Contents

Terms of Reference

Annex A – Licence condition proposed by the Director

Annex B

TERMS OF REFERENCE
under section 13 of the Telecommunications Act 1984
Charges made by Orange and One 2 One for terminating calls

  To: Competition Commission
New Court
48 Carey Street
London WC2A 2JT

The Director General of Telecommunications (the "Director"), in exercise of his powers under section 13 of the Telecommunications Act 1984 (the "Act"), hereby refers to the Competition Commission (the "Commission") for investigation and report, the following questions:

1. Whether any of the following matters operate, or may be expected to operate, against the public interest:

(a) the charges, in the absence of a charge control mechanism on those charges, made by Orange Personal Communications Services Limited ("Orange") to operators of fixed or mobile public telecommunications systems for calls to telephone handsets connected to Orange’s mobile public telecommunications system;

(b) the charges, in the absence of a charge control mechanism on those charges, made by Mercury Personal Communications Limited ("One 2 One") to operators of fixed or mobile public telecommunications systems for calls to telephone handsets connected to One 2 One’s mobile public telecommunications system.

2. If so, whether the effects adverse to the public interest which the above-mentioned matters have, or may be expected to have, could be remedied or prevented by modifications of the conditions of the respective licences granted under section 7 of the Act to Orange on 27^th July 1995 and to One 2 One on 9^th May 1995.

3. For the purpose of assisting the Commission in carrying out its investigation on this reference:

(a) the Director hereby specifies, pursuant to section 13(3)(a) of the Act, that in his opinion the adverse effect to the public interest that the absence of a charge control mechanism on the above-mentioned charges has, or may be expected to have, is the harm likely to be caused to consumers. The Director has in his recent investigation found that Orange’s and One 2 One’s current interconnection charges for termination of calls on their respective mobile networks are excessive in relation to cost, to the detriment of consumers (see note 1 below); and

(b) the Director further specifies, pursuant to section 13(3)(b) of the Act, that in his opinion that effect adverse to the public interest could be remedied or prevented by modifications of the conditions of the respective licences granted to Orange and One 2 One by inserting in each of those licences a condition substantially in the form of that set out in Annex A attached to this reference.

4. For the purposes of this reference, a "call" shall have the same meaning as in the condition set out in Annex A.

5. The report on this reference shall be made within a period of six months beginning with the date of this reference.

7 January 2002

DAVID ALBERT EDMONDS

Director General of Telecommunications

Note:

Annex A – Licence condition proposed by the Director

(Referred to in Paragraph 3(b) of the Terms of Reference)

The modifications to the Licences of Orange and One 2 One to introduce a charge control would be by the insertion of a new Condition 70 as follows:

CONTROL OF INTERCONNECTION CHARGES

70.1 Except to the extent that the Director otherwise consents under paragraph 70.5 below, the Licensee shall take all reasonable steps to secure that, during any Relevant Year, the Average Interconnection Charge does not exceed the Target Average Charge for any such Year.

70.2 For the purposes of this Condition, the Average Interconnection Charge shall be:

(a) calculated as the average of the Interconnection Charges during the Relevant Year in question, weighted according to the profile of the Licensee’s call minutes by charging period in the Base Year. Where any Interconnection Charges are in force during a part only of a Relevant Year (commencing or ending at a date in the course of the Relevant Year), the weighting shall be derived from the profile of call minutes by charging period in the corresponding part of the Base Year; and

(b) determined according to the Licensee’s standard charges, and no account shall be taken of any discounts offered by the Licensee, whether in respect of any particular customer or any category of customers or any category of Calls.

70.3 For the purposes of this Condition:

(a) the Target Average Charge shall be calculated as the Adjusted Base Target Charge multiplied by the sum of 100% and the Controlling Percentage;

(b) the Adjusted Base Target Charge shall be calculated as the Base Target Charge divided by the sum of 100% and the Adjustment Percentage; and

(c) the Base Target Charge shall be calculated as the average of the Interconnection Charges during the Base Year, weighted according to the profile of the Licensee’s call minutes by charging period in the Base Year. Where any Interconnection Charges were in force during a part only of a Base Year (commencing or ending at a date in the course of the Base Year), the weighting shall be derived from the profile of call minutes by charging period in that part of the Base Year.

70.4 Notwithstanding (and without prejudice to the generality of) the obligation imposed on the Licensee by paragraph 70.1 above:

(a) if the Licensee has failed to secure that the Average Interconnection Charge has not exceeded the Target Average Charge for any Relevant Year, the Licensee shall make such adjustments to its Interconnection Charges and by such day in the following Relevant Year as the Director may, after consultation with the Licensee, consider to be appropriate for the purpose of remedying that failure, and so direct the Licensee. Such adjustments in the following Relevant Year shall not be relevant for the purpose of establishing compliance with paragraph 70.1 above in that Relevant Year; and

(b) if it appears to the Director that the Licensee is likely to fail to secure that the Average Interconnection Charge for the last Relevant Year, which begins on 1 April 2005 and ends on 31 March 2006, does not exceed the Target Average Charge for that Year, the Licensee shall make such adjustments to its Interconnection Charge and by such day in that Year as the Director, after consultation with the Licensee, considers appropriate for the purpose of avoiding that failure, and so directs the Licensee.

70.5 Where the Average Interconnection Charge is less than the Target Average Charge for any Relevant Year, the Licensee shall not make such adjustments to its Interconnection Charges in the following Relevant Year to recover the difference between the Average Interconnection Charge and the Target Average Charge for the Relevant Year in question, unless the Director has given his prior written consent to such adjustments. Such adjustments in the following Relevant Year shall not be relevant for the purpose of establishing compliance with paragraph 70.1 in that Relevant Year.

70.6 Unless the context otherwise requires, in this Condition:

"Adjusted Base Target Charge" has the meaning given to it in paragraph 70.3(b) above;

"Adjustment Percentage" means, for the purposes of each Relevant Year other than the first Relevant Year, the percentage by which the Average Interconnection Charge in the Base Year was above or below (as the case may be) the Target Average Charge in the Base Year. For the purposes of the first Relevant Year (which, for the avoidance of doubt, means the period of 12 months beginning on 1 April 2002 and ending on 31 March 2003), the Adjustment Percentage shall be deemed to be zero.

For the avoidance of doubt, the Adjustment Percentage shall (except for the purposes of the first above-mentioned Relevant Year) be:

(a) negative, if the Average Interconnection Charge in the Base Year was below the Target Average Charge in the Base Year;

(b) zero, if the Average Interconnection Charge in the Base Year was equal to the Target Average Charge in the Base Year; or

(c) positive, if the Average Interconnection Charge in the Base Year was above the Target Average Charge in the Base Year.

"Average Interconnection Charge" has the meaning given to it in paragraph 70.2 above;

"Base Target Charge" has the meaning given to it in paragraph 70.3(c) above;

"Base Year" means the year ending on 31 March immediately preceding the Relevant Year in question. For the avoidance of doubt, in relation to the first Relevant Year, the reference in this definition to the "year ending on 31 March immediately preceding the Relevant Year in question" means the period of 12 months beginning on 1 April 2001 and ending on 31 March 2002;

"Call" means a circuit switched conveyance of a speech teleservice only (as defined in the relevant ETSI standards) originating in a telecommunication system which is connected to any of the Applicable Systems of a fixed or a mobile telecommunication system and intended to terminate on a GSM mobile handset using the GSM air interface for the conveyance of that speech call, which is connected to the system of the Licensee. For the purposes of this definition:

(a) "the relevant ETSI standards" means the European Telecommunications Standard (ETS) of ETS 300 905 (GSM 02.03 version 5.3.2), Third Edition, January 1998, which has been produced by the Special Mobile Group (SMG) of the European Telecommunications Standards Institute (ETSI); and

(b) "GSM" means the Global System for Mobile communications (GSM) as defined in the relevant ETSI standards.

"Controlling Percentage" means, in relation to any Relevant Year, the amount of the change in the Retail Prices Index in the period of 12 months ending on 31 December immediately before the beginning of that Year, expressed as a percentage (rounded to two decimal places) of that Index as at the beginning of that period, reduced by 12;

"Interconnection Charge" means the standard charge made by the Licensee for the interconnection of a Call, and "interconnection" has the same meaning as in the Interconnection Regulations;

"Relevant Year" means any of the four periods of 12 months beginning on 1 April starting with 1 April 2002 and ending on 31 March 2006;

"Retail Price Index" means the index of retail prices compiled by Her Majesty’s Government in respect of all items; and

"Target Average Charge" has the meaning given to it in paragraph 70.3(a) above.

Annex B