Published on 15 February 2001

Contents

Determination

Explanatory document

Summary of solutions

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Annex 1    The Report

Annex 2    InterConnect – Terms of Reference

Annex 3    ST FRIACO - charge calculation

Annex 4    Oftel draft Guidance on the re-arrangement process

Annex 5    Scenarios for provision of ST FRIACO

Annex 6    Glossary of terms and acronyms

Determination relating to a dispute between British Telecommunications and Worldcom concerning the provision of a Flat Rate Internet Access Call Origination product ("FRIACO")

Direction under Condition 45.2 of the Public Telecommunications Licence granted to British Telecommunications plc and under Regulations 6(3) and 6(6) of the Telecommunications (Interconnection) Regulations 1997 amending a Direction made by the Director General of Telecommunications on 26 May 2000 under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997

WHEREAS

Introduction

1.  The Secretary of the 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 45.1of 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;

The First Direction

11.  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;

12.  Under the First Direction BT is required to provide to Worldcom interconnection for the purpose of supplying FRIACO at each DLE where BT separates Internet Traffic from other calls for any purposes (an "Enabled DLE");

13.  BT is further required to provide to Worldcom a service for the conveyance of Internet Traffic from each Enabled DLE to any Point of Connection between BT’s Applicable System and Worldcom’s Applicable System which is situated at premises in which any of BT’s Digital Main Switching Units ("DMSUs") are located;

14.  BT fulfilled this requirement by offering Interconnect Extension Circuits ("IECs"). An IEC is a direct link between an operator’s Point of Connection at a BT switch to another BT switch;

15.  Some operators have used IECs to interconnect at BT’s Enabled DLEs;

16.  In the First Direction the Director also determined the charge to be made by BT for the use of each port dedicated to providing FRIACO. For the reasons set out below it is appropriate to amend the FRIACO charge;

17.  The pence-per-minute figures for 1997/1998 used in the derivation of the charge determined in the First Direction were taken from a calculation which involved some rounding and so resulted in figures that were not identical to the Network Charge Control charges in BT’s Carrier Price List for 1997/1998;

18.  The FRIACO charge is now indexed for a further year to derive the charge set out in the Direction;

19.  The charge for call origination has now been broken down into the charge for the FRIACO port at the DLE and the charge for the call origination circuit (excluding the FRIACO port). In determining the FRIACO charge, the adjustment ratio has been applied to the call origination circuit but not the FRIACO port. This is appropriate because the adjustment ratio measures the number of call origination circuits required per FRIACO port;

20.  The relevant number of minutes per circuit used in the calculation of the charge for Product management, Policy and Planning ("PPP") is now slightly higher than was the case in the calculation used in the First Direction. This is because of the inclusion of the effect of international call minutes, which have a flatter time-of-day profile than domestic call minutes;

21.  For the reasons set out in Annex 2 to the First Direction, the calculation of the charge involves reflation of 1994/1995 figures. The 1994/1995 figure for PPP is now reflated at RPI-8% to yield a charge in 2000/2001 prices. This is appropriate because the PPP charge should fall with increases in minutes per circuit (which is not the case for circuit charges, which are therefore reflated at RPI-5%);

22.  In addition, for the reasons set out in Annex 3 to the Explanatory Document to this Direction the adjustment ratio should be amended to reflect updated information;

23.  The charge set out in paragraph 3.4 of the First Direction should be decreased accordingly;

24.  A "Tandem Switch" is a DMSU, a Digital Junction Switching Unit, a Digital Local Tandem Exchange or a Wide Area Tandem, as defined in BT’s Network Charge Control Standard Interconnection Agreement (October 1997), Edition July 2000;

25.  Operators have Points of Connection not only at DMSUs but also at other Tandem Switches;

26.  It is therefore appropriate to amend the references to "DMSU" in the First Direction to "Tandem Switches";

27.  The First Direction otherwise remains in force until revoked by the Director;

Independent technical experts’ report

28.  During the Director’s consideration of Worldcom’s request, BT submitted that the expected substantial increase in traffic, which would result from unmetered interconnection for Internet purposes, would exceed the capacity of the Public Switched Telephone Network ("PSTN") as currently configured. In particular, the DMSU switches would not be able to handle the expected increase in traffic;

29.  In view of BT’s arguments the Director sought independent technical expert advice on the options available for investment to enable unmetered interconnection at the tandem layer, that is, the layer of the PSTN which carries trunk traffic which is switched by a Tandem Switch;

30.  In addition, the Director commissioned consultants, InterConnect Communications, to analyse further BT’s available of capacity in units of 2 Mbit/s ("Capacity Units") at the Tandem Switch, given the additional data on forecasts of traffic and other information received;

31.  The Director sought this advice to assist him in reaching the most comprehensive view possible regarding the available and required capacity on the Tandem Switch network;

32.  Having considered the independent technical experts’ and consultants’ advice, as well as the further submissions from BT and other operators, the Director is now in a position to amend his Direction of 26 May 2000 to provide for interconnection at the Tandem Switch;

Amending the First Direction

33.  Pursuant to Regulation 6(3) of the Telecommunications (Interconnection) Regulations 1997 ("the Regulations") the Director may in exceptional circumstances make a Direction that changes be made to interconnection agreements already concluded where it is justified to ensure effective competition or interoperability of services or both;

34.  To the extent that this Direction requires existing interconnection agreements to be amended, this is justified to ensure that sustainable FRIACO-based services can continue to be provided for the foreseeable future despite the current constraints on the PSTN;

35.  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 ("the Directive");

36.  In the light of the provisions of the Directive (and in particular of Article 7, Article 9(3) and recital 10) it is apparent that one of the purposes of the Directive (and, therefore, of the Regulations) is to ensure competitive and cost-oriented pricing for interconnection. The phrase "specific conditions" in Condition 45.2(b) of BT’s Licence must, therefore, be interpreted so as to include specific conditions as to prices and charges for interconnection;

37.  As the First Direction made clear (for example in recital 40) the original dispute between BT and Worldcom continues to have unresolved issues, in particular as to the appropriate Point of Connection for FRIACO services, which the First Direction stated would be reviewed in the light of the experts’ report. There is, therefore, still a dispute which needs to be resolved;

38.  In addition to providing that it might be amended as to the appropriate Point of Connection by the Director, the First Direction also provided for a review of the charge made for FRIACO ports at Enabled DLEs. However, given the modest use of FRIACO in the original review period (until 1 December 2000), the Director believes that it is appropriate to ensure that the review dates of the charges made for FRIACO ports are suitably flexible to reflect changes in circumstances;

39.  The experts’ report emphasised the need to allow the development of a network architecture that can accommodate adequately and appropriately the predicted rapid growth in Internet Traffic;

40.  In order to encourage the development of such a network architecture the Director considers it appropriate to amend the First Direction and alter the interconnection obligations imposed on BT by that Direction;

Implementation stages

41.  The experts’ report recommended that the proposed changes to the network should be implemented in stages. It is therefore appropriate to adopt a multi-stage approach;

42.  The obligations placed upon BT in Stages 1 and 2 are necessary to resolve the problems arising from an increase in Internet Traffic in the short and medium terms. The Director believes IP interconnection to be a viable and suitable solution which may become available during either of the Stage 1 or Stage 2 time periods;

43. This Direction only places obligations upon BT during the implementation of Stages 1 and 2 since the Director believes that the best means of identifying and resolving the many issues surrounding the implementation of IP interconnection services is, in the first instance, by discussion between Oftel and the industry. However, this Direction does not preclude reaching agreement on these issues during Stage 1 or Stage 2;

Stage 1

44.  For the reasons set out in Chapter 4 of the Explanatory Document to this Direction, Stage 1 lasts until 31 January 2003 by which date BT could reasonably be expected to have expanded its network to deal with the expected increase in Internet Traffic. During Stage 1 BT shall be obliged to provide FRIACO switched through any of BT’s Tandem Switches, to a Point of Connection situated at that Tandem Switch, that is single tandem FRIACO;

45.  The Director considers that in Stage 1 if Internet Traffic continues to grow as estimated there could be a shortage of capacity at one or more Tandem Switches and that management of such capacity is therefore required;

46.  Such management can be achieved by reasonably rearranging the traffic of those operators requesting or being supplied with single tandem FRIACO, pursuant to this Direction. This will create additional capacity at the Tandem Switch. Such rearrangements are also necessary to ensure that network integrity is maintained;

47.  In order to encourage operators to complete the required rearrangements set out in this Direction it is reasonable and appropriate to provide for the ability of BT to cease its provision of single tandem FRIACO to operators which fail to complete the required rearrangements;

48.  The Director considers it appropriate to give guidance as to how BT should carry out its obligations pursuant to the Direction, and in the Explanatory Document to this Direction he is consulting on such guidance;

49.  The Director considers it appropriate and reasonable that an operator required to rearrange traffic pursuant to this Direction should not be placed in a worse position in terms of quality of service or additional charges;

50.  The amount of traffic rearranged should be limited so that no operator has an unnecessary burden placed upon it;

51.  During Stage 1 BT is not obliged to rearrange to any of its Tandem Switches any traffic already rearranged pursuant to this Direction;

52.  BT will be expected to allocate FRIACO ports supplied pursuant to this Direction on a "first come first served" basis as orders are placed;

53.  However, due to the limitation of capacity at BT’s Tandem Switches, the Director considers it reasonable to place a maximum limit on the number of ports per operator per Tandem Switch, in order to reduce the likelihood that any one operator is able to obtain all the available single tandem FRIACO ports at the more popular Tandem Switches. This limit may be revised by the Director;

54.  It is necessary to ensure confidentiality of information to prevent any strategic anti-competitive behaviour by operators;

55.  In order to prevent any operator circumventing its obligations to complete rearrangements pursuant to the Direction, by operating through different legal entities, it is necessary to ensure the Direction applies to any member of an operator’s group which has Annex II status. This prevents, for example, operators creating separate legal entities so that such an entity can receive single tandem FRIACO, without any members of its group having to rearrange traffic;

Stage 2

56.  Stage 2 requires the provision by BT of FRIACO switched through any of BT’s Tandem Switches to meet all reasonable demand as required by Condition 45 of its Licence (i.e. without the ability to rearrange capacity and without the 40 port per Tandem Switch per operator limit). One way BT may choose to implement the obligations imposed by Stage 2 is by constructing a separate network to lay over the PSTN and which would carry only trunk Internet Traffic. This is the solution recommended by the technical experts’ report for the medium term, until IP interconnect can be implemented;

57.  A significant issue in relation to any construction of a tandem overlay network for Internet Traffic (an "ISP Tandem Switch Overlay") is who should bear the cost of it (or other means to increase capacity). It is assumed that a significant proportion of the traffic passing over this new network will not be ultimately destined for BT customers. This may require BT to invest in assets where there is a risk that it may be unable to recover the cost of such investment should operators migrate to interconnection based on IP technology. This is discussed in more detail in the Explanatory Document accompanying this Direction. In order to provide the correct incentives to both BT and operators, Oftel believes that any significant capital costs of any ISP Tandem Switch Overlay network should be shared between operators using BT’s Tandem Switches, including BT itself;

58.  The Director estimates the cost of one Tandem Switch and associated equipment to be £2,500,000 and considers this amount be a significant capital cost;

59.  If BT is required to invest in excess of £2,500,000 in purchasing Tandem Switches in order to fulfil its obligations pursuant to this Direction after 31 January 2003 but is unable to agree, by 1 September 2001, with the operators as to who should bear this additional expenditure, either of the parties may refer the matter to the Director requesting a determination or the Director may then intervene on his own initiative;

The charge for single tandem FRIACO

60.  The charges for the provision of FRIACO switched through any of the Licensee’s Tandem Switches have been derived using the same methodology as outlined in Annex 2 to the First Direction and paragraphs 69 to 87 of the Explanatory Document which accompanied the First Direction, as supplemented by Annex 3 to the Explanatory Document to this Direction;

61.  The Director considers that these charges fulfil the criteria set out in recital 36 above for the reasons given in Annex 2 to the First Direction, as supplemented by Annex 3 to the Explanatory Document to this Direction;

62.  A 2Mbit/s circuit contains thirty 64kbit/s circuits (plus signalling circuits) and the determined charge should therefore be multiplied by thirty to produce a 2Mbit/s circuit charge;

63.  In the Explanatory Document to this Direction, the Director is consulting on proposals to incorporate single tandem FRIACO charges into the Network Charge Control due to take effect from 1 October 2001. In the light of responses to this consultation, the Director proposes to issue draft Licence modifications and commence the statutory consultation process;

IP Interconnection

64.  In recognition of the many issues surrounding the implementation of an IP interconnection regime, the Director intends to convene a meeting of interested operators to seek agreement as to the issues to be addressed and appropriate solutions. Should agreement not be reached within a reasonable time the Director would then consider, after consulting BT and the rest of the telecommunications industry, making a determination;

Draft Direction and consultation

65.  A draft of this Direction was published on 24 November 2000 and comments invited.

THEREFORE

Pursuant to Condition 45.2 of the BT Licence and Regulations 6(3) and 6(6) of the Regulations, and having considered the views of the parties and those matters set out in Regulation 6(8) of the Regulations, the Director General of Telecommunications makes the following Direction:

1. The Direction made by the Director on 26 May 2000 is amended in accordance with paragraphs 2 to 7 of this Direction.

2. In paragraph 3.4 of the First Direction the words and numbers "of £ 424.25 (four hundred and twenty four pounds and twenty five pence) per year" are replaced by "not exceeding £ 341.92 (three hundred and forty one pounds and ninety two pence) per year, or such other amount as specified by the Director.".

3. In paragraph 3.4 of the First Direction the words "(the "Charge")" shall be replaced by "(the "DLE Charge")" and references to "Charge" in subsequent paragraphs of the First Direction shall be amended in the same way.

4. Paragraph 5.1 of the First Direction is deleted.

5. Paragraph 7 of the First Direction is deleted and replaced with the following:

"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.".

6. In paragraph 8.2 of the First Direction the reference to "DMSUs" shall be replaced by "Tandem Switches".

7. After paragraph 8 of the First Direction the following paragraphs shall be inserted and paragraphs 9 and 10 of the First Direction shall be renumbered accordingly:

8. Paragraph 2 of this Direction shall have effect from the date of publication of this Direction.

9. Except as otherwise defined in this Direction;

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

David A Edmonds
Director General of Telecommunications
13 February 2001

Explanatory Document to the Direction concerning future interconnection arrangements for dial-up Internet in the United Kingdom

Summary of solutions

S.1  This explanatory document sets out the grounds underlying the Direction adopted by the Director General of Telecommunications (the ‘Director’) on 15 February 2001 in relation to a dispute between MCI/WorldCom (‘MCIW’ now ‘WorldCom’) and British Telecommunications (‘BT’).

S.2  The Direction contains solutions – short, medium and longer term – to ensure that there are effective interconnection arrangements to support expanding demand for Internet access over the Public Switched Telephony Network (‘PSTN’) in the UK.

S.3  There is increasing demand for Internet access and the growing use of ‘flat rate’ (or ‘unmetered’) products will increase further the pressures on BT’s core network and switches. At present, approximately 99 per cent of residential consumers who access the Internet do so via PSTN dial-up. Broadband access technologies will grow, but it is likely that access to the Internet by dial-up over the PSTN will remain important for the foreseeable future.

S.4  This summary sets out the solutions provided by the Direction, and the main reasoning behind those solutions. The remainder of this document explains the solutions and reasoning in more detail. Where appropriate, it also provides a brief discussion of the various responses received during Oftel’s formal consultation process, which took place during late 2000 and early 2001.

S.5  Oftel’s aims are fair competition in Internet access and network arrangements that secure the robust provision of both data and voice services. Oftel considers that BT is dominant in conveyance up to and including the tandem switch (or main exchange). Therefore, regulation is appropriate to ensure that BT provides such conveyance to operators at a price which approximates to that which would be set in a competitive market.

S.6  On 26 May 2000, the Director made a Direction (the ‘First Direction’) requiring BT to provide a wholesale flat rate Internet access service, known as Flat Rate Internet Access Call Origination (‘FRIACO’). The service to be provided was transmission from the consumer to BT’s DLEs (or local exchanges) plus conveyance from the DLE to Points of Connection (‘PoC’) of other operators.

S.7  The First Direction did not include a provision for a flat rate wholesale service between the DLE and the tandem switches, as originally requested by MCIW. BT argued that the likely large increase in Internet traffic and call duration expected to result from flat rate products would place the tandem switches and the tandem network as a whole under severe strain and could cause significant operational difficulties for both voice and data traffic.

S.8  Given the Director’s duty under Section 3(1) of the Telecommunications Act 1984 to secure that all reasonable demands for telecommunications services are met, he could not take action which might jeopardise this. Therefore, he commissioned a panel of technical experts (the ‘Panel’) to examine the issue. The Panel’s report (the ‘Report’) was published, together with Oftel’s proposals for consultation, on 13 November 2000. A draft Direction in respect of these proposals was published on 24 November 2000. Oftel has taken full account of the Report and of the responses to the consultation, in reaching its conclusions and solutions set out in the Direction and this explanatory document.

Oftel’s conclusions and solutions

Single tandem FRIACO

S.9  Seven working days from the date of the Direction (that is, on 26 February 2001), BT must offer to provide a single tandem wholesale flat rate Internet access service, known as Single Tandem Flat Rate Internet Access Call Origination (‘ST FRIACO’), by publishing an appropriate product specification. Subsequently, BT must supply ST FRIACO within a reasonable period of a firm written request.

S.10  ST FRIACO is unmetered interconnection for Internet access traffic with handover at the tandem switch itself, switched through any one of BT’s tandem switches. The charge will be £15,224.21 per 2Mbit/s port per annum.

S.11  In this document, Oftel is consulting on proposals to incorporate ST FRIACO charges into the Network Charge Control (‘NCC’) due to take effect from 1 October 2001. In the light of responses to this consultation, Oftel proposes to issue draft Licence modifications and commence the statutory consultation process.

S.12  The solutions in the Direction comprise two stages

STAGE 1 (26 FEBRUARY 2001 TO 31 JANUARY 2003)

S.13  Stage 1 will start seven working days from the date of the Direction on 26 February 2001.

S.14  To ensure that the obligation on BT to provide ST FRIACO is reasonable and technically feasible given potential shortage in tandem switch capacity, certain specific provisions will apply during Stage 1.

S.15  First, there will be a limit on the volume of ST FRIACO ports that each operator may purchase at any given tandem switch. Oftel has set this limit at 40 x 2Mbit/s ST FRIACO ports. It is important to note that this is a maximum limit on the number of ports an individual operator can order and not an allocation of ports to individual operators. The limit per operator per tandem switch may be reviewed by Oftel from time to time, as justified by the circumstances.

S.16 Second, until 31 January 2003, at tandem switches which have no or insufficient capacity BT’s obligation to supply ST FRIACO will be subject to reasonably required traffic re-arrangements being carried out to create additional tandem switch capacity for ST FRIACO.

S.17  In essence, re-arrangement concerns ‘forced’ migration of traffic from the tandem switch to the DLE level and the subsequent conveyance of that traffic from the DLE level to an operator’s PoC at the tandem switch level. BT will initiate the re-arrangements.

S.18  Re-arrangement requirements will be in respect of non-FRIACO traffic only. The main reason is that the objective of the Direction is to enable FRIACO to be provided through the tandem switch. Re-arranging ST FRIACO ports would be inconsistent with this objective. There are other reasons why Oftel has decided that BT can only require non-FRIACO traffic to be re-arranged. In general, non-FRIACO routes are ‘thicker’ than FRIACO routes, which makes re-arrangement of such traffic more efficient. Further, there are no indivisibility issues associated with non-FRIACO traffic, which makes re-arrangement of such traffic more appropriate.

S.19  Re-arrangement of traffic will not apply until any spare tandem switch capacity at the relevant tandem switch has been used. At current forecasts of the demand for tandem switch capacity, Oftel’s external advisers, InterConnect Communications (‘InterConnect’) have established that there is spare capacity available on BT’s tandem network which BT could use to supply ST FRIACO. This finding is consistent with previous analyses, but based on the most recent forecast information obtained from BT. However, Oftel notes that capacity shortages at particular tandem switches, where demand is strongest, might arise before this total amount of spare capacity had been used. As the spare ports represent a small portion of the total number of ports on BT’s tandem switch network, Oftel further notes that even a proportionally small forecast change could have a substantial impact on the number of spare ports available.

S.20  BT must make the port capacity for ST FRIACO available on a ‘first-come-first-served’ basis, determined by the point in time at which BT and an operator agree a firm written order. Where there is sufficient capacity available at the particular tandem switch where an operator wishes to place an order, BT must supply ST FRIACO to that requesting operator. Where there is no or insufficient tandem switch capacity available at the particular tandem switch where an operator wishes to place an order, BT must supply ST FRIACO to that requesting operator, provided that reasonably required re-arrangements of non-FRIACO traffic at that particular tandem switch have been carried out.

S.21  Where an operator requesting ST FRIACO has itself no or insufficient non-FRIACO traffic which is suitable for re-arrangement at the particular tandem switch where it requests ST FRIACO, another ST FRIACO operator can reasonably be required by BT to accept re-arrangements of its non-FRIACO traffic at that tandem switch.

S.22  In general, once an operator has purchased ST FRIACO, it can be required by BT to accept any re-arrangements of its non-FRIACO traffic at any of its Points of Connection (‘PoCs’) across the tandem network, provided this is reasonable to create capacity for ST FRIACO.

S.23  Any ST FRIACO operator can only be required to re-arrange non-FRIACO traffic up to two times its total amount of ST FRIACO which has already been purchased or for which a firm written order has been agreed.

S.24  BT must provide the same traffic handling capacity and grade of service for all re-arranged traffic. Therefore, operators required to carry out re-arrangements will not be disadvantaged as a result of those re-arrangements.

S.25  Oftel believes it is appropriate that if an operator is reasonably required to carry out re-arrangements and it chooses to pay single tandem charges, then BT cannot impose any specific charges for the provision of IBLs, CSI, STP links, IECs or other links which would be used to achieve the required re-arrangement. Therefore, although the operator would physically be interconnected at DLE level, it will pay single tandem charges as if interconnection were physically to a tandem switch.

S.26  The Stage 1 solution will not prevent an operator from deciding to build out its own network to DLE level. In this case, the operator will pay standard DLE interconnection and also bear the cost of any necessary traffic re-arrangements.

S.27  Where re-arrangements by an operator are reasonably required to create capacity for the benefit of another operator who requests ST FRIACO and the operator refuses or fails to carry out such re-arrangements, BT has the right:

1. to refuse to supply additional orders for ST FRIACO to the refusing/failing operator until the re-arrangements have been carried out; and/or
2. 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 decides the number of ports it intends to cease to supply, it must give the operator a         reasonable opportunity to decide at which particular tandem switch(es) the supply of ST FRIACO will cease. Once supply has ceased, where ST FRIACO is supplied for less than the contractual period, BT must reimburse the operator proportionally for the unused period. BT is not obliged to reserve the ceased ports for the operator.

S.28  If BT should incur significant net costs in carrying out the re-arrangements, then Oftel would consider it appropriate to reflect these on a forecast basis, by adjusting the value of ‘x’ for the tandem basket in the NCC which is due to apply from 1 October 2001. In the Price Control Review, Oftel suggested that it would be likely to undertake such forecasting before formally inviting BT to agree to the price control modification. However, following further consideration of the issues, because of the uncertainties involved, Oftel believes that it is more appropriate to carry out this analysis once Stage 1 has been in operation.

S.29 As regards the re-arrangements, including the selection of operators, BT must act reasonably at all times. Oftel has produced draft Guidance to assess BT’s reasonableness in this respect, a copy of which can be found at Annex 4 of this document. In this document, Oftel is consulting on this Guidance. Without fettering the Director’s discretion, where BT acts in accordance with the Guidance, the Director will be minded to presume that BT has acted reasonably in complying with its obligations under this Direction. The Director can amend the Guidance from time to time.

STAGE 2 (1 FEBRUARY 2003 - ONWARDS)

S.30 In the medium to longer term, from 1 February 2003, BT’s obligation to supply ST FRIACO will be unqualified. In other words, the obligation will apply without BT having the right to require ST FRIACO operator to carry out re-arrangements to create capacity. The per operator per switch limit on orders for ST FRIACO will also cease to apply.

S.31 Following the Panel’s advice, the obligation on BT to supply ST FRIACO will be reasonable without the traffic re-arrangement provisions applying because, by that stage, BT will be expected, if necessary, to have taken further steps to address tandem network capacity issues and to be able to meet its unqualified obligation.

S.32 Oftel believes that, if BT has to make additional investments in tandem switch capacity in order to meet demand in Stage 2, all users of tandem switch capacity must bear the risk of the additional investment being ‘stranded’ or obsolete before the full costs have been recovered. This will send appropriate pricing signals to users of tandem switch capacity and will allow them to make efficient network ‘build-or-buy’ decisions.

S.33 In the short term, tandem switch capacity is a scarce resource and Oftel believes that every party requiring capacity on the tandem network should contribute to the cost of making such capacity available. In other words, the cost of using tandem capacity should not be borne by BT and ST FRIACO operators alone.

S.34 The provision of tandem switch capacity is a collective benefit to all users of such capacity. Therefore, the potential congestion of the tandem network is a collective problem.

S.35 A ‘Stage 2 Industry Working Group’ will be set up to consider the processes required for ordering new tandem capacity and other issues relevant to Stage 2.

DLE FRIACO

S.36 BT’s present obligation to supply FRIACO to the DLE will continue, as determined by the Director in his First Direction of 26 May 2000. The new FRIACO Direction of 15 February amends the DLE FRIACO charge to £10,257.62 per 2Mbit/s port per annum.

Metered interconnection

S.37 BT’s present obligation to supply interconnection for metered Internet access, pursuant to its Reference Interconnection Offer, will continue.

IP interconnection

S.38 This explanatory document also outlines Oftel’s view on FRIACO using IP interconnection. Oftel shares the Panel’s views in respect of the probable advantages of IP interconnection in terms of efficiency and cost. However, Oftel notes that there are significant technical and regulatory issues associated with IP interconnection that need to be addressed. Therefore, Oftel already has taken steps by setting up an ‘IP Interconnection Industry Working Group’, which it chairs, to take forward these issues.

S.39 In Oftel’s view, work should commence now to widen the range of interconnection products available to include IP interconnection for Internet access originating on the PSTN.

Table – Outline of solutions

S.40 The table below sets out Oftel’s solutions in outline:

OUTLINE OF SOLUTIONS

* The date on which BT is required to publish an appropriate product specification for ST FRIACO (which is seven working days after publication of the Direction).

Chapter 1

Background to the Direction

1.1  This chapter sets out the background to Oftel’s Direction of 15 February 2001. Where appropriate, brief comments on the various responses, received during Oftel’s formal consultation process, are set out in italics throughout.

Dispute between MCIW and BT

1.2 On 24 December 1999, Oftel received a complaint from MCI/WorldCom (‘MCIW’) [1]. This concerned BT’s refusal to offer an interconnection product for Flat Rate Internet Access Call Origination (‘FRIACO’) with call handover at DMSUs (in other words, MCIW requested Single Tandem FRIACO (‘ST FRIACO’)). A DMSU (or ‘Digital Main Switching Unit’) is the principal type of tandem switch and, unless stated otherwise, Oftel’s solutions concern tandem switches generally. [2]

1.3  In its response to the complaint, BT submitted that the anticipated substantial increase in traffic, which could result from unmetered interconnection for Internet purposes, would exceed the planned capacity of the Public Switched Telephony Network (‘PSTN’), as currently configured, by mid-2001.

1.4  BT’s view was that, despite an extensive tandem switch replacement programme, which BT was already undertaking, there was a significant risk that requiring connection for unmetered Internet traffic, which would be switched through any one of BT’s DMSUs, would cause significant operational difficulties. Since DMSUs, and their replacement Next Generation Switches (‘NGS’) [3]  carry both voice and data traffic, BT argued that the potential consequences of capacity difficulties would be far-reaching.

Direction of 26 May 2000

1.5  Given the Director’s duty to ensure that all reasonable demands from consumers are met, he could not take action which might jeopardise this. Therefore, during the spring of 2000, he commissioned a panel of technical experts (the ‘Panel’) to examine the issue of available capacity on BT’s tandem network. Until this advice was received, the Director could not determine whether MCIW’s request for a flat rate (or unmetered) interconnection product for Internet access call origination with call handover at the tandem switch level was reasonable.

1.6  However, there are no such constraints on DLE capacity. Therefore, the Director made a Direction on 26 May 2000 (the ‘First Direction’). The Director determined that BT should supply at the DLE a wholesale unmetered Internet access product known as Flat Rate Internet Access Call Origination (‘DLE FRIACO’).

1.7  The First Direction (as a result of which BT offered DLE FRIACO from 1 June 2000) provided that DLE FRIACO was reasonably required. The product to be supplied was transmission from the consumer to BT’s DLEs combined with, where required, conveyance from the DLE to Points of Connection (‘PoC’) of other operators at tandem switch premises [4]. One way of providing such conveyance is by an operator purchasing Interconnection Extension Circuits (‘IEC’) [5]. In this respect, it is important to note that most operators have their PoCs at or near BT’s tandem switches [6].  A copy of the first Direction can be found at www.oftel.gov.uk/competition/fria0500.htm [7].

FRIACO Hybrid

1.8  Shortly after the First Direction was published, MCIW and BT resumed discussions on alternative means of conveying FRIACO traffic to the tandem switch premises. Following these discussions, on 3 August 2000, BT announced the availability of FRIACO ‘Hybrid’ with effect from 1 September 2000. This enabled other operators to purchase DLE FRIACO with onward conveyance to the tandem switch at normal ‘local-to-tandem’ metered conveyance rates.

1.9  FRIACO Hybrid complements DLE FRIACO, since it enables operators to gain access to FRIACO traffic from their tandem switch PoCs by paying pence-per-minute charges for DLE to tandem switch conveyance, in addition to the unmetered charge for DLE FRIACO. This is likely to be most useful where volumes of traffic are insufficient to warrant conveyance via IECs.

1.10  BT’s product description for FRIACO ‘Hybrid’ states that "it is an interim solution until 31/12/2000. The arrangements to apply from 1/1/2001 will be reviewed in September 2000 …" [8]. FRIACO ‘Hybrid’ is subject to whatever arrangements are agreed between the relevant operators and BT.

Some respondents to the Consultation Document, including Energis, have asked for a transitional arrangement in respect of FRIACO Hybrid in the shape of transfer/conversion of existing/ordered Hybrid capacity to ST FRIACO. Oftel points out that BT is only contractually required to supply FRIACO Hybrid. Therefore, Oftel does not believe it is appropriate to take any regulatory action as suggested in this respect.

BT has established that there is a problem with having ST FRIACO and FRIACO Hybrid at the same tandem switch. Unless separate numbering groups are used for ST FRIACO and FRIACO Hybrid, the current BT Interconnect Billing System would not be able to price the calls differently via the two routing options: ST FRIACO (unmetered) and Hybrid FRIACO (metered for tandem switch part of the call). InterConnect has confirmed BT’s claim that adaptation of the billing system to enable this to happen is not a viable option in the current time frame. This means that operators can either have ST FRIACO or FRIACO Hybrid on any individual tandem switch, but not both products at a single tandem switch [9].

The Panel’s report

1.11  The First Direction did not include a provision for a flat rate wholesale service between the DLE and the tandem switches, as originally requested by MCIW. This was because of BT’s capacity concerns in respect of the tandem network, which it claimed could cause significant operational difficulties for both voice and data traffic. Accordingly, the Director commissioned the Panel to examine the issue.

1.12  The Panel found that metered Internet traffic is doubling about every 10 months and the total of all traffic over the tandem network will double within two years. The Panel further noted that the introduction of unmetered Internet tariffs would significantly increase total traffic, since unmetered call durations are, on average, four times longer than metered call durations. Oftel notes the Panel’s view that broadband Internet access will soon become significant. However, Oftel also notes that, at present, approximately 99 per cent of residential consumers who access the Internet do so via dial-up over the PSTN.

1.13  While in future broadband access technologies will grow, it is likely that access to the Internet by dial-up over the PSTN will remain important for the foreseeable future. Oftel notes that, even in the United States, it is estimated that approximately 90 per cent of residential consumers who access the Internet do so via dial-up access. Therefore, a solution that allows mass market take-up of unmetered services via dial-up over the PSTN is very important.

1.14  The Panel concluded that changes need to be made to the present network architecture to ensure sustainable and efficient longer term arrangements. It also made proposals for short and medium term action, including removing some traffic from the tandem network and adding further capacity, to ensure that traffic growth does not overwhelm the capability of the tandem network.

1.15  The Panel’s report (the ‘Report’) has been considered by Oftel in its overall assessment of the issues and Oftel’s conclusions and solutions as set out in this explanatory document are based on it [11].

Consultation period

1.16  On 13 and 24 November 2000, Oftel published respectively its Consultation Document and draft Direction regarding its preliminary conclusions and proposals on future interconnection arrangements for dial-up Internet in the UK. A formal consultation process followed during which comments were received by 8 December 2000 and comments on comments by 22 December 2000. Subsequently, Oftel continued its discussions with the parties to the interconnection dispute, BT and WorldCom. Oftel also continued to consult a number of interested third party operators.

Further advice and information

1.17  A significant part of the Direction addresses capacity and forecasting issues. After publication of the Consultation Document and the draft Direction in November 2000, Oftel received further estimates, figures and other information from BT, WorldCom and third party operators.

1.18  The Director commissioned independent external consultants, InterConnect Communications (‘InterConnect’), to analyse further BT’s available tandem switch capacity, given the additional data on forecasts of traffic and other information received. The Director sought this advice, before determining the dispute and final solutions, to assist him in reaching the most comprehensive view possible regarding the available and required capacity on the tandem network. A copy of InterConnect’s terms of reference can be found at Annex 2 of this document.

Legal framework

1.19  The First Direction was issued by the Director to resolve an interconnection dispute between MCIW and BT. That Direction was pursuant to Condition 45.2 of BT’s Licence and Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997.

1.20  The Director has now made a second Direction to resolve the outstanding dispute between MCIW and BT in respect of interconnection at tandem switch level.

1.21  Although the Direction only refers to MCIW and BT, under its Licence, BT is required to offer other operators the same terms as set out in the Direction.

Oftel does not accept BT’s argument that the Director decided incorrectly not to pursue MCIW’s referral under the Competition Act 1998. Under Article 9(5) of European Parliament and Council Directive 97/33/EC (the ‘Interconnection Directive’), the Director has a duty to take steps to resolve interconnection disputes between operators. As a consequence, the Director considers that it is not appropriate to carry out an investigation under the Competition Act 1998.

Notes

[1]  as the dispute originated between MCIW and BT, this document refers to ‘MCIW’ rather than ‘WorldCom’, as it is known now, unless specified otherwise)

[2] A tandem switch is a main exchange in the core network which acts as a switching points for calls. In addition to a DMSU, a tandem switch can be a Digital Junction Switching Unit, Digital Local Tandem Exchange or a Wide Area Tandem (as defined in BT’s Network Charge Control Standard Interconnection Agreement (October 1997), edition July 2000.

[3] A type of new high capacity tandem switch.

[4] Any reference in this document to interconnection "to" or "at tandem switch premises" or "DMSU premises" will be taken also to apply to operators’ PoCs where they are located outside BT’s tandem switch premises.

[5] Following an own-initiative Oftel investigation, BT has announced that it will reduce the price of IECs from 1 April 2001)

[6] Tandem switches are main exchanges in the tandem network which act as single switching points for calls.

[7] As a result, BT offered DLE FRIACO from 1 June 2000.

[8] Oftel understands that, to date, this review has not taken place.

[9] Therefore, in principle, both services could be provided at one tandem switch if an operator obtains a separate 1K FRIACO number block for each service. However, Oftel considers this practice as wasteful of scarce numbering resources.

[10] A recent Oftel survey of residential users (published July 2000) revealed that 92 per cent of residential consumers who access the Internet, do so via analogue dial-up modem, another seven per cent use dial-up ISDN or BT Highway products.

[11] The Report can be found at Annex 1. A discussion of the Panel’s conclusions and recommendations follows in Chapter 3 of this document.

Chapter 2

Oftel’s objectives and approach

2.1  This chapter sets out Oftel’s objectives and approach to resolving the dispute between MCIW and BT. Where appropriate, brief comments on the various responses received during Oftel’s formal consultation process, are set out in italics throughout.

Oftel’s objectives

2.2  In approaching the issues involved, Oftel has been guided by its overall goal of the best deal for the consumer in terms of choice, quality and value for money.

As the Director has given full consideration to the public interest, the cost implications of the Direction for consumers, and the resources available, he has not failed his duties under Section 3(2)(a) of the Telecommunications Act 1984 or Regulation 6(8)(g) of the Telecommunication (Interconnection) Regulations 1997, as BT claims. Similarly, he has not failed to observe his duty set out in Regulation 6(8)(a) of the Telecommunication (Interconnection) Regulations 1997.

Further, Oftel does not agree with BT that the Director has exercised his duty to promote competition at the expense of his other duties because the wider implications of the proposals, as published in November 2000, appear to be inconsistent with those duties. Indeed, Oftel’s objective and the Director’s duties of promoting the interests of consumers and the maintenance and promotion of effective competition have been fully observed by making available more choices for operators by providing appropriate price signals for future investment decisions.

As the Director has given full consideration to his duty to maintain and promote effective competition he has not failed his duties under Section 3(2)(b) of the Telecommunications Act 1984, as BT claims.

2.3  Oftel wishes to see effective competition in dial-up Internet access which, Oftel recognises, is likely to continue to be the means by which most residential consumers access the Internet in the foreseeable future. Oftel also seeks to ensure that its solutions safeguard the provision of existing services in a cost-effective manner.

Oftel disagrees with BT that ST FRIACO is not necessary to ensure effective competition. Oftel believes that the currently available DLE FRIACO product, as determined by the Director on 26 May 2000, and FRIACO ‘Hybrid’, as agreed separately by contract between MCIW and BT, are insufficient to enable operators to compete effectively with BT.

In Oftel’s view DLE FRIACO is insufficient as Oftel does not believe that all operators should be required to interconnect at all DLEs. Operators have commented that interconnection at tandem switches could avoid inefficiencies associated with DLE interconnection, mainly because of the concentration function at such tandem switches. Further, the FRIACO ‘Hybrid’ product is complementary to DLE FRIACO, but it is generally insufficient because conveyance of traffic beyond the DLE is charged on a metered basis and is, therefore, unsuitable for unmetered services.

Oftel disagrees with BT that not requiring all operators to interconnect at all DLEs makes for inefficient development of a UK PSTN architecture. On the contrary, the solutions provide operators with an increased variety of options, by introducing tandem switch interconnect for FRIACO. They provide an opportunity for operators to make appropriate (‘build-or-buy’) investment decisions, based on a range of price signals which are cost-reflective, without Oftel pre-supposing any particular network configuration or deployment of any particular new or other technology.

As the Director has given full consideration to his duty to promote the development and use of new techniques, without driving the industry in any particular direction, he has not failed his duties under Section 3(2)(d) of the Telecommunications Act 1984, as BT claims.

2.4  Oftel’s solutions will encourage operators to make efficient investment decisions about the appropriate PoCs and the types of interconnection service. An increase in the range of interconnection services available to operators should allow them to compete effectively in offering a greater variety of Internet access services, some of which might not otherwise be available to consumers. Oftel also anticipates that, for some operators, ST FRIACO will make provision of Internet access services possible at lower cost than is currently the case.

The solutions contained in the Direction will not unduly divert operators from exploiting DLE interconnect, as BT claims. Moreover the solutions should not distort operators’ decisions in establishing new PoCs or distort the development of the interconnecting infrastructure between the operators and BT, to the detriment of consumers. Indeed, the reverse is true, as the solutions should have the effect of increasing the range of services available to operators at cost-reflective prices, promoting informed and efficient investment decisions by operators. Oftel believes that not pursuing the introduction of ST FRIACO could have significant detrimental effects, as generally operators would not be able to compete effectively with BT in providing unmetered Internet services.

Oftel does not share BT’s view that the Direction will divert investment away from more appropriate infrastructure. Oftel believes that BT’s view is based on the assumption that, at least in the short to medium term, DLE interconnection is the most efficient solution for dial-up Internet in the UK. Rather than presuming that this assumption is necessarily correct and, therefore, requiring operators to migrate to DLE interconnection, Oftel believes that the solutions provided in the Direction leave it to the market to make an assessment and decide whether and when DLE interconnection is indeed more efficient. Therefore, Oftel also disagrees with AOL’s comment that Oftel’s solutions seem to endorse BT’s view. Rather, the Direction gives operators a choice of options and incentives to make informed and efficient investment decisions in respect of how best to convey dial-up Internet traffic and where in the network to interconnect. Oftel strongly believes that operators are best placed to make the appropriate choices in this respect in response to appropriate cost reflective price signals.

2.5  DLE interconnection will remain available to those operators who believe that this is the most effective solution for them.

The solutions set out in the Direction are not discriminatory or disproportionate, as BT claims. Indeed, to determine, as BT suggests, that "at least major operators should be required to migrate their unmetered Internet traffic to the DLE", could have significant discriminatory effects by imposing additional costs on these particular operators. Oftel believes that it would not be appropriate for it to decide which operators are "major", and therefore should face a restricted set of interconnection services, and which operators are not "major" and face no such restrictions.

As set out above, Oftel believes that the right approach is to give all operators appropriate price signals to enable them to choose their PoCs most effectively. An operator will have an incentive to migrate to DLE interconnect if this is more efficient in its particular circumstances. Some operators have commented that interconnection at tandem switches could avoid inefficiencies associated with DLE interconnection, mainly because of the concentration function at such tandem switches. Therefore, Oftel believes that to require each operator, regardless of its size, to migrate to DLE interconnection would be inappropriate and unreasonable. The Director has given full consideration to the principles of non-discrimination and proportionality and has not failed his duties under Regulation 6(1)(f) of the Telecommunication (Interconnection) Regulations 1997, as BT claims.

Oftel does not share BT’s view that its IP connection products, including the recently announced SurfPort 24, will effectively meet demand for dial-up Internet access and, therefore, make ST FRIACO unnecessary. In this respect, Oftel notes that ST FRIACO and SurfPort 24 are different products. ST FRIACO is an interconnect call origination product, which enables an operator to use its own modem banks and its own IP network to provide its own termination services. In contrast, SurfPort 24 combines DLE FRIACO for call origination on the one hand and BT’s modem banks and BT’s IP network for call termination on the other. As SurfPort 24 is an end-to-end product and not a true interconnection product, it is likely to be primarily suitable for ISPs rather than for operators.

Similarly, Oftel does not agree with BT that the solutions set out in the Direction would actually contribute to distortion of competition. Indeed, the increased choice in call origination interconnection products for operators will allow operators to provide services effectively in direct competition with one another and BT. This will enable operators to offer to UK consumers a more diverse range of services with corresponding pricing options. Indeed, with ST FRIACO available, some operators should be able to offer services to UK consumers which would not otherwise have been possible.

2.6  Oftel recognises that the issues involved are complex. Achieving the objectives will require efforts by all parties, including BT and competing operators as well as Oftel. Oftel’s solutions set the regulatory framework for new arrangements. Nevertheless, there is much work to be done by the industry, not least to re-configure their existing networks, possibly to build new network capacity, and to co-operate in carrying out traffic re-arrangements and otherwise through existing and new industry fora. Oftel agrees with BT that this requires a great degree of effort and commitment from interconnecting operators. Oftel will not hesitate to take action where appropriate to bring this about.

Oftel’s approach

2.7  The Direction contains solutions to alleviate pressures on BT’s tandem network anticipated following increased use of the Internet. The recent introduction of ‘flat rate’ (or unmetered) Internet products, which typically increase the time users spend on-line, is set to amplify these pressures.

2.8  The Director has taken external and independent expert advice in respect of a number of the issues raised in the context of the dispute between MCIW and BT. In making his full assessment of all the relevant issues and coming to the solutions set out in the Direction, the Director has taken full account of the expert advice and recommendations in the light of all relevant economic, legal and regulatory factors.

2.9  Oftel’s solutions take full account of the advice provided by InterConnect in respect of capacity on BT’s network, the potential for re-arrangements and demand forecasts for capacity on the tandem network.

2.10 Oftel’s solutions also take full account of the recommendations of the independent Panel of technical experts, chaired by Professor John O’Reilly of University College London. A copy of the Panel’s report can be found at Annex 1 of this document.

Oftel does not accept BT’s view that Oftel failed to take the Panel’s conclusions into account as part of its assessment. For example, see paragraphs 1.15, 2.8, 2.10, 3.12, 4.7, 4.79, 4.82, 6.1-6.3, 6.16, 7.1 of this document. Further, in coming to its solutions, Oftel necessarily considered the availability of technically and commercially viable alternatives.

As the Director has given full consideration to his duty to consider the availability of technically and commercially viable alternatives he has not failed his duties under Regulation 6(8)(d) of the Telecommunication (Interconnection) Regulations 1997, as BT claims.

Oftel does not share Telewest’s view that the Direction is technology-biased. The solutions are mostly about commercial and economic issues associated with future interconnection arrangements for dial-up Internet access in the UK. Above all, the solutions provide operators with appropriate pricing signals to allow them to make their own efficient investment decisions in respect of an increased range of available products.

Oftel agrees with Telewest that the Panel’s terms of reference were limited to essentially technical issues. Indeed, this was the very reason why Oftel instructed the Panel in the first place. This is also why Oftel did not simply publish the Report without further consideration. The Panel was always intended only to give the technical input to Oftel’s assessment. After having received the Report in October 2000, Oftel carried out a thorough assessment of the relevant economic, legal and regulatory aspects before publishing its proposals in November 2000.

2.11  In making his Direction, the Director has observed all requirements of due process and he has not been prejudicial to the interests of the parties concerned.

Oftel does not agree with Telewest that the Direction is process-biased as the solutions clearly focus on practical issues that need speedy resolution by the whole industry. Telewest is also mistaken in its view that Oftel’s solutions contravene its guidelines on regulatory intervention. The Director has obligations to resolve disputes referred to him under the EU Interconnection Directive. Therefore, it is not unusual that this Direction should be issued before the results of Oftel’s contemporaneous review of competition in the dial-up Internet market. However, the results and effects of the Direction will feed into the review.

Further, in carrying out his duties, the Director has balanced the costs and benefits of regulatory intervention through continued consultation with both internal and external economic advisers. For example, the Director has received extensive external advice from consultants InterConnect Communications.

Oftel does not agree with BT’s contention in its comments that Oftel’s intentions underlying its preliminary conclusions and proposals, as published in November 2000, only became clear at their meeting of 7 December 2000. Indeed, at that meeting, in discussing with BT Oftel’s position as set out in those proposals, Oftel was not aware of providing any information which was materially different from that contained in the proposals as published in November 2000.

Moreover, the general nature of responses to the Consultation Document received from other commentators confirms that Oftel’s intentions were sufficiently clear to be consulted on and for interested parties to provide a considered and informed response.

The Director has not been in breach of the requirements of due process, including Regulation 6(6) of the Telecommunication (Interconnection) Regulations 1997.

Chapter 3

The technical experts’ report

3.1  This chapter describes in outline the findings and recommendation of the technical experts. The Panel’s report is reproduced at Annex 1 of this document [12].

3.2  Oftel asked the Panel to consider options for the interconnection of unmetered Internet traffic at the tandem switch premises. As noted above, BT had expressed concerns about the practicability of expanding the present network architecture of switching via DMSUs. Pending the Report, the First Direction of 26 May 2000 did not address the issue of interconnection via the DMSU or other tandem switches.

3.3  The Report is primarily concerned with dial-up Internet access; that is access to the Internet over the PSTN using a computer and a modem. Internet access via broadband, such as BT’s ADSL service or other DSL services provided by other operators through ‘local loop unbundling’, does not use the tandem PSTN and, therefore, does not contribute to the capacity pressures at the tandem switch level. Indeed, broadband access may help alleviate the pressures if and when it is substituted for dial-up access.

3.4  The Panel noted that Internet traffic is currently doubling every 10 months and that this growth is anticipated to increase even more steeply once unmetered services are introduced. Such unmetered services could increase holding times by possibly a factor of four and, in general, they are also likely further to stimulate the underlying Internet growth. Taking account of BT’s present expansion plans for its tandem network, the Panel believes that decisive action is needed to ensure that such traffic growth does not overwhelm the capability of the tandem network. In broad terms, this can be achieved by finding ways to remove the Internet traffic from the tandem layer or by adding further tandem capacity in a way that is practical and sustainable.