Contents

Explanatory Memorandum

Consultation

Annex A

Annex B

    REVIEW OF ADJUSTMENT RATIO FOR DLE FRIACO

Draft determination under Condition 69.2 of the Public Telecommunications Licence granted to British Telecommunications plc

WHEREAS

1. The Secretary of State granted to British Telecommunications on 22 June 1984 a licence (‘the BT Licence’) under section 7 of the Telecommunications Act 1984 (‘the Act’) for the running of the telecommunication systems specified in Annex A to that licence;

2. By virtue of Section 109 of and paragraph 20 of Schedule 5 to the Act, the BT Licence has effect as if granted to British Telecommunications plc (‘BT’);

3. Flat Rate Internet Access Call Origination (‘FRIACO’) is an unmetered interconnection service available from BT that provides virtual capacity from originating customers to the point of connection of an operator. The operator may choose to purchase FRIACO at the Digital Local Exchanges (‘DLE FRIACO’) or at tandem switches (‘Single Tandem FRIACO’);

4. Condition 69.2(d) Category D states that:

5. Condition 69.2(d) Category F states that:

6. Whereas Condition 69.2(d) states that the AR (LECO) may be reviewed by the Director and amended by him after consultation with Interested Parties from time to time;

7. The value of the AR (LECO) reflects the pattern of FRIACO traffic and its relationship to the pattern of other traffic carried on LECO circuits;

8. The Director considers that it is consistent with Condition 69.2 of BT’s licence for the value of AR (LECO) to differ between DLE and Single Tandem FRIACO. Condition 69.2(d) Category D sets out the following formula for the total DLE FRIACO charge:

"[D(i) x AR (LECO)] + D(ii) + D(iii)";

9. Condition 69.2(d) Category F sets out the following formula for the total Single Tandem FRIACO charge:

"[D(i) x AR (LECO)] + [(D(ii) + F(i)) x AR (LT)] + D(iii) + F (ii)";

10. Consequently, the charge for Single Tandem FRIACO is based upon two FRIACO adjustment ratios: AR (LECO) and AR (LT).

11. AR (LECO) is defined under Category D as:

12. There is no specific reference to either a DLE FRIACO port or a Single Tandem FRIACO port in the above definition. The Director is of the view that "each FRIACO port" includes "each DLE FRIACO port" or "Single Tandem FRIACO port" as the case may be, and that consequently the adjustment ratio for DLE FRIACO and Single Tandem FRIACO can be different;

13. Annex 3 to the Explanatory Memorandum attached to the Director’s Direction made on 13 February 2001 and published on 15 February 2001 sets out the values of AR (LECO) and AR (LT);

14. Based on the information currently before him, the Director has concluded that the updated value of AR (LECO) for the purposes of Condition 69.2(d) Category D is 1.81;

15. At the time of this review detailed information on FRIACO traffic patterns has been available for DLE FRIACO but not for Single Tandem FRIACO. The charge for Single Tandem FRIACO depends on two adjustment ratios: AR(LECO), the number of LECOs required per FRIACO port, and AR(LT), the number of local-tandem circuits required per FRIACO port. In the absence of information on FRIACO traffic patterns at the tandem switch the Director is not proposing to change the values of the two adjustment ratios (i.e. AR(LECO) and AR(LT)) for Single Tandem FRIACO; and

16. For the reasons given in these recitals and set out in more detail in the explanatory memorandum accompanying this Determination, and having considered the representations made in response to the draft of this Determination published on […] 2002 the Director believes that it is appropriate to make this Determination.

THEREFORE

Pursuant to Condition 69.2 of the BT Licence the Director General of Telecommunications makes the following Determination:

1. The value of AR (LECO) for the purposes of Condition 69.2(d) Category D is 1.81.

2. This Determination shall enter into force on the date of its publication.

3. Except as otherwise defined in this Determination:

Director General of Telecommunications

EXPLANATORY MEMORANDUM

Introduction

1. Flat Rate Internet Access Call Origination (FRIACO) is an unmetered interconnection service available from BT that provides virtual capacity from originating customers to the point of connection of the Other Licensed Operator (OLO). The OLO may choose to purchase FRIACO at Digital Local Exchanges (‘DLE FRIACO’) or at tandem switches (‘Single Tandem FRIACO’).

2. The adjustment ratio (AR) is used in the derivation of the regulated charges for FRIACO. For example, in the case of DLE FRIACO it captures the average number of Local Exchange Call Origination (LECO) circuits required per FRIACO port at the DLE. More specifically, the charge for DLE FRIACO is derived as follows:-

3. The value of the adjustment ratio reflects the pattern of FRIACO traffic and its relationship to the pattern of other traffic carried on LECO circuits. Up to now the value of the adjustment ratio has been set using a proxy, in the absence of detailed information on FRIACO traffic patterns. It has always been recognised that the value of the adjustment ratio should be reviewed when such information becomes available.

4. The original intention was that the review would be conducted six months after the initial Direction on FRIACO of May 2000 – see Determination of a dispute between BT and MCI Worldcom concerning the provision of a Flat Rate Internet Access Call Origination product (FRIACO), May 2000, available at www.oftel.gov.uk/publications/internet/fria0500.htm. However, at that time little or no useful information was available on FRIACO traffic patterns and so the review was deferred.

5. In the review the Director has considered:-

• the appropriate methodology to derive the value of the adjustment ratio; and

• an updated value of the adjustment ratio for DLE FRIACO.

6. To explore the methodology for the adjustment ratio, Oftel issued a Discussion Paper in November 2000 (Methodology for calculating FRIACO Adjustment Ratio, November 2000, www.oftel.gov.uk/publications/pricing/fria1100.htm). The responses to that Paper have been considered during the review.

7. As part of the review detailed information on the traffic patterns of DLE FRIACO ports and LECOs has been obtained from BT. Such information relates to two periods during 2001 (June/July and October). OLOs purchasing DLE FRIACO have also been contacted and their views on relevant issues obtained.

8. At the time of this review detailed information on FRIACO traffic patterns has been available for DLE FRIACO but not for Single Tandem FRIACO. The charge for Single Tandem FRIACO depends on two adjustment ratios: AR(LECO), the number of LECOs required per FRIACO port, and AR(LT), the number of local-tandem circuits required per FRIACO port (see Determination relating to a dispute between British Telecommunications and Worldcom concerning the provision of a Flat Rate Internet Access Call Origination product ("FRIACO"), 15 February 2001, www.oftel.gov.uk/publications/internet/fria0201.htm). In the absence of information on FRIACO traffic patterns at the tandem switch the Director is not proposing to change the values of the adjustment ratios for Single Tandem FRIACO (see also paragraphs 30-32 below).

Adjustment ratio methodology

Relevant principles

9. The adjustment ratio methodology reflects the importance of deriving FRIACO charges that:

i. capture cost causation; and

ii. are reasonably stable and sustainable.

10. Cost causation is important so that appropriate price signals are provided to operators considering purchasing FRIACO to encourage efficient use of resources. For example, an operator's choice between metered interconnection and FRIACO should reflect the relative costs of the two forms of interconnection and not be distorted by the charge for one being artificially high or low. As has been emphasised to the Director by a number of operators, stability and sustainability are important because business planning is facilitated by reasonable predictability.

Current methodology

11. The current methodology, which has been used to derive the adjustment ratio in Directions relating to FRIACO, is to take the ratio of the utilisation or Erlangs per circuit (EPC) of FRIACO ports and LECO circuits. This provides a reasonable measure of the number of LECO circuits required per FRIACO port and so reflects cost causation. A more detailed discussion of the rationale for this methodology is set out in the FRIACO Direction of May 2000 and the Discussion Paper.

12. More specifically, the denominator of the adjustment ratio is the EPC of LECOs in the network busy hour. The numerator is the maximum EPC of FRIACO ports (or the best available proxy), ie the EPC in the busy hour for FRIACO ports.

13. The current value of the adjustment ratio is 2.0, derived as 0.7 (FRIACO EPC) divided by 0.35 (LECO EPC).

14. Some operators have suggested that a better reflection of cost causation would be obtained by using as the numerator the EPC of FRIACO ports in the network BH, rather than in the individual busy hour of FRIACO ports. This approach would result in a different (and lower) adjustment ratio because the evidence obtained by the Director shows that nearly all FRIACO ports have their individual busy hour in the evening, whereas BT's network busy hour currently occurs in the afternoon. However, the Director does not propose to modify the adjustment ratio formula because of the importance of the second principle noted above, stability and sustainability.

15. Although the overall network busy hour occurs in the afternoon, many LECOs experience their individual peaks at other times, such as the evening. As shown in Table 1, although the EPC of LECOs is highest in the afternoon, the figures in the morning and evening are only slightly lower. As FRIACO traffic grows, the overall volume of traffic on LECOs in the evening will increase relative to other times of day. It is not unlikely that the network busy hour will shift from the afternoon to the evening period.

Table 1: EPCs of LECOs in morning, afternoon and evening

Source: BT (information relates to the average of 3 weeks in each of the periods shown)

16. If the formula for the adjustment ratio used the EPC of FRIACO ports in the network busy hour, such a shift in the timing of the network busy hour might lead to a significant increase in the adjustment ratio and the charge for FRIACO. This outcome could be disruptive and undesirable. The Director considers it preferable, therefore, to use the EPC of FRIACO ports in its individual busy hour (evening) in the calculation of the adjustment ratio.

More complex methodology

17. In the Discussion Paper a more complex methodology to derive the adjustment ratio was discussed. Additional traffic on LECOs will only give rise to a requirement for additional LECO circuits if it arises in the individual busy hour of those LECOs. The more complex methodology would use disaggregated information on the EPCs of LECOs and FRIACO ports and traffic patterns in the attempt to build up the number of LECO circuits required on average per FRIACO port.

18. The advantage of the more complex methodology is that it should provide a closer reflection of cost causation. A key disadvantage is that some of the information required to implement the more complex methodology is not available. This information is the volume of FRIACO Erlangs in the morning (afternoon, evening) that originate on LECOs which have an individual busy hour in the morning (afternoon, evening). It is not available, because BT is unable to distinguish traffic on LECOs between FRIACO and non-FRIACO. In the absence of this information, assumptions would need to be made to implement the more complex methodology.

19. In the responses to the Discussion Paper both BT and OLOs expressed a preference for the current methodology over the more complex methodology, either because it was better understood or because information to implement it was more readily available. The focus in the review has therefore been to update the value of the adjustment ratio retaining the current methodology. Nevertheless the Director has explored the implications of using the more complex methodology to provide a cross-check on the reasonableness of the updated adjustment ratio. This is set out in Annex B.

Updated value of the adjustment ratio

LECO EPC

20. The denominator in the formula for the adjustment ratio is the EPC of LECOs in the network busy hour. As shown in Table 1, this was 0.349 in June/July 2001 and slightly higher at 0.357 in October 2001. A simple average of these two figures is 0.353 (which is very close to the figure used in the current adjustment ratio of 0.35).

FRIACO EPC

21. The numerator in the formula for the adjustment ratio is the EPC of FRIACO ports in their individual busy hour. The EPCs of FRIACO in each of morning, afternoon and evening busy hour periods is shown in Table 2. This information reflects the use of FRIACO ports by both BT and OLOs. Traffic through FRIACO ports reaches its peak in the evening period. The EPC in the evening was 0.50 in June/July, rising to 0.58 in October 2001.

Table 2: EPCs of FRIACO ports in morning, afternoon and evening

Source: BT (information relates to the average of 3 weeks in each of the periods shown)

22. BT argued that use of the EPC information in Table 2 to derive an updated adjustment ratio would be inappropriate, as it did not reflect a mature or equilibrium level for the FRIACO EPC. BT considered that the EPCs currently measured for FRIACO were artificially depressed because the sample includes many FRIACO routes that have been established relatively recently and will take some time to reach maturity.

23. In place of the figures shown in Table 2 BT considered that an estimate of the mature level of the EPC of FRIACO ports should be used. Using an illustrative calculation, BT's view of the likely position was an EPC of 0.72 - see Annex A for further details. This is close to the figure of 0.70 used in the current adjustment ratio.

24. Since one of the objectives of the derivation of FRIACO charges is to obtain charges that are reasonably stable and sustainable, the Director would prefer to use a figure for the EPC of FRIACO ports that reflected a mature or sustainable level. The Director sought the views of OLOs purchasing DLE FRIACO on BT's argument and its suggested figure.

25. Responses (some on a confidential basis) were received from AOL, Carrier 1, COLT, Energis and ntl. Some OLOs considered that current EPCs on FRIACO ports would be representative of a mature level. Others accepted that it would typically take some time, such as 12 to 18 months, for FRIACO routes to reach maturity. All OLOs considered that BT's figure of 0.72 was an overstatement of an achievable EPC for a variety of reasons. For example, it was argued that BT had overstated the average size of routes and not taken proper account of factors such as lack of perfect knowledge of the dispersal of customers at the DLE level and lead times to order and install additional capacity. Based on their experience and analysis, OLOs’ views of a mature EPC for FRIACO routes fell in the range 0.55 to 0.65.

The Director's conclusion

26. The Director considers that it would not be appropriate to rely solely on the measured EPC of FRIACO ports, which may not be representative of a more stable level. Indeed it is possible that the significant increase in EPC from 0.50 to 0.58 between June/July and October 2000 may reflect an increase in the average maturity of FRIACO routes.

27. The Director considers that a reasonable approach would be to take the mid-point of upper and lower bounds for the EPC of FRIACO ports. For the upper bound the Director proposes to use 0.7, the figure in the current adjustment ratio, which is also close to BT's view of the mature level. For the lower bound the Director proposes to use 0.577, the highest figure in Table 2, which was the measured EPC in October 2001 in the evening period and is broadly consistent with the views of OLOs on the lower bound. The mid-point between the upper and lower bounds is an EPC for FRIACO ports of 0.639.

28. The Director concludes that the updated value of the adjustment ratio should be 1.81, calculated as 0.639 divided by 0.353. The Director proposes that this updated adjustment ratio will take effect from the date of publication of the final Determination.

Table 3: DLE FRIACO charges with current and updated adjustment ratios

Note: A further charge for use of BT's Intelligent Network is also applicable.

29. This change in the adjustment ratio would result in an updated charge for DLE FRIACO that was about 7% lower than the current charge. This is set out in Table 3, using the starting FRIACO charges in the network charge controls on 1 October 2001. BT has proposed a new charge for DLE FRIACO to apply from 1 April 2002 (see Network Charge Change Notice 303) of £9,434.10 per 2 Mbit/s per annum. The updated adjustment ratio would reduce this charge by about 7% to £8,744.40.

Single Tandem FRIACO

30. In principle, the appropriate value of AR (LECO) might be different as between DLE and Single Tandem FRIACO. This is because the EPC of FRIACO ports might be different at DLEs and tandem switches. For example, it might be possible to achieve higher utilisation of FRIACO ports at tandem switches, because of the benefits of greater concentration of traffic and larger route sizes. If so, a higher value of AR (LECO) should apply in the calculation of the charge for ST FRIACO compared to DLE FRIACO.

31. The Director proposes to retain the current value for the adjustment ratio of 2.00 in the calculation of the Single Tandem FRIACO charge, until specific evidence on the use of ST FRIACO ports becomes available and suggests that the value should be changed. Therefore, for the avoidance of doubt, the Director is not proposing any change in this draft determination that would alter the charge for Single Tandem FRIACO.

32. With the proposed change for DLE FRIACO, AR (LECO), the adjustment ratio reflecting the number of LECO circuits required per FRIACO port, will take on a different value for DLE FRIACO and for Single Tandem FRIACO.

Consistency with C69.2

33. The Director considers that it is consistent with Condition 69.2 of BT’s licence for the value of AR (LECO) to differ between DLE and Single Tandem FRIACO. Condition 69.2(d)/Category D sets out the following formula for the total DLE FRIACO charge:

"[D(i) x AR (LECO)] + D(ii) + D(iii)"

34. Condition 69.2(d)/Category F sets out the following formula for the total Signal Tandem (‘ST’) FRIACO charge:

"[D(i) x AR (LECO)] + [(D(ii) + F(i)) x AR (LT)] + D(iii) + F (ii)".

Consequently, the charge for ST FRIACO is based upon two FRIACO adjustment ratios: AR (LECO) and AR (LT).

35. AR (LECO) is defined under Category D as:

36. There is no specific reference to either a DLE FRIACO port or a ST FRIACO port in the above definition. The Director is of the view that "each FRIACO port" includes "each DLE FRIACO port" or "ST FRIACO port", and that consequently the adjustment ratio for DLE FRIACO and ST FRIACO can be different.

Frequency of adjustment ratio reviews in future

37. As noted in the network charge control Guidelines, the Director does not anticipate conducting reviews of the adjustment ratio more frequently than annually. However, reviews might need to be conducted more often than anticipated if warranted by specific circumstances (see paragraph 2.48 of Guidelines on the Operation of the Network Charge Controls from October 2001, 5 December 2001, http://www.oftel.gov.uk/publications/ind_guidelines/pcr1201.htm).

38. It is intended that the next review will cover the adjustment ratios for both DLE and Single Tandem FRIACO and will commence in Autumn 2002.

Other points raised during review

Consultation on deferral of review

39. Energis complained that it had not been consulted on the deferral of the review from December 2000. However, the Director did consult on pushing back the review, as the second Direction (which was consulted on in November 2000) amended paragraph 7 of the original Direction of May 2000 (which had stated the review would take place in December 2000). Also, as noted in paragraph 3, it would not have been possible to conduct a proper review in December 2000, because relevant data on FRIACO traffic patterns would not have been available.

Should the updated adjustment ratio be applied retrospectively?

40. Energis also argued that the updated adjustment ratio should be backdated to December 2000. The Director does not consider it appropriate in this instance to set the charges for DLE FRIACO retrospectively (ie before the date of publication of the final Determination). Adjustment ratios can be adjusted upwards as well as downwards and a retrospective approach would need to be applied symmetrically to both directions of movement. One of the important principles adopted by Oftel in deriving FRIACO charges is that certainty about the charge should be promoted to facilitate business planning. Therefore, the Director considers that changes in the adjustment ratio should not apply retrospectively.

Consultation

41. Oftel seeks the views of industry and others on the proposals outlined in this document. The closing date for submitting comments is 20 March 2002.

42. In its document Oftel’s use of public consultation, published in August 2001 (see www.oftel.gov.uk/publications/about_oftel/2001/cons0801.htm), Oftel set out its general intention to omit the further 14 day period for ‘comments on comments’ from consultations. Accordingly, there will not in this case be an opportunity for stakeholders to comment on the responses made by others.

43. Where possible, comments should be made in writing and sent by e-mail to brian.malone@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 the Oftel manager named below:

John Kemp
Casework Programme Manager
Oftel
50 Ludgate Hill
London
EC4M 7JJ

tel: 020 7634 8885
fax: 020 7634 8772
e-mail: john.kemp@oftel.gov.uk

Further copies of this document

44. This document can be viewed in the Publications section of Oftel’s website (www.oftel.gov.uk/publications/index.htm), under classification Internet Access. 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 phoning 020 7634 8761 or by sending an e-mail to infocent@oftel.gov.uk.

Publication of representations made by stakeholders

45. 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. However, in the interests of transparency, respondents should avoid applying confidential markings wherever possible.

46. Non confidential representations can be viewed on Oftel’s website in the Publications section under Responses to Oftel consultations (see www.oftel.gov.uk/publications/responses/index.htm). They can also be viewed at Oftel’s Research and Information Unit. Appointments must be made in advance by phoning 020 7634 8761 or sending an e-mail to infocent@oftel.gov.uk.

ANNEX A: BT’s view of mature EPC for FRIACO routes

The mature (or equilibrium) level of EPC for FRIACO routes is a complex function of a number of parameters. These include a number of items related to an individual operator’s economic ordering quantity analysis, its desired grade of service to end users and its policy towards investment risk management for market forecast achievement. Given that individual operators may make significantly different decisions from one another in this respect, a BT view of the likely position is illustrated below:-

• assuming that an efficient network operator has correctly forecast its market growth, and plans to give its customers a reasonable grade of service of 1% call failures in the busy hour, then when a typical route of 120 circuits is fully loaded a busy hour EPC of 0.9 should be possible (BT has observed this loading / quality balance to be possible from network measurements);

• if we then assume that the operator has a market growth rate of 50% p.a. and that its economic order quantity covers 6 months growth then, were the example route to be augmented, its EPC would immediately fall to 0.72 (i.e. 108/150);

• however, it is normal practice within BT (on growing routes) to commence the route augmentation process at a lower traffic level. A level of 90% of the maximum traffic would be appropriate, resulting in an EPC after augmentation of 0.65 (97.2/150); and

• if we then assume that augmentation of routes across the operator’s network is evenly spread across time, then the average EPC for mature routes should be 0.72 ((108 +108) x 90% Erlangs)/(120+150 circuits).

ANNEX B: More Complex Methodology

B.1 In this Annex the application of the more complex methodology is explored. This provides a cross-check on the reasonableness of the updated value for the adjustment ratio for DLE FRIACO derived using the current methodology.

Source data

B.2 The more complex methodology considers the coincidence between FRIACO traffic on LECOs at times of day when those particular LECOs are experiencing their individual busy hours, ie the morning, afternoon and evening. When LECOs are outside their individual busy hours no additional capacity is needed to serve FRIACO traffic. Table 4 shows the EPCs in the morning, afternoon and evening busy hour periods for each of 3 categories of LECOs: those experiencing their individual busy hours in respectively the morning, afternoon and evening. The focus of interest is on the figures on the diagonal of Table 4 (shown in bold), the EPCs of LECOs when they are experiencing their individual busy hours.

Table 4: LECO EPCs (October 2001)

Source: BT 

B.3 Table 5 shows the proportion of traffic in each of the morning, afternoon and evening busy hour periods that arises on each of the 3 categories of LECOs. Again, the interest is on the figures on the diagonal, because this is the traffic that arises on LECOs inside their individual busy hours. Ideally, the information in Table 5 would relate specifically to FRIACO traffic. However, BT is unable to supply such data, so Table 5 shows the proportions for all traffic on LECOs, including both FRIACO and non-FRIACO traffic. It is not known how this information compares to the pattern of FRIACO traffic on LECOs and, in principle, the figures on the diagonal could overstate or understate the true figures.

Table 5: Proportion of total traffic on LECOs (including non-FRIACO) in each time of day that originates on LECOs in individual busy hour

Source: Oftel from information provided by BT

Note: Figures are derived from Table 4 (eg 32% = 0.344 x 30% / 0.331)

B.4 The other relevant information to implement the more complex methodology is the amount of FRIACO traffic in each of the morning, afternoon and evening busy hour periods. This is shown in Table 6 (which repeats the data in Table 2 relating to October 2001).

Table 6: EPCs of FRIACO ports in morning, afternoon and evening

Source: BT (information relates to the average of 3 weeks in the period shown)

Illustrative results using more complex methodology

B.5 An illustrative calculation using the more complex methodology is set out in Table 7. Row A is the information on FRIACO EPCs from Table 6. Row B is the diagonal from Table 5 and row C is the diagonal from Table 4. The number of LECOs required on average per FRIACO port is then calculated in the bottom row. It is the number of Erlangs of FRIACO traffic per port originating on LECOs experiencing an individual busy hour (A x B). This is divided by the Erlangs per circuit for that category of LECO experiencing its individual busy hour at that time of day (C). No additional LECO circuits are required for those LECOs that are outside of their individual busy hours. With the data and assumptions in Tables 4 to 6, summing across the circuit requirements in each busy hour period yields an adjustment ratio using the more complex methodology of 1.43.

Table 7: Illustrative calculation of adjustment ratio using lower bound FRIACO Port EPCs

B.6 As noted above, row B is only a proxy for the relevant information on FRIACO traffic. A sensitivity is therefore also shown in Table 7 inside square brackets. Since FRIACO ports have an evening busy hour, it is possible that a large proportion of FRIACO traffic in the evening originates on LECOs that have an evening busy hour. If this proportion is assumed to be 90%, the implied adjustment ratio rises to 1.65.

B.7 This sensitivity only represents one of the possibilities. It might be that FRIACO traffic is highly correlated with LECO individual busy hours, in which case all of the figures in row B should be increased and the implied adjustment ratio would be larger. Or FRIACO traffic might generally originate on LECOs outside of their individual busy hours, in which case the figures in row B should be reduced and the implied adjustment ratio would be significantly lower.

B.8 The EPCs of FRIACO ports in Table 7 reflect the 'lower bound' figures, ie the measured figures for October 2001, which may understate the mature or stable level. Table 8 shows illustrative calculations using figures that reflect the 'upper bound' for FRIACO EPCs, ie an uplift has been applied to the figures in row A in Table 7 to increase the EPC in the evening to 0.70 and the EPC in the other periods by the same percentage. With these assumptions the adjustment ratio is 1.73 or 2.01 with 90% of FRIACO traffic originating on LECOs with an evening busy hour.

Table 8: Illustrative calculation of adjustment ratio using upper bound FRIACO port EPCs

Conclusion

B.9 It would not be appropriate to draw a firm conclusion from this analysis of the application of the more complex methodology. This is because of the non-availability of some of the relevant information, ie the proportion of FRIACO traffic in each period that originates on LECOs experiencing their individual busy hours. Nevertheless the analysis suggests that the updated adjustment ratio of 1.81, derived using the current methodology, is reasonable. It lies within the range of plausible values of about 1.4 to 2.0, obtained from the illustrative calculations.