Contents

Summary

Chapter 1 Introduction

Chapter 2 Designation

Chapter 3 The specific conditions – an overview

Chapter 4 Functional Internet access

Chapter 5 Funding of relay service for textphone users

Chapter 6 How to make comments on the Notification and this consultation document

Annex A Notification under the Electronic Communications (Universal Service) Regulations 2003

Schedule to Notification

Part 1: Definitions and Interpretation

Part 2: Proposed Conditions for BT

Part 3: Proposed Conditions for Kingston

Annex B Functional Internet access guidelines

Summary

S.1 This consultation concerns proposals for universal service, that is, the provision of basic electronic communications services to all end-users in the UK. These proposals are set out in the attached Notification (see Annex A) published today by the Director General of Telecommunications (‘the Director’). The rest of this document explains what is being proposed in the Notification and why.

S.2 Oftel is seeking views on both:

• the terms of the specific conditions, which, together with general conditions already consulted upon, will ensure universal service; and

• the electronic communications providers upon whom these specific conditions should be imposed.

S.3 Oftel is consulting upon these issues because of changes to the way in which electronic communications networks and services are regulated as a result of four new EC Communications Directives which came into force in April 2002 and must be implemented throughout the EC by 25 July 2003. These new EC Directives are:

• Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (‘the Access Directive’);

• Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of electronic communications networks and services (‘the Authorisation Directive’);

• Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (‘the Framework Directive’); and

• Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users' rights relating to electronic communications networks and services (‘the Universal Service Directive’).

S.4 Oftel, or more precisely the Director, will no longer be responsible for determining the extent of universal service in the UK. Instead, the Secretary of State for Trade and Industry will set out, by means of an Order (‘the Universal Service Order’), the extent to which certain services must be provided in order to ensure universal service. The Director (and, later, the Office of Communications, ‘Ofcom’) will then be responsible for:

• adopting appropriate measures to secure compliance with the obligations set out in the Universal Service Order – these measures may include general conditions of entitlement as well as specific conditions; and

• deciding which communications providers must supply the services listed in the Universal Service Order.

S.5 There are few substantive differences between the proposals set out in this document and the current universal service obligations. The key difference is the reference to ‘functional Internet access’, which is discussed in detail.

S.6 This consultation is not a review of the extent of universal service. Oftel published a statement on the scope of universal service in 2001 following an extensive period of review and consultation. However, later this year Oftel will be consulting on specific aspects of universal service, for example, features of ‘schemes’ for consumers with special social needs, and will be recommending that Ofcom conduct a further review of universal service in 2004.

S.7 It is probably helpful to read this consultation document in conjunction with Oftel’s earlier consultation on The general conditions of entitlement (May 2002) and with the Department of Trade and Industry’s consultation upon the Universal Service Order, which closes on 30 April 2003. DTI’s consultation paper and the draft Universal Service Order are available at: www.communicationsbill.gov.uk/implementation_consultations.html

A revised set of general conditions of entitlement will shortly undergo a second consultation as part of a broader DTI consultation on draft statutory instruments.

S.8 This consultation paper:

• attaches a Notification made by the Director in accordance with the Electronic Communications (Universal Service) Regulations 2003. This Notification makes proposals for the designation of universal service providers and the setting of conditions;

• explains the fundamental changes to the regulatory regime in the UK, and in the rest of the European Community, and what this means for universal service;

• discusses which communications providers should be designated for the purposes of universal service. Whilst Oftel proposes that BT and Kingston should be so designated, other communications providers are invited to express interest;

• summarises the specific universal service conditions that Oftel proposes should be imposed upon designated providers;

• looks at the meaning of ‘functional Internet access’. This is something new and Oftel is seeking views on what it should mean for designated providers; and

• reviews the current obligation on BT to provide funding for a relay service for textphone users. Oftel proposes that the obligation should be carried forward into the new regime, and that the designated provider – which Oftel proposes will be BT – should be permitted to recover some of its costs in ensuring provision of the relay service from other communications providers whose subscribers access that service.

S.9 In making the proposals set out in the Notification, and explained in the consultation paper, the Director has considered the three overarching policy objectives set out in Article 8 of the Framework Directive. These require national regulatory authorities to:

• promote competition in the provision of electronic networks, electronic communications services and associated facilities and services;

• contribute to the development of the internal market; and

• promote the interests of the citizens of the European Union.

The Director considers that his proposals meet all these objectives and, in particular, the promotion of the interests of EU citizens.

S.10 Oftel welcomes comments on any of the matters set out in this paper by 2 May 2003. For details on how to respond, see Chapter 6.

  Chapter 1

Introduction

What is universal service?

1.1 Universal service is a concept fundamental to the regulation of telecoms in the UK. It means that basic telephone services should be available to everybody upon reasonable request and at an affordable price. These services are considered essential for everyone in current social and economic conditions, and risk not being provided under competition alone. Regulatory obligations have therefore been created to ensure their provision.

1.2 Under the current regulatory regime, British Telecommunications PLC (‘BT’) and, in the Hull Area, Kingston Communications (Hull) PLC (‘Kingston’) have been designated as universal service providers. They therefore have to provide a telephone line on reasonable request, public call box services, and special tariff packages to help those people with special social needs and on low incomes. All telephone companies providing fixed services are obliged to provide itemised billing and access to the emergency services and directory enquiries. There are also a number of requirements in respect of people with disabilities.

How is universal service ensured in the UK?

1.3 Under the current regulatory regime, anyone running a telecommunications system in the UK is required under the Telecommunications Act 1984 to do so under a telecoms licence. Universal service is ensured through conditions in the licences of telecommunications companies.

1.4 These licence conditions reflect the requirements set out in Directive 98/10/EC on the application of open network provision to voice telephony and on universal service for telecommunications in a competitive environment (‘the Revised Voice Telephony Directive’ or ‘the RVTD’). The RVTD sets out what must be done in order to ensure universal service, eg all reasonable requests for access to the fixed public telephone network at a fixed location and access to fixed public telephone services must be met by at least one operator.

Why are things changing?

1.5 A new regulatory regime is required as a result of the four new EC Communications Directives which came into force on 24 April 2002. These Directives require Member States to change the way electronic communications networks and services are regulated from 25 July 2003. 

1.6 In the UK, most of the Telecommunications Act 1984 will be repealed and there will be no more telecoms licences. Licence conditions will be replaced by general conditions of entitlement and specific conditions. This consultation is about one set of specific conditions.

1.7 The general conditions will apply to all communications providers, or all communications providers of a particular type, eg all providers of public pay telephones.

1.8 In contrast, specific conditions can only be imposed on individual communications providers in particular circumstances, such as where a universal service designation has been made.

1.9 In the UK, it is intended to implement the four new Directives through a new Communications Act. The Communications Bill was introduced into the House of Commons on 19 November 2002 and is available at: www.publications.parliament.uk/pa/cm200203/cmbills/055/2003055.htm (References to the Communications Bill in the document are references to this version of the Bill.) The Bill may be subject to change as it proceeds through Parliament.

1.10 It is intended that the Communications Bill will receive Royal Assent by 25 July 2003. If this is not possible, then the Government has acknowledged that implementation will need to occur by Statutory Instruments made under the European Communities Act 1972 for an interim period until the Bill enters into force.

1.11 Further, if the Communications Bill does receive Royal Assent by 25 July 2003 it is expected that Ofcom will not be ready by the summer to assume all the duties foreseen by the Bill. Should that be the case the Bill makes specific provision to enable Ofcom's functions to be carried out by the Director or the Secretary of State for a transitional period.

1.12 The specific universal service conditions set out in the Schedule to the Notification at Annex A have been drafted so as to refer to 'the Director' as the relevant NRA, although such references may need to be revised at a later date to 'Ofcom'.

How will universal service be ensured under the new regulatory regime?

1.13 Under the Communications Bill, the Secretary of State for Trade and Industry is obliged to make an order (‘the Universal Service Order’) which sets out the extent to which certain communications services, networks, facilities, directories and directory enquiry facilities must be provided so that the UK complies with the EC Directives. 

1.14 Ofcom is then responsible for:

• adopting such measures, eg general conditions of entitlement and specific conditions, as it considers appropriate to secure compliance with the obligations contained in the Universal Service Order; and

• designating which communications providers must supply the services listed in the Universal Service Order.

1.15 Whilst the Bill is not yet in force Oftel is carrying out this consultation now to ensure the continuous provision of universal service following the transition to the new regime on 25 July 2003. The Director has been given this specific duty under the recent Electronic Communications (Universal Service) Regulations 2003, Statutory Instrument 2003 No. 33 (the ‘Universal Service Regulations’), which entered into force on 1 February 2003.

1.16 The Universal Service Regulations require the Director to issue a Notification stating whom he proposes to designate as a universal service provider and why, and inviting expressions of interest from any other person who wishes to be designated as a universal service provider instead of the person or persons proposed. The Notification may also set out the conditions that the Director is proposing to impose upon the designated provider.

1.17 The Notification at Annex A and this consultation document on the matters set out in the Notification are published by the Director in accordance with the Universal Service Regulations.

What changes are being made to universal service itself?

1.18 One of the new EC Directives deals specifically with universal service and other end-user issues: Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services (‘the Universal Service Directive’). This replaces the RVTD.

1.19 So, in addition to the procedural changes set out above, Ofcom needs to set new conditions which will achieve the objectives of the Universal Service Directive, as specified in the Universal Service Order.

1.20 In its consultation on the Universal Service Order, the Government sets out the matters that need to be put in place to ensure that the UK complies with its obligations under the Universal Service Directive. These matters are:

• a connection to the public telephone network, able to support voice telephony, fax and data, at data rates sufficient to permit functional Internet access;

• a comprehensive directory and comprehensive telephone directory enquiry facilities;

• the provision of public pay telephones, including the ability to dial emergency service numbers free of charge;

• tariff options and packages that depart from normal tariffs to ensure that consumers on low incomes may have access to publicly available telephone services;

• the provision of facilities and services to enable subscribers to monitor and control expenditure, and avoid unwarranted disconnection of service; and

• specific measures to safeguard the interests of end-users with disabilities and to ensure access to and affordability of publicly available telephone services for such end-users equivalent to those enjoyed by other end-users.

1.21 Some of the above matters will be ensured through general conditions imposed on all providers of publicly available telephone services. The remainder will be ensured through specific conditions imposed on individual communications providers.

1.22 As well as setting out the services and facilities that must be provided to ensure universal service, the Universal Service Order states that those services and facilities "should be offered on the basis of geographically-averaged prices, unless there is clear justification for not doing so".

1.23 The draft Universal Service Order and the Government’s consultation on that Order are available at: www.communicationsbill.gov.uk/implementation_consultations.html

Chapter 2

Designation

What is the current position?

2.1 Under the current regime, some universal service requirements fall on all providers of public available telephone services, eg availability of telephone directories, access to operator assistance services and access to the emergency services. Other requirements, such as the provision of special schemes for consumers with low incomes, fall on particular providers only, ie providers which have been designated by the Director General of Telecommunications (‘the Director’) for the purposes of universal service.

2.2 There are currently two designated universal service providers: BT and Kingston. BT’s universal service obligation extends to the whole of the UK except Hull. Kingston’s universal service obligation covers the Hull Area only, that is the area defined as the 'Licensed Area' in the licence granted to Kingston on 30 November 1987.

2.3 The obligations were originally imposed in recognition of BT’s and Kingston’s historical presence and density of coverage in the UK (minus Hull) and Hull respectively. BT’s possession of the pre­privatisation network was also a consideration.

2.4 In 1999, the universal service designations were re-assessed in the light of EC legislation, which required all licence conditions to be objectively justified. A number of objective factors were therefore included in the licences of all providers of publicly available telephone services. On the basis of those objective factors, BT and Kingston remained the designated providers.

Why is this consultation paper looking at designation?

2.5 The issue of who should be a universal service provider now needs to be re-examined.

2.6 Under the Communications Bill, Ofcom may designate communications providers to whom specific universal service conditions are to be applicable. The procedure for such designation must appear to Ofcom to be "efficient, objective and transparent" and must not involve "any undue discrimination". This reflects the obligations on Member States in relation to the designation of undertakings set out in Article 8 of the Universal Service Directive. 

2.7 As explained above, the Director has been given the duty, under the Universal Service Regulations, of making the initial proposals for the designation of universal service providers and the conditions to be imposed upon them. This initial designation process should be consistent with the requirements of the Universal Service Directive and the Communications Bill in order for the designations to have effect from 25 July 2003.

What is the proposed basis for a universal service designation?

2.8 Oftel proposes that designation should be based upon the following criteria:

• whether the communications provider provides service to at least 100,000 served premises;

• the relative size of the communication provider’s business, including the extent, density and resilience of its communications network in the provision of publicly available telephone services in the particular area under consideration compared with other providers of such services in that same area;

• the relative capability of the communications provider to comply with any or all of the specific universal service conditions;

• the likely net cost to the communications provider of complying with any or all of the specific universal service conditions; and

• the financial stability of the communications provider.

2.9 Oftel considers that basing a universal service designation upon these criteria is efficient, transparent, objective and non-discriminatory.

Who will be designated?

2.10 The Director has set out his proposals for designation in the Notification under the Universal Service Regulations (attached at Annex A).

2.11 On the basis of the above criteria, the Director proposes to designate:

• BT as the universal service provider for the whole of the UK except the Hull Area; and

• Kingston as the universal service provider for the Hull Area. 

2.12 This consultation proposes one set of specific universal service conditions in respect of BT and another set in respect of Kingston. Expressions of interest are invited from any communications provider which:

• believes that it satisfies the criteria for designation; and

• having noted the relevant set of conditions, wishes to be designated in respect of any part of the UK as a universal service provider instead of Kingston or BT.

2.13 Interested parties should see the contact details in Chapter 6.

Funding

2.14 As explained above, Oftel proposes that BT and Kingston should be designated as universal service providers. Oftel believes that, as long as competition in retail markets is not effective, the cost of measures to protect vulnerable customers does not represent an unfair burden upon BT and Kingston and should be offset against the benefits that will accrue to the brands from their position as universal service providers.

2.15 Nevertheless, once competition is effective, this may not be sustainable and could represent an unfair burden on BT and Kingston. In these circumstances, the Communications Bill allows for the funding of such social protection measures through cost sharing by communications providers.

2.16 The costs and burden of universal service will therefore be kept under review. As indicated in the 2002 Retail Market Review (www.oftel.gov.uk/publications/pricing/2002/pcr0102.htm), when next reviewing the funding arrangements, account should be taken of:

• the implementation and take-up of the new Wholesale Line Rental (‘WLR’) product and its effects on competition;

• the extent to which BT is able to meet its US obligation through high call profits;

• any changes in the level of protection required; and

• the requirements of clauses 66 to 68 of the Communications Bill.

2.17 However, Oftel does not intend to review funding arrangements as part this consultation. Because WLR is unlikely to be fully available until the second half of 2003 and its effects unlikely to be felt in a significant way until 2004, Oftel proposes instead to recommend that Ofcom carry out a review in 2004. This will be aligned with the Retail Market Review, which Oftel will recommend that Ofcom conduct in 2004 and which will consider the effectiveness of competition.

Chapter 3

The specific conditions – an overview

3.1 This chapter summarises the proposed specific conditions. These conditions are required in order to meet the obligations set out in the Secretary of State’s Universal Service Order, which in turn will ensure the provision of universal service as described by the Universal Service Directive. The draft conditions themselves are set out in Parts 2 and 3 of the Schedule to the Notification (attached at Annex A). The Universal Service Order is currently under consultation and subject to change. All references in this document to the Universal Service Order are references to the draft version available at: www.communicationsbill.gov.uk/implementation_consultations.html

3.2 The Director proposes that there should be two sets of specific conditions:

• one set that will apply to the provider designated in respect of universal service in the Hull Area (and the Director proposes that Kingston should be so designated); and

• another set that will apply to the provider designated in respect of universal service in the rest of the UK (and the Director proposes that BT should be so designated). In addition, it is proposed that two further conditions be imposed on BT in respect of the whole of the UK (see paragraph 3.4 below).

3.3 Any communications provider wishing to be designated as a universal service provider in either Hull or in the rest of the UK should familiarise itself with the appropriate set of specific conditions. These are listed below.

Set of conditions that the Director proposes should be applied to BT (see Part 2 of the Schedule to the Notification at Annex A):

Condition 1: Provision of telephony services on request

Condition 2: Schemes for consumers with special social needs

Condition 3: Provision of call box services

Condition 4: Provision of relay service for textphone users

Condition 5: Tariffs for universal services

Condition 6: Itemised billing

Condition 7: Maintenance and supply of a directory information database and directories

Condition 8: Quality of service

Set of conditions that the Director proposes should be applied to Kingston (see Part 3 of the Schedule to the Notification at Annex A): 

Condition 1: Provision of telephony services on request

Condition 2: Schemes for consumers with special social needs

Condition 3: Provision of call box services

Condition 4: Tariffs for universal services

Condition 5: Itemised billing

Condition 6: Quality of service

3.4 As can be seen from the above, it is proposed that BT should have additional conditions, namely provision of a relay service for textphone users and maintenance and supply of a directory information database and directories. Unlike the other conditions proposed to be imposed on BT, it is proposed that these two conditions impose obligations to be met throughout the whole of the UK (rather than the UK minus the Hull Area). These conditions are required in order to ensure that the UK meets the objectives of the Universal Service Directive and reflect existing obligations under BT’s licence. Oftel therefore considers that they are objectively justifiable and not unduly discriminatory.

3.5 Unless otherwise stated, the specific conditions are to be imposed by virtue of Clause 63 of the Communications Bill which allows Ofcom to set any such universal service conditions as it considers appropriate for securing compliance with the obligations set out in the Universal Service Order.

3.6 As well as setting out the services that are required to ensure universal service in the UK, the Universal Service Order provides that these services must be offered on the basis of geographically-averaged prices, unless there is clear justification for not doing so.

3.7 The Director is of the view that each of the proposed specific conditions passes the test set out in Clause 43 of the Communications Bill in that it is objectively justifiable, not unduly discriminatory, proportionate and transparent. Further clarification is provided below in respect of each condition.

Provision of telephony services on request

3.8 This condition requires the designated provider to meet all reasonable requests for a connection to the public telephone network at a fixed location and for access to publicly available telephone services at a fixed location.

3.9 The condition is objectively justifiable and proportionate in that it meets the requirements of Article 4 of the Universal Service Directive and paragraph 1(a) of the Schedule to the Universal Service Order and is similar to the corresponding licence condition under the current regulatory regime.

3.10 However, there is one significant difference: the current licence condition refers to a data speed of ‘up to 2400 bit/s’ but Article 4 refers to the connection allowing ‘functional Internet access’.

3.11 The Universal Service Directive does not define 'functional Internet access'; the Commission appears to have recognised that Member States should be allowed discretion in implementation of Article 4 (discussed further in Chapter 4). Oftel has also decided not to define this term by, for example, mandating a minimum data rate. Technological, social and economic conditions may change over the next few years and it is important that the specific condition, in addition to being transparent, is flexible enough to accommodate such changes. However, it is clearly in the interests of end-users and designated providers that Oftel clarify how it interprets ‘functional Internet access’ at any given time. This consultation therefore includes draft guidelines (attached at Annex B) – see Chapter 4 for further information.

3.12 The condition also requires that telephony services are priced uniformly, irrespective of geographic location.

3.13 The provision of universal services at prices independent of geographical location helps to ensure the affordability of basic telephony services. Services are charged at the same price throughout the relevant area (in the case of Kingston, the Hull Area only, and in the case of BT, the whole of the UK apart from the Hull Area) even where there are differences in the cost of provision. Such pricing delivers the benefits of competitive price levels nationally, rather than in geographic areas where competition is strongest. It also ensures that telephony services are affordable in areas where the high costs of provision would otherwise disadvantage groups of customers.

3.14 This requirement upon the designated providers to set geographically-independent prices will apply to all telephony services, including those provided in respect of end-users with disabilities as required under the proposed general conditions of entitlement set out Oftel's consultation, The general conditions of entitlement (22 May 2002). General Condition 18 requires all providers of publicly available telephone services to put certain measures in place to ensure that end-users with disabilities have equivalent access to such services.

3.15 The question of whether a request is reasonable or not will be determined on a case by case basis. However, Oftel intends to issue draft guidance later this year on what comprises a ‘reasonable request’. At the moment, the reasonableness of a request is considered in conjunction with BT’s ‘100 man-hour rule’, ie its policy of making an extra charge where more than 100 man-hours of work are involved in a new fixed line connection.

3.16 The condition is proportionate in that it imposes obligations on BT and Kingston only, as the designated universal service providers within their respective areas, such designation having been proposed in accordance with objective criteria discussed in paragraph 2.8 above. This condition is, therefore, in Oftel’s view, not unduly discriminatory. The guidelines on ‘functional Internet access’ will add further transparency to the operation of this condition.

Schemes for consumers with special social needs

3.17 This condition requires the designated provider to make schemes available to help consumers who have difficulty affording telephony services. Such schemes are required under paragraph 1(h) of the Schedule to the Universal Service Order, and the proposed condition is therefore objectively justifiable.

3.18 One of the key themes of the Directive is that services need to be affordable as well as accessible. Article 9(2) therefore allows Member States to require designated providers to provide special tariff options or packages to consumers to ensure that those with low incomes or with special social needs.

3.19 Oftel believes that the proposed condition is sufficiently transparent. The Director will be able to make a direction as to certain necessary attributes of a scheme for the purposes of the condition, but only after due consultation. Oftel intends to commence consulting upon these attributes before 25 July 2003, although a direction is unlikely to be issued by that date.

3.20 Again, there is already a very similar licence condition. BT and Kingston are currently required under this licence condition to provide special tariff options for consumers who wish to control their expenditure, perhaps because of limited financial resources. An example is BT’s Light User Scheme (LUS). LUS involves a rebate upon line rental - the fewer calls the customer makes, the lower the line rental (down to a minimum line rental). To be on the LUS, the customer must either have had low recent bills or consider that future bills will be low.

3.21 The proposed condition requires that telephony services provided in accordance with any scheme are provided on the basis of prices independent of geographic location (see paragraph 3.13 above). The imposition of this condition on both BT and Kingston is objectively justifiable and proportionate in that it fulfils the requirements of both Article 9 of the Universal Service Directive and paragraph 1(h) of the Schedule to the Universal Service Order, namely that tariff options or packages that depart from those provided under normal commercial conditions are provided, in order to ensure that consumers on low incomes or with special social needs are not prevented from accessing or using publicly available telephone services. 

Provision of call box services

3.22 This condition requires the designated provider to ensure that it meets the reasonable needs of end-users in the provision of public call boxes, ie public pay telephones on public land and to which the public has access at all times. It also sets out the circumstances in which a public call box may be removed or re-sited. Prices of call box services should be independent of geographic location (see paragraph 3.13 above).

3.23 The provision of public call boxes is important in terms of consumer protection and social and economic inclusion. The proposed condition is objectively justifiable and proportionate in that it fulfils the requirements of both Article 6 of the Universal Service Directive and paragraph 1(f) of the Schedule to the Universal Service Order.

3.24 The specific condition should be read in conjunction with the general condition on public pay telephones (General Condition 6), which deals with operator assistance, directory enquiry facilities, access to emergency services, and provision of basic information eg call charges. General Condition 6 also imposes obligations on all providers of public call boxes regarding the provision of certain facilities for the benefit of end-users with disabilities.

3.25 BT and Kingston are currently required by a licence condition to publish guidelines for determining when they should install public call boxes in new locations and when they are entitled to stop providing a call box service.

3.26 The proposed condition does not require BT and Kingston to publish guidelines. It does, however, refer to the possibility of a direction being made by the Director.

3.27 Although Oftel considers that the current provision of public call boxes throughout the UK is, at this time, sufficient, under the proposed condition the Director may make a direction specifying what, in his view, constitutes ‘the reasonable needs of end-users’.

3.28 The direction may also set out in greater detail the process to be followed prior to the removal or re-siting of a public call box, as the existing guidelines do under the current regime. Oftel is in the process of discussing certain aspects of public call box provision with BT and Kingston, including the regulatory controls which apply where BT or Kingston proposes to remove or re-site the last public call box on a site. Questions have arisen about the definition of a ‘site’ and views are welcome on this issue. In particular, Oftel welcomes views on whether ‘site’ might best be defined in terms of a fixed distance in metres (and, if so, what distance would be appropriate), or in terms of other criteria, eg by visibility or address. In relation to the consent process described in paragraph 3.2 of the proposed condition, Oftel considers that, where any of the bodies described in paragraph 3.2 (a) does not respond within a specified period (42 days under the existing regime), this lack of response may be taken to be consent to the removal or re-siting.

3.29 The condition also requires the designated provider to consider a request for a new public call box in order to meet the reasonable needs of a local community in accordance with any criteria site out by the Director in a direction. Oftel intends to consult on the terms of a direction under this condition later this year.

3.30 This condition only imposes obligations on BT and Kingston, as the designated universal service providers within their respective areas, such designation having been proposed in accordance with objective criteria discussed in paragraph 2.8 above. This condition is therefore, in Oftel’s view, not unduly discriminatory. Oftel also considers that the proposed condition is transparent in that the obligation to ensure the reasonable needs of end-users are met is clearly set out on the face of the condition.

Tariffs for universal services

3.31 Designated providers are required under this condition to ensure that end-users of a universal service are only paying for the service they have requested, and not subsidising any other service provided by the designated provider. In other words, the price of any service provided in accordance with a specific universal service condition must not include any element of costs associated with any other service (including a different universal service) provided by the designated provider.

3.32 The proposed condition is objectively justifiable and proportionate, given that many end-users in the UK may have no choice but to use a designated provider’s telephony services. It is required under Article 10(1) of the Universal Service Directive and clause 64 of the Communications Bill.

3.33 The condition is required as a consequence of designation as a universal service provider. It therefore imposes obligations on BT and Kingston only and is not, in Oftel’s view, unduly discriminatory.

Itemised billing

3.34 Under this condition, a designated provider is required to provide its subscribers with an itemised bill free of charge. Only a basic level of itemisation is required, and specific provision has been made for the exemption of pre-paid services and calls that are free of charge, including calls to helplines. Oftel therefore believes that the condition is proportionate.

3.35 Oftel considers that the current level of itemisation provided by BT and Kingston is sufficient for the purposes of the proposed condition. However, this should be kept under review and, if appropriate, the Director may in the future make a direction setting out minimum requirements for itemisation.

3.36 Whilst the condition as drafted is sufficiently transparent, Oftel may issue guidance later this year, for example on what constitutes a call that is ‘free of charge’.

3.37 This condition is objectively justifiable and proportionate in that it fulfils the requirements of both Article 10(2) of the Universal Service Directive and paragraph (i) of the Schedule to the Universal Service Order, namely that designated providers shall provide facilities to ensure that subscribers can monitor and control expenditure. As with the previous condition, it is a consequence of being designated as a universal service provider. It therefore imposes obligations on BT and Kingston only and is not, in Oftel’s view, unduly discriminatory.

3.38 In Oftel’s consultation on The general conditions of entitlement (22 May 2002), it was proposed that all providers of publicly available telephone services should be required to provide free itemised billing. However, after wide consultation, Oftel has revised its position and now proposes that this obligation will fall upon designated providers only. This is in the interests of proportionate regulation and reflects the fact that itemised billing is widely available. For the general conditions, it is now proposed that all providers of publicly available telephone services will be required to provide, on request, a basic level of itemised billing, for which they may make a reasonable charge.

Quality of service

3.39 The main purpose of this condition is the collection of information about a designated provider’s performance in complying with its universal service obligations. One means of doing this is via the quality of service (‘QoS’) parameters set out in Annex III to the Universal Service Directive.

3.40 The parameters referred to in the proposed condition are:

• supply time for initial connection;
• fault rate per access line;
• fault repair time; response times for operator services;
• response times for directory enquiry services;
• proportion of coin and card operated public pay telephones in working order; and
• bill correctness complaints.

3.41 Annex III of the Universal Service Directive also lists ‘unsuccessful call ratio’ and ‘call set up time’, but allows Member States not to require up-to-date information in respect of these two parameters. Oftel considers that it would be disproportionate to require designated providers to provide information regarding unsuccessful call ratio and call set up time.

3.42 The Director may also make a direction specifying additional information to be provided. For example, the Director is considering requiring information regarding the provision and/or removal of public call boxes, and may consult in the future on a draft direction to this effect under the condition.

3.43 Publication of QoS information increases the transparency of a provider’s performance, and helps to ensure that end-users are not suffering detriment with regard to service quality levels. The proposed condition will satisfy end-users’ demand for information and also help to establish whether the designated provider is meeting its universal service obligations.

3.44 Oftel therefore believes that the condition is objectively justifiable and proportionate. Moreover, it is required under clauses 63(2) and (3) of the Communications Bill, which in turn reflect the requirements of Article 11 of the Universal Service Directive.

3.45 The condition is required as a consequence of designation as a universal service provider, and imposes obligations on BT and Kingston only. It is therefore, in Oftel’s view, not unduly discriminatory. Oftel also believes that the parameters, definitions and measurement methods are clearly described in Annex III to the Universal Service Directive and that the condition is therefore sufficiently transparent.

Additional obligations on BT

3.46 The Director proposes that the block of specific conditions in respect of BT should include two additional conditions – these are described below:

Provision of relay service for textphone users

3.47 This condition ensures the availability of a service offering text-voice translation services for textphone users, and is explained in more detail in Chapter 5. It imposes obligations upon BT in respect of the whole of the UK, including the Hull Area.

3.48 Article 7 of the Universal Service Directive requires Member States to ensure access to and affordability of publicly available telephone services for end-users with disabilities, equivalent to that enjoyed by other end-users.

3.49 Oftel's consultation, The general conditions of entitlement (22 May 2002), set out Oftel's intentions for the new general conditions of entitlement. All providers of publicly available telephone services will be required under General Condition 18, Special Measures for end-users with disabilities, to ensure that end-users with disabilities have equivalent access to such services as other end-users. However, the general condition on its own will not be sufficient to ensure that Article 7 is properly implemented.

3.50 Paragraph 1(j)(ii) of the Schedule to the Universal Service Order refers to textphones and relay services as matters in respect of which Ofcom shall take specific measures in the interests of end-users with disabilities.

3.51 BT is currently obliged under its licence to provide funding for a relay service and Oftel believes that maintaining this arrangement but allowing BT to recover some of the funding from other communications providers proportionate to the use that their own end-users make of it, is not unduly discriminatory.

3.52 The proposed condition is objectively justifiable and proportionate in that, taken together with General Condition 18, it fulfils the requirements of both Article 7 of the Universal Service Directive and paragraph 1(j)(ii) of the Schedule to the Universal Service Order, and ensures that end-users with disabilities enjoy equivalent access to publicly available telephone services.

3.53 It is essential that a text relay service, offering text-voice translation, continues to be available for textphone users and that it should enjoy adequate and secure funding, not least because for some end-users it provides their only means of accessing the emergency services.

3.54 It is neither reasonable nor practicable to require each provider of publicly available telephone services directly to fund a relay service, and there are benefits that accrue to providers and to end-users, both of economies of scale and of the concentration and accumulation of experience, in a commonly-provided service.

3.55 There is one substantive difference between the proposed condition and the existing licence condition: Oftel proposes that BT should be permitted to recover from other communications providers some of its costs in providing the relay service. Chapter 5 explains why.

3.56 The condition retains the existing formula for the calculation of the financial limit capping the universal service provider's provision of funds for the operation of a relay service. It allows for a base figure of £12,368,748, to be raised annually in accordance with the preceding year's retail price inflation (RPI) percentage. This base figure of £12,368,748 has been derived from the base figure in BT’s licence, ie £10m for the year 1994-95, by using the same calculation process, ie applying RPI uplift for each year until the current year 2002-03.

3.57 Apart for the new cost-recovery arrangements, this condition has not been significantly amended. Bearing in mind the tight implementation timetable, the key objective is to ensure that funding for the service continues to be provided from 25 July 2003. 

3.58 At this time, the only text service that has been determined as a relay service is ‘Typetalk’. The Director made this determination on the basis that he was:

3.59 It is proposed that Typetalk will continue to be an approved relay service for the new regime, and hence this condition will operate so as to secure an amount of funding for the continuation of the Typetalk service. However, this does not preclude recognition of an alternative service. Oftel would be prepared to consider any similar service for approval where its overall range of features is at least as good as what is currently on offer.

Supply of directories and databases for provision of directory services

3.60 This specific condition is required to ensure that at least one comprehensive directory and one comprehensive directory enquiry facility are available to end-users.

3.61 Under Article 5 of the Universal Service directive, all end-users should have access to at least one comprehensive directory and to at least one directory enquiry (DQ) service. Furthermore, under Article 25, providers of publicly available directories or DQ services must also have access to the information required to compile such directories.

3.62 Oftel's consultation, The general conditions of entitlement (22 May 2002), set out Oftel's intentions for the new general conditions of entitlement, including those related to DQ services. Following this first consultation on the general conditions, Oftel is minded to amend its proposals in relation to the relevant general conditions, which will shortly be subject to further consultation.

3.63 It is proposed that General Condition 8, Operator assistance, directories and directory enquiry facilities, will require providers of publicly available telephone services (‘PATS’) to make a DQ service and directories available to their subscribers. It is further proposed that General Condition 22, Provision of directory information, will require those communications providers who have been allocated telephone numbers to make available their DQ data to any person seeking to provide a publicly available directory or DQ service.

3.64 However, these general conditions will not be sufficient on their own for ensuring that the obligations under Articles 5 and 25 of the Universal Service Directive are met efficiently and transparently. Whilst they do allow for data to be passed between providers of PATS, significant duplication of effort would be required for such providers to ensure that any end-user can access a comprehensive DQ facility and to supply any end-user upon request with a comprehensive directory.

3.65 Oftel is therefore of the view that BT should have a further universal service condition requiring it to provide access to its (comprehensive) DQ database to other DQ providers whether or not they are also providers of PATS. This specific condition also requires BT to provide directories to other communications providers who will be caught by General Condition 8 (but not to those persons who do not have this obligation).

3.66 In Oftel's view this condition will ensure that Articles 5 and 25 of the Universal Service directive are implemented in the UK in an efficient and effective manner, in that BT will be required to act as a central dissemination point for the directory information of all subscribers to telephone services in the UK.

3.67 The basis upon which BT supplies the matters required under the condition must be fair, objective, cost oriented and not unduly discriminatory. BT competes in the downstream market for DQ services and BT is in a unique position to be able to supply this essential input data in an efficient manner that does not involve DQ providers and UK industry as a whole in unnecessary duplication of effort. In Oftel’s view, this is also the most proportionate and effective way to ensure (as required by Article 25) that providers of publicly available directories or DQ services are in practice able to access the information they need to compile directories and make services available.

3.68 It should also be noted that this obligation does not prevent other communications providers from providing their own directories or from setting up their own comprehensive databases. Indeed, the general conditions of entitlement will propose that directory information data must be passed between communications providers seeking to provide publicly available directories and DQ facilities, on terms that are fair, cost-oriented and non-discriminatory.

3.69 The imposition of this condition on BT is objectively justifiable and proportionate in that it is necessary to fulfil the requirements of Articles 5 and 25 of the Universal Service Directive and paragraphs (d) and (e) of the Schedule to the Universal Service Order, namely that at least one comprehensive directory and one comprehensive telephone directory enquiry service shall be made available to end-users. This condition imposes obligations on BT only, because BT is in a unique position in that it already compiles a comprehensive DQ database that it makes available to third parties, and it already possesses a significant proportion of the entries in that database as a result of its retail telephony business which makes it particularly efficient for BT to undertake this activity. This condition is therefore, in Oftel’s view, not unduly discriminatory. Oftel also believes that the condition is transparent.

Chapter 4

Functional Internet access

Article 4 of the Universal Service Directive

4.1 Under the current UK regulatory regime, designated universal service providers are required by a licence condition to provide telephony services to any person upon reasonable request, including the ability to make and receive "calls employing facsimile or voice band data up to 2400 bit/s". This licence condition reflects the requirements of the RVTD.

4.2 Article 4 of the Universal Service Directive requires all reasonable requests for connection at a fixed location to the public telephone network to be met by at least one undertaking. This is very similar – up a point - to the requirement under the RVTD.

4.3 But in contrast with the RVTD, which refers to a data speed of 2400 bit/s, Article 4 goes on to state that the connection provided shall be capable of allowing end-users to make and receive communications:

"at data rates that are sufficient to permit functional Internet access, taking into account prevailing technologies used by the majority of subscribers and technological feasibility".

What is ‘functional Internet access?’

4.4 The Universal Service Directive does not define ‘functional Internet access’. Nor does it specify the data rates that are sufficient to permit such access. This allows varying conditions in Member States to be taken into account, including the possibility of provision of universal service using alternative technologies, such as wireless, particularly in countries where a fixed network may not be sufficiently ubiquitous to provide universal service.

4.5 In drafting the Directive, the Commission recognised the need to avoid technologically-specific language wherever possible and to allow Member States flexibility in interpretation, bearing in mind that data rates may be affected by factors other than the connection itself. 

4.6 However, paragraph 8 of the recitals to the Directive provides useful clarification of the Commission’s line of thinking. Key elements of this paragraph are set out below:

• The Commission starts by stating that the requirement to provide connection to the public telephone network at a fixed location is "limited to a single narrowband network connection…and does not extend to the Integrated Services Digital Network (ISDN)". It is therefore clear that the requirement to ensure functional Internet access is not talking about broadband or access to the ISDN.

• There should be "no constraints on the technical means by which the connection is provided, allowing for wired or wireless technologies".

• The connection should be "capable of supporting speech and data communications at rates sufficient for access to online services such as those provided via the public Internet".

• The speed of Internet access experienced by a particular user may depend on factors additional to the connection itself, eg the Internet Service Provider or the given application for which the connection is being used. And the data rate that can be supported by the connection depends on the capabilities of the user’s terminal equipment as well as the connection itself. The Commission has therefore taken the view that "it is not appropriate to mandate a specific data or bit rate at Community level".

• A flexible approach is required so that Member States may take measures where necessary to ensure that connections are capable of supporting a data rate of 56 kbit/s but may also where relevant allow data rates below 56 kbit/s.

• The Commission clearly intends that Member States should be able to take action where functional Internet access is not being provided: "In specific cases where the connection… is clearly insufficient to support satisfactory Internet access, Member States should be able to require the connection to be brought up to the level enjoyed by the majority of subscribers so that it supports data rates sufficient for access to the Internet."

4.7 Oftel does not intend that the specific condition implementing Article 4 of the Universal Service Directive should define ‘functional Internet access’ or mandate a minimum data rate. It is important that the condition should be flexible enough to be interpreted in a manner that reflects the prevailing technological, economic and social conditions. 

4.8 However, Oftel recognises that:

• any person requesting connection from a designated provider probably wants to know what they may reasonably expect from that connection; and

• a designated provider should have some insight into how Oftel would expect to approach a complaint about a breach of the condition.

4.9 For these reasons, Oftel has decided to issue guidelines on functional Internet access, which may be revised from time to time. The guidelines will not be legally binding but will be taken into account in addressing a complaint about, for example, unsatisfactory data rates. While these guidelines set out in general terms how Oftel currently considers that it is likely to address given situations relating to the provision of functional Internet access, the Director cannot fetter his discretion as to future regulatory action and therefore cannot be bound by the guidelines. Each case must therefore, be dealt with on its merits and in pursuance of the requirements of the new regime.

How do I know what data rate I am actually getting?

4.10 The transmission capability of a line is most frequently expressed as a data rate, in bits per second (bit/s or bps) or sometimes bytes per second (Byte/s or Bps). One Byte is equal to 8 bits, so that a data rate of 3.6 kByte/s is equivalent to 28.8 kbit/s and a rate of 6.25 kByte/s is equivalent to 50 kbit/s. This different terminology can sometimes be confusing, giving the misleading impression that an end-user is experiencing lower speeds than is in fact the case.

4.11 The data rate reported, eg as a figure that pops up on the end-user’s computer screen, for a connection can also cause confusion. It could be any one of the following:

• the Data Terminal Equipment (DTE) speed. This is the rate at which the consumer’s computer and modem communicate.

• the Data Communications Equipment (DCE) speed. This is the speed of data communications between the consumer’s modem and the modem to which it is connected at the far end. This is the rate which most closely reflects the transmission rate of basic data through the designated operator’s line. 

• the download rate, ie the rate at which the web page or document is being downloaded. When a document is sent between two points in a network, a proportion of the data actually sent is needed to set up and maintain the communications link. Therefore if a DCE of 56 kbit/s is achieved, not all of the 56 kbit of data sent each second contains information on the document. The amount of document data downloaded in that second is therefore less than 56 kbit, perhaps 50 kbit. A document download rate which might at first glance appear to be low (particularly if it is expressed in bytes rather than bits), may on further consideration reflect a line data rate from the designated operator that is sufficient for functional Internet access.

Factors limiting data rates

4.12 The maximum rate at which information can effectively be conveyed between a service provider (eg ISP, e-mail service provider, web page host, etc) and an end-user is limited by a number of factors:

• the capability of the service provider’s terminal equipment;
• the capability of the end-user’s terminal;
• the transmission capability of the networks connecting them together; and
• the transmission capability of the line serving the end-user; this is discussed in more detail below in the context of line sharing.

Data rates over the public telephone network

4.13 For a communication service to be universally available, there needs to be a network which is available everywhere. Whilst leased lines and ADSL connections can support high bit rates, technical constraints mean that they are not available to all fixed locations. The requirement to support universal access to the Internet must therefore be met by the public telephone network.

4.14 Since 1999, most new PCs have been supplied with V.90 modems, which offer a maximum data rate of 56 kbit/s although in practice this speed is rarely, if ever, actually achieved. Equally, most ISPs have V.90 compatible 56 kbit/s ports at their end of the communications link.

4.15 There is therefore widespread availability of end-user terminal equipment which can support data transmission at 56 kbit/s. However, for narrowband access to the Internet, that is, access using a public telephone network, the bandwidth of the access connection is now the crucial factor limiting transmission rates.

4.16 Until the RVTD came into force in 1998, there was no obligation on communications providers to ensure that the public telephone network was able to support any data transmission. Even so, the RVTD only imposed a data transmission rate that could easily be achieved on all public networks of the EU. This rate, 2400 bit/s, was far short of what could already be achieved in the UK and did not, of itself, provide any incentive to operators to offer Internet access over the public telephone network at rates demanded by end-users.

Line sharing

4.17 In very simple terms, line sharing, or line splitting, is a means of creating two separate telephone lines where previously there was only one. It is a practice used by communications providers where the demand for services by end-users exhausts the line plant initially provided.

4.18 Where the excess demand is small and localised, the lack of line plant for additional circuits has been overcome by the use of ‘pair-gain’ systems, such as the Digital Access Carrier System (‘DACS’) system employed by BT. These systems each provide a second voiceband channel, ie one cable pair with a pair-gain system can support two separate telephone lines. Unlike the old ‘shared-service’ lines where only one of the two lines concerned could be used at any moment, all of the lines provided over a pair-gain system can be used simultaneously.

How does line sharing affect functional Internet access?

4.19 Pair-gain systems were intended to overcome a shortage of line plant for voice communications, and whilst unquestionably fit for the original intended purpose of providing extra voice channels, they restrict the achievable rate of data transmission. DACS, for example, cannot support maximum V.90 speeds. The achievable speed via DACS varies according to which model of DACS is used, but typical speeds seem to be around 24 kbit/s.

4.20 The new requirement arising from the Universal Service Directive is for designated operators to provide connections capable of data rates sufficient for functional Internet access. A line subject to pair-gain modification is unlikely to achieve a data rate of 28.8 kbit/s, which – as explained below – would seem to be a reasonable minimum data rate for narrowband Internet access. Whilst Oftel does not intend to set a mandatory minimum rate, designated providers should make reasonable efforts to ensure that lines achieve optimum performance, particularly where the line user intends to use it for Internet access. Providers may therefore need to consider building additional network infrastructure or rearranging the lines already in place.

4.21 Oftel has made it clear in recent years that the practice of installing pair-gain devices such as DACS is not necessarily in the best interests of the end-user and therefore needs to be carefully re-appraised. 

4.22 As well as addressing the question of a minimum data rate, the guidelines should set out the specific steps that Oftel considers providers should reasonably take to prevent line sharing solutions being the cause of data rates inadequate for functional Internet access.

Regulatory option appraisal

4.23 If the guidelines are to be useful and meaningful to both end-users and the designated providers, they should set out the minimum data rate that, in the absence of reasonable justification, Oftel expects a connection to the public telephone network at a fixed location to achieve most of the time, even if this rate does not constitute a mandatory minimum. In line with its policy of appraising the regulatory options, Oftel has identified a range of possible data rates and an examination of these various options is set out below:

Framework for analysis

Speed

4.24 The key determinant of whether a connection permits ‘functional Internet access’ is the speed at which data can be transmitted over that connection.

Benefits

4.25 In considering the data speeds identified below, it is important to look at the overall benefits to society, in terms of social and economic inclusion, and not simply the benefits to individual end-users. Will the data speeds experienced by the generality of end-users meet the wider objective of functional Internet access? Whilst end-users can be assumed to benefit from higher data speeds, this benefit is not readily quantified. However, the higher the data speed, the less time the end-user needs to spend on-line for a given application, eg downloading a particular web page, and - where he is paying for Internet access on a pence per minute basis, ie on a metered basis – the lower his costs. The prices paid by residential consumers also illustrate the value that they place on higher speeds (although this value is difficult to quantify), eg between £10 – 15.99 per month for unmetered narrowband access and £26 –29 per month for broadband. Additionally, end-users experiencing low data speeds may not be getting the benefit of feature-rich content such as complex graphics and sound.  

Costs

4.26 The precise costs of providing connections capable of particular speeds are commercially confidential. The cost of upgrading a line to achieve a minimum performance will depend on the nature of the deficiency in the line and what needs to be done to correct it. The cost of upgrading each line will therefore not necessarily increase as the minimum data rate increases, but the higher the speed, the more lines that are likely to need upgrading and the greater the cost to the provider. Costs are likely to include those involved in:

• re-assigning and removing pair-gain systems;
• improving line plant, eg by increasing the number of lines and upgrading network exchanges;
• installing new, higher quality lines to replace outdated and degraded lines;
• setting up appropriate internal processes; and
• rebuilding large parts of the network.

Option 1: 2.4 kbit/s

4.27 The first option is to keep things as they are, ie to retain the existing minimum data rate. Under the current regulatory regime, ie the RVTD as implemented by a licence condition, the universal service provider must ensure that it provides any person, upon reasonable request, with the ability to make and receive calls at data rates of up to 2.4 kbit/s.

4.28 This rate falls far short of what is already achieved in the UK and it therefore represents no additional cost to those parties who will be designated as universal service providers under the forthcoming regulatory regime.

4.29 However, 2.4 kbit/s is not an acceptable minimum from the perspective of the end-user. This data rate was achievable several years ago by the first significant international modem standard, V.22bis. This rate was suitable for sending and receiving basic emails, but it is not suitable for access to today’s graphics rich Internet, and certainly would not adequately support multi-media content. This modem standard has been superseded several times over and the rate of 2.4 kbit/s is now considered obsolete.

4.30 A rate of 2.4 kbit/s provides no incentive to operators to offer narrowband Internet access at rates demanded by end-users. In Oftel’s view, if that was the Commission’s intention, it would not have used the phrase ’functional Internet access’ in the Universal Service Directive, and would have simply re-stated the data speed of 2.4 kbit/s referred to by the RVTD. 

Option 2: 24 kbit/s

4.31 The data rate proposed in this scenario is 24 kbit/s which was supported by the V.34 modem standard. 24 kbit/s is achievable even by lines fitted with pair-gain devices such as DACS. It is therefore likely to be a low cost, or possibly even no cost, option, as far as designated providers are concerned.

4.32 However, there is a cost to the end-user, in terms of unsatisfactory data speed. Oftel receives between 600 – 700 complaints each year from end-users about unsatisfactory data rates. About half of these complaints come from end-users with DACS, and this illustrates consumer dissatisfaction with data speeds of around 24 kbit/s.

4.33 Broadband and ISDN users experience data rates starting from 128 kbit/s. This understandably raises consumer expectation of the speeds that their narrowband connection should be able to achieve. However, ISDN and broadband are not necessarily available – in terms of geographical location or affordability – to all.

4.34 With the proliferation of consumer terminal equipment offering 56 kbit/s and the increasing consumer exposure to, and availability of, broadband, 24 kbit/s is not in line with the general march of technology. In the light of this, there appears to be sound basis for not disadvantaging narrowband users further by suggesting that they should reasonably expect data speeds of only 24 kbit/s.

Option 3: 28.8 kbit/s

4.35 If the guidelines are to indicate a minimum speed that end-users should be able to expect, then it seems reasonable that it should be no less than half the maximum speed that a narrowband connection is currently capable of achieving, ie 56 kbit/s. 28.8 kbit/s was provided by V.34 modems, and is a standard rate to which current modems will default where rate adaptation is necessary to achieve successful communications. Automatic data rate adaptation is a feature of these modems which will, where the line quality or equipment at either end does not support such a high data rate, reduce the rate below the maximum 56 kbit/s to a value at which successful communication can be sustained.

4.36 The majority of narrowband connections are already capable of supporting a data speed of 28.8 kbit/s or above. There are, however, about one million telephone lines fitted with DACS, which reduces the line’s capability to a maximum data speed of about 24 kbit/s. A minimum data rate of 28.8 kbit/s would therefore require the removal of DACS in many cases and some other improvements to be made to existing line plant, eg increasing the number and quality of lines. In practice, once DACS is removed from a line, the connection will not only achieve 28.8 kbit/s, but will almost certainly exceed it. This is clearly beneficial to the end-user.

4.37 These improvements would entail some cost to designated providers currently employing pair-gain devices such as DACS.

4.38 However, just over half of all DACS lines are used for voice calls only and this is perfectly acceptable, provided that the end-user does not subsequently want Internet access and complain of reduced speeds. The cost to the provider is therefore not the one-off cost of replacing all DACS lines in one fell swoop. Rather, the provider will need to have a programme of re-assigning lines responsibly between its customers to ensure that Internet users are not compromised by reduced speeds. Eventually, as more and more end-users want Internet access, there will come a point when swapping DACS lines between customers is no longer a solution to complaints about data speed, and the number of DACS lines will need to be reduced.

4.39 The financial cost to the provider of improving its infrastructure should be balanced against the benefit to it of both increased customer satisfaction and an enhanced network.

4.40 It should also be considered in the context of Oftel’s existing policy regarding DACS. We have made it clear over the last few years that the practice of line sharing must be re-assessed. Oftel has consistently said that proper regard must be given to the needs of the end-user, complaints must be addressed responsibly and installation of new DACS lines should be as a last resort.

Option 4: 33.6 kbit/s

4.41 The last significant step on the way to achieving the full rate of 56 kbit/s is 33.6 kbit/s. This was offered by the V.32bis modem standard and again is a standard rate now used where rate adaptation is necessary.

4.42 As with 28.8 kbit/s, there is a strong case to be made for a data speed of 33.6 kbit/s. Again, it would lead to real improvements in the quality of the network and would be welcomed by consumers.

4.43 However, in practice, setting a minimum of 33.6 kbit/s rather than 28.8 kbit/s would not make a material difference in terms of data speeds actually experienced by the majority of end-users. The key means of achieving 33.6 kbit/s is the same as that of achieving 28.8 kbit/s, ie limiting the practice of line sharing, and the costs in this respect are therefore similar. If the vast majority of lines satisfy the minimum rate, then the overall social objective is achieved. However, the proportion of end-users not achieving that minimum rate would be greater in the case of 36.6 kbit/s than 28.8 kbit/s. In order to guarantee a minimum rate of 33.6 kbit/s, other types of network improvements would be needed, eg rebuilding a line, creating significant additional costs. At the individual level, these costs are likely to outweigh the measurable benefits of a data rate of 36.6 kbit/s rather than 28.8 kbit/s.

4.44 There are many factors in addition to line speed which commonly prevent higher data rates being achieved over any given connection. These include the route taken by the communications through the whole network, the modem and connection quality at the far end from the consumer, congestion throughout the network, as well as local line quality and line length. Apparent failure to achieve higher data rates due to these other factors could incur an increased cost in terms of complaint dealing processes.

4.45 There is therefore a need to strike a sensible balance between what an end-user should reasonably be able to expect and what a provider should reasonably be able to deliver. As technology and network quality improve, consumer expectations will – legitimately – increase, and at that point, it might be appropriate to revise the minimum data speed upwards. This is precisely the intention behind the guidelines, ie that they should be capable of revision to reflect changing economic, social, and technical conditions.

Option 5: 56 kbit/s

4.46 A single narrowband connection to the public telephone network using the widely available V.90 modem technology is, in theory, capable of a maximum speed of 56 kbit/s. In practice, a more common maximum speed would be closer to 50 kbit/s.

4.47 Whilst setting standards as high as possible may initially seem an attractive option, there are a number of reasons why 56 kbit/s is not a realistic figure at the present time.

4.48 Firstly, the cost to the designated provider would clearly be significant: much of the network would need to be re-built or reconfigured to achieve consistent speeds of 56 kbit/s. This may be unreasonably onerous where alternative options exist which offer real improvements to the network and to the experience of consumers, but at a lower, possibly significantly lower, cost.

4.49 Additionally, as recognised in the recitals to the Universal Service Directive, there are factors affecting data speed that are outside the control of the designated provider, eg the Internet Service Provider and the end-user’s terminal equipment. If the guidelines were to refer to a data speed of 56 kbit/s, this would create confusion, not just heightened expectation, amongst consumers: even if the line itself is capable of delivering 56 kbit/s, the actual speed would probably be less than that.

4.50 The Commission recognised the need to allow Member States a flexible approach in looking at ‘functional Internet access’. This flexibility would not be achieved were the guidelines to say that end-users should reasonably be able to expect a connection to achieve a data rate of 56 kbit/s.

Summary of options