Contents

The draft Direction

Explanatory memorandum

Chapter 1: Summary

Chapter 2: Background
NTS
Changes to the NTS regime from 1 January 2000
The initial dispute

Chapter 3: Information submitted by BT and calculation of discount levels
Information sought by Oftel and submitted by BT
BT’s calculations

Chapter 4: The Director’s draft Direction
Exceptional circumstances
The requirements of the Regulations
The draft Direction
Date of application
Implementation of the Direction

Chapter 5: Arrangements for making and viewing representations
Further copies of this document
Publication of representations made by stakeholders

Annex A: Applicability of BT Option Schemes by Call Type

Annex B: Methodology for the production of NTS Discount information

DRAFT DIRECTION UNDER THE PROVISIONS OF REGULATION 6(3) OF THE TELECOMMUNICATIONS (INTERCONNECTION) REGULATIONS 1997 REGARDING BT’S NTS DISCOUNTS FOR CALLS TO 0844 AND 0871 NUMBERS WITH EFFECT FROM 1 OCTOBER 2002

WHEREAS:

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

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

(C) BT, in accordance with Condition 45 of its licence, has entered into interconnection agreements with a number of Operators. Those interconnection agreements include provisions concerning Number Translation Services ("NTS"). The term "Operators" in this direction shall refer to those operators that have entered into an interconnection agreement with BT;

(D) The Secretary of State has granted to each of the Operators a licence under section 7 of the Act for the running of a telecommunications system specified in that licence.

(E) The Director General of Telecommunications ("the Director") has previously stated his intention to review the discounts that apply in relation to the NTS number ranges 0844 and 0871;

(F) Regulation 6(1) of the Telecommunications (Interconnection) Regulations 1997 ("the Regulations") provides that the Director shall encourage and secure adequate interconnection in the interests of all users and that he exercises his functions in a way that provides maximum economic efficiency and gives maximum benefit to end-users having regard to the matters set out in Regulation 6(1)(a) to (g) of the Regulations;

(G) Pursuant to Regulation 6(3) of the Regulations the Director may intervene at any time in order to make a direction specifying issues which must be covered in an interconnection agreement, or to make a direction that specific conditions be observed by one or more parties to such an agreement. The Director may in exceptional circumstances make a direction that changes be made to interconnection agreements already concluded where it is justified to ensure effective competition or interoperability of services for users or both;

(H) The Director has considered inter alia, the information provided by BT and has had regard to the matters set out in Regulation 6(1) of the Regulations. The principal points are summarised in the explanatory memorandum which accompanies, and is published with, this direction.

THEREFORE:

Pursuant to Regulation 6(3) of the Regulations, and having regard to the matters set out in Regulation 6(1) of the Regulations, the Director makes the following direction:

1. For the purposes of calculating the charge BT pays the Operators for NTS services the retail price is the net retail price after discounts charged by BT which for calls to 0844 and 0871 numbers, shall be:

(i) in the case of calls to Internet services, the retail price charged by BT (exclusive of VAT) minus BT’s average discounts for such calls of 17.8 % based on BT’s relevant revenue figures;

(ii) in the case of calls to non-Internet services, the average retail price charged by BT for such calls (exclusive of VAT) minus BT’s average discounts for such calls of 0.1% based on BT’s relevant revenue figures;

(ii) in the case of calls to non-discounted services, the average retail price charged by BT for such calls (exclusive of VAT) minus BT’s average discounts for such calls of 0.0% based on BT’s relevant revenue figures;

2. This direction shall have effect from 1 October 2002.

3. BT shall alter the Carrier Price List so that it accords with this direction and shall send a copy of the alterations to the Carrier Price List to the Operators.

4. Except as otherwise defined in this direction, words or expressions used shall have the same meaning as in the Act, the BT licence or BT’s Standard Interconnect Agreement as appropriate.

Heather Julie Clayton
Director of Investigations

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

[………] 2003

Explanatory memorandum

Chapter 1

Summary

1.1 The Director General of Telecommunications ('the Director') has issued a draft Direction, in accordance with the provisions of Regulation 6(3) of the Telecommunications (Interconnection) Regulations 1997 ('the Regulations'), proposing changes to BT’s average NTS discount for calls to services offered by operators using 0844 and 0871 number ranges.

1.2 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'. The NTS statement had effect from 1 January 2000 and made available two new NTS number ranges designed to enable operators to offer services at a variety of new price points. These 'new NTS' number ranges were given as 0844 for calls priced at up to five pence per minute (ppm) and 0871 for calls priced between 5ppm and 10ppm.

1.3 On 5 September 2001 Oftel published the Direction relating to a dispute between BT and a number of operators over BT’s proposal to increase its NTS Discounts with effect from 1 September 2000 ('NTS Discounts Direction (2001)'). This Direction was made in response to the rejection by operators of BT’s proposal, made on 7 July 2000, to increase the average level of discounts from 11.75 per cent to 16.8 per cent for all NTS call types with effect from 1 September 2000.

1.4 The NTS Discounts Direction (2001) directed that the discounts that applied to calls made to services operating on Local Call Fee Access ('LCFA') numbers should be 14.8 per cent and for calls to National Call Fee Access ('NCFA') numbers 2.4 per cent. These discounts had effect from 1 September 2000.

NB: LCFA number ranges at that time were 0345, 0645 and 0845 but are now solely 0845, whilst NCFA number ranges were 0541, 0870 and 0990 and are now solely 0870.

1.5 Take up of the new NTS numbers (0844 and 0871) by operators had been extremely limited in the months following the NTS Statement such that, by September 2000 when the 0845/70 discounts took effect, call volumes remained negligible. BT was therefore unable to provide call revenue and discount information to demonstrate how it had set the appropriate level of discounts for these calls. As a consequence, the NTS Discounts Direction (2001) gave that discounts for 0844/71 calls should remain at 11.75 per cent until sufficient data was available.

1.6 Oftel has since sought and obtained information from BT on the calculation of discounts for 0844 and 0871 now that usage of these number ranges has increased. This information was provided for the period from 1 April to 30 September 2002. However, because BT was only able to capture customer option and call revenue data simultaneously for the final three months from 1 July to 30 September 2002, the discounts proposed in this draft direction are based solely on data from that time period.

1.7 BT’s data also indicated that, rather than set separate discounts for 0844 and 0871, it is more appropriate to set discounts according to groups of chargebands where the applicability of BT’s various discount schemes is common. In practice this translates to three groups.

1.8 Accordingly, the Director proposes that the average discount BT shall apply to calls it originates to services offered on 0844 and 0871 numbers shall be:

• For calls to Internet services: 17.8%
• For calls to non-Internet services: 0.1%
• For calls to non-discounted services: 0.0%

1.9 It is proposed that these discounts shall apply from 1 October 2002. This is the date immediately following the three month period from which the supporting data used for the calculations was obtained.

1.10 Comments on this draft direction are requested by 30 January 2003 and will be taken into account in making a final direction. Details of how to submit comments are given in chapter 5.

Chapter 2

Background

NTS

2.1 In previous NTS determinations, 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. One such document can be found at www.oftel.gov.uk/publications/1999/pricing/btfc499.htm.

Changes to the NTS regime from 1 January 2000

2.2 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'. This can be found on Oftel’s website at www.oftel.gov.uk/publications/1999/pricing/nts1299.htm.

2.3 This followed a lengthy discussion and consultation exercise in response to a general industry view that the NTS formula constrained the ability of terminating operators 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 terminating operators’ services.

2.4 In order to enact the NTS Statement, Oftel made available two new number ranges to enable operators to offer services at a variety of new price points. This followed enhancements to BT’s retail billing systems, which had previously limited the number of prices that could be offered for all types of call. The new NTS number ranges were 0844 for calls priced at up to five pence per minute (ppm) and 0871 for calls priced between 5ppm and 10ppm.

The initial dispute

2.5 On 7 July 2000, BT issued an Operator Charge Change Notice ('OCCN') to operators proposing a further increase to its NTS Discount from 11.75 per cent to 16.8 per cent, with effect from 1 September 2000.

2.6 In July 2000 BT had presented operators with a revised discount figure but did not provide the supporting calculations nor details of the basis of its preparation. The reason given by BT for not providing supporting evidence is that it uses commercially sensitive information from its billing database which it does not wish to make available to its competitors.

2.7 Given the significant level of the increase and the negative effect it would have on NTS terminating payments, operators were reluctant to accept BT’s figures without assurance of their accuracy and relevance. Furthermore, operators argued that BT’s ability to change the level of discounts from time to time undermined one of the key principles of the new NTS arrangements, namely, to give terminating operators greater control over their NTS revenues.

2.8 Accordingly, a number of operators either rejected, or did not respond to, BT’s OCCN. The resulting dispute was referred to Oftel by BT on 1 November 2000. On 5 September 2001 Oftel resolved this dispute by publishing the NTS Discounts Direction (2001). This direction can be found on Oftel’s website at www.oftel.gov.uk/publications/pricing/ntsd0901.htm.

2.9 In conducting its review, Oftel noted the significant difference between the average discounts applied to 0845 Local Call Fee Access ('LCFA') services from those to 0870 National Call Fee Access ('NCFA') services. As a result the direction established separate average discounts of 14.8 per cent for calls to 0845 services and 2.4 per cent for calls to 0870 services.

2.10 Despite operators’ ability, as granted by the NTS Statement, to choose new price points on the 0844 and 0871 number ranges, take-up of these new numbers has remained limited. As a consequence, at the time of Oftel’s review BT was unable to provide call revenue and discount information to demonstrate how it had set the appropriate level of discounts for these calls.

2.11 As a consequence Oftel did not make a direction in relation to the discounts applying to 0844/71 calls. The NTS Discounts Direction (2001) therefore stated that discounts for 0844/71 calls should remain at 11.75 per cent until sufficient data was available. Oftel stated its intention to review the discounts applied to 0844/71 as soon as BT could supply sufficiently representative data.

2.12 In September 2001 Cable & Wireless ('C&W') asked the Director to resolve a dispute between C&W and BT arising from BT’s refusal to remove the effect of all NTS discounts where C&W had requested that BT does not apply its retail discount schemes to C&W’s NTS number ranges. C&W argued that BT’s ability to vary its applicable discounts from time to time undermined the principles of the 1999 ‘NTS Statement’ (see paragraph 2.7).

2.13 Having considered the arguments put by C&W and other respondents to the consultation, on 31 May 2002, the Director published the Direction over C&W's proposal that calls to C&W's NTS number ranges should be excluded from BT's Retail Discounts (May 2002). Operators are now able to exempt calls to their NTS services from BT’s discounts thereby achieving greater continuity of future revenues. However, indications are that operators and service providers are reluctant to migrate services onto the new number ranges provided by Oftel in order to benefit from the exemption.

Chapter 3

Information submitted by BT and calculation of discount levels

3.1 The current NTS regime provides for terminating operators to receive the difference between retail prices (net of discounts) and BT’s conveyance costs. Once the level of discount is set, terminating operators can set their own termination charges with a degree of certainty as to how much revenue they will actually recover from NTS calls. As noted earlier, this is consistent with one of the objectives of the NTS regime, which is to provide terminating operators with the ability to exercise control over their terminating revenues.

Information sought by Oftel and submitted by BT

3.2 On 5 December 2001, Oftel submitted a request to BT for its most up-to-date revenue and discount data in relation to 0844/71 calls.

3.3 On 9 January 2002, BT met with Oftel, to discuss how it could best meet Oftel’s request for revenue and discount data. At that meeting, BT advised Oftel that a special interrogation would need to be written of BT’s 'Swift' database in order to extract an up-to-date record of the customer use of certain types of optional discounts (eg calling circles) on 0844/71 numbers. Prior to Oftel’s request no separate category existed within BT’s call measurement systems for 0844/71 calls. This meant BT was unable to provide historic revenue and discount information for these calls and the new interrogation could only measure results going forward.

3.4 Following Oftel’s requests, BT provided the relevant information on 16 October and 29 October 2002. In making this draft direction Oftel has considered data provided by BT for the six months from 1 April to 30 September 2002. However, because customer option data was not captured contemporaneously with call revenue data until the three months from 1 July to 30 September 2002, the discounts proposed are based on that three months time period.

BT’s calculations

3.5 The basic principle of the calculation of discounts is that it is the difference between gross revenues, calculated on ‘headline’ retail prices, and the amount that is actually recovered from customers.

3.6 The outline calculation undertaken by BT is as follows:

1. Gross revenues

Less

2. Discounts, including:

Standard real time discounts (eg BT Together);

Calling circle (eg Friends & Family and Best Friend); and

Inclusive call allowances (eg within the Standard Line Rental and BT Together)

Plus

3. Option fees (eg additional ‘rental’ for BT Together)

Equals

4. Net revenues

5.Discount % = (Gross – Net) / Gross

NB: This is an indicative summary based on the option schemes that relate to residential packages. The actual calculation of BT’s discounts includes both business and residential options.

3.7 Oftel is unable to publish details of call revenues and discounts supplied by BT, as these are considered to be ‘commercial-in-confidence’. However, Annex A contains a non-confidential table describing how each of BT’s discount schemes or packages applies to the range of services offered on 0844 and 0871 numbers. Oftel has also included, at Annex B, a narrative provided by BT describing the different types of discounts and attribution methodology used to produce the discounts.

3.8 BT supplied information for each of the call types contained in Annex A. BT supplied the data separated into categories for ‘Internet’, ‘non-Internet’ and ‘non-discounted’ rather than by number range (the September 2001 direction set separate discounts for calls to 0845 and 0870 numbers). This is because it is more appropriate to set discounts according to groups of chargebands where the applicability of BT’s various discount schemes is common. For example there is a marked differences in the applicability of discounts schemes between internet and non-internet calls which apply equally to both 0844 and 0871 calls in these categories – see Annex A. Taking these factors into account, Oftel considers that BT’s proposed split is more likely to result in BT transferring the correct amount of revenue to terminating operators than if it did not allow such a split.

3.9 BT’s discounts are a combination of ‘billed’ and ‘real time’ discounts. Billed discounts are only calculated during the billing stage, eg, calling circle discounts, such as ‘Best Friend’ and ‘Friends and Family’, give set percentage discounts on particular numbers nominated by the customer and are calculated by BT after calls are made. Real time discounts are calculated as the call is made, eg BT Together packages provide for set discounts on particular types of calls or at particular times. As can be seen in Annex A, 0844/71 calls are generally not subject to any real time discounts.

3.10 Under BT’s current recording systems, real time discounts are relatively straightforward to measure and allocate to particular call types. However, BT’s systems do not allow it to directly allocate ‘billed’ discounts applicable to 0844/71 calls. BT in effect models how the total of these ‘billed’ discounts (eg Call & Save, Inclusive Call Allowances) should be attributed to each particular call type.

3.11 Option fees are fees paid by consumers over and above the standard line rental charge, and are the price paid to benefit from a particular discount scheme. BT attributed option fees according to a number of methodologies, please see Annex B for further information.

3.12 BT could use a range of methodologies and degrees of granularity to attribute discounts and option fees to 0844/71 numbers, and for this draft direction Oftel has sought to review whether BT has acted reasonably. Oftel has examined BT's methodology and considers it provides a reasonable basis for calculating actual discounts by call type.

3.13 The average discount proposed for each call type is as follows:

• Internet calls: 17.8%;
• Non-Internet calls: 0.1%; and
• Non-discounted calls: 0.0%.

3.14 Oftel also asked BT to provide data for all types of NTS calls over the same time period to provide a further check on the data supplied specifically for 0844/71. After adjusting the comparison data for differences in the applicability of discounts, Oftel considers that the proposed discounts for 0844/71 are consistent with the trends observed for other NTS calls.

3.15 The data used in this direction dates from 1 July to 30 September 2002 and has not, therefore, been reconciled to the relevant revenue figures in BT’s regulatory Financial Statements, which will not be available until some time after 31 March 2003.

Chapter 4

The Director’s draft Direction

4.1 The Director has considered the requirements of the Interconnection Directive as implemented in the Telecommunications (Interconnection) Regulations 1997 ('the Regulations'). In this instance the draft direction is issued under the provisions of Regulation 6(3).

Exceptional circumstances

4.2 In making a draft direction under Regulation 6(3) the Director is required to demonstrate that exceptional circumstances require him to intervene in the matter concerned. BT’s previous attempts at reviewing its NTS Discounts have resulted in its proposals being rejected by significant numbers of operators. The reasons given by operators centre around BT’s refusal to include details of the calculations used in setting its discounts owing to the commercial sensitivity of the data used.

4.3 In the absence of sufficient data, operators have no means of validating whether discounts have been applied correctly to their calls. In addition, the combination of new discount schemes and the increasing take up of these schemes has meant that average discounts increased with each review. These factors have led operators to dispute BT’s proposals and subsequently to seek to have calls to their services excluded from BT’s discounts.

4.4 BT’s regulated retention for originating NTS calls entitles it to retain its relevant network and retail costs. These are subtracted from the net retail price for calls, after discounts, to give the outpayment paid to terminating operators. It is important therefore that the average discounts given by BT to its retail customers are calculated using the most accurate available data to ensure terminating operators receive appropriate payments for their calls. Failure to do so may distort the NTS market and lead terminating operators to set higher than justified retail prices for calls to their services creating a disbenefit to consumers.

4.5 Oftel is currently in discussion with BT about ways in which BT could review its charges to offer a greater degree of transparency without compromising commercially confidential information. In the meantime it must be recalled that Oftel undertook in the NTS Discount Direction (2001) to review 0844/71 discounts when data became available. Oftel also considers that, until BT can satisfy operators of the validity of its discounts, any attempt by BT to set actual discounts for 0844/71 may result in yet another dispute. This, and the potential impact on the NTS terminating market of the determined discount rate different from the actual underlying discount rate, creates the exceptional circumstances which justifies Oftel’s intervention in this matter.

The requirements of the Regulations

4.6 The Director’s draft direction is based on an analysis of the facts and relevant information which has been supplied to him. He has given careful consideration to the criteria set out in Regulation 6(1) of the Regulations. In particular, he has considered the need to stimulate a competitive market, the aims of maximum economic efficiency and the maximum benefit to end-users.

The draft Direction

4.7 Having sought information from BT and reviewed its methodology and the supporting figures used for calculating the discounts, as described in chapter 3, the Director has reached his initial decision in this matter. Accordingly he proposes that, with effect from 1 October 2002, BT’s average discounts for calls to operators services operating on 0844 and 0871 numbers shall be:

• For calls to Internet services:17.8%;
• For calls to non-Internet services: 0.1%; and
• For calls to non-discounted services: 0.0%.

4.8 Oftel considers that it is appropriate for the change to have effect from a date immediately following the period over which the supporting data was obtained (see paragraph 3.8).

Date of application

4.9 The Director proposes that this direction shall have effect from 1 October 2002. Oftel does not propose to require BT to apply the level of discounts resulting from this review retrospectively, beyond 1 October 2002.

4.10 In September 2000, insufficient information was available to allow discounts for 0844 and 0871 discounts to be set and the Director took a decision to set the discounts at 11.75 per cent. In the interests of certainty and stability, there must be compelling reasons to retrospectively adjust a charge particularly where the charge has been set based on the best information available at a point in time. It is the Director’s initial opinion that no such reasons exist in this case.

Implementation of the Direction

4.11 In accordance with paragraphs 13.11 and 13.15 of the Standard Interconnection Agreement between Operators and BT, this draft Direction proposes that as soon as reasonably practicable following the making of this direction BT shall make the necessary, correct and accurate, alterations to the Carrier Price List. BT shall then send a copy of the alterations to the Carrier Price List to the Operators and no further agreement between BT and the Operators will be required in order to implement this Direction.

4.12 Oftel is aware that there currently exists some delay in the implementation of previous Oftel directions because of a failure of BT and operators to agree amendments to their contracts. The Director therefore welcomes comments on this new implementation proposal.

Chapter 5

Arrangements for making and viewing representations

5.1 The Director’s proposed draft Direction is being made available to interested parties, together with the Director’s reasons, so that they may have a reasonable opportunity to make representations. Having considered any such representations, the Director will, if appropriate, make the direction and will notify BT and operators of that direction and his reasons for making it. The closing date for submitting representations on both the charging methodology and the charges proposed in this determination is 30 January 2003.

5.2 Where possible, comments should be made in writing and sent by e-mail to geoff.brighton@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:

Geoff Brighton
Oftel
50 Ludgate Hill
London
EC4M 7JJ

tel: 020 7634 8925
fax: 020 7634 8943

Further copies of this document

5.3 This document can be viewed in the Publications section of Oftel’s website, under classification Pricing and price control. Paper copies and more accessible formats such as large print, Braille, disc and audio cassette can be made available on request. Please contact Oftel’s Research and Information Unit by phoning 020 7634 8761 or by sending an e-mail to infocent@oftel.gov.uk.

Publication of representations made by stakeholders

5.4 On this occasion, Oftel is not allowing 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 an annex which is clearly identified as containing confidential material.

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 by phoning 020 7634 8761 or sending an e-mail to infocent@oftel.gov.uk.

Annex A

Allocation methodology

Highway: Additional charges for Highway lines are allocated to Highway rentals.

Option fees: Fees are allocated to call type in line with the total value of discount each call type receives.

Surftime within BT Together: The fee allocated to Surftime for the BT Surf Together and BT Surf & Talk Together Options is the same fee for the stand alone Surftime Evening and Weekend option.

ICAs: ICAs are allocated to eligible call types in line with the call revenues of the call types. The call revenues are at Option prices (eg Together/Commitment prices), excluding the discounts applied at the billing stage (eg excludes F&F/Op15/Choices discount).

Details of BT's charge bands and the number ranges to which they apply can be found in the BT Price List at:

• www.serviceview.bt.com/list/current/docs/Call_Charges/00161.htm; and
• www.serviceview.bt.com/list/current/docs/Call_Charges/00253.htm.

Annex B

Methodology for the production of NTS discount information

Introduction

BT has introduced a range of customer packages which offers discounts to certain call types, normally for the additional payment of a quarterly fee. Some discounts are calculated during the billing process whereas others are priced directly when the call is made. This document aims to provide an overview of the overall impact on call revenues, relating in particular to the production of the discounts presented to Oftel in the NTS discount submissions.

Summary of discounts/packages

The following table lists the options relevant to the NTS discount submissions for the period 2001-02-2002-03. Each category is labelled as:

• billed – calculated within billing process; or
• real time – calculated as call is made.

Note: Business Complete Savings Plans are split out to the individual packages of Choices and Key products. Highway versions of the Together options are included.

Combinations allowed

• only one Standard option (billed or real time);

• a Calling Circle is allowed with any standard combination;

• One Call Allowance (all non LUS residential customers qualify for a standard allowance); and

• Supplementary Real Time options allowed in combination with any Standard Billed option.

Call types

For the complete allocation of discounts, the call revenues (for PSTN, ISDN and Highway) were split into the following main categories:

• local geographic and non geographic;
• national geographic and non geographic;
• IDD;
• fixed to mobile;
• directory enquiries;
• premium rate calls;
• Surftime calls; and
• other.

The call types presented to Oftel for the NTS discount submissions are local non-geographic, national non-geographic and premium rate calls.

Data systems used

To cover both billed and real time discounts, a number of data systems need to be used:

CSCS (Call Statistics Centralisation System)

• Main financial system for the measurement of call revenues.

• Daily feed produces call revenues by call type by time of day in total and by OSC package, revenues are post OSC.

• Revenues are as earned within a time period.

• Daily feed produces call revenues at standard prices by call type by time of day by OSC package.

• CSCS is call based and cannot measure bill based discounts.

Swift

• Database primarily sourced from billed data (revenues are all post OSC prices).

• Two specific reports are used in the analysis of call discounts:

Real time (OSC) discounts

Discounts from all OSC products are directly measured by CSCS on an accrued basis. The discounts include the effects of minimum fee and time of day.

Note: Calls priced at 0 pence per minute are only local geographic and national geographic for the BTT Local and UK options. NTS calls on these options retain the standard BT prices. All Surftime calls priced at 0 pence per minute are in the Surftime call type, not in local NTS.

Billed discounts

All bill related discounts are applied to revenues post OSC prices. Billed discounts come from standard packages, call allowances and/or calling circles. Further, these discounts are additive ie each discount is applied to the billed call spend.

The total billed discount is measured in the financial systems but is not directly available by call type or by option. To provide the level of detail required for the NTS submissions (discounts by each option, by call type), the discounts are attributed based on the reports from SWIFT. In Swift, the billed discounts are reported separately for standard packages, threshold options (eg call allowances and Call & Save) and calling circles.

The billed discounts by each type of option are attributed to call type in four steps as follows:

Standard options

Discounts from standard packages can be allocated directly from the billed data by package by call type, as the discounts are a set percentage for each call type (eg 11 per cent on local, national and IDD and zero per cent on other calls for Option 15).

For Call & Save, the total Call & Save and call allowance discount is calculated based on the average bill of eligible revenues and aligned to the Swift reported threshold discount for Call & Save, which covers both. The Call & Save element is then apportioned to the eligible call types in line with the total billed revenues of those call types.

Call allowances

The total call allowance is based on the reported Swift threshold discount. The allowance discount is allocated to call type in proportion to the eligible billed revenue by option.

Calling circles

Calling circle options give set discounts on particular numbers nominated by the customer (within defined restrictions on call types etc). The amount of calling circle discount is dependent on the choice of numbers.

The total amount of calling circle discount is reported by Swift.

The apportionment of calling circle discounts to call type is applied using the directly measured Calling Circle report.

Adjustment to earned revenues

All the above apportionment is based on billed data. The billed results are aligned to the earned revenues by call type and to total earned discount for each quarter before use.

Option fee attribution

For products where there is a fixed fee (eg BT Together), the option fee element is the amount in excess of the standard rental.

Apportionment for business

Total business option fees are apportioned to call type in line with total business billed discounts.

Apportionment for residential

For residential option fees the following call allocation rules are applied:

Apportioned to call type in line with total residential billed discounts:

Option 15, F&F overseas, BT Together, BT Working Together, BT Working Together Talk

Apportioned directly:

• BT Surf Together: all to Surftime;
• BT Together Local Option: all to local geographic;
• BT Together Local & Surf Option: half to local geographic, half to Surftime;
• BT Together UK Option: all to national geographic;
• BT Together UK & Surf Option: a third to local geographic, a third to national geographic, a third to Surftime; and
• Surftime Evening Weekend and Anytime: all to Surftime.

0844/0871 calls

The requirement to report on discounts to 0844/0871 calls has led to the development to identify additionally the following call types due to the eligibility to specific discounts:

0844/0871 – Internet calls

0844/0971 – non-Internet calls

0844/0871 – no discounts

0844 Internet calls benefit from the additional BT Together ICA but not from any BT Together call discounts. Fees were allocated as follows:

Total BTT OSC call discounts = OSC

Total BTT ICA = ICA(tot)

Total BTT additional ICA = ICA(add)

Total BTT fees = F

Fees allocated to ICA(add) = F(add)

BTT ICA allocated to 0844 = ICA(0844)

Add ICA benefit % = ICA(add)/(ICA(add)+OSC)

F(add) = Benefit % * F

Fees allocated to 0844 = ICA(0844) * ICA(add)/ICA(tot) * F(add)