Contents

The draft Direction

Explanatory memorandum

Chapter 1 – Summary

Chapter 2 – Background

Chapter 3 – History of the dispute

Chapter 4 – Submissions of the parties

Chapter 5 – The Director General’s considerations

Chapter 6 – Consultation and timetable for responses

DRAFT DIRECTION UNDER REGULATIONS 6(6) OF THE TELECOMMUNICATIONS (INTERCONNECTION) REGULATIONS 1997 RELATING TO A DISPUTE BETWEEN CABLE AND WIRELESS U.K("C&W") AND BRITISH TELECOMMUNICATIONS PLC ("BT") OVER THE PROVISION OF OVERFLOW CAPACITY FOR DQ118 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 of Schedule 5 of the Act the BT licence has effect as if granted to British Telecommunications plc ("BT");

(C) The Secretary of State has granted to Cable and Wireless U.K. (formally Cable and Wireless Communications (Mercury) and Mercury Communications Limited) ("C&W") on 5 December 1991 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) Regulations 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) C&W entered into an interconnection agreement with BT on 1 May 1998;

(G) In July 2002 BT agreed that directory enquiry services traffic using the new 118 code ("DQ118" traffic) and carried on BT’s network for termination on C&W’s network could be routed over the interconnection capacity already used for number translation service ("NTS") traffic carried on BT’s network for termination on C&W’s network. However, rather than allow C&W to use the same routing plan as for C&W’s NTS traffic, BT required C&W to submit a separate routing plan for DQ118 traffic. BT refused to provide alternative routing of C&W’s DQ118 traffic from one BT switch that interconnects with C&W’s network to another BT switch that interconnects with C&W’s network ("Overflow");

(H) BT is also seeking to withdraw the provision of overflow for NTS traffic by way of a Contractual Review Notice amending Annex A to BT’s Standard Interconnect Agreement. This is in response to the Director’s Determination of 28 June 2001 to resolve a dispute between BT and a number of other licensed operators regarding a proposal to charge for NTS links (the "NTS Links Determination"). The NTS Links Determination established that the responsibility for interconnection links used for terminating NTS traffic originating or transiting on BT’s network for termination on other operators’ networks should transfer from BT to the terminating operator. BT’s proposed withdrawal of the provision of Overflow for NTS traffic is currently the subject of a separate interconnection dispute between BT and 5 other licensed operators;

(I) C&W considers that BT does not have the right to refuse to provide overflow for DQ118 traffic and is therefore in dispute with BT;

(J) On 23 August 2002, in accordance with the provisions of Regulation 6(6) of the Regulations, C&W referred this dispute to the Director for determination;

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

(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 was issued to interested parties on 17 January 2003. Comments were invited by 17 February 2003.

NOW, THEREFORE:

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

1.BT shall offer to provide Overflow for DQ118 traffic terminating on C&W’s network within 30 days after receiving a written request for Overflow from C&W.

2. BT shall not make a separate charge to C&W for the provision of Overflow for DQ118 traffic in addition to the amount BT already charges C&W for the conveyance of DQ118 traffic terminating on C&W’s network.

3. This direction shall form part of the interconnection agreement in force between BT and C&W and, if necessary, BT and C&W shall modify their interconnection agreement to give effect to and implement this direction.

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

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

Heather Clayton

Director of Investigations

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

[17 January 2003]

Explanatory memorandum

Chapter 1

Summary

1.1 The Director of Telecommunications ('the Director') has issued a draft direction in accordance with the provisions of Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 ('the Regulations') for the resolution of a dispute between Cable & Wireless U.K. ('C&W') and British Telecommunications plc ('BT').

1.2 C&W referred this dispute to the Director on 23 August 2002. Arguments submitted in relation to this dispute by C&W and BT are set out in chapter 4. The Director has considered the submissions made by C&W and BT and has issued this draft direction in respect of the dispute. Comments are requested and will be taken into account in making a final direction.

1.3 C&W requested that the Director require BT to provide alternative routing ('overflow') for directory enquiry services traffic using the new 118 code ('DQ118 traffic'), that BT carries on its network for termination on C&W’s network. BT has agreed to carry C&W’s DQ118 traffic on the interconnect capacity between BT’s and C&W’s networks already used to carry C&W’s number translation services ('NTS') traffic.

1.4 The details of the Director’s consideration of the submissions made by C&W and BT, together with the reasons why the Director General is minded to make this draft direction, are set out in chapter 5.

1.5 In summary, the Director is minded to direct that BT should be required to provide alternative routing for DQ118 traffic from one BT switch interconnected with the C&W network to another such switch connection, regardless of the type of interconnect capacity used to carry the DQ118 traffic.

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

Chapter 2

Background

Description of DQ118 traffic

2.1 In September 2001, the Director decided to withdraw the existing national and international directory enquiry (DQ) services codes. These codes, which effectively tied consumers to one provider, were to be replaced with new numbers beginning with 118, and these were to be allocated to individual service providers wishing to provide a paid-for national and/or international DQ service.

2.2 The new DQ118 services were launched on 10 December 2002. The existing short numbers used for DQ services (for example 192) will continue to work in parallel until at least the end of August 2003.

2.3 This dispute concerns the provision of a facility for overflow (as described below) to ensure that DQ118 calls carried on BT’s network for termination on C&W’s network do not fail due to congestion at the designated point of interconnection between BT’s network and C&W’s network.

Description of overflow

2.4 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 has either originated on BT’s network or originated on a third party network and has been transited via the BT network. This is sometimes known as ‘sideways overflow’. 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 the other operator’s network.

Overflow for other traffic types

2.5 Overflow is currently provided for number translation service ("NTS") traffic being conveyed from BT’s network to an operator’s network. However, BT is seeking to withdraw the provision of overflow for NTS traffic by way of a Contractual Review Notice amending Annex A to BT’s Standard Interconnect Agreement ('SIA'). This is in response to the Director’s Determination of a dispute between BT and a number of operators regarding a proposal to charge for NTS links from January 1 2001 – 28 June 2001 (the 'NTS Links Determination') (see www.oftel.gov.uk/publications/pricing/ntsp0601.htm). The NTS Links Determination established that the responsibility for interconnection links used for carrying NTS traffic should transfer from BT to the terminating operator. As a result of this change in 'ownership' of NTS links, BT is proposing to change traffic routing rules and remove the facility for overflow,which BT historically provided for NTS traffic (ie when BT owned the links). This issue is currently the subject of a separate interconnection dispute between BT and five operators, including C&W, who have refused to sign an amendment to their respective interconnection agreements with BT to this effect.

2.6 In contrast, overflow is not currently provided for indirect access ('IA') traffic. Indeed, BT’s SIA expressly excludes the alternative routing of IA traffic from one BT switch connection to another BT switch connection (see further below).

Routing principles

2.7 The routing principles for traffic from BT’s network to an operator’s network and vice versa are set out in paragraph 5.1.1 of annex A to the SIA.

Paragraph 5.1.1 of Annex A sets out a general rule that:

2.8 Paragraph 5.1.2 sets out another general rule that:

2.9 The general rules in paragraph 5.1 however are subject to more specific routing rules in paragraph 5.4, which differ according to the traffic type in question. Paragraph 5.4.5.1 (c) for example, states in relation to IA traffic that:

Chapter 3

History of the dispute

3.1 The record of industry discussions relating to the contractual issues surrounding the introduction of DQ118 services demonstrates BT’s intention to apply the same routing rules to DQ118 traffic as apply to IA traffic, and other traffic that BT does not ‘own’. BT has made it clear that its intention was that there would be no alternative routing for DQ118 traffic from one BT switch interconnected with the operator’s network to another, i.e. no overflow would be provided.

3.2 In June 2002 BT agreed to C&W’s request that C&W’s DQ118 traffic could be routed on the interconnect capacity that is also used for C&W-owned NTS traffic (ie the NTS links between BT’s and C&W’s networks). The Director has been provided with correspondence from both parties demonstrating that there were a number of discussions between the parties relating to the routing plans that were to be submitted for C&W’s DQ118 traffic.

3.3 Correspondence from July 2002 shows that C&W considered that overflow should be provided for DQ118 traffic, although BT had already sent 118 product descriptions to C&W which contained routing rules stating that there would be no overflow for DQ118 traffic. A meeting was subsequently held between C&W and BT to discuss DQ118 routing rules in which BT agreed to consider whether overflow should be provided for C&W’s DQ118 traffic. There is disagreement between the parties as to what was agreed at this meeting. However, BT confirmed to C&W via an email dated 12 August 2002 that overflow for DQ118 traffic was not available.

3.4 In August 2002 C&W submitted DQ118 routing plans to BT which provided for overflow. Following communications between BT and C&W, C&W re-submitted a revised routing plan on 20 August 2002, which did not provide for overflow.

Chapter 4

Submissions of the parties

C&W’s arguments

4.1 In referring this dispute to the Director for determination, C&W stated that it had been in discussions with BT regarding the routing of DQ118 traffic since July 2002.

4.2 C&W stated that BT had originally required all DQ118 traffic to be routed on routes used for IA traffic. Following objections from C&W, however, BT agreed to route DQ118 traffic terminating on C&W’s network on routes used for NTS traffic and, according to C&W, BT initially agreed that DQ118 numbers could be added to C&W’s NTS routing plan. C&W stated that shortly before the deadline for submitting its revised routing plan, BT informed C&W that it should submit a separate routing plan for DQ118 traffic and that this routing plan should not include a provision for overflow. Despite objecting, C&W were compelled, due to time constraints, to prepare a routing plan for DQ118 traffic without provision for overflow, in order that C&W’s DQ118 services could be launched on time.

4.3 C&W noted that BT wished to amend the Standard Interconnect Agreement such that operators would no longer have the right to the provision of overflow for NTS traffic. C&W argued, however, that BT was contractually obliged to provide it with overflow on NTS routes until such time as BT agreed an amendment to the interconnection agreement in force between C&W and BT, or the matter was referred as a dispute to the Director and resolved.

4.4 C&W asserted that the routing rules (which are currently disputed) applicable to NTS traffic and which allowed for overflow, should apply equally to DQ118 traffic which used the same interconnect capacity as for NTS traffic.

4.5 C&W argued further that IA traffic and DQ118 traffic were not sufficiently similar for both services to be treated the same way under the Standard Interconnect Agreement. C&W argued that when a customer dialled an Indirect Access code the customer was aware of the network provider carrying the call. C&W claimed that if a call failed, the customer could simply re-route the call to the BT network by redialling without the IA code. However, when a customer dialled a DQ118 number, as with NTS, the underlying operator terminating the DQ service might not be visible. If the call encountered congestion at the point of interconnection between the BT network and the operator network and there was no overflow facility, the call would fail, and there would be no ‘workaround’ available to the customer. There was therefore an added reason for providing overflow in relation to DQ118 traffic, which did not exist for IA traffic.

BT’s arguments

4.6 BT put forward three main arguments in support of its decision not to provide overflow to C&W for DQ118 traffic:

• BT argued that overflow should be provided on the basis of traffic type and not on the basis of the interconnect capacity used to carry the traffic. BT argued that traffic types in the direction ‘BT to operator’ that the operator ‘owns’ (such as IA traffic and DQ118 traffic) should not be provided with overflow;
• BT argued further that it could not recover the costs of providing such overflow services; and
• BT asserted that some operators would be inclined to misuse the overflow facility by deliberately under-providing interconnect capacity on the primary route, and by relying excessively on overflow in order to ensure that calls to their services were successful.

Routing rules for DQ118 traffic

4.7 BT submitted to the Director a record of the industry discussions related to the introduction of DQ118 services and the routing rules applicable to DQ118 traffic. BT stated that the industry was briefed through the relevant DQ118 industry group that there would be no overflow for DQ118 traffic.

4.8 BT stated that communications between BT and C&W took place as a result of C&W’s request to route DQ118 traffic on the interconnect capacity used for C&W owned NTS traffic.

Ownership of traffic

4.9 BT argued that all traffic types in the direction "BT to operator" that the operator owns should be subject to the same routing rule (ie no alternative routing from one interconnected BT switch to another). In BT’s view DQ118 traffic should be treated appropriately from the outset based on ownership of the traffic.

4.10 BT argued that where an operator ‘owns’ the traffic, and it has responsibility for dimensioning the capacity of the interconnection links between itself and BT (as set out for NTS traffic in the NTS Links Direction), BT cannot effectively control the use of overflow. When BT owned the links, however, BT faced correct incentives to provide links in the most efficient way, as BT would bear the cost of any network congestion that resulted from insufficient capacity on links between itself and an interconnecting operator. However, where BT no longer owns the links, BT will still bear the cost of network congestion where a link is not ‘fully provided’ (ie able to meet peak demand in normal circumstances), but it can no longer upgrade the links between itself and an operator to ameliorate the congestion.

Recovery of costs

4.11 BT argued that DQ118 traffic destined for an Operator’s network that is allowed to overflow would also "drive intra-BT switch network expansion and so result in additional costs for BT, with the Operator making no additional payment for the calls that drive the network augmentation."

4.12 BT argued that calls following an alternative routing path would not attract any additional network usage charge. It was not possible to identify whether a call had used an alternative routing within the call accounting records.

Correct dimensioning of interconnect capacity

4.13 Further, BT argued that providing overflow would create a situation where routes into an operator’s network would effectively be used as ‘high usage’ routes (ie able to meet most demand, but at peak times relying on overflow to other links to ensure satisfactory quality of service) instead of being dimensioned on a ‘fully provided’ basis.

4.14 In BT’s view, some operators would exploit the availability of overflow in order to avoid having to purchase extra interconnect capacity. BT argued that it was not reasonable to jeopardise the grade of service of calls already using parts of the BT network on a primary basis by enabling such calls to be affected by the implementation and use of alternative routing as requested.

4.15 BT has further argued that BT must rely on contractual provisions with operators to ensure that links are fully provided. BT pointed out that preventing an operator from exploiting these contractual provisions is very difficult, due to difficulties in identifying instances of ‘genuine’ temporary use of overflow facilities.

Further comments

4.16 BT accepted C&W’s request that DQ118 traffic be handed over to the C&W network using the same interconnect capacity as used for C&W-owned NTS traffic, on the basis that operator-owned traffic could be handed over to the operator network using any operator-owned interconnect capacity (except FRIACO and Single Tandem FRIACO capacity).

4.17 BT noted that the routing rules specified in the Standard Interconnect Agreement were applicable to a traffic type. BT therefore disputed C&W’s assertion that NTS routes were provided with overflow, because overflow is provided for traffic, not routes.

Chapter 5

The Director’s proposed decision and reasons

5.1 Having duly considered the representations made by C&W and BT in response to this request for a direction, the Director is minded to conclude that BT should be obliged to provide overflow for DQ118 traffic.

5.2 In reaching this view, the Director has considered his general obligations under Regulation 6(1) of the Regulations 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 so doing, the Director has considered whether C&W’s request for overflow for DQ118 traffic is a reasonable request given the nature of the service requested, the ability of BT to provide such a service and the effects of BT failing to provide overflow for DQ118 traffic.

5.3 The Director has also ensured that his decision represents a fair balance between the interests of the parties to the dispute, taking 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.

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 obliged to offer to interconnect in this market with all other operators who fall within Schedule 2 of the Regulations and who have made a reasonable request for such interconnection.

BT’s contractual obligations

5.5 The Director has considered the existing contractual obligations imposed on BT in relation to the provision of overflow under BT’s Standard Interconnect Agreement.

5.6 The Director accepts BT’s argument that it is the routing rules for each traffic type specified in the Standard Interconnect Agreement that determine whether overflow is provided or not, rather than the type of interconnect capacity that is used to carry the traffic.

5.7 However, notwithstanding this analysis, the Director does not propose to make his decision based simply on an interpretation of the provisions of the Standard Interconnect Agreement and BT’s current contractual obligations towards C&W. The Director has been asked to resolve a dispute concerning the provision of overflow for DQ118 services and this draft direction represents his decision in resolving that dispute.

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

5.8 C&W is in dispute with BT concerning overflow for DQ118 traffic from the BT network to the C&W network that has either originated on the BT network or has transited the BT network from another operator’s network for termination on the C&W network. BT’s relationship with C&W in terms of this dispute is as an originator of DQ118 traffic, as a transit operator of DQ118 traffic originating on another operator’s network, and as the provider of interconnection between BT’s and C&W’s 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.

5.9 C&W also competes with BT in the newly liberalised market for the provision of DQ118 termination services.

5.10 C&W requested that BT provide overflow for DQ118 traffic in order to secure robustness in call completion of DQ118 traffic terminating on C&W’s network. As noted in section 4, BT has argued that it should not be required to offer this service 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 operators would be inclined to misuse overflow.

Ownership of traffic

5.11 The Director has considered BT’s view that BT to operator DQ118 traffic is owned by the terminating operator, and that BT should not be obliged to offer any more than the basic conveyance from BT’s network to the operator’s nearest point of interconnection.

5.12 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. In the Director’s view it is possible for BT and the industry to develop and agree mechanisms that will ensure that overflow is used appropriately and that operator links are correctly dimensioned on a fully provided basis, as is in fact required under the terms of the Standard Interconnect Agreement. This issue is considered again in paragraphs 5.21 and 5.22. Whilst recognising BT’s concerns, in the Director’s view, overflow is required for DQ118 traffic regardless of the ‘ownership’ of this traffic type.

Recovery of costs

5.13 The Director has considered BT’s argument that forcing BT to provide overflow for DQ118 traffic will result in BT incurring additional network costs that it will not be able to recover. BT argued that it was currently unable to identify when a call has been re-routed (ie where overflow has been provided).

5.14 In the Director’s view it is reasonable that if BT is required to provide overflow for any DQ118 traffic it should be able to recover the costs of doing so.

5.15 BT’s conveyance and access charges are regulated through the network charge controls, which are fixed periodically by the Director. 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 values of X therefore reflect expected cost reductions, which in turn reflect assumptions about future efficiency gains, market volumes, market share and routing factors, among other things. The charges for 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 Network Charge Control statement).

5.16 The Director notes that differences between forecast and actual costs, volumes and routing factors will result in BT over or under recovering its network costs. As the Director understands that BT provided overflow facilities (to itself) when the forecasts were last set (2001), it is to be expected that BT will recover the costs of providing the amount of overflow that was forecast to occur at that time. Therefore, for the conveyance of existing traffic types, it is apparent that a level of cost recovery for overflow is factored into the controls.

5.17 The introduction of the new DQ118 services was not factored into the cost, volume and routing forecasts in the 2001 controls. Two effects could be expected as a result of this:

• the actual volumes of DQ118 conveyance traffic are additional to the volume estimates for underlying conveyance services (eg local-tandem conveyance) put in place at the start of the charge control. This difference between forecast and actual call volumes means that there is an opportunity for cost over-recovery, because economies of scale in BT’s network mean that percentage increases in actual volumes are greater than percentage increases in network costs. Therefore, the additional DQ traffic volumes mean that BT’s costs will increase, but not to the same extent that revenues will. (Oftel estimates the relationship between volumes and costs formally as a cost-volume elasticity. The estimate is between 0.2 and 0.3 for inland conveyance, meaning that a 1 per cent increase in call volumes will lead to only a 0.2–0.3 per cent increase in cost); and
• the provision of overflow for DQ118 traffic may result in actual component costs for underlying conveyance services exceeding forecasts. Charges for access to the standard conveyance services (eg local-tandem conveyance) are set on the basis of their component costs, expected volumes and expected usage of components. The provision of overflow, which results in extra switching stages, could result in some standard services on average using more of the underlying network components than forecast. This could offset, to some degree, BT’s gain from higher call conveyance volumes.

5.18 These effects on call volumes, component costs and routing factors will last over the life of the current network charge control. The Director notes that BT would have to demonstrate that there was likely to be a material cost under-recovery before any adjustment to the controls would be considered. In practice, this seems unlikely. Aside from the Director’s view that it is very likely that BT will benefit from an increased demand for call conveyance services , DQ118 traffic is only likely to represent a very small fraction of total traffic on the BT network. In the setting of future charge controls, the changes in volumes and routing factors will be incorporated into new forecasts.

5.19 In the Director’s view, providing operators are prevented from exploiting overflow (see paragraph 5.22) the forecast for network routing factors will not differ significantly from those actually achieved. BT should, therefore, recover the cost of providing overflow during the current charge control period (see further below in relation to the correct dimensioning of interconnection capacity).

5.20 In the Director’s view, BT should be obliged to provide overflow as a facility for which it already has the opportunity to sufficiently recover costs, as explained above. BT should not, therefore, make a separate charge to C&W for the provision of overflow for DQ118 traffic in addition to the amount BT already charges C&W for the conveyance of DQ118 traffic terminating on C&W’s network.

Correct dimensioning of interconnect capacity

5.21 Under the terms of paragraph 5.3.1 of annex A to the Standard Interconnect Agreement, interconnection capacity (links) must be fully provided. This ensures that there is sufficient capacity on an interconnection link to carry the operator’s traffic, according to traffic forecasts, and that overflow is used only as an occasional ‘back-up’ for periods when an interconnection point is congested. The Director notes BT’s concerns that operators may be tempted to run routes ‘hot’, ie to provided insufficient capacity on a particular link, and rely on BT overflowing calls from one BT switch interconnected with the operator’s network to another such BT switch.

5.22 In the Director’s view, BT should negotiate with operators to agree methods of measuring the extent to which any overflow facility is being used, through local traffic management statistics. If there is clear evidence that operators are running routes ‘hot’, and operators refuse to augment such links within a reasonable period of time, the operators may possibly be in breach of their obligations under their respective interconnection agreements with BT.

Promotion of competition

5.23 It appears to the Director that, if BT refused to provide overflow for DQ118 traffic, it would lead to BT’s downstream activities having a competitive advantage.

5.24 As noted earlier, interconnect capacity between BT’s network and an operator’s network can be dimensioned on a ‘fully provided’ basis or a ‘high usage’ basis. Operators are required under the terms of the Standard Interconnect Agreement to fully provide interconnect links. However BT has no corresponding need to fully provide the links carrying DQ118 calls that originate and terminate on its own network. This is due to the existence of multiple alternative routing options within BT’s network, which mean that a satisfactory quality of service can be obtained without the need to fully provide the links carrying the traffic. This provides BT with a cost advantage, because it is likely to be cheaper to run certain links as high usage, at least for certain periods of time when demand may be uncertain.

5.25 A refusal to supply operators with an overflow facility is therefore likely to give BT’s retail DQ product, and other service providers terminating DQ calls on BT’s network, a competitive advantage. These services will be able to take advantage of BT’s ability to dimension its own network incorporating ‘high usage’ routes with overflow, where it is efficient to do so. Requiring BT to provide overflow to other operators should result in an equivalent quality and cost of service for DQ call conveyance to that which BT provides itself. It is therefore in the interests of promoting competition to require BT to provide overflow for DQ118 traffic destined for an operator’s network.

Economic efficiency

5.26 Sub-optimal investment decisions by operators may also arise as a result of BT’s refusal to provide overflow. Forcing operators to invest in higher capacity links where only a small amount of overflow may be required will result in inefficient over-dimensioning of links, and distortion of the ‘build or buy’ decision. C&W was particularly concerned about situations where its network was expanded, as demand on these routes would be uncertain and capacity requirements would be subject to a certain amount of adjustment. Denial of overflow might in these circumstances result in an excessive amount of conservatism in network design. Requiring BT to provide overflow should therefore minimise the cost of interconnection and therefore of producing DQ services (increasing productive efficiency).

Interests of end-users

5.28 The Director believes that it is in the interests of end-users of DQ118 services that BT be required to provide overflow for DQ118 traffic terminating on C&W’s network. In the absence of an overflow facility, there is a risk that calls will fail if there is congestion which prevents the conveyance at the designated point of interconnection between the BT network and the C&W network.

Conclusions

5.29 Having duly considered the representations made by C&W and BT in response to this request for a direction and the matters set out in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997, the Director is minded to conclude that BT should be obliged to provide overflow for DQ118 traffic terminating on C&W’s network. The Director considers that it is reasonable to require BT to comply with this obligation within 30 days after receiving a written request for overflow from C&W.

5.30 In the Director’s view C&W’s request for overflow for DQ118 traffic is a reasonable request given the nature of the service requested, the ability of BT to provide such a service and the effects of BT failing to provide overflow for DQ118 traffic.

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

Chapter 6

Consultation and timetable for responses

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

6.2 Please email or send comments in writing to:

Katherine Dinsdale
Oftel
50 Ludgate Hill
London
EC4M 7JJ

tel: 020 7634 5358
fax: 020 7634 8772
e-mail: katherine.dinsdale@oftel.gov.uk

6.3 Comments on this consultation must be sent to Oftel by 17 February 2003. Oftel does not intend on this occasion to hold any comments-on-comments phase during which observations may be made on the representations made by others.

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

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