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March 2000 Chapter 1 Introduction Chapter 2 The Consultation Chapter 3 Responses to the Consultation Chapter 4 Conclusions Chapter 5 Consultation on proposed licence modifications and draft consent Annex A The routes considered Annex B Consent under Conditions 58.1 and 54.5 of BT’s licence Annex C Determination under Condition 47.10(a) of BT’s licence Annex D Modifications to BT’s licence Annex E Modifications to Concert’s licence Annex F Modifications to all PTO licences Annex G Draft consent under Conditions 55.4 and 71 of BT’s licence Annex H Notice under Section 16(5) Telecommunications Act 1984 Oftel’s overall goal is the best possible deal for consumers in terms of choice, quality and value for money. Oftel believes that competitive markets are the best way of meeting consumer needs and achieving Oftel’s overall goal. Markets which are effectively competitive deliver quality, choice and low prices. Oftel’s strategy (Oftel Strategy Statement: Achieving the best deal for telecom consumers) recognises the costs that can arise through over regulation in fast moving and competitive markets. A key element of the strategy is therefore that there should be regulation only where justified and that regulation should be appropriate to the level of competition in the market. Thus, as competition increases, so Oftel will seek to reduce regulation since over-regulation can reduce incentives to invest and innovate. Competition in international routes has grown substantially since the full liberalisation in 1997 of retail and wholesale (ie the services BT provides to other operators) international direct dialling. In light of this increasing competition and in line with Oftel’s long term strategy, Oftel has decided to reduce the regulatory obligations on BT in a number of international markets and on the market for backhaul services. This follows publication of Oftel’s consultative document – Competition in International Markets in November 1999, and consultation on BT’s request not to have to publish charges for high capacity backhaul circuits. In particular, Oftel has decided to:
Implementation of these decisions will require modifications to BT’s and Concert’s licences. Two of these modifications make general changes to the licences: one reducing the price notification period to one day for all Competitive Standard Services; and the other allowing the Director to disapply Condition 71 (which requires consent to changes to BT’s General Prices) by consent. The first of these modifications will only have an immediate effect on wholesale international direct dial (IDD) routes, backhaul and ‘the value added element of operator assistance’ (the latter having already been determined a Competitive Standard Service). The second will only affect the retail IDD routes, for which the Director intends to consent to disapplication of Condition 71. The Director General is commencing a statutory consultation on the proposed modifications under Section 12 of the Telecommunications Act 1984. For reasons of consistency, and to ensure that no operator is subject to more onerous licence obligations than BT, the Director General also proposes two minor and deregulatory modifications to the licences of all public telecommunications operators.
Introduction 1.1 In November 1999, Oftel published a consultative document Competition in International Markets reviewing requests which had been made by BT for regulatory changes on certain International Direct Dial (IDD) and International Private Leased Circuit (IPLC) routes. The routes considered are listed in Annex A to this Statement. 1.2 In addition, Oftel has separately consulted on a request by BT not to have to publish charges for high capacity backhaul circuits on the basis that BT’s market share is falling and the market is increasingly competitive. 1.3 Oftel has now reviewed the responses received from interested parties to these consultations and this Statement sets out the Director General’s decisions. Concert 1.4 Since the publication of the consultative document, Concert, a joint venture between BT and AT&T has commenced trading. From January 2000, Concert has taken over all of BT's former international gateway-to-gateway network facilities, assets and operations including correspondent contracts, submarine cable capacity, cable landing stations and international switching and transmission centres. Backhaul circuits, which are inland circuits linking cable landing stations and inland international switching and transmission centres, have not been passed to Concert. Rather, they have been retained by BT, who will supply them to Concert on a non-discriminatory basis. BT will also continue to supply backhaul circuits to other operators. 1.5 As Concert will be providing a number of regulated services in the UK hitherto provided by BT, and in view of Concert’s continuing close relationship with BT, Oftel was concerned that no step-change to UK regulation should occur as a result of the joint venture. Accordingly, Oftel proposed in its consultative document BT/AT&T proposed joint venture published in June 1999 that certain relevant regulatory requirements imposed on BT be carried over to Concert. Having taken into account the representations received, modifications were made with agreement to the Concert licence on 22 December 1999 to introduce in Concert’s licence some of the BT specific obligations including conditions relating to Network Charge Control (Condition 66) and Accounting Separation (Condition 67). 1.6 In practice, in the retail IDD market BT will act as Concert’s agent and thus will continue to provide retail IDD services and IPLCs, buying the international components from Concert on a non-discriminatory basis. Concert will have obligations to provide connection at international switching centres and wholesale IDD services. The separation of BT’s national and former international assets does not, in itself, affect Oftel’s analysis of competition in the UK international market as set out in the consultative document or Oftel’s proposals. In light of this, modifications made to BT’s licence will also have to be made to corresponding conditions contained in the Concert licence. The proposed modifications to Concert’s licence are set out at Annex E.
The Consultation Background 2.1 At present, BT is subject to greater regulatory obligations than its competitors in the international markets. In particular, BT:
2.2 These regulatory obligations were required at a time when BT had a strong position in the international markets, but since then many international markets have become increasingly competitive. Oftel’s long-term strategy is that regulation should be proportionate to the level of competition, with lighter regulation where greater competition exists. 2.3 The relevant markets are:
2.4 Each of the relevant international markets can be reviewed on a route by route basis; and within the market for international retail services, services to business and residential customers form two separate markets. The market for backhaul circuits comprises all UK high capacity inland backhaul circuits. 2.5 Oftel reviewed the state of competition in these markets on routes claimed by BT to be competitive. Oftel’s initial conclusions 2.6 Oftel drew the following initial conclusions from its review (see Chapter 9 of the consultative document):
2.7 Backhaul was not reviewed as part of the consultation on competition in international markets, but was subject to a separate consultation. 2.8 Since the review was completed, Oftel understands that BT has experienced further reduction in the volume of international direct dial traffic it carries. Oftel’s initial proposals 2.9 As a result of these conclusions, Oftel proposed changes to BT’s regulatory obligations set out below. Oftel’s approach is that where routes are effectively competitive, regulation should be withdrawn (subject to overriding obligations on operators which stem from EU legislation and universal service obligations). Where routes are increasingly competitive, lighter regulation (rather than complete withdrawal) is appropriate.
2.10 BT will continue to be subject to general UK competition law on international routes (including, in particular, the provisions of the Competition Act 1998).
Responses to the consultation 3.1 Oftel received responses to its consultative document on Competition in International Markets from:
3.2 Responses to Oftel’s consultation on BT’s request not to have to publish charges for backhaul circuits were received from:
3.3 Oftel’s consideration of the main points raised is set out below. Responses to the consultation on Competition in International Markets and those to the consultation on BT’s obligation to publish charges for backhaul circuits are discussed in turn. Competition in International Markets Main focus of responses 3.4 Many respondents agreed with the general aim of Oftel to withdraw from detailed regulation wherever possible, but there were some concerns expressed about the timing of this withdrawal. A number of respondents commented that it was difficult to agree with Oftel’s conclusions on the state of competition in the identified markets without more insight into the detailed information on which Oftel had based its findings. Comments on methodology 3.5 Responses on the methodology fell into two broad categories: first, the view that the document did not disclose sufficient detail of the information Oftel had used to reach its conclusions. Secondly, reasons why it may be inappropriate to conclude that competition had developed sufficiently to relax the current controls on BT. 3.6 Oftel understands why other operators would wish to be assured that Oftel’s conclusions are based on sufficient evidence, and why they would want to see detailed information about individual routes. However, because of the confidential nature of much of this data, Oftel agreed with certain operators that it should not be published. Oftel has, in the light of the responses, considered whether it would be appropriate to include more details on a route-by-route basis in a separate annex. However, Oftel considers that, as a significant amount of confidential data would have to be omitted, such an annex would not provide sufficient information to be of any value. 3.7 In terms of whether competition had developed sufficiently for Oftel to relax the regulatory controls on BT, several operators commented that BT’s current position in the markets, whereby it had been experiencing a decline in its market shares, could be an indication of effective regulation rather than increasing competition. Oftel understands this concern but does not believe that it is a valid reason for retaining prescriptive regulation when investigation suggests that competition has developed sufficiently to allow some relaxation of the regulatory regime. This is in line with Oftel’s stated long-term deregulatory strategy. 3.8 Some respondents felt that too much emphasis was placed on the number of competitors in the markets concerned. Comparisons were drawn with other consultations Oftel had recently completed, such as Oftel’s review of the mobile market, when other factors, such as retail prices, had been given more emphasis. Oftel accepts that a range of factors will need to be taken into account when considering the state of competition in any particular market, but the weight given to any particular factor will vary depending on the market being considered. The review of international markets placed more emphasis on the number of competitors and recent trends on entry to the market, than had been the case in the mobile review, as these were variable factors in the international market. This was not the case in the mobile review where the availability of spectrum restricts the number of competitors. The emphasis that had been placed on retail prices in the mobile market consultation was also partly a result of the lack of transparency of prices in that market at the time of that review. The retail prices of IDD are easier to observe and information available to Oftel shows them to have declined over time on the routes considered. Market definitions 3.9 Responses focussed on four main issues. First, there was concern about the appropriateness of defining individual routes as distinct markets and the implications this may have for the definition of the UK telecommunications market. Secondly, it was argued that the relaxation of the regulatory restraints on some routes did not take account of BT’s ability to leverage market power across routes. Thirdly, some questioned the appropriateness of defining separate business and residential markets. Fourthly, one respondent suggested that it would be appropriate to treat high-spending residential customers in major cities as a separate market. 3.10 Oftel considers that it is usually appropriate to treat paired country routes as separate markets as, both on the demand side and the supply side, substitution between different country routes is not generally possible. In defining individual international routes as distinct markets, Oftel is following the practice of other competition authorities, including the European Commission and the US Federal Communications Commission (FCC). Oftel recognises that the increased use of hubbing could mean that it may be becoming more appropriate to define groups of routes as markets, although there is little reliable data on hubbing. However, Oftel does not believe that hubbing is currently sufficiently widespread to alter its analysis. 3.11 Oftel has considered whether the relaxation of restraints on some routes could increase BT’s ability to leverage market power across competitive and non-competitive routes. Oftel’s view is that relaxing the restraints will not affect Oftel’s ability potentially to deal with any such attempts under the provisions of the Competition Act 1998 (if, for example, BT is abusing its dominant position in a non-competitive market with an effect on competition in a neighbouring, competitive, market). Nevertheless, Oftel has also made clear that where BT wants to bundle competitive and non-competitive routes together, the more stringent regulatory requirements of the non-competitive routes would apply to the whole bundle. 3.12 Oftel considered the appropriateness of defining separate business and residential markets in the consultative document and does not consider it appropriate to reopen the debate. These market definitions follow the approach used by Oftel in its review of the markets in preparation for the new price and charge controls introduced in 1997. Oftel will review the markets again for the next price and charge controls when the present controls end in 2001. 3.13 Oftel did not consider it appropriate to define a separate market for high-spending residential customers in major cities, as was suggested by one respondent. One of the reasons for identifying separate markets for business and residential customers was that operators actively price discriminated between the two groups, because it was relatively straightforward to distinguish between the two types of customer. It is more difficult for operators to price discriminate between groups of residential customers. Oftel acknowledges that there is stronger competition for the highest spending residential customers than for the lower spending customers and that there is some price discrimination in the form of more attractive discount packages becoming available with increased spending levels. However, the lack of disaggregated market data would make it difficult to define precisely which customers should fall into this high-spending residential category, which could result in fairly arbitrary market definitions being applied. Oftel does not rule out adopting narrower market definitions in future. Relaxation of Condition 71 (pricing below cost) 3.14 Some operators were concerned that the relaxation of the requirement to provide a detailed breakdown of the composition of prices could inhibit Oftel’s ability to investigate complaints of anti-competitive pricing. Oftel has made it clear that although BT will not be routinely required to provide detailed cost-stack information for the routes concerned in advance of introducing revised prices, Oftel has the power to call for such information if it wishes to investigate prices which could have anti-competitive effects. The relaxation of Condition 71 for competitive routes does not mean that BT can engage in loss-making activity as this would be prohibited by BT’s licence. Such behaviour could also be in breach of the Competition Act 1998 (if, for example, BT was abusing a dominant position in a non-competitive market to subsidise the loss making activity). 3.15 Oftel does not consider it appropriate to continue to examine prices in advance for potential margin squeeze effects when BT no longer has market power in the wholesale markets concerned. However, Oftel will continue to monitor the level of competition in the relevant wholesale markets. Oftel does not agree with the claim of one respondent that the obligations imposed by the Revised Voice Telephony Directive (RVTD) preclude BT from pricing below cost since the RVTD obligation only requires prices to be cost-orientated. Undue Preference and Undue Discrimination 3.16 There were some concerns that Oftel’s proposals were sanctioning undue discrimination by BT. One operator was concerned that BT would be able to leverage market power from the wholesale IDD market to retail IDD markets. There was also a request for Oftel to publish specific guidelines on how it would interpret "undue". 3.17 Oftel would wish to emphasise that the proposals do not allow BT to practice undue discrimination. However, the findings of the review suggest that the routes considered are either effectively competitive or increasingly competitive and as such, any discrimination on these routes is unlikely to be interpreted as undue. Oftel is proposing to adopt a more relaxed approach to offerings that are aimed at customer groups where competition is most developed, such as large business customers. Oftel would not subject such offerings to detailed scrutiny prior to launch but would, of course, investigate fully any subsequent non-trivial complaints of undue discrimination. 3.18 Oftel does not agree that the proposals will allow BT to leverage market power from the wholesale market in international calls to the retail market, given that in Oftel’s view, BT no longer has a significant degree of market power in these international routes. 3.19 Oftel does not consider it necessary to publish specific guidelines setting out the circumstances where discrimination or preference would be considered undue, as Oftel would assess this, according to usual competition rules, on a case by case basis. Oftel believes that the guidelines produced by the Office of Fair Trading (OFT) on the application of the Competition Act 1998 and the guidelines published jointly by the OFT and Oftel – The Application of the Competition Act in the Telecommunications Sector (OFT 417), already provide sufficient guidance. In particular, the Competition Act guidelines – Assessment of Individual Agreements and Conduct (OFT 414) contain guidance on the assessment of discriminatory pricing or undue preference for competition purposes (see Chapter 3 on Price Discrimination and Undue Preference). Notification periods 3.20 Some respondents argued that the reduction of the price notification periods from 28 days to one day for retail IDD and IPLCs would not given them sufficient time to respond to price changes. One respondent argued that it would also make it difficult to use comparative advertising. For wholesale IDD, some respondents argued that one day’s notice of price changes was insufficient time to change the prices of those retail services that used BT’s products as inputs. One suggested a notice period of seven days would be more appropriate. One respondent also thought that removing the 28 days’ publication period would enable BT to use information gained from wholesale interconnection to target retail customers. 3.21 The responses on the notice period for retail IDD and IPLCs tend to confirm Oftel’s view that the 28 day notice period is encouraging competitors to follow BT’s lead on prices rather than to instigate their own price changes. Accordingly, Oftel believes that the responses reinforce the case for reducing the notice period. It is Oftel’s view that competition is not well served if operators simply set their prices by reference to BT. Accordingly, Oftel does not consider it detrimental to competition that the reduction in notice period may make comparative advertising more difficult. 3.22 As far as the notice period for wholesale IDD services is concerned, Oftel has found these to be competitive services. BT’s share of the addressable market (that is, sales to third parties) is very small on almost all routes, suggesting that BT no longer represents the main source of these inputs to OLOs. The need to impose a notice period as long as 28 days is no longer appropriate and is inconsistent with the finding that the routes considered were competitive. Oftel did consider reducing the notice period to 7 days rather than one day, but thought this to be arbitrary and again, inconsistent with the finding of competitiveness. 3.23 Oftel considers as unfounded the concern expressed that the removal of the 28 days’ notification period will enable BT to use information gained from its interconnection business to target retail customers. First, BT is prohibited from using information gained from its interconnection business for these purposes. Any such practice by BT would breach the terms of its Standard Interconnect Agreement and could also be scrutinised by Oftel under the Competition Act 1998. Second, Oftel does not consider the length of the notification period to have any bearing on BT’s ability to use information in this way. IPLC routes to Hong Kong, Japan and Singapore 3.24 One operator argued that BT’s historic relationship with the far-end provider in Hong Kong, Japan and Singapore provided a continuing source of market power, meaning that controls should not be relaxed on these routes. In light of this comment, Oftel obtained further information to review the competitive situation on these routes. Market Share 3.25 As stated in the consultative document, Oftel had some difficulty in obtaining full market information for IPLCs on a route by route basis. However, it is clear that BT is the market leader on the Japan and Singapore routes with over 50% market share and has approximately 40% on the Hong Kong route. The number of operators on these routes are limited to a handful with CWC being the only other operator with significant shares. 3.26 BT has questioned Oftel’s market share data on the grounds that it does not take into account the most recent trends and that it does not reflect the use of hubbing. Oftel accepts that the data based on the year 1988/99 cannot reflect recent developments but the impact on the assessment of market power of the opening of markets is reflected in the assessment of barriers to entry. Oftel also acknowledges that the information does not capture hubbed IPLCs. This information is very difficult to identify but Oftel does not believe the current level of hubbed IPLCs would materially alter BT's present market share. Barriers to entry 3.27 The principal potential barriers to entry on these routes are the need to obtain correspondent agreements with operators at the far end and potential limitations in cable capacity. Correspondent Agreements 3.28 Although in practice, it is likely that UK operators will approach incumbent operators for correspondent agreements, the overseas markets either have, or will shortly have, liberalised international facilities as follows:
Cable capacity 3.29 The UK and South East Asia are connected by fibre optic cables running east and west from the UK. To the east, the main cables are SEA-ME-WE2, SEA-ME-WE3 and FLAG. To the west, there are a large number of transatlantic and transpacific cables. 3.30 These cables, together with planned new systems, eg Project Oxygen, provide substantial cable capacity. Profitability 3.31 BT has argued that its lack of market power (and falling market shares) on the routes under consideration is evidenced by its falling revenues and profitability on these routes despite growth of the overall markets. Conclusion 3.32 BT’s market shares are relatively high on these routes and the number of competitors are limited, although BT claim that this is changing with marked recent falls in their revenues and more entrants able to enter the markets as the far end markets liberalise. In addition, there appears to be more than adequate cable capacity for new entrants. 3.33 Oftel recognises that high market share alone does not mean an operator has market power if exposed to competitive pressure. However, Oftel received representations that the competition which exists is still emerging rather than being developed. Further, Oftel is not convinced that BT's prices yet reflect strong competitive pressures. Accordingly, Oftel now concludes that it is premature to judge that the Hong Kong, Japan and Singapore IPLC routes are increasingly competitive and that the price publication notice period of 28 days should remain in place. However, Oftel will in future review its conclusions on these routes if requested to do so by BT in light of updated market information.. 3.34 The above does not alter Oftel’s conclusions in relation to wholesale IDD or retail IDD on the Hong Kong, Japan and Singapore routes, as BT’s market shares and barriers to entry are lower on these markets. BT’s legacy/ubiquity 3.35 Some respondents argued that BT’s historical position in the markets as a monopolist made it inappropriate to relax the regulatory requirements. Specific reference was made to BT’s position as one of the original members of submarine cable consortia, with the suggestion that this could enable it to leverage its position to obtain low cost access. 3.36 Oftel considers BT’s historical position in these markets to be largely irrelevant; it is BT’s current (and potential) position and behaviour that matters and the current state of competition in the markets concerned. Any attempt by BT to leverage retained market influence into the markets concerned could be examined by Oftel under the Competition Act 1998. Oftel understands that the costs of access to submarine cables faced by BT are broadly the same as those faced by other operators. Indeed, BT’s access costs may be higher than those of many new operators, who will be obtaining capacity on recently installed submarine cables for which capacity prices are relatively low. 3.37 One respondent argued that BT’s historical position as a cable consortium member allowed it to enjoy tax allowances unavailable to its competitors which operate using indefeasible rights of use (IRUs). Oftel has noted this argument, but does not consider it to be an issue which is relevant to this review. Concert 3.38 One respondent considered it "perverse" for Oftel to have concluded that the US route was competitive when the FCC had reached a finding of dominance for the BT/AT&T joint venture (now Concert) on this route. 3.39 Oftel agrees that the FCC’s decision found parts of the BT/AT&T joint venture to be technically ‘dominant’ under US rules on the US-UK route. This US ‘dominance’ test is met where a US carrier is ‘affiliated’ with a foreign carrier that has sufficient market power at the foreign end to affect competition adversely in the US market. However, having made this finding, the FCC went on to state that: "Although we conclude that VLT and TLTD [subsidiaries of a holding company to be equally owned by AT&T and BT] are dominant because they are affiliated with BT, we also find that neither VLT, TLTD nor Concert, the JV’s UK-licensed affiliate, has market power with regard to any of the input markets in which they own or control assets, ie, the markets for international transport and UK cable landing stations. …[N]o carrier has market power on the US-UK transport capacity market" (see para 86 – emphasis added) 3.40 Accordingly, Oftel does not consider its findings to be incompatible with those of the FCC. Potential for other operators to be subject to more onerous regulations 3.41 Two operators commented that they should not be subject to more onerous regulations than BT as a result of this determination. 3.42 Oftel has already stated in the consultative document that no operator would be left in a position where it could potentially and without justification be subject to more onerous regulations than BT. In particular, Oftel is currently reviewing whether CWC has market influence in international markets. Where the CWC market influence review involves the same routes as considered here, Oftel's approach will be consistent with its approach in this review. Relaxing the regulatory regime – general 3.43 There was general support for the removal of prescriptive regulation although one respondent thought it important to identify how the general competition rules will be used to tackle specific anti-competitive behaviour that was previously controlled by prescriptive regulation. The guidelines published jointly by the OFT and Oftel – The Application of the Competition Act in the Telecommunications Sector (OFT 417) explain how the Competition Act 1998 will be applied and enforced in the telecommunications sector. More general guidance on the application and enforcement of the Competition Act 1998 can be found in the guidelines published by the OFT. Proposed modifications 3.44 There were no comments on the wording of the draft modifications set out in the Competition in International Markets consultative document. However, BT, in its comments, proposed some additional modifications which would have removed the obligation on BT to publish Components and Parts for Competitive Standard Services or to publish the reconciliation between these and the interconnect and transfer charge for routes which were determined as being competitive. 3.45 Oftel noted BT’s representations on this subject. However, BT subsequently advised Oftel that they did not wish to pursue these further relaxations at this time. BT’s sourcing of wholesale IDD requirements 3.46 One respondent suggested that the fact that BT had sourced all its wholesale requirements in-house meant that it had a position of dominance at the retail level. 3.47 Oftel considered at length the inter-relationship between the wholesale and retail markets. Oftel agrees that BT Retail appears always to use BT wholesale international capacity for terminating outgoing IDD calls even though it is not always the cheapest option on a call by call basis. BT states that it does this because it takes into account the sunk costs of its international capacity and, by implication, that if it did not use its international capacity for such calls, it would increase the cost of its use for all calls. 3.48 Oftel is not convinced by BT’s reasoning on this point, and agrees with the respondent that BT’s continued sourcing in-house of its wholesale requirements would, other things being equal, be evidence of market power at the retail level (as the policy would only be sustainable if BT had such market power). However, Oftel believes that BT prefers to use its own facilities for outgoing IDD traffic in order to maintain relations with overseas operators and encourage them to send to BT, UK terminating international traffic. Overall, therefore, the arrangements are to BT’s commercial advantage. Backhaul Price publication 3.49 The respondents on backhaul considered that BT’s ubiquity and its legacy position as owner of the majority of cable landing stations gave BT an advantage over other international operators. Removing BT’s obligation to publish backhaul charges would only increase BT’s advantage. One respondent accepted that competition had been established whilst the other was more cautious although noting the substantial reductions in backhaul prices which had taken place. Concerns were also expressed at the competitive effect of the six months lead time required for an international operator to establish new points of connection at cable landing stations to provide alternative backhaul circuits which would not apply to BT. 3.50 Oftel agrees that given BT’s market position and its SMP obligations in the Leased Lines and Interconnection markets, it is inappropriate for BT not to publish prices for backhaul at all. However, Oftel considers that the market is effectively competitive and that the 28 days notification period should therefore be reduced to one day. This will provide transparency of BT’s prices whilst allowing BT to compete effectively. The contractual time limit of six months for establishing a new point of connection at a cablehead is noted and is a barrier to entry. However, the time limit is a maximum and in practice, BT/Concert should be able to provide a new point of connection for established operators (at cableheads) much more quickly. Furthermore, this six month time limit is not a factor which would be affected by Oftel’s proposal to reduce the price publication period for backhaul circuits. Market definition 3.51 One respondent implicitly argued that separate markets may exist for each backhaul circuit to individual cable stations, citing in particular the backhaul provided by BT on the UK-Germany circuit at Scarborough. 3.52 Oftel notes that there is the potential for substitution between cable stations serving different countries on mainland Europe (thus, for example, UK-Netherlands, UK-France and UK-Belgium may also deal with traffic to and from Germany). Accordingly, suppliers of backhaul on the UK-Germany route would be constrained by the ability of customers to switch to these alternatives. Oftel also understands that backhaul circuits are subject to a national and uniform pricing policy. Accordingly, Oftel believes that competition for backhaul can be considered at a national – UK – level.
Conclusions 4.1 Having taken account of the responses received as set out above, Oftel does not consider, except for the case of IPLCs to Hong Kong, Japan and Singapore, that it needs to alter its original proposals. Accordingly, Oftel concludes that:
Concert 4.2 As explained in Chapter 1, the transfer of BT’s international assets and services to Concert does not alter Oftel’s market analysis. However, it has the consequence that modifications made to ‘BT only’ licence conditions also contained in Concert’s licence will also need to be made to corresponding Concert licence conditions. Changes to BT/Concert’s regulatory obligations 4.3 Subject to the outcome of its Statutory Consultation on the proposed modifications, Oftel will make the following changes to BT’s and Concert’s regulatory obligations in international markets. Price publication 4.4 The reduction of BT’s price publication notice period from 28 days to one day for 23 retail international routes, 19 IPLC routes (ie all those listed at Annex A except for Hong Kong, Japan and Singapore) and backhaul circuits. 4.5 For retail IDD routes, this is achieved by the Director General giving his consent under Conditions 58.1 and 54.5 of BT’s licence to the reduction of the price publication notice periods from 28 days to one day. The Director General’s consent to such reduction of the price publication notice periods is contained in the Consent at Annex B to this Statement. 4.6 BT will still be prohibited from varying from these published prices under Condition 58.3 of its licence. 4.7 For intra-EEA IPLC routes and backhaul Condition 55.4 of BT’s licence should be modified to give the Director General the discretion to vary the notice period for price changes on intra-EEA IPLC routes and other private circuits, by written consent to BT. To ensure consistency, such a modification will have to be made to the licences of all public telecommunications operators (PTOs) (see paragraphs 4.18 to 4.19 below). These proposed modifications to the licences of BT, Concert and other PTOs are attached at Annexes , D, E and F to this Statement respectively. Following modification of BT’s licence, the Director General will give BT written consent to the effect that the intra-EEA IPLC routes considered and backhaul would only be subject to a notice period of one day. A draft of the consent to be issued by the Director General following modification of Condition 55.4 is attached at Annex G to this Statement. 4.8 For non-EEA IPLC routes this is achieved by the Director General giving his consent under Condition 58.1 of BT’s licence to the reduction of the price publication notice period from 28 days to one day. The Director General’s consent to such reduction of the price publication notice period is contained in the Consent at Annex B to this Statement. Potential to price below cost 4.9 On the 23 retail IDD routes considered, BT will no longer be obliged to provide it with a breakdown of costs for changes to retail international prices prior to publication of those prices, and need no longer seek the Director General’s consent to prices which are below cost. 4.10 Implementation of this decision will require a modification to Condition 71 of BT’s licence, allowing the Director General to remove BT’s obligations under the Condition. This would be a general power, to disapply Condition 71 by consent. The proposed modification of Condition 71 of BT’s licence is attached at Annex D. The Director General will consider consenting to the removal of obligations under the amended Condition 71 following a request by the licensee in relation to markets which are considered to be competitive. A draft of the consent to be issued by the Director General following modification of Condition 71 is attached at Annex G to this Statement. Determining certain routes to be competitive 4.11 In the Determination at Annex C to this Statement, the Director General determines 26 wholesale IDD routes and backhaul services to be Competitive Standard Services under Condition 47.10(a) of BT’s licence. BT will be able to offer charges for those routes no longer subject to the Network Charge Control’s RPI + 0% safeguard caps. Network charge publication 4.12 Oftel will reduce BT’s network charge publication notice from 28 days to one day for all Competitive Standard Services (including the 26 wholesale IDD routes and backhaul). Note that this would be a general change, reducing the notice period for all Competitive Standard Services – although it is only proposed at this stage to determine the wholesale IDD routes and backhaul to be Competitive Standard Services for these purposes. Currently, the only other interconnect service in the category of Competitive Standard Service is ‘the value added element of operator assistance’, so the notice period for this service will also reduce to one day. 4.13 Implementation of this decision will require modification of Condition 69.4 of BT’s licence (and the equivalent provision in Condition 66.18 of Concert’s licence). Under Condition 69.4, BT is required to give at least 28 days’ notice of price changes to all Competitive and Prospectively Competitive Standard Services. Accordingly, Oftel proposes a modification which would create separate notice periods for Competitive Standard Services and Prospectively Competitive Standard Services, with the notice period for Competitive Standard Services being reduced from 28 days to one day. This will apply to all services determined by the Director General to be Competitive Standard Services under Condition 47.10(a). The notice period for Prospectively Competitive Standard Services will remain unchanged. The proposed modification to Condition 69.4 of BT’s licence is set out at Annex D and the proposed modification to Condition 66.18 of Concert’s licence is set out in Annex E. The Director General’s determination that the 26 wholesale IDD routes and backhaul services be regarded as Competitive Standard Services is at Annex C to this Statement. 4.14 A similar modification will also be made to Condition 47.6 of all PTO licences, to ensure that no operator is potentially subject to more onerous price publication obligations than BT (see paragraphs 4.18 to 4.19 below). The terms of this proposed modification are set out at Annex F. 4.15 Since some wholesale IDD Standard Services will no longer be Prospectively Competitive Standard Services, a further minor licence modification will be required to Condition 69.22(c) of BT’s licence and Condition 66.59(a) of Concert’s licence to reflect this fact (see Annexes D and E). 4.16 Oftel is also proposing to amend Condition 69.4 of BT’s licence to include New Standard Services in the category which require a notice period of 28 days. Although it has been BT’s practice to give 28 days’ notice of any offer of a New Standard Service, Condition 69.4 was previously ambiguous on this point. Oftel proposes to use this opportunity to clarify the position in BT’s licence (and bring it in line with Condition 47.6 of all PTO licences). Undue Preference and Undue Discrimination 4.17 Oftel confirms its initial view that on international markets which are competitive, and where BT does not have market influence, any discriminatory offerings are less likely to be interpreted as ‘undue’ under Condition 57. In particular, as the business IDD markets are effectively competitive, any discriminatory offerings on those markets are less likely to be considered undue. Impact of modifications to BT’s licence on other operators 4.18 To ensure consistency with the modifications proposed to BT’s licence, it is also necessary to make certain corresponding modifications to the licences of other PTOs. This is necessary to ensure, in line with Oftel’s obligations under the EC Licensing Directive (97/13/EC), that licence conditions are not discriminatory, unless the discrimination can be objectively justified. 4.19 The proposed modifications to other PTO licences are minor and deregulatory and are set out in Annex F to this Statement. Although the conditions of which modification is sought are contained in all PTO licences, their provisions are only triggered by operators which have been determined as having SMP under the Interconnection Directive or the Leased Lines Directive. Next Steps 4.20 In view of these conclusions, the Director General has given a Consent in the form set out in Annex B and made a Determination in the form set out in Annex C. 4.21 The Director General also proposes: (a) the modifications to BT’s licence set out in Annex D; (b) the modifications to Concert’s licence set out in Annex E; and (c) the modifications to all PTO licences set out in Annex F. 4.22 These are subject to statutory consultation and the appropriate Notices will be published on 10 March 2000 (see next chapter). 4.23 Following implementation of the modifications to BT’s licence set out in Annex D, a Consent in the form of the draft instrument set out in Annex G will be issued. This Consent will have the following effects:
Consultation on proposed licence modifications and draft consent Under Section 12 of the Telecommunications Act 1984 Oftel is seeking comments on: (a) the proposed modifications to BT’s licence set out in Annex D; and (b) the proposed modifications to Concert’s licence set out in Annex E. The Director General will publish the appropriate statutory Notices on 10 March 2000. Following enactment of the Electronic Communications Bill, the Director General will seek to implement the proposed modifications to all PTO licences set out in Annex F according to the provisions of the new legislation. In the meantime, if, and insofar as, any operator with Significant Market Power for the purposes of the Interconnection Directive or the Leased Lines Directive is subject to longer price publication notice periods than BT, the Director considers that Section 16(5) of the Telecommunications Act 1984 applies. That provision permits the Director not to enforce licence conditions where either his section 3 duties preclude him from so doing, or the alleged contraventions are trivial in nature. He must publish a notice to this effect, and attaches such notice at Annex H to this Statement. The Director General, in the statutory Notices published on 10 March, seeks the views of consumers and industry on the proposed modifications to the licences of BT and Concert by 7 April 2000. There will then be a 2-week period to 25 April 2000 during which comments on the representations made during this further phase of consultation are invited. The Director General also seeks comments on the draft consent at Annex G to this Statement and, as an informal consultation, the proposed modifications to the licences of other operators at Annex F within the same time period. Comments on the proposed modifications and on the draft consent should be made in writing and sent to: Beverley Blakeney Tel: 0171 634 8828 Alternatively, comments may be sent by email Written comments will be made publicly available in Oftel’s Research and Intelligence Unit except where respondents indicate that the response, or parts of it, is confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex and clearly mark it as such. In the interests of transparency, respondents are requested to avoid confidentiality markings wherever possible. Appointments to view written comments in Oftel’s Research and Intelligence Unit must be made in advance (tel: 0171 634 8761, fax: 0171 634 8946). Internet Access Oftel would like to set up a link between this consultative document on our website and any responses placed on respondents’ own Internet pages. Please contact Lauren Ryner by email or on 0171 634 8753 to arrange this. Confidential responses should not be sent via the Internet. Alternative Formats Copies of this Statement are available on disk. The Summary at the beginning of this Statement is available in large print, Braille, and tape formats. Please contact the Oftel Research and Intelligence Unit on 0171 634 8761, or email or call textphone 0171 634 8769 for more information.
The routes considered Retail IDD (23 routes) The following 23 routes were examined in relation to the retail IDD market: EU/EFTA routes:
WTO routes:
Wholesale IDD (26 routes) In addition to the 23 routes examined for retail IDD, the following three WTO routes were also examined for the wholesale IDD market: Malaysia New Zealand South Africa IPLCs (22 routes) The review of the IPLC market covered the same routes as for retail IDD with the exception of Israel
Consent Telecommunications Act 1984 British Telecommunications plc Consent under Conditions 58.1 and 54.5 Whereas: 1. On 22 June 1984, the Secretary of State granted a licence ("the Licence") to British Telecommunications under section 7 of the Telecommunications Act 1984 ("the Act") for the running of the telecommunications systems specified in Annex A to the Licence; 2. By virtue of section 109 of, and paragraph 20 of schedule 5 to, the Act, the Licence has effect as if granted to British Telecommunications plc ("BT"); 3. Condition 58.4 of the Licence requires BT to send the Director a notice of any amendment to charges covered by Condition 58.2 of the Licence 28 days before such amendment comes into effect; 4. Condition 58.1 of the Licence provides that BT shall publish prices in the manner set out in Conditions 58.2 to 58.6 of the Licence except in so far as the Director may otherwise consent in writing; 5. Condition 54.5 of the Licence provides that BT shall only implement changes to its tariffs referred to in Condition 54, 28 days after publication of such changes, except where the Director has consented in writing to a shorter notice period; 6. On 11 March 1999, BT requested that the Director provide his consent in accordance with Condition 58.1, to the reduction of the price publication notice period in Condition 58.4 from 28 days to one day in respect of charges for the retail international direct dial routes set out in Schedule I hereto ("the Retail IDD Routes") and the non-EEA international private leased circuit routes set out in Schedule II hereto ("the non-EEA IPLC Routes"); 7. On 11 March 1999, BT also requested that the Director provide his consent in accordance with Condition 54.5 to the reduction of the price publication notice period in Condition 54.5 from 28 days to one day in respect of charges for the Retail IDD Routes; 8. In response to BT’s requests, the Director has conducted an analysis of competition on the Retail IDD Routes and the non-EEA IPLC Routes, . As a result of this analysis, the Director has concluded that the Retail IDD Routes and non-EEA IPLC Routes are increasingly competitive; 9. The Director has consulted BT and interested parties on the above issues and taken into consideration all responses to that consultation. NOW THE DIRECTOR CONSENTS AS FOLLOWS: (1) Pursuant to Condition 58.1 of the Licence, the Director hereby consents to the reduction of the notice period referred to in Condition 58.4 from 28 days to one day in respect of BT’s charges for the Retail IDD Routes set out in Schedule I and the non-EEA IPLC Routes set out in Schedule II. (2) Pursuant to Condition 54.5 of the Licence, the Director hereby consents to the reduction of the notice period referred to in Condition 54.5 from 28 days to one day in respect of BT’s charges for the Retail IDD Routes set out in Schedule I. (3) Unless the context otherwise requires, the terms used in this Consent have the same meanings as in the Licence.
ANNE LAMBERT for the Director General of Telecommunications (A person authorised in that regard under paragraph 8 of Schedule 1 of the Telecommunications Act 1984) March 2000
Schedule I – The Retail IDD Routes The following 23 routes constitute the Retail IDD Routes for the purposes of this Consent: Australia Italy Austria Japan Belgium Luxembourg Canada Netherlands Denmark Norway Finland Portugal France Singapore Germany Spain Greece Sweden Hong Kong Switzerland Ireland USA Israel Schedule II – The Non-EEA IPLC Routes The following 4 routes constitute the non-EEA IPLC Routes for the purposes of this Consent: Australia Switzerland Canada USA
Determination Telecommunications Act 1984 British Telecommunications plc Determination under Condition 47.10(a) Whereas: 1. On 22 June 1984, the Secretary of State granted a licence ("the Licence") to British Telecommunications under section 7 of the Telecommunications Act 1984 ("the Act") for the running of the telecommunications systems specified in Annex A to the Licence; 2. By virtue of section 109 of, and paragraph 20 of schedule 5 to, the Act, the Licence has effect as if granted to British Telecommunications plc ("BT"); 3. Condition 47.10(a) of the Licence provides that, following a representation from BT or a Schedule 2 Public Operator that the market for a Standard Service is competitive or prospectively competitive, the Director shall determine whether or not that market is competitive or prospectively competitive; 4. On 11 May 1999, BT made representations to the Director that the wholesale international direct dial routes set out in Schedule I hereto ("the Wholesale IDD Routes") are competitive routes and requested that the Director determine these routes to be Competitive Standard Services, and on 9 May 1999 BT made representations to the Director that the market for backhaul circuits is competitive; 5. In response to BT’s requests, the Director has conducted an analysis of competition on the Wholesale IDD Routes and the market for backhaul. As a result of this analysis, the Director has concluded that the market for backhaul and the Wholesale IDD Routes are effectively competitive; 6. The Director has consulted BT and interested parties on the above issues and taken into consideration all responses to that consultation. NOW THE DIRECTOR DETERMINES AS FOLLOWS: (1) Pursuant to Condition 47.10(a) of the Licence, the Director hereby determines that the market for backhaul circuits and the markets for all 26 Wholesale IDD Routes are competitive and, as such, backhaul services and each Wholesale IDD Route are classified as a Competitive Standard Service. (2) Unless the context otherwise requires, the terms used in this Determination have the same meanings as in the Licence. ANNE LAMBERT for the Director General of Telecommunications (A person authorised in that regard under paragraph 8 of Schedule 1 of the Telecommunications Act 1984) March 2000
Schedule I – The Wholesale IDD Routes The following 26 routes constitute the Wholesale IDD Routes for the purposes of this Determination: Australia Japan Austria Luxembourg Belgium Malaysia Canada Netherlands Denmark New Zealand Finland Norway France Portugal Germany Singapore Greece South Africa Hong Kong Spain Ireland Sweden Israel Switzerland Italy USA
Modifications to BT’s licence Condition 47.6 Condition 47.6 should be modified so that it commences as follows: "The Licensee shall send the Network Charge Change Notice to the Director and to all Schedule 2 Public Operators with which it has entered into (or offered to enter into) an agreement pursuant to Condition 45.1:
Condition 55.4 Condition 55.4 should be modified so that it commences as follows: "Except
in so far as the Director may otherwise consent in writing, t Condition 69.4 Condition 69.4 should be modified so that it commences as follows: "Subject to Conditions 47.7, 47.8 and 47.9, and except to the extent that enforcement action is taken by the Director:
Condition 69.22(c) This sub-paragraph should be amended to read as follows: "(c) international direct dialled Conveyance Standard Services which are not Competitive Standard Services; and …" Condition 71 The following additional paragraph should be inserted at the end of this condition: "71.15 This Condition shall apply to General Prices, except to the extent that the Director may consent otherwise in writing."
Modifications to Concert’s licence Condition 47.6 Condition 47.6 should be modified so that it commences as follows: "The Licensee shall send the Network Charge Change Notice to the Director and to all Schedule 2 Public Operators with which it has entered into (or offered to enter into) an agreement pursuant to Condition 45.1:
Condition 55.4 Condition 55.4 should be modified so that it commences as follows: "Except
in so far as the Director may otherwise consent in writing, t Condition 66.18 Condition 66.18 should be modified so that it commences as follows: "Subject to Conditions 66.19, 66.20 and 66.21, and except to the extent that enforcement action is taken by the Director:
Condition 66.59(a) This sub-paragraph should be amended to read as follows: "(a) international direct dialled Conveyance Standard Services which are not Competitive Standard Services"
Modifications to all PTO licences Condition 47.6 Condition 47.6 should be modified so that it commences as follows: "The Licensee shall send the Network Charge Change Notice to the Director and to all Schedule 2 Public Operators with which it has entered into (or offered to enter into) an agreement pursuant to Condition 45.1: (a) in the case of a Competitive Standard Service, not less than one day before the proposed change is to take effect; (b) in
the case of (c) in the case of all other Standard Services, not less than 90 days before the proposed change is to take effect …" Condition 55.4 Condition 55.4 should be modified so that it commences as follows: "Except
in so far as the Director may otherwise consent in writing, t
Draft Consent Telecommunications Act 1984 British Telecommunications plc Consent under Conditions 55.4 and 71 of BT’s licence Whereas: 1. On 22 June 1984 the Secretary of State granted a licence ("the Licence") to British Telecommunications under section 7 of the Telecommunications Act 1984 ("the Act") for the running of the telecommunications systems specified in Annex A to the Licence; 2. By virtue of section 109 of, and paragraph 20 of schedule 5 to, the Act, the Licence has effect as if granted to British Telecommunications plc ("BT"); 3. On 23 December 1997, in accordance with Regulation 4(1) of the Telecommunications (Interconnection) Regulations 1997 (SI 1997/2931), the Director General determined that BT had significant market power in the market for fixed public telephone networks and fixed public telephone services and in the market for leased lines; 4. On 23 December 1997, in accordance with Regulation 8(1) of the Telecommunications (Open Network Provision and Leased Lines) Regulations 1997, the Director General determined that BT had significant market power in the relevant private circuit market for the whole of the United Kingdom other than the Hull area; 5. Condition 55.3 of the Licence provides that BT shall publish by notice information on offerings, technical characteristics, tariffs and supply and usage conditions in respect of Relevant Private Circuits; 6. Prior to its modification on [ ], Condition 55.4 of the Licence required BT to publish the notice referred to in Condition 55.3 by (inter alia) sending a copy to the Director General not less than 28 days before any proposal to introduce any new charge, or to amend any existing charge term or condition or the method of determining the same was to become effective; 7. On 9 May 1999, BT requested a reduction of its publication requirements in respect of charges for the international private leased circuit routes set out in Schedule I hereto ("the intra-EEA IPLC routes"). Such reduction would require that Condition 55.4 be modified, to provide that, except in so far as the Director General may otherwise consent in writing, BT shall publish the notice referred to in Condition 55.3 in the way described in paragraph 6 above. It would also require that, following such modification, the Director General provide his consent under Condition 55.4 to reduction of the notice period required by that Condition from 28 days to one day in respect of charges for the intra-EEA IPLC routes. 8. On 9 June 1999 BT requested relaxation of its obligation to publish tariffs for backhaul circuits. Such relaxation would also require modification of Condition 55.4 as described in paragraph 7 above. It would also require | ||||||||||||||||||||||||||||||||||||||||||||||||||||
