Draft Direction under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 relating to disputes between British Telecommunications plc ("BT") and 90 licensed operators ("the Operators") over termination charges for internationally originated calls to UK 0845 and 0870 numbers.

Contents

The Draft Direction

Explanatory Memorandum

Chapter 1 Summary

Chapter 2 Background

Chapter 3 History of the dispute

Chapter 4 Submissions of the parties

Chapter 5 The Director General’s considerations 22

Chapter 6 Consultation and timetable for responses 29

Annex A Schedule of Operators in dispute with BT

Annex B Schedule of Operators making submissions to the Director General

Glossary

Draft Direction under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 relating to disputes between British Telecommunications plc ("BT") and 90 licensed operators ("the Operators") over termination charges for internationally originated calls to UK 0845 and 0870 numbers.

WHEREAS:

(A) The Secretary of State granted to British Telecommunications plc on 22 June 1984 a licence ("the BT licence") under section 7 of the Telecommunications Act 1984 ("the Act") for the running of telecommunications systems specified in that licence;

(B) By virtue of section 109 and paragraph 20 of schedule 5 to the Act the BT licence has effect as if granted to British Telecommunications plc ("BT");

(C) The Secretary of State has granted to each of the Operators set out in Annex A to this direction ("the Operators") a licence under section 7 of the Act for the running of a telecommunications system as specified in that licence;

(D) Each of the Operators entered into a Standard Interconnect Agreement ("the Agreements") with BT on the dates set out in Annex A to this direction;

(E) The Agreements cover charges that BT pays to the Operators for interconnect services and provides for BT or the Operators to propose a revised charge and the date on which the variation is to become effective by way of issuing an Operator Charge Change Notice ("OCCN");

(F) BT proposed to the Operators by way of an OCCN on 14 January 2002 a revised charge for the termination of internationally originated calls to UK 0845 and 0870 numbers;

(G) The Operators either rejected or failed to agree to BT’s proposal set out in the OCCN dated 14 January 2002 and a dispute has arisen;

(H) On 10 May 2002, in accordance with the provisions of Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 ("the Regulations"), BT referred the dispute to the Director General of Telecommunications ("the Director General") for determination;

(I) Regulation 6(6) of Regulations provides that where there is a dispute concerning interconnection between organisations, the Director General shall, at the request of either party, take steps to resolve the dispute within six months of the date of the request. The direction which the Director General makes to resolve the dispute must represent a fair balance between the legitimate interests of the parties, and must be notified to the parties in accordance with Regulation 8(3). The parties are entitled to a full statement of the reasons on which the direction is based;

(J) The Director General has considered, inter alia, the information provided by the parties and the matters set out in Regulation 6(8) of the Regulations. The principal points are summarised in the explanatory memorandum that accompanies and is published with this direction;

(K) The Regulations place upon the Director General the general responsibility to encourage and secure adequate interconnection in the interests of all users;

(L) The Director General issued a draft of this direction and the explanatory memorandum that contains the Director General’s reasons on [.....] 2002 and responses were invited by [......] 2002;

(M) Comments were received from [....] as detailed and discussed in sections [...] and [...] of the explanatory memorandum which accompanies, and is published with, this direction. These comments have been taken into consideration by the Director General in making this direction;

NOW, THEREFORE, THE DIRECTOR GENERAL, PURSUANT TO REGULATION 6(6) OF THE REGULATIONS AND HAVING CONSIDERED THE VIEWS OF THE PARTIES AND THOSE MATTERS SET OUT IN REGULATION 6(8) OF THE REGULATIONS, HEREBY MAKES THE FOLLOWING DIRECTION TO RESOLVE THE DISPUTE BETWEEN BT AND THE OPERATORS:

HEATHER CLAYTON
DIRECTOR OF INVESTIGATIONS

A person authorised under Paragraph 8 of Schedule 1 to the Telecommunications Act 1984

[…..] 2002

Explanatory Memorandum

1. Summary

1.1 The Director General of Telecommunications ("the Director General") has issued a draft Direction under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 ("the Regulations") for the resolution of a dispute between British Telecommunications plc ("BT") and the 90 Operators at Annex A to the draft Direction ("the Operators") under the terms of their Standard Interconnect Agreements ("SIAs"). This draft Direction sets out the decision the Director General is minded to make to resolve disputes concerning the Operators’ charges, payable by BT, for the termination of internationally originated calls to UK 0845 and 0870 numbers.

1.2 BT referred this dispute to the Director General on 10 May 2002. The Director General has considered the submissions made by BT and the Operators and has issued a draft Direction and Explanatory Memorandum in respect of this dispute on 30 August 2002 to the industry as a whole for consultation. Comments are requested and will be taken into account in making a final Direction.

1.3 The details of the Director General’s consideration of the submissions made by BT and the Operators, together with the reasons why the Director General is minded to make this draft Direction, are set out in Sections 4 and 5. The Director General is minded to direct that the Operators shall not be required to sign and return BT’s OCCN of 14 January 2002 proposing charges for termination of internationally originated calls to 0845 and 0870. Charges shall remain as currently agreed in the SIA of BT and each Operator.

1.4 Having considered the facts specific to this dispute and the matters set out in Regulation 6(8) of the Regulations, this draft Direction, in the opinion of the Director General, represents a fair balance between the interests of the parties in each case, having regard to the Director General’s wider duties to promote the development of the telecommunications industry in the UK and to encourage and secure adequate interconnection in the interests of all users in a way that provides maximum economic efficiency and gives the maximum benefit to end users.

2. Background

2.1 The term Number Translation Services ("NTS") describes a range of specially tariffed services such as those operating within the number ranges 080x (Freefone), 0845 (local call fee access or LCFA), 0870 (national call fee access or NCFA) and 0900/0901 (Premium Rate Services or PRS). These services are offered at specific price points in order that customers calling from any fixed network will be able to associate the number range with a particular pricing arrangement. For example, 080X calls are free to the caller. Please note that this draft Direction relates only to LCFA (0845) and NCFA (0870) calls.

2.2 In previous NTS directions Oftel has given a detailed description of the NTS revenue sharing arrangements and how they were arrived at. Most operators are now familiar with this narrative and it is not, therefore, repeated in this document. Anyone wishing to read the detailed description can refer to Oftel’s earlier NTS directions (also known as determinations) listed under ‘Publications’ on Oftel’s website.

Changes to the NTS regime from 1 January 2000

2.3 In December 1999 Oftel published its "Statement on the Relationship between Interconnection Charges and Retail Prices for Number Translation Services", now known as "the NTS Statement".

2.4 This statement followed a lengthy discussion and consultation exercise in response to a general industry view that the NTS formula constrained the ability of terminating operators ("TNOs") to exercise sufficient control over their NTS revenues. The new regime was intended to allow terminating operators to establish the price at which they would be remunerated for NTS calls. This price would then be added to BT’s regulated call origination charge plus any transit charges, where appropriate, to establish the retail price for their service.

OCCN Process

2.5 Clause 13 of the SIAs describe the process used by operators, including BT, for offering and amending charges in payment for access to another operator’s services, including NTS. Where BT (as an originating operator) proposes to change either its retail price or its interconnect charge for call origination (in a way which results in a change to the price paid to the terminating operator for terminating calls) it issues an Operator Charge Change Notice ("OCCN"). Similarly, where a terminating operator proposes a change to its terminating payment it issues an OCCN to BT proposing the new charge.

2.6 The operator receiving the OCCN has 14 days to decide whether to accept or reject the proposed new charge and to notify the originator of the OCCN. Failure to notify within 14 days signals a rejection of the proposal. Where the proposal is rejected, both operators have a further 14 days to settle the resulting dispute. If after this second period the dispute remains unsettled, either operator may refer the dispute to the Director General. On referral of a dispute, the Director General is under an obligation to carry out a full investigation and take steps to determine the outcome within six months.

Internationally originated calls to 0845 and 0870

2.7 Calls originated outside the UK are originated by overseas operators not subject to the NTS regulatory regime in the UK or to Oftel’s Numbering Conventions. A call originated outside the UK may be carried into the UK by the same operator if its business carries on in both the originating country and the UK, and if a direct path for conveyance of the call exists. More usually, however, a call will be passed from the overseas originating operator to an intermediary for conveyance into the UK. In the case of BT Group, Communications Networking Services ("CNS") contracts with overseas operators to carry calls into the UK and charges the overseas operator for onward transit and termination of the call within the UK. CNS hands the call to BT at a Digital International Switching Centre (‘DISC’) and the call transits the BT network to its destination at the relevant TNO. Calls via operators competing with CNS function in broadly the same way. An operator will contract with overseas operators to carry the calls into the UK and either hand the traffic to TNOs direct if a direct interconnection exists, or else pass the traffic via BT for transit to its destination.

2.8 In terms of equivalence with the NTS regime and a call originating and terminating in the UK, BT is acting solely as a transit operator in this scenario (although BT does, of course, also operate in the NTS termination market as well). CNS and its competitors are essentially also transit operators carrying a call from an overseas originating operator and either handing it over direct to a TNO, or else to BT for onward transit and termination. In order to cover costs transit operators must ensure that charges to overseas originating operators are sufficient to cover their own costs of conveyance plus out-payment for termination in the UK.

3. History of the dispute

Prior history

3.1 In October 2001 CNS, trading as Concert Communications at the time, gave notice to BT that it proposed to significantly reduce payments made to BT for the onward transit and termination of internationally originated calls to UK 0845 and 0870 number ranges. CNS issued an OCCN to BT dated 2 November 2001 proposing a reduction in BT’s charges which BT subsequently accepted. The revised charges came into effect on 12 March 2002. Having agreed to the charges proposed by CNS in advance of negotiating appropriate revision of charges paid by BT to TNOs, BT was potentially placing itself in the position of carrying the relevant traffic at a loss from 12 March 2002.

3.2 As a result of BT’s potential loss making position in carrying internationally originated 0845 and 0870, BT sought to review charges payable to TNOs in the UK. At a meeting of the Standard Contract Forum on 13 December 2001, operators were briefed on the issue by CNS. BT issued an Industry Notice on 17 December 2001 stating that it intended to issue an OCCN to operators reducing the payments made to TNOs for terminating internationally originated 0845 and 0870 calls.

3.3 On 14 January 2002 BT issued an OCCN to 129 operators proposing a decrease in charges payable to TNOs for internationally originated 0845 and 0870 with effect from 12 March 2002. The effect of the OCCN would be to reduce TNOs’ receipts for terminating internationally originated traffic significantly, by up to approximately 90% less than the equivalent payment for UK originated traffic. 107 operators initially either rejected or failed to accept BT’s OCCN. A number of operators have subsequently agreed to BT’s OCCN but 90 remain in dispute.

Disputes referred to the Director General

3.4 On 10 May 2002 BT referred disputes with the Operators to the Director General for resolution. The Operators, who remain in dispute with BT, will be subject to the direction the Director General is minded to make resolving these disputes unless the parties reach commercial agreement in the meantime.

Information sought by the Director General

3.5 Following referral of these disputes by BT the Director General has sought information from the parties concerned. The relevant submissions are outlined in section 4. A number of parties to the dispute, however, have failed to provide any submission to the Director General in respect of this dispute or to provide reasons for failing to accept BT’s proposals as set out in its OCCN. The Director General sought the views of such operators by letter dated 30 May 2002 sent by recorded mail. On 2 July 2002 the Director General wrote again by recorded mail to those among the Operators who had failed to provide a response to his initial letter. The Director General considers he has made reasonable endeavours to solicit an understanding of all operators’ positions in respect of this matter before reaching his preliminary conclusions outlined in the draft Direction and accompanying explanatory memorandum.

4. Submissions of the parties

4.1 BT, CNS and the operators set out in Annex B to this draft Direction ("the Annex B Operators") have each made submissions to the Director General on the matters relevant to these disputes. BT has made a submission on the basis of its position as a transit operator of the relevant traffic. CNS has made representation to the Director General on the reasons behind its decision to propose lower out-payments to BT in the first instance. The Annex B Operators have made submissions in response to the OCCN issued by BT and the arguments made by CNS and BT supporting those proposals. Relevant submissions are set out in summary below. Where a number of the Annex B Operators have submitted the same or similar arguments a concentrated response is supplied for sake of clarity in presenting the relevant arguments.

BT submissions

BT as a transit operator

4.2 BT argued that the proposals outlined in its OCCN to reduce TNOs’ charges for internationally originated traffic simply reflected its position as a transit operator of the traffic. CNS had reduced the amount it paid BT for terminating the traffic so BT had no option but to propose similar to TNOs or be faced with carrying the traffic at a loss. BT rejected arguments put forward by the Operators that it was acting on behalf of CNS in seeking to reduce TNO out-payments. BT argued it was simply, as a transit operator, seeking to implement commercial terms appropriate to its position given that CNS had reduced the payments it made to BT for terminating the traffic.

The negotiation process

4.3 BT believed it had negotiated in good faith with the Operators on this issue. It had attempted to brief interested parties at a number of industry wide forums. BT said the Operators were fully briefed by CNS in a meeting of the Standard Contracts Forum on 13 December 2001 where the Operators were given the opportunity to raise questions. The issue was raised again on the agenda of the NTS Focus Group meeting on 18 April 2002. BT stated that in the vast number of cases, the Operators had not outlined their concerns either in writing or via the medium of contacts with BT. Where an Operator had sought further information, however, BT said it had responded appropriately.

The position of Operators competing with CNS

4.4 BT accepted concerns expressed by C&W and COLT that under current arrangements they were unable to terminate internationally originated 0845 and 0870 traffic via BT on the same terms and conditions that BT provided to CNS, i.e. at reduced out-payment from standard termination rates. BT believed, however, that a solution to the issues preventing the provision of such a service by BT was currently being pursued through the appropriate industry working groups in relation to a similar issue concerning internationally originated calls to UK personal numbers.

4.5 BT clarified that at present only CNS provides identifiable international traffic transiting the BT network. BT accepts that the traffic from CNS is guaranteed to be international traffic as it is received into the BT network via CNS International Switches.

Application of the UK NTS regime to international traffic

4.6 BT argued that the NTS regime was applicable to UK NTS traffic only. If international operators were bound to UK NTS methodology then the issue in dispute would not arise. Given that UK regulation has no jurisdiction over such operators, however, the arrangements for internationally originated traffic should not be bound to the UK NTS regime.

BT/ CNS relationship

4.7 BT argued that it had no control over the level of the proposed reduction in out-payments to TNOs. BT was simply passing on the differential brought about by lower international rates received by CNS. BT stated it was not acting in any way on behalf of CNS in this matter. BT had been issued with an OCCN by CNS implementing lower charges for international incoming 0845 and 0870 and BT, as a transit operator, now sought to pass these reductions on to TNOs.

TNO identification of traffic

4.8 BT accepted the fact TNOs could not distinguish from Call Data Records whether a call is UK or internationally originated and, therefore, that TNOs would need to ‘trust’ additional information from BT in order to determine the number of calls that were internationally originated. BT stated that this was not an intended outcome, however. BT said that CNS had informed it that CNS was considering developing a solution to incorporate Calling Line Identity (‘CLI’) that could be sent onto TNOs. Regardless, however, BT added that there was no guarantee that overseas operators would include CLI on calls sent to the UK for termination, a fact over which BT has no control.

4.9 BT stated that it was currently in the process of looking at options to upgrade automated billing processes to identify International inbound traffic data. BT said that this activity is due to be completed in early 2003. BT believed there were possible alternatives in the interim which may involve a manual system such as has been adopted for internationally originated calls to UK 070 Personal Numbers. However, BT argued that the Operators could also choose to adopt their own methodology for validating international 0845 and 0870 traffic, such as applying C7 signalling.

Price differential and tromboning

4.10 BT argued that the price differential for termination of UK and internationally originated calls, as implemented by the proposals in BTs OCCN, was not a direct consequence of its OCCN. Rather, BT argued, this was a result of lower international termination rates to charges applied within the UK NTS regime. This price differential itself encouraged the potential for arbitrage and for UK originated calls to trombone via another country. BT pointed out that this arbitrage opportunity already existed and argued that if BT had sought to adopt a different policy regarding reduced rates, the potential for arbitrage would still exist.

Format of BT’s proposals

4.11 BT rejected complaints by the Operators that its charging proposals were in Day/ Evening/ Weekend (DEW) format while they believed that CNS paid BT on different terms, creating an opportunity for inappropriate recovery of cost. BT stated that the payments it receives from CNS are in DEW format and its charges for termination of internationally originated traffic are available in its Carrier Price List.

Internationally originated freefone calls

4.12 BT responded to complaints by the Operators that it had not proposed any similar reduction in Operator payments to BT for internationally originated calls to UK 0800 freefone. BT stated that should this prove to be an issue then a similar solution may be applied.

BT’s own termination services

4.13 BT confirmed that the capped rates proposed to the Operators applied equally to its own retail businesses providing 0845 and 0870 termination services.

CNS submissions

4.14 Although not a party to the disputes referred by BT, the position of CNS is a relevant consideration in terms of these disputes given its position as a supplier of internationally originated 0845 and 0870 to BT and as a business within BT Group.

4.15 CNS stated it had taken its decision to reduce payments to BT for the transit and termination of 0845 and 0870 traffic in the UK in the light of significant reductions in international termination rates received from overseas operators. CNS stated it was no longer receiving sufficient revenue from overseas operators to cover the cost of terminating traffic in the UK. Faced with making a significant loss on such calls, CNS stated it was forced into taking action to resolve the issue. In the course of this dispute CNS submitted evidence in confidence to Oftel on the level of losses it had incurred in carrying the traffic before it took the action of reducing payments made to BT.

4.16 CNS said it had considered a number of options (as set out below) before proposing to reduce payments made to BT for terminating the calls. Ultimately, however, CNS’ decision was based on its belief that payments to service providers ("SPs") who rented NTS services at the TNO end was not the key driver behind their usage, rather that the numbers were used to provide services to the SP’s own customers. Accordingly CNS believed SP’s preference would be to continue to receive the calls.

Bar all +44 845 and +44 870 calls

4.17 CNS stated it could simply have sought to bar all calls in order to prevent it from losing money. This would enable it to offer lower prices to overseas operators for the termination of other calls in the UK. CNS said it rejected this on the grounds that it would damage those UK SPs who used these number ranges to provide services to their own customers.

Bar +44 845 and +44 870 calls where CNS (UK) made a loss

4.18 CNS argued that the overwhelming majority of calls to these numbers are from carriers and on routes where the termination rate paid by the overseas operator does not cover the cost of termination in the UK. Customers of NTS services in the UK would therefore again be severely impacted by this option. CNS further argued that routes may become loss-making (from a CNS perspective) on a day-to-day basis and thus a call could be made one day but not the next. This would cause significant customer confusion and therefore the option was rejected by CNS.

Increase CNS (UK) charges for termination of calls

4.19 CNS stated that it was only one of a number of operators that offered to terminate overseas originated calls in the UK. CNS offers overseas carriers a single blended rate for termination of geographic and NTS calls that applied 24 hours a day and seven days a week. This blended rate is offered because of the inability of many overseas carriers systems to cope with more complex time of day and product pricing. Increasing proportions of NTS traffic mean that CNS would have to increase its charges to overseas carriers which CNS considered were already too high to win business. This option was therefore rejected by CNS.

Develop international shared cost and national rate services

4.20 CNS believed it would be relatively easy to develop an international shared cost service as many other countries have domestic equivalents of this service and there is an International Telecommunication Union (‘ITU’) recommendation regarding such a product. CNS stated, however, that it would take a minimum of 1 year before any product could be launched and not all carriers can support such services, coupled with which would be the fact that customers would also have to change their numbers. An international equivalent of national rate would have the same issues with regard to shared cost but with the additional problem that the concept of payment from the TNO to SP outside of Premium Rate regimes is almost unknown outside the UK. Accordingly, CNS stated, the development of these services was rejected as a solution to the immediate problem of stemming CNS losses.

Apply a surcharge on overseas operators wishing to terminate 0845 and 0870 in the UK

4.21 CNS considered that this solution had the advantage of separating NTS calls from geographic calls and would therefore allow CNS the ability to offer more competitive rates for other calls terminating on fixed lines in the UK. However, CNS argued that it had consulted 143 international carriers, accounting for more than 98% of incoming 0870 traffic and the majority expressed strong reservations about paying a surcharge for terminating this traffic. Introduction of a separate settlement rate for NTS would cause international carriers to incur development costs in settlement and accounting systems to declare this traffic separately. Additionally, overseas operators would have to increase their prices to both retail and wholesale customers in order to pay additional sums to CNS. Given these issues, international carriers stated that while they would attempt to find alternative routes into the UK, they believed they would be required to block the calls rather than pay additional sums. Accordingly this was not CNS’ preferred option.

Reduce payment to BT for termination of overseas originated NTS

4.22 CNS stated this option did not involve international operators, thereby ensuring that internationally originated NTS calls continued to flow. CNS estimated internationally originated calls to represent approximately 2% of all NTS calls and argued it would be relatively easy for NTS operators to either absorb the costs or make minor adjustments to their commercial arrangements with SPs to compensate accordingly. CNS believed that this solution best met its twin aims of ensuring that CNS was no longer exposed to significant losses with the minimum impact on the customers of NTS services.

Significance of traffic streams and tromboning

4.23 CNS estimated that in the 6 month period October 2001 to March 2002 it carried approximately 79M call minutes of traffic for termination on 0845 and 0870 number ranges, equivalent to just over 13M minutes per month. In the following 3 months in the period April 2002 to June 2002, however, it carried only 28M call minutes or just over 9M minutes per month. Within these figures CNS said it saw a significant decrease in traffic to 0870 numbers in particular. While CNS could only speculate as to the reason for the reduction in traffic, it believed it could be linked to the fact that CNS had sent notifications to international carriers in April of its intention to raise a surcharge on 0870 traffic (see paragraph 4.25 below). CNS believed that many carriers may have begun to use alternative delivery mechanisms for a proportion of their traffic and to discourage the tromboning of calls.

4.24 CNS also estimated from a month-on-month analysis of variations in traffic from individual carriers that up to 1.5M call minutes per month of 0845 and 0870 traffic might be tromboned from the UK. If this estimate is accurate, then the level of internationally originated traffic that could represent tromboning calls would be between 11 and 17% of all 0845 and 0870 traffic carried by CNS for termination in the UK between October 2001 and June 2002.

Proposed surcharge on +44 870

4.25 CNS confirmed it had given notice to 143 overseas operators of its proposal to apply a surcharge to +44 870 traffic if BT’s proposals in its OCCN were not upheld and BT subsequently sought to raise its charges to CNS for termination of the traffic. CNS has contractually agreed the means to apply this surcharge with the majority of overseas carriers and has given notice of its intention to apply this surcharge from 1 January 2003 should this prove necessary. CNS said, however, that two carriers who between them amounted for 30% of inbound calls to 0870 refused to accept any contractual variation obliging them to pay a surcharge for terminating this traffic. 7 other carriers had stated that while accepting the contractual amendment they would block traffic to UK 0870 rather than pay the surcharge. The majority of other carriers accepted the contractual amendment but made no comment on their intention with regards to the traffic. CNS believed the majority of carriers would either seek alternative routes or choose to block the traffic. CNS said that only two carriers, who between them accounted for less than 10% of the traffic stream, said they would pass on the higher cost to their retail and wholesale customer base and positively send the traffic.

4.26 CNS confirmed that it had only sought contractual ability to apply a surcharge to +44 870 traffic in the event that BT’s OCCN was not upheld and BT subsequently raised its charges to CNS. CNS stated that in the event that the Director General upheld BT’s OCCN it would withdraw its notification to international carriers for a surcharge on +44 870.

Submissions by operators in dispute with BT

(Please note that the submissions below represent equivalent or similar arguments made by a number of operators in responding to BT’s referral of these disputes. For sake of clarity it should be noted that all operators responded individually on this matter and the following should in no way be taken to constitute a joint response on behalf of those among the Operators who responded)

BT’s failure to negotiate

(C&W, Easynet, Primus, Tiscali, Thus, Torch, Your Communications)

4.27 The operators argued that BT had not entered into negotiations on this issue in good faith. The operators claimed BT had set out its proposals in a presentation to an industry forum and then simply issued those proposals to the Operators via an OCCN. However, the operators believed that despite requests, BT had not entered into discussion on potential alternative solutions to what was being proposed. CNS and BT had simply set out what they believed to be the appropriate solution in their own best interests and referred rejections of BT’s proposals by TNOs to Oftel as a dispute. The operators believed that there were alternative solutions to what was being proposed by BT but BT had failed to enter into negotiation. They stated that, having rejected BT’s initial OCCN, they had still to receive a formal response other than BT’s referral to the Director General. This did not represent, in their opinion, a reasonable attempt to negotiate by BT.

Obligation in the SIA to negotiate in good faith

(C&W, Your Communications)

4.28 Your Communications argued specifically that BT had failed to negotiate in good faith as required by clause 13.5 of its SIA. Clause 13.5 stipulates:

‘If the party receiving a Charge Change Proposal rejects the Charge Change Proposal the Parties shall forthwith negotiate in good faith.’

4.29 Your Communications stated that in rejecting BT’s OCCN by letter dated 5 February 2002 it had requested a meeting with BT to discuss its objections, but that BT had not replied to that request. There had been no further discussion between Your Communications or BT at any level regarding the issues raised by BT’s OCCN.

4.30 In respect of BT’s claim that the issue of internationally originated 0845 and 0870 had been discussed with the Operators at NTS Forums, both Your Communications and C&W commented that it had been TNOs that had sought to raise the issue on the agendas of meetings held since 14 January 2002. Both argued that BT had not sought to negotiate or hold discussion about the merits of its proposals at such meetings, but had simply stated and reaffirmed its position and had not adequately answered questions.

4.31 Accordingly, Your Communications argued that BT had failed to meet its obligation under the SIA to negotiate in good faith following rejection of its OCCN. Your Communications argued that the Director General should therefore reject BT’s request for dispute resolution and require that BT enter into good faith negotiations regarding its OCCN proposals.

Timing of BT’s referral

(C&W, Your Communications)

4.32 Your Communications further argued that BT had failed to refer this dispute to the Director General in accordance with contractual timescales under the SIA. Clause 13.7 requires a party to refer a dispute to Oftel no later than one month after the expiration of the 14-day period intended for negotiation. Under SIA timescales, Your Communications maintained BT should therefore have referred this matter to Oftel no later than 24 March 2002. BT’s letter referring this dispute to the Director General was dated 10 May 2002. In light of this fact Your Communications argued that the Director General should reject BT’s request for dispute resolution on the basis that it has failed to meet the deadline for referral set out in clause 13.7 of the SIA.

4.33 C&W believed that if BT had not complied with the standard terms of the SIA, it should be required to run through the OCCN process again to ensure that it did so. In the alternative C&W believed that any Direction made by the Director General might be subject to legal challenge on this basis.

BT proposal transfers CNS losses onto TNOs

(C&W, COLT, Easynet, Energis, Primus, Rateflame, Skymaker, Telco, Telecom One, Telewest, Thus)

4.34 The operators argued that BT’s proposals simply sought to transfer the losses incurred by CNS in carrying internationally originated 0845 and 0870 onto TNOs in the UK. If CNS was making a loss on such calls, these operators argued, then the appropriate response was for CNS to raise its prices to overseas operators rather than seek to transfer losses to TNOs. The operators further argued that any other operator competing with CNS would be forced to act in this manner and that CNS was attempting to use its relationship with BT (a dominant transit operator in the UK) to its own advantage.

4.35 Alternatively, the operators argued that CNS could seek to break out differential charging structures to overseas operators to ensure it received sufficient to cover the costs of UK termination. They argued that given the fact that BT had positively sought to do this in respect of internationally originated calls to UK mobile numbers, there was no reason not to do so for 0845 and 0870 numbers.

4.36 C&W rejected arguments made by CNS that overseas operators would automatically block calls if required to pay higher charges for termination. C&W believed that CNS’ main reason for not wishing to raise prices to overseas operators was to avoid the risk of losing customers. C&W argued that many overseas operators would likely continue to carry 0845 and 0870 calls even if CNS raised its charges.

4.37 The operators rejected arguments put forward by CNS that many overseas carriers’ systems would be unable to cope with more complex time of day and product pricing. They believed that overseas carriers already distinguished between different termination rates for calls to UK mobile numbers and a number of international carriers offer time and day dependent pricing for international terminations.

4.38 C&W argued that if an overseas operator had to develop its retail billing systems to pay an increased termination charge in the UK, then it should recover those monies from its customers in order that they can access the service at the far end. C&W believed it was inappropriate to penalise the TNO/ service provider in the UK for the unwillingness of the originating operator to charge correctly for a service.

Principles behind the NTS regime and the effect of tromboning

(C&W, COLT, Core, Inclarity, Interoute, NTL, Telecom One, Tiscali, Thus, WorldCom)

4.39 A number of operators argued that the NTS regime in the UK works on the basis that the TNO has control over its own revenues whilst the originating operator recovers from retail customers sufficient to cover the costs of the call. C&W specifically pointed out in this regard, however, that non-dominant ONOs in the UK were constrained in the retail price charged for calls to NTS number ranges by the maximum price permissible under Oftel’s Numbering Conventions. C&W stressed that the crucial point was not that UK TNOs had absolute control over their revenues, but that they had the ability to negotiate out-payments for each specific NTS number range direct with ONOs, subject to the relevant retail price point. Non-dominant ONOs and TNOs had incentives to agree mutually beneficial outcomes to ensure traffic flows between the networks.

4.40 The operators were in agreement, however, that BT’s proposals undermined the basic principles on which the NTS regime was based in seeking to require TNOs to carry calls at significantly reduced levels of out-payment. TNOs had neither control nor the ability to negotiate higher in-payments with the overseas originator (or even with CNS or BT). While these operators accepted that overseas originating operators are not bound by the UK regulatory regime, they argued that the effect of a two-tier charging system that depended on whether a call was UK or internationally originated would fundamentally undermine the UK regime. The large drop in revenue (approximately 90%) for the termination of internationally originated calls would, on its own, have a significant adverse impact on the business of TNOs. These operators commented that under BT’s proposed charges they would likely be faced with terminating traffic at a loss. Furthermore, the huge price differential would also further encourage significant arbitrage opportunities through UK originated traffic tromboning via an overseas operator in order to benefit from reduced out-payment for termination. From its own estimates C&W believed that at present somewhere between 30% and 50% of traffic it carried from overseas operators as internationally originated 0845 & 0870 in fact represented traffic tromboned from the UK. TNOs’ revenues for NTS traffic would be seriously affected by this arbitrage opportunity if BT’s proposals were accepted and would further undermine the business case for UK 0845 and 0870 services.

Article 38 of the Universal Services Directive

(Energis)

4.41 Energis argued that Article 38 of the Universal Service Directive provides for differential tariffing to national NTS on calls originating outside member states. Energis argued that BT should therefore ensure that its suppliers of internationally originated traffic sought suitable payments from originating countries.

Visibility of CNS losses

(C&W, Primus, Tiscali)

4.42 The operators expressed concern that BT was proposing that TNOs termination charges be set on the basis of what was required to ensure that CNS, BT’s own business, was not making a loss on carrying 0845 and 0870 calls. In addition to disagreeing with the principle behind BT’s proposal, the operators also argued that they had no visibility of what CNS charged overseas operators, what its costs were and how significant the losses were that CNS faced on terminating 0845 and 0870 traffic. They further argued that they were unable to agree to charges proposed by BT’s OCCN without visibility of CNS’ failure to recover cost, in particular on which IDD routes and by how much. Without such visibility operators are not in a position to determine whether CNS or BT may be recovering inappropriate sums.

4.43 C&W argued that it saw no justification in BT’s proposal to offer TNOs single tandem termination rates split by time of day. C&W understood that CNS offered one termination rate to its customers abroad and that there was no justification therefore in onwards payments being split by time of day. C&W argued that the daytime rate proposed by BT should have been the single rate offered to operators.

Call identification

(C&W, Easynet, NTL, Telco, Telecom One, Telewest, Tiscali, Torch, Your Communications)

4.44 The operators argued that they cannot distinguish from Call Data Records provided by BT whether a call is UK or internationally originated. Where both call types are paid out at the same rate for termination, this was of less importance for TNOs providing a service to their customers. Where internationally originated calls are paid out at 90% less than UK originated calls, however, the operators argued that they need to be able to distinguish between the source of a call to determine the correct payment they receive. Alternatively, the operators argued, they would not be in a position to invoice BT and/ or their end customers accurately, without operating on trust on the basis of information subsequently provided by BT. These operators argued that this situation was not acceptable.

4.45 The operators also pointed out that industry discussions had begun in respect of finding a solution to enable TNOs to distinguish the source of a call as UK or internationally originated. This work had recently been referred to the Public Network Operators Interest Group (PNO-IG) by C&W. These operators argued that BT should await the completion of this work before proposing to adopt such differential charging and complained that BT had not sought to commission such work itself to discuss with the industry at the outset of its proposals.

Call blocking

(C&W, Telecom One, Thus, WorldCom)

4.46 The operators were concerned at what they perceived as threats by CNS and/ or BT to block calls if BT’s proposals were not accepted.

4.47 C&W disputed the argument put forward by CNS that SPs would automatically prefer for internationally originated 0845 and 0870 calls to be completed as an alternative to blocking. TNO and SP commercial terms have been made on the basis of current termination charges for 0845 and 0870. Given the out-payment BT proposes to make to TNOs, C&W believed that many TNOs and SPs will not recover their costs of termination and would prefer not to receive the calls given the implications of making a loss in terminating the traffic. C&W believed that if the Director General were to direct in favour of BT’s proposals, then a substantial number of SPs would wish to have the option of barring internationally originating calls to 0845 and 0870.

4.48 C&W also disputed the argument put forward by CNS that overseas operators would necessarily refuse to pay higher charges for terminating 0845 and 0870 traffic in the UK. C&W had no sight of BT’s straw poll of overseas operators and believed that C&W’s own international regional businesses were not consulted as part of that poll. Thus commented further that it was hardly surprising that customers of CNS had expressed a preference not to pay higher charges.

BT’s proposal gives competitive advantage to CNS

(C&W, COLT, Telecom One)

4.49 The operators in this dispute who are acting as both TNOs and competitors to CNS in the supply of internationally originated calls for UK termination, argued that BT’s proposal would provide CNS, BT’s own business, with an unfair commercial advantage. Currently no other supplier of internationally originated traffic is able to receive from BT, a dominant provider of transit services in the UK, equivalent terms and conditions for the onward transit and termination of internationally originated 0845 and 0870 as BT provides to CNS. Whereas competitors to CNS were faced with the choice of either accepting losses on the conveyance of 0845 and 0870 or raising their prices to overseas carriers, CNS would be able to terminate the traffic at a much lower charge. Competitors of CNS argued, therefore, that if BT’s proposals for internationally originated 0845 and 0870 are to be accepted then BT must offer the same charges to all operators supplying internationally originated traffic for termination.

4.50 C&W further pointed out that BT currently refuses to carry internationally originated calls from operators other than CNS at lower rates of out-payment because it argues that, unlike for CNS where BT can guarantee the source of the call as internationally originated (see paragraph 4.5 above), where another operator hands over the call BT cannot distinguish the originating source. BT would have to trust additional information provided by operators as to the number of calls that were internationally originated. BT is unwilling to accept this but C&W argued that this is exactly what BT is proposing TNOs must do in terms of traffic handed over from BT to TNOs (see paragraph 4.44 above).

5. The Director General’s considerations

5.1 Having duly considered the representations of the Annex B Operators and BT in response to this request for a direction and the matters set out in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997, the Director General is minded to conclude that BT’s proposals as set out in its OCCN of 14 January 2002 cannot, in light of the circumstances, be reasonably applied by the Director General in resolving these disputes. Accordingly, the Director General is minded to direct that the Operators’ charges for terminating internationally originated 0845 and 0870 traffic should remain as currently agreed in the SIA of each Operator and BT.

Contractual status of the dispute

5.2 C&W and Your Communications argued that BT’s referral of the Operators’ rejection of its OCCN to Oftel for dispute resolution was invalid in that BT:

5.3 While the Director General has concerns over an apparent lack of negotiation behind the issue of an OCCN by BT and following subsequent rejections by Operators (see paragraphs 5.5 to 5.7 below), the Director General considers that the fact BT has formally proposed to amend a charge for interconnection services and that the proposal has been rejected by Operators means that a dispute has arisen. The fact that operators complain that BT has not handled negotiations correctly is a relevant circumstance to that dispute but does not invalidate BT’s referral for resolution. It does not affect the Director General’s powers and duties to resolve the dispute.

5.4 In terms of the timing of BT’s referral, an operator’s right to seek the Director General’s intervention as set out in the ICD Regulations is absolute and cannot be limited or overridden by details agreed in commercial contracts. The fact that BT has referred a dispute relating to an OCCN to the Director General outside the timescales set out within an SIA does not invalidate that request for dispute resolution.

The negotiation process

5.5 The Director General is concerned by the facts as set out in this dispute that there would appear to have been little real commercial negotiation between BT and the Operators in respect of potential solutions to the problems identified in the onward transit and termination of internationally originated calls to 0845 and 0870. On the facts as presented to the Director General it would appear that CNS had considered a number of options, made its decision as to which it considered to be the appropriate solution, then presented this as a de facto solution to BT and the industry as proposals to reduce termination payments for the relevant traffic. BT accepted CNS’ proposal through its OCCN and subsequently sought to apply appropriate commercial rates to TNOs based on this same solution.

5.6 While it is clear that CNS and BT may have made reasonable attempts to present this solution to industry and explain their reasoning behind why it was being proposed, it is far from clear that there have been reasonable attempts to negotiate on either alternatives to the solution proposed by CNS (and subsequently by BT) or on the specific terms of the OCCN as set out by BT. It is clear that in respect of some of the issues preventing Operators from accepting BT’s OCCN at least (for example, identification of calls by TNOs, call blocking, visibility of CNS losses etc), commercial negotiation could have resolved the issues, or at least set the grounds for reaching a solution.

5.7 The Director General is aware of the imperative under which CNS and subsequently BT may have been acting to resolve this issue speedily in light of the loss-making position of CNS. However, the proposed solution would fundamentally affect the terms of commercial relationships across the industry for the call types in question. In the circumstances, the Director General believes it is reasonable to expect that more attempts would have been made to involve the considerations of all stakeholders before reaching and proposing a formal solution via the OCCN process. The Director General considers that the lack of any real negotiation on this issue in advance of and during the OCCN process is a relevant circumstance in considering and resolving this dispute.

Relevant market(s) and the position of the parties to the dispute

5.8 BT is in dispute with 90 operators concerning termination charges for internationally originated 0845 and 0870. BT’s relationship with each of the Operators in terms of this dispute is as a transit operator of 0845 and 0870. BT has been determined as having Significant Market Power ("SMP") in fixed voice telephony markets and Inter-Tandem Transit is a Prospectively Competitive Service within Oftel’s Network Charge Controls. Prospectively competitive services are services in markets in which competition exists but is not yet effective. BT is therefore in a position of market power in the provision of inter-tandem transit services.

5.9 The Operators compete in the market for the supply of NTS services for a voice telephony service in the UK (BT’s own termination services also compete in this market). Oftel’s review of number translation services of 27 March 2002 found this market to be effectively competitive. No TNO is likely, therefore, to hold market power in the provision of such termination services.

5.10 In terms of these disputes, BT as an operator with market power in the provision of inter-tandem transit services is seeking to reduce the charges it pays to 90 non-dominant TNOs active in a competitive market for the supply of NTS call termination services.

Internationally originated 0845 and 0870

5.11 CNS estimated that 2% of NTS traffic terminating in the UK is internationally originated. C&W broadly agreed that this estimate was reasonable and no other operator has provided information or estimation to challenge this estimate. CNS estimated that it carried approximately 13M call minutes per month to 0845 and 0870 between October 2001 and March 2002, and 9M call minutes per month between April 2002 and June 2002. CNS estimated that up to 1.5M call minutes per month of this traffic could represent calls being tromboned from the UK. From its own estimates C&W believed that the level of tromboning was significantly higher. It estimated that between 30% and 50% of international traffic destined for termination on UK 0845 and 0870 was actually originated in the UK.

5.12 What is not clear from such estimates is the significance of internationally originated traffic as a revenue stream in its own right as opposed to an additional service to UK local rate and national rate NTS. What can be determined, however, is that if such a service does exist at present, it does so by virtue of another operator somewhere in the payment chain failing to recover the costs of carrying the call. Clearly if an internationally originated service does exist behind UK 0845 and 0870 number ranges and is to continue in the long term without calls being blocked, then commercial arrangements for carrying such calls will need to change. Either the overseas originator of a call has to increase what it is prepared to pay to ensure a call made by its retail customer is terminated at the far end, or TNOs have to be prepared to accept a lower payment for providing the service. Whatever solution is accepted, however, it should ensure that the viability of the remaining 98% of UK originated NTS traffic is not undermined.

Options considered by the Director General

5.13 Having considered the arguments made by the parties to this dispute and third parties such as CNS, the Director General identified a number of options open to him in resolving the dispute.

Option (i) - Direct that the charges proposed by BT are reasonable and should be applied by TNOs in their contractual relationship with BT

5.14 The Director General considered the benefit of this approach was that it ensured internationally originated calls to 0845 and 0870 continued to be carried for termination.

However, the Director General in making such a decision would be setting the charges of non-dominant TNOs in the UK on the basis of what is required to ensure that CNS, a BT business, is not making a loss on the conveyance of such calls

in the alternative to CNS raising its prices to overseas operators. The level of charges proposed by BT is such that TNOs may be terminating traffic at a loss unless SPs agree to pay for termination of the traffic (in a similar fashion to Freefone services). The Operators’ termination charges will, in effect, be restricted by the unwillingness of overseas operators (some of which may be dominant in their own call origination markets) to recover sufficient revenue in the retail price of a call to cover costs of termination in the UK and the cost of providing the retail service at the far end to the calling party. The Director General does not believe that failure to recover sufficient revenues from retail customers by overseas operators is justification for restricting charges set by TNOs in the UK.

5.15 Although the Director General is aware that negotiations continue on the subject, in the absence of the ability for C&W, COLT or any other operator to terminate internationally originated 0845 and 0870 on the same terms as BT provides to CNS, adopting BT’s charges proposed in its OCCN may raise further issues of undue preference/ discrimination under BT’s licence conditions and/ or discrimination under the Competition Act 1998. Although the Director General has not made any full assessment of such potential discrimination issues in the course of considering this dispute resolution request, including whether the effect of any discrimination/ preference would have a material effect on competition, the Director General believes that he would have a duty to investigate any allegations in this regard if he reached the conclusion in resolving the disputes before him that it was reasonable to direct that BT’s OCCN be upheld.

5.16 The Director General is also aware that, given the current inability of TNOs to determine the source of a call as UK or internationally originated, the Operators will lose control over their revenues. The Operators would not have the ability to block internationally originated calls for which they would receive up to 90% less revenue. The adoption of two-tier charging depending on the source of the call raises the potential for further arbitrage opportunity through UK traffic tromboned out via an overseas operator. TNOs’ revenues for UK originated calls will therefore likely be undermined further and, ultimately, the basis of a local rate or national rate service behind 0845 and 0870 for use in the UK, for which the NTS regime was originally developed, could be destabilised.

Option (ii) – Direct that a reasonable charge for termination of internationally originated 0845 and 0870 is a charge calculated somewhere between an operator’s standard UK termination rates and charges proposed in BT’s OCCN.

5.17 An alternative solution in resolving this dispute could be to direct that a reasonable charge for termination was as close as possible to UK termination rates, but reduced by such a margin as to result in any surcharge applied by CNS to overseas operators remaining low enough as not to result in overseas operators blocking the calls. The charge would be set close enough to the UK termination charge to ensure that any arbitrage opportunity through tromboning traffic from the UK was not significant enough to risk undermining TNO revenues. The advantage of such a solution would be to ensure that calls would continue to be carried but with a level of out-payment to TNOs closer to ‘standard’ UK termination rates.

5.18 Aside from issues of practicality in actually calculating such a charge, however, the Director General would still, in effect, be setting the charges of non-dominant terminating operators in the UK on the basis of ensuring that CNS was not exposed to losses in the alternative of raising its prices. As discussed at paragraph 5.14 above, the Director General does not believe this to be an appropriate solution.

5.19 It is not even clear that a level of charge would exist that would meet the two key criteria identified in this option, i.e. low enough that overseas operators are willing to pay but close enough to UK out-payments to remove risk of arbitrage opportunity. If these two conditions could not be met by the same charge then there would be little merit in this option. The Director General is aware that this solution would also fail to resolve issues of TNO identification of the source of a call and potential concerns over discriminatory terms and conditions provided to CNS.

Option (iii) – Direct that the charges proposed in BT’s OCCN are unreasonable and current commercially agreed charges should remain until an industry wide solution has been negotiated.

5.20 The Director General considers that the benefits of this approach would be to reinforce the principles behind which 0845 and 0870 number ranges were developed in the first instance, i.e. to provide local and national rate services accessible from anywhere in the UK. Oftel has regulated such services on the principle that TNOs should have control over the price at which they are remunerated for providing a retail service to the caller at the far end. The Director General shares concerns expressed by the Annex B Operators that BT’s proposal, while aimed at finding a solution to issues raised by internationally originated calls, may also have the impact of undermining the basis of 0845 and 0870 in the UK. To direct that the Operators’ termination charges for internationally originated traffic should remain at current contractual rates would place the onus on carriers of such traffic to ensure that sufficient is recovered in the retail price of the call to cover the costs of international conveyance and provision of the retail service at the far end.

5.21 The main implication of this option is a risk that internationally originated calls to UK 0845 and 0870 may be blocked by overseas operators. CNS argued strongly that it believed this will occur, while C&W believed that many overseas operators will continue to carry genuine internationally originated traffic even if required to pay an additional surcharge. C&W believed that a significant amount of current internationally originated 0845 and 0870 traffic represents calls tromboned from the UK. The effect of CNS and other operators increasing charges payable for the termination of 0845 and 0870 traffic would close this arbitrage route, significantly reducing the volume of traffic and thereby the extent of the perceived problem.

The Director General’s proposed decision and reasons

5.22 The Director General is minded to direct that BT’s OCCN of 14 January 2002 should be rejected and that the current contractual arrangements between BT and the Operators should remain until an industry wide solution has been negotiated.

5.23 Having considered all the arguments the Director General considers that the charges proposed by BT, in the absence of the ability for TNOs to distinguish the source of a call, have the potential to fundamentally undermine the NTS regime in the UK given the significant arbitrage opportunity created through the tromboning of traffic. In directing to apply BT’s proposals, the Director General would be restricting the charges set by non-SMP operators for the purpose of ensuring that CNS, a BT business, was not sustaining losses in a market in which competitors to CNS also operate. Further, to attempt to strike a balance in the level of charges for terminating overseas originating traffic would not appear to represent a practical or proportionate solution and would leave a number of issues unresolved. Accordingly, the Director General believes that termination charges for internationally originated 0845 and 0870 should remain as currently agreed in contract. The Director General believes, however, that the industry should take the issues raised by this dispute forward into further negotiations. Proposed actions in this regard are suggested at paragraph 5.29 below.

5.24 The Director General does not reject out of hand that what CNS and BT have proposed may have some grounds for providing a solution to problems identified in the supply of internationally originated calls to 0845 and 0870. If BT and industry developed a solution enabling TNOs to identify the originating source of a call as either UK or international, then BT’s proposal would have greater merit. Indeed, the Director General is aware that proposals in this regard have recently been submitted to an industry working group by C&W. If a workable solution to this issue were found then TNOs could have control over blocking calls where they believed an arbitrage opportunity existed. Such a solution should also enable any competitor of CNS to terminate internationally originated calls via BT on equivalent terms and conditions. There are fundamental problems associated with what has been currently proposed, however, and it may be that there are other solutions that have not been fully worked through. BT (and CNS) would appear to be proposing a solution to an industry wide issue without having fully negotiated with the industry first.

5.25 Ultimately the Director General is considering disputes between BT and 90 individual operators. BT is asking each of the Operators to accept restriction on its termination charges to subside the cost of internationally originated calls on behalf of the calling party. A number of TNOs in rejecting BT’s proposals have stated they would prefer not to carry such calls as an alternative to their termination revenues being undermined and open to further reduction through arbitrage opportunity.

5.26 BT has placed itself in a potentially loss making situation in the transit of internationally originated 0845 and 0870 by virtue of its commercial decision to accept charges proposed by CNS. If the Director General rejects BT’s OCCN in resolving this dispute, however, BT retains the option to seek to increase its charges to CNS once again for the onward transit and termination of calls, such that it is not placed, as a transit operator, in the situation of carrying the traffic at a loss. Neither party, BT or TNO, is therefore placed at a disadvantage by the Director General’s proposed decision.

5.27 The consequence for CNS is that, should BT seek to raise its charges for onward transit and termination, CNS will be faced once more with a potential loss-making position. However, CNS has confirmed it has sought to agree contractual ability with its overseas customers to raise a surcharge on the relevant traffic to cover the costs of termination in the UK.

5.28 The Director General’s proposed decision in resolving this dispute has been based on legal advice, an analysis of the facts and on the balance of the interests of the parties. It has also been based on consideration of the criteria set out in Article 9(5) of the Interconnection Directive 97/33/EC (as implemented in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997), in particular the relevant market position of the parties and the promotion of competition. In the view of the Director General this proposed Direction represents a fair balance between the interests of the parties.

Proposed actions for industry moving forward

5.29 The Director General believes that further industry wide discussion of the issues raised by this dispute should be taken forward to ensure that the matters raised are addressed. In particular the Director General believes that the following questions may be usefully addressed and feed into any proposed solutions taken forward:

(a) Whether TNOs and their SP customers have a significant interest in attracting internationally originated 0845 and 0870 calls. Do such services currently exist on 0845 and 0870 only because of revenue sharing arrangements behind such number ranges, or would TNOs and service providers continue to offer such a service if TNO termination charges were severely restricted?

(b) If there is a legitimate service behind two-tier termination charges for 0845 and 0870, what solutions exist to enable TNOs to maintain control over their revenues, i.e. the ability to distinguish the originating source of a call and to block internationally originated calls where out-payments are lower.

(c) Would services specifically designed to attract internationally originated calls be more appropriately based away from 0845 and 0870 number ranges, i.e. on freefone (if the service provider is having to subsidise the cost of the call in any event) or through development of an international shared cost service?

Chapter 6

Consultation and timetable for responses

6.1 The Director General’s draft decision is being made available to interested parties, together with the Director General’s reasons, so that they may have a reasonable opportunity to make representations.

6.2 Please e-mail or send comments in writing to:

Richard Thompson
Oftel
50 Ludgate Hill
London
EC4M 7JJ

tel: (020) 7634 8983
fax: (020) 7634 8943
e-mail: richard.thompson@oftel.gov.uk

6.3 Comments on this consultation must be sent to Oftel by Monday 30 September 2002. Oftel does not intend on this occasion to hold any comments-on-comments phase during which observations may be made on the representations made by others. Nevertheless, in the interests of transparency, all non-confidential representations will be published.

6.4 Confidential responses should not be sent via e-mail. Written comments will be made publicly available in Oftel’s Research and Intelligence Unit, except where a respondent indicates that a response, or part of it, is confidential. Respondents are therefore asked to separate any confidential material into a clearly marked annex. In the interests of transparency, respondents are asked to avoid confidential markings wherever possible.

6.5 The final Direction will be made as soon as possible after the end of the above mentioned consultation period.

Annex A

Schedule of Operators in dispute with BT