Issued by the Director General of Telecommunications

The 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

Schedule List of Operators

DIRECTION UNDER REGULATIONS 6(6) OF THE TELECOMMUNICATIONS (INTERCONNECTION) REGULATIONS 1997 RELATING TO A DISPUTE BETWEEN BRITISH TELECOMMUNICATIONS PLC ("BT") AND THE OPERATORS LISTED IN THE SCHEDULE ("THE OPERATORS") OVER THE WITHDRAWAL OF OVERFLOW FACILITIES FROM NTS TRAFFIC.

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) The Secretary of State has granted to each of the operators listed in the Schedule ("the Operators") a licence under Section 7 of the Act for the running of telecommunications systems specified in that licence;

(D) On 1 January 1998, the European Parliament and Council Directive 97/33/EC 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 Direction 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 Direction is based;

(F) The Operators each entered into a Standard Interconnection Agreement ("SIA") with BT on the dates shown in the Schedule;

(G) On 28 June 2001 the Director issued a determination regarding the ownership of NTS links ("NTS Links Determination"). In the NTS Links Determination the Director concluded, inter alia, that ownership of NTS traffic originated by BT or transited via BT’s network should be transferred to the terminating operator and with it responsibility for payment for terminating links;

(H) BT subsequently issued a Supplemental Agreement to all operators seeking to amend issue 2.9 of the SIA to implement the Links Determination. The Supplemental Agreement included an amendment to the traffic routing rules contained in paragraph 5.4.6 of Annex A to the SIA. The effect of the proposed amendment was that BT would no longer overflow traffic on the operator owned links. Within the context of this Direction, overflow describes the provision of alternative routing from one BT switch connection with an operator’s network to another BT switch connection with that operator’s network, for traffic that either originated on BT’s network, or originated on a third party network and transited via the BT network.("Overflow");

(I) The Operators refused to sign the Supplemental Agreement as they considered that the withdrawal of Overflow proposed by BT was outside the scope of the NTS Links Determination. The Operators also consider that BT does not have the right to withdraw Overflow for traffic on NTS links and are therefore in dispute with BT;

(J) On 25 September 2002 BT referred a dispute to the Director based on the Operators’ refusal to implement the NTS Links Determination. After discussing the matter with BT the Director advised BT on 23 October 2002 that, in accordance with the provisions of Regulation 6(6) of the Regulations, he would consider the dispute between BT and the Operators in relation to BT’s proposed withdrawal of Overflow;

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

(L) 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 principle points are summarised in the explanatory memorandum, which accompanies, and is published with, this Direction;

(M) A draft of this Direction and the explanatory memorandum, containing the Director’s reasons, was issued to interested parties on 25 February 2003. Comments were invited by 25 March 2003. The Director in making this Direction has taken these comments into account.

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 BT AND THE OPERATORS: 

(1) BT shall provide an Overflow facility for NTS traffic;

(2) Where an Operator requires BT to provide an overflow facility on an NTS interconnect link from a BT switch connection it shall Fully Provide the NTS interconnect link to the Required Grade of Service unless BT and the Operators agree otherwise;

(3) For the purposes of this Direction the Required Grade of Service means a grade of service of better than 0.008 subject to the route dimensioning giving a grade of service of better than 0.02 at 10 per cent traffic overload and better than 0.05 at 20 per cent traffic overload;

(4) BT and the Operators shall amend their interconnection agreements by 17 May 2003 to give effect to and implement this Direction;

(5) 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;

(6) 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

17 April 2003

Explanatory Memorandum

Chapter 1

Summary

1.1 The Director General of Telecommunications ('the Director') has issued a 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 British Telecommunications plc ('BT') and Cable and Wireless plc, Wavecrest (UK) Limited, Energis Communications Limited, ntl Group Limited, and Easynet Group ('the Operators').

1.2 BT referred this dispute to the Director on 25 September 2002 as a result of a number of operators refusing to sign a Supplemental Agreement issued by BT. The scope of the dispute (as clarified and confirmed by the Director in a letter to BT on 23 October 2002) is that BT is in dispute with the Operators over BT's proposal to withdraw overflow facilities from NTS traffic.

1.3 BT requested that the Director resolve this dispute by requiring that the standard routing rules applying to NTS traffic in the direction BT to operators shall be amended so that no alternative routing ('overflow') from one BT switch connection to another BT switch connection will be provided.

1.4 Following this referral the Director sought the views of the parties to the dispute and issued a draft Direction and explanatory memorandum on 25 February 2003 to the industry as a whole for consultation. Comments were received and have been taken into account in making this final Direction.

1.5 The details of the Director’s consideration of the submissions made by BT and the Operators in response to the draft Direction, together with the reasons for the Director’s decision, are set out in Chapters 4 and 5.

1.6 In summary, the Director remains of the view that BT should provide an overflow facility on NTS traffic. In addition, where an Operator requires BT to provide an overflow facility on NTS traffic it shall Fully Provide the NTS interconnect link from a BT switch connection to the Required Grade of Service (defined at paragraph 2.11).

1.7 In accordance with Regulation 6(6) of the Regulations and having considered the facts specific to this dispute, this Direction, in the opinion of the Director, represents a fair balance between the legitimate interests of the parties in this case. In making this Direction the Director has taken into account the matters set out in Regulation 6(8) of the Regulations and has had regard to the Director’s duties to encourage and secure adequate interconnection in the interests of all users in a way that provides maximum economic efficiency and gives the maximum benefit to end users.

Chapter 2

Background

Description of NTS Traffic

2.1 Number Translation Service ('NTS') describes a range of specially tariffed services including Freephone (080x), Local Call Fee Access or LCFA (0845), National Call Fee Access or NCFA (0870) and PRS (mostly 0900/0901). Such services involve the routing of calls to a non-geographic number to a network termination point, i.e. the translation of a number from its non-geographic format into a geographic number to enable calls to be routed to a specific location.

Description of Overflow on NTS traffic

2.2 Within the context of this dispute, overflow describes the provision of alternative routing from one BT switch connection with an operator’s network to another BT switch connection with that operator’s network, for traffic that either originated on BT’s network, or originated on a third party network and transited via the BT network. The provision of an overflow facility ensures call completion in situations where congestion prevents conveyance at the designated point of interconnection between the BT network and an operator’s network.

Overflow for other traffic types

2.3 On 23 August 2002, C&W referred a dispute to the Director requesting that BT provide overflow for directory enquiry traffic using the new 118 code ('DQ118 traffic') that BT carries on its network for termination by C&W. C&W’s DQ118 traffic is carried on the interconnect capacity between BT’s and C&W’s networks used to carry C&W’s NTS traffic.

2.4 This matter was considered separately. The Director issued a Direction on 19 March 2003, stating that BT is required to provide overflow capacity for DQ118 traffic, regardless of the type of interconnect capacity used to carry the DQ118 traffic type. The Direction is available at: www.oftel.gov.uk/publications/consumer/2003/dqoflow0303.htm

Routing Principles

2.5 BT currently provides an overflow facility for NTS traffic to the operators party to this dispute. BT proposes to remove this facility on the basis that the NTS interconnect links are now owned by the operators as a result of the NTS Links Direction. operator-owned traffic is currently subject to routing principles that are set out in Annex A to the Standard Interconnect Agreement ('SIA').

2.6 The requirement on operators to dimension their routes is set out in paragraph 5.3.1 of Annex A to the SIA, which says:

2.7 Fully provided is defined in Annex D to the SIA, which says that fully provided means:

2.8 Paragraph 5.3.2 of Annex A to the SIA sets out the forecast requirement of capacity, based on a proposed grade of service, where a traffic route is used for the conveyance of traffic for both parties, which says:

2.9 In some specific instances (traffic routes to specified BT DLEs and operator local exchanges), an interconnect link may be planned to provide a route with a decreased grade of service to a controlled level. This is known as a 'high-usage' route. Paragraph 5.3.3 (b) of Annex A to the SIA sets out the requirements for a high usage interconnect link:

Description of fully provided to a required grade of service for NTS traffic

2.10 Within the context of this dispute, fully provided describes capacity on a traffic route which will carry all of the relevant traffic streams at the required grade of service ('fully provided').

2.11 In the context of this dispute, the Director’s decision that the operators should fully provide their NTS links to the required grade of service where they request an overflow facility on NTS traffic means that the operators should fully provide their links to a grade of service of better than 0.008 subject to the route dimensioning giving a grade of service of better than 0.02 at 10 per cent traffic overload and better than 0.05 at 20 per cent traffic overload, unless the parties agree otherwise ('Required Grade of Service').

Chapter 3

History of the dispute

3.1 On 28 June 2001, the Director issued the NTS Links Direction (see paragraph (G) of the Direction and paragraph 2.5 of the Explanatory Memorandum). The Direction detailed the Director’s decision that BT’s proposal to charge for interconnection links which terminate BT originated or BT transit NTS calls was justified. Ownership of NTS interconnection links were to be transferred from BT to the terminating operator when BT had completed its part of any work requested by the operator in order to optimise their interconnection arrangements.

3.2 As part of the steps taken by BT to implement the NTS Links Direction, it issued a supplemental agreement to all operators in June 2002. The supplemental agreement sought to make amendments to Annex A of the SIA to the effect that BT would no longer provide an overflow facility for NTS traffic. Prior to the change of ownership on NTS links, BT would overflow an NTS call if there was insufficient capacity on its links, so that the call would be successfully terminated on an operator’s network. As operators would now own the NTS links as a result of the NTS Links Direction, BT proposed to withdraw the overflow facility as it claimed that it was encumbent on an operator to pay for the required capacity.

3.3 On 29 July 2002, BT issued a reminder to those operators that had yet to sign the supplemental agreement. The operators party to this dispute refused to sign the supplemental agreement and explained to BT that the revisions contained in the supplemental agreement were not discussed as part of the NTS Links Direction. Also, withdrawal of the overflow facility would increase the risk of call failure. BT referred the matter to the Director for determination on 25 September 2002.

3.4 It was not clear from BT’s initial referral whether it was requesting that the Director to enforce the NTS Links Direction or whether it was referring a new dispute relating to the proposed removal of overflow. BT believed the withdrawal of overflow to be a natural and implicit consequence of the NTS Links Direction. The operators held that no mention of BT’s proposals was ever made during the negotiations which led up to that Direction. Neither was the proposal considered in the text of the NTS Links Direction.

3.5 On 23 October 2002 Oftel wrote to BT setting out that the dispute would be considered as a new dispute under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997.

Chapter 4

Responses to the Draft Direction

BT

4.1 BT did not support the Director’s proposals in the draft Direction. In summary, BT’s concerns were that the proposals:

• would increase costs to BT through systematic abuse of the overflow facility;
• would increase costs to BT through increased needs for policing activity to ensure compliance;
• were disproportionate to the apparent problem; and
• would (potentially) achieve only 'tiny' benefits if the Operators did in fact act compliantly.

4.2 BT also stated that if the Director was minded to publish a Direction requiring BT to provide an NTS overflow facility, such a Direction must exclude the application of any NTS overflow facility from data traffic, whether this data traffic be contained within a number range dedicated for such data traffic or within a number range used for both data and voice traffic. The Director sets out his views on this issue at paragraphs 5.12 to 5.15.

4.3 BT said that, given the required grade of service specified in the draft Direction, fewer than eight calls in one thousand would fail if overflow was not provided. BT argued that there was no economic justification for provision of overflow for less than 0.8 per cent of traffic carried over NTS links, given the complexities of policing the fully provided obligation.

4.4 BT argued that overflow is provided on the basis of ownership of the particular traffic stream and was not primarily about the traffic type. Therefore, BT claimed its actions in seeking to remove overflow were consistent with the principles of ownership and responsibility.

4.5 BT acknowledged, however, that existing network charge controls should provide for expected and anticipated levels of overflow, which BT also argued would be small given the required grade of service specified for the operators NTS links. In terms of implementation of the Direction itself, BT argued that the Director’s requirement that his decision form part of the SIA was potentially unworkable. BT said that the parties should follow the current well laid out and understood procedures in that BT would amend the SIA and offer those amendments to all operators. 

Routing Principles

4.6 BT argued that the NTS overflow facility was established on an expedient basis, when there was a need to deal with exponential growth in NTS traffic. Such growth was no longer an issue and BT argued that therefore the requirement to provide overflow was no longer needed. BT also pointed out that it was not the operator-owned interconnect links that were subject to overflow, but the operator-owned traffic streams.

Description of fully provided to a required grade of service for NTS traffic

4.7 BT welcomed the Director General’s statement that the operators must fully provide NTS interconnect links to the required grade of service. BT said that any final Direction should specify that this required grade of service is to apply.

4.8 BT strongly argued, however, that a distinction between voice and data traffic should be clearly set out. BT argued that if the final Direction required BT to provide an overflow facility, the Direction should restrict that requirement to traffic streams that are voice only.

Submissions of the parties

4.9 BT refuted C&W’s assertion that removal of overflow would lead to a dramatic rise in failed NTS calls. BT argued that many other operators accepted BT’s proposals and no longer use an overflow facility for NTS traffic.

4.10 BT commented on Easynet’s suggestion that overflow would use free resources leading to greater network efficiency. BT said that any resources used by overflowing traffic would be at the expense of other traffic that used that resource as a primary path. Further, any efficiency gains would be solely on the operators part, rather than BT, given that the operators might seek to under-provide their NTS links.

4.11 BT said that it was unacceptable to allow the operators to use overflow as a buffer between increases in traffic and installation of new capacity. BT also argued it should not be expected to bankroll the UK telecom industry by providing free usage of the BT network simply because the operators may find the costs of investing in additional interconnect links difficult to justify.

4.12 On this point, however, the Director notes that the continued provision of an overflow facility for NTS traffic does not result in the operators having free usage of BT’s network. The operators will be obliged to fully provide their NTS links to the required grade of service in order to receive the overflow facility. Further, as set out in the draft Direction and further explained in Chapter 5, the costs of anticipated and expected levels of overflow are recoverable by BT under the network charge controls.

The Director’s proposed decision and reasons

4.13 BT argued that the interests of end users (and the market for call origination services) would be unaffected by any overflow facility, as callers were generally unaware as to which operator terminated any call. BT believed that abuse of overflow by the operators, however, would distort competition itself through unfair cross-subsidy.

Ownership of traffic

4.14 BT said that any overflow at the BT switch connection effectively provided a routing path for an element of the call that was on the operator’s network, not BT’s. BT argued it was the operator’s responsibility to ensure that it routes traffic through its own network.

Recovery of costs

4.15 BT acknowledged that charges under the Network Charge Controls (NCCs) set in 2001 would cater for expected and anticipated levels of overflow if the position in 2001 was maintained. However, BT said that the Director had failed to identify that BT had not previously provided overflow for data traffic streams other than when it had been expedient to do so (including those NTS number ranges used for a mixture of data and voice traffic). BT argued that data traffic should therefore be excluded from the application of any NTS overflow facility.

4.16 BT also argued that any level of abuse by one or more operators of the obligation to fully provide NTS links to the required grade of service would increase BT’s costs. BT believed that this would not have been taken into account in the NCC calculation.

4.17 BT also disputed the Director’s view that the sampled calls used to calculate the NCD would have included a number which had been routed sub-optimally.

Correct dimensioning of interconnect capacity

4.18 BT maintained that relying on the operators to comply with their contractual obligations to fully provide NTS links was not the best method of controlling misuse of any overflow facility. BT argued that this gave the operators a window of opportunity to exploit overflow until BT was forced to implement penalty action, at which time the operator may then adhere to its requirements at the eleventh hour to avoid the penalty action.

4.19 BT said that if the Director General did remain of the view that BT should be directed to provide the NTS overflow facility, then BT would expect clear direction on actions to be taken against the operators which flout the terms of any overflow facility provided by BT.

Promotion of competition

4.20 BT argued that withdrawal of the overflow facility would not give BT’s NTS traffic and BT hosted service providers a competitive advantage. However, a Direction requiring BT to provide overflow may provide a commercial advantage to the operators’ NTS terminating products and their own hosted service providers. This would be due to BT having to provide overflow for an element of the end-to-end call path that was within the operators’ networks, rather than requiring the operators to provide sufficient capacity to ensure completion themselves.

4.21 BT reiterated its belief that competition in the call origination market would not be affected by a withdrawal of overflow from NTS traffic. BT also believed that any positive effect in the termination market would be 'vanishingly small' if the operators did indeed comply with the obligation to fully provide NTS links, such that in reverse, any negative effect on competition in BT failing to provide overflow would also be 'vanishingly small'.

Economic efficiency

4.22 BT argued that the Director’s proposals suggest that the operators NTS links may be run at high usage until it was deemed economically viable by the operator to consider increasing capacity. BT also said that the potential beneficial effect of Oftel’s proposals on end-users was insignificantly small – assuming that all the operators complied with the obligation to fully provide NTS links.

Cable and Wireless

4.23 C&W was in full support of the Director General’s proposals and said that the decision represented a reasonable balance between the interests of the parties.

4.24 C&W requested clarification that the final Direction would not override existing provision of overflow on high-usage routes where this existed as a result of a separate agreement between an operator and BT. The Director confirms that this Direction does not override any such existing arrangements.

4.25 C&W also asked that the final Direction confirm whether overflow would be provided on NTS traffic streams carrying data or mixed voice and data calls. The Director sets out his views on this issue at paragraphs 5.12 to 5.15.

4.26 C&W sought operational information on how to apply the required grade of service to the NTS interconnect links it owned. The Director’s view is that it is in the interests of all parties to agree the use of common traffic tables when planning routes. 

Energis

4.27 Energis said it supported the Director’s decision to require BT to provide overflow for traffic carried on NTS links. Energis also said it supported the decision to require the operators to fully provide their NTS interconnect routes. Energis suggested that BT and the operators should agree on criteria to trigger the provision of further capacity, for example, frequency and duration of overflow, and that this provision should continue until additional circuits are supplied and working. Energis said that it might be appropriate in certain circumstances to accelerate network provision without this being undue preference in any way to the operator concerned.

4.28 Energis requested confirmation on whether the proposals relate to the provision of overflow facilities for all traffic carried on NTS routes rather than just NTS traffic itself.

4.29 In response to this last point the Director clarifies that the requirement on BT in this Direction is in relation to overflow of NTS traffic only.

Easynet

4.30 Easynet said it was pleased that the Director was minded to reject BT’s proposal and mandate that BT maintain a sensible overflow facility. Easynet fully supported the Director’s proposal.

4.31 Easynet requested that the final Direction confirm that the overflow facility be provided where there is network failure as well as congestion. It said that the operators needed to have an overflow facility to protect themselves from network outages beyond their own control. Easynet commented that while BT has world class network management facilities, these do not offer an appropriate substitute for a 'live' overflow facility because of the human intervention and time delays associated with re-routing traffic in this way.

4.32 In response to this point, the Director confirms that overflow should be provided when there is network failure where it is reasonable to do so in the circumstances. The Director accepts that there may be some circumstances when the magnitude of a network failure will make it impractical to provide overflow on a given route.

4.33 Easynet stated it would also like to see provisions set out in the final Direction which would require BT and the operators to review any overflowing routes to bring them in to line with the required grade of service. Easynet said it was important that the operators have time to perform any required route capacity upgrades. 

ntl

4.34 ntl said that it was pleased with the findings of the draft Direction.

Chapter 5

The Director’s proposed decision and reasons

5.1 Having duly considered the representations made by BT and the Operators, responses to the draft Direction and the matters set out in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997, the Director concludes that BT should be obliged to continue to provide the same overflow facility on NTS traffic as it provided when BT owned the NTS interconnect links. Where the Operators request that BT provide an overflow facility on NTS traffic they should be obliged to Fully Provide the relevant links carrying that traffic to the Required Grade of Service.

5.2 The Director believes that his decision in this matter represents a fair balance between the legitimate interests of the parties to the dispute, in accordance with Regulation 6(6) of the Regulations. He has also, in making this direction, taken into account the matters set out in Regulation 6(8) of the Regulations, in particular the interests of users, the regulatory constraints on the parties, the relative market position of the parties and the promotion of competition. The Director has also considered BT’s proposals in light of the availability of technically and commercially viable alternatives to overflow and in relation to the resources available to BT for it to continue to provide an overflow facility.

5.3 In reaching this view, the Director has considered his general obligations to encourage and secure adequate interconnection in the interests of all users and in a way that provides maximum economic efficiency and gives maximum benefit to end-users. In doing so, the Director has considered whether BT’s proposal to withdraw overflow facilities on NTS traffic is reasonable, given the effect this would have on the operators’ NTS traffic and the ability of BT to continue to provide such a facility. Further, the Director has considered the need to ensure that an overflow facility is used appropriately.

BT’s regulatory obligations

5.4 Pursuant to Regulation 4(1) of the Regulations, BT has been determined as having Significant Market Power ('SMP'), inter alia, in the market for fixed public telephone networks and services. BT is therefore obliged, in accordance with Condition 45 of its licence, to offer to interconnect in this market with all schedule 2 public operators who have made a reasonable request for such interconnection.

5.5 BT’s regulatory obligation to interconnect does not apply where there are technically and commercially viable alternatives to the interconnection requested or where the interconnection is inappropriate in relation to the resources available to meet the request. In this dispute, the operators have requested that BT continue to provide an overflow facility on their NTS interconnect links. It is the Director’s view that there is no viable alternative to such a facility and that BT has resources available to meet this request, particularly in light of the proposed obligation on the operators to provision the links to a required grade of service where the operator has requested an overflow facility.

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

5.6 The operators are in dispute with BT concerning overflow for NTS traffic from the BT network to the operators’ networks, that has either originated on the BT network or has transited the BT network from another originating operator. BT’s relationship with the operators in terms of this dispute is as an originator of NTS traffic, as a transit operator of NTS traffic originating on another operator’s network, and as the provider of interconnection services between BT and the operators’ networks. For the purposes of the current network charge controls imposed on BT (see the February 2001 Network Charge Control Statement: www.oftel.gov.uk/publications/pricing/pcr0101.htm), call origination and interconnection specific services have been designated as being non-competitive, ie, they are services in which there is little or no competition. Inter-tandem transit services, on the other hand, have been designated as being prospectively competitive services ie, they are not currently fully competitive, but are expected to become more competitive over the life of the network charge control.

5.7 BT has proposed amendments to Annex A of the standard interconnect agreement to the effect that if an operator’s NTS interconnect link at a BT switch is congested or faulty, BT will not overflow a call between switches within its own network to another operator-owned NTS link, but will instead fail the call. BT has argued that the amendments are required because:

• as a general principle overflow should not be provided for operator-owned traffic types;
• BT would not be able to recover its costs in providing overflow; and
• BT believed that some of the Operators would be inclined to abuse overflow.

Ownership of traffic

5.8 In the draft Direction, the Director stated that he had considered BT’s view that BT to operator NTS traffic is owned by the terminating operator and that BT should not therefore be obliged to offer any more than the basic conveyance from BT’s network to the operator’s point of interconnection.

5.9 In response to the draft Direction BT disagreed with the Director’s assertion of BT’s view. BT said that it currently provided and would continue to provide terminating operator’s NTS traffic with the same multiple routings through the BT network, (from the call’s origin to the point where the operator’s network begins), that an equivalent BT originated and BT terminated NTS call receives. BT said it should not be expected to provide overflow at the BT switch connection to an alternative BT switch connection as this would, in effect, result in BT providing a routing path for an element of the end-to-end call path that is in the operator’s own network, not in BT’s network.

5.10 The Director recognises that the incentives to correctly dimension links between BT’s network and an operator’s network are different depending upon who has responsibility for the traffic type and interconnection capacity used to carry that traffic.

5.11 The Director considers, however, that a BT owned NTS call does not leave the BT network and so has the availability of multiple routings end-to-end. If BT does not provide overflow, then one reasonable possibility for an alternative routing is denied for an NTS call terminating on another operator’s network, which would not be denied for the same call terminating on BT’s network. It is the Director’s view therefore that overflow is required for NTS traffic regardless of the 'ownership' of this traffic type. The terms of ownership of the traffic alone should not preclude the provision of such a service as it is in the interests of end-users that calls complete.

Application of overflow to voice and data traffic

5.12 In its response to the draft Direction, BT has sought to confirm that the Director draws a distinction between voice and data traffic. BT said that the NTS overflow facility must not apply to calls to NTS number ranges used wholly or partially for data traffic (see paragraph 5.15 below). In its response, C&W asked that the Director confirm whether overflow would be provided on NTS traffic streams carrying data or mixed voice and data calls.

5.13 The Director’s decision in this case is to resolve a dispute about the proposed withdrawal of an existing overflow facility. BT should continue to provide the same overflow facility on NTS traffic as BT provided when it previously owned the NTS interconnect links (subject to the provisions on the operators to fully provide relevant links to the required grade of service).

5.14 NTS traffic includes dial-up Internet traffic, which is data traffic. In its submissions to the Director, BT has said that the NTS overflow facility has been provided for data traffic (and for those NTS number ranges used for a mixture of data and voice traffic). From the nature of the various operators’ traffic streams, there is also much evidence to suggest that overflow of data occurs as a matter of practice. Therefore, for the provision of the existing overflow facility, NTS traffic has not been distinguished by voice or data characteristics. The Director sees no reason why such a distinction should now be made and would confirm that the overflow facility on NTS traffic will include voice, data and mixed voice/data calls.

5.15 BT has also provided evidence to support its contention that data traffic should be excluded from overflow. BT has expressed particular concern that the overflow of data traffic onto routes which also carry voice traffic could in certain circumstances have a material impact on the quality of service experienced by the voice traffic. The Director acknowledges that where the provision of an overflow facility has included data traffic in the past, it is likely such traffic would have been restricted to metered data traffic. The Director accepts there are material differences in relation to unmetered FRIACO traffic that do not apply to metered traffic. However, the evidence provided by BT relates to heavily contended routes in general, and high usage routes used for DLE FRIACO in particular. The Director does not accept that this analysis is relevant to fully-provisioned routes used for NTS traffic. The two cases are different for two reasons. First, metered (NTS) traffic has different traffic characteristics to unmetered (FRIACO) traffic (in that call durations tend to be shorter). Secondly, high-usage routes used for DLE FRIACO have a higher average utilisation, and hence are more vulnerable to congestion, than the fully-provided routes on which NTS overflow is to be made available.

Recovery of costs

5.16 In the draft Direction, the Director considered BT’s argument that requiring BT to provide overflow for NTS traffic would result in BT incurring additional network costs that it will not be able to recover. In the Director’s view it was reasonable that if BT was required to provide overflow for any NTS traffic it should be able to recover the costs of doing so.

5.17 Currently, BT recovers the costs of NTS traffic conveyance through the network charge differential (NCD) which relates charges to an estimate of NTS traffic routing patterns. The NCD also relies on estimates of costs of underlying conveyance services that are regulated through the network charge controls (NCC).

5.18 BT’s wholesale charges for NTS traffic are derived using the NCD methodology because BT is currently unable to measure, on a call-by-call basis, how an NTS call is routed to the point of egress from BT’s network.

5.19 The NCD charge is based on the number of points of connection (POCs) an operator has with BT and the consequent expected percentage of single and double tandem charges incurred. For example, it was calculated that an operator with 68 or more POCs would incur 100 per cent of the single tandem conveyance charge for each NTS call originating on BT’s network (see note one below). However, an operator with just one POC would incur 137.6 per cent of the same charge, on the basis that it was more likely that the call would have re-routed via double tandem.

5.20 A sample of calls from a number of operators was used to calculate the NCD. The route of each call from the sample was examined to establish how many switching stages were used. However, of those sampled calls, a number would have been routed sub-optimally (either due to congestion at the operator link (overflow) or network inefficiencies). A call measured by BT as double tandem might in reality have been a single tandem call overflowed because of congestion. Therefore, to some degree each operator’s measured percentage of single tandem calls will have been under-estimated and each operator’s NCD charge is higher than it would be if overflow had not been provided by BT at that time.

5.21 In its response to the draft Direction, BT said that it was not clear to BT that the sample was constructed as described above. BT said that sub-optimally routed calls were not included and that the Director’s conclusion that in some way the calculation favoured BT was unlikely to be true. However, it remains the Director’s view that the NCD is based on route factors which show how calls are actually routed in the BT network, rather than on the theoretical shortest possible route. On the basis that BT previously operated an overflow facility when it was in ownership of the relevant links, it seems likely that some proportion of calls measured for the purposes of calculating the NCD would have been sub-optimally routed.

5.22 Whereas the NCD represents an estimate of the actual routing of a call, the base conveyance charges are regulated through the NCC. The controls were last set in 2001 for a four-year period through to 2005. Charges are subject to RPI-X controls where the value of X is set so as to bring forecast basket revenues into line with costs, including the cost of capital, in the final year of the control. The charges for the conveyance services are derived from forecast component cost and volumes, to which forecast routing (usage) factors are applied. For a fuller discussion, see the February 2001 NCC statement: www.oftel.gov.uk/publications/pricing/pcr0101.htm

5.23 It is understood that BT provided overflow facilities for NTS traffic (to itself) when the forecasts were last set (2001). The forecasts for network component costs and volumes made at that time would therefore have incorporated the use of overflow. It is therefore to be expected that BT will recover the costs of continuing to provide a certain amount of overflow for NTS traffic. In its response to the draft Direction, BT acknowledged that if the position that was considered when the forecasts were last set in 2001 was maintained, then the charges that arise would cater for the expected and anticipated level of NTS overflow. However, BT’s view is that the position in 2001 is not consistent with what would ensue if it now has to continue to provide an overflow facility on NTS traffic. BT said that any abuse of the overflow facility by the operators would result in an increase in its costs. BT also said that data traffic should be excluded as BT had not previously provided overflow for data traffic streams other than when it had been expedient to do so.

5.24 In the Director’s view, the costs of overflowing current NTS traffic volumes will be recovered through existing charging mechanisms. The requirement on the Operators to Fully Provide their NTS interconnect links (see below) to the Required Grade of Service where an overflow facility is requested (the same grade of service as BT applied when it owned the links) should mean that there is no material increase in NTS traffic overflow. BT has said that with the application of the required grade of service on the operators NTS links, it believes the number of calls affected by the availability of overflow is small. On this basis it would seem difficult for BT to argue a material increase in costs.

5.25 The Director has also set out his view on the application of overflow to data and mixed voice and data traffic streams (see paragraphs 5.12 to 5.15). The Director’s decision is that BT should continue to provide the same level of overflow as it provided when it owned the NTS links. The Director’s view is that there are no valid reasons why overflow on data and mixed traffic streams should now be excluded on the grounds of costs recovery.

5.26 BT also argued that it should be allowed to recover its costs of monitoring the level of overflow. It is the Director’s view that the key questions here are of materiality and incremental cost, particularly given that it is the Director’s understanding that there are some related monitoring processes already in place between BT and operators, through routine network monitoring operations. Also, BT has not put forward any estimation of the charges it envisages it may set, and the level of those charges would depend on the type of monitoring it decides to implement.

5.27 It is not the Director’s intention within the scope of this Direction to place an obligation on the operators to accept a charge for the monitoring of overflow for NTS traffic. However, as noted below, it is the Director’s view that BT should seek to agree appropriate monitoring processes with the operators in the first instance.

Correct dimensioning of interconnect capacity

5.28 In the draft Direction, the Director noted BT’s concerns that the operators, in owning the NTS Links, may be tempted to provide insufficient capacity on a particular link and rely on BT overflowing calls from one BT switch interconnected with their network to another such BT switch. In its response, BT made clear that its view was not that the operators may be tempted to exploit the overflow facility, but that they fully intended to do so. BT said this was demonstrated by assertions made by the operators in the draft Direction and by correspondence it had received. In the Director’s view, however, BT has provided no clear objective evidence presented at this stage that the operators intend to misuse overflow so as to justify the removal of such a facility. The responses received by the operators to the draft Direction set out that they fully accept the need to fully provide NTS links to the required grade of service.

5.29 The Director also noted in the draft Direction BT’s concerns that it was unable to order extra capacity on an operator-owned NTS link. In the Director’s opinion, to require BT to provide the overflow facility and to oblige the operators to fully provide their NTS links to the required grade of service, where BT is requested to provide an overflow facility, represents a fair balance between the legitimate interests of the parties. BT requested that the Director provide clear direction of actions to be taken against the operators which flout the terms of any overflow facility provided by BT. In addition, both BT and Easynet suggested enforcement and/or review procedures which BT might take to ensure that the operators complied with the requirements to fully provide NTS links to the required grade of service. It is the Director’s view that such a direction would be outside the scope of this dispute. It would not be appropriate for the Director to impose changes to the SIA on the basis of specific proposals put forward by BT in response to the draft Direction that the operators have not had previous sight of or reasonable chance to consider. However, the Director believes that it is certainly reasonable for BT to adopt proportionate measures to monitor the use of overflow and for it to withdraw the overflow facility where there is evidence that an operator is failing to fully provide its links to the required grade of service.

5.30 BT argued that abuse of the fully provided obligations by one or more of the operators would distort competition through unfair cross-subsidy. On this point, the Director would refer to his previous comments on misuse of overflow, specifically in paragraph 5.28.

Promotion of competition

5.31 It appears to the Director that, if BT refused to provide overflow for NTS traffic, it would lead to BT’s downstream activities having an unreasonable competitive advantage. This is because:

• BT is dominant in call origination, which means it has the ability to affect competition in downstream markets;
• BT is in effect providing overflow to itself for the provision of NTS originated traffic; and
• a refusal to provide overflow to the operators would increase the costs of interconnection between BT and other networks competing for the provision of NTS termination services.

5.32 In the absence of overflow for NTS traffic the Director would expect the cost of interconnection to increase as the operators would be forced to adopt an (overly) conservative approach to network design. This is likely to be an issue in situations where networks were being expanded, as demand on these routes would be uncertain and capacity requirements would be subject to a certain amount of adjustment. The Director therefore considers that forcing the operators to invest in higher capacity links where only a small amount of overflow may be required for a limited period will result in inefficient over-dimensioning of links.

5.33 As most NTS calls originate on BT’s network, NTS service providers operating services that terminate on BT’s network would not require interconnection with other originating operators as frequently as NTS service providers operating on other terminating networks. If BT refused to provide overflow and the cost of interconnection subsequently increased, operators offering termination services to NTS service providers would find themselves at a disadvantage compared to BT when offering equivalent termination services.

5.34 BT noted in its response that it would expect this decision to have a 'vanishingly' small impact on competition, as there would not be substantial use of overflow if the operators fully provided their routes. While it is difficult to quantify the impact of this decision on competition, it is clear that under a base case of no overflow, the operators will be disadvantaged to some degree by having their costs raised relative to BT as a terminating network, with which they are competing. By requiring BT to provide overflow, with the operators fully providing links, the operators will be able to compete with BT on a more equivalent basis.

Economic efficiency and impact on end-users

5.35 As noted above, BT argued that the draft Direction provided an inconsistent message on the requirement on the operators to fully provide routes, in that it suggested that the operators should only upgrade their NTS links when it was economically viable to do so. BT also claimed that end-users’ interests were best satisfied by requiring the operator to provide capacity for the parts of the end-to-end call path that it is responsible for.

5.36 As has been stated elsewhere in this Direction, it is the Director’s view that operators that request the overflow facility should fully provide their NTS links to the required grade of service. The Director’s intent in requiring BT to continue to provide an overflow facility is not to enable the operators to only upgrade routes when economically viable, but to provide for situations where the need to upgrade the capacity of an interconnect link was not able to be reasonably foreseen by an operator – for example, in a case of a sharp, unexpected increase in traffic or a network outage. The Director considers that the impact of this decision will benefit end-users. If overflow is provided, the costs of interconnection will be lower as described above (see note two below).

5.37 The competitive nature of the market for NTS voice termination services – as outlined in Oftel’s statement Effective competition review of number translation services published in March 2002, and enhanced by this direction as described above – should ensure that the gains in terms of saved resource costs will be passed through to consumers in lower prices, better quality of service or through service innovation.

Implementation of the Director’s decision

5.38 The Director has taken into consideration the comments made by BT in relation to the Director's proposed decision that the Direction resolving the dispute should form part of the SIA. Whilst the Director does not accept that the method of implementation proposed in the draft Direction is unworkable, he has nevertheless amended the final Direction in light of further consideration.

5.39 In addition to the usual procedure the Director proposes that any amendment to the SIA should be made by one month from the date of this Direction. The Director believes that one month is a reasonable period of time in this case, as BT is being directed to continue providing an existing service to the operators party to this dispute.

Conclusions

5.40 Having duly considered the representations made by BT and the operators in response to this request for a Direction, responses to the draft Direction and the matters set out in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997, the Director concludes that BT should continue to provide the same overflow facility on NTS traffic as it provided when BT owned the NTS interconnect links. In addition, where the operators request that BT provide an overflow facility on NTS traffic they should be obliged to fully provide their NTS links to the required grade of service.

5.41 In the Director’s view the operators request to be provided with an overflow facility on NTS traffic is a reasonable request given that the facility is currently being provided by BT. Further, the Director is of the view that BT has the ability to provide such a facility in light of its available resources, and the proposed obligation on the operators to fully provide their links to the required grade of service where an overflow facility is requested.

5.42 The Director considers that this Direction represents a fair balance between the legitimate interests of the parties to the dispute, and takes into account the interests of the users, the regulatory constraints on the parties, the relative market position of the parties and the promotion of competition.

Notes:

1. The actual amount charged is 100.4 per cent of the single tandem conveyance charge
2. BT will incur some additional resource costs from conveying more NTS traffic than in a 'no overflow' case, but it is to be expected that total resource costs devoted to providing NTS conveyance services will fall, as the incremental costs of conveying more traffic are likely to be small relative to the costs to the operators of building extra capacity. This is due to economies of scale in BT's network. The relevant parts of BT's network consist of large groups of circuits which can carry traffic more efficiently (i.e. circuit utilisation for a given grade of service is higher) than can small groups of circuits such as those in interconnect links.

Schedule

List of Operators in dispute with BT and the date each entered into the Standard Interconnect Agreement with BT

Cable and Wireless plc – 1 May 1998

Easynet Group – 18 December 1997

Energis Communications Limited – 20 June 1997

Ntl Group Limited – 22 December 1997

Wavecrest (UK) Limited – 10 July 1997