance of new services being introduced or any technical changes being made to existing services. Oftel's view is that 90 days is generally the minimum time that competing providers will need to modify their network to support a new or changed technical interfaces or support a new point of access or network configuration.

Benefits and advantages

4.22 The requirement to provide network access may provide benefits by allowing smaller operators and ISPs to achieve full national coverage which would otherwise be uneconomic for them.

4.23 The publishing of a RO might also allow for speedier negotiations and avoid possible disputes. Together with the undue discrimination requirement it would give confidence to those purchasing wholesale services that they are being provided on non-discriminatory terms. The advance publication of any changes would also ensure that the viability of competing ISP services could not be undermined, for example by an unexpected price increase.

4.24 In addition to the benefits of Option 2, the wider price publication obligation might further facilitate monitoring of anti-competitive behaviour relating to leverage of market power from call origination into the unmetered Internet termination market. For example, competing operators might be more clearly alerted of predatory pricing by examining the published price list.

4.25 It is important that changes to technical information are published in advance so that communications providers have sufficient time to prepare. For example, a competing provider may have to introduce new equipment or modify existing equipment to support a new or changed technical interface.

Costs and disadvantages

4.26 The inability of BT to offer different terms to other ISPs might limit the degree of competition in this market and levels of innovation in the retail market. For example, any innovative wholesale service requested by an ISP would have to be made available to all others on non-discriminatory terms. There might also be stronger facilitation of price following by publishing a price list that applies to all customers.

Option 4 - Option 3 plus accounting separation

4.27 This option adds an accounting separation obligation in those obligations in option 3. The accounting separation obligation would require BT to provide a profit and loss account and balance sheet for its unmetered narrowband Internet termination business. It would also require transfer payments to be shown for the supply of unmetered narrowband Internet termination services to any of BT's vertically integrated businesses.

4.28 The processes of accounting separation are complex, covering issues such as accounting methodologies, audit, transparency, disaggregation, reconciliation and publication of information. These practical issues are distinct from the questions of principle, such as the level of regulation in the market and the types of remedies to be employed that have been addressed in this market review. However, these processes should be consistent across all markets susceptible to regulation to ensure that there is certainty both for Oftel, the SMP provider and other players in the market regarding regulatory financial information requirements.

4.29 Therefore, Oftel will be carrying out a separate consultation on the SMP condition or conditions necessary for implementing the processes of financial reporting, including accounting separation. The scope of this consultation will be to address the financial reporting process issues necessary to implement the remedies identified by this, and other, market reviews in a proportionate and appropriate manner. This consultation on financial reporting will contain the draft accounting separation obligations. Oftel will carry out this consultation towards the end of the market review process so that the implications of the financial reporting obligations can be tailored to the findings of the individual reviews.

Benefits and advantages

4.30 This would provide the greatest transparency of all the options. In particular it would provide sufficient information to monitor that there is no cross subsidy from call origination to unmetered narrowband Internet termination, or from unmetered narrowband Internet termination to retail Internet access. An obligation for accounting separation would also enable the monitoring of the non-discrimination obligation.

Costs and disadvantages

4.31 In addition to the costs discussed for option 3, an accounting separation obligation would impose costs on BT relating to the preparation of the accounts themselves, and also the preparation of accounting documentation and the procuring of an audit opinion to support the transparency of those accounts.

Initial conclusions

4.32 The Director's initial view is that Option 2 is the preferred option for regulation if he concludes that BT has SMP in this market. This option imposes low regulatory costs, yet provides sufficient information to facilitate effective ex post action and allows flexibility in the services that can be offered to competing providers.

4.33 The Director's current view is that options 3 and 4 are unlikely to be proportionate to the problems in this market even if the final conclusion of the review is that BT has SMP. This is because the characteristics of this market, for example economies of scale and barriers to entry, suggest that competition should be able to develop in the future, as long as adequate upstream remedies are in place, without requiring the level of regulation proposed in those options.

Question 4.2

Are there any additional advantages or disadvantages of the options that Oftel has not considered?

Question 4.3

Do you agree with the Director's initial conclusion on the appropriate regulatory option (if SMP is found)?

Chapter 5

Assessment of market power in the Hull area

Introduction

5.1 This chapter assesses market power and options for regulatory remedies in the wholesale market for unmetered narrowband Internet termination for calls originating in the Hull area. As discussed in Chapter 2 the Hull area is considered to be a separate geographic market from the rest of the UK.

5.2 The review of the separate geographic market in the Hull area is in accordance with relevant EC and UK guidelines, as set out in Chapter 1.

Background

5.3 Kingston Communications(Hull) plc (Kingston) is the incumbent operator within the Hull area and has 100% market share of residential exchange lines. There has been some market entry in relation to business exchange lines. However the number of exchange lines provided by other operators is so small that Oftel considers that Kingston effectively has 100% market share of business exchange lines.

5.4 At present Kingston does not offer a wholesale unmetered call origination product to others operators. Oftel is considering the appropriate level of regulation relating to wholesale unmetered call origination products in its review of fixed narrowband wholesale exchange lines, call origination, conveyance and transit markets.

5.5 Kingston currently offers a wholesale unmetered narrowband Internet termination combined product called "HullPort24". HullPort24 is similar to BT’s SurfPort24 product and is offered on substantially the same terms and conditions.

5.6 It should also be noted that Kingston offers a retail unmetered end to end local call product which can be indirectly used by an ISP to provide an unmetered retail Internet product. In this case, the retail customer calls the local business exchange line used by the ISP. Kingston terminates the call at the ISP's premises and the ISP provides equipment (Network Access Servers) to convert the call to Internet Protocol (IP) and provide connectivity to the Internet. However where the ISP’s business exchange line is used for this purpose, the business exchange line is subject to an annual surcharge (The surcharge for ISDN lines was the subject of an investigation by Oftel, which found that the surcharge did not appear unjustified, see Competition Bulletin Issue 26. It is important to note that whilst at the retail level, the product is a substantially similar to a typical unmetered retail product, the underlying inputs to this product do not correspond to a wholesale unmetered Internet termination service, as Kingston undertakes the end-to-end conveyance of the call to the ISP.

Criteria for assessing significant market power

5.7 The most important criteria that appear to be relevant for the assessment of SMP in the Hull market are:

• market share;
• ease of market entry and potential competition; and
• countervailing buyer power.

Assessment of SMP against relevant criteria

5.8 The analysis provides an assessment of SMP in the Hull market for unmetered narrowband Internet call termination against Oftel’s published SMP criteria and the European Commission's guidelines. It focuses on assessing whether Kingston Communications has SMP in this market.

Market Share

5.9 In order to provide a wholesale termination product within the Hull Area an operator must either interconnect with Kingston or have an arrangement with an operator that does to carry its traffic to its interconnection point with that operator.

5.10 At present only BT, Cable & Wireless and Torch Communications interconnect with Kingston (the "Hull interconnecting operators"). None of these operators terminate unmetered Internet traffic that has originated within the Hull Area. Additionally none of these operators terminate or carrier unmetered Internet traffic that originated within the Hull Area on behalf of a third party operator.

5.11 Accordingly Kingston is the only operator that is terminating unmetered Internet traffic that originated within the Hull Area and therefore Kingston has a market share of 100% in this market.

Ease of market entry and potential competition

5.12 As discussed above, in order to compete with Kingston in the Hull Area for wholesale unmetered Internet termination, an operator must interconnect with Kingston or have an arrangement for those operators to carry traffic to them.

5.13 Additionally, the Director's initial view is that in order to provide an unmetered retail Internet product operators would need to be able to originate their traffic within the Hull Area on an unmetered basis (see below).

Interconnection

5.14 If a Hull interconnecting operator chose to enter the Hull market, they could do so relatively easily, subject to the availability of a wholesale unmetered call origination product (discussed below), because they already have existing interconnection facilities in place.

5.15 If another operator wished to enter the Hull market, they would have two options. The operator could enter into an interconnection agreement with Kingston and roll out the necessary infrastructure for interconnection. Oftel believes, that due to the small size of the Hull market and the relatively high cost of putting in place an interconnection with Kingston, it would be impractical for a new entrant to enter the Hull market for wholesale unmetered narrowband Internet termination in this way.

5.16 Alternatively, a new entrant could enter into an agreement with one of the Hull interconnecting operators so that traffic from Kingston is conveyed to it via the Hull interconnecting operator. The new entrant would need to pay a transit charge to the Hull interconnecting operator for the provision of this arrangement. Oftel believes that this would significantly affect the margin that the new entrant could obtain for providing its termination service and accordingly it is likely that this option would not be commercially attractive.

Origination

5.17 As discussed above, Kingston does not currently offer a wholesale unmetered Internet origination product in Hull. Accordingly a new entrant is currently unable to originate any traffic on an unmetered basis within Hull.

5.18 Oftel believes that without a wholesale unmetered call origination product in Hull, it would not be practical for a new entrant to compete in the wholesale unmetered narrowband Internet termination market. Operators relying on metered wholesale call origination as an input to their unmetered termination products would be exposed to forecasting risks, which Kingston does not face, as they would have no certainty about the extent to which their unmetered retail products would be used (this is also considered in Chapter 2).

5.19 Oftel would however, stress that no operator has requested a wholesale unmetered Internet origination product in Hull. This is addressed further in Oftel’s Review of fixed narrowband wholesale access, call origination, conveyance and transit markets published in March 2003.

Countervailing buyer power

5.20 The major customers of wholesale unmetered Internet termination are the large retail ISPs. The market shares of retail narrowband unmetered ISP in the Hull area, based on Oftel’s consumer research conducted in January 2003, is shown in Table 4 (note that these are derived from a small base, and therefore should be considered indicative only).

Table 4: Estimated market shares of narrowband unmetered (including partially unmetered) ISPs in the Hull area

Source: Oftel consumer research (January 2003)

5.21 Karoo is Kingston’s own ISP and provides a variety of retail Internet products including an unmetered retail Internet product. AOL limits its customers within the Hull area to 30 hours unmetered usage per month using its retail Internet product (beyond which customers are charged 1p per minute). Oftel's market research has shown that residential Internet users spend an average 11 hours online per week. Therefore, the AOL service offers notably less unmetered hours than the average user would use. Accordingly, Oftel does not consider that AOL's service fall within the retail unmetered narrowband Internet market.

5.22 Freeserve, Demon and "other" ISPs mentioned in the market information above only offer unmetered retail Internet products to customers where BT provides their telephone line. BT does not currently provide exchange lines in the Hull area, so it must be assumed these responses are as a result of customer misunderstanding when responding to Oftel’s consumer research.

5.23 Oftel is aware of only two ISPs, Hull24 and Clever4 that appear to offer "genuinely" unmetered retail Internet access (apart from Karoo) in the Hull Area. These providers rely on Kingston’s unmetered retail local call product with calls terminating on business exchange lines purchased from Kingston (as described above) to provide this retail product.

5.24 Therefore, removing ISPs which do not provide true unmetered retail products, the Karoo appears to supply whole residential market and about 9 in 10 in the business market.

5.25 Karoo is a vertically integrated ISP, therefore does not exert countervailing buyer power in unmetered Internet termination. Hull24 and Clever4 are local ISPs and appear to be relatively small both in size and customer numbers. Accordingly it is unlikely that they will have any countervailing buyer power.

Initial conclusions on significant market power

5.26 The Director's initial view is that Kingston has SMP in the market for wholesale unmetered narrowband Internet termination for calls originating in the Hull area. The key factors contributing to this view are:

• Kingston’s very high market share;
• the high barriers to entry for a new entrant, particularly in the absence of a unmetered wholesale call origination product.
• the absence of countervailing buyer power, due to Kingston's very strong position in the Hull retail ISP market.

5.27 The Director also believes, that in the continuing absence of entry into the Hull market, there is a risk that Kingston's market power may be persistent.

Question 5.1

Do you think there are other criteria that are important for reaching a conclusion on SMP?

Question 5.2

Do you agree with Oftel's analysis of the key criteria?

Question 5.3

Do you agree with the Director's initial view that Kingston has SMP?

Definition of the dominant provider

5.28 The Director considers it appropriate to prevent a person to whom an SMP service condition is applied (i.e. the dominant provider) which is part of a group of companies, exploiting the principle of corporate separation. That is to say, the dominant provider should not use another member of its group to carry out activities or to fail to comply with a condition, which would otherwise render the dominant provider in breach of its obligations.

5.29 Article 16 of the Framework Directive requires that, where a national regulatory authority determines that a relevant market is not effectively competitive, it shall identify "undertakings" with significant market power on that market and shall on such "undertakings" impose appropriate specific regulatory obligations. For the purposes of EC competition law, "undertaking" includes companies within the same corporate group (Viho v Commission Case C-73/95 P [1996] ECR I-5447), for example, where a company within that group is not independent in its decision making.

5.30 Accordingly, the Director considers it appropriate that the obligations detailed in this consultation document and notification shall apply to Kingston Communuications (Hull) plc (Kingston), whose registered company number is 2150618, and any Kingston subsidiary or holding company, or any subsidiary of that holding company, all as defined by Section 736 of the Companies Act 1985 as amended by the Companies Act 1989.

Options for remedies in the Hull area

Introduction

6.1 In Chapter 5, the Director has proposed that Kingston has SMP in the market for unmetered narrowband Internet call termination in the Hull area. The lack of competition at the wholesale level may be restricting competition in the provision of retail unmetered Internet services, where Kingston’s own ISP has a very high market share. This chapter therefore considers whether remedies at the wholesale level are necessary to promote competition at the retail level.

6.2 Clause 83(1) of the Communications Bill provides that where the Director (and Ofcom) has made a determination that a person is dominant in the market reviewed, he shall set such SMP conditions as he considers appropriate and as are authorised in the Bill. This implements Article 8 of the Access Directive.

6.3 The SMP conditions relevant to this review which may be set are detailed in Clause 83 of the Bill and Articles 9-13 of the Access Directive: They are:

Aims of regulation

6.4 Clause 4 of the Communications Bill sets out the Community requirements for regulation. The Director in considering whether to propose any conditions has considered all of these requirements. In particular he has considered the requirement to promote competition and to secure efficient and sustainable competition. Therefore, the Director has particularly considered whether conditions are required to allow competing ISPs to enter the retail market for unmetered narrowband Internet access in the Hull area.

What are the options for regulation?

6.5 Clause 83(1) of the Communications Bill says that where SMP is found, OFCOM "shall...set conditions...as they consider appropriate". This implements Article 8 of the Access Directive. The European Commission’s guidelines on market analysis and SMP state that this means that Oftel must impose one or more SMP conditions on a dominant provider. These indicate that Ofcom (or Oftel in the interim period) must impose at least one SMP condition on a dominant provider.

6.6 Oftel has set out its intention to consider the appropriateness of SMP conditions in its regulatory option appraisal guidelines. Oftel also notes Recital 27 of the Framework Directive which provides that ex ante regulation should only be imposed where there is not effective competition and where competition law remedies are not sufficient to address the problem. In this light, Oftel has considered this as part of its assessment as to the appropriateness of SMP conditions – ie: a situation whereby no regulation was imposed and whether it would be sufficient to rely on competition law alone.

6.7 Oftel has considered four different options for levels of regulation for wholesale narrowband unmetered Internet termination in the Hull area:

• Option 1: No ex-ante regulation.

• Option 2: Requirement to publish prices for services supplied to itself.

• Option 3: Requirements to provide network access, not to unduly discriminate, publish charges, publish technical information and publish a reference offer.

• Option 4: Option 3, plus a requirement for charges to be reasonably derived from the costs of providing those services.

6.8 Any SMP conditions to be imposed must comply with the various tests set out in clauses 41 to 26 and 74 to 85 of the Communications Bill as applicable. The Director must also bear in mind the duties set out in clause 4 of the Communications Bill.

6.9 In particular, each SMP condition must pass the test set out in clause 43 of the Communications Bill, namely that each condition must be:

• objectively justifiable in relation to the networks, services or facilities to which it relates;

• not such as to discriminate unduly against particular persons or a particular description of persons;

• proportionate to what the condition is intended to achieve; and

• in relation to what it is intended to achieve, transparent.

Question 6.1

Do you have any comments on the range of options that Oftel is proposing?

Option 1 - No ex-ante regulation

6.10 This option would rely on the use of ex post competition law to deal with SMP in the unmetered narrowband Internet termination market in the Hull area.

As a competitive market will produce a more efficient outcome than a regulated

market, the promotion of competition is central to Oftel’s goal of securing the best deal for the consumer in terms of quality, choice and value for money.

6.11 Where markets are effectively competitive, ex-post competition law is sufficient to deal with any competition abuses that may arise. However, without the imposition of ex-ante regulations to promote actively the development of competition in a non-effectively competitive market, it is unlikely that ex-post general competition law powers will be sufficient to ensure that effective competition becomes established. For example, this is because ex-post powers prohibit abuse of dominance rather than the holding of a dominant position. Ex-ante powers can be utilised to reduce the level of market power in a market and thereby encourage effective competition to become established.

6.12 The risk is not all one way as use of some ex ante measures can themselves limit or add nothing to the development of competition. Oftel has recognised this in removing some regulation where markets are not effectively competitive – for example in the removal of airtime provision requirements on Vodafone and 02.

Characteristics of telecoms markets in general

6.13 Generally, the case for ex-ante regulation in telecoms markets is based on the existence of market failures which, by themselves or in combination, mean that competition might not be able to become established if the regulator relied solely on its ex-post competition law powers established for dealing with more conventional sectors of the economy. Therefore, it is appropriate for ex-ante regulation to be used to address these market failures and entry barriers that might otherwise prevent effective competition from becoming established. By imposing ex-ante regulation that will promote competition, it may be possible to reduce the need for such regulation as markets become more competitive, with greater reliance on ex-post competition law.

6.14 The European Commission has also stated that ex-ante regulation is justified: "[…] where the compliance requirements of an intervention to redress a market failure are extensive (eg the need for detailed accounting for regulatory purposes, assessment of costs, monitoring of terms and conditions[...])." This is the case for many markets where persistent SMP leads to a risk of a firm setting excessive prices and the need for efficiency incentives, where a price control would be justified, or where there is likely to be a need for intervention to set detailed terms and conditions for access to networks.

Market dominance

6.15 Outside Hull, many telecoms markets have in general become increasingly competitive over time, from a position in which most were controlled by a legacy monopoly operator. The increase in competition that has occurred inevitably reflects the imposition of ex-ante regulation to counter the market power of the dominant operator. Moreover, despite this, the legacy operator remains strongly dominant in a number of key markets. Therefore, it may be appropriate to continue to impose ex-ante regulations in these markets in order to ensure that effective competition can become established. As noted in Chapter 5, Kingston retains 100% share of the unmetered Internet termination market in the Hull area.

Entry barriers

6.16 Telecoms networks are characterised by economies of scale, that is, average costs fall as output increases. Economies of scale result from the fact that a high proportion of the costs of a telecoms network are fixed whilst marginal costs (the costs of an extra unit of output) are relatively low. Whilst the extent the investment necessary to enter the market in the Hull area might be relatively small, the size of the potential market will be likewise reduced. Significant sunk costs create an asymmetry in the market between incumbents and potential entrants that the former could exploit to deter entry, if allowed to. Incumbents could exploit this asymmetry by signalling to a potential entrant that if it were to enter the market prices would be too low to cover sunk costs. Entry might therefore be deterred.

6.17 Also, although entry at the retail level by operators without their own networks is likely to require relatively smaller sunk investments, it is also likely to require regulated supply of wholesale inputs if retail competition is to become established where there is market power at the network level.

6.18 Overall, these factors mean that entry into the unmetered Internet termination market is therefore likely to occur only if appropriate wholesale inputs are available on regulated terms. Therefore, ex-ante rules are likely to be necessary to promote competition between ISPs in Hull.

Option 2 - Publication of charges for services supplied to itself

6.19 Kingston would be required to publish prices, terms and conditions of wholesale unmetered narrowband Internet termination services provided to itself. For example this would include the publication of any services supplied to its ISP businesses, Karoo. However, Kingston would not be obliged to publish anything regarding services provided to any other undertakings. No advance notification of price changes would be required.

6.20 Kingston would be obliged to publish and adhere to prices, terms and conditions of wholesale unmetered narrowband Internet termination services provided to itself. This would include the publication of any of these services supplied to its ISP businesses, Karoo (for example HullPort24). However, Kingston would not be obliged to publish anything regarding services provided to any other undertakings. No advance notification of price changes would be required.

Benefits and advantages

6.21 Publication of prices facilitates the identification of anti-competitive behaviour relating to the leverage of power into the retail market and makes it easier for operators to raise complaints. For example, ISPs would clearly be able to identify if Kingston were supplying them at a higher price than to Karoo. Any suspected anti-competitive behaviour relating to Kingston’s supply of services either to itself or other ISPs could be investigated using competition law powers.

6.22 This option would place a low regulatory burden on Kingston and Oftel.

Costs and disadvantages

6.23 This option does not directly address the problem that ISPs need to obtain access on reasonable, non-discriminatory terms in order to compete with Kingston’s own ISP. The lack of an access obligation means that, were Kingston to refuse access to termination products, an operator would have to show that that refusal was a breach of competition legislation in order to allow Oftel to bring action against Kingston. Additionally, in contrast to the rest of the UK, neither wholesale competition nor countervailing buyer power would act to constrain excessive pricing.

Option 3: Requirements to provide network access, not to unduly discriminate, publish a reference offer, notify charges, and publish technical information.

6.24 The draft conditions relating to this option are Condition C1, Condition C2, Condition C3, Condition C4 and Condition C5 as set out in Annex 2.

6.25 The proposed condition to provide network access would require Kingston to satisfy all reasonable requests for network access on fair, reasonable and timely terms. This would encompass the provision of access products such as the current HullPort24 product offered by Kingston.

6.26 The Director considers that some of the current terms and conditions for the HullPort24 product may not be appropriate to the size of the telecommunications market in the Hull area. In particular, the minimum requirement of 1500 ports is likely to act as a barrier to entry given that a new entrant is unlikely to be able to justify this number of ports for a relatively small target market.

Question 6.2

Do you think the current terms and conditions of the HullPort24 product are fair and reasonable, if not, why?

 6.27 An obligation of non-discrimination might have disadvantages if it prevented discrimination that was economically efficient or justified. However, the proposed condition provides that there should be no undue discrimination. Oftel has considered how it might treat undue discrimination in its statement Imposing access obligations under the new EU Directives, September 2002. This statement notes that any obligation with respect to undue discrimination has the objective of preventing behaviour that has a material adverse effect on competition. This does not mean that there should not be any differences in treatment between undertakings, rather that any differences should be objectively justifiable, for example, by differences in underlying costs of supplying different undertakings. The statement also notes that in the Director’s view there is a rebuttable presumption that a vertically integrated SMP operator discriminating in favour of its own retail activities or between its own different activities would have a material adverse effect on competition (paragraph 3.9). This view would also apply to discrimination in relation to the underlying components of services provided to competing providers would have a material adverse effect on competition.

6.28 The proposed reference offer condition would require Kingston to publish a Reference Offer (RO) which includes:

• a clear description of the services on offer;

• terms and conditions including charges, technical information and ordering and provisioning procedures;

• a service level agreement; and

• terms and conditions that are fair and reasonable.

6.29 Details of what should be published in the Reference Offer are set out in the draft Condition 3 in Annex B.

6.30 The proposed charge notification condition is for Kingston to publish any changes to its wholesale charges 90 days in advance. The Director's view is that a notification period of 90 days is appropriate where SMP is considered persistent.

6.31 The proposed condition for technical information publication would require Kingston to publish technical information about services 90 days in advance of new services being introduced or any technical changes being made to existing services. The information to be published comprises new or amended technical characteristics (including information on network configuration where to necessary to make effective use of the Network Access), locations of the points of Network Access and technical standards (including any usage restrictions and other security issues). Relevant information about network configuration is likely to include information about the function and connectivity of points of access, for example the connectivity of exchanges to end users and other exchanges.

Benefits and advantages

6.32 The requirement to provide network access on fair and reasonable terms would facilitate competition in the downstream market for retail unmetered Internet access by allowing ISP to enter the market and compete with Kingston's own ISP, Karoo.

6.33 In the absence of such a requirement Kingston may refuse reasonable requests for access or provide access on unreasonable terms. Entry in the downstream retail market would then be limited because potential competitors would not have access to appropriate wholesale inputs.

6.34 The benefit of the requirement not to unduly discriminate is that competing providers purchasing wholesale products are placed in an equivalent position to Kingston's own retail businesses, for example its ISP, Karoo, and would therefore be better able to compete with them. Kingston is vertically integrated and in the absence of such a condition, it may have an incentive to provide wholesale services on terms and conditions that discriminate in favour of its own ISP, in a way that would have a material adverse effect on competition. In particular, it may have incentives to charge competing providers more for wholesale services to increase the costs of competing providers and give its own ISP an unfair competitive advantage. It might also provide services on different terms and conditions – for example with different delivery timescales – which would disadvantage their retail competitors and hence consumers.

6.35 A requirement on Kingston to publish a reference offer has two main benefits: to assist transparency for the monitoring of potential anti-competitive behaviour and to give visibility to the terms and conditions on which other providers will purchase wholesale access services. This helps to ensure stability in markets and without it, incentives to invest might be undermined and market entry made less likely.

6.36 The publishing of a reference offer, including publication of charges, will potentially allow for speedier negotiations, avoid possible disputes and give confidence to those purchasing wholesale access services that they are being provided on non-discriminatory terms. Without such a published offer, market entry might be deterred to the detriment of the long term development of competition and hence consumers.

6.37 Publication of charges at the wholesale level gives advanced warning of charge changes to competing providers purchasing wholesale access services. This is important to ensure that competing providers have sufficient time to plan for such changes, as they are likely to want to restructure retail prices in response to changes in wholesale prices. This helps to ensure stability in markets and without it, incentives to invest might be undermined and market entry made less likely.

6.38 The requirement to provide technical information is important to ensure that communication providers to whom Network Access is being provided by Kingston are able to make effective use of that Network Access. Changes to technical information must be published in advance so that communications providers have sufficient time to prepare. For example, a competing provider may have to introduce new equipment or modify existing equipment to support a new or changed technical interface. Similarly, a competing provider may need to make changes to its network in order to support changes in the points of network access or configuration.

6.39 Oftel's view is that 90 days is the minimum time that competing providers will need to modify their network to support a new or changed technical interfaces or support a new point of access or network configuration.

Costs and disadvantages

6.40 This option seems unlikely to place a significant regulatory burden on Kingston, particularly as it is already supplying a wholesale unmetered product. The main costs would appear to arise from the overhead of providing information about the services provided in a transparent manner.

6.41 Publication of charges has some disadvantages, particularly in markets where there is some competition and it can act as a disincentive to competition. Competitors can merely see the published prices of the dominant provider and relate their prices to those of the dominant provider. Advance notification of price changes can increase the anti-competitive effect of price publication. However, in this market, where there is currently very little evidence of competition, these disadvantages are not likely to be pronounced.

Option 4: Option 3 plus requirement for charges to be based on a forward looking incremental cost approach

6.42 Under this option Kingston would be the same obligations as those set out in Option 3 but would additionally be required to set charges reasonably derived from costs based on a forward looking incremental cost approach.

Benefits and advantages

6.43 Without some intervention in pricing, SMP providers are likely to want to charge excessive prices in order to increase their revenues and the costs of competing service providers. This may be limited by the requirement not to unduly discriminate, however, Kingston may still have incentives to set its charges at a level to maximise its overall profitability.

Costs and disadvantages

6.44 Compliance with this condition is likely to incur overheads for Kingston in accounting for all the costs that are incurred in providing its wholesale unmetered narrowband Internet termination products.

6.45 It may be sufficient to simply have a requirement for non-discrimination. Were the charge set too high to enable reasonably efficient competitors to compete with Karoo then there might be the option of using ex post competition law powers, for example to investigate a margin squeeze.

Initial conclusions on regulation

6.46 The Director's initial view is that Option 3 is the preferred option for regulation if he concludes that Kingston has SMP in the unmetered wholesale Internet termination market in the Hull Area. Although, this option imposes some regulatory costs on Kingston, the lack of demand for a call origination product as discussed in Chapter 5, suggests that there may be limited scope for competition to develop at the network level in the short term. Hence the proposed requirement on Kingston to meet reasonable requests for Network Access in the unmetered Internet termination market is a proportionate response to address the problem of lack of competition in the retail unmetered Internet access market. In order to ensure that retail competition can develop, the Director considers that it is important that competing ISPs can access wholesale services from Kingston on terms that are reasonable and enable them to compete with Karoo.

6.47 The Director considers that the proposed condition to provide network access is objectively justifiable as it would allow ISPs to enter the retail unmetered narrowband Internet access market therefore promote competition in that market. The Director's initial view is that Kingston has SMP in the market whereas BT does not, therefore the difference in treatment of these operators is not discriminatory. It is proportionate, since it does not require Kingston to provide access if a request for access is not reasonable. The Director has set out how he might assess whether demands for access are reasonable in the Access Guidelines referred to above, and further discussion of the terms and conditions that might accompany an obligation to meet reasonable demands for access is set out above. The proposed obligation therefore meets the requirement of transparency set out in the Communications Bill. In addition, the Director has taken into account the factors set out in Clause 83(4). In particular, the requirement to only meet reasonable requests for access ensures that the requested access is feasible to provide.

6.48 The Director considers that the proposed condition not to unduly discriminate is objectively justifiable, in that it provides safeguards to ensure that competitors, and hence consumers, are not disadvantaged by Kingston discriminating in favour of its own ISP. It is proportionate in that discrimination is only prohibited if it is undue.The Director's initial view is that Kingston has SMP in the market where as BT does not, therefore the difference in treatment of these operators is not discriminatory. It is transparent because the condition that would apply to Kingston is clearly set out in this document.

6.49 The Director considers that the proposed condition to publish a reference offer is objectively justifiable in so far as it provides information to prospective market entrants in order to encourage competition in markets where SMP is persistent. It is proportionate, in that it is intended to replicate conditions in competitive markets and does not impose regulation in addition to what might be expected in a competitive market. The Director's initial view is that Kingston has SMP in the market where as BT does not, therefore the difference in treatment of these operators is not discriminatory. It is transparent because the condition that would apply to Kingston is clearly set out in this document.

6.50 The Director considers that the proposed condition to publish charges is objectively justifiable, in that the benefits of price publication and notification outweigh the disadvantages. It is proportionate, as it does not require publication of any details that would not be available in a normal commercial contract. The Director's initial view is that Kingston has SMP in the market where as BT does not, therefore the difference in treatment of these operators is not discriminatory. It is transparent because the condition that would apply to Kingston is clearly set out in this document.

6.51 The Director considers that the proposed condition to provide technical information is objectively justifiable, the condition enables competing operators to make full and effective use of Network Access covered by proposed Condition 1. The Director's initial view is that Kingston has SMP in the market where as BT does not, therefore the difference in treatment of these operators is not discriminatory. It is proportionate, since 90 days is the minimum necessary to allow effective use to be made of Network Access; and it is transparent because the condition that would apply to Kingston are clearly set out in this document.

6.52 Overall, for purposes of clause 83(1) of the Communications Bill, the Director considers that Option 3 is appropriate. He also considers it meets the tests set out in Clause 43(2) of the Communications Bill. It is objectively justifiable as it would allow ISPs to enter the retail market and compete on the same terms as Kingston's own ISP. It does not discriminate against Kingston as Kingston's position in this market is very different to BT. It is proportionate, as regulatory burden to Kingston is likely to be limited. It is transparent because the conditions that would apply to Kingston are set out in this document.

6.53 In addition, the Director considers that Option 3 is appropriate, in reference enables him to meet his duties as set out in Clause 4 of the Communications Bill. In particular it aims to promote competition in the market for unmetered Internet services at the retail level.

6.54 The Director's initial view is that the additional cost recovery condition included in Option 4 would not currently be proportionate. As well as the disadvantages of this option discussed earlier, there may be some prospect of competition at the wholesale level, if an operator had access to, and wanted to use, an appropriate wholesale unmetered origination product.

6.55 The Director's initial view is that Option 2, price publication only, would not be appropriate because this option does not directly address the need for ISPs need to obtain access to a wholesale unmetered narrowband Internet termination service on reasonable, non-discriminatory terms in order to compete with Kingston’s own ISP.

Question 6.3

Are there any additional advantages or disadvantages of the options that Oftel has considered?

Question 6.4

Do you agree with the Director's initial conclusion on the appropriate regulatory option, and that the each of the conditions are appropriate?

Chapter 7

Consultation

7.1 The purpose of this consultation is to seek views on the Director’s assessment of the level of competition in the unmetered narrowband Internet termination market in the UK, and his proposals for regulation to be applied in that market. The Director will consider all relevant comments before making the final Notification.

7.2 In addition to comments respondents may wish to make on the Director’s proposals, the Director would like respondents’ views on the specific questions raised.

7.3 The Director is publishing the draft Conditions together with this explanatory document so that interested parties may have a reasonable opportunity to make representations. Having considered any such representations, the Director will, if appropriate, adopt Directions as appropriate, and will explain his reasons for making them.

7.4 With reference to regulation 6 (6) of the Regulations, a consultation period of six weeks has been permitted for representations.

7.5 Representations must arrive at Oftel no later than close of business on 30 May 2003. Representations received after this time will not be taken into account, and no extensions of the deadline will be permitted.

7.6 Where possible, comments should be made in writing and sent by e-mail to justin.moore@oftel.gov.uk. However, copies may also be posted or faxed to the address below. If any stakeholders are unable to respond in one of these ways, they should discuss alternatives with:

Justin Moore
Oftel
50 Ludgate Hill
London
EC4M 7JJ

tel: 020 7634 8859
fax: 020 7634 8757

 Further copies of this document

7.7 This document can be viewed on Oftel’s website, www.oftel.gov.uk. Paper copies and more accessible formats such as large print, Braille, disc and audio cassette can be made available on request. Please contact Oftel’s Research and Information Unit by telephoning 020 7634 8761 or by sending an e-mail to infocent@oftel.gov.uk.

Publication of representations made by stakeholders

7.8 On this occasion, the Director is not inviting stakeholders to comment on the representations made by others. However, in the interests of transparency, all representations will be published, except where respondents indicate that a response, or part of it, is confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly identified as containing confidential material. Oftel will take steps to protect the confidentiality of all such material from the moment that it is received at Oftel’s offices. In the interests of transparency, respondents should avoid applying confidential markings wherever possible.

7.9 Non-confidential representations can be viewed on Oftel’s website in the Publications section under Responses to Oftel consultations. They can also be viewed at Oftel’s Research and Information Unit. Appointments must be made in advance by telephoning 020 7634 8761 or by sending an e-mail to infocent@oftel.gov.uk.

Annex A

Notification and proposed conditions

NOTIFICATION OF PROPOSALS UNDER REGULATION 6 OF THE ELECTRONIC COMMUNICATIONS (MARKET ANALYSIS) REGULATIONS 2003

Proposal for identifying a market, making a market power determination and the setting of market power conditions in relation to Kingston

1. The Director General of Telecommunications (‘the Director’), in accordance with regulation 6 of the Electronic Communications (Market Analysis) Regulations 2003 (S.I. 2003/330) ('the Regulations'), hereby makes the following proposals for identifying a market, making a market power determination and the setting of significant market power conditions.

2. The Director is proposing to identify the following market for the purpose of making a market power determination:

3. The Director is proposing to make a market power determination that the following person has significant market power in relation to the market referred to in paragraph 2 above:

4. The Director is proposing to set market power conditions on the person referred to in paragraph 3 above as set out in Schedule 1 to this Notification.

5. The effect of, and the Director’s reasons for making, the proposals to identify the market set out in paragraph 2 above are contained in Chapter 2 of the consultation document published with this Notification.

6. The effect of, and the Director’s reasons for making, the proposal to make the market power determinations set out in paragraph 3 above are contained in Chapter 5 of the consultation document published with this Notification.

7. The effect of, and the Director’s reasons for making, the proposal to set the market power conditions set out in Schedule 1 to this Notification are contained in Chapter 6 of the consultation document published with this Notification.

8. In identifying and analysing the markets referred to in paragraph 2 above, and in considering whether to make the proposals set out in this Notification, the Director has taken due account of all applicable guidelines and recommendations which have been issued or made by the European Commission in pursuance of a Community instrument, and relate to market identification and analysis or the determination of what constitutes significant market power, in accordance with Regulation 5 (2) of the regulations.

9. The Director considers that the proposed market power conditions referred to in paragraph 4 above comply with, and are necessary for satisfying requirements in, the provisions of the Directives, as appropriate and relevant to each of such market power conditions, referred to in regulation 6 (8) of the Regulations.

10. Representations may be made to the Director about any of the proposals set out in this Notification and the accompanying explanatory memorandum by 30 April 2003.

11. Copies of this Notification have been sent to the Secretary of State, the European Commission, and such of the regulatory authorities of other member States as the Director thinks fit.

12. In this Notification:

a. "Hull area" means the area defined as the 'Licensed Area' in the licence granted on 30 November 1987 by the Secretary of State under section 7 of the Telecommunications Act 1984 to Kingston upon Hull City Council and Kingston Communications (Hull) plc; and,

b. "significant market power" has the meaning given to it in regulation 5 (3) to (7) in the Regulations.

 DAVID ALBERT EDMONDS

DIRECTOR GENERAL OF TELECOMMUNICATIONS

14 March 2003

Schedule 1

The conditions imposed on

Kingston Communications (Hull) plc and its subsidiaries under regulation 6 (4) of the Electronic Communications (Market Analysis) Regulations 2003 as a result of the analysis of the market for wholesale unmetered narrowband Internet termination for Internet traffic originating in the Hull area in which Kingston Communications (Hull) plc and its subsidiaries has been found to have significant market power

Part 1: Definitions and Interpretation of these conditions

1. These conditions shall apply to the market for the provision of wholesale unmetered narrowband Internet termination for Internet traffic originating in the Hull area unless the Director consents otherwise (the ‘Market’).

2. For the purpose of interpreting the conditions imposed on the Dominant Provider following the review of the market referred to in paragraph 1 the following definitions shall apply:

"Act" means the Communications Act 2003;

"Access Charge Change Notice" has the meaning given to it in Condition C4.2;

"Director" means the Director General of Telecommunications appointed under section 1 of the Telecommunications Act 1984;

"Dominant Provider" means Kingston Communications (Hull) plc ('Kingston'), whose registered company number is 2150618, and any of its subsidiaries or holding companies, or any subsidiary of such holding companies, all as defined by Section 736 of the Companies Act 1985 as amended by the Companies Act 1989;

"Reference Offer" means the terms and conditions on which the Dominant Provider is willing to enter into an Access Contract;

"Third Party" means person.

3. Except insofar as the context otherwise requires, words or expressions shall have the meaning assigned to them and otherwise any word or expression shall have the same meaning as it has in the Act.

4. The Interpretation Act 1978 shall apply as if each of the conditions were an Act of Parliament.

5. Headings and titles shall be disregarded.

Part 2: The conditions

Condition C1 – Requirement to provide network access on reasonable request

C1.1 The Dominant Provider shall provide Network Access to every Third Party who reasonably requests in writing such Network Access and such Network Access as the Director may direct from time to time.

C1.2 The provision of Network Access in accordance with paragraph C1.1 shall occur as soon as reasonably practicable and shall be provided on fair and reasonable terms, conditions and charges and on such terms, conditions and charges as the Director may from time to time direct.

C1.3 The Dominant Provider shall comply with any direction the Director may make from time to time under this Condition.

 Condition C2 – Requirement not to unduly discriminate

 C2.1 The Dominant Provider shall not unduly discriminate against particular persons or against a particular description of persons, in relation to matters connected with Network Access.

C2.2 In this Condition, the Dominant Provider may be deemed to have shown undue discrimination if it unfairly favours to a material extent an activity carried on by it so as to place at a competitive disadvantage persons competing with the Dominant Provider.

 Condition C3 – Requirement to publish a reference offer

C3.1 Except in so far as the Director my otherwise consent in writing, the Dominant Provider shall publish a Reference Offer and act in the manner set out below.

C3.2 Subject to paragraph C3.8 below, the Dominant Provider shall ensure that a Reference Offer in relation to the provision of Network Access includes at least the following:

a) a description of the Network Access to be provided, including technical characteristics (which shall include information on network configuration where necessary to make effective use of the Network Access);

b) the locations of the points of Network Access;

c) the technical standards for Network Access (including any usage restrictions and other security issues);

d) the conditions for access to ancillary, supplementary and advanced services (including operational support systems, information systems or databases for pre-ordering, provisioning, ordering, maintenance and repair requests and billing);

e) any ordering and provisioning procedures;

f) relevant charges, terms of payment and billing procedures;

g) details of interoperability tests;

h) details of traffic and network management;

i) details of maintenance and quality as follows:

j) details of measures to ensure compliance with requirements for network integrity;

k) details of any relevant intellectual property rights;

l) a dispute resolution procedure to be used between the parties;

m) details of duration and renegotiation of agreements;

n) provisions regarding confidentiality of non-public parts of the agreements;

o) rules of allocation between the parties when supply is limited (for example, for the purpose of co-location or location of masts);

p) the standard terms and conditions for the provision of Network Access.

C3.3 To the extent that the Dominant Provider provides to itself Network Access that:

in a manner that differs from that detailed in a Reference Offer in relation to Network Access provided to any other person, the Dominant Provider shall ensure that it publishes a Reference Offer in relation to the Network Access that it provides to itself which includes, where relevant, at least those matters detailed in paragraphs C 3.2 (a) to (p).

C3.4 The Dominant Provider shall, by 25 August 2003, publish a Reference Offer in relation to any Network Access that it is providing as at 25 July 2003.

C3.5 The Dominant Provider shall update the Reference Offer in relation to any amendments or in relation to any further Network Access provided after 25 July 2003.

C3.6 Publication referred to in paragraphs C3.2, C3.3, C3.4 and C3.5 above shall be effected by:

1. placing a copy of the Reference Offer on any relevant website operated or controlled by the Dominant Provider; and
2. sending a copy of the Reference Offer to the Director.

C3.7 The Dominant Provider shall send a copy of the current version of the Reference Offer to any person at that person’s written request (or such parts which have been requested).

C3.8 The Dominant Provider shall make such modifications to the Reference Offer as the Director may direct from time to time.

C3.9 The Dominant Provider shall provide Network Access at the charges, terms and conditions in the relevant Reference Offer and shall not depart therefrom either directly or indirectly.

C3.10 The Dominant Provider shall comply with any direction the Director may make from time to time under this Condition.

Condition C4 – Requirement to notify prices

C4.1 Except in so far as the Director may otherwise consent in writing, the Dominant Provider shall publish charges, terms and conditions and act in the manner set out below.

C4.2 Save where otherwise provided in Condition C5, the Dominant Provider shall send to the Director and to every person with which it has entered into an Access Contract covered by Condition C1 a written notice of any amendment to the charges, terms and conditions on which it provides Network Access or in relation to any charges for new Network Access (an "Access Charge Change Notice") not less than 28 days before any such amendment comes into effect.

C4.3 The Dominant Provider shall ensure that an Access Charge Change Notice includes:

1. a description of the Network Access in question;
2. a reference to the location in the Dominant Provider’s current Reference Offer of the terms and conditions associated with the provision of that Network Access;
3. the date on which or the period for which any amendments to charges, terms and conditions will take effect (the "effective date").

C4.4 The Dominant Provider shall not apply any new charge, term and condition identified in an Access Charge Change Notice before the effective date.

C4.5 To the extent that the Dominant Provider provides to itself Network Access that:

in a manner that differs from that detailed in an Access Charge Change Notice in relation to Network Access provided to any other person, the Dominant Provider shall ensure that it sends to the Director an Access Charge Change Notice in relation to the Network Access that it provides to itself which includes, where relevant, at least those matters detailed in paragraphs C4.3 (a) to (c).

Condition C5 – Requirement to publish technical information

C5.1 Save where the Director consents otherwise, where the Dominant Provider-

or

the Dominant Provider shall publish a written notice (the ‘Notice’) of the new or amended terms and conditions not less than 90 days before either the Dominant Provider enters into an Access Contract to provide the new Network Access or the amended terms and conditions of the existing Access Contract come into effect.

C5.2 The Dominant Provider shall ensure that the Notice includes-

C5.3 The Dominant Provider shall not enter into an Access Contract containing the terms and conditions identified in the Notice or apply any new relevant terms and conditions identified in the Notice before the effective date.

C5.4 Publication referred to in paragraph C5.1 shall be effected by:

Annex B

Utilisation of FRIACO routes

B.1 Oftel has used an analysis that considers the impact of trunking efficiencies and route granularity to estimate the achievable Erlangs Per Circuit (EPC) on DLE FRIACO routes.

Figure 5 : Utilisation of FRIACO routes

 B.2 Given a specified level of demand, operators should order the number of E1 circuits required to give an acceptable GOS. The EPC will be reduced by the fact that the order increment is a whole E1 circuit (30 channels). This is illustrated by the graph above, where it is assumed that as the capacity of a route grows, operators add an additional circuit just in time to prevent the grade of service exceeding 1%.

 B.3 It can be seen that the first E1 circuit is sufficient to accommodate up to about 20 Erlangs of traffic. At this point an EPC of 67% is achieved, with a GOS of just under 1%. However, as traffic grows beyond 21 Erlangs, it is necessary to provision an additional E1 circuit, and the EPC drops to 35%. This additional circuit provides sufficient capacity to support up to 46 Erlangs of traffic corresponding to an EPC of 77%.

B.4 The output of this analysis for increasing number of DLE FRIACO circuits is set out in Table 5. The estimated total number of ports is based on an equal number of DLE FRIACO circuits being connected to an estimated 750 local exchanges. Oftel is however aware that this is a simplification due to the variations in demand at DLEs.

Table 5 : Range of EPC for FRIACO routes

B.4 This analysis shows that the range of achievable EPC improves significantly for the first 3 circuits per route. Once there are 4 circuits per route, then there is little improvement in EPC by adding the fifth circuit.

Scale of entry

B.5 The number of circuits per route can also be related to the number of end users and the share of the market that this corresponds to by making assumptions about the contention ratio used and the size of the market.

B.6 For the purposes of this analysis Oftel has assumed that a 10:1 contention ratio, ie each port will support 10 end users, is used for a typical ISP. In addition, based on its November 2002 market research it has estimated that there are 6 million end users of dial-up unmetered Internet access.

Table 6 : Range of EPC for FRIACO routes