Contents

Direction

Explanatory Memorandum

Chapter 1 Summary

Chapter 2 Background

Chapter 3 History of the dispute

Chapter 4 Responses to the draft direction

Chapter 5 The Director’s decision and reasons

DIRECTION UNDER THE PROVISIONS OF REGULATION 6(6) OF THE TELECOMMUNICATIONS (INTERCONNECTION) REGULATIONS 1997 OF A DISPUTE BETWEEN CABLE AND WIRELESS COMMUNICATIONS PLC ("C&W") AND BRITISH TELECOMMUNICATIONS PLC ("BT") OVER THE TRANSIT OF CALLS BY C&W TO CERTAIN NTS NUMBER RANGES ON THE BT NETWORK

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 paragraph 20 of Schedule 5 of the Act the BT licence has effect as if granted to British Telecommunications plc ("BT");

C. The Secretary of State has granted to Cable & Wireless Communications plc (C&W) on 5 December 1991 a licence under Section 7 of the Act for the running of a telecommunications system as specified in the licence;

D. On 1 January 1998 the Interconnection Directive came into force and was implemented in the UK through the Telecommunications (Interconnection) Regulations 1997 ("the Regulations") and conditions in the licences of operators;

E. Regulation 6(6) of the Regulations provides that where there is a dispute concerning interconnection between organisations, the Director General of Telecommunications ("the Director") shall, at the request of either party, take steps to resolve the dispute within six months of the date of the request. The Determination which the Director 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 Determination is based;

F. C&W entered into an Interconnect Agreement with BT on 1 May 1998;

G. C&W provided the Director with information on this matter dating back to 28 June 1999. Between 28 June 1999 and 11 May 2002 C&W requested that BT pay C&W for the Number Translation Services (‘NTS’) transit service that C&W had provided for calls to NTS number ranges (excluding 0844 NTS calls or 0871 NTS calls) which C&W had transited for termination on the BT network (‘NTS transit traffic’);

H. BT did not pay C&W for this NTS transit service, stating that C&W’s proposal was not commercially acceptable to BT. BT subsequently stated that it has never requested that C&W provides this service, nor has it entered into contractual arrangements requesting that C&W provide this service. BT and C&W were therefore in dispute;

I. On 8 May 2002, in accordance with the provisions of Regulation 6(6) of the Regulations, C&W referred this dispute to the Director for determination;

J. The Director has a duty to encourage and secure adequate interconnection in the interests of all users in a way which provides maximum economic efficiency and gives maximum benefit to end-users;

K. The Director 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 which accompanies, and is published with, this Direction;

L. A draft of this Direction and the Explanatory Memorandum was issued to interested parties on 23 September 2002. Comments were invited by 21 October 2002;

NOW, THEREFORE:

PURSUANT TO REGULATION 6(6) OF THE INTERCONNECTION REGULATIONS, AND HAVING CONSIDERED THE VIEWS OF THE PARTIES AND THOSE MATTERS SET OUT IN REGULATION 6(8) OF THOSE REGULATIONS, THE DIRECTOR MAKES THE FOLLOWING DIRECTION TO RESOLVE THE DISPUTE BETWEEN C&W AND BT:

1. BT should not be required to settle all outstanding invoices for C&W NTS transit traffic;

2. BT should not be required to amend the Carrier Price List (‘CPL’) to ensure that the charging structure for NTS transit traffic is identical for both BT to Operator traffic and Operator to BT traffic; and

3. BT should not be required to introduce separate schedules into the Standard Interconnect Agreement (‘SIA’) to cover NTS transit for both BT to Operator traffic and Operator to BT traffic.

4. The terms defined in this Direction shall have the meaning so defined or described. All other words or expressions used in this Direction shall have the same meaning as in the Interconnection Directive, the Regulations, the Act or the Licence as appropriate.

5. This direction shall take effect on the date it is published.

Chris Kenny

Director of Compliance

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

7 November 2002

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(6) of the Telecommunications (Interconnection) Regulations 1997 (‘the Regulations’) for the resolution of a dispute between Cable and Wireless PLC (‘C&W’) and British Telecommunications PLC (‘BT’).

1.2 C&W referred this dispute to the Director on 8 May 2002. C&W requested that BT be required to:

1.3 Following this referral, the Director sought the views of the parties to the dispute and considered the submissions made by C&W and BT. The Director issued a draft direction in respect of this dispute on 23 September 2002 to the industry as a whole for consultation. This draft direction stated that the Director did not propose to grant C&W’s three requests, as set out in paragraph 1.2. Comments were requested and have been taken into account in making a final direction.

1.4 The details of the submissions made in response to the draft direction, together with the Director’s reasons for making his decision, are set out in Chapters 4 and 5.

1.5 In summary, responses to the draft direction have not altered the Director’s position on this matter. The Director does not consider that BT should be required to settle all outstanding invoices for NTS transit traffic, as no evidence has been provided to demonstrate that a binding agreement exists between the parties that requires BT to pay C&W for this service. In addition, and for the reasons set out in Chapter 5 of this document, the Director does not consider that BT should amend the CPL to ensure that the charging structure is identical for both BT to Operator traffic and Operator to BT traffic, or introduce separate schedules to the SIA to cover NTS transit for both BT to Operator traffic and Operator to BT traffic.

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

Chapter 2

Background

Description of Number Translation Services (NTS)

2.1 NTS refers to the process associated with the routing of a non-geographic number to a network termination point, ie the translation of a number from its non-geographic format into a geographic number to enable it to be routed to a specific location.

2.2 NTS services are bought by their customers in order to use non-geographic telephone numbers, eg numbers which are used to identify a type of service rather than a geographical location. Services provided through the use of non-geographic numbers include sales, marketing, customer support, and information services.

2.3 There are a number of different types of services which use NTS, for example:

• Freephone: services typically using the 080x/0500 number range. They enable the called party (the NTS customers) to be called free of charge from anywhere in the UK (apart from some exceptions when calling from mobile phones). The NTS customer pays the full cost of the call.

• Local rate: Services typically using the 0845 number range. NTS customers can be called from anywhere in the UK at a price up to the local call rate, not exceeding 5p per minute. The caller pays the local rate and the NTS customer pays any balance which is due.

• National rate: Typically using the 0870 number range. Customers can be called from anywhere in the UK at up to the national rate, not exceeding 10p per minute. The caller pays a price up to the full national rate and the NTS customer either pays nothing, or in many cases receive revenue from the supplier of NTS.

• Premium rate service (‘PRS’): these use the 09xx number range. Callers pay for the cost of the call, together with a variable charge for the content of the call. NTS customers earn revenue from the calls.

Description of Transit

2.4 Interconnection is the physical and logical linking of telecommunications networks used by the same or a different operator in order to allow the users of one operator to communicate with users of the same or another operator, or to access services provided by another operator.

2.5 In certain cases operators might interconnect directly with one another, in order to enable users on an originating operator’s network to access users on a terminating operator’s network.

2.6 However, where operators do not directly interconnect with one another an originating operator will need to purchase a transit service in order to pass traffic between networks.

Charging arrangements for the transit of geographic traffic

2.7 For geographic (i.e. non NTS) traffic, the originating operator pays the transit operator the transit payment plus the regulated terminating operator outpayment. The transit operator collects these charges from the originating operator.

Charging arrangements for the transit of NTS traffic

2.8 For all NTS calls, the traffic is ‘owned’ by the terminating operator. In the case of ‘traditional’ NTS traffic (eg calls to 0845/0870 number ranges), the terminating operator’s payments are governed by the originating operator’s retail price for such calls. All references to NTS traffic in this dispute are references to ‘traditional’ NTS traffic. Where BT is the transit operator, then in terms of payments it will collect the terminating operator’s contractual outpayment and then recover its regulated transit payment from the terminating operator. Figure 1 below shows the flow of payments in this case, where BT is the transit operator.

Figure 1: flow of payments for ‘traditional’ NTS traffic

2.9 For ‘new’ NTS traffic, the terminating operator decides what outpayment it wishes to receive, and selects the originating operator’s appropriate price point to achieve that level. In this case the responsibility for the transit payment falls on the originating operator. Where BT is the transit operator it will charge the originating operator for the transit payment (which it retains) and the terminating operator’s contractual outpayment (which it forwards). Figure 2 below shows the payment flows for ‘new’ NTS traffic, again where BT is the transit operator.

Figure 2: flow of payments for ‘new’ NTS traffic

2.10 This position was set out in "Oftel’s Statement on the Relationship between Interconnection Charges and Retail Prices for Number Translation Services" (‘the NTS Statement’), published in December 1999. This traffic is known as ‘new NTS traffic’, and does not form the basis of this dispute. This document does not set out the contractual arrangements regarding ‘new NTS traffic’.

2.11 C&W has referred a dispute relating to the contractual arrangements for traditional NTS traffic. These arrangements are described in BT’s SIA.

2.12 The following contractual provisions form background to this dispute;

Paragraph 5.2 of Section 1 of the SIA states that;

Paragraph 12.1 of Section 1 of the SIA states that;

Paragraph 13.1 of Section 1 of the SIA states that

Annex D of the SIA defines the CPL as:

2.13 The contractual arrangements between BT and operators for traditional NTS traffic are set out in greater detail in paragraphs 5.2 to 5.5 of the draft direction on this issue.

Chapter 3

History of the dispute

3.1 Prior to the referral of this dispute to the Director, BT and C&W had corresponded on the matter of the transit of calls to certain NTS number ranges, in particular Premium Rate Services (‘PRS’).

3.2 In August 2001 C&W issued an invoice to BT which requested payment for the NTS transit service provided by C&W. Subsequent to this invoice being issued the parties met to discuss this issue and BT’s rejection of C&W invoices for this service.

3.3 In January 2002 C&W initiated a period of further correspondence between the parties, and offered BT a lower price in respect of invoices for NTS traffic which C&W had raised prior to 30 September 2001. In February 2002 BT rejected C&W’s offer, stating that "The Interconnect Agreement does not provide for the service for which C&W endeavour to charge BT, accordingly your invoices are not valid and BT cannot accept a liability to pay".

3.4 Correspondence continued on this matter until the dispute was referred to the Director for determination on 8 May 2002.

Chapter 4

Responses to the draft direction

BT

4.1 BT welcomed the Director’s findings as set out in the draft direction, and made the following comments on the C&W arguments that were set out in the draft direction.

4.2 BT stated that it has no objections to C&W developing a transit product should it wish to do so. However, BT further stated that it rejected C&W’s opinion that an obligation was in place which compelled BT to purchase such a product and was surprised that this opinion was based on evidence of various discussions between the two companies on the subject.

4.3 BT considered that the fact that C&W has entered into a contractual arrangement with BT for BT-transited NTS traffic is irrelevant to any BT decision to take up a C&W transit product. BT said that it did not compel C&W to make such an arrangement, and any such decisions by C&W would have been made, presumably, for commercial reasons. BT further stated that BT, on the contrary, does not have any commercial drivers to contract with C&W for an NTS transit product.

4.4 BT stated that the NTS termination schedules cover traffic handed by one party to the other (other than internationally originated traffic, which is covered by Schedule 106 or 307/549, to the extent that the handover of incoming international calls is agreed). BT said that is therefore obliged to terminate all calls handed over by C&W, wherever they originate in the UK, but that does not mean that it is obliged to specially recognise a sub-set of them as "transited" which would unavoidably require BT to pay to C&W a transit charge (a "TWIX" payment).

4.5 BT was also concerned that C&W should consider it inappropriate that BT should control an essential element of BT’s Reference Interconnect Offer: the BT CPL. BT stated that this document is intended for BT to operator and, for contractual simplification, operator to BT products. BT further stated that at no time was the BT CPL intended for operator to operator products, and that any C&W transit product would fall into the latter category as BT is not contracted in any way to purchase it.

4.6 BT further stated that entries are made in the CPL to reflect the commercial relationships between the parties. In this way, the BT prices reach the CPL through contractual pricing notification (often associated with regulatory pricing notification), and the operator prices reach the CPL only after they have been agreed by the parties in writing, which is usually by the parties signing an OCCN for changes to operator prices, or a Pricing Letter, generally for new prices or prices involving retrospection. BT maintained that C&W has failed to indicate any occasions when BT has failed to discharge those obligations, either in respect of BT prices or operator prices. BT further stated that if a service and a price have not been agreed by the parties, then entries in the CPL relating to such a service or price would be quite inappropriate and improper.

4.7 BT did not consider that there is any reason to include a similar footnote to footnote 7 in the BT CPL as there is no contractual relationship with C&W for the supply of an NTS transit product.

4.8 In conclusion, BT stated that it found it difficult to understand how BT can undermine C&W’s transit business simply because BT has no requirement to purchase a transit service from C&W. BT considered that its rejection of C&W’s request for payment for this service does not materially affect the NTS transit market: indeed those operators which require a transit service are free to obtain such a service from whichever companies they choose. BT argued that its decision in this matter would not impact on C&W’s ability or freedom to provide, or not to provide, an NTS transit service.

C&W

4.9 C&W stated that in considering this dispute, Oftel is required to determine the matter based on the true construction of the contractual position between the parties. It argued that in coming to the conclusion set out in the Draft Direction the Director had failed to consider in detail the legal relationship between the parties. Accordingly, C&W considered that the Director had erred in law in reaching the decision set out in the Draft Direction.

4.10 C&W stated that in providing a transit service between the Originating Operator and BT (as the Terminating Operator), C&W is providing BT with a service. C&W stated that it is clear that:

• BT considers, and the CPL essentially acknowledges, that transit services amount to the provision of a service by the Transit Operator to the Terminating Operator, given that BT collects a fee from C&W for such provision;

• in reaching the conclusion set out in the Draft Direction, the Director does not dispute that C&W has provided a service to BT; and

• from an e-mail (subequently supplied to the Director, the full details of which were marked confidential) from BT to C&W, dated 3 November 1999, BT "does recognise that a service was provided and that a claim may be appropriate".

4.11 In light of this analysis C&W argued that the parties agree that C&W is providing BT with a service, but the SIA does not specify charges. However, C&W argued that a term is implied in accordance with section 15 of the Supply of Goods and Services Act 1985, which provides:

4.12 Therefore C&W argued that the absence of a price in Footnote 7 in respect of fees payable by BT to C&W does not in law have the effect that C&W is not entitled to payment for providing NTS transit services. C&W stated that it is entitled in law to a reasonable payment for provision of these services, and considered that what amounts to a reasonable payment is a question of fact. C&W believed that in the circumstances this should be a reflection of the figures contained in Footnote 7 as payable by C&W to BT.

4.13 C&W said that on grounds of reasonableness and proportionality it is only right that its payment for NTS transit services provided by BT should be matched by a reciprocal obligation for BT to pay C&W for the provision of an equivalent service. C&W stated that the Draft Direction should be reconsidered to take into account C&W argument.

4.14 C&W argued that the correspondence between BT and C&W demonstrates that there was, until very recently, no clarity about how transit is covered in the Standard Interconnect Agreement. It considered that, given Oftel’s intention to avoid having to resolve disputes between non-dominant NTS operators, the contract assumes much greater importance. C&W did not understand why the Director has not taken the opportunity to amend the contract, even if only to properly reflect how BT Transit is conveyed and charged for.

ntl

4.15 ntl stated that it supports the principle of operators being able to offer a competitive transit product for NTS traffic terminating on the BT network. ntl added that it is concerned Oftel feels such a product may be used simply to minimise the revenue gain of BT, as the terminating operator. Ntl stated that there are valid reasons why an originating operator may choose to route via a transit Operator for BT NTS traffic.

4.16 ntl maintained that the reasons for use of a transit Operator proposed by C&W are valid, and occur regularly within a standard interconnect relationship. It considered that the proposal by the Director that these issues would be "better dealt with directly" does not allow for the protracted times these negotiations could take. During this time calls originating on an Operator’s network for BT NTS ranges could be either failing, or be routed to BT via less optimal routing choices due to insufficient capacity. ntl believed it to be in everyone’s interest to enable as many valid calls to terminate, during normal traffic conditions, and it suggested that a transit Operator could allow a further option for least cost routing. Equally, ntl stated that it would enable Operators to route some or all of its traffic via a third party during billing disputes, or for those Operators who have fundamental issues with doing business with BT on commercial grounds.

4.17 ntl stated that Oftel should support operators endeavouring to make a transit product a viable wholesale offering, which would be in line with Oftel’s desire to find opportunities to generate competition.

4.18 ntl concluded by stating that supporting C&W’s request would not only stimulate competition in the transit market, but may also have the effect of triggering more direct interconnects between operators, where the option of a wide range of transit traffic could be available.

Telewest

4.19 Telewest stated that the suppression of competition for NTS transit services entrenches the market distortions created by the current NTS regulations, and the Director should place more emphasis on his obligations to promote competition.

4.20 In particular, Telewest stated that to the extent that anyone ‘owns’ NTS traffic, such ownership is shared between the calling customer and the ultimate service provider, and while the former pays for the call, the latter invests in the services that generate their demand. Telewest argued that access, transit and terminating operators are merely intermediaries in that transaction. It further argued that this view means that it is vital that the routing between customer and service provider (as opposed to originating operators to terminating operators) are as efficient as possible.

4.21 Telewest believed that it should be able to route NTS traffic directly to the relevant service provider, rather than the range-holder of the NTS numbers in question. It argued that if this presumption is correct, the notions of traffic ‘ownership’ by the terminating operator, as outlined in the draft direction, are at odds with the objectives of routing efficiency.

4.22 Telewest further stated that it does not have any interconnect agreements with any other significant terminating operator. Telewest queried how such a state of affairs could have arisen, if the NTS regime generally seeks routing efficiency.

4.23 Telewest stated that the perceived inefficient routing arrangement outlined in paragraph 4.22 had arisen on account of (1) the institutional arrangements for BT’s transit product and (2) the presumption of traffic ownership by the terminating operator.

4.24 Following on from the position outlined in paragraph 4.23, Telewest stated that terminating operators’ transit traffic will always be priced in accordance with BT’s regulated charges, which creates little incentive for direct interconnect, even when this might be the efficient solution.

4.25 Telewest concluded by stating that an important step towards a level playing field for negotiation between originating operators and terminating operators would be the availability of a transit product where the commercial and billing responsibilities remain with the originating operator and the terminating operator. Telewest argued that C&W and other operators should therefore be given equal status under the transit regime.

4.26 Telewest acknowledged that its arguments relate more to the general competitive conditions within the NTS transit market, but strongly considered that the Director had paid insufficient attention to these competitive considerations.

Chapter 5

The Director’s decision and reasons

5.1 This dispute relates to the arrangements between C&W and BT where C&W, as a transit operator, passes NTS traffic to BT for termination. The first issue which C&W is seeking to redress is that BT has refused to agree to pay C&W a transit charge where such traffic is handed over to it.

C&W’s first request, that BT be required to settle existing invoices for C&W to BT NTS transit traffic

5.1 The Director has considered the arguments submitted by C&W on this issue in response to the draft direction.

5.2 The draft direction on this matter set out the Director’s opinion that no binding agreement exists between the parties for the delivery of NTS transit traffic from C&W to BT. The Director’s analysis on how the existing contractual provisions of the SIA cater for the provision of an NTS transit service from C&W to BT was set out in paragraphs 5.2 to 5.5 of the draft direction. The Director’s final position on these contractual arrangements remains the same as set out in the draft direction. He does not consider that these arrangements are sufficient to give C&W a contractual right to demand payment from BT for this service.

5.3 The draft direction also stated that no evidence had been provided to the Director which indicated that the parties had reached an agreement for BT to purchase the C&W NTS transit service. C&W provided new evidence in response to the draft direction, and submitted additional points, in support of its argument that it is entitled in law to a reasonable payment for the provision of an NTS transit service to BT. The Director has considered this evidence, as well as the points that were made in C&W’s submission to the draft direction. However, after consideration of this evidence and these points, the Director’s position remains the same as set out in the draft direction. The Director’s reasoning will now be set out.

5.4 In response to the draft direction, C&W stated that an email from BT to C&W, dated 3 November 1999, demonstrates that the parties agree a service is being provided by C&W to BT. C&W provided the Director with this email, which it stated was confidential. C&W subsequently argued that because it is providing a ‘service’ to BT when it transits NTS calls to BT for termination, it is entitled in law (in accordance with the Supply of Sales and Services Act 1985) to a payment for it.

5.5 However, the Director does not consider that the mere provision of a service by one party to another, in the absence of a contract between the two, automatically means that the party providing the service is entitled to payment from the recipient. Nor does acknowledgement that "a claim may be appropriate" constitute evidence that a contract exists. In the present case the Director has seen no evidence of any invitation to treat, offer or acceptance in respect of the provision of an NTS transit service from C&W to BT. Therefore there is no contract between the parties requiring C&W to supply and, correspondingly, for BT to pay for such a service.

5.6 In light of this analysis, the provisions of the Supply of Goods and Services Act 1985, as relied upon by C&W, are not relevant. As BT is not "under a contract for the supply of a service", as required by Section 15(1) of this Act, there is no implied term that a reasonable charge will be paid by BT for this service.

C&W’s second request, for a Direction requiring that BT amend the CPL to ensure that the charging structure for NTS transit is identical for both BT to operator traffic and operator to BT traffic; and

C&W’s third request, for a Direction requiring that BT introduce separate schedules to cover NTS transit for both BT to operator traffic and operator to BT traffic, for clarity moving forward.

5.7 As has been set out, it is the Director’s opinion that no agreement has been reached which requires BT to settle C&W invoices in respect of C&W to BT NTS transit traffic. However, C&W’s second and third determination requests require the Director to consider whether such a state of affairs is reasonable going forward. The draft direction on this issue set out the Director’s opinion as to why he did not propose to grant C&W’s second and third determination requests. The factors that the Director took into account in arriving at this position were set out in the draft direction. These factors will now be summarised.

The objectives of Oftel’s regulatory regime

5.8 The draft direction stated that the decision to be reached in respect of C&W’s second and third determination requests had to be consistent with the objectives of the NTS regulatory regime. In particular it was stated that, in line with the "Determination of a dispute between BT and a number of operators regarding a proposal to charge for NTS links from January 1 2001" , it is a matter for the terminating operator (in this case BT) to decide how it wants NTS traffic terminating on its network to be routed. If a terminating operator has a requirement for an NTS transit service it has the option of entering into an agreement with C&W for C&W to have this NTS traffic transited to it. The draft direction stated that, as a general principle, the terminating operator is best placed to make such a decision.

5.9 The draft direction also considered C&W’s second and third determination requests in line with the criteria for resolving disputes as set out in the Regulations. In particular, it considered whether there are significant practical difficulties of sufficient weight associated with direct interconnection with BT. If such difficulties existed, it might indicate that C&W’s NTS transit service constitutes a more efficient method of routing NTS traffic, and that direct interconnection with BT did not constitute a technically and commercially viable alternative to C&W’s NTS transit service. In addition, the Director’s obligation to promote competition was carefully considered.

The availability of technically and commercially viable alternatives to the interconnection requested

5.10 The draft direction outlined the Director’s view that direct interconnection

between an originating operator and BT constitutes a technically and commercially viable alternative to the transit of NTS traffic via C&W. It further stated that the issues raised by C&W should, in the first instance, be dealt with directly. As a result, this weighed against the Director requiring BT to enter into an agreement with C&W for the supply of NTS traffic that had been transited to it by C&W.

The promotion of competition

5.11 The draft direction outlined the Director’s view that the objective of promoting competition in the market for the termination of voice NTS traffic (the key market to focus on for the purposes of considering C&W’s determination request) is best served by a state of affairs where terminating operators have the flexibility to set in place their own arrangements for the routing of traffic to be terminated on their networks.

5.12 Furthermore, the draft direction set out the Director’s view that requiring BT to take C&W’s NTS transit service could potentially undermine BT’s position in the effectively competitive market for the termination of voice NTS. As this direction applies only to C&W and BT, mandating C&W’s second and third determination requests would mean forcing BT to enter into a commercial arrangement for a service that no other terminating operator is required to take.

The Director’s final position on C&W’s second and third determination requests

5.13 The Director has considered whether responses submitted to the draft direction are sufficient to change his position as set out in the draft direction in respect of this matter.

5.14 In response to the draft direction, C&W did not comment on the Director’s proposed findings on its second and third determination requests. However, as set out in chapter 4 of this document, ntl and Telewest submitted responses to the draft direction which, broadly speaking, argued in favour of the Director mandating C&W’s second and third requests.

5.15 The Director has considered the points that have been made by ntl and Telewest. In light of the fact that no formal agreement had been reached between C&W and BT, any action to require BT to enter into a legally binding agreement with C&W to take C&W’s NTS transit service would have to be fully justified. Such action could take place only if it was clear that the benefits would outweigh the costs, and that it would constitute a proportionate response to the competition issue at hand.

5.16 The draft direction set out the Director’s proposed finding that requiring BT to take C&W’s service was not appropriate in this instance. After consideration of the arguments submitted to the draft direction, the Director’s position on C&W’s second and third determination requests remains as set out in the draft direction. However, by way of clarification, the Director will now elaborate on certain aspects of this analysis, in light of the responses to the draft direction.

5.17 It is first necessary to state that the analysis set out in the draft direction was undertaken for the purposes of identifying whether it would be appropriate to require BT, as the terminating operator, to purchase C&W’s NTS transit service. Such a decision would mean that the Director has required one operator to purchase a service that no other operator is obliged to take, and has effectively mandated how a terminating operator should have its traffic routed.

5.18 Both ntl and Telewest urged the Director to place more emphasis on the promotion of competition in the transit market when considering the case in hand. As set out in the Regulations, the Director is required to take into account the promotion of competition when resolving disputes. However, in resolving the dispute the Director has considered this obligation in light of one of the overriding goals of the NTS regulatory regime, namely that regulation should promote investment and innovation in NTS services, by rewarding those companies which invest in these services whilst ensuring a fair return for originating operators. The Director does not consider that requiring BT to take C&W’s NTS transit service would be consistent with the achievement of that goal.

5.19 The key consideration arising out of this analysis is that a terminating operator is best placed to identify when it needs to take an NTS transit service. When it has established such a need, it can then contract with the transit service provider in order to ensure that calls are routed in the most efficient manner. The Director has noted the comments made in response to the draft direction that this regulatory focus is inappropriate. However, the Director considers that this focus gives rise to the objective of promoting competition in the provision of NTS services at the retail level.

5.20 Following on from this, however, it is important to stress that this decision does not prevent C&W from offering an NTS transit service to operators. The decision reached in this case applies only to arrangements between C&W and BT. Furthermore, it does not stop BT from purchasing C&W’s NTS transit service in the future.

5.21 Interested parties may also wish to note that on 24 April 2002 a number of new EC Directives came into force, setting out a new framework for the regulation of electronic communications networks, services and associated facilities. These Directives must be implemented into UK law by 24 July 2003. The Director is currently reviewing the competitiveness of the transit market in the context of this new framework. The Director has already issued a request for information to industry requesting comment on issues that are of relevance to this review, and he considers that this review provides the appropriate opportunity for the conditions of competition in the transit market to be considered.

5.22 In conclusion, and for the purposes of resolving the dispute at hand, the Director does not propose to require the amendment of the SIA and the CPL in line with C&W’s second and third determination requests, as this would be necessary only if the Director considered that requiring BT to enter into a formal agreement to take C&W’s NTS transit service represented a fair balance between the legitimate interests of both parties. However, for the reasons that have been set out, the Director has not reached such a conclusion.