Contents

Summary

Chapter 1 Introduction

Chapter 2 The consultation

Chapter 3 Review of responses to the consultation document

Chapter 4 Conclusions

Chapter 5 Consultation on the draft consents

Annex A Questions asked in the consultation document

Annex B Organisations responding to the consultation document

Annex C Summary of responses to the consultation document

Annex D Draft BT consent

Annex E Draft Kingston consent

Glossary

Summary

S.1 The provision of telephone call services in the UK is a major part of the business of BT and its competitors. The degree of competition between the providers plays an important part in determining both the prices of those services to customers, including businesses and residential consumers, and the level and quality of service offered.

S.2 This statement examines the regulatory requirement on BT to publish details of its charges, terms and conditions for use of its telephone services and leased lines. It is made in the context of impending changes to the framework of regulation as four new EU Directives covering the electronic communications sector are due to come into force in the very near future.

S.3 For the majority of its retail services, BT is currently required to publish changes to tariffs and to notify them to Oftel 28 days prior to their implementation. The current requirements are set out in BT’s Licence Conditions 7.1, 54, 55 and 58. These obligations apply to all of BT’s fixed publicly available telephone services and leased lines, whether offered to end users or to resellers, but they exclude all interconnection services.

S.4 In June 2001 Oftel published its consultation document BT’s regulatory obligations to provide advance notification of price changes and to maintain a published price list (‘the consultation document’). This statement presents the conclusions of Oftel’s review of BT’s price notification and publication obligations, and the conclusions take account of responses to the consultation document.

S.5 There have been concerns that the 28 day notification period may lead to a dulling of competition, for example through tacit collusion or price following, and the aim of this review has been to ensure that the level of regulation remains appropriate and proportionate. The consultation document sought the views of operators and other interested parties on whether it would be appropriate to reduce the period of advance notification and, if so, what that period should be and whether distinctions should be drawn between services to end users and services used as inputs to services provided by others.

S.6 The consultation document observed that there were arguments both for and against reducing the period of advance notification. It also noted that evidence of the effect of having a shorter notification period, whether from within the UK or overseas, was both scarce and inconclusive. The responses to the consultation document reflected the lack of empirical evidence and were polarised, with BT favouring relaxation of the current regulatory controls, and BT’s competitors, both other operators and service providers, supporting their retention.

S.7 Having considered the representations made, Oftel has concluded that the effect of the current price notification requirements may be to dampen competition by encouraging price following and deterring more dynamic price setting by both BT and its competitors. Oftel has therefore decided that the period of advance notification should be reduced, but on a trial basis.

S.8 There are some retail products and services, however, which are also purchased as wholesale inputs to retail products offered by BT’s competitors in downstream markets. Where such upstream products and services are not offered in an effectively competitive market, Oftel considers that it would be premature to reduce the notification period. Oftel has therefore decided that until such time as the relevant market is effectively competitive, there should be no relaxation of the price notification obligations. For the remainder of the products and services covered by these licence conditions, the requirement on BT to publish changes to tariffs and to notify Oftel 28 days in advance of price changes will be reduced to one day for both price increases and decreases, whether they are sold directly to end-users or to resellers for incorporation into their own retail products.

S.9 Oftel’s proposals are to lift regulatory requirements on BT in giving prior notification of price changes. However, BT is still expected to give adequate prior notification of such changes to consumers and others depending on the nature of the services and markets involved. In particular, Oftel expects BT to specify reasonable periods in its commercial contracts with customers, particularly where they are resold, either individually or as part of a larger package. Should BT not do so, Oftel will consider reversing these measures.

S.10 During this review Oftel has also examined the requirements on BT to maintain a published price list and to draw attention to price changes in a distinct section of its published price list, as opposed to merely annotating the relevant entry with the change, and whether BT should be required to maintain a price list at all major public offices. Oftel has concluded that the maintenance of BT’s price list offers benefits to both customers and competitors, and has decided that there should be no relaxation of the regulatory regime in respect of these matters.

S.11 Overall, this reduction in the price notification period under Conditions 54, 55 and 58 of BT’s licence represents a significant change to the regulatory environment, which should lead to the promotion of more vigorous competition. BT’s competitors, however, were opposed to any regulatory relaxation, and there still remains some uncertainty about the effects that it will have on the competitive process. Given this, Oftel considers that the changes should be assessed during an extended trial period, and that these would be best achieved by means of time-limited consents granted under BT’s relevant licence conditions. The consents will expire 18 months after coming into force, unless earlier revoked by the Director General of Telecommunications (‘the Director’), and will exclude those wholesale products and services in markets which are not yet effectively competitive. Similar consents will also be granted to Kingston Communications (Hull) plc (Kingston) so that it will not be subject to more onerous regulation than BT.

S.12 Oftel has already consulted on the principles of price notification and publication and does not seek further views on these matters in response to this document. However, Oftel invites comments on the form of the consents which it proposes to grant under BT’s and Kingston’s licence conditions. The consultation period will run for 33 days until Monday 29 April 2002.

Chapter 1 Introduction

Background

1.1 Oftel’s strategy is to regulate only where it is necessary, to bring benefits for consumers and to keep regulation to the minimum commensurate with obtaining appropriate outcomes. Oftel is concerned that the present controls which apply to BT in respect of price publication and notification may be affecting BT’s ability to compete fully and fairly and may be dulling competition.

1.2 Some commentators have also in recent years expressed concerns that BT’s obligation to provide advance notification of prices, and price publication, may be encouraging tacit collusion between operators or, because of BT’s size and strength, may lead to price following which could discourage BT and other operators from more aggressive pricing and service innovation. In addition BT had, in November 2000, submitted to Oftel a discussion document putting forward proposals for the relaxation of the regulatory obligations on BT with regard to notification of price changes. These obligations have remained substantially unchanged since 1984.

1.3 In June 2001, Oftel published a consultation document, BT’s regulatory obligations to provide advance notification of price changes and to maintain a published price list (the ‘consultation document’) which reviewed BT’s current price publication and notification obligations. The consultation document sought information and views on the merits of BT’s obligation to publish, 28 days in advance, details of price changes and new tariffs for certain telecommunications services.

Scope

1.4 This statement discusses the responses received to Oftel’s consultation and sets out Oftel’s conclusions.

1.5 Oftel is not in this statement reviewing BT’s price publication and notification obligations in respect of its interconnection services (ie services which are regulated under the Network Charge Control (NCC) regime), nor is it reviewing similar obligations on BT in respect of local loop unbundling. Oftel has recently reviewed these areas, and will consider them again as part of the market reviews which will take place in 2002/03 and which are required by the new EC framework.

European legislation and the relationship with other Oftel projects

1.6 A new regime of European legislation will soon be introduced in the UK. The purpose of the new Directives is to establish a harmonised framework for regulation across Europe and establish a set of procedures to ensure the harmonised application of the regulatory framework throughout the Community. The Directives will enter into force when they are published in the Official Journal of the European Communities. From entry into force, Member States and National Regulatory Authorities (NRAs) will have 15 months in which to transpose the Directives into national law and bring all processes and procedures in line with the new Directives. A summary of the new Directives can be found in Oftel’s draft management plan for 2002/03.

1.7 The new framework will oblige Oftel to review markets, prepare significant market power (SMP) designations and review all regulatory measures currently in place in all telecommunications markets ready for when the Directives enter into national law. Oftel will conduct effective competition reviews as a result of the entry into force of the EU Framework Directive, and these will take account of the results of the trial which will follow this statement in determining the way forward in appropriate markets.

1.8 The proposals set out in this statement impact on other Oftel projects. In particular, Oftel’s statement Competition in International Markets is being published simultaneously with this statement. It proposes a relaxation in the regulatory requirements for a number of International Direct Dialling (IDD)routes.

1.9 Chapter 2 summarises the aims of the consultation document, while Chapter 3 reviews the responses to it. Chapter 4 sets out the conclusions of the Director General of Telecommunications (‘the Director’) following the consultation, and Chapter 5 describes the procedure for consultation on the proposed draft consents.

Chapter 2

The consultation

BT’s obligations

2.1 BT has been determined as having SMP in the market for fixed public telephone networks and fixed public telephone services and in the market for leased lines. As a result of this it is subject to more onerous obligations, with respect to publication of its prices and pre-notification of price changes, than operators without SMP.

2.2 The following obligations in BT’s licence have been considered within this review:

• Condition 54 (tariffs, cost accounting principles, and discount schemes). Condition 54.5 requires BT to give 28 days notice of tariff changes for the use of the fixed public telephone network or for fixed public telephone services;

• Condition 55 (leased lines). Condition 55.4 requires BT to publish charges, terms and conditions in relation to leased lines 28 days before implementation; and

• Condition 58 (publication of charges, terms and conditions). Condition 58.4 requires BT to send to the Director a notice of any amendments to any charge, term or condition not less than 28 days before the amendment is to come into effect. Condition 58.5 requires BT, as soon as is practicable after sending this notice, to make copies available for public inspection in all of its major public offices. Condition 58.6 requires BT to send copies of such notices to any person on request, and Condition 58.3 prohibits BT from otherwise departing from its published prices.

2.3 The obligations in Condition 54 of BT’s licence stem from the Revised Voice Telephony Directive (RVTD) which prohibits operators with SMP from implementing tariff changes for the use of the fixed public telephone network or for fixed public telephone services until after an appropriate period of public notice has been observed. The Leased Lines Directive (LLD) has a similar prohibition with respect to leased lines services, which is set out in Condition 55. These Directives allow the NRA to set the period of public notice and the Director has specified a period of 28 days.

2.4 Condition 7 requires BT to publish prices for consumers and to make the information publicly available, although Condition 7.4 exempts it from such obligations in respect of services which are materially different, until the service has been provided and the Director notified. This condition implements a requirement under the RVTD and is therefore not under review.

2.5 These conditions under review cover all fixed publicly available telephone services, whether offered to end users or to resellers. They do not, however, apply to interconnection services, which are subject to separate obligations.

Impact of mandatory price publication and notification

2.6 The consultation document, inter alia, discussed in detail the reasons for having price publication and notification obligations, and considered the legal framework within which they are set. The matters addressed included:

• the value placed by BT’s customers on the published price list;
• the importance of an advance notification period and whether this should remain;
• the extent to which the obligations might lead to tacit collusion or price following; and
• whether any evidence was available to support or refute the view that BT’s regulatory obligations should be amended.

2.7 Oftel also considered the practices adopted by other regulatory authorities and any evidence of the impact of deregulation of price publication and notification obligations on specific BT services, for example International Direct Dialling routes. However, in these areas there was very little empirical evidence available, and what there was proved inconclusive.

Options for the future

2.8 The consultation document considered the appropriateness of relaxing the current price publication and notification regime on a generic basis rather than by individual markets, and set out the key factors which would be considered in the review. It questioned whether there were merits in varying regulation without first conducting a full market review. It considered whether the period of notification should be reduced, and also whether distinctions should be made between types of price increases and decreases, and types of service. The document also looked at whether price changes should continue to be notified separately, rather than in the main body of the price list. Finally, in considering the next steps, it discussed the manner in which, if changes were made, they should be formulated and whether they should be immediate or permanent.

2.9 The consultation document posed a number of specific questions, which are reproduced at Annex A. The list of respondents to the consultation document is set out at Annex B, while the views of the respondents are summarised at Annex C.

Chapter 3

Review of responses

3.1 This chapter reviews and comments on the responses to the consultation document and considers the arguments made, in respect of the main issues raised. The responses from BT, and those from its competitors, were polarised, with BT’s competitors favouring retention or indeed strengthening of the current regulatory controls on BT. BT, conversely, felt that the current controls were preventing it from competing effectively in what it believed was an increasingly competitive market. BT’s comments on the responses submitted by some of its competitors further argued that these responses, in themselves, provided evidence that the current price publication and notification obligations were facilitating price following. The views of the respondents are summarised at Annex C, under the headings of the specific questions asked in the consultation document.

Use by BT’s competitors of BT’s published price list

3.2 Responses from Other Licensed Operators (OLOs) indicated that they do make wide use of BT’s price list, in particular to assist them in product development and marketing, and in assessing the viability of their own products. One OLO said that it was not unusual for its customers to require an indexation clause in their contracts to ensure that its prices remained competitive, and that these would be impossible to implement with a reduced period of price notification. Others said that they had contractual obligations to notify their own customers of price changes.

3.3 BT, in contrast, believes that some competitors use its prices as a benchmark, and that the availability of pricing information in the public domain removes the incentives to its competitors to compete on the basis of innovation.

3.4 It was put to Oftel that the present market structure, with BT as the largest player by far, is not conducive to collusion, that there are significant incentives to undercut BT’s prices, and that evidence of BT reducing its prices by more than that required by its price control obligations demonstrates the absence of collusion. Oftel accepts that in many UK telecommunications markets BT is the dominant player, and to that extent the current market structure is more likely to favour price following than collusion. BT’s competitors believe that price notification and publication do not hamper competition. While one operator recognised the possibility that advance price notification could lead to price following, it did not regard this risk as sufficient to merit regulatory relaxation.

3.5 BT’s competitors did not provide empirical evidence to support their arguments, although Oftel does accept that very little such evidence may exist, particularly in relation to telecommunications markets. BT provided, among other material, details about the number of pricing reductions it had made on its international routes since Oftel’s determination in March 2000 (which reduced the advance notification requirements for a number of IDD routes), although the small amount of data available was not sufficient to enable any positive conclusions to be drawn.

3.6 Where BT’s services are used as inputs to competitors’ retail products, an increase in BT’s price could affect the viability of the competitors’ products. Some respondents argue that such situations should be treated as special cases and that the current notification period should be maintained or even increased so that they could assess the viability of their own products and the impact of any changes to their cost bases. One OLO claimed that at present BT refuses to agree to a contractual clause which would allow for early termination by the OLO in the event of an unreasonable price increase.

3.7 It appears to Oftel that BT’s competitors do rely to a significant extent on BT’s published prices. Although none admits specifically to using the price list to follow and undercut BT’s prices, the responses did to some degree support the proposition that price publication and advance notification might be undermining the competitive process by facilitating price following.

3.8 Oftel considers that continuation of the obligation to publish publicly available tariffs will enable competitors to maintain a close eye on these prices which, inevitably, are viewed by many consumers as a benchmark. In any event, the ready availability of BT prices on the Internet, and the ability to search information, means that competitors can much more rapidly analyse the effect of price changes, and communicate with their customers, than previously. However, Oftel believes that a long period for advance notification of price changes may encourage a culture of price following rather than pricing innovation and aggressive competition. Where this pattern becomes apparent to BT, it too may judge that there is little to be gained from aggressive price competition where it is unable to benefit from a first-mover advantage.

Use of BT’s price list to monitor anti-competitive behaviour

3.9 Another key issue raised by respondents was the ability to identify potentially anti-competitive behaviour by BT. BT’s competitors focused on the ability to identify such behaviour and for Oftel to take any appropriate action before a notified price change took effect. As several respondents noted, however, in reality the current notification period of 28 days is insufficient for Oftel to undertake and conclude an investigation of alleged anti-competitive behaviour. Reduction of the notification period is therefore unlikely to hinder Oftel’s enforcement activities to any significant degree.

3.10 BT said that it did not regard price publication or price notification as useful tools for identifying anti-competitive behaviour, and claimed that only a few complaints had arisen, let alone been upheld, as a result of these obligations. Further, BT maintained that there were industry procedures in place (such as supplier information notes and service provider information notes) which would prevent undue discrimination or preference.

3.11 One respondent expressed a concern about information being shared between BT divisions before it was published. While Oftel recognises that this is a long-standing and widely-held concern, the respondent provided no evidence to support it. Oftel notes that the anti-discrimination procedures in BT’s licence, as well as the Competition Act 1998, with its scope for retrospective application of fines, places a discipline on BT. In particular, condition 79 of BT’s licence is designed to ensure that information gained as part of BT’s network business is not used to the advantage of BT in its value added business.

Value of price information to purchasers of BT’s services

3.12 Respondents confirmed Oftel’s understanding that, where BT’s services are used as inputs to downstream competitors’ retail products, it is essential that purchasers are given reasonable notice of price changes. Several respondents drew attention to the fact that BT’s contracts often commit BT to providing no more notice than that which BT is required to give to the world at large, by virtue of its regulatory advance notification obligations. A number of respondents believed that BT was unlikely to offer reasonable contractual notice periods in lieu of reduced regulatory obligations.

3.13 A number of BT’s competitors also stressed the importance which consumers placed on the price list in adjusting their purchasing behaviour. BT, however, considered the price list to be only one of a range of means by which consumers obtained pricing information. It was also evident that much of the marketing literature published by BT’s competitors highlights price comparisons between their own and BT’s prices. The telecommunications advisory committees which responded to the consultation document emphasised that end-users also required adequate notice of price changes, and one argued that all operators should continue to be required to publish their prices.

3.14 BT noted that it was bound by consumer protection legislation to offer reasonable notice periods, and that its own contractual obligations required it to provide its customers with 14 days’ notice of price changes.

Options for the future

3.15 None of BT’s competitors favoured withdrawal of the obligations currently imposed on BT, except where a full market review finds that a market is effectively competitive. Even in these circumstances, competitors were concerned that withdrawal of price publication obligations in downstream markets might facilitate leverage of upstream market power into those markets. Indeed, a number of BT’s competitors argued that there should be an increase in the notification period, particularly for new services and for BT’s Service Provider (SP) wholesale products. In particular, for wholesale products, OLOs and SPs highlighted the potential difficulties of being faced with a price increase at short notice, where they were tied in to contractual obligations to provide notification to their own customers.

3.16 Of the two consumer representative organisations which submitted views, both consider that there could be justification for a one day advance notification period for price decreases, but not for price increases. One adds that it would be prudent to make distinctions for services to end-users, and those which formed inputs to products sold by other companies.

3.17 Neither BT nor its competitors favour distinguishing between price increases and decreases, but for different reasons. Whereas BT’s competitors regard either activity as potentially indicative of anti-competitive behaviour, BT points out that in practice it is not always straightforward to separate them since an overall package of changes may contain elements of both.

3.18 Oftel sees no reason to distinguish between increases and decreases. Organisations use both in their competitive strategies, and there is no clear justification for requiring BT to treat them differently, provided that customers are given reasonable contractual notice of changes.

3.19 On the method of notification of price changes, BT’s competitors are strongly against relaxing the current regulations because of the stated difficulty of identifying potentially anti-competitive behaviour, and believe that they should continue to be separate from the price list. BT, on the other hand, considers that the termination of separate notifications, and the annotation of the price list to indicate changes, would not be detrimental to consumers.

3.20 BT regards the available evidence as sufficient to justify immediate and permanent changes to its obligations, and believes this to be consistent with keeping regulation to the minimum appropriate level.

3.21 Since none of BT’s competitors favours relaxation of the obligations, the question for them of how any changes should be implemented does not arise, although one OLO said it would be prepared to agree to changes if Oftel would agree to order the cessation of alleged anti-competitive activities while it carried out its investigations. While the Director does have powers under the Telecommunications Act 1984 to require an operator to comply with its licence, and under the Competition Act 1998 to give appropriate directions, certain criteria must be met. In the majority of cases which Oftel deals with there has been insufficient prima facie evidence to justify using such powers.

  Chapter 4

Conclusions

4.1 Oftel has considered the arguments, and assessed the views and evidence available to it. There is no doubt that BT’s competitors find price information useful and important, and that it serves different purposes depending on whether BT’s products are to be purchased by downstream competitors as components of services to be sold to end users or whether competitors are competing directly to sell their own products. There is also no doubt that such information can be helpful for identifying potentially anti-competitive behaviour.

4.2 However, Oftel is not persuaded that the benefits of 28 days’ advance notification outweigh the potential disadvantages. Oftel considers that the responses support the view that, even if there is little evidence of collusion between suppliers, the current regulatory controls may encourage price following and, by removing BT’s ability to exploit a first-mover advantage, may have removed key incentives on BT to compete on the basis of price.

4.3 The Director has therefore decided to grant consents to reduce the advance notification period specified in Conditions 54, 55 and 58 of BT’s licence, for both price increases and decreases. While in its original submission of November 2000, BT had proposed that the period be reduced from 28 days to 14 days, Oftel sees no reason why it should not be reduced to the minimum effective period of one day.

4.4 While Oftel accepts BT’s argument that both BT’s competitors, and consumers, do have a range of sources of price, and price change, information, it considers that the benefit of having separate notifications outweighs any possible detriment. Oftel does not, therefore, intend to alter the present obligations to maintain a price list of publicly available telephone services and leased lines. In any event, as was acknowledged in the consultation document, current European Directives require operators to publish prices for certain types of services and customer groups. BT must also continue to notify price changes separately from the main body of the price list.

4.5 The above proposal is a significant change to the regulatory environment. Whereas there have been valid arguments both for and against the change, the evidence has not been wholly conclusive. In view of this, Oftel believes that it would be inappropriate to make immediate and permanent changes, and has decided to implement the amendments on a trial basis, by way of consents granted by the Director under BT’s licence conditions. The duration of the trial will be not more than 18 months, and this will enable Oftel to obtain evidence of the effect on competition of a reduced notice period.

4.6 The specific changes are:

• The period of notice for implementing changes to BT’s tariffs shall be changed from 28 days after publication, to one day (Condition 54.5);

• The period of notice which BT is required to give to the Director in advance of new charges and changes to charges, terms and conditions for leased lines shall be reduced from 28 days to one day (Condition 55.4); and

• The period of notice which BT is required to give to the Director in advance of changes to charges, terms and conditions for other services which it is obliged to provide shall be reduced from 28 days to one day (Condition 58.4).

Some wholesale products and services in markets which Oftel has reason to believe are not yet effectively competitive will be excluded from the consents (see paragraph 4.11 below), and so will continue to be subject to a notification period of 28 days. In this context the word ‘wholesale’ is used to denote products and services purchased as wholesale inputs to competing retail products.

4.7 In this context Oftel stipulates that one day means 24 hours. Saturdays, Sundays and public holidays are specifically excluded. Condition 58.5 of BT’s licence requires it to make price notifications publicly available "as soon as practicable" after sending them to the Director. With a reduction in the notification period to one day, Oftel expects, during the course of the trial, that BT will publish the notification no later than the time when the Director is notified. In any case, under Conditions 54 and 55 BT is obliged to make tariff changes publicly available (and in the case of Condition 54 can only implement changes to its tariffs after publication of such changes). In addition, BT is prohibited from departing from its published prices under Condition 58.3 of its licence.

4.8 Further, BT will still be required, under Conditions 7 and 58 of its licence, to publish its prices and to make the notifications of the changes publicly available. This statement does not address the consumer publication requirements as defined in Condition 7, which implements an obligation under the RVTD.

4.9 The consultation document did not set a specific duration for the trial period. Oftel has decided that the consent should expire 18 months after coming into force, save where earlier revoked by the Director. As described in Chapter 1 of this statement, a new European regime will be implemented into UK law in early summer 2003, under which effective competition reviews of a number of markets will be carried out. Oftel envisages that the impact of the reduced price notification periods will be assessed in parallel with the relevant competition review.

4.10 While the one day period is a regulatory minimum, Oftel expects that BT would, as appropriate, specify longer periods in its commercial contracts with its existing customers, appropriate to the type of service and customer. Oftel will pay particular attention to any evidence that customers, whether end users or resellers, are being offered less than reasonable notice of changes to their existing tariffs. If there is evidence that BT is not offering reasonable notice periods in its contracts with its customers, then Oftel will take any action which it considers appropriate, including revocation of the consents.

4.11 BT’s competitors have raised valid concerns about the effect of a reduction in the notification period for wholesale products and services, i.e. those products and services which are purchased as wholesale inputs, that is they are purchased by BT’s downstream competitors and sold on, or used as components of larger packages. As already noted (see paragraph 2.5 above), the licence conditions being reviewed here do not cover interconnection products and services. However, Oftel is aware that some of the products and services covered by these licence conditions are used as inputs by BT’s downstream competitors, and that a reduction in the price notification period could in such circumstances be detrimental to them were the prices to change with minimal notice. The licence conditions examined in this review cover a number of products and services which are sold to some degree on this basis and for which the market is not yet effectively competitive. For such products and services, Oftel is concerned that until such a competitive market has developed, it would be premature to reduce the notification period to one day.

4.12 In view of these concerns, Oftel has concluded that the consents should specifically exclude such products and services. A list of such products and services will be published on Oftel’s website (www.oftel.gov.uk) and will be updated as appropriate. The following is a non-exhaustive list of examples of BT’s products and services, some generic and some specific, which Oftel is minded to exclude:

• Surfport;
• Surfport 24;
• Analogue Inland Leased Lines excluding DealerStream and DealerinterLink;
• Digital Inland Leased Lines;
• Service Provider Telephony Services, for example Calls & Access, Service Provider Ancillary Services eg Call Mapping, Digital Service Provider Products;
• Payphone Access Levy; and
• Broadband Services to Service Providers, for example BT IPStream Services, BT Highway S Series, BT Central, BT DataStream, and BT VideoStream.

4.13 If, during or after the trial, and having examined evidence available to it, Oftel is of the view that the reduced regulatory notification period is disadvantaging customers, competition or competitors, or for any other reason is inappropriate, Oftel will take whatever action it considers necessary, which may include revocation of the consents. Otherwise, and in line with Oftel’s policy of proportionate regulation, the time period will be formally changed to one day.

4.14 A draft of the relevant consent is set out at Annex D. There will be a period of consultation on the form of the consent (see Chapter 5).

4.15 These decisions are deregulatory and are consistent with the principle of adopting a light-handed approach to regulation where appropriate and justified. Oftel believes that the regulatory changes outlined in this chapter will result in regulation that is proportionate to the level of competition and may provide BT with an incentive to compete more aggressively on price, thereby encouraging further competition in the retail market, to the benefit of consumers.

4.16 Some of BT’s competitors argued that any regulatory relaxation should be left until after the completion of the effective competition reviews being carried out in connection with the introduction of the new EU Directives. Oftel notes, however, that the reviews are intended to assess whether markets are competitive, which organisations have SMP, and to propose appropriate regulatory obligations. Oftel considers that the results of the trial will inform the reviews, and that on this basis it is appropriate to introduce the changes sooner rather than later. Furthermore, if the effects of these changes are beneficial to competition, and therefore to consumers and other customers, then there is no reason to delay them until the completion of the effective competition reviews, particularly given that the changes are being made on a trial basis and can be altered or revoked if necessary.

Application to other operators

4.17 In addition, as Oftel does not intend for any other licensed operator to be left in a position where it could potentially and without justification be subject to more onerous licence obligations than BT, Oftel proposes to grant a similar consent to Kingston Communications (Hull) plc, the only other operator so affected, in terms of its price publication and notification obligations.

4.18 A draft of the relevant consent is set out at Annex E. Again the consent excludes those wholesale products and services for which Oftel has reason to believe the market is not yet effectively competitive. A list of those products and services will appear on Oftel’s website (www.oftel.gov.uk). There will be a period of consultation on the form of the consent (see Chapter 5).

Oftel’s statement on competition in international markets

4.19 Oftel is publishing, simultaneously with this statement, its statement on Competition in International Markets. Oftel has reviewed competition on a number of IDD routes and proposes a relaxation in the regulatory requirements for a number of these routes. Additionally, the effect of this statement will reduce the notification period for charges, terms and conditions for all retail IDD routes from 28 days to one day.

  Chapter 5

Consultation on draft consents

Arrangements for making and viewing representations

5.1 Oftel seeks the views of customers and the industry on the draft consents at Annex D and Annex E of this statement, including the list of products and services to be excluded from the terms of the consent as proposed and outlined at paragraph 4.12 of this statement. Having considered any representations, the Director will, if appropriate, grant the consents. The closing date for submitting representations is Monday 29 April 2002.

5.2 Where possible, comments should be made in writing and sent by e-mail to andrew.walker@oftel.gov.uk. However, copies may also be posted or faxed to the address below. If any stakeholders are unable to respond in one of these ways, they should discuss alternatives with the Oftel manager named below:

Andrew Walker
Compliance Directorate
Oftel
50 Ludgate Hill
London
EC4M 7JJ

tel 020-7634 8909
fax 020-7634 8949

Further copies of this document

5.3 This document can be viewed in the Publications section of Oftel’s website at www.oftel.gov.uk/publications/lincensing/index.htm. Alternative formats such as large print, Braille, disc and audio cassette can be made available on request. Please contact Oftel’s Research and Information Unit by telephoning 020 7634 8761 or by sending an e-mail to infocent@oftel.gov.uk.

Publication of representations made by stakeholders

5.4 On this occasion, Oftel is not programming a formal period during which interested parties may comment on the representations made by others. However, in the interests of transparency, all representations will be published, except where respondents indicate that a response, or part of it, is confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly identified as containing confidential material. Oftel will take steps to protect the confidentiality of all such material from the moment that it is received at Oftel’s offices. However, in the interests of transparency, respondents should avoid applying confidential markings wherever possible.

5.5 Non confidential representations can be viewed on Oftel’s website in the Publications section under classification Responses to Oftel consultations. They can also be viewed at Oftel’s Research and Information Unit. Appointments must be made in advance (see contact details in paragraph 3).

  Annex A

Questions asked in the consultation document

In the consultation document which was issued on 28 June 2001, Oftel invited responses to the following specific questions:

1. What value do customers and organisations which represent the interest of telecoms users place on the obligation imposed on BT to maintain a published price list at all major public offices and the requirement to publish, 28 days in advance of launch, a notice drawing attention to price reductions, price increases and new tariffs? If the direct interests of customers are not being best served by these obligations, what new form should these requirements take?

2. Have BT’s competitors found the published price list helpful when considering whether to bring to Oftel’s attention allegations of anti-competitive behaviour? Do competitors believe that in the absence of an obligation to publish prices, operators with market power would be more likely to breach rules concerning undue preference and unfair discrimination? Does the obligation to publish details of tariff changes 28 days in advance of their implementation significantly help competitors to prevent anti-competitive behaviour, or would a shorter period of notice suffice?

3. To what extent do BT’s competitors rely on the existence of BT’s published price list when determining their own trading strategy? How is information from the published price list used? Is the 28 day advance warning of tariff changes important to competitors?

4. Do downstream competitors to BT believe that BT should continue to be obliged to provide extended notice of tariff changes for services which are used as components of services provided by others? Do competitors believe that any distinction should be made between price increases, price reductions or new product launches?

5. Can respondents supply evidence to support or disprove the view that BT’s obligation to publish prices is having a dulling effect on competition, by encouraging price following by BT’s competitors, by reducing the incentives on BT to cut its prices or by increasing the risk of tacit collusion? If so, can respondents supply any evidence that the obligation to publicise tariff changes 28 days in advance of implementation, rather than, say, one day in advance, is worsening the negative impact of price publication.

6. Can respondents point to any evidence to support, or refute, the view that price notification and/or publication obligations should be varied according to the characteristics of the market concerned? If so, what are the relevant criteria?

7. Do respondents have any market information, which might indicate whether there has been a change in the frequency or scale of price changes by BT and its competitors in respect of the 23 IDD routes and 19 IPLC routes determined to be competitive or increasingly competitive in March 2000. Can respondents detect any changes in the pattern of price changes, including, for example, changes to any patterns of price leading?

8. Setting aside the requirements of current legislation, do respondents see any merit in a withdrawal, on a generic basis, of the obligation to publish tariffs in respect of certain groups of services without first conducting a full review of competition in the relevant markets?

9. Do customers and groups which represent the interests of users of telecoms services believe that the period of notice, to be given before new tariffs are implemented, should be reduced and, if so, should a distinction be drawn between price increases and price reductions? How easily could such a distinction be made? What periods of notice would be appropriate?

10. Do respondents, including providers of telecommunications services which are reliant on other services purchased from BT, believe that, when reviewing price publication obligations on a generic basis, a distinction should be drawn between different types of service? If so, what distinctions should be recognised?

11. Do respondents believe that the present arrangements, which require BT to append a price change notice to the published price list, offer any advantages to customers or competitors, over and above an annotation in the main body of the price list? If not, what improvements could be made?

12. Is any evidence in favour of deregulatory action sufficiently robust to warrant Oftel proposing immediate and permanent changes to the price publication and/or advance price notification obligations contained in BT’s licence and the licences of other operators? If not, do respondents believe that an extended trial of reduced notice periods would be useful? Do respondents have any views on how the success or otherwise of the trial could be assessed? Are there other ways in which the merits of advance notification could be tested?

Annex B

Organisations responding to the consultation document

Oftel received responses to its June consultation from the following organisations (in alphabetical order):

• BT
• Cable & Wireless
• Calls and Access Interest Group (CAIG)
• Centrica
• COLT
• Consumer Communications for England (CCE)
• Energis
• Future Integrated Telephony plc
• Northern Ireland Advisory Committee on Telecommunications (NIACT)
• ntl:
• OneBill Telecom
• Telinet Solutions
• Thus

Comments on responses were received only from BT.

  Annex C

Summary of responses to the consultation document

C.1 The responses to the consultation document are summarised below in relation to each question asked. While the headings reflect those used in the consultation document, the way that some of the respondents set out their views means that there is some overlap between the various topics.

The impact of mandatory price publication

Q1 What value do customers and organisations which represent the interest of telecoms users place on the obligation imposed on BT to maintain a published price list at all major public offices and the requirement to publish, 28 days in advance of launch, a notice drawing attention to price reductions, price increases and new tariffs? If the direct interests of customers are not being best served by these obligations, what new form should these requirements take?

Protecting the interests of consumers

C.2 BT’s competitors and the consumer representative groups said that they placed a high value on BT’s obligation to publish a price list. Their responses emphasised the importance of retaining BT’s obligation to maintain a published price list, and a number mentioned the significance placed by consumers on the published price list, and the benefit it provided them in being able to assess prices and adjust their purchasing behaviour if they wished.

C.3 On the other hand, BT argued that the official price list was not the main vehicle by which the majority of customers obtained the information they needed, and that other means were available, including BT Update, the Pricing Information Service (accessible to customers by telephone or the Internet) and BT’s website. BT added that other organisations provided information services comparing charges of different telecoms operators, such as www.phonebills.org.uk. Given this range of sources, BT believed that the obligation in Condition 7 of its licence, to publish a price list and to make it available in its Major Offices, was all that was required to protect consumers. However, BT also noted that it had a contractual obligation to provide 14 days’ notice of price changes and was also required to comply with consumer protection legislation.

C.4 A number of respondents also commented on the method of publication of the price list. These comments are discussed in more detail below in paragraph C.30.

Q2 Have BT’s competitors found the published price list helpful when considering whether to bring to Oftel’s attention allegations of anti-competitive behaviour? Do competitors believe that in the absence of an obligation to publish prices, operators with market power would be more likely to breach rules concerning undue preference and unfair discrimination? Does the obligation to publish details of tariff changes 28 days in advance of their implementation significantly help competitors to prevent anti-competitive behaviour, or would a shorter period of notice suffice?

Allowing the regulator, and others, to monitor compliance with licence obligations

C.5 OLOs and SPs were unanimous in their view that the published price list was necessary for BT’s competitors to identify and evaluate potential licence breaches and potentially anti-competitive behaviour. For example, predatory pricing, margin squeezing, and undue discrimination in favour of its own retail business. One respondent quoted a recent case of BT’s wholesale ADSL/Openworld pricing as an example of margin squeezing which had been identified with the benefit of BT’s published price list

C.6 Some OLOs considered the price list to be "critical" in identifying such behaviour and in obtaining the prima facie evidence required by Oftel for an investigation, and believed that the threat of anti-competitive damage which BT could inflict meant that it was essential that price changes remained subject to a 28 day notification period. OLOs argued that the information which Oftel expected them to provide when bringing forward a competition complaint was very comprehensive and, in the absence of price publication by BT, would lead to a greater reliance on Oftel to conduct the required analyses in a timely manner.

C.7 OLOs and SPs argued that, in the absence of structural reform of BT, maintenance of the present requirements was particularly important because of BT’s status as a vertically integrated company, providing both wholesale and retail services. OLOs believed that the absence of the published price list would allow BT to apply margin squeezes and to engage in undue discrimination more easily as such behaviour would be significantly harder to identify. Competitors also expressed support for the application of price publication and notification obligations in downstream markets where BT was dominant in the upstream market, regardless of whether BT was also dominant in the downstream market.

C.8 BT, on the other hand, did not regard price publication or price notification as useful tools for identifying anti-competitive behaviour, and claimed that few complaints had arisen from either of them, let alone proved valid. BT also believed that there were effective industry procedures in place (for example, supplier information notes, service provider information notes) which assist in the prevention of undue discrimination or preference.

C.9 BT argued that the nature and speed of information provision has changed greatly since 1984 (when the current controls were introduced) and that competitors were now able to disseminate information and ascertain the effect of the information on their own products within very short timescales. BT noted also that Oftel now had available to it significantly more information, than was previously available, for the purpose of monitoring and policing compliance with licence obligations.

Q3 To what extent do BT’s competitors rely on the existence of BT’s published price list when determining their own trading strategy? How is information from the published price list used? Is the 28 day advance warning of tariff changes important to competitors?

Q4 Do downstream competitors to BT believe that BT should continue to be obliged to provide extended notice of tariff changes for services which are used as components of services provided by others? Do competitors believe that any distinction should be made between price increases, price reductions or new product launches?

Helping competitors to compete with operators with market power

C.10 Responses from OLOs and SPs indicated that they did use BT’s published prices to assist them in positioning their products against those of BT. SPs contended that competitors were able to compete more effectively when the prices of a supplier with SMP were made highly visible, and said that this was particularly important at a stage when competition was not yet fully effective and where BT was still a vertically integrated company.

C.11 For example, one respondent noted that, because BT was now competing more on the basis of discount packages, it could not ignore what BT was doing with its pricing, so it used the price list and notifications to monitor its position. One OLO noted that there were incentives to present pricing in similar components to BT to enable customers to compare products more easily, but then to differentiate its services on price and other factors to obtain a competitive advantage (even if they were in the same format). Competition on quality was also mentioned by another OLO which said that it had moved away from a strategy of undercutting BT’s prices and now competed on basis of other factors such as quality, and service differentiators, so that its strategy was no longer determined by the BT price list.

C.12 However, BT argued that placing pricing information in the public domain well ahead of the effective date encouraged other operators to price below BT, which removed the incentives for OLOs to compete with each other by aggressive innovation, so dulling competition. BT believed that some competitors used BT prices as a benchmark in setting prices, and said that this was reflected in marketing literature: in particular this applied to operators with limited market intelligence resources, meaning that they were less likely to introduce innovative pricing. BT believed that the removal of the price notification requirements was likely to benefit consumers by increasing the likelihood of innovative pricing.

C.13 Some BT products and services are included in the published price list, but are used as inputs to, or components of, products and services provided by BT’s competitors and form part of their cost base. It was clear from the responses BT’s competitors considered the price list and the advance notification period to be important. In particular, there was strong support from OLOs and SPs for the view that products and services in the BT price list which formed part of the inputs for OLOs’ own products and services were a special case and that BT should continue to be obliged to provide extended notice of changes to these services. Advance price notification allowed OLOs and SPs to monitor changes to these prices as they could affect the viability of their own retail products.

C.14 The majority of the responses supported the view that the retail price list included some wholesale elements and that BT had market power in supplying many of these. OLOs considered that in these cases the potential for BT to engage in margin squeezing was a cause for concern. A number of OLOs and SPs said that contractual obligations to notify their own customers of price changes was also a particular concern (especially for calls & access providers). A number of OLOs were of the view that the notification period for these wholesale products/services should actually be increased, and cited the requirement under the NCCN regime for non-competitive services to be subject to a 90-day notification period.

C.15 Another OLO noted that it would normally have a provision in its contracts enabling its customers to terminate in the event of an unreasonable price increase, but that BT always refused to agree to such conditions, only complying with its price notification obligation. Without advance notification, the operator said it would have no recourse whatsoever in the event of substantial price increases. One OLO did not, however, support the distinction between wholesale and retail products and emphasised that visibility of pricing in both downstream and adjacent upstream markets was required in order to identify potentially anti-competitive behaviour.

Q5 Can respondents supply evidence to support or disprove the view that BT’s obligation to publish prices is having a dulling effect on competition, by encouraging price following by BT’s competitors, by reducing the incentives on BT to cut its prices or by increasing the risk of tacit collusion? If so, can respondents supply any evidence that the obligation to publicise tariff changes 28 days in advance of implementation, rather than, say, one day in advance, is worsening the negative impact of price publication.

Negative impact on competition/price following

C.16 OLOs noted that they could not ignore what BT did in terms of pricing, and they used the price list to monitor their market position to ensure that they were offering value to their customers. Others, while unwilling to comment on the extent to which they were influenced by the existence of BT’s retail price list, said that the existence of a dominant provider, combined with a lack of transparency of input prices, was likely to mean that competitors placed considerable emphasis on the 28 day advance notification period. Another OLO noted that, given its contractual obligation to give customers 14 days notice of tariff changes, the 28 day notice period gave it only 14 days in which to consider its response to the price change and to notify its customers if it wanted to implement a price change the same day as BT.

C.17 However, one OLO considered that BT flouted the notification process by introducing new tariffs and products to customers prior to the notification period, and often sold on the basis of prices not yet published, so the price list was not a useful tool on which to base competitive bidding for a new customer. Accordingly, this OLO refuted any suggestion that the publication and notification of prices could in this instance lead to price following or any form of tacit collusion.

Collusion/disincentives arising from loss of first mover advantage

C.18 The majority of respondents disagreed with the proposition that price publication and notification had a dulling effect on competition or resulted in collusion of some sort. None, however, provided Oftel with any evidence.

C.19 A number of respondents argued that collusion was a function not of advance price notification but of market structure. They claimed that any argument about collusion would fail at the first hurdle because the market was not oligopolistic, and not structured in a way which would be capable of reaching a collusive outcome. The respondents argued that as BT was by far the largest player there was little risk of any form of collusion, whether tacit or otherwise.

C.20 Another argument put forward by OLOs was that the problem was not price publication in the downstream market, but the supply of upstream inputs by BT. As such, collusive behaviour was extremely unlikely. Further, they argued that there were actually major incentives for operators not to follow BT’s prices but to undercut each other.

C.21 In addition, one OLO commented that data published by Oftel in its Price Control Review, Protecting consumers by promoting competition - Consultation on Oftel's review of the fixed telephony market (published 31 January 2002), suggested that BT did face price competition in that it had reduced its prices by more than that required by the price control regime, which would not be the expected outcome if operators were colluding.

C.22 BT provided separate economic analysis of the effect of price notification and publication, as well as information about regulatory regimes overseas. It also provided evidence of effects outside telecommunications, such as the airline industry, and concluded that the studies showed that arguments in favour of price publication were not always supported by practical evidence, and that in fact there was evidence that price publication may often result in higher prices to consumers.

Q6 Can respondents point to any evidence to support, or refute, the view that price notification and/or publication obligations should be varied according to the characteristics of the market concerned? If so, what are the relevant criteria?

Regulation appropriate to different market structures

C.23 Some OLOs and SPs argued that the relevant test should be whether an operator held market power in the relevant market and, for downstream markets, in an adjacent upstream market in order to be able to identify margin squeeze strategies. That is, rather than concentrating on whether the retail market was competitive or not, Oftel should also be looking at the relevant wholesale market for market power.

C.25 BT, however, believed that the issues were ones of general policy, which should be considered as a whole.

Q7 Do respondents have any market information, which might indicate whether there has been a change in the frequency or scale of price changes by BT and its competitors in respect of the 23 IDD routes and 19 IPLC routes determined to be competitive or increasingly competitive in March 2000. Can respondents detect any changes in the pattern of price changes, including, for example, changes to any patterns of price leading?

Impact of previous deregulatory action in the UK

C.26 Other than BT, none of the respondents provided information as to the effect of the reduction of BT’s price publication obligation on IDD routes or international private leased circuit routes.

C.27 BT provided evidence on changes to its IDD headline prices. In March 2000, Oftel had issued a determination which, inter alia, reduced the advance notification period for 23 IDD routes to one day. BT said that after March 2000 it had reduced IDD prices significantly on the specified 23 routes, to the benefit of consumers and without evidence of any prejudice to competitors.

Options for the future

Q8 Setting aside the requirements of current legislation, do respondents see any merit in a withdrawal, on a generic basis, of the obligation to publish tariffs in respect of certain groups of services without first conducting a full review of competition in the relevant markets?

The approach

C.28 None of the responses from OLOs and SPs supported a relaxation of the current price publication and notification obligations. Instead, they supported the view that there should be full market reviews of the relevant market(s) before any withdrawal of obligations to publish tariffs in those markets. They argued that this was necessary in order to maintain transparency and confidence in the industry. One OLO said that Oftel's current review of Competition in the Provision of Fixed Telephony Services offered such an opportunity.

C.29 However, as noted above, BT believed that the issues were ones of general policy which underpinned UK regulation as a whole, and should therefore be considered as a stand-alone policy and not part of separate market reviews, which would take a long time.

Maintenance of a published price list

Q9 Do customers and groups which represent the interests of users of telecoms services believe that the period of notice, to be given before new tariffs are implemented, should be reduced and, if so, should a distinction be drawn between price increase and price reductions? How easily could such a distinction be made? What periods of notice would be appropriate?

Q10 Do respondents, including providers of telecommunications services which are reliant on other services purchased from BT, believe that, when reviewing price publication obligations on a generic basis, a distinction should be drawn between different types of service? If so, what distinctions should be recognised?

Advance public notification of tariff changes

C.31 None of the OLOs or SPs supported a reduction of the price notification period from the current period of 28 days. They maintained that a period of less than 28 days would be insufficient for BT’s competitors to identify anti-competitive behaviour and for Oftel to prevent it easily, particularly when it takes Oftel considerably longer to complete an investigation and in light of the fact that the courts would expect OLOs to have exhausted all regulatory remedies first.

C.32 A number of respondents also expressed dissatisfaction with what they regarded as the alternative, being ex post measures imposed by Oftel. One OLO noted that, without the 28 day notification period, Oftel was likely to receive a substantially higher number of complaints because OLOs would have to speculate on BT’s behaviour without having any hard evidence. Another OLO said that although it believed there was a problem with lack of action on Oftel’s part, it would rather allow the possibility of an ex ante investigation by Oftel rather than ex post measures.

C.33 Consumer representative groups favoured the removal or reduction of the advance notification obligation for price decreases if the current obligations were having a detrimental effect on competition, although they favoured the retention of the 28 day notification period, one noting that this was of direct interest to consumers. However, the majority of respondents did not appear to support a distinction between price increases and decreases, on the basis that BT’s behaviour with price decreases (which might indicate margin squeezing) was just as great a concern as with price increases (which may indicate super-normal profits).

C.34 BT also favoured drawing no distinction between price increases and decreases on the basis that it is sometimes difficult to assess whether a price change is an increase or decrease. It explained that price changes often comprised a mixture of changes to the individuals prices, terms and conditions and, while a new package may represent an overall price reduction, some elements may be more expensive.

C.35 For new product launches, a number of respondents expressed a strong view in favour of an increase in the notification period for these services, above the current 28 days, in order to ensure that there was an equivalent wholesale product available to BT’s competitors to enable them to launch products simultaneously. A particular concern raised in a number of responses was that they believed that information on BT price changes and new products may be shared with other BT divisions before it was disclosed publicly, thereby giving BT’s own retail business time to get products ready.

C.36 One OLO favoured making a distinction between new services which could substitute for an existing service in a market in which BT was dominant (in which case the notification period should be more than 28 days), and other services (in which case the notification period should remain at 28 days).

C.37 BT said that it informed competitors in advance of any new component elements through supplier information notes and service provider information notes, and that these were issued typically in advance of the normal 28 day notification period. BT criticised the present regime, arguing that it neither lent itself to bringing products rapidly to market nor allowed the industry the flexibility required to react to market conditions, and said that this was not in customers’ interests. BT argued that if a downstream operator (whether BT Retail or anyone else) wanted to launch a new or enhanced service where a change to a BT service is required, it would not be able to benefit from any first mover advantage as a new service would have to be developed and notified to others in advance of the launch.

C.38 On the distinction between different types of service, OLOs and SPs supported maintaining the distinction between services purchased by end-users (from BT Retail) and those purchased by OLOs or SPs which then sold on those services as part of their own retail products in competition with BT Retail (such as BT Wholesale’s Calls & Access service). For these latter services, OLOs and SPs supported the maintenance of the 28-day notification period, or indeed an increase, for example to something similar to the notification periods in the network charge control (NCC) regime, which are set at 90 days for non-competitive services.

C.39 OLOs and SPs highlighted the fact that 28 days advance notification of price changes for these services was essential to allow them to assess the impact of the changes to their cost base and whether to continue to supply their products and services. Respondents also highlighted the need as an important reason, under their own customer contracts, to give notice of price changes.

C.40 BT believed that a distinction should be made between services covered by EU Directives and those that were not. BT also distinguished between services supplied where there was effective competition and those where there was not.

C.41 BT argued that services covered by its price publication and notification obligations should be limited to those covered by EU Directives, and that the notice period be reduced to a maximum of 14 days. BT maintained that its obligations should be based on the requirements of the RVTD and LLD, and that the services covered should be limited to those covered by these directives. BT proposed that where an operator had SMP, there should be no notice requirement where there was effective competition, 1 day’s notice if increasingly competitive and 14 days’ notice in other cases. For services not covered by those directives, BT proposed that if Oftel considered that particular prices needed to be notified and published, this should be considered on a case by case basis and determinations be made accordingly.

Q11 Do respondents believe that the present arrangements, which require BT to append a price change notice to the published price list, offer any advantages to customers or competitors, over and above an annotation in the main body of the price list. If not, what improvements could be made?

Method of publicising tariff changes for competitors and for customers

C.42 As noted above in paragraph C.30, some operators believed that the requirement to make the price list available at major BT offices may now be out of date, and would be satisfied with a requirement to publish an Internet version. Other than this, respondents (other than BT) supported the continuation of the present requirements.

C.43 In particular, they favoured BT being required to notify Oftel of price changes separately and to draw attention to price changes via notices. Respondents argued that any changes to these requirements would only make it more difficult to identify potentially anti-competitive behaviour.

C.44 One OLO favoured a requirement on BT to maintain hard copies of price notifications for six months and to maintain a subscriber email list, which they said would ensure that notifications would not be withdrawn at a later time, and would also be made on time, not 3-4 days later as sometimes happened.

C.45 BT argued that price changes should appear in the main body of the price list rather than in a separate notification section. It believed that this would not be to the detriment of consumers, who would still be able to obtain information on current prices. As for its competitors, BT believed that the present arrangements of a separate notification section increased the risk of distortions in competition, allowing competitors to be reactive rather than proactive. BT considered that the inclusion of price changes in the body of the price list allowed those interested in particular sections to keep those under review, while giving competitors incentives to form their own independent view of the best trading strategy: this would remove distortions in competition.

Q12 Is any evidence in favour of deregulatory action sufficiently robust to warrant Oftel proposing immediate and permanent changes to the price publication and/or advance price notification obligations contained in BT’s licence and the licences of other operators? If not, do respondents believe that an extended trial of reduced notice periods would be useful? Do respondents have any views on how the success or otherwise of the trial could be assessed? Are there other ways in which the merits of advance notification could be tested?

Next steps – immediate change or trial?

C.46 Neither of the two consumer representative organisations was unequivocal about reducing the notification period: for example one favoured the retention of a 28 day notification period for price increases. Both were in favour of a trial period, with one supporting a move toward reducing legislative regulation and developing self and co-regulation.

C.47 None of the OLOs or SPs favoured a reduction in the notification period, so the issue for them of how to implement any changes was largely immaterial. They argued strongly that the evidence did not warrant any immediate or permanent changes. They also maintained that any changes to the current process would make it impossible to identify and prove anti-competitive behaviour on the part of BT as they would not have access to the necessary information. One operator said that it would agree to the reduction in controls only if Oftel was prepared to grant provisional orders to cease alleged anti-competitive behaviour while it was carrying out investigations, and that regulation should be removed only after any ex post measures had been fully tested.

C.48 None of the operators support the use of a trial period and believe that any regulatory changes in future should be made permanent to reduce regulatory uncertainty.

C.49 BT, on the other hand, believed that the arguments it put forward, and the evidence from overseas and from other industries justified Oftel making immediate and permanent changes to the price publication and notification obligations.

  Annex D

Draft BT consent

Consent

Telecommunications Act 1984

British Telecommunications Plc

Consent under Conditions 54, 55 and 58

Whereas:

1. on 22 June 1984, the Secretary of State granted a licence (the "Licence") to British Telecommunications under section 7 of the Telecommunications Act 1984 (the "Act") for the running of the telecommunications 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. on 23 December 1997, in accordance with regulation 4(1) of the Telecommunications (Interconnection) Regulations 1997 (S.I. 1997/2931), the Director General of Telecommunications (the "Director") determined that BT has significant market power in the market for fixed public telephone networks and fixed public telephone services and in the market for leased lines;

4. on 20 July 1998, in accordance with regulation 6 of the Telecommunications (Open Network Provision) (Voice Telephony) Regulations 1998 (S.I. 1998/1580), the Director determined that BT has significant market power in the markets for fixed public telephone systems and voice telephony services;

5. Condition 54.5 of the Licence provides that BT shall only implement changes to its tariffs referred to in Condition 54 28 days after publication of such changes, except where the Director has consented in writing to a shorter notice period;

6. Condition 55.4 of the Licence provides that BT shall only implement new charges, or changes to its charges. terms and conditions referred to in Condition 55, 28 days after notifying the Director of such introduction or changes, except in so far as the Director may otherwise consent in writing;

7. Condition 58.2 of the Licence requires BT to send to the Director a notice specifying, or specifying the method to be adopted for determining, the charges, terms and conditions on which it offers to provide each description of telecommunication service which the Licensee is obliged to provide for the purposes of parts A or B of the Licence, or in the market determined by the Director for the purposes of part F of the Licence;

8. Condition 58.4 of the Licence requires BT to send to the Director a notice of any amendment to charges, terms and conditions (or the method of determining the same) referred to in the notice described in Condition 58.2 of the Licence not less than 28 days before such amendment comes into effect;

9. Condition 58.1 of the Licence provides that, for the purposes of Parts A and B of the Licence, BT shall publish prices and act in the manner set out in Conditions 58.2 to 58.6 of the Licence, except in so far as the Director may otherwise consent in writing;

10. in November 2000, BT requested that the Director review its price publication and notification obligations with a view to reducing these obligations. The request related primarily to Conditions 54, 55 and 58 of BT’s Licence;

11. in June 2001 the Director issued a consultation document ‘BT’s Regulatory obligations to provide advance notification of price changes and to maintain a published price list’ seeking views on whether those obligations ought to be reduced;

12. taking account of the responses to the June 2001 consultation document, the Director is minded to grant his consent under Conditions 54,55 and 58 of the Licence to a reduction in the advance notification period for tariff changes from 28 days to one day, save for those wholesale products and services in markets which the Director has reason to believe are not yet effectively competitive. A list of such products and services will appear on the website of the Office of Telecommunications (www.oftel.gov.uk). The consent will expire on […(date to be inserted – 18 months from the consent coming into force] 2003;

13. the Director has consulted BT and interested parties on this consent and has taken into consideration all responses to that consultation, and the matters set out in Chapter 4 of the Statement "BT’s regulatory obligations to provide advance notification of price changes and to maintain a published price list" of 26 March 2002; and

NOW THEREFORE THE DIRECTOR CONSENTS AS FOLLOWS:

1. pursuant to Condition 54.5 of the Licence, the Director hereby consents to the reduction of the notice period referred to in Condition 54.5 from 28 days to one day in respect of BT’s tariffs referred to in Condition 54;

2. pursuant to Condition 55.4 of the Licence, the Director hereby consents to the reduction of the notice period referred to in Condition 55.4 from 28 days to one day in respect of BT’s charges, terms and conditions referred to in Condition 55; and

3. pursuant to Condition 58.1 of the Licence, the Director hereby consents to the reduction of the notice period referred to in Condition 58.4 from 28 days to one day in respect of BT’s charges, terms and conditions for the services referred to in Condition 58.2;

4. this Consent shall not apply in respect of wholesale products and services in markets which the Director has reason to believe are not yet effectively competitive; and

5. unless the context otherwise requires, words and phrases in this consent shall have the meanings ascribed to them in the Licence or the Act, as appropriate.

6. This Direction shall remain in force until […] 2003 unless earlier revoked by the Director.

DAVID EDMONDS

Director General of Telecommunications

[Date]

  Annex E

Draft Kingston consent

Consent

Telecommunications Act 1984

Kingston Communications (Hull) plc

Consent under Conditions 54, 55 and 58

Whereas:

1. on 30 November 1987, the Secretary of State granted a licence (the "Licence") to Kingston upon Hull City Council and Kingston Communications (Hull) Plc ("Kingston") under section 7 of the Telecommunications Act 1984 (the "Act") for the running of the telecommunications systems specified in Annex A to the Licence;

2. on 27 September 1999, Kingston Upon Hull City Council’s interest in respect of the Licence was revoked;

3. on 23 December 1997, in accordance with regulation 4(1) of the Telecommunications (Interconnection) Regulations 1997 (S.I. 1997/2931), the Director General of Telecommunications (the "Director") determined that Kingston has significant market power in the market for fixed public telephone networks and fixed public telephone services and in the market for leased lines;

4. on 20 July 1998, in accordance with regulation 6 of the Telecommunications (Open Network Provision) (Voice Telephony) Regulations 1998 (S.I. 1998/1580), the Director determined that Kingston has significant market power in the markets for fixed public telephone systems and voice telephony services;

5. on 15 July 1997, the Director granted a consent (the "existing consent") under Condition 15 of the Licence, so that the period of twenty-eight days was reduced to fourteen days for purposes of the obligation on Kingston under that condition to notify the Director of an amendment to any of its charges and other terms and conditions before they are due to become effective, where the amendments proposed are a direct consequence of amendments to the charges payable by Kingston to certain operators specified in that consent;

6. the Licence was modified with effect from 27 September 1999 by the Telecommunications (Licence Modification) (Kingston Communications (Hull) PLC) Regulations, S.I. 1999 No. 2455, as subsequently amended by the Telecommunications (Licence Modifications) (Amendment No. 2) Regulations 2000, S.I. 2000 No. 2998 (the "Regulations"), so that new price and tariff publication requirements were specified in Condition 58 of Part G of, Condition 5