Direction under Condition 45.2 of the Public Telecommunications Licence granted to British Telecommunications Plc and under Regulations 6(3) and 6(4) of the Telecommunications (Interconnection) Regulations 1997

Contents

The Direction

Explanatory document

Chapter 1: Background

Chapter 2: Summary of responses to the Consultation

Annex A: List of respondents to the Consultation

Glossary

Direction under Condition 45.2 of the Public Telecommunications Licence granted to British Telecommunications Plc and under Regulations 6(3) and 6(4) of the Telecommunications (Interconnection) Regulations 1997

Published on 29 March 2001

WHEREAS

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

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

3 The Telecommunications (Interconnection) Regulations 1997 ("the Regulations") and Condition 45 of the Licence implement Directive 97/33/EC on interconnection in telecommunications with regard to ensuring universal service and interoperability through application of the principles of open network provisions ("the Directive");

4 Regulation 6(1) of the Regulations places upon the Director General of Telecommunications ("the Director") the general responsibility to encourage and secure adequate interconnection in the interests of all users;

5 This general responsibility must be exercised having regard to, inter alia:

• the need to ensure satisfactory end-to-end communication for users;
• the need to stimulate a competitive market; and
• the principles of non-discrimination (including equal access) and proportionality.

6 Pursuant to Regulation 6(3) of the Regulations the Director may, on his own initiative, and in pursuit of the aims listed in Regulation 6(1) of the Regulations make a direction specifying issues which must be covered in an interconnection agreement;

7 Regulation 6(4) of the Regulations provides that the Director may on his own initiative at any time, or if requested by either party, by direction set time limits within which negotiations on interconnection are to be completed;

8 Regulation 6(4) of the Regulations further provides that any such Direction shall also set out the steps to be taken if agreement is not reached within the time limit set by such a direction;

9 Condition 45.1 of the Licence requires BT to offer to enter into an agreement with a Schedule 2 Operator to connect that operator’s telecommunications system to BT’s Applicable Systems through one or more Points of Connection as are reasonably required and are 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;

10 Condition 45.2 of BT’s licence provides that BT or a Schedule 2 Public Operator may at any time request the Director:

"(c) if he thinks fit, to set time limits within which negotiations are to be completed".

11 Condition 45.5 of the Licence requires BT to comply with the requirements of any directions given pursuant to Regulation 6(3) and 6(4) of the Regulations;

12 Condition 69.1 of the Licence requires BT to secure to the satisfaction of the Director that the charges offered, payable or proposed to be offered or payable by a Schedule 2 Public Operator to BT are cost orientated;

13 The Director has been asked by Energis Communications Ltd, a Schedule 2 Public Operator, to set time limits within which BT must conclude negotiations on the interconnection of Partial Private Circuits ("PPCs");

14 MCI WorldCom Ltd, Fibernet (UK) Ltd, Thus plc, Cable & Wireless Communications (Mercury) Ltd, Global Crossing (UK) Telecommunications Ltd, GTS Network (Ireland) Ltd, COLT telecommunications, NEOSCorp Ltd and MLL Telecommunications Ltd have asked to be included in any negotiations concerning PPCs;

15 The Director considers it appropriate in order to fulfil his obligations under the Regulations, inter alia to ensure BT operates in a non-discriminatory way, to set simultaneously the time limits within which BT must conclude negotiations on the interconnection of PPCs with, individually, Energis Communications Ltd, MCI WorldCom Ltd, Fibernet (UK) Ltd, Thus plc, Cable & Wireless Communications (Mercury) Ltd, Global Crossing (UK) Telecommunications Ltd, GTS Network (Ireland) Ltd, COLT telecommunications, NEOSCorp Ltd and MLL Telecommunications Ltd (together "the Operators");

16 Paragraph 1 of Part I of Schedule 3 of the Regulations requires BT to adhere to the principle of non-discrimination with regard to interconnection offered to others. BT must apply similar conditions in similar circumstances to interconnecting organisations providing similar services. In addition BT must provide interconnection facilities and information to others under the same conditions and of the same quality as it provides for its own services, or those of its subsidiaries or partners;

17 Pursuant to Condition 57.1(a) of its Licence BT must not (whether in respect of the charges or other terms or conditions applied or otherwise) show undue preference to, or exercise undue discrimination against, particular persons or persons of any class or description as respects interconnection of any description provided pursuant to Condition 45;

18 Pursuant to Condition 57.1(b) of its Licence BT may be deemed to have shown undue preference or to have exercised such undue discrimination if it unfairly favours to a material extent a business carried on by it in relation to the provision of interconnection of any description provided pursuant to Condition 45, so as to place at a significant disadvantage persons competing with that business;

19 The Operators are all Schedule 2 Public Operators;

20 Article 9(1) of the Directive and Regulation 6(1) of the Regulations places upon the Director the general responsibility to encourage and secure adequate interconnection in the interests of all users;

21 In order to remove the restrictions which prevent the interconnection of PPCs and therefore to encourage interconnection in the interests of all users, as well as to ensure a competitive market, it is essential that any interconnection agreement concerning PPCs includes provisions for the migration of the current scheme of supply by BT of private circuits to the supply of PPCs pursuant to this Direction;

22 The Licence defines Standard Service as a Competitive Standard Service, a Prospectively Competitive Standard Service, a New Standard Service, or any other service which a Schedule 2 Public Operator has requested the Licensee to offer to enter into an agreement to provide under Condition 45. Therefore by virtue of this Direction the products listed in Annex 1 of this Direction are Standard Services;

23 A draft of this Direction and the explanatory document was published on 20 December 2000 and comments invited;

24 Comments were received from BT, Energis Communications Ltd, MCI WorldCom Ltd, Fibernet (UK) Ltd, Thus plc, Cable & Wireless Communications (Mercury) Ltd, Global Crossing, GTS Network (Ireland) Ltd, COLT telecommunications, the main points made by those who responded are summarised in Chapter 2 of the Explanatory Document.

THEREFORE

1 Pursuant to Condition 45.2 of the Licence and Regulations 6(3) and 6(4) of the Regulations and having considered the views of the parties the Director General of Telecommunications makes the following Direction:

2 BT shall offer to enter into an agreement ("an Agreement") with each of the Operators individually for the interconnection of any or all of PPC interconnect products (as defined in Annex 1 to this Direction) with BT’s Applicable Systems.

3 All of the terms and conditions of each Agreement with the Operators shall be agreed between BT and the Operators within eight weeks from the date of publication of this Direction.

4 The terms and conditions of each Agreement with the Operators including those which concern charges for PPCs and the quality of service of PPCs shall be equivalent to the terms and conditions as BT provides for its own services when it uses the network parts and components comprising PPCs.

5 Each Agreement with the Operators shall include transitional arrangements permitting each operator to migrate from the current terms of supply of private circuits under BT’s private circuit discount schemes, to the terms of supply of PPCs offered pursuant to this Direction. Such arrangements shall not contain any term which would act as a barrier to the provision or purchase of the products listed in Annex 1 to this Direction.

6 Each Agreement with the Operators shall also include arrangements for the disconnection and cancellation, at the request of an Operator, of private circuits currently being supplied by BT to the operators and the subsequent connection of PPCs supplied pursuant to this Direction.

7 Each Agreement with the Operators shall also specify the charge or charges for the interconnection of PPCs.

8 The basis of any charge for the interconnection of PPCs shall be in accordance with Condition 69.1 of the Licence.

9 BT shall make offers consistent with this Direction to each of the Operators within fourteen weeks from the date of publication of this Direction.

10 If BT and any one of the Operators fail to reach Agreement within eight weeks from the date of publication of this Direction, then the Director shall, at the request of either BT or any of the Operators, exercise his powers under Regulation 6(6) of the Regulations to take steps to resolve any dispute in relation to the Agreement. In these circumstances BT and the Operators shall give to the Director the information set out in Annex 2 to this Direction within 14 days of being requested to do so by the Director.

11 Except otherwise defined in this Direction:

David A Edmonds
Director General of Telecommunications
27 March 2001

ANNEX 1

PPC Products

BT shall offer to enter into an agreement individually with each of the Operators for one or more of the following products (or for any equivalent product):

(A) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths below 2 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate digital cross connection node.

(B) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths below 2 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT Synchronous Digital Hierarchy (SDH) tier 1 node. Such capacity will be routed via an appropriate digital cross connection node.

(C) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer. Such node could be a tier 3, tier 2, tier 1.5 or tier 1 node.

(D) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer which is superior in the hierarchy to the node defined in (C) above, where such node exists. Such node could be a tier 2, tier 1.5 or tier 1 node.

(E) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer which is superior in the hierarchy to the node defined in (D) above, where such node exists, and which could be a tier 1.5 or tier 1 node.

(F) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer which is superior in the hierarchy to the node defined in (E) above, where such node exists, and which is a tier 1 node.

(G) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s, between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to any BT SDH tier 1 node. Where capacity is provided below 2 Mbit/s it will be routed via appropriate digital cross connection nodes.

(H) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths from 155 Mbit/s to 2.4 Gbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT Marconi Synchronous Hierarchy (MSH) node to the customer.

(I) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths from 155 Mbit/s to 2.4 Gbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to any appropriate BT (MSH) node.

ANNEX 2

Pursuant to paragraph 10 of the Direction, the Director shall receive from each of the Operators a description of each of the following (in relation to each of (A), (B), (C), (D), (E), (F), (G), (H) and (I) as set out in Annex 1 to this Direction):

1 Full requirements for interconnect.

2 The equipment required for interconnect.

3 The locations at which interconnect is required.

4 The data capacity required and when it will be required.

5 The time scales within which it believes interconnection can be provided (with a summary of reasons).

6 Issues on which BT and the Operator were able to agree.

7 Issues where BT and the Operator disagreed.

8 Reasons given by BT for rejecting the Operator’s request.

9 Operator’s views on the appropriate charges, including a detail explanation

If the negotiations are unsuccessful the Director shall receive from BT (in relation to each of (A), (B), (C), (D), (E), (F), (G), (H) and (I) as set out in Annex 1 to this Direction):

1 A description of any of the issues on which BT and the Operators were able to agree.

2 A description of any of the issues where BT and the Operators disagreed.

3 A detailed explanation as to why it cannot provide interconnection as requested by the Operators including technical, economic and other concerns.

4 A description of any alternative interconnection solution it has offered to the Operators

5 A detailed explanation of any proposed interconnection charges.

Explanatory document

Chapter 1 of this explanatory document contains background information relating to the Direction requiring BT to enter into negotiations to provide Partial Private Circuits (PPCs) with the named Schedule II Public Operators. This Chapter also provides a description of PPCs, the structure of BT’s SDH network and the terms and conditions governing the supply of PPC as stipulated by the European Parliament and Council Directive 97/33/EC on interconnection in telecommunications with regard to insuring universal service and interoperability through application of the principle of open network provision (the ‘ICD’).

Chapter 2 summarises the representations received by Oftel from interested parties during the consultation period and Oftel’s responses to these comments.

Chapter 1

Introduction

1.1 The Director General of Telecommunications (the Director General) has issued a direction pursuant to Regulations 6(3) and 6(4) of the Telecommunications (Interconnection) Regulations 1997 which implement into the UK the European Parliament and Council Directive 97/33/EC on interconnection in telecommunications with regard to issuing universal service and interoperability through application of the principle of open network provision (the ICD). The Direction requires that BT shall offer to enter into an agreement with Energis, MCI WorldCom, Cable and Wireless, Thus, Fibernet, Global Crossing, GTS (Ireland), COLT, Neocorp and MLL Telecom (the Operators) to provide Partial Private Circuits (PPCs) on terms and conditions to be negotiated between BT and each of the Operators within the framework laid down by the ICD.

1.2 Following the consultation on the draft Direction issued on 20 December 2000 and after carefully considering the representations made by all interested parties, the Director General has decided to confirm the Direction subject to amendments as described in this document. The Direction requires BT to offer into an agreement with the operators to provide PPCs on terms and conditions as laid down by the ICD and sets time limits within which time the negotiations are to be concluded and the offering of PPCs are made.

1.3 Accordingly the Direction requires BT and the operators to conclude commercial negotiations within eight weeks and thereafter BT to implement the outcome of the negotiations within six weeks, ie BT shall ‘offer’ the provisioning of PPCs in its Reference Interconnection Offer (RIO) at the end of the six week implementation period.

Background

1.4 Energis has been attempting to negotiate with BT the provision of PPCs. To date such negotiations have not been successful. Energis has stated that it has been trying to negotiate the provision of a PPC at all bandwidths since early 1998. It has explained that these negotiations stalled towards the end of 1999 and since then no progress has been made. Energis has expressed its wish to negotiate the provision of PPCs with BT and, on 21 July 2000, it requested that the Director General make a direction to set the time limits for those negotiations and to specify the steps to be taken if the negotiations do not result in agreement.

1.5 Oftel has also been approached by other operators, namely Cable and Wireless, MCI WorldCom, Fibernet and Thus, who have also expressed their wish to negotiate with BT the provision of PPCs by BT, and have asked that the direction requested by Energis also includes themselves. Following on from the consultation period, COLT Telecommunications, Global Crossing, GTS (Ireland) Ltd, Neoscorp Ltd and MLL Telecom Ltd also stated that they would like to be included in the negotiations with BT.

1.6 Oftel has also undertaken a policy review of national leased lines and has published a consultation document in August 2000 (‘the Consultation Document’). Oftel’s statement of 20 December 2000 also sets out Oftel’s policy conclusion that the provision of leased lines is subject to the ICD. Oftel is still considering the responses to the other issues raised in the August consultation and will reach final views on them in due course, taking account of the progress made in the implementation of this Direction.

1.7 Part leased lines are covered by Article 4(1) of the ICD, it is therefore Oftel’s view, and that of the European Commission*, that operators as defined in Schedule 2 of the Interconnection Regulations (‘Schedule 2 Operators’) have rights and obligations to negotiate interconnection with each other for the provision of part leased lines services.

*See Paragraph 6 of the Explanatory memorandum to the Commission Recommendation on Leased Lines interconnect pricing, C (1999)3863, November 1999 (Provisional Text).

1.8 The parties at this point have simply requested that Oftel establish a framework for negotiation. If agreement is not reached by the parties as a result of this Direction then there may be a dispute to be resolved by the Director. If a party refers a dispute to the Director he must take steps to resolve the dispute pursuant to his powers and obligations under the Interconnection Regulations, and taking into consideration the obligations set out in Condition 45 of BT’s licence.

Description of PPCs

1.9 The Operators have requested the Director General to make a direction concerning PPCs. In the Director General’s opinion the key characteristic of a PPC is the mechanism for the delivery of the capacity from BT’s network to another Operator. A PPC is a private circuit that terminates at a point of connection between BT’s network and the Operator’s network.

1.10 The Director General considers ‘PPC’ to be a generic term which covers the different types of PPCs. Essentially the different types of PPCs vary depending upon where in the network hierarchy the circuit terminates.

1.11 In previous documents discussing PPCs such as the Consultation Document on the market review, the routing and access to PPCs was explained in terms of DLE and DMSU buildings. However, BT has provided further information about how it routes private circuits. In its core network BT has explained that where possible it will route new private circuits using Synchronous Digital Hierarchy (SDH) rather than Plesiochronous Digital Hierarchy (PDH) transmission. BT is working towards a position where it will provide private circuits using only SDH transmission in the core network. Accordingly, as set out in the December 2000 statement, the Director General believes it is appropriate, where possible, to define PPCs in terms of the structure of BT’s SDH network rather than on the basis of PSTN – Public Switched Telephony Network switch buildings.

1.12 Essentially, BT’s SDH network is arranged in three main tiers. The tier structure relates to the capacity of the nodes and interconnecting transmission paths. The network comprises a top layer mesh of around 37 Tier 1 nodes, situated in trunk buildings which usually also accommodate a BT trunk tandem switch (DMSU, DJSU or WAT). Sub-ordinate to the Tier 1 mesh are Tier 2 rings. Tier 2 nodes (around 372 in number) are situated in buildings in towns and cities that usually have either a trunk tandem switch or a DLE. Subordinate to Tier 2 rings are Tier 3 rings. Tier 3 nodes (around 1000 in number) are mainly situated in buildings housing local concentrators. Other serving exchanges for private circuits connect to Tier 3 nodes using PDH transmission.

1.13 However, many Tier 2 rings are physically remote from the Tier 1 mesh, so an intermediate set of rings, known as ‘supersets’, connect the remote Tier 2 rings to the Tier 1 mesh. The Tier 2 nodes that are situated on the supersets are sometimes referred to as Tier 1.5 and these can be considered as an intermediate layer in the hierarchy, where they exist. There are around 100 such nodes. The diagram below illustrates the structure of BT’s SDH network.

1.14 BT has now informed Oftel that there is an extra tier-less overlay network called the Marconi Synchronous Hierarchy (MSH) network. This is a broadband SDH network that BT uses to switch at 155 Mbit/s. This network carries circuits at 155 Mbit/s to 2.4 Gbit/s.

1.15 The Director considers that because BT routes private circuits at these bandwidths in this manner, it is appropriate for PPCs to be routed in this same way and has therefore amended the product definitions to include two further PPC definitions: Products H and I (Annex 1 of the Direction), which relate to the higher bandwidth PPCs (155Mbit/s to 2.4Gbit/s) which connect across BT’s MSH network.

1.16 Product H: The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths from 155 Mbit/s to 2.4 G/bits between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT MSH node to the customer.

1.17 Product I: The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths from 155 Mbit/s to 2.4 G/bits between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to any appropriate BT MSH node.

1.18 The draft direction did not include a product definition that allowed for tier 3 connectivity. Oftel had excluded this product because at that time it was thought that there would be little demand for such a product. However, during the consultation other operators have stated that they would find this product useful. The Director has therefore decided to expand product definition C to reflect the operators’ request.

1.19 Product C – The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer. Such node could be a tier 3, tier 2, tier 1.5 or tier 1 node.

1.20 Basic Structure of the SDH Network

1.21 Customers may be connected to any of the tiers. For example customers could be connected to Tier 2, 1.5 or Tier 1 nodes for the provision of circuits at 2 Mbit/s and above.

1.22 In the case of circuits below 2 Mbit/s customers are connected to a Digital Cross Connection Node (DCCN). These nodes form a sub-set of the SDH tier 1 and 1.5 nodes to the extent that they are co-located with DCCNs. There are around 90 DCCNs. DCCNs are necessary in the routing of sub 2Mbit/s circuits to provide grooming between 2Mbit/s bearers coming from the customers serving exchange to those destined for the other Operators’ Point of Interconnection

1.23 BT is required by the direction to offer to enter into an agreement individually with each of the Operators for one or more of the following products (or for any equivalent product):

(A) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths below 2 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate digital cross connection node.

(B) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths below 2 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT Synchronous Digital Hierarchy (SDH) tier 1 node. Such capacity will be routed via an appropriate digital cross connection node.

(C) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer. Such node could be a tier 3, tier 2, tier 1.5 or tier 1 node.

(D) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer which is superior in the hierarchy to the node defined in (C) above, where such node exists. Such node could be a tier 2, tier 1.5 or tier 1 node.

(E) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer which is superior in the hierarchy to the node defined in (D) above, where such node exists, and which could be a tier 1.5 or tier 1 node.

(F) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT SDH node to the customer which is superior in the hierarchy to the node defined in (E) above, where such node exists, and which is a tier 1 node.

(G) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths between 2 Mbit/s and 155 Mbit/s, between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to any BT SDH tier 1 node. Where capacity is provided below 2 Mbit/s it will be route via appropriate digital cross connection nodes.

(H) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths from 155 Mbit/s to 2.4 Gbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to the nearest appropriate BT MSH node to the customer.

(I) The provision of transparent transmission capacity by means of a PPC, by BT, at all bandwidths from 155 Mbit/s to 2.4 Gbit/s between a customer’s premises and a Point of Connection with an Operator’s Applicable System connected to any appropriate BT MSH node.

1.24 The location of BT’s SDH network tier 1, tier 1.5, tier 2, tier 3 and MSH nodes and the DCNs referred to in the definitions of PPCs will be provided to the Operators by BT, to the extent necessary for the Operators to have sufficient information in order to negotiate effectively.

1.25 The PPCs set out above can be related to the economic concepts of terminating segments and trunk segments which were set out in the Consultation Document. The Director General believes that (A), (B), (C), (D), (E) (F) & (H) are terminating segments. Products (G) and (I) extend further up the network hierarchy than a terminating segment and so involves a trunk segment. (G) and (I) are similar in structure to the PCPOC* that BT currently offers at 2Mbit/s.

*See Section 32 of BT's Retail Price List for a definition of this product.

1.26 The diagram below illustrates the different types of PPCs at 2 Mbit/s and above.

1.27 The diagram illustrates that a customer could be connected to the SDH network in a number of different ways and therefore it is necessary to define a range of different PPCs.

1.28 The diagram below shows how BT’s tier-less MSH network sits above its SDH network.

1.29 The diagram below illustrates the two types of PPC below 2 Mbit/s. Product A provides connectivity below 2 Mbit/s from a customers premises routed through the nearest appropriate digital cross connection node (DCCN) to a point of interconnection. Whereas product B provides connectivity below 2Mbit/s from a customers premises routed through the nearest SDH tier 1 node via an appropriate DCCN and to a point of interconnection.

Product B

1.30 The Operators have requested that the direction covers the provision of PPCs at all digital bandwidths. The Director General believes that it is appropriate that PPCs should be offered at all these bandwidths but that for bandwidths below 2Mbit/s the PPCs are routed in a different manner (see paragraph 1.22 above).

Terms and Conditions for the supply of PPCs

1.31 The Direction states that all the terms and conditions for supply of PPCs are to be negotiated between BT and the each of the Operators. However, those negotiations must reflect the obligations with which BT is obliged to comply in respect of interconnection provided to other Schedule 2 Public Operators.

1.32 Interconnection is provided by BT under Condition 45.1 and as such are Standard Services (as defined in BT’s Licence). Under Condition 57, BT is prohibited from unduly discriminating or unduly preferring its own business in respect of interconnection. In respect of such services BT is required to ensure that its charges are cost-orientated (Condition 69.1 of BT’s Licence).

1.33 Oftel’s view is that the appropriate interpretation of the requirement for prices to be cost-orientated cannot be considered in isolation from the extent of competition for the service in question. For example, if the provision of the service in question was effectively competitive or moving towards a competitive market structure then Oftel would interpret the requirement for cost orientation as meaning any price between the long run incremental cost (LRIC) floor and stand alone cost (SAC) ceiling, subject to any relevant combinatorial and non discrimination tests also being satisfied. However, if by contrast the relevant economic market was not effectively competitive then Oftel will be inclined to interpret the cost orientation requirement to mean that prices should be set on a LRIC basis with some allowance for common cost recovery.

1.34 Oftel believes that its view on cost orientation is consistent with the approach taken by the ICD, Recital 10 of which states that;

1.35 "…whereas the level of [interconnection] charges should promote productivity and encourage efficient and sustainable market entry, and should not be below a limit calculated by the use of long-run incremental cost and cost allocation and attribution methods based on actual cost causation, nor above a limit set by the stand-alone cost of providing the interconnection in question".

1.36 Oftel expects BT to negotiate prices with the Operators within this framework. If prices cannot be agreed and Oftel were required to resolve a dispute, it would as a general rule, and other things being equal, expect the appropriate price to be closer to the LRIC ‘floor’ for those services which are least competitive. This would mirror the approach taken, for example, in setting network charge controls.

1.37 The interaction of Conditions 45 and 69 of BT’s licence requires that charges for Standard Services are reasonably derived from the cost of providing the service based on a forward looking incremental cost approach (except to the extent that the Director considers it appropriate to apply another cost standard). In the event of a dispute, the Director will consider the appropriate cost standard in considering what would be a cost-orientated price.

Migration

1.38 The Direction specifies that the agreements between BT and each of the Operators should include provisions governing the migration of the Operators’ existing private circuits to PPCs and planned future purchases of private circuits to PPCs. These provisions are necessary to ensure (and therefore encourage) that the Operators are able to purchase the PPCs without being penalised by the terms of their existing contracts with BT either for the current purchase of private circuits or under various private circuit discount schemes.

1.39 A number of Operators have stated that they would require adequate provisions to govern the technical migration of their existing private circuits purchased from BT to PPCs, thereby allowing them to take advantage of the new PPC products.

1.40 Under BT’s private circuit discount schemes, operators qualify for discounts if they meet a pre set target to purchase private circuits within a certain period. If operators fail to meet these targets they are liable to penalty payments. Unless there are suitable migration terms the Operators will be restricted from purchasing PPCs by the terms and conditions of these schemes.

1.41 Article 9(1) of the Directive and Regulation 6(1) of the Regulations places upon the Director the general responsibility to encourage and secure adequate interconnection in the interests of all users. In order to remove the restrictions which prevent the interconnection of PPCs and therefore to encourage interconnection in the interests of all users, as well as to ensure a competitive market, it is essential that any interconnection agreement concerning PPCs includes provisions for the migration of the current scheme of supply by BT of private circuits to the supply of PPCs pursuant to this Direction.

1.42 Accordingly, the Director General believes that a failure to include appropriate provisions governing migration will result in the existence of a restriction which prevents Schedule II Operators from negotiating interconnection agreements. The Direction therefore stipulates that there must be adequate migration provisions both physical (technical) and commercial in the agreements under which PPCs are supplied to the Schedule II Operators.

Timing to conclude negotiations

1.43 The Director General considers that a period of eight weeks from the date of the final Direction should be sufficient time for BT and the Operators to conclude the outcome of these negotiations with a further six weeks for implementation.

1.44 BT has indicated that it requires more than the four weeks initially mandated in the draft direction to implement the outcome of the PPC negotiations ie make an offer by publishing a product description which will form part of BT’s reference interconnection offer. BT states that it would require at least eight weeks in order to develop the full range of PPC products and implement changes to its operational and billing systems.

1.45 Oftel acknowledges that BT will have to make changes to operational and billing systems. However, Oftel is of the opinion that BT should be able to begin detailed implementation planning for changes to their systems simultaneously with the negotiations. Oftel is of the opinion that a relatively short time scale can be set to conclude negotiations and implementation because BT already supplies its retail business with network components that are similar to PPCs. However, in order to ensure that there is sufficient time for BT to complete the necessary changes to its systems and operational processes Oftel has decided to allow a period of six weeks, from the date that commercial negotiations are concluded, for BT to implement the outcome of the negotiations.

Chapter 2

Comments and issues arising from responses to the Draft Direction

2.1 Oftel issued the draft Direction on Partial Private Circuits on 20 December 2000 and invited responses from interested parties in the industry. Nine replies were received of which two were marked Confidential. The remaining responses were placed on the public record in Oftel’s reference library and comments on comments were received by 30 January 2001. All the comments have been considered and responses to key points made and questions asked are given below.

2.2 In its comments on the draft Direction, BT raised a number of Legal and Regulatory Issues. Other Operators also provided comments on the majority of those issues. This part of the explanatory document summarises the issues raised by both BT and the other Operators and gives Oftel’s views on them.

2.3 BT believes that Oftel should have exercised its discretion to delay consideration of the Determination request until such time that the effective competition review was concluded. BT states that the PPC Direction forecloses the effective competition review.

2.4 Oftel believes that if there were a dispute under the ICD concerning BT’s price of a PPC or refusal to supply a PPC product, then it might be appropriate for Oftel to carry out a full competition analysis before reaching its conclusion. However, since there is no such dispute currently being referred to Oftel, then the setting of time limits within which negotiations have to be completed does not foreclose the effective competition review. Nor does the decision to set a time limit prejudice the judgement whether price regulation would be appropriate in the event of a dispute. By setting time limits Oftel has not reached any conclusion regarding the state of competition in the market. The Director has a general responsibility under the ICD to encourage interconnection. One of the ways of encouraging interconnection is to set time limits for negotiating interconnection agreements.

2.5 BT states that the proposed interconnect services go beyond the concept of economic bottle neck. There is no economic or legal basis for access to the competitive trunk market on wholesale terms. Furthermore BT states that the PCPOC product allows interconnection to any point in another operators network and this provides "..technically and commercially viable alternatives" to the interconnection request.

2.6 Oftel believes that PPCs are interconnection services and fall within the terms of the ICD to provide such interconnection services to Annex II Operators. Oftel does however acknowledge that not all PPCs are terminating segments. In relation to the ‘competitive’ trunk, Oftel notes that in its August Consultation Document it has, subject to consideration of consultation responses defined this market as being prospectively competitive. Oftel refers to paragraphs 1.33 to 1.36 above, which sets out Oftel’s approach to cost orientation. Oftel believes that although the PCPOC product may fall within one of the PPC definitions (as in Annex 1 of the Direction) it is only provided at one bandwidth, (2Mbit/s), and therefore does not represent a technically viable alternative to the interconnection request.

BT claims that Oftel’s proposals fall outside the concept of interconnection and therefore is not entitled to invoke interconnection powers. Furthermore, high bandwidth circuits fall outside of the definition of interconnection in the ICD.

2.7 In its response to the Consultation Document, BT stated that it did not believe PPCs were interconnection services covered by the Interconnection Directive (ICD) and therefore Schedule II operators are not entitled to have their requests for part leased lines covered by the ICD. In response to the draft direction BT has reiterated its belief that PPCs are not interconnection services.

2.8 BT has not presented any new arguments on this subject and Oftel stands by its response in the December statement to BT’s legal arguments. Please refer to Annex A of the Oftel publication – National Leased Lines: Statement and draft direction issued by the Director General of Telecommunications, December 2000.

2.9 BT claims that the Leased lines Directive does allow SMP to be assessed separately in relation to different leased lines markets.

2.10 The Director General is exercising his powers pursuant to the Interconnection Regulations which implement the ICD. The ICD is therefore the appropriate legislative framework and not the Leased Lines Directive.

2.11 BT states that Condition 69 does not contain an obligation to apply LRIC, since it contains an exception where the Director considers it appropriate for BT to apply another cost standard. Oftel has a clear obligation to disapply LRIC/cost orientation from these (higher bandwidths) circuits.

2.12 Paragraph 1.37 above, discusses the interaction of Conditions 45 and 69 of BT’s licence in determining an appropriate cost standard for standard services.

2.13 BT states that the draft Direction specifies other matters about terms and agreements, BT queries the powers Oftel exercising in regards to this?

2.14 Under Regulation 6(3) of the Interconnect Regulations the Director General has the power to make a direction that specific conditions be observed by one or more parties to an interconnection agreement.

2.15 Technical and implementation issues; BT states that it does not supply its own retail business with PPCs and therefore the one-month deadline for implementation is unrealistic. BT believes that it will require a minimum of two months in order to ensure development and implementation of the new products in a quality manner will require complex changes to BT’s operational and billing systems.

2.16 Oftel has decided to allow a period of six weeks, from the date that commercial negotiations are concluded to ensure that BT is in a position to enter PPCs in its Reference Interconnection Offer (RIO). Please refer to paragraph 1.45 above for further details.

2.17 BT has also stated that it would require flexibility to prioritise the introduction of the particular services most urgently required by OLOs. Although Oftel has no objections to BT prioritising the availability of circuits in relation to demand for PPCs, BT must adhere to the principles of non-discrimination/preference as mandated in its licence and ensure that its process of prioritisation is objectively justifiable. Oftel would expect the provisioning of PPCs to follow the same lead times as set out in Annex A, paragraph 11 of BT’s Standard Interconnect Agreement for the PCPOC service.

2.18 A number of respondents have claimed that the PPC definitions as contained in Annex A of the Draft Direction are unclear and may be restrictive. The respondents have requested for some degree of flexibility to be built into the PPC definitions.

2.19 Oftel believe that the PPC definitions provide every combination of bandwidth and point of interconnection available to other Operators (see paragraphs 2.21 and 2.22 below for PPCs connecting at tier 3 nodes). Oftel believes that the PPC definitions (in Annex 1 of the Direction) provide a framework around which the negotiations for the provision of PPCs are to be conducted. In order to ensure that there is some flexibility built into the negotiation process, the Direction gives BT and the Operators the options of negotiating produces which are not exactly the same as the definitions in Annex I but which are equivalent to those PPC definitions.

2.20 A number of operators have requested clarification from Oftel on why BT was not to be required to offer connection to tier 3 nodes and why sub 2Mbit/s circuits were not offered to tier 2 or tier 1.5 nodes. CWC and Energis state that Oftel should include an extra product in the Direction, whereby negotiations can take place around the provision of PPCs connecting to tier 3 nodes.

2.21 Oftel initially excluded tier 3 nodes from the PPC definitions, as it was thought there would be little demand for such a product. However, given that operators have stated that they would find such a product useful, Oftel has amended its product definitions in Annex A to allow for tier 3 connectivity.

2.22 Oftel understands that Sub 2Mbit/s circuits have to be routed via Digital Cross Connect nodes (DCCNs), in order to groom them away from other 2Mbit/s circuits coming from the same serving exchange and to groom them onto common bearers to go to the point of interconnection. The DCCNs are therefore the only practical options for connection at these lower bandwidths.

2.23 Energis has requested that the final Direction should include all short haul data services (both SDH and non SDH bandwidths) including BT radio options and LAN Extension Services (LES). Energis states that these services are offered in the BT leased line portfolio and therefore should be made available as a PPC variant.

2.24 Oftel’s initial view is that BT chooses the most effective method of delivery for the particular customer site, it may be copper, fibre or radio. In relation to the LES services, these are arguably value-added services provided over leased lines and are designed for short haul applications and may be incompatible with interconnection at tandem buildings. Energis is of course free to negotiate with BT outside the framework of this Direction in respect of these services and if it believes that such services fall within the ICD it has the right to ask the Director General to intervene if it is in dispute with BT.

2.25 COLT and Energis request that the Direction specifies a ‘fairer system in relation to the physical location of the ‘splice point’ between BT and OLO networks. They state that these splice points often tend to be very close to the BT exchange and that a fairer system is required to ensure the cost of provisioning are more fairly apportioned.

2.26 Oftel believes that the question of where BT and OLO networks meet is not a matter for this Direction to specify. The location of the splice point issue is a matter for commercial negotiations. However, the presumption since 1985 has always been that the operators build towards BT’s network. BT then pays for the costs of circuits it uses for its own traffic (excluding Indirect Access and Number Translation Services). For private circuit interconnection Oftel believes that there are no new policy issues that suggest a change is required.

2.27 All respondents to the draft PPC Direction voiced their concerns over the issue of migration. Cable and Wireless, Energis, and WorldCom, believe that the new PPC products count towards their Netstream 2000 discount scheme commitments or that they should not should not be penalised under the discount scheme for failure to meet their targets.

2.28 Fibernet and COLT state that migration is a problem not just under Netstream 2000 but also under other various BT private circuit schemes.

2.29 In relation to the physical migration of existing circuits Cable and Wireless (supported by Energis) has suggested that the Direction should require BT to act reasonably in negotiating how operators will physically move connections from existing Kilostream and Megastream connections to PPCs.

2.30 As stated in Chapter 1 above, Oftel believes that suitable migration terms are required in order to avoid any obstacles that may restrict the Schedule 2 Operators ability to agree interconnection. Accordingly, Oftel has amended the Direction, in order to apply to all BT’s private Circuit discount schemes. Oftel does not propose to specify terms and conditions over which migration takes place, but believes that the operators are best placed to communicate their specific requirement to BT during the course of commercial negotiations.

2.31 COLT has requested that the draft Direction include a requirement on BT to negotiate a binding service level agreement for the PPC products to be offered.

2.32 Oftel believes that it is in the best interest of all parties, BT, Schedule 2 Operators and ultimately end users that PPCs are provided to an agreed quality of service standard and that robust arrangements are in place to guarantee delivery of such a product. Oftel believes that it is appropriate that this matter should be taken forward during the commercial negotiations. Oftel further considers that failure to agree such a standard could be a matter for determination in resolving any subsequent dispute.

2.33 Energis, Cable and Wireless and WorldCom suggest that the Direction should state that any prices determined following a dispute would be applied retrospectively in order to prevent strategic obstruction by BT.

2.34 Condition 45.8(b) of BT’s licence concerns the framework in which the Director can examine charges in the event of a dispute being referred to him. It states that;

2.35 It is accordingly unnecessary for the Direction to make reference to the possible retrospection of any price regulation which may be determined in the event of a dispute

2.36 Energis, Cable and Wireless, Thus, Fibernet and Worldcom have all submitted complaints to Oftel stating that BT is conducting a margin squeeze in downstream retail markets for data services, namely, Frame Relay and ATM.

2.37 Oftel stated in Chapter 4 of the December 2000 Statement that the provision of leased lines by BT is subject to Condition 57 of its licence. Under Condition 57 BT is prohibited from unduly discriminating or showing preference in respect of the provision of leased lines services. This prohibition covers vertical as well as horizontal discrimination by BT.

2.38 If the allegation of anti competitive behaviour were substantiated, under the Telecommunications Act 1984, Oftel can only require BT to stop a margin squeeze. Oftel cannot mandate how BT does this.

2.39 Under the current ICD Direction the likelihood of a margin squeeze could be reduced through either commercial negotiations or in the event of a dispute, by Oftel’s intervention. Oftel believes that cost orientated PPCs are the long-term solution to margin squeeze type problems and that the non-discrimination rule under the ICD will reduce the scope for margin squeezing. Further, under the terms of the Direction, BT and the operators will commence negotiations on the price of PPCs. Oftel does not consider it prudent to investigate the price of BT’s access circuits during a period in which it expects these prices to change.

Annex A

Respondents to Consultation

BT
Energis Communications Ltd
Cable and Wireless Communications (Mercury) Ltd
MCI WorldCom Ltd
Fibernet(UK) Ltd
COLT Telecommunications
GTS (Ireland) Ltd

Confidential responses were received from;
Global Grossing
Thus Plc

Glossary

ATM service: data services using Asynchronous Transfer Mode technology, such as BT’s Cellstream service or Energis’s Cellconnect.

Digital Cross Connection node: a node in BT’s Private Circuit network where circuits at 64kbit/s and below can be cross-connected between differing 2Mbit/s tributaries.

Digital Junction Switching Unit (DJSU): a tandem switch used to connect between DLEs in the London area.

DLE (Digital Local Exchange): the telephone exchange to which customers are connected, usually via a concentrator.

DMSU (Digital Main Switching Unit): connects calls between DLEs and also other DMSUs and form the backbone of the trunk network.

Frame Relay service: a packet switched data service providing for the interconnection of Local Area Networks and access to host computers at up to 2 Mbit/s.

Leased line: a permanently connected communications link between two premises dedicated to the customers’ exclusive use. Also known as a private circuit.

Mbit/s: Mega (million) bits per second. A measure of speed of transfer of digital information.

MSH: Marconi Synchronous Hierarchy; (also known as Marconi Broadband Overlay Network). Similar to SDH method of transmission but at higher bandwidths (155Mbit/s to 2.4Gbit/s).

PPC: A generic term used to describe a category of private circuits that terminate at a point of connection between two operators’ networks. It is therefore the provision of transparent transmission capacity between a customer’s premises and a point of connection between the two operators’ networks. It may also be termed a part leased line. It includes terminating segments.

Plesiochronous Digital Hierarchy (PDH): an older method of digital transmission used before SDH which requires each stream to be multiplexed or demultiplexed at each network layer and does not allow for the addition or removal of individual streams from larger assemblies.

PC POC (Private Circuit Point of Connection): BT’s Link to a Point of Interconnection product. This is a private circuit from a customer’s premises to point of interconnection between BT and another operator’s network. It is only available at 2Mbit/s to be purchased by PTOs.

RCU (Remote Concentrator Unit): the lowest level of BT’s PSTN hierarchy. Customer lines, which are generally copper wires, are concentrated/multiplexed and routed to a DLE.

Synchronous Digital Hierarchy (SDH): a method of digital transmission where transmission streams are packed in such a way to allow simple multiplexing and demultiplexing and the addition or removal of individual streams from larger assemblies.

Terminating segment: a terminating segment is capacity between a customer’s premises and a point of connection between two networks at the DMSU level.

Wide Area Tandem (WAT): a tandem exchange used to connect calls between DLEs over a wide area.