|
 Contents
Draft
Direction
Annex
A – Definition of Network Business and Retail Narrowband Access
Business
Annex
B – Network Components
Annex
C – Information to be provided by way of notes to the regulatory
Financial Statements
Explanatory
Memorandum
Summary
Chapter
One – Introduction and background
Chapter
Two – Regulatory context – requirements for financial information
Chapter
Three – The investigation
Chapter
Four – Options and regulatory option appraisal
Chapter
Five – Detailed Proposals
Chapter
Six – Conclusion
Chapter
Seven – Consultation
Annex
A – Granularity of regulatory financial information
Annex
B – Accounting Documents and supporting methodologies
Annex
C – Other accounting issues
Annex
D – Statements by the Director General to the regulatory Financial
Statements for 1999, 2000 and 2001
Annex
E – Glossary
DRAFT
DIRECTION UNDER CONDITION 78.14 OF THE PTO LICENCE GRANTED TO BRITISH
TELECOMMUNICATIONS PLC
WHEREAS:
(i) The Secretary
of State for Trade and Industry granted a licence (the "Licence")
to British Telecommunications on 22 June 1984 under Section 7 of the
Telecommunications Act 1984 (the "Act") for the running of
telecommunications systems specified in Annex A to the Licence;
(ii) By virtue of
Section 109 of, and paragraph 20 of Schedule 5 to, the Act, the Licence
has effect as if granted to British Telecommunications plc ("BT");
(iii) BT, in accordance
with condition 78 of the Licence, has an obligation to prepare and publish
Financial Statements for each financial year in accordance with, amongst
other things, the Accounting Documents;
(iv) Condition 78.14(a)
of the Licence allows the Director General of Telecommunications ("the
Director"), where he has reasonable grounds to believe that, amongst
other things, any or all of the Accounting Documents or the Financial
Statements are deficient, to investigate, assess, examine or review
BT’s accounting records or accounting and reporting arrangements, systems
or processes;
(v) Condition 78.14(b)
of the Licence allows the Director, as a result of any such investigation,
assessment, examination or review, and where he is satisfied that, amongst
other things, any or all of the Accounting Documents or the Financial
Statements are deficient, to direct BT to amend any or all of:
(A) the composition
of any or all of the Businesses in terms of any or all of the revenues,
costs and assets they respectively comprise;
(B) the manner
in which any or all of the Businesses are disaggregated in terms
of activities of the relevant Business;
(C) the form
and content of any or all of the profit and loss account, the statement
of mean capital employed, statements of costs and the additional
information to be provided by way of notes comprised in the Financial
Statements, the Restated Financial Statements or the Interim Financial
Statements of any or all of the Businesses; and
(D) any or all
of the Accounting Documents;
(vi) On publication
of the Financial Statements prepared by BT pursuant to condition 78
of the Licence for the financial year 1998/1999, the Director had reasonable
grounds to believe that those Financial Statements and the Accounting
Documents were deficient. The Director therefore, in September 1999,
commenced an investigation under condition 78.14(a) of the Licence into
BT’s accounting records, accounting and reporting arrangements, systems
and processes;
(vii) On publication
of the Financial Statements prepared by BT pursuant to condition 78
of the Licence for the financial year 1999/2000, the Director had reasonable
grounds to believe that those Financial Statements and the Accounting
Documents were deficient. The Director therefore continued the investigation
under condition 78.14(a) of the Licence commenced in September 1999
to include those Financial Statements;
(viii) On publication
of the Financial Statements prepared by BT pursuant to condition 78
the Licence for the financial year 2000/2001, the Director had reasonable
grounds to believe that those Financial Statements and the Accounting
Documents were deficient. The Director therefore continued the investigation
under condition 78.14(a) of the Licence commenced in September 1999
to include those Financial Statements;
(ix) As a result
of the investigation under 78.14(a) of the Licence into the Financial
Statements prepared and published by BT for the financial years 1998/1999,
1999/2000 and 2000/2001 and the Accounting Documents, the Director is
satisfied that the Financial Statements and the Accounting Documents
are deficient;
THEREFORE
Pursuant to condition
78.14(b) of the Licence, the Director makes the following direction:
Composition of
the Network and Access Businesses
1. BT shall within
14 days of the making of this Direction amend the composition of:
a) the Network
Business; and
b) the Access
Business
such that each of
the above Businesses are composed in accordance with Annex A to this
Direction.
2. BT shall within
14 days of the making of this Direction amend the name of the Access
Business to "Retail Narrowband Access Business", and, for
the avoidance of doubt, from the date of the change of name, all references
in the Licence, the Accounting Documents or this Direction to the "Access
Business" shall be construed as a reference to the Retail Narrowband
Access Business.
The manner in
which any or all of the Businesses are disaggregated
3. BT shall within
14 days of making this Direction amend the manner in which the Businesses
are disaggregated in terms of activities by creating
activities of each
relevant Business as follows:
a) for the Network
Business, each of the components or parts (or groups of components
or parts) listed at Annex B to this Direction shall constitute a
disaggregated activity of that Business;
b) for the Mobile
Business, each of the following product groups shall constitute
a disaggregated activity of that Business:
(i) Mobile
Business - Interconnect Services [G169/P440]
(ii) Mobile Business - Mobile Call Services – prepaid [G169/P441]
(iii) Mobile Business - Mobile Call Services-postpaid [G169/P442]
(iv) Mobile Business - Mobile Call Services – ISPs [G169/P443]
(v) Mobile Business - Value Added Services [G169/P444]
(vi) Mobile Business – PSRCS (BT Airwaves) [G169/P446]
(vii) Mobile Business – 3G (UK) [G169/P447]
(viii) Mobile Business – Other [G169/P448]
(ix) MobileBusiness – Radiopaging [G169/P658];
c) for the Apparatus
Supply Business, each of the following product groups shall constitute
a disaggregated activity of that Business:
(i) Other
Data Applications [G164/P043]
(ii) Big & Large Switches [G164/P081]
(iii) Datacomms [G164/P088]
(iv) Business Voice Cabling [G164/P090]
(v) Residential Voice Cabling [G164/P091]
(vi) Data Cabling [G164/P092]
(vii) Other Voice Apps [G164/P094]
(viii) Local Area Networks [G164/P095]
(ix) Private Payphones – Apparatus [G164/P134]
(x) Mobile Phones [G164/P150]
(xi) Other Business Products [G164/P233]
(xii) Corded Telephones [G164/P392]
(xiii) Cordless Telephones [G164/P393]
(xiv) Telephone Ancillaries [G164/P394]
(xv) Answering Machines [G164/P395]
(xvi) Facsimilies – Apparatus [G164/P396]
(xvii) Medium and Small Switches [G164/P397]
(xviii)
Managed Network Services (ASB) [G164/P601]
(xix) Visual Services (ASB) [G164/P609]
(xx) Syntegra Equipment Sales (ASB) [G164/P619]
(xxi) Mobile Business, Equipment Sales (ASB) [G164/P623]
(xxii) Converged Switch [G164/P398]
(xxiii) Ignite Solutions (ASB) [G164/P428];
d) for the Supplemental
Services Business:
(i) each
of the following product groups shall constitute a disaggregated
activity of that Business:
(A)
Fax Network Services [G165/P042]
(B) Managed Callstream [G165/P201]
(C) Concert Packet Service [G165/P280]
(D) Callminder SSB [G165/P287]
(E) Number Information Compilation [G165/P303]
(F) Directory Information [G165/P304]
(G) Pathfinder [G165/P305]
(H) Miscellaneous Number Information [G165/P306]
(I) DQ Number Information Inland [G165/P307]
(J) DQ Number Information International [G165/P308]
(K) OLO Number Information [G165/P309]
(L) Genie Internet – UK [G165/P338]
(M) Openworld - NBP – Consumer [G165/P341] [NBP?]
(N) Openworld - NBP – Advertising & E-Commerce [G165/P342]
(O) Virtual Internet Service Providers (VISPs) [G165/P344]
(P) Ignite Applications Services SSB [G165/P347]
(Q)
Ignite Content Hosting [G165/P349]
(R) Openworld – NBP – Narrowband [G165/P357]
(S) Ignite Value Added Services [G165/P377]
(T) Managed Network Services [SSB] [G165/P602]
(U)
Yellow Pages [SSB] [G165/P604]
(V) Message Services [SSB] [G165/P607]
(W) Visual Services [SSB] [G165/P610]
(X) Broadcast Services [SSB] [G165/P615]
(Y) Mobile Comms [SSB] [G165/P624];
and
(ii) that
Business shall also be disaggregated into business and residential
activities, each of which shall be further disaggregated according
to the following customer classes:
A) for
business activities:
1)
Government eg civil and judiciary, civil and defence,
local government and community development;
2) Major corporate clients;
3) Small and medium enterprises;
4) Internet service providers;
5) Calls and Access service providers; and
6) Other service providers;
and
(B)
for residential activities:
1)
Residential customers, each decile by total spend; and
2) Residential customers on BT’s Light User Scheme.
4. BT shall within
14 days of making this Direction amend the manner in which the Businesses
are disaggregated in terms of activities by amending the current activities
of each relevant Business as follows:
a) for the Retail
Narrowband Access Business,
(i) the
current business and residential activities shall be further
disaggregated according to the following customer classes:
(A)
for business activities:
1)
Government eg civil and judiciary, civil and defence,
local government and community development;
2) Major corporate clients;
3) Small and medium enterprises;
4) Internet service providers;
5) Calls and Access service providers; and
6) Other service providers;
and
(B)
for residential activities:
1)
Residential customers, each decile by total spend; and
2) Residential customers on BT’s Light User Scheme;
and
(ii) each
of the following product groups shall constitute additional
disaggregated activities of that Business:
(A)
ISDN2 Connections [G250/P450]
(B) ISDN2 Rentals [G250/P451]
(C) ISDN30 Connections [G250/P452]
(D) ISDN30 Rentals [G250/P453]
(E) PSTN Business Connections (Std) [G250/P454]
(F) PSTN Residential Connections (Std) [G250/P455]
(G) Business Takeovers [G250/P456]
(H) Residential Takeovers [G250/P457]
(I) Business Other Telephone Charges [G250/P458]
(J) Residential Other Telephone Charges [G250/P459]
(K) Business Telephone Line Rentals [G250/P460]
(L) Residential Telephone Line Rentals [G250/P461]
(M) Featureline Conn & Conv [G250/P462]
(N) Featureline Rentals & OSPs [G250/P463]
(O) Business Highway Connections [G250/P464]
(P) Business Highway Rentals [G250/P465]
(Q)
Home Highway Connections [G250/P466]
(R) Home Highway Rentals [G250/P467];
(b) for the
Retail Systems Business:
(i) each
of the current activities of that Business shall be further
disaggregated according to the product groups and, in the case
of Private circuit activities, geographical areas as follows:
(A)
for Local calls activities:
1)
BT-OLO Lo-call [G202/P313]
2) PSTN Local calls: Bus [G202/P316]
3) PSTN Local calls: Res [G202/P317]
4) ISDN2 Local calls [G202/P320]
5) ISDN30 Local calls [G202/P322]
6) Business Highway: Local [G202/P385]
7) Home Highway: Local [G202/P388];
(B)
for National calls activities:
1)
BT-OLO Nationalcall [G203/P314]
2) BT-OLO Valuecall [G203/P315]
3) PSTN National calls: Bus [G203/P318]
4) PSTN National calls: Res [G203/P319]
5) ISDN2 National calls [G203/P321]
6) ISDN30 National calls [G203/P323]
7) Business Highway: National [G203/P386]
8) Home Highway: National [G203/P389];
(C)
for Calls to mobile activities:
1)
BT Calls to Mobile Bus [G204/P240]
2) BT Calls to Mobile Res [G204/P241];
(D)
for International calls activities
1)
Outgoing PSTN Calls IDD Business [G206/P014]
2) Outgoing PSTN Calls IDD Residential [G206/P017]
3) PSTN IDD Calls to O’seas Mobile: Bus [G206/P020]
4) PSTN IDD Calls to O’seas Mobile: Res [G206/P021]
5) Operator Assistance: International Outgoing (155)
[G206/P054]
6) Business BT Chargecard: International [G206/P101]
7) Residential BT Chargecard: International [G206/P102]
8) Operator BT Chargecard: International [G206/P103]
9) Operator Assistance International Incoming [G206/P105]
10) ISDN 30 International Calls: outgoing [G206/P259]
11) ISDN 2 International Calls: outgoing [G206/P261]
12) Business Highway: International (outgoing) [G206/P387]
13) Home Highway: International (outgoing) [G206/P390];
(E)
for Public payphone activities:
1)
Public Payphones - Inland Calls [G207/P138]
2) Public Payphones - IDD Calls [G207/P139];
(F)
for Private circuit activities:
1)
Private Services: Extension Keyline [G208/P061]
2) Speech/KeyLine: Connections [G208/P063]
3) Speech/KeyLine: Rentals [G208/P064]
4) Kilostream N64 Connections [G208/P065]
5) Kilostream N64 Rentals [G208/P066]
6) Kilostream: Connections [G208/P067]
7) Kilostream: Rentals [G208/P068]
8) Megastream: Connections [G208/P069]
9) Megastream: Rentals [G208/P070]
10) International Analogue Private Circuits [G208/P071]
11) International Digital Private Circuits [G208/P072]2)
Flexible Bandwidth Services (FBS) [G208/P288]
13) Shorthaul Data Service (SHDS) [G208/P294
14) Internal Sales of Private Circuits [G208/P297];
and
each of the activities at F(1) to (14) above shall be
further disaggregated by geographical area as follows:
(a)
Activities undertaken within the city of London
zone or areas allocated telephone numbers beginning
with 0207;
(b)
Activities undertaken outside of the city of London
zone or areas allocated telephone numbers beginning
with 0207;
(G)
for Other Retail Systems Business activities:
1)
Telex [G209/P044]
2) Operator Assistance: Inland (100) [G209/P053]
3) Linkline (BT Terminating) [G209/P056]
4) Value Call BT Terminating [G209/P059]
5) Solutions Basic Service [G209/P073]
6) FeatureNet 1000 (VPN) [G209/P076]
7) FeatureNet 5000 (VPS) [G209/P077]
8) Other Advanced Services [G209/P078]
9) Business BT Chargecard: Inland [G209/P098]
10) Residential BT Chargecard: Inland [G209/P099]
11) Repayment Works [G209/P140]
12) Aeronautical & Maritime [G209/P142]
13) Transit [G209/P143]
14) Admin Leases [G209/P145]
15) Other N&IS Network Products [G209/P146]
16) Other Group Network Products [G209/P148]
17) SMDS (Switched Multimegabit Data Services) [G209/P149]
18) International FeatureNet (IFN): outgoing [G209/P257]
19) LinkLine International: outgoing [G209/P263]
20) RedCare [G209/P267]
21) Prime Service [G209/P270]
22) Number Portability - Set-up Costs [G209/P277]
23) Non Network Small Products [G209/P285]
24) Select Services [G209/P290]
25)
CellStream/ATM [G209/P292]
26) Framestream [G209/P296]
27) Callmapping [G209/P302]
28) DQ Number Information Network [G209/P310]
29) Surf Products [G209/P340]
30) BTnet Services –Fixed Access [G209/P345]
31) BTnet Services –Dial Access [G209/P346]
32) Ignite Miscellaneous – SB [G209/P380]
33) BTnet (SB) [G209/P427]
34) Broadband (ADSL) [G209/P430]
35) Visual Services [SB] [G209/P608]
36) Broadcast Services [SB] [G209/P614]
37) Global Satellite Services [SB] [G209/P618]
38) Incoming IDD Other Services [G209/P258]
39)
IP Dial Plus [G209/P350];
and
(ii) that
Business shall be disaggregated into additional business and
residential activities, each of which shall be further disaggregated
according to the following customer
classes:
(A)
for business activities:
1)
Government eg civil and judiciary, civil and defence,
local government and community development;
2) Major corporate clients;
3) Small and medium enterprises;
4) Internet service providers;
5) Calls and Access service providers; and
6) Other service providers;
and
(B)
for residential activities:
1)
Residential customers, each decile by total spend;
and
2) Residential customers on BT’s Light User Scheme.
Amendments
to form and content
5. BT shall within
14 days of the making of this Direction amend to the satisfaction
of the Director the form and content of the additional information
to be provided by way of notes comprised in the Financial Statements
so as to include, where relevant, information in accordance with Annex
C to this Direction.
Amendments
to the Accounting Documents
6. BT shall by
28 October 2002 amend each of the Accounting Documents such that they
require the Financial Statements and the Standard Service Statements
to be prepared such that a reasonably competent qualified accountant
recognised by a member of the Consultative Committee of Accountancy
Bodies or a registered auditor would be able to understand and interpret
those Accounting Documents, the Detailed Attribution Methodology,
the Detailed Valuation Methodology, and the Long Run Incremental Cost
(Relationships and Parameters) to a level that would allow that accountant
or auditor to plan, specify and build systems (whether or not similar
to those used by BT), including any Intermediate Systems, which, if
populated with the Source Data available to BT, would generate outputs
not materially different from those presented in each of the Financial
Statements and the Standard Service Statements actually prepared by
BT.
7. BT shall, by
28 October 2002, amend the Regulatory Accounting Principles as follows:
(a) Principle
5 (Consistency of Treatment) shall be amended so as to include
the following additional text:
"Any
such restatements shall be prepared in accordance with the
version of the Accounting Documents used to prepare the Financial
Statements for the current year. Where BT wishes to use an
alternative method of preparation of the restatements (for
example, previous versions of the Accounting Documents), it
shall obtain the Director’s prior written approval, and shall
highlight each such restatement accordingly."
(b) a new
Principle 6 shall be inserted as follows:
"Principle
6 – Use
of UK GAAP
Unless
expressly provided for, generally accepted accounting principles
and practices in the United Kingdom are to be followed."
(c) current
Principle 6 (Transparency) and Principle 7 (Sampling) shall be
renumbered Principle 7 and Principle 8 accordingly; and
(d) Principle
7 (Transparency) shall be amended so as to include the following
additional text:
"Transparency
will be achieved where a reasonably competent qualified accountant
recognised by a member of the Consultative Committee of Accountancy
Bodies or a registered auditor would be able to understand
and interpret those Accounting Documents, the Detailed Attribution
Methodology, the Detailed Valuation Methodology, and the Long
Run Incremental Cost (Relationships and Parameters) to a level
that would allow that accountant or auditor to plan, specify
and build systems (whether or not similar to those used by
BT), including any Intermediate Systems, which, if populated
with the Source Data available to BT, would generate outputs
not materially different from those presented in each of the
Financial Statements and the Standard Service Statements actually
prepared by BT.
In these
Accounting Documents,
‘Intermediate
Systems’ are systems and procedures which capture and process
relevant Source Data to produce the intermediate documents
or records (not themselves being either Source Data, a Financial
Statement, or a Standard Service Statement) directly or indirectly
necessary to produce Financial Statements, and the Standard
Service Statements which comply with the requirements of Condition
78 of BT's licence. Examples of such intermediate documents
may include engineering surveys, price indexation and trend
models, engineering support systems, network design systems,
product billing systems, marketing surveys;
‘Source
Data’ are data relating to BT’s operations and are derived
directly from and/or collected directly as a result of the
day-to-day operations of BT's business or taken from relevant
external sources. Such data is processed to provide information
to be used by BT in preparing the Financial Statements. Examples
of Source Data may include product prices and volumes, survey
inputs (such as engineering records), business activity analyses,
employee timesheets, contract prices, stock counts, fault
reports, invoices, payroll records, ledgers;
and
‘Outputs’
includes, but is not limited to, the individual numbers that
appear in the Financial Statements and Standard Service Statements."
8. BT shall, by
28 October 2002, amend the Attribution Methods, the Transfer Charging
System, the Accounting Policies and the Long Run Incremental Cost
Methodology such that each of those Accounting Documents includes
a preamble comprising the following text:
"This
Accounting Document has been prepared in accordance with and so
as to implement Principle 7 (Transparency) of the Regulatory Accounting
Principles."
9. BT shall, by
28 October 2002, amend the Accounting Policies as follows:
(a) a new
paragraph 4.2 shall be inserted, such paragraph to set out the
definition of each product group which constitutes a disaggregated
activity of any Business, such definitions to be in accordance
with, where relevant:
(i) the
document titled "Product Definitions 2000/2001"
which was provided to the Director by BT on 26 April 2002;
and
(ii) any
definitions of any component, customer class or geographic
area which may be provided to BT by the Director on or before
28 September 2002; and
(b) paragraph
4.2 (Principles of Valuation of Fixed Assets in the Current Cost
Financial Statements) shall be renumbered paragraph 4.3, and all
following paragraphs shall be renumbered accordingly.
10. BT shall,
by 28 October 2002, amend the Attribution Methods such that a new
paragraph 2.3.3.4 shall be inserted as follows:
"2.3.3.4
Regulatory Cost Exclusions
BT shall exclude
all redundancy items from the Financial Statements for the Network
Business and all such excluded amounts are to be treated as reconciling
items between the Financial Statements and BT’s consolidated financial
statements."
11. BT shall,
within 14 days of the making of this Direction, amend all of the Accounting
Documents such that they clearly indicate which parts of each Accounting
Document, and which parts of each of the Detailed Attribution Methodology,
the Detailed Valuation Methodology, and the Long Run Incremental Cost
(Relationships and Parameters) constitute
(a) a ‘principle’;
and/or
(b) a ‘procedure’
for the purposes
of the audit report required pursuant to conditions 78.7(c) and 78.7A(b)
of the Licence.
12. For the purposes
of this Direction,
(a) ‘Intermediate
Systems’, ‘Source Data’ and ‘Outputs’ shall have the meaning as
set out in 7(d) above;
and
(b) words
and phrases in this Direction shall have the meanings ascribed
to them in the Licence or the Act as appropriate.
ANNEX
A
[Pursuant to
paragraph
1 of this Direction, BT shall amend the composition of the Network and
Access Business in accordance with this Annex.]
"Network
Business" means
the Business which includes the revenues, costs and assets derived from
or used in activities related to Interconnection taken together.
(a) The revenues
are:
(i) the
amounts due from Operators for Standard Services;
(ii) the
amounts due from Operators for Access Network Facilities;
(iii) other
amounts due from Operators for use of any of the network components
or parts (groups of network components or parts) listed at Annex
B to the Director General’s Direction under the provisions of
licence condition 78.14 regarding the regulatory financial statements
of British Telecommunications plc published on [date to be inserted];
(iv) the
amounts attributable by the Licensee from the other Businesses
in respect of any of the network components or parts (groups
of network components or parts) listed at Annex B to the Director
General’s Direction under the provisions of licence condition
78.14 regarding the regulatory financial statements of British
Telecommunications plc published on [date to be inserted];
(v) the
amounts due from International Operators in respect of the delivery
of incoming international calls; and
(vi) other
revenues relating to the costs in (b)(i) to (vii) below.
(b) The costs
are:
(i) the
capital and running costs of:
(aa)
the traffic and non-traffic sensitive portion of the switching,
transmission and other apparatus and systems used in providing
Network Services consisting in the conveyance of Messages;
(bb)
operator centres to the extent that they are used for the
provision of call assistance and emergency services and
any other facilities or services; and
(cc)
the land, cables, ducts, poles, plant and facilities associated
with the activities and services described in subparagraph
(b) (i) (aa) and (bb);
including,
without limitation, the costs of planning, installing, removing,
moving, adjusting, maintaining, monitoring and controlling,
and undertaking any other necessary operations in respect of,
these things and the costs of the equipment and facilities used
in undertaking these activities;
(ii) the
costs of dealing and communicating with Operators, International
Operators and others who convey messages for which payments
are made, including, without limitation, the costs of rendering
bills to, and collecting payments from, Operators in respect
of the activities and services described in subparagraph (b)(i);
(iii) payments
to:
(aa)
Operators in their capacity as Operators; and
(bb)
others in respect of the conveyance of Messages;
(iv) the
costs of improving and developing the facilities, equipment,
systems, processes and procedures used in providing the activities
and services described in subparagraph (b)(i);
(v) the
costs of bad debts incurred in connection with the revenue described
in subparagraph (a);
(vi) the
costs of any overheads and any other appropriate costs attributed
to the activities causing the costs described in subparagraph
(b)(i) to be incurred;
(vii) the
cost of capital incurred in connection with the activities and
services described in subparagraph (b)(i) to (vi) inclusive
being the product of the applicable rate of return (as notified
by the Director to the Licensee from time to time) and the capital
employed, which shall cover all the fixed assets, including,
without limitation, the facilities and equipment, and current
assets less any current liabilities, associated with those costs;
and
(viii) costs
relating to any of the items in (a)(i) to (iv) above.
(c) The assets
are all of the facilities and equipment which cause the costs described
in subparagraph (b) to be incurred plus the debtors of the Network
Business less any creditors of the Network Business.
"[Retail
Narrowband] Access Business" means
the Business which includes the revenues, costs and assets as follows:
(a) Revenues,
net of low user rebate, are:
(i) the
amounts due from customers in respect of periodic charges imposed
directly and indirectly by the Licensee for the use and maintenance
of Switched Narrowband Lines; and
(ii)
the amounts due from customers in respect of charges imposed
by the Licensee for connection of Switched Narrowband Lines
and for shifting and changing Network Terminating Points, and
other similar charges.
(b) The costs
are:
(i) the
capital and running costs of dealing and communicating with
customers in respect of Switched Narrowband Lines, including,
without limitation, the costs of rendering bills to, and collecting
payments from, those customers in respect of the activities
and services described in subparagraph (a)(i) above;
(ii) the
costs of any relevant overheads and any other appropriate costs
attributed to the activities causing the costs described in
subparagraph (a) (ii) to be incurred; and
(iii) transfer
charges, including those for Standard Services and Network Services,
from other Businesses.
(c) The assets
are all of the facilities and equipment which cause the costs described
in subparagraph (b)(i) and (ii) to be incurred plus the debtors
of the [Retail Narrowband] Access Business less any creditors of
the [Retail Narrowband] Access Business.
For the purposes
of these definitions, "Switched Narrowband Lines" are lines
used to provide switched telephony or ISDN calls providing for connections
up to 128 kilobits per second.
ANNEX B
[Pursuant to
paragraph 3(a) of this Direction, BT shall amend the manner in which
the Network Business is disaggregated in terms of activities by creating
the following new activities for that Business. The items on this list
are network components and parts (or groups of network components and
parts). These items also form part of the definition of Network Business
at Annex A. Gaps have been placed in the list solely to assist the reader.]
1. Local exchange
concentrator
2. Local exchange set up
3. Local exchange call set up
4. Main exchange set up
5. Main exchange call duration
6. Remote-local transmission link
7. Remote-local transmission length
8. Local-tandem transmission link
9. Local-tandem transmission length
10. Inter-tandem transmission link
11. Inter-tandem transmission length
12. Product management, policy & planning for PSTN/ISDN
13. National operator assistance
14. International operator assistance
15. Emergency operator assistance
16. Outpayments: geographic calls
17. Outpayments: non geographic calls
18. Outpayments: calls to mobile
19. Outpayments: CNS (formerly Concert)
20. Outpayments: other
21. Public payphones operation
22. Public payphones line
23. International network
24. Copper access lines
25. Fibre access lines
26. Fibre access paths over SDH
27. Network terminating equipment for PSTN/LLU
28. CWSS network terminating equipment & serving exchange equipment
29. DWSS network terminating equipment & serving exchange equipment
30. PDH multiplexors as customer premises equipment
31. SDH multiplexors as customer premises equipment
32. SDH (MSH) multiplexors as customer premises equipment
33. ATM network terminating equipment
34. PDH multiplexors
35. SDH mutliplexors
36. SDH cross connection/grooming equipment
37. Tributary card for SDH network by size
38. SDH (MSH)
mutliplexors
39. SDH (MSH) cross connection/grooming equipment
40. Tributary card for SDH (MSH) network by size
41. Transmission links over fibre
42. Transmission links over radio
43. Inbuilding links
44. ATM switches
45. Customer facing ATM tributary cards by size
46. Network facing ATM tributary cards by size
47. Signalling links
48. Development switching
49. Guarantee schemes
50. Returns of infrastructure etc (eg drop/multiplexors) paid for upfront
to BT
51. PSTN specific (line cards, pair gain equipment etc)
52. Passive optical network
53. ISDN 2 specific
54. ISDN 30 specific
55. Phonebooks etc
56. Number Portability Data Amendments
57. Number Portability Set-up Costs
58. Carrier Pre Selection System Set-Up
59. Carrier Pre Selection Operator Set-Up
60. Carrier Pre Selection Customer Set-Up
61. Carrier Pre Selection in life management
62.
ASU switches (Featurenet)
63. DDSN switches
64. Universal card platform (for cashless services)
65. IN platform - basic services
66. IN platform - advanced services
67. Copper loop line information & testing
68. Copper cabling within exchange buildings
69. Copper cabling from within exchange buildings to outside
70. Comingling – electricity
71. Comingling - accomodation
72. Comingling - other
73. Colocation
74. Bespoke network build - copper
75. Bespoke network rearrangement - copper
76. Other LLU
77. Product management, policy & planning for LLU/ANFs
78. Private circuit specific: equipment (eg DPCN, test systems)
79. Product management, policy & planning for partial private circuits
80. Shorthaul data/LAN extension specific
81. Flexible bandwidth specific
82.
Frame Relay specific (frame relay switches)
83. SMDS specific
84. xDSL specific (eg DSLAMS and CPE)
85. Product management, policy & planning for LLU/ANFs
86. Edge IP routers
87. Core IP routers
88. IP dial up
89. IP fixed access
90. IP broadband
91. IP virtual private networks
92. Voice over IP
93. IP international peering (outpayments)
94. Telex specific
95. Broadcast specific
96. Aeronautical & maritime specific
97. Satellite specific
98. DMS100 call centre
ANNEX C
[Pursuant to
paragraph 5 of this Direction, BT shall amend the additional information
to be provided by way of notes to the Financial Statements to include
information in accordance with this Annex.]
Notes
All information
provided by way of notes is on a CCA fully allocated cost basis unless
otherwise indicated.
BT’s SFR sectors
relate to its Standard Financial Report sectors. These sectors are themselves
a broad aggregation of costs from account codes within BT’s accounting
general ledger.
|
Additional
information to be provided by way of notes
|
Purpose
|
Oftel
Ref
|
|
Cost category
(as used within regulatory LRIC model) analysis for network components,
increments and relevant layers of common cost
(LRIC basis)
|
- review
the outputs of BT’s LRIC model for the whole BT group by cost
category and components, increments and layers of common costs
- identify
all relevant layers of common costs separately within BT group
- enable
trend analysis of this breakdown to be undertaken
- enable
assessment of cost-volume relationships
- provide
input into network price control reviews
- ensure
LRIC model reconciles to BT group’s total cost and asset &
liability base
|
1a
|
|
Summarised
account code (i.e. BT’s SFR sectors) for network components, increments
and relevant layers of common cost
(LRIC basis)
|
- review
the outputs of BT’s LRIC model for BT’s Network Business by
account code and components, increments and layers of common
costs
- identify
all relevant layers of common costs separately within BT’s Network
Business
- enable
trend analysis of this breakdown to be undertaken
- provide
input into network price control reviews
- ensure
LRIC model reconciles to the total cost and asset & liability
base for BT’s Network Business
|
1b
|
|
Cost category
(as used within regulatory LRIC model) analysis for international
network subcomponents
(LRIC basis)
|
- similar
to 1a but in respect of the international network
|
1c
|
|
Cost category
(as used within regulatory LRIC model) analysis for inland
private circuits network subcomponents and relevant layers of
common cost
(LRIC basis)
|
- review
the outputs of BT’s LRIC model for inland private circuits by
cost category and network subcomponents and relevant layers
of common costs
- enable
trend analysis of this breakdown to be undertaken
- enable
assessment of cost-volume relationships
- provide
input into network price control reviews and market reviews
of leased lines
- ensure
LRIC model reconciles to inland private circuits network component’s
costs and mean capital employed
|
1d
|
|
Summarised
account code analysis (i.e. BT’s SFR sectors) for international
network subcomponents
(LRIC basis)
|
- similar
to 1b but in respect of the international network
|
1e
|
|
Cost category
(as used within regulatory LRIC model) analysis for network
components and increments
|
- similar
to 1a but on a fully allocated cost basis
|
1f
|
|
Summarised
account code (i.e. BT’s SFR sectors) analysis for network
components and increments
|
- similar
to 1b but on a fully allocated cost basis
|
1g
|
|
Cost category
(as used within regulatory LRIC model) analysis for international
network subcomponents
|
- similar
to 1f but in respect of the international network
|
1h
|
|
Cost category
(as used within regulatory LRIC model) analysis for inland
private circuits network subcomponents
|
- similar
to 1d but on a fully allocated cost basis
|
1I
|
|
Summarised
account code (i.e. BT’s SFR sectors) analysis for international
network subcomponents
|
- similar
to 1e but on a fully allocated cost basis
|
1j
|
|
Analysis by
asset category and network components, disaggregated activities
& Businesses of the depreciation charge for the year and impact
of CCA valuation adjustments on costs for the year: -
e.g.
- HCA depreciation
- CCA supplementary
depreciation
- Holding
gain
- Other CCA
adjustments
|
- impact
on profit and loss cost base of the application of CCA methodologies
- enable
trend analysis of this breakdown to be undertaken
- provides
subanalysis (for the cost/gain line items left) of the asset
movement statement (4a) in relation to network components, disaggregated
activities and Businesses
- provide
input into network price control reviews
|
3
|
|
CCA fixed
asset movement statement (i.e. a) gross replacement costs brought
forward, additions/disposals/transfers, holdings gains/(loss),
gross replacement costs carried forward and b) gross depreciation
brought forward, HCA depreciation charge, supplementary CCA depreciation,
disposals/transfers/other movements, holding gains/(loss), gross
depreciation carried forward)
by asset category
for BT Group
plus reconciliation
to HCA fixed assets movement statement in the group statutory
accounts
|
- review
the breakdown of asset costs between principal asset categories
and how such CCA asset values have moved in the year
- enable
trend analysis of CCA asset values to be undertaken
- provide
input into network price control reviews
|
4a
|
|
CCA fixed
asset movement statement (i.e. a) gross replacement costs brought
forward, additions/disposals/transfers, holdings gains/(loss),
gross replacement costs carried forward and b) gross depreciation
brought forward, HCA depreciation charge, supplementary CCA depreciation,
disposals/transfers/other movements, holding gains/(loss), gross
depreciation carried forward)
by asset category
for Mobile
Business
|
- review
breakdown of Mobile Business asset costs between principal asset
categories and how such CCA asset values have moved in the year
- enable
trend analysis of CCA asset values to be undertaken
- assist
in the calculation of mean capital employed during 2001/02 (demerger
of MMO2 in November 2001)
|
4b
|
|
Operator assistance
combinatorial test (i.e. costs and revenues for 5 regions of the
world)
(LRIC basis)
|
- enable
the testing of whether national, international and emergency
operator assistance transfer charges cover at least the LRIC
costs plus related common costs of providing these services
|
10
|
|
Analysis of
BT Only Other network subcomponents' costs (and associated volumes),
transfer charges and mean capital employed across disaggregated
activities
|
- review
how BT Only Other subcomponent costs and transfer charges map
onto, for example, retail product groups
- review
the impact of the basis of transfer charging for BT Only Other
subcomponents on, for example, retail product group results
- disclose
costs and revenues for individual BT Only Other subcomponents
- provide
information for market reviews of certain retail product groups
and wholesale (i.e. service provider) products relating to the
BT Only Other component
- assist
in dealing with investigations
|
12
|
|
Costs, including
transfer charges, and revenues (and associated volumes) for the
Directory Enquiry (DQ) activities cascade within the SSB
|
- review
the basis of transfer charging within the Supplemental Services
Business (SSB)
- disclose
the revenues and costs for each of the DQ activities
- provide
information for market reviews of wholesale and retail DQ products
- reconcile
to product group results where appropriate
|
13
|
|
Analysis of
Multifunction Platform (MP) subcomponents' costs (and associated
volumes), transfer charges and mean capital employed across disaggregated
activities
|
- review
how MP subcomponent costs and transfer charges map onto, for
example, retail product groups
- review
the impact of the basis of transfer charging on, for example,
retail product group results
- disclose
costs and revenues for individual MP subcomponents
- provide
information for market reviews of certain retail product groups
and wholesale (i.e. service provider) products relating to the
MP component
- assist
in dealing with investigations
|
14
|
|
Total mean
capital employed and summarised account code (i.e. BT’s SFR sectors)
analysis for all network components
|
- review
network component costs
- enable
trend analysis of these breakdowns to be undertaken
- provide
input into price control reviews
- assist
in dealing with investigations
- ensure
summarised account code analysis reconciles to BT’s Network
Business’s total profit and loss cost base
|
21b
|
|
Revenues,
total mean capital employed and summarised account code (i.e.
BT’s SFR sectors) analysis by product group/customer class and
for each of the Businesses
|
- review
costs, for example, for product groups
- review
retail costs for narrowband product groups by activity (e.g.
customer class)
- enable
trend analysis of these breakdowns to be undertaken
- provide
input into retail price control reviews
- provide
input into NTS retail uplift determinations
- assist
in dealing with investigations
- ensure
summarised account code analysis, together with 21b, reconciles
to BT group’s total profit and loss cost base
|
21c
|
|
Analysis by
type of product group and by type of OLO of costs, mean capital
employed and transfer charges to disaggregated activities (and
associated volumes) in relation to outpayments to other licensed
operators (OLOs)
|
- review
how outpayments are accounted for within Accounting Separation
- review
fast growing segment of wholesale call market
- review
the impact of outpayments on BT’s network cost base, for example,
for different call types
- enable
trend analysis of outpayment costs and volume breakdowns to
be undertaken
- assist
in dealing with investigations
|
22a
|
|
Analysis of
Network Business revenues (other than relating to Standard Services)
from other licensed operators (e.g. outpayments made by OLOs to
BT) and related costs & mean capital employed and associated
volumes
|
- review
how revenues from OLOs (other than those relating to Standard
Services) are accounted for within Accounting Separation
- review
fast growing segment of the wholesale call market
- review
the impact of these network receipts (other than those for Standard
Services) on BT’s Network Business costs and revenues
- enable
trend analysis of these revenues, costs and volumes to be undertaken
- provide
input into price control reviews
|
22b
|
|
Summarised
account code (i.e. BT’s SFR sectors) mean capital employed analysis
for all network components
|
- a mean
capital employed equivalent of 21b
- ensure
summarised account code analysis reconciles to BT’s Network
Business mean capital employed
|
24b
|
|
Summarised
account code (i.e. BT’s SFR sectors) mean capital employed analysis
by product group/customer class and for each of the Businesses
|
- a mean
capital employed equivalent of 21c
- ensure
summarised account code analysis, together with 24b, reconciles
to BT’s group mean capital employed
|
24c
|
|
Gross call
revenues, discounts & option fees by tariff option for each
disaggregated activity containing call revenues
|
- review
the impact of discount schemes on net telephony revenues, including
inclusive call allowances and accounting issues arising therefrom
- enable
trend analysis of discounts to be undertaken
- provide
input into retail price control reviews
- provide
input into NTS discount rate determinations
- assist
in dealing with investigations
- provide
a reconciliation to revenues figures appearing in the CCA Financial
Statements
|
26a
|
|
Gross revenues,
discounts & option fees by customer option for each disaggregated
activity in respect of non-call revenues where discount scheme(s)
apply
|
- as per
26a but in respect of services other than telephony (e.g. leased
lines and other data services)
|
26b
|
|
Analysis of
revenues & volumes (split between sales to OLOs and BT’s RSB),
costs & mean capital employed by individual Standard Service,
retail stick, intermediate service, and other types of services
within BT’s Network Business
|
- evaluate
the return on capital employed for both individual Standard
Services and Network basket groups
- enable
trend analysis to be undertaken
- provide
input into network price control reviews
- act as
a control total for further breakdowns for the other types of
services provided by BT’s Network Business. See, for example,
BT Only Other (#12), Multifunction Platform (#14),
Outpayments (#22a)/Receipts (#22b) and interconnect
services (#55)
- ensure
breakdown reconciles to figures appearing within the Network
Business Statement of Costs
|
27
|
|
Graphs over
time of the various raw indices, index weightings & composite
indices used by BT to revalue assets onto a current cost basis
|
- evaluate
the price trends for composite elements of BT’s asset revaluation
indices
- evaluate
the weightings within individual asset revaluation indices
- evaluate
the trend of individual asset revaluation indices
- provide
input into price control reviews and determinations
|
28
|
|
Statement
of transfer charges broken down by transfer charge type between
Businesses and disaggregated activities
|
- review
the nature and scale of inter-business transfers
- enable
trend analysis to be undertaken
- provide
input into network and retail price control reviews
|
35
|
|
Revenues split
between BT and non-BT service providers, costs& mean capital
employed (broken down by individual components and usage factors
applied, both on a unit and total basis) and volumes for
the various Directory Information products and services
|
- review
the costs and revenues for individual Directory Information
services as accounted for within Accounting Separation
- demonstrate
cost-orientation of charges for Directory Enquiry (DQ)
Standard Services
- demonstrate
non-discrimination in the costing of DQ Standard Services
- enable
trend analysis to be undertaken
- provide
information for market reviews of Directory Information
- assist
in dealing with investigations
|
37
|
|
Commentary
on disaggregated activity results by BT
|
- enable
Oftel to understand individual disaggregated activity results
and changes in these results from one year to the next
|
38c
|
|
Estimated
economic useful lives, valuation and depreciation basis, survey
used for valuation or index used to revalue , historical cost
accounting (HCA) & current cost accounting (CCA) depreciation,
gross book values (GBV) by year of acquisition, gross replacement
costs (GRC) & net replacement costs (NRC) across asset categories
|
- review
the nature and relative distribution of BT’s asset base
- evaluate
BT’s chosen asset lives for individual asset categories
- review
the relationship between gross HCA and CCA valuations
- evaluate
the appropriateness of the CCA valuation basis for each asset
category
- evaluate
the appropriateness of the CCA depreciation methodology for
each asset category
- review
the impact of CCA accounting on the cost base
- enable
trend analysis of CCA costs to be undertaken
- provide
input into network price control reviews
|
42
|
|
Marketing
expenditure analysis of the top ten campaigns in the financial
year, including advertising copy, video and audio tape of the
advertising campaigns.
|
- enable
a review to be undertaken of the attribution to disaggregated
activities of the most significant campaigns
- enable
trend analysis to be undertaken
- assist
in dealing with investigations
- provide
input into retail price control reviews
- provide
input into NTS retail uplift determinations
|
43
|
|
Total operating
costs & mean capital employed costs (and associated volumes)
for each plant group & intermediate activity group and their
individual exhaustion, including the disclosure of relevant usage
factors, onto each network component & subcomponent
|
- review
the breakdown of costs to all the different components and subcomponents
within BT’s Network Business network (which forms a key element
of Accounting Separation)
- enable
trend analysis of this breakdown to be undertaken
- provide
input into network price control reviews
- ensure
total plant group and intermediate activity group costs reconcile
to the cost base for BT’s Network Business
|
44
|
|
Fixed fee
revenues (including line rental) by tariff package & associated
network costs
|
- review
how tariffs are accounted within Accounting Separation
- review
recent tariff developments within telephony market
- check for
the possible mismatch of costs & revenues
- provide
input into retail price control reviews
- assist
in dealing with investigations
|
45
|
|
Analysis of
profits/(losses) on asset transfers to and from BT (e.g. to/from
Concert) plus analysis of such assets transferred
|
- assess
the profitability of such transactions and the implications
they have for BT’s regulatory cost base
|
46
|
|
Charges made
to related parties of BT (e.g. Concert) for outsourcing services
and the underlying cost to BT of providing these services, by
individual service provided
|
- assess
the level of profitability on these services and the impact
this has, where relevant, on the related party’s cost base (e.g.
Concert)
- provide
input into network and international price control reviews (where
not deemed competitive)
|
47
|
|
Revenues,
associated volumes and analysis of purchases from BT’s Network
Business (i.e. by individual Standard Service, outpayment type,
retail stick, intermediate service, interconnect service
and any other transfer charges) in respect of each product within
a product group and direct costs
|
- to provide
gross and net margin information for individual products (or
product subgroups) within each product group
- make an
initial assessment as to whether like products are grouped together
within product groups
- enable
an assessment of what falls within each product group and how
this has changed from one year to the next
- assess
the robustness of BT’s product group disaggregated activities
results
- review
compliance with C78 and European directives
- enable
trend analysis to be undertaken
- assist
in dealing with investigations
- provide
a starting point information for market reviews of retail products
and services
- ensure
the analysis of transfer charges reconciles to figures disclosed
within the CCA Financial Statements
|
52
|
|
Analysis of
costs & revenues of each MDF site where LLU offered
|
- show revenues
and costs of each MDF site, and within each site, breakdown
of service profitability (basis of determining service profitability
yet to be decided)
- provide
information for market reviews of, for example, colocation and
comingling services
- assist
in dealing with investigations and price determinations
|
53
|
|
Revenues,
costs & mean capital employed (broken down by individual components
and usage factors applied, both on a unit and total basis) and
volumes for the various Interconnect basket Standard Services
|
- a sub-analysis
of #27 in respect of Interconnect basket Standard Services
- demonstrate
cost-orientation of Interconnect Basket Standard Services
- demonstrate
non-discrimination in the costing of Interconnect Basket Standard
Services
|
54
|
|
Statement
of costs and revenues for interconnect services (which are not
Standard Services) i.e. by individual components and usage factors
applied, both on unit basis and on a total basis (in the latter
case with volumes and revenues split between OLOs and BT’s RSB)
|
- provide
costs and revenues for each individual interconnect service,
for example, in relation to xDSL interconnection at the ATM
switch
- demonstrate
non-discrimination in the costing of these services vis a vis
other services including Standard Services
|
55
|
|
CPS set up
costs and their recovery over time on a discounted cash flow basis
|
| |
