28 January 2002

Contents

Chapter one – Summary

Chapter two – Background

Chapter three – Equivalent payment terms for metered and unmetered interconnect

Chapter four – Charging for Intelligent Network services

Chapter five – Voluntary conversion of capacity units counting towards an operator’s rearrangement commitment

Chapter six – Circumstances in which BT is required to invest in additional capacity for metered traffic during FRIACO Stage 1

Chapter seven – Rearrangement of traffic in order to maintain the supply of ST FRIACO

Chapter eight – The period to which an operator’s request for ST FRIACO relates, and the period to be used for assessment of spare capacity

Chapter nine – Consultation

Annex A – Draft Direction

Annex B – Consolidated Direction

Annex C – Glossary of terms and acronyms

Chapter one – Summary

1.1 The Director General of Telecommunications (the Director) is consulting on a number of matters relating to the terms and conditions under which Single Tandem Flat Rate Internet Access Call Origination (ST FRIACO) and Digital Local Exchange Flat Rate Internet Access Call Origination (DLE FRIACO) are supplied in the United Kingdom. The solutions proposed by the Director will require changes to the Direction published on 15 February 2001, which in turn amended the Direction of 26 May 2000. This document sets out:

a) the background to the consultation, explained in chapter two;

b) the nature of the issues upon which the Director is consulting;

c) the solutions proposed and the main reasoning behind those solutions; and

d) at annex A, a draft of the changes that would need to be made to the FRIACO Direction.

1.2 The issues discussed are as follows:

• in chapter three, creation of equivalent payment terms for metered and unmetered interconnect;

• in chapter four, the scope for British Telecommunications plc (BT) to charge for Intelligent Network (IN) services;

• in chapter five, the facility for an operator’s rearrangement commitment to be wholly or partly satisfied by voluntary conversion of its capacity units at a tandem switch from non-ST FRIACO to ST FRIACO;

• in chapter six, the circumstances in which BT is required to invest in additional capacity for metered traffic during FRIACO Stage 1;

• in chapter seven, the facility for BT to reasonably require rearrangement of traffic in order to maintain the supply of ST FRIACO; and

• in chapter eight, the period to which an operator’s request for ST FRIACO relates, and consequently what period BT should use to assess whether sufficient spare capacity exists for ST FRIACO to be supplied without rearrangement.

1.3 Readers of this consultation document are recommended to read it in conjunction with the following documents previously published by the Director in connection with FRIACO:

Chapter two – Background

2.1 This chapter sets out the background to the consultation, providing a brief history of FRIACO in the United Kingdom and setting out the principal requirements of the ST FRIACO Direction published by the Director on 15 February 2001.

2.2 In December 1999, a dispute between MCI WorldCom plc (WorldCom) and BT was referred to the Director. WorldCom complained that BT was supplying unmetered products to consumers, without making available a comparable wholesale product which would enable its competitors to provide equivalent unmetered services.

2.3 As BT had almost exclusive control of the local network connecting customers’ premises to the Public Switched Telephone Network (PSTN), it was usually necessary for an Other Licensed Operator (OLO) wishing to offer unmetered products to its customers to pay BT for use of that local network. In the absence of a wholesale unmetered service, the OLO would have obtained fixed revenue from its customers but paid for use of the local network on a metered (pence per minute) basis. Thus, if its customers used the service extensively (as might prove to be the case with unmetered Internet connection), the OLO’s revenues would not cover its costs.

2.4 WorldCom’s original requirement was for flat rate interconnection at BT’s tandem exchanges where most operators historically connected to BT’s network. BT resisted this, arguing that the unrestricted conveyance of unmetered Internet traffic across the tandem network would cause it to overload affecting all types of calls. BT had already started to ‘groom’ its own Internet traffic off the network at local exchanges so that calls could be conveyed across its separate Internet Protocol (IP) network for delivery to Internet Service Providers (ISPs). From early 2000 BT similarly required other operators to extend their networks to the local exchanges, in a phased manner.

2.5 As the Director has a duty to ensure that the interests of all consumers are served, he could not risk overloading of the network, with all its attendant consequences. Thus, the Director’s first FRIACO-related Direction, published on 26 May 2000, required BT to offer only DLE FRIACO, that is, wholesale flat rate Internet access from its local exchanges. This allowed those OLOs interconnecting at the local exchange level to purchase wholesale unmetered call origination in order to offer services to compete with BT’s SurfTime Internet products, launched on 1 June 2000.

2.6 For those OLOs interconnected at the tandem network level, as an interim measure BT made available Interconnection Extension Circuits (IECs) from the local exchange to the tandem exchange.

2.7 In the meantime, as it had become clear from the consultation that preceded the May 2000 Direction that it was unreasonable to expect OLOs to interconnect at all of BT’s local exchanges, the Director commissioned independent technical advice on how unmetered Internet traffic could be conveyed to tandem exchanges without overloading the core network. The advice received confirmed that the expected growth in Internet calls would soon exceed the capacity of the network unless action was taken. A staged programme of developments was recommended which would allow limited tandem interconnection in the short term and unlimited access within two years.

2.8 This advice led the Director to make the second FRIACO-related Direction on 15 February 2001, requiring BT to make ST FRIACO available from its tandem exchanges. The further work by Oftel and its consultants had identified some spare capacity in BT’s tandem exchanges, and that more could be released by re-arrangement of OLOs’ metered traffic to local exchanges.

2.9 The Direction contained a two-staged solution. During Stage 1, which started on 26 February 2001, in order to ensure that the obligation on BT to provide ST FRIACO is reasonable and technically feasible given the potential shortage in tandem switch capacity;

a) there is a limit on the volume of ST FRIACO ports that each operator can purchase at any given tandem switch; and

b) at tandem switches which have no or insufficient capacity, BT is able reasonably to require traffic re-arrangements to create additional tandem switch capacity for ST FRIACO. After consultation, a guidance document was published on 18 July 2001, to enable all parties involved to assess the reasonableness of such re-arrangements.

2.10 In the medium to longer term, from the start of Stage 2 planned for 1 February 2003, BT’s obligation to supply ST FRIACO will not be dependent on the limitations noted in paragraph 2.9 above. By that stage, BT will be expected, if necessary, to have taken further steps to address network capacity issues in order to meet this obligation. The cost of any additional capacity necessary for Stage 2 must be borne by all operators (including BT) that use the tandem network (regardless of whether they have any ST FRIACO), since all operators using the tandem network contribute to the scarcity of capacity at the tandem level.

2.11 Meanwhile, work is being conducted on the development of a further FRIACO product using IP interconnection, a solution which has potential advantages in terms of efficiency and cost and removes Internet traffic from the voice network, thus potentially reducing the investment required for Stage 2.

2.12 BT’s other obligations, to supply interconnection for metered Internet access (pursuant to its Reference Interconnection Offer) and to supply FRIACO to the DLE, will continue.

Chapter three – Equivalent payment terms for metered and unmetered interconnect

3.1 This chapter addresses the issue of the payment terms for unmetered interconnection, currently comprising DLE FRIACO and ST FRIACO.

3.2 In chapter ten of the ST FRIACO Direction published on 15 February 2001, Oftel consulted on its draft Guidance, as set out in annex four of that document, and the incorporation of the ST FRIACO charge into the NCC, as set out in paragraphs 5.19 and 5.20 of the document.

3.3 In its response to the consultation on the latter issue, Energis highlighted the fact that payment terms differed between metered and unmetered interconnection services and that this might create a distortion between the two, since paying in arrears (as is the case for metered interconnection) is more attractive than paying upfront (as is the current practice for FRIACO).

3.4 In previous Directions, the Director has not commented on payment terms specifically. However, the Director believes it is important to clarify that the derivation of both DLE FRIACO and ST FRIACO charges implicitly assumes equivalent payment terms for metered and unmetered interconnection. This is because the cost information used in calculating charges for FRIACO included costs of working capital, which reflected the payment terms for metered interconnection services. The terms for the payment of the FRIACO charge should, therefore, be equivalent to those for metered interconnection.

3.5 There are various ways in which the payment terms for FRIACO could be regarded as being equivalent to those for metered interconnection. Assume, for illustration, that the payment terms for metered interconnection provide 45 days’ credit, comprising:

a) monthly billing in arrears, providing on average about 15 days’ credit (note that exactly 15 days’ credit would be provided on average only if consumption of metered interconnection services was the same for each day of the month); and

3.6 The concept of equivalent payment terms is illustrated in the following two examples:

Example 1: If there were 12 monthly payments during the year for FRIACO, equivalent payment terms would be billing monthly in arrears (providing, on average, the 15 days’ credit noted in a) above) plus a further month to pay the bill (as noted in b) above).

Example 2: If there were a single payment for FRIACO in the year, equivalent payment terms would be billing six months and 15 days into the annual period covered by the FRIACO service (providing about 15 days’ credit, on average, since the single payment would be made 15 days later than the midpoint of the year), plus a further month to pay the bill.

3.7 It is possible that BT and the operator purchasing FRIACO could reach a mutually satisfactory arrangement, in which the payment terms for FRIACO were not equivalent and less favourable than for metered interconnection, but the charge for FRIACO was reduced to compensate. The Direction does not preclude such arrangements being offered in addition to the combination of the charges for FRIACO previously determined and equivalent payment terms as described above. Any such arrangement would, however, need to be non-discriminatory and cost oriented.

3.8 Accordingly, the Director proposes that Paragraphs 3.4, 3.5 and 23 of the Direction be amended to state that the FRIACO charges determined within the Direction are to be associated with payment terms for FRIACO that are equivalent to those for corresponding metered interconnection services (ie call origination and local-tandem conveyance).

3.9 It is the Director’s opinion that the equivalent payment terms that are to be introduced, should apply retrospectively (for DLE FRIACO, from the date of the DLE FRIACO Direction, and for ST FRIACO, from the date of the ST FRIACO Direction). Thus, those operators already having ordered and/or paid for unmetered interconnection should receive a refund of any amount overcharged, that is, any difference between the charges already made and the revised charges calculated according to the new method. The amounts that are to be refunded should be agreed between the parties to the particular contract.

Chapter four – Charging for Intelligent Network services

4.1 This chapter looks at the principle of whether BT should, in connection with the supply of ST FRIACO, be able to recover the costs associated with the use of Intelligent Network (IN) equipment.

4.2 In most cases, the equipment utilised at DLEs for routing of calls is able to distinguish the type of call made only within certain limits (that is, down to each block of 10,000 or, in some cases, 1000 numbers). This is sufficiently precise for most network purposes, including Internet traffic where the OLO concerned has dedicated the entire number block to Internet access. However, where single dialled numbers are used for Internet access, from within number blocks not exclusively used for Internet traffic, these must be picked out (‘groomed’) and routed to the correct switch or port using IN equipment at the DLEs.

4.3 Under the terms of the first FRIACO Direction published on 26 May 2000, the Director confirmed in paragraph 4.3 (and provided supporting explanation in paragraph 33) that BT was permitted to impose reasonable charges on OLOs for the costs associated with IN services. This IN charge, which can be levied in addition to the DLE FRIACO charge that is determined by the Director, is classified as a ‘new’ Standard Service under the Network Charge Control and therefore is not currently subject to any regulation.

4.4 It was the Director’s intention that this permission for BT to impose reasonable charges on OLOs for the costs associated with IN services, should apply equally to ST FRIACO. Accordingly, the Director proposes that paragraph 4.3 of the Direction be amended to apply additionally in respect of any service which has already been provided or will be provided under paragraphs 9 and 11 of the Direction. For the avoidance of doubt, paragraph 4.3 of the Direction would apply from 26 May 2000.

4.5 However, this amendment is proposed and would be made without prejudice and does not fetter the Director’s discretion with regard to the current investigation into the level of the charges associated with IN services (also known as the ‘IN Dip’), reference CW/00407/04/01 – see page five, issue 21 of Oftel’s Competition Bulletin.

Chapter five – Voluntary conversion of capacity units counting towards an operator’s rearrangement commitment

5.1 This chapter considers the existing ways by which an OLO can satisfy its rearrangement commitment, and proposes further ways in which this might be achieved.

5.2 In order to release some additional capacity for ST FRIACO, the Direction of 15 February 2001 stated in paragraphs 13 and 14 that BT could, where insufficient capacity existed at the relevant tandem switch, reasonably rearrange any or all of an ST FRIACO operator’s non-ST FRIACO (ie metered voice or data) traffic (but see paragraph 5.3 below). The guidance document published on 18 July 2001 gave details of the actions the Director would consider to be reasonable in this connection.

5.3 Paragraph 16 of the ST FRIACO Direction limits the amount of an OLO’s non-ST FRIACO traffic that BT can reasonably rearrange to no greater than twice the total number of ST FRIACO Capacity Units that BT is providing or has agreed to provide to that OLO, at all of BT’s tandem switches. This is known as an operator’s ‘Rearrangement Commitment’.

5.4 Paragraph 4.63 of the explanatory document to the ST FRIACO Direction set out the ways in which an operator might satisfy its rearrangement commitment.

5.5 Firstly, under the heading ‘Forced rearrangement at ST charges’, it detailed the situation where BT asks an ST FRIACO operator to rearrange non-FRIACO traffic in order that BT can meet a request to supply ST FRIACO, and the rearrangement is carried out with the operator paying charges at the single tandem rate for the rearranged traffic.

5.6 Secondly, under the heading ‘Forced rearrangement at DLE charges’, it set out the situation where BT asks an ST FRIACO operator to rearrange non-FRIACO traffic in order that BT can meet a request to supply ST FRIACO, and the rearrangement is carried out with the operator choosing to pay DLE charges for the rearranged traffic. In these circumstances, the operator would also need to pay the charges for any IBLs, CSIs, STP links, IECs, or other links necessary to achieve rearrangement.

5.7 Thirdly, under the heading ‘Voluntary’, the Direction detailed the situation where, unrelated to a specific request from BT, an ST FRIACO operator voluntarily chooses to interconnect at the DLE, paying DLE interconnection charges and the cost of any necessary IBLs, CSIs, STP links, IECs, or other links.

5.8 In Paragraph 16 of the explanatory note to the guidance document published on 18 July 2001, the Director noted one operator’s suggestion that it should also be possible for an OLO’s rearrangement commitment to be wholly or partly satisfied by the voluntary conversion at a tandem switch of its capacity units currently being utilised for unmetered Internet traffic (carried on a metered basis at the wholesale level) into ST FRIACO capacity.

5.9 The arguments in favour of such a proposal would be that:

a) it would create additional capacity for ST FRIACO at the tandem switch, and thereby contribute to the ongoing development of unmetered Internet access;

b) no additional interconnect port capacity would be required at the tandem switch, since capacity used for metered would simply be converted to use for unmetered interconnection; and

c) to the end user, there is no difference in the service, and consequently no increase in use of the network. The service is unmetered already at the retail level, therefore a change to ST FRIACO should not result in an increased burden on the tandem switch in question, either on interconnect ports or on supporting, DLE facing ports.

5.10 Alternatively, it might be possible for a rearrangement commitment to be wholly or partly satisfied by voluntary conversion of any Internet traffic that is carried on a metered basis at the wholesale level, whether it is used for unmetered or metered purposes at the retail level. This would have the advantages a) and b) listed in paragraph 5.9 above, but not c). The Director notes that BT already carries out this conversion of capacity, subject to certain restrictions.

5.11 As the conversion to ST FRIACO of metered capacity does not involve BT in physical rearrangement of traffic to DLEs, the Director expects that in such circumstances BT would not normally have grounds for refusing to supply ST FRIACO within the shortest timescales possible.

5.12 BT has, however, suggested to the Director that conversion of capacity could enable an operator to obtain ST FRIACO ‘by stealth’ and without the need for reasonable rearrangements. It is envisaged that this could occur if an operator were to convert its metered capacity at a tandem switch into ST FRIACO capacity, then submit a fresh order for metered capacity. The operator might, in these circumstances, end up with additional metered capacity plus ST FRIACO capacity. The ST FRIACO capacity might not have been available without rearrangement. If rearrangements were not possible for whatever reason, then BT would need to invest in additional tandem capacity that would not have been required in the absence of ST FRIACO.

5.13 The Director suggests that to prevent this type of abuse from occurring, an operator might be required at the time of conversion to forecast the growth required for its more predictable non-FRIACO (metered data and voice) traffic for, say, the ensuing six months. If the actual demand by that operator exceeds the predicted demand by, say, 10% or more during that period, then the converted capacity would no longer count towards the operator’s rearrangement commitment.

Respondents’ views are welcomed on whether this would act as a sufficient deterrent to an abuse of the type suggested, and what other deterrents might be possible.

5.14 The ST FRIACO Direction does not explicitly allow for conversion of capacity. The Director is, therefore, consulting on:

a) whether conversion of capacity from metered wholesale Internet traffic should be permitted;

b) whether such conversion should be restricted to metered wholesale Internet traffic that is unmetered at the retail level; and

c) if either a) or b) applies, whether such conversion should count towards an operator’s rearrangement commitment.

5.15 If, after consultation, the Director considers that conversion of capacity from any metered wholesale Internet traffic should be permitted (paragraph 5.14 a)), then the following would be added to paragraph 13 of the Direction: "The Licensee with agreement of the Operator can also convert existing metered wholesale Internet Traffic at the Relevant Tandem Switch to Single Tandem FRIACO.".

5.16 If it is additionally concluded that an operator’s rearrangement commitment can be wholly or partly satisfied by voluntary conversion at a tandem switch of its capacity units currently being utilised for metered wholesale Internet traffic into ST FRIACO capacity (paragraphs 5.14 a) and c)), then in addition to the amendment noted in paragraph 5.15 above, the following would be added as paragraph 16A of the Direction: "The Rearrangement Commitment shall also include Capacity Units which an Operator voluntarily requests the Licensee to convert from metered wholesale Internet Traffic to Single Tandem FRIACO at the same Tandem Switch.".

5.17 If, after consultation, the Director considers that conversion of capacity should be restricted to metered wholesale Internet traffic that is unmetered at the retail level (paragraph 5.14 (b)), then the following would be added to paragraph 13 of the Direction: "The Licensee with agreement of the Operator can also convert existing metered wholesale Internet Traffic at the Relevant Tandem Switch to Single Tandem FRIACO where such metered wholesale Internet traffic is paid for by the End-user at an unmetered rate.".

5.18 If it is additionally concluded that an operator’s rearrangement commitment can be wholly or partly satisfied by voluntary conversion at a tandem switch of its capacity units currently being utilised for unmetered Internet traffic (carried on a metered basis at the wholesale level) into ST FRIACO capacity (paragraphs 5.14 (b) and (c)), then in addition to the amendment noted in paragraph 5.17 above, the following would be added as paragraph 16A of the Direction: "The Rearrangement Commitment shall also include Capacity Units which an Operator voluntarily requests the Licensee to convert from metered wholesale Internet Traffic to Single Tandem FRIACO at the same Tandem Switch where such metered wholesale Internet Traffic is paid for by the End-user at an unmetered rate.".

5.19 The Director does not propose at this stage to extend the scope of the rearrangement commitment still further, to include voluntary conversion of capacity from non-ST FRIACO at a particular tandem switch to ST FRIACO at a different tandem switch.

However, the Director would be interested in respondents’ views on this point.

Chapter six – Circumstances in which BT is required to invest in additional capacity for metered traffic during FRIACO Stage 1

6.1 In the guidance document published on 18 July 2001, the Director set out at annex A to the explanatory note the circumstances in which BT is obliged to invest in additional tandem capacity during FRIACO Stage 1. For the sake of clarity, and in order to set in context the discussion which follows in chapter seven regarding the rearrangement of traffic in order to maintain the supply of ST FRIACO, the points made in that document are reproduced below, suitably amended to take account of the possible inclusion of conversion of capacity into operators’ rearrangement commitments (see chapter five).

6.2 The Director considers that there remains an obligation upon BT to build additional capacity where there is insufficient capacity to meet demand for metered interconnect ports, not only at a particular tandem switch where no ports have been allocated to ST FRIACO, but also in some circumstances where some ports have been allocated for ST FRIACO purposes.

6.3 In essence, during Stage 1, BT is required to invest in tandem capacity where it would have been required to do so had ST FRIACO not been introduced. In other words, BT is expected to make incremental additions to tandem capacity in order to meet its obligations to supply metered interconnection.

6.4 ST FRIACO and rearrangements have made the issue of whether investment is required more complex. However, at a general level, the total demand for tandem capacity at a given switch that would have existed had ST FRIACO not been introduced is equal to the sum of the following:

1) tandem metered capacity at the switch;
2) non-FRIACO capacity rearranged to DLE as a result of the Direction;
3) growth on these rearranged routes;
4) tandem capacity converted from metered to ST FRIACO; and
5) growth on the routes that have been converted to ST FRIACO.

6.5 If the total capacity on a switch is less than the above demand for tandem capacity that would have existed at the switch had ST FRIACO not been introduced, then BT is required to make additional investment in Stage 1 in order to meet its obligations to supply metered interconnect.

6.6 Note that the above formula underestimates BT’s obligations to invest in capacity in Stage 1. This is because, in the absence of ST FRIACO, demand for Internet access would have had to be met by metered interconnect. BT would, therefore, have needed to invest in additional capacity in order to meet this demand.

6.7 In order to provide further clarification, we set out below some scenarios in which BT would or would not be required to invest in new capacity during Stage 1. Note that this is not intended to be an exhaustive list of the scenarios that might arise.

6.8 Scenario 1: No ST FRIACO is being supplied at the switch. BT receives a request for metered interconnect. No spare capacity available.

BT’s obligations are unaffected by the ST FRIACO Direction, and it should install additional capacity in order to meet the demand for additional metered traffic.

6.9 Scenario 2: All ST FRIACO on the switch has been supplied out of rearrangements. BT receives a request for metered interconnect. No spare capacity is available.

In this case, BT should invest in additional capacity at the tandem switch in order to meet the demand. The capacity shortage would have arisen regardless of ST FRIACO, since the ST FRIACO ports would have been used to provide metered interconnect in any case.

6.10 Scenario 3: All ST FRIACO on the switch has been supplied out of spare capacity. BT receives a request for metered interconnect. No spare capacity is available.

In this scenario, BT could have met demand for metered from the spare capacity if ST FRIACO had not been introduced. Thus, it would not be reasonable to expect BT to invest in additional capacity.

6.11 Scenario 4: All ST FRIACO on the switch has been supplied out of capacity converted from metered to ST FRIACO. BT receives a request for metered interconnect. No spare capacity is available.

In this case BT should invest in additional capacity at the tandem switch in order to meet the demand. The capacity shortage would have arisen regardless of ST FRIACO, since the ST FRIACO ports would have been used to provide metered interconnect.

6.12 Scenario 5: ST FRIACO on the switch has been provided using a combination of spare capacity, conversion from metered, and rearranged capacity. BT receives a request for metered interconnect. No spare capacity is available.

In this scenario, it is necessary to establish whether spare capacity would have been available to meet the demand for metered interconnection had ST FRIACO not been introduced. This can be done using the following formula:

Spare (in the absence of ST FRIACO) = Total capacity on switch – Total demand, as set out in paragraph 6.4.

If BT would not have spare capacity in the absence of ST FRIACO then it should be required to invest in additional capacity in order to meet the new request for metered interconnection.

Chapter seven – Rearrangement of traffic in order to maintain the supply of ST FRIACO

7.1 This chapter looks at the circumstances in which BT can reasonably make rearrangements, and considers whether there should be additional circumstances in which rearrangements could be made possible.

7.2 The Direction of 15 February 2001 stated in paragraphs 13 and 14 that BT could, upon receipt of a written request to provide ST FRIACO, and where insufficient capacity existed at the relevant tandem switch, reasonably rearrange any or all of an ST FRIACO operator’s non-ST FRIACO (ie metered voice or data) traffic, subject to certain limitations (see paragraph 5.3 above).

7.3 Although this facility enables BT to address certain circumstances where a request for new or additional ST FRIACO is received and there is insufficient capacity at the relevant tandem switch, the Director considers that there may be other circumstances in which capacity problems might arise and it would be desirable for rearrangement of traffic to be permitted. As the Direction currently stands, rearrangements can only be required when BT receives a new request for ST FRIACO.

7.4 The Director takes the view that it is possible for BT, having commenced supply of ST FRIACO at a particular tandem switch, to be faced subsequently with a situation where there is insufficient capacity to meet new demands for metered traffic. This could, in the Director’s opinion, occur even though BT is permitted to assess whether spare capacity for ST FRIACO exists for the whole period from the operator’s original request until the start of FRIACO Stage 2 (see chapter eight below), because of the inevitably speculative nature of long term forecasts.

7.5 In some scenarios (set out in chapter six above), BT would in these circumstances be required to invest in additional capacity in order to meet the new demand for metered traffic. However, in other scenarios it would not be reasonable to expect BT to invest in additional tandem capacity.

7.6 At the same time, as noted in Annex A to the explanatory note to the guidance document published on 18 July 2001, the Director is minded to consider that BT would unduly discriminate if it were to cut off the supply of ST FRIACO in order to meet new demands for metered interconnection. The Director considers that BT has an ongoing commitment to provide ST FRIACO services to operators with existing ST FRIACO connections (subject to reasonable cause for cessation of supply as may be contained within the contract eg defaulting operator), in the same way as it has an ongoing commitment to provide other services, such as metered interconnection.

7.7 The Director therefore believes that BT should be allowed to carry out rearrangements in order to meet its obligations to continue the supply of ST FRIACO and supply new requests for metered interconnection, where it would not be required to invest in additional tandem capacity. The amount of rearrangement would not be permitted to exceed the difference between the total capacity at the tandem switch in question and the total adjusted demand at that switch, as defined in paragraph 29 of the proposed amended Direction.

7.8 It should be emphasised that the Director is not seeking to amend the cap on the total amount of rearrangement that an ST FRIACO operator can be requested to carry out (the ‘Rearrangement Commitment’), which will remain at two times the ST FRIACO capacity supplied. Thus, rearrangements carried out in these circumstances would count towards the rearranging operator’s Rearrangement Commitment.

7.9 It is envisaged that, for rearrangements in order to meet BT’s obligations to continue the supply of ST FRIACO and supply new requests for metered interconnection, timescales similar to those which currently exist would apply for the assessment of available capacity and for the agreement of rearrangement details. For the assessment of available capacity when considering a new demand for metered traffic, BT is able to look four months ahead, that is, the period for which OLOs have to submit firm Advance Capacity Orders. For the agreement of rearrangement details, the timescales applicable for new requests for ST FRIACO would apply, as set out in paragraph 17 (1) of the Guidance document published on 18 July 2001.

7.10 In circumstances where a rearranging operator does not comply with its obligations, penalties similar to those in the Direction of 15 February 2001 would apply. BT would have the right:

a) to refuse to supply additional orders of ST FRIACO to the refusing/ failing operator until the re-arrangement has been carried out; and/or

b) to cease to provide that operator’s ST FRIACO, at any tandem switch where that operator has ST FRIACO, limited up to the amount of the required re-arrangements not completed. Although BT would decide the number of ports it intended to cease to supply, it would need to give the operator a reasonable opportunity to decide at which particular tandem switch(es) the supply of ST FRIACO would cease.

7.11 Accordingly, the Director proposes that paragraphs 29 to 36 be added to the Direction, and that the words "paragraphs 13 and 14" be replaced by the words "this Direction" in paragraphs 16 and 17 of the Direction.

7.12 It should be noted that the above proposals would not alter the position of those operators with no ST FRIACO. These operators could not be asked to rearrange traffic under any circumstances, and BT’s obligations to meet their demands for metered traffic would be unaffected.

Chapter eight – The period to which an operator’s request for ST FRIACO relates, and the period to be used for assessment of spare capacity

8.1 This chapter addresses the issue of the period to which an operator’s request for ST FRIACO relates, and the consequent effect of this upon the assessment by BT of whether sufficient spare capacity exists at a particular tandem switch for ST FRIACO to be supplied without the need for rearrangement.

8.2 The guidance document published on 18 July 2001 stated that rearrangements will not be required where spare capacity exists at a tandem switch for the entire period for which ST FRIACO has been requested. Paragraph 11 of the ST FRIACO Direction similarly stated that rearrangement obligations arise where no, or insufficient, capacity units exist at the relevant tandem switch "at any point during the period to which a request relates".

8.3 ST FRIACO is, however, supplied to operators on an open-ended basis, with no set period of supply, or date upon which supply is scheduled to cease. Thus, there is no particular period for which the supply of ST FRIACO is requested, although operators do currently pay for a year’s supply at a time. Consequently, the "period to which a request relates" is open to interpretation.

8.4 If the period for assessment of spare capacity is set at too great a length, such assessment would be based almost exclusively on trends based on long term forecasts. These trends are inevitably inaccurate, and the inaccuracy increases the further into the future one attempts to predict, so that the longer the time period for assessing capacity the more speculative becomes the assessment.

8.5 In addition, other technological developments (such as IP interconnection) in the intervening time may mean that expected additional demands for capacity do not, in fact, materialise.

8.6 The assessment of capacity is important because an apparent absence of capacity will mean that ST FRIACO cannot be supplied without rearrangement. Rearrangements require longer lead times before supply can be provisioned, and in addition, rearrangements will not be possible in every case. For example, the operator requesting ST FRIACO may not have any non-ST FRIACO traffic of its own at the relevant tandem switch, and the remaining operators interconnected to the switch may not be ST FRIACO operators, or may already have fulfilled their rearrangement commitments. In such circumstances, ST FRIACO could not be supplied – and such supply might have been possible if a shorter period had been selected for assessment of spare capacity.

8.7 Against this, the Director has to balance the risk of capacity running out and BT finding itself unable to fulfil its obligations to supply new requests for metered interconnection (note that this will only occur in circumstances where it would not be reasonable for BT to invest in additional tandem capacity – see scenarios in chapter six above). This risk is increased with a shorter timescale for assessment of capacity, although the effects of the increased risk could be mitigated by allowing BT carry out rearrangements in order to continue the supply of ST FRIACO and supply new requests for metered interconnection, as proposed in chapter seven.

8.8 Thus, for example, although more precise forecasts could be obtained by selecting a period for assessment of capacity of four months, that is, the period for which OLOs have to submit firm advance capacity orders, this would not allow BT to plan its network in any way for anticipated increases in demand beyond the four month period, and might well result in BT unexpectedly running out of capacity at quite an early stage.

8.9 With these factors in mind, the Director considers that the approach currently adopted by BT is the most appropriate. BT interprets the "period to which an operator’s request for ST FRIACO relates", and consequently the period over which it is able to assess whether there is sufficient spare capacity at a tandem switch for ST FRIACO to be supplied without rearrangement, as being the period from the operator’s original request until the start of FRIACO Stage 2, currently set for 1 February 2003. The Director considers that this represents a fair balance between the legitimate interests of all parties, and reduces the likelihood of cooling of demand for ST FRIACO products which might arise more readily if a longer or shorter period were selected.

8.10 The Director considers that this approach should be expressly stated in the Direction, to avoid any possibility of misinterpretation, and therefore proposes that the words "to which a request relates" be replaced by the words "up to and including 31 January 2003" in paragraph 11 of the Direction.

Chapter 9 – Consultation

9.1 Oftel seeks the views of industry and others on the proposals outlined in this document. The closing date for submitting comments is 25 February 2002.

9.2 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.

9.3 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

9.4 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

9.5 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.

9.6 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 – Draft Direction relating to the provision of a Flat Rate Internet Access Call Origination product (‘FRIACO’)

Draft Direction under Condition 45.2 of the Public Telecommunications Licence granted to British Telecommunications plc and under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 amending Directions made by the Director General of Telecommunications on 26 May 2000 and 13 February 2001 under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997

WHEREAS

Introduction

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. The Secretary of State granted to MFS Communications Limited on 24 September 1993 and to WorldCom International Inc. on 31 March 1994 licences under Section 7 of the Act for the running of telecommunications systems as specified in those licences;

4. Both MFS Communication Limited and WorldCom International Inc. are now part of WorldCom;

5. WorldCom entered into a Standard Interconnect Agreement with BT on 20 February 1997, as subsequently amended;

6. The Standard Interconnect Agreement covers interconnection services BT offers other operators;

7. Worldcom requested BT, on 17 September 1999, to supply it with an interconnection service which provides for flat rate (unmetered) Internet call origination not included in the Standard Interconnect Agreement;

8. BT refused Worldcom’s request for the proposed service on 15 December 1999;

9. On 24 December 1999 Worldcom referred this dispute to the Director General of Telecommunications ("the Director") for a Direction that the request for the service was reasonable and should be included in an interconnection agreement with BT and for a Direction in relation to the Point of Connection and charge for the service;

10. Condition 45.1 of the BT Licence requires BT to offer to enter into an agreement with an operator to connect that operator’s telecommunications system to the BT telecommunications system through Points of Connection of sufficient number and capacity so as to conveniently meet all reasonable demand. BT is also required under the same paragraph to provide such other telecommunications services as are reasonably required to enable BT to fulfil this obligation;

11. A Direction made under Condition 45.2 of the BT Licence operates as an exercise by the Director of the power of direction conferred by Regulation 6 of the Regulations. The Director may also make a Direction to resolve any interconnection dispute under Regulation 6(6) of the Regulations. The Regulations were made to implement in the United Kingdom Directive 97/33/EC of the European Parliament and Council on interconnection in telecommunications with regard to ensuring universal service and interoperability through application of the principles of open network provisions ("the Directive");

The first and second Directions

12. After a period of consultation the Director issued a Direction under Condition 45.2 of the BT Licence and Regulation 6(6) of the Telecommunication (Interconnection) Regulations 1997 (the "Regulations") on 26 May 2000 (the "First Direction") concerning the provision of a Flat Rate Internet Access Call Origination ("FRIACO") product as described in the recitals to the First Direction;

13. The First Direction was amended by a Direction made by the Director on 13 February 2001 and published on 15 February 2001;

14. Issues remain from the original dispute which need to be resolved;

Equivalent payment terms for metered and unmetered interconnect

15. The Director believes it is important to clarify that the derivation of both DLE FRIACO and ST FRIACO charges implicitly assumes equivalent payment terms for metered and unmetered interconnection. This is because the cost information used in calculating charges for FRIACO included costs of working capital, which reflected the payment terms for metered interconnection services. The terms for the payment of the FRIACO charge should, therefore, be equivalent to those for metered interconnection;

16. Pursuant to Condition 45.8(b) of BT’s Licence, in considering whether a term or condition (including a charge) is reasonable, the Director may take into account, inter alia, the effective date of the term or condition and the period during which such term or condition may already have been in effect. The Director may conclude that a reasonable charge is one which is offered or agreed, as the case may be, on terms that it take effect in agreements or amendments made under paragraph 45.1 from the date of a complaint or the date on which the term was first offered by the Licensee or accepted by a Schedule 2 Public Operator or from any other date which is considered by the Director to be appropriate in the circumstances;

Charging for Intelligent Network services

17. Under the terms of the First Direction published on 26 May 2000, the Director confirmed in paragraph 4.3 that BT was permitted to impose reasonable charges on an Operator for the costs associated with Intelligent Network services;

18. It was the Director’s intention that BT’s ability to impose reasonable charges on an Operator for the costs associated with Intelligent Network services, should apply equally to Single Tandem FRIACO;

Voluntary conversion of Capacity Units counting towards an Operator’s Rearrangement Commitment

19. In order to create additional capacity for Single Tandem FRIACO an Operator should be allowed to convert capacity it is using for metered wholesale Internet Traffic at a Tandem Switch;

20. Such conversion shall be carried out only with the agreement of the Operator and shall be included in the Rearrangement Commitment. Paragraphs 18, 19 and 21 of the First Direction, as amended, only apply to rearrangements and not conversion;

The period to be used for assessment of spare capacity

21. The assessment of capacity is important because an apparent absence of capacity will mean that Single Tandem FRIACO cannot be supplied without rearrangement. Rearrangements require longer lead times before supply can be provisioned, and in addition, rearrangements will not be possible in every case;

22. The setting of a period which coincides with the lifting of BT’s ability to require traffic to be rearranged (ie 31 January 2003) over which BT is able to assess whether there is sufficient spare capacity at a Tandem Switch for Single Tandem FRIACO to be supplied without rearrangement, for the reasons set out in the explanatory document to this Direction, represents a fair balance between the legitimate interests of all parties;

Rearrangement of traffic in order to maintain the supply of Single Tandem FRIACO

23. It is possible for BT, having commenced the supply of Single Tandem FRIACO to an Operator at a particular Tandem Switch, to be faced subsequently with a situation where there is insufficient capacity to meet new demands for metered traffic;

24. BT should, therefore, be allowed to carry out rearrangements in order to meet its obligations to continue the supply of Single Tandem FRIACO and supply new requests for metered interconnection, where it would not be required to invest in additional tandem capacity;

25. The Director is not seeking to amend the cap on the total amount of rearrangement that a Single Tandem FRIACO operator can be requested to carry out and the Rearrangement Commitment will remain at two times the Single Tandem FRIACO capacity supplied by BT to an Operator. Therefore, the rearrangements carried out in these circumstances will count towards the rearranging operator’s Rearrangement Commitment;

26. Only the Messages of Operators which are being supplied with Single Tandem FRIACO by BT should be re-arranged;

Draft Direction and consultation

27. For the reasons given in these recitals and set out in more detail in the explanatory document accompanying this Direction, and having considered the representations made in response to the draft of this Direction published on […] 2002, and the matters set out in Regulation 6(8) of the Regulations, the Director believes that it is appropriate to make this Direction.

THEREFORE

Pursuant to Condition 45.2 of the BT Licence and Regulation 6(6) of the Regulations the Director General of Telecommunications makes the following Direction:

1. The Direction made by the Director on 26 May 2000, as amended by the Direction made on 13 February 2001 and published on 15 February 2001, is amended in accordance with paragraphs 2 to 11 of this Direction:

2. In paragraph 3.4 after the words "(the "DLE Charge")" insert ". Payment by the Operator of such charge shall be equivalent to the Licensee’s payment terms for corresponding metered interconnection services. Such payment terms shall apply from 26 May 2000".

3. In paragraph 3.5 after the words "shall be reduced proportionately" insert ". Payment by the Operator of such charge shall be equivalent to the Licensee’s payment terms for corresponding metered interconnection services. Such payment terms shall apply from 26 May 2000".

4. In paragraph 4.3, after the words "provided under paragraph 8" insert the words "and paragraphs 9 and 11". This paragraph applies from 26 May 2000.

5. In paragraph 11 replace the words "to which a request relates" with the words "up to and including 31 January 2003".

6. Insert at the end of paragraph 13 (see note 1 below) :

"The Licensee with agreement of the Operator can also convert existing metered wholesale Internet Traffic at the Relevant Tandem Switch to Single Tandem FRIACO.".

or

Insert at the end of paragraph 13:

"The Licensee with agreement of the Operator can also convert existing metered wholesale Internet Traffic at the Relevant Tandem Switch to Single Tandem FRIACO where such metered wholesale Internet Traffic is paid for by the End-user at an unmetered rate."

7. After Paragraph 16 insert Paragraph 16A (see note 2 below):

"16A The Rearrangement Commitment shall also include Capacity Units which an Operator voluntarily requests the Licensee to convert from metered wholesale Internet Traffic to Single Tandem FRIACO at the same Tandem Switch.".

or

"16A The Rearrangement Commitment shall also include Capacity Units which an Operator voluntarily requests the Licensee to convert from metered wholesale Internet Traffic to Single Tandem FRIACO at the same Tandem Switch where such metered wholesale Internet Traffic is paid for by the End-user at an unmetered rate.".

8. In paragraph 16 delete the words "paragraphs 13 and 14" and insert in their place the words "this Direction".

9. In paragraph 17 delete the words "paragraphs 13 and 14" and insert in their place the words "this Direction".

10. In paragraph 23 after the words "shall be reduced proportionately." insert the words "Payment by the Operator of such charge shall be equivalent to the Licensee’s payment terms for corresponding metered interconnection services. Such payment terms shall apply from 15 February 2001.".

11. After paragraph 28 the following paragraphs are inserted and paragraph 29 shall be re-numbered paragraph 38:

"29 Paragraphs 30 to 36 of this Direction shall apply where:

– no, or insufficient, Capacity Units exist at a Licensee's Tandem Switch where Single Tandem FRIACO is being provided, at any point during 16 weeks from an Operator’s written request for non-Single Tandem FRIACO traffic; and

– adjusted demand at the Tandem Switch is less than the Capacity Units at the Tandem Switch.

For the purpose of this paragraph adjusted demand shall be calculated at the Tandem Switch as equal to the sum of the following:

– metered capacity supplied at the Tandem Switch;

– metered capacity requested by Operators;

– non-Single Tandem FRIACO rearranged to the DLE from the Tandem Switch pursuant to this Direction;

– growth on the routes which have been rearranged from the Tandem Switch to the DLE pursuant to this Direction;

– Single Tandem FRIACO converted at the Tandem Switch from metered wholesale Internet Traffic to Single Tandem FRIACO; and

– growth on the routes which have been converted from metered wholesale Internet Traffic to Single Tandem FRIACO.

30 Where the Licensee is already providing Single Tandem FRIACO traffic to the Operator, and the conditions in paragraph 29 are fulfilled, the Licensee may reasonably rearrange any or all Messages conveyed to or from the Operator’s Applicable System so that such Messages are not switched by the Tandem Switch. The Licensee may not rearrange Messages conveyed using Single Tandem FRIACO.

31 The Licensee shall only be allowed to make rearrangements pursuant to paragraph 30 equal to no more than the number of the Capacity Units equal to the difference between the Capacity Units at the Tandem Switch and the adjusted demand.

32 The Licensee may only take action pursuant to paragraph 30 provided that, in relation to such action:

(i) paragraph 29 applies;

(ii) the Licensee acts in a reasonable manner at all times including, in particular, giving reasonable notice of any such action to the Operator;

(iii) except as provided in this Direction, the Licensee shall not raise any additional charge or require any additional payment of any kind; and

(iv) the rearrangement of Messages does not materially affect the quality of service provided to the Operator.

33 Where pursuant to paragraph 30 the Licensee has requested the Operator, or another operator, to complete rearrangement of Messages so that the Licensee can provide non-Single Tandem FRIACO to another operator, but the Operator, or other operator, does not take the required action, the Licensee’s obligation to provide non-Single Tandem FRIACO to any operator shall be limited to the number of Capacity Units equal to the number of Capacity Units in respect of which rearrangements have been completed, by the Operator or by another operator.

34 Where pursuant to paragraph 30 the Licensee has requested the Operator to complete rearrangements so that another operator can be provided with non-Single Tandem FRIACO traffic and the Operator does not take the necessary measures to enable the Licensee to carry out the necessary rearrangement, the Licensee may cease the provision of Single Tandem FRIACO to the Operator at any of its Tandem Switches. Such cessation shall be limited to the number of Capacity Units equal to the number of Capacity Units in respect of which the Operator has failed to complete rearrangement.

35 Before ceasing to provide Single Tandem FRIACO pursuant to paragraph 34, the Licensee shall give the Operator a reasonable opportunity to determine at which Tandem Switches the provision of Single Tandem FRIACO shall cease.

36 In addition to any action taken pursuant to paragraph 34, for the period that the Operator fails to complete such rearrangements, the Licensee shall not be obliged to enter into any further agreement with the Operator to provide Single Tandem FRIACO at any of the Licensee’s Tandem Switches.

37 Paragraphs 29 to 36 of this Direction shall only apply from the date of publication of this Direction until 31 January 2003, unless the Director shall otherwise direct.".

12. Except as otherwise defined in this Direction:

12.1 paragraph 4 of the BT Licence shall, with the necessary changes, apply to this Direction as it applies to the BT Licence; and

12.2 terms defined in the BT Licence or in the recitals hereto shall have the same meanings for the purposes of this Direction.

13. Unless otherwise stated, this Direction shall enter into force on the date of its publication.

 David A Edmonds
Director General of Telecommunications

Notes:

1. See chapter five of the explanatory document which sets out the alternative proposals.
2. See chapter five of the explanatory document which sets out the alternative proposals

Annex B – Consolidated Direction

(This is a consolidated version of the Direction of 26 May 2000, the Direction made on 13 February 2001 and published on 15 February 2001, and the draft Direction contained in Annex A. It is for information purposes only and does not form part of the draft Direction. The proposed amendments contained in the draft Direction are marked by underlining or strikethrough of font, as appropriate.)

1. BT (the "Licensee") shall offer to enter into an agreement with MCI Worldcom (the "Operator") on the terms of the necessary parts of the Licensee’s Reference Interconnection Offer as supplemented and varied by the provisions of this Direction ("the Offer").

2. The Offer shall relate only to the provision of FRIACO to the Operator and shall not relate to the provision of any other goods or services whatsoever except as expressly provided in this Direction.

3. The Offer shall include the following terms:

3.1 the Operator shall not be required to account for the volume of Internet Traffic passing through the Point of Connection, whether by reference to call minutes or otherwise;

3.2 the Licensee shall a provide a Point of Connection upon the Operator’s request at any DLE at which the Licensee separates Internet Traffic from other calls for any purpose (including, for the avoidance of doubt, for the purposes of the Licensee’s own business) (an "Enabled DLE");

3.3 where the Operator and the Licensee disagree whether a Point of Connection must be provided at any DLE, either party may refer the dispute to the Director for determination;

3.4 the Operator shall pay to the Licensee a charge not exceeding £ 341.92 (three hundred and forty one pounds and ninety two pence) per year (see note three below), or such other amount as specified by the Director for each Point of Connection to which the Offer relates (the "DLE Charge"). Payment by the Operator of such charge shall be equivalent to the Licensee’s payment terms for corresponding metered interconnection services. Such payment terms shall apply from 26 May 2000;

3.5 where any Point of Connection is made available for the purposes of FRIACO for less than a whole year, the DLE Charge shall be reduced proportionately. Payment by the Operator of such charge shall be equivalent to the Licensee’s payment terms for corresponding metered interconnection services. Such payment terms shall apply from 26 May 2000;

3.6 except as permitted by paragraph 4.3, the Licensee shall not make any additional charge or require any additional payment of any kind in addition to the DLE Charge under any agreement made as a consequence of the Offer and, in particular, shall not require any further charges for the use of any part of the Licensee’s Applicable System between the Subscriber’s telecommunications apparatus and the DLE;

4. The Offer may also include the following terms;

4.1 the Offer may only apply to Messages destined for numbers or number ranges which the Director has notified to the Operator and to the Licensee as being reserved for use with unmetered Internet Traffic;

4.2 the Licensee may require the Operator to demonstrate to the Licensee’s reasonable satisfaction that those numbers or number ranges are being so used;

4.3 the Licensee may make a reasonable additional charge for any IN or STP signalling services provided by the Licensee to the Operator at the Operator’s request for the purpose of using the FRIACO service and for any service provided under paragraph 8 and paragraphs 9 and 11. This paragraph applies from 26 May 2000;

4.4 The DLE Charge may be varied from time to time by agreement between the parties.

5. The Offer may also provide that nothing in any agreement made pursuant to it (the "Agreement") shall require the Licensee;

5.1 [deleted]

5.2 to provide a Point of Connection at any DLE which is not an Enabled DLE unless the Director shall otherwise direct.

6. BT shall make the Offer no later than 1 June 2000 and shall ensure that FRIACO is available at Enabled DLEs within a reasonable period thereafter.

7. The DLE Charge and the Single Tandem Charge shall be reviewed by the Director from time to time by reference to information on Internet Traffic using FRIACO.

8. The Licensee shall provide to the Operator, within a reasonable period of the Operator’s written request, a service for the conveyance of Internet Traffic from each Enabled DLE at which the Operator has requested a Point of Connection under paragraph 3.2 to any other Point of Connection which;

8.1 is a Point of Connection between the Licensee’s Applicable System and the Operator’s Applicable System; and

8.2 is situated in any premises in which any of the Licensee’s Tandem Switches are located as the Operator shall reasonably request.

9 In addition to its obligations under paragraph 8, the Licensee, subject to paragraphs 10, 12, 18, 19 and 21 shall from 7 working days after the date of publication of this Direction, offer to provide to the Operator, within a reasonable period of the Operator’s written request, FRIACO switched through any one of the Licensee’s Tandem Switches, to the Operator’s Point of Connection to that Tandem Switch, on the terms set out (with the necessary changes), in paragraphs 1, 2, 3.1, 4, and 10-27 inclusive of this Direction ("Single Tandem FRIACO").

10 Subject to paragraph 11, the obligation under paragraph 9 shall not apply where the Licensee reasonably informs the Operator that no Capacity Units exist, at the Tandem Switch where Single Tandem FRIACO is requested by the Operator, during the entire period to which the request relates.

11 Subject to paragraphs 12, 18, 19 and 21 where no, or insufficient, Capacity Units exist at a Licensee's Tandem Switch where Single Tandem FRIACO is requested by the Operator, at any point during the period to which a request relates up to and including 31 January 2003, the Licensee shall offer to provide the Operator, within a reasonable period of the Operator’s written request, Single Tandem FRIACO at that Tandem Switch, subject to reasonable rearrangements being carried out at that Tandem Switch as set out in to paragraphs 13, 14 and 15.

12 The Licensee shall only be obliged to provide Single Tandem FRIACO to the Operator to a limit of a maximum of forty 2 Mbit/s ports at each of the Licensee’s Tandem Switches, unless the Director shall otherwise direct.

13 Subject to paragraphs 15 and 16, where the Licensee is not already providing Single Tandem FRIACO to the Operator, and the Licensee reasonably believes that there is or, as a result of the request for Single Tandem FRIACO received from the Operator will be, insufficient Capacity Units at a Licensee’s Tandem Switch (the "Relevant Tandem Switch"), but the Licensee has agreed in writing to provide Single Tandem FRIACO at the Relevant Tandem Switch to the Operator, the Licensee may reasonably rearrange any or all Messages conveyed to or from the Operator’s Applicable System so such Messages are not switched by the Relevant Tandem Switch. The Licensee may not rearrange Messages conveyed using Single Tandem FRIACO. The Licensee with agreement of the Operator can also convert existing metered wholesale Internet Traffic at the Relevant Tandem Switch to Single Tandem FRIACO [where such metered wholesale Internet Traffic is paid for by the End-user at an unmetered rate].(see note four below)

14 Subject to paragraphs 15 and 16, where the Licensee is already providing Single Tandem FRIACO to the Operator, and the Licensee reasonably believes that there is or, as a result of requests for Single Tandem FRIACO received from other operators will be, insufficient Capacity Units at a Licensee’s Tandem Switch (a "Saturated Tandem Switch") the Licensee may reasonably rearrange any or all Messages conveyed, to or from the Operator’s Applicable System so such Messages are not switched by a Saturated Tandem Switch. The Licensee may not rearrange Messages conveyed using Single Tandem FRIACO.

15 The Licensee may only take action pursuant to paragraphs 13 and 14 (and those paragraphs will only apply) provided that, in relation to such action:

(i) it is necessary to enable the Licensee to provide Single Tandem FRIACO pursuant to paragraph 11;

(ii) the Licensee acts in a reasonable manner at all times including, in particular, giving reasonable notice of any such action to the Operator;

(iii) except as provided in this Direction, the Licensee shall not raise any additional charge or require any additional payment of any kind; and

(iv) the rearrangement of Messages does not materially affect the quality of service provided to the Operator.

16 The Licensee shall only require the Operator to rearrange any Messages pursuant to paragraphs 13 and 14 this Direction such that the number of Capacity Units subject to rearrangement is no greater than twice the total number of Single Tandem FRIACO Capacity Units that the Licensee is providing (including those which the Licensee has agreed, conditionally or otherwise, in writing to provide) to the Operator, at all the Licensee’s Tandem Switches, ("the Rearrangement Commitment"), unless the Director shall otherwise direct. Capacity Units counting towards the Rearrangement Commitment shall be any Capacity Units in respect of which the Operator completes rearrangement as a result of the operation of this Direction.

16A (see note five below) The Rearrangement Commitment shall also include Capacity Units which an Operator voluntarily requests the Licensee to convert from metered wholesale Internet Traffic to Single Tandem FRIACO at the same Tandem Switch.

or

16A The Rearrangement Commitment shall also include Capacity Units which an Operator voluntarily requests the Licensee to convert from metered wholesale Internet Traffic to Single Tandem FRIACO at the same Tandem Switch where such metered wholesale Internet Traffic is paid for by the End-user at an unmetered rate.

17 The Licensee shall not be permitted to rearrange to any of its Tandem Switches any Messages conveyed, or to be conveyed, over the Operator’s Applicable System, which have already been rearranged pursuant to paragraphs 13 and 14 this Direction.

18 Where pursuant to paragraphs 13 and 14 the Licensee has requested the Operator, or another operator, to complete rearrangement of Messages so that the Licensee can provide Single Tandem FRIACO to the Operator or another operator, but the Operator, or other operator, does not take the required action, the Licensee’s obligation to provide Single Tandem FRIACO to any operator shall be limited to the number of Capacity Units equal to the number of Capacity Units in respect of which rearrangements have been completed, by the Operator or by another operator.

19 Where pursuant to paragraphs 13 and 14 the Licensee has requested the Operator to complete rearrangements so that another operator can be provided with Single Tandem FRIACO and the Operator does not take the necessary measures to enable the Licensee to carry out the necessary rearrangement, the Licensee may cease the provision of Single Tandem FRIACO to the Operator at any of its Tandem Switches. Such cessation shall be limited to the number of Capacity Units equal to the number of Capacity Units in respect of which the Operator has failed to complete rearrangement.

20 Before ceasing to provide Single Tandem FRIACO pursuant to paragraph 19, the Licensee shall give the Operator a reasonable opportunity to determine at which Tandem Switches the provision of Single Tandem FRIACO shall cease.

21 In addition to any action taken pursuant to paragraph 19, for the period that the Operator fails to complete such rearrangements, the Licensee shall not be obliged to enter into any further agreement with the Operator to provide Single Tandem FRIACO at any of the Licensee’s Tandem Switches.

22 Paragraphs 10 to 21 of this Direction shall only apply from the date of publication of this Direction until 31 January 2003, unless the Director shall otherwise direct.

23 The Operator shall pay to the Licensee a charge not exceeding £507.47 (five hundred and seven pounds and forty-seven pence) per year (see note six below), or such other amount as specified by the Director, for each Point of Connection provided pursuant to paragraphs 9 and 11 and to which is connected a circuit of a capacity of no greater than 64 Kbit/s (the "Single Tandem Charge"). Where any such Point of Connection is provided for less than a whole year the Single Tandem Charge shall be reduced proportionately. Payment by the Operator of such charge shall be equivalent to the Licensee’s payment terms for corresponding metered interconnection services. Such payment terms shall apply from 15 February 2001.

24 Where the Licensee reasonably believes that, in order to fulfil the obligations in paragraph 9 for any period after 31 January 2003, it is required to incur capital expenditure in purchasing Tandem Switches in excess of £2,500,000 (two million and five hundred thousand pounds) ("Additional Network Expenditure"), unless the Director shall otherwise direct, it may so inform the Operator and request the Operator to enter into negotiations in good faith to agree how the Additional Network Expenditure should be borne.

25 If negotiations have been commenced under paragraph 24 but no agreement has been reached by 1 September 2001 (unless the Director shall otherwise direct) either party may thereafter refer the matter to the Director for a determination or the Director may in any event then intervene on his own initiative to determine the terms of the agreement.

26 The Licensee shall not disclose to any operators, the names of any operators ordering Single Tandem FRIACO, unless directed to do so by the Director.

27 The terms "Operator" or "operator" shall be deemed to include members of the Operator’s or operator’s Group to the extent to which such members have Annex II status.

28 In the event of a dispute between the Operator and the Licensee as to the reasonableness of any charge, period or request made by the Operator or the Licensee pursuant to the Agreement, the Director may make a further direction to determine the dispute.

29 Paragraphs 30 to 36 of this Direction shall apply where:

For the purpose of this paragraph adjusted demand shall be calculated at the Tandem Switch as equal to the sum of the following:

– metered capacity supplied at the Tandem Switch;

– metered capacity requested by Operators;

30 Where the Licensee is already providing Single Tandem FRIACO traffic to the Operator, and the conditions in paragraph 29 are fulfilled, the Licensee may reasonably rearrange any or all Messages conveyed to or from the Operator’s Applicable System so that such Messages are not switched by the Tandem Switch. The Licensee may not rearrange Messages conveyed using Single Tandem FRIACO.

31 The Licensee shall only be allowed to make rearrangements pursuant to paragraph 30 equal to no more than the number of the Capacity Units equal to the difference between the Capacity Units at the Tandem Switch and the adjusted demand.

32 The Licensee may only take action pursuant to paragraph 30 provided that, in relation to such action:

33 Where pursuant to paragraph 30 the Licensee has requested the Operator, or another operator, to complete rearrangement of Messages so that the Licensee can provide non-Single Tandem FRIACO to another operator, but the Operator, or other operator, does not take the required action, the Licensee’s obligation to provide non-Single Tandem FRIACO to any operator shall be limited to the number of Capacity Units equal to the number of Capacity Units in respect of which rearrangements have been completed, by the Operator or by another operator.

34 Where pursuant to paragraph 30 the Licensee has requested the Operator to complete rearrangements so that another operator can be provided with non-Single Tandem FRIACO traffic and the Operator does not take the necessary measures to enable the Licensee to carry out the necessary rearrangement, the Licensee may cease the provision of Single Tandem FRIACO to the Operator at any of its Tandem Switches. Such cessation shall be limited to the number of Capacity Units equal to the number of Capacity Units in respect of which the Operator has failed to complete rearrangement.

35 Before ceasing to provide Single Tandem FRIACO pursuant to paragraph 34, the Licensee shall give the Operator a reasonable opportunity to determine at which Tandem Switches the provision of Single Tandem FRIACO shall cease.

36 In addition to any action taken pursuant to paragraph 34, for the period that the Operator fails to complete such rearrangements, the Licensee shall not be obliged to enter into any further agreement with the Operator to provide Single Tandem FRIACO at any of the Licensee’s Tandem Switches.

37 Paragraphs 29 to 36 of this Direction shall only apply from the date of publication of this Direction until 31 January 2003, unless the Director shall otherwise direct.

29 38 Except as otherwise defined in this Direction;

David A Edmonds
Director General of Telecommunications

Notes:

3. NB: These charges have now been incorporated into Condition 69.2 of BT's Public Telecommunications Licence.
4. See chapter five of the explanatory document which sets out the alternative proposals.
5. See chapter five of the explanatory document which sets out the alternative proposals.
6. NB: These charges have now been incorporated into Condition 69.2 of BT's Public Telecommunications Licence.

Annex C – Glossary of terms and acronyms

CSI – Customer-Sited Interconnect

DLE – Digital Local Exchange. The t