A consultation document issued by the Director General of Telecommunications

May 2000

Contents

Summary

Chapter 1 Introduction

Chapter 2 Background

                 Introduction

                 International developments

                 The accounting rate regime

                 One-way bypass and whipsawing

                  Potential cost to UK operators and consumers of one-way bypass and whipsawing

Chapter 3 Conditions 59 and 60 – Proportionate Return

Chapter 4 Condition 61 – Information about accounting rates

Chapter 5 Condition 62 – Accounting separation

Chapter 6 Condition 63 – Maintenance of effective competition

Chapter 7 Conclusions

Consultation

Annex A Part H of the PTO Licence

Condition 59

Condition 60

Condition 61

Condition 62

Condition 63

Annex B List of WTO members which gave commitments to the Global Agreement on Trade in Basic Telecommunications Services

Glossary

Summary

Oftel’s overall goal is achieving the best deal for consumers, and Oftel believes that competitive markets are the best way of achieving this goal. Markets which are effectively competitive deliver quality, choice and low prices.

Oftel’s strategy 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 markets has grown substantially since the full liberalisation of international telephony in 1997. Accordingly, Oftel is considering whether it is able to reduce the regulatory obligations on Public Telecommunications Operators (PTOs) which conduct international business.

This Consultative Document considers the case for removal or relaxation of each of the international conditions currently in PTO licences. The questions considered, on which views are invited, include the following:

• Proportionate return conditions (conditions 59 and 60). Does the Director General still need a reserve power to require proportionate return of traffic in order to protect against ‘one-way bypass’ by dominant overseas operators?

• Information about accounting rates (condition 61). Is it still necessary for accounting rates to be notified to Oftel and other operators (as required by this condition) and/or published, to prevent ‘whipsawing’ by dominant overseas operators?

• Accounting separation (condition 62). Is competition in the UK threatened by potential cross subsidy between an operator’s international business and its other business? If so, is the accounting separation condition a necessary and/or effective way of allowing Oftel to investigate such practices.

• Maintenance of effective competition (condition 63). Is this condition still required in light of the powers conferred on the Director General by the Competition Act 1998?

If, having considered the responses to this Consultative Document, Oftel considers it appropriate to relax controls on international telephony traffic, Oftel will then take steps to implement such changes.

Chapter 1

Introduction

1.1 This Consultative Document considers whether increasing competition in international markets means that the controls on international business comprised in Part H (conditions 59 to 63) of the licences of all Public Telecommunications Operators (PTOs) can be removed or relaxed in line with Oftel’s strategy. The full text of the conditions under consideration in this Consultative Document is attached at Annex A. They are referred to in this document as the ‘international conditions’.

1.2 In 1999 a large number of changes were made to PTO licences to implement the EC Licensing Directive (97/13/EC). These changes had the effect of extending all licences to cover both domestic and international facilities. As a result, all PTOs are now authorised to provide both domestic and international services, including International Simple Voice Resale services (ISVR). However, operators who only offer ISVR can alternatively register for a separate ISVR licence.

1.3 The international conditions of PTO licences stem mainly from the IFL and ISVR licences. They were introduced to promote competition on international routes and also to protect UK consumers from potential anti-competitive practices. In particular, Oftel sought to ensure that dominant far-end operators would not be able take advantage of the liberalised UK market to the detriment of UK operators and consumers.

1.4 Since full liberalisation of the UK international market in 1997, the market for international telecommunications services has changed dramatically, with the cost of installing international networks falling steeply and the emergence of numerous new operators. Thus, at present, it is estimated that more than 50 ISVR operators and 20 to 30 PTOs are active in the international market. The growth in competition in international markets was considered in detail by Oftel in its November 1999 Consultative Document – Competition in International Markets.

1.5 In the light of this increasing competition, Oftel is re-examining the international conditions in PTO licences to ensure that they do not have the unintended effect of stifling competition on international routes. Oftel has already received a number of representations from operators questioning the continued need for all or some of the conditions and seeks, in this Consultative Document, to address these concerns.

1.6 Oftel’s analysis involves consideration each of the following questions in relation to the conditions being reviewed:

(a) What risk does the condition address?

(b) In the light of increasing competition in international markets, is this risk still present?

(c) Is the condition effective? In particular, is it or can it be effectively implemented and enforced?

(d) Is the condition proportionate? In particular:

• does the benefit of retaining the condition (in its existing or an amended form) justify any compliance costs and/or any potential distortion of competition to which it may give rise; and

• could the same benefit be achieved in a less restrictive way?

1.7 In this way, this Consultative Document aims to ensure that, in accordance with the principles of the EC Licensing Directive, the international conditions are objectively justified and proportionate.

1.8 As has been noted, certain of the conditions (namely, conditions 59, 60 and 61) aim to prevent dominant far-end operators taking advantage of competition in the UK to the detriment of UK operators and consumers. In order to assess the value of these conditions Oftel has therefore considered (at Chapter 2 of this Consultative Document) the extent to which this risk is still present and the potential cost to UK consumers of such practices by foreign operators. This must be weighed against the costs of retaining the conditions.

Comments are invited on all the questions posed in this Consultative Document. Respondents are also invited to comment on any issues not covered which they think are relevant.

The licences which are the subject of this consultation

1.9 The main purpose of this consultation is to review the international conditions in the PTO licence. However, certain of the international conditions (namely, conditions 59 and 63) are also contained, in almost identical terms, in the existing ISVR licence. This licence has not yet been amended in line with the Licensing Directive, but is currently under review and will shortly be modified. If, following this consultation, Oftel proposes to modify conditions 59 and/or 63 of PTO licences then it is anticipated that similar modification will also be made to the ISVR licence.

Oftel therefore welcomes comments from those on the register for ISVR licences, on the issues raised in respect of conditions 59 and 63 of the PTO licence (which correspond to conditions 15 and 16 of the current ISVR licence).

Chapter 2

Background

Introduction

2.1 This chapter aims to describe the major developments in competition in international markets since the introduction of IFL and ISVR licences in the UK and to explain the accounting rate system (through which most international traffic is still terminated). It also examines the potential ways in which – where the far end market is not yet competitive – a dominant far end operator can use its position to the detriment of UK operators and consumers. It was largely in order to guard against such practices that the international conditions were originally introduced into the IFL and ISVR licences. Finally, this chapter considers the extent to which such practices still present a significant risk to UK operators and consumers.

International developments

2.2 Over recent years, competition in international markets has grown substantially in the UK, Europe and throughout the world. In the UK, the BT/CWC duopoly in international markets was partially ended with the introduction of ISVR licences in 1992, followed by full liberalisation with the introduction of International Facilities Licences (IFL) in 1997.

2.3 Elsewhere, two major milestones on the trend towards liberalisation were achieved in 1998. First, most EU telecommunications markets were fully liberalised from the beginning of that year. Secondly, the World Trade Organisation’s Agreement on Basic Telecommunications Services came into force in February 1998, with 75 countries making commitments on liberalisation of basic telecommunications services

1998 EU Liberalisation

2.4 The European Commission has adopted a number of Directives aimed at securing liberalisation of the EU telecommunications market from 1 January 1998. These Directives set out detailed rules which Member States must apply in the telecommunications sector, governing voice telephony, interconnection, licensing etc.

2.5 As a result of these Directives, most EU telecommunications markets were fully liberalised from the beginning of 1998.

WTO Agreement on Basic Telecommunications Services

2.6 On 5 February 1998 the World Trade Organisation (WTO) Global Agreement on Trade in Basic Telecommunications Services came into force (known as the Fourth Protocol to the General Agreement on Trade in Services). This followed lengthy negotiations on the liberalisation of trade in telecommunications transport networks and services (referred to as ‘basic telecommunications’). The Fourth Protocol provided a framework for the gradual liberalisation of market access and also established a framework of basic regulatory principles (such as measures to prevent anti-competitive behaviour and non-discriminatory and timely provision of interconnection and cost-oriented rates).

2.7 At the close of negotiations, in February 1997, 69 governments had submitted commitments to the Fourth Protocol, and three WTO members who had not originally participated later submitted commitments. These countries are listed in Annex B. Such commitments oblige the country concerned to provide market access and national (‘most favoured nation’*) treatment for the service activity in question on the terms and conditions specified in that country’s schedule.

[*That is, unless it has an exemption, a member must treat the services or service suppliers of every other member as favourably as those of any other country – member or not.]

2.8 Although these countries’ commitments to the Fourth Protocol are now binding, commitments for many services are to be phased in gradually. Actual implementation is therefore only due to take place on the date specified in the relevant country schedule. Of the governments which have submitted commitments, 63 commit to the competitive supply of voice telephony (immediate or phased in), and 59 of these make such commitments in respect of international services.

The accounting rate regime

2.9 From the point of view of UK operators and consumers, one of the principal advantages of the liberalisation of international markets is that it encourages the reduction of international accounting rates since it allows operators to bypass the accounting rate system altogether.

2.10 The accounting rate system was developed at a time when international telecommunications services were supplied through bilateral correspondent relationships between national monopoly carriers. Accounting rates, or ‘correspondent arrangements’ were the usual basis for setting charges between monopolistic international operators for the delivery and termination of international calls. Under this system, traffic is carried by the originating operator to a notional mid-point on the route and then handed over to the terminating operator. The charge made by the terminating operator is known as the settlement rate, and the sum of the settlement rates in each direction (together with any transit charges) is known as the accounting rate. Usually the two settlement rates are identical, and accounting rates are uniform across the time of day and type of call. A reconciliation is made between the operators at the end of each time period and a payment is made only on the balance of the net traffic flows.

2.11 The level of accounting rates is usually substantially above the costs which carriers incur to terminate the traffic concerned. It is therefore in the interests of the operators with a net inflow of traffic to maintain this system, because of the large payments they receive for terminating calls. The high cost of accounting rates is ultimately passed on to consumers, who consequently often pay artificially high prices for international services conveyed under accounting arrangements.

2.12 There are a number of ways in which carriers can avoid paying high accounting rates. In particular, where permitted, a carrier may route international switched traffic to a correspondent network in the far country using international private circuits, thereby avoiding the accounting rate system. This method is used by operators which offer ISVR. Despite the potential for operators to use ISVR, however, most traffic is still terminated using the accounting rate system, especially where the far end country is not yet liberalised.

2.13 It was expected that the 1998 EU liberalisation and February 1998 WTO Agreement on Basic Telecommunications Services would bring about a rapid reduction in settlement rates as new operators in newly liberalised regimes put competitive pressure on prices using alternative, cheaper methods of terminating calls (such as self-termination and ISVR). However, although accounting rates have fallen in recent years, they have done so more slowly than costs have fallen.

One-way bypass and Whipsawing

2.14 Where far end markets are not yet fully competitive, there is the potential for dominant far-end operators to exploit their market power to the detriment of UK operators and consumers. There are two main ways in which they may do this. These are often referred to as ‘whipsawing’ and ‘one-way bypass’.

Whipsawing

2.15 ‘Whipsawing’ describes the situation where foreign monopoly carriers use their market power to move accounting rates in the direction which is favourable to them and detrimental to the UK, taking advantage of competition in the UK by pitting competing UK carriers against one another.

2.16 The foreign monopolist would achieve this by threatening to route all of its outgoing traffic to the UK operator offering it the best deal on accounting rates. If it is a net recipient of traffic (which will be the case for most far-end operators as far as the UK is concerned), the foreign operator will try to raise the accounting rate in this way. Alternatively, it might attempt to change the division of the accounting rate, getting outpayment equal to cost, and receipt substantially in excess of cost.

2.17 In this way, foreign monopolists can exploit the fact that UK carriers unwilling to pay the settlement rates they demand would lose inbound traffic on those routes to UK competitors who were willing to pay the accounting rate demanded, and there are no alternative ways of terminating international traffic. Whipsawing thus drives up the cost to UK carriers of terminating international traffic in foreign markets and, potentially, the prices paid by UK consumers.

2.18 Foreign carriers cannot generally whipsaw UK operators if they lack market power at the foreign end of the route, as the UK operator can respond by entering an agreement with a different foreign carrier on the route.

One-way bypass

2.19 One-way bypass describes the situation where a foreign monopoly operator bypasses the accounting rate system when sending traffic to the UK, but UK operators are compelled to pay high settlement rates to terminate traffic in the monopoly operator’s country.

2.20 One-way bypass is a particular risk where the foreign country does not permit ISVR or where its regulation of ISVR makes it difficult for UK operators to terminate ISVR on the route. ISVR is an international service provided by an operator to customers, using the international facilities owned by other operators. In the case of an outgoing call, the operator collects traffic from the public telecommunications network (usually by indirect access using a 1xxx code or an 0800 number), transfers it to a line leased from a facilities operator, and then hands it over to a Public Telecommunications Operator in an overseas country who will deliver the call to its destination. It therefore involves breakout onto the public telecommunications network at both ends, but with the international leg of the call being carried on leased circuits. ISVR traffic bypasses the accounting rate system.

2.21 The potential for one-way bypass thus occurs where foreign carriers are able to send traffic into the UK at low rates via ISVR, but UK carriers are not able to send traffic out of the UK using ISVR and must instead send traffic via the traditional accounting rate system.

2.22 One-way bypass can also come about where a foreign operator is granted a PTO licence in the UK (authorising it to provide international services), but is a monopolist, or is dominant, in its own market. Such an operator may use its PTO licence in the UK to route all incoming traffic to its own subsidiary, bypassing the accounting rate system. UK operators, however, have no choice but to send their outbound traffic to the foreign operator, and can therefore still be required to pay high settlement rates.

Potential cost to UK operators and consumers of one-way bypass and whipsawing

2.23 Whipsawing and one-way bypass will generally only be feasible where the far end operator enjoys market power and/or the foreign country does not permit the accounting rate system to be bypassed (eg by means of ISVR). Clearly, as international markets become liberalised, there will therefore be less potential for such practices.

2.24 Oftel notes that the US Federal Communications Commission (FCC) has recently considered the extent to which US carriers are at risk from one-way bypass or whipsawing by foreign carriers in light of the increasing liberalisation of international markets. It concluded that its international settlements policy (ISP) which aims to address this risk (requiring, amongst other things, proportionate return of inbound traffic) could be removed completely on a selection of routes. The FCC thus appears to consider that these selected routes present no significant threat of one-way bypass or whipsawing. The routes concerned are Canada, Denmark, France, Germany, Hong Kong, Ireland, Italy, the Netherlands, Norway, Sweden and the United Kingdom. [See the FCC’s Report and Order on reform of the international settlements policy of 15 April 1999 and the FCC’s List of international routes that satisfy criteria for relief from the international settlements policy, of 29 July 1999].

2.25 Oftel does not consider it possible to estimate accurately the extent to which accounting rates are or may in future be artificially inflated by whipsawing. However, Oftel has attempted to quantify the potential costs to the UK of one-way bypass by overseas operators on non-WTO routes. Although the calculations are necessarily very rough, Oftel estimates that the maximum potential cost to the UK of one-way bypass by such operators is in the region of £30 million per year. This represents around 17% of revenue receipts from overseas operators for incoming international calls and roughly 7% of total international revenue from retail customers and overseas operators.

2.26 This rough figure has been arrived at by multiplying the total incoming traffic on each route, by the relevant settlement rate (thus attempting to quantify the maximum potential loss to UK operators if all traffic which they currently receive from such routes were terminated by alternative means). A figure of £108 million was then deducted from this total figure. £108 million is an estimate of the revenue which UK operators could be expected to continue to receive for the provision of call termination services to foreign operators on such routes.

2.27 It should be noted that:

• only non-WTO routes have been considered, on the ground that these are the only routes on which the proportionate return conditions (which aim to prevent one-way bypass) are currently triggered (condition 59 has not been specified to apply on any routes, and condition 60 has been lifted for all WTO routes). If operators on WTO routes are engaging in one-way bypass then this is a cost which is already being incurred and which would not therefore be affected by removal of conditions 59 and 60. Although removing these conditions would have a cost in terms of taking away the Director General’s reserve power to deal with one-way bypass by operators on WTO routes, this has not been taken into account for the purposes of this calculation;

• Oftel has only be able to take into account data for BT and CWC. However, Oftel understands that most traffic on non-WTO routes is likely to be carried by one of these two operators;

• all current incoming traffic from non-WTO routes has been presumed to be potentially subject to one-way bypass (thus quantifying the maximum potential loss);

• it has been presumed that settlement rates paid by UK operators to foreign operators would remain unchanged;

• in estimating the revenue which UK operators could be expected to continue to receive for call termination services to foreign operators on these routes, it has been assumed that the pattern of network usage is the same on WTO and non-WTO routes, and for BT and CWC. It has also been assumed that BT and CWC make the same charges for call termination. The figure was calculated using a weighted average call termination charge (averaging the different charges made at different times of day); and

• in order to arrive at an annual figure, it has been assumed that the effects of one-way bypass are likely to be the same in each quarter.

Views are invited on whether, in light of increasing competition in international markets, whipsawing and one-way bypass are considered still to pose a risk to UK operators and consumers and, if so, the extent of this risk.

Chapter 3

Conditions 59 and 60 – Proportionate Return

The main provisions of the conditions

3.1 Conditions 59 and 60 relate to proportionate return for ISVR services and international conveyance services respectively. They are included in the licences of BT and Concert as well as those of other licensed operators. The full text of conditions 59 and 60 is attached at Annex A to this Consultative Document.

Condition 59

3.2 Condition 59 applies only if the Director General issues a notice informing the Licensee that it shall apply. He may do this if it appears to be "requisite or expedient … in the interests of maintaining or promoting effective competition" with one or more countries which deliver more Messages to the UK by ISVR than are sent from the UK to that country by ISVR.

3.3 Generally condition 59 is intended to be applied (if at all) to all ISVR operators on a particular route – as the abuse of competition will relate to the route. However, it can be applied to a single operator where this will remedy the identified abuse.

3.4 If the condition is applied, the Director General will specify a ‘reference ratio’. The reference ratio will be a forecast of the ratio of inbound traffic over the periods specified. ISVR operators will then be required to ensure that the ratio of inbound to outbound ISVR traffic carried is no greater than the reference ratio. If, for example, the reference ratio were set to 0.8 on a route, in each period specified, each operator could only carry inbound traffic by up to 80% of the volume of outbound traffic on the route in a period.

Condition 60

3.5 Condition 60 applies to International Conveyance Services to any country outside the EEA other than as specified by the Director General or Secretary of State. It provides that (unless the Director General consents otherwise in writing) for each Accounting Rate Service the ‘First Ratio’ may not exceed the ‘Second Ratio’, where:

(a) the First Ratio is the volume of Messages comprised in each Accounting Rate Service which are delivered to the UK by the Applicable Systems divided by the volume of all Messages comprised in each Accounting Rate Service delivered to the UK; and

(b) the Second Ratio is the volume of all Messages comprised in each Accounting Rate Service which are sent from the UK by the Applicable Systems divided by the volume of all Messages comprised in each Accounting Rate Service which are sent from the UK.

3.6 If the requirement is breached, the Director General may direct the Licensee to remedy the situation (eg by ceasing to convey messages to the country concerned). Unlike condition 59, which will usually apply to all ISVR operators on a specified route, under condition 60 the Director General may make determinations aimed at particular operators.

Extent to which the conditions are triggered

3.7 In practice, condition 59 is not currently triggered on any routes as the Director General has not specified any on which it should apply. As far as condition 60 is concerned, the Secretary of State has consented to the lifting of its proportionate return requirement for all WTO routes.

What risk do the conditions address?

3.8 Proportionate return is aimed at preventing dominant far-end operators from exploiting their position, in particular, by one-way bypass.

3.9 Thus, condition 59 can only be applied where there is evidence of potential one-way bypass of the accounting rate (ie where a disproportionate amount of traffic inbound to the UK is carried by ISVR, bypassing the accounting rate). Such an imbalance in ISVR traffic may occur where ISVR is not allowed at the far end, which makes it difficult or impossible for UK operators to terminate outgoing ISVR traffic on the route.

3.10 Oftel has stated that, when making the decision whether to apply this condition, the Director General will also take into account other factors such as the level of competition on the route. Indicators of a high degree of competition might include: low accounting rates (or other termination rates); a lack of entry barriers; a significant number of IFL and/or ISVR operators on the route; and open regulatory regimes at both ends of the route (see Oftel’s Explanatory guide to the standard licence to run branch systems to provide international simple voice resale services, 31 December 1997).

Is this risk still present?

3.11 The extent to which one-way bypass still presents a risk to UK consumers and operators and the potential cost to the UK of such practices is discussed at Chapter 2 above.

Can the conditions be effectively implemented and enforced?

3.12 Some operators have commented on the difficulty of complying with conditions 59 and/or 60. In particular, they have argued that:

• the multiplicity of operators at the UK end makes it impossible to maintain a proportionate balance between incoming and outgoing traffic;

• the definitions of ‘First Ratio’, ‘Second Ratio’ and ‘Accounting Rate Service’ in condition 60.4 mean that, if a different accounting rate is agreed for calls of a specific type (eg mobile) then separate proportionate return arrangements are needed for each type;

• it is impossible for any operator to calculate the ‘First Ratio’, except several months in arrears once the Oftel market information update is available;

• implementation of proportionate return in respect of any WTO country would infringe the WTO Agreement on Basic Telecommunications Services.

Are the conditions proportionate?

3.13 As has been discussed, the conditions are not currently triggered on WTO routes (or non-WTO routes, where condition 59 is concerned). The main benefit of retaining them is therefore that they give the Director General or Secretary of State a reserve power to invoke them if necessary (to the extent that they can be effectively implemented, see above) to deal with potential abuses by dominant overseas operators. The potential for such abuses by overseas carriers is discussed at Chapter 2.

3.14 The cost of invoking the conditions, on the other hand, would be the potential distortion of competition to which such bundling of traffic flows would give rise. Oftel agrees with the view of the FCC that the markets for inbound and outbound traffic have different attributes, so a potentially effective entrant in one might be less effective in another. Accordingly, the existence of a proportionate return requirement, which creates a regulatory link between inbound and outbound traffic markets, may have the effect of distorting competition. [See the FCC’s Report and Order on Reform of International Settlements Policy (IB Docket No. 98-148), available on the FCC’s website at www.fcc.gov/ib/td/pf/account.html].

Options for action

Comparison with other liberalised markets

3.15 In considering the options for action, Oftel has noted recent deregulatory measures taken in New Zealand and the United States in relation to proportionate return.

3.16 The New Zealand government has repealed entirely its reserve power to impose a proportionate return requirement on overseas operators, on the ground that it considers the risk of one-way bypass to have substantially reduced.

3.17 The FCC, on the other hand, has removed its proportionate return requirement for:

(a) settlement arrangements between US carriers and foreign carriers that lack market power (market power is presumed where they have a market share above 50%); and

(b) all settlement arrangements on routes where US carriers are able to terminate their traffic in the foreign market at rates that are at least 25% below the relevant ‘settlement rate benchmark’* (as this is taken to indicate that the foreign carrier faces competitive pressures which prevent it from abusing its position).

* [The ‘settlement rate benchmarks’ are rates, prescribed by the FCC, which US carriers may pay foreign carriers to terminate US originated traffic. They aim to reduce settlement rates to a level which is closer to cost].

Possible courses of action

Option 1: Retain the conditions

3.18 If the risk of abuse by overseas operators is thought still to be unacceptably high then Oftel would suggest retaining conditions 59 and 60 in their present form. Although they are not currently triggered on the routes over which most traffic passes, their retention would allow them to be invoked if evidence of one-way bypass which was detrimental to the interests of UK consumers were to come to light.

Option 2: Remove the conditions

3.19 If the risk of abuse by overseas operators is thought to be low (compared to the compliance and other costs of invoking the proportionate return conditions) then Oftel would suggest removing conditions 59 and 60 entirely.

Option 3: Revise the conditions

3.20 If proportionate return provisions are thought still to be desirable, then a further alternative would be to revise conditions 59 and 60 to require proportionate return (or allow the Director General to require proportionate return) only in certain circumstances where one-way bypass is a genuine risk. Such a revised condition could take a similar approach to that taken by the FCC requiring,, for example, proportionate return only for settlement arrangements with foreign carriers possessing market power in non-competitive markets.

Views are invited on whether the power to require proportionate return of traffic is still necessary to protect against one-way bypass by dominant overseas operators.

Chapter 4

Condition 61 – Information about accounting rates

The main provisions of the condition

4.1 Condition 61 obliges Licensees to disclose to the Director General and certain other operators, information concerning their accounting rates. It applies to all operators offering international services over international facilities. The full text of condition 61 is attached at Annex A to this Consultative Document.

4.2 Broadly, the condition provides that:

• Licensees must not enter into or vary an agreement for the provision of International Conveyance Services with a person running a telecommunication system outside the EEA where the agreement relates to "international accounting methods, rates and divisions" without first notifying the Director General. The condition applies to agreements or arrangements "other than as specified from time to time by the Director or the Secretary of State" (C61.1). No such specifications have yet been made.

• Licensees must inform:

            (a) the Director General; and

            (b)all other holders of a licence to provide International Conveyance Services who are operating or have announced an intention to operate on that route,

• The Director General may direct a Licensee not to enter into or vary such an agreement or arrangement where he considers that the agreement would be or is liable to prejudice the interests of providers and users of International Conveyance Services in the United Kingdom (C61.3). To date, no such determinations have been made.

Publication by Oftel

4.3 Following Oftel’s Consultative Document of September 1997 on the collection and publication of international call information, Oftel indicated (in its follow-up Statement of July 1998) that it will collect and publish quarterly the following information on the prices agreed between operators for the termination of international calls:

(a) for liberalised and potentially liberalised routes –all accounting rates for BT and for all well established international operators on each route (this will now apply to operators determined as having ‘Market Influence’ on a route);

(b) for routes not liberalised –all accounting rates or other agreements between UK operators and the operators at the far end of the route.

4.4 The last published table of accounting rates was for the month of October 1999. In practice little data for licensees other than BT and CWC is published as most of the routes on which such licensees have accounting rate agreements in place are ‘liberalised’ routes. The rates of Cable and Wireless Communications (CWC) are not currently published on liberalised routes. This is because Oftel is currently reviewing whether CWC has Market Influence, within the meaning of condition 56 of its licence, on international routes. Once this review is complete, (and subject to the outcome of this consultation on international controls in PTO licences) CWC’s rates will be published for all routes on which the Director General determines that CWC has Market Influence.

What risk does the condition address?

4.5 Disclosure of information about accounting rates may serve three functions:

(a) it gives the Director General information necessary for the detection of whipsawing. If the Director General considered whipsawing to be taking place he could direct the Licensee not to enter into an agreement (or to vary an agreement) with the overseas operator;

(b) it allows the Director General and UK operators to identify anti-competitive behaviour by UK operators in the setting of accounting rates (for example, predatory price-setting aimed at preventing entry on to a particular route); and

(c) it reduces the information asymmetry between the incumbents and new entrants, reducing the uncertainty for potential entrants and thus accelerating the development of competition.

Are these risks still present?

Whipsawing

4.6 The extent to which whipsawing still presents a risk to UK consumers and operators and the potential cost to the UK of such practices is discussed at Chapter 2 above.

Anti-competitive behaviour

4.7 The potential for anti-competitive behaviour cannot be eliminated entirely. However, once international routes become effectively competitive, there may no longer be a need for special licence provisions to deal with such behaviour.

4.8 In its March 2000 Statement on Competition in International Markets Oftel concluded that the 23 routes considered for retail international calls were effectively competitive (in the business market) or increasingly competitive (in the residential market); that the 26 routes considered for wholesale international calls were effectively competitive; and that 19 of the 22 routes considered for international private leased circuits (IPLCs) were increasingly competitive.

4.9 It should also be noted that in the July 1998 statement on the collection and publication of international call information Oftel decided not to publish accounting rate information for operators without significant market power (SMP) on a given route when that route has been liberalised, or is expected to be liberalised shortly. The Statement asserts that "[t]his change reflects Oftel’s view that, since [non-SMP] operators are unlikely to be able to affect adversely the market on [liberalised or potentially liberalised] routes, publication of their accounting rates would restrict and not increase their ability to compete effectively". It is inconsistent with this reasoning that such licensees are still required to notify other licensees of their accounting rates on such routes under condition 61.2.

Information Asymmetry

4.10 Similarly, there will always be asymmetry of information between incumbents and potential market entrants. However, it may no longer be necessary to have special licence provisions to address this if there is effective competition on international routes. This would be in line with Oftel’s strategy of ceasing to promote competition where there is effective competition. It would also be consistent, at least where operators without SMP on liberalised or potentially liberalised routes are concerned, with Oftel’s decision not to publish accounting rate information for such operators on such routes.

Can the condition be effectively implemented and enforced?

4.11 Some operators have commented that condition 61 is unclear and that it is impractical for operators to comply with it. In particular, it was remarked that:

• Condition 61.1 applies to agreements or arrangements "establishing or relating to international accounting methods, rates and divisions", whereas condition 61.2 applies to "any correspondent arrangement with an overseas operator". Neither of these terms is defined. Accordingly, it is not clear whether operators who enter into non-reciprocal arrangements, or who enter into individual agreements with overseas operators, would be covered by the requirements of the condition.

• It is impractical to comply with the obligation in condition 61.2 to notify other operators of correspondent arrangements (not least because it is often difficult to identify the operators to be notified). Some operators suggested that if publication is thought to be necessary, it would be more practical for Oftel to publish this information.

Is the condition proportionate?

4.12 The benefits of the condition are:

• it allows Oftel to identify and deal with potential whipsawing by dominant overseas operators. This risk is discussed at Chapter 2.

• it helps prevention and detection of anti-competitive behaviour by UK operators; and

• it reduces information asymmetry between incumbents and potential market entrants.

4.13 However, there are also substantial costs attached to retaining the condition. First, the obligation to notify the Director General and other licence holders of accounting rates imposes certain compliance costs on operators. Secondly, notification of other operators of accounting rates (and Oftel’s publication of BT’s accounting rates) may have detrimental effects on competition. In particular:

(a) it may result in operators competing less aggressively. Publication of accounting rates means that operators have a clear knowledge of a significant component of their competitors’ costs, which may have a dampening effect on competition. The greater uncertainty which would result from the absence of publication would put more pressure on UK operators to compete on price;

(b) it may also impede operators’ ability to negotiate lower settlement rates with overseas operators. Foreign operators may be reluctant to agree reduced settlement rates with UK operators if the UK operator is required to publish the agreed rate to other operators (as they will fear this becoming the benchmark in negotiations with all their correspondents).

Options for action

Comparison with other liberalised markets

4.14 Oftel notes that in the United States the FCC has:

• removed its contract filing requirements for settlement arrangements between US carriers and foreign carriers that lack market power; and

• allowed for arrangements to be filed on a confidential basis on routes where they have removed the international settlements policy (that is, routes where US carriers are able to terminate their traffic in the foreign market at 25% below the relevant settlement rate benchmark).

Possible courses of action

4.15 As has been noted, Oftel has stated that it will not publish accounting rates for operators without SMP on a given route when that route has been liberalised or is expected to be liberalised shortly (see Oftel’s July 1998 Statement on the collection and publication of international call information). Accordingly, Oftel is of the view that it must, at the very least, amend condition 61.2 so as not to require such operators to inform other licensees of their correspondent arrangements on such routes (otherwise condition 61.2 defeats the object of Oftel’s July 1998 Statement). Oftel considers it unlikely to be appropriate to leave condition 61 in place unamended. The options for dealing with condition 61 which Oftel considers most feasible are set out below.

Option 1: Determine that condition 61.1 shall not apply to competitive routes, and remove condition 61.2 entirely

4.16 Oftel does not consider it necessary to collect or publish accounting rates on routes which are competitive. Accordingly, one option would be:

(a) determine that condition 61.1 shall not require licensees to notify the Director General of accounting rate agreements on competitive routes; and

(b) to remove entirely the requirement in condition 61.2 that operators notify each other of their correspondent arrangements.

4.17 This would retain the obligation to notify the Director General of accounting rate agreements under condition 61.1 on non-competitive routes outside the EEA. It would then be for the Director General to decide whether or not to publish this information. He could either:

• continue to publish BT’s accounting rates, or start to publish all operators’ accounting rates, on these routes – thus allowing the market to monitor potential whipsawing; or

• stop entirely the practice of publishing accounting rates (on competitive and non-competitive routes). This would overcome the competitive distortions to which publication gives rise (as discussed in paragraph [4.13] above). However, it would leave the onus on Oftel to identify potential whipsawing by overseas operators.

Option 2: Remove the whole condition

4.18 If the risk of whipsawing and anti-competitive practices is thought to be sufficiently low, Oftel could seek to remove condition 61 entirely. If this action were taken, the Director General would no longer be notified of accounting rates – even on non-competitive routes – and would lose the power to direct licensees not to enter into such agreements or arrangements.

Views are invited on whether the provisions of condition 61 are still necessary to deal with potential whipsawing. In particular, on routes which are not yet competitive, is it still necessary:

• for all or some operators to notify the Director General of accounting rates; and/or

• for Oftel to publish accounting rates?

Does the benefit of such measures in helping to prevent whipsawing outweigh the costs in terms of the potential competitive distortions and compliance costs? Oftel would welcome details of costs currently incurred by operators in order to comply with this condition.

Chapter 5

Condition 62 – Accounting separation

The main provisions of the condition

5.1 Condition 62 provides that the Licensee must maintain accounting records which deal separately with its International Business carried on in the UK so that, if requested by the Director General, it can show transactions between that International Business and:

(a) any other business carried on by the Licensee; or

(b) the business of any Associated Person.

5.2 The records must be updated monthly and show costs, revenue, assets employed in and liabilities attributable to the International Business. They must also show any ‘material’ item of revenue, cost, asset or liability which has been:

(a) charged from or to any other business of the Licensee or Associated Person; or

(b) determined by apportionment or attribution from an activity common to the business of the Licensee or an Associated Person.

5.3 The Director General may request copies of any of these accounting records, which must be provided within 28 days.

5.4 International Business is defined as "the provision of telecommunication services consisting in the conveyance of Messages to countries or territories outside the UK …. carried on under a Licence and includes the running of such parts of the Applicable Systems as are used for the provision of those services …"

5.5 Associated Person is defined as "any member of the Licensee’s Group or a person with a Participating Interest in a member of the Licensee’s Group or in whom a member of the Licensee’s Group has a Participating Interest". ‘Participating Interest’ is defined by reference to section 260 of the Companies Act 1985, but will generally include a shareholding of 20% or more.

5.6 The condition does not apply to BT (which is required to keep separate accounts for each ‘Business’ as defined by condition 78 of its licence) or Concert (which has to make detailed provision for separate accounting of different ‘Businesses’ under condition 67 of its licence). The full text of condition 62 is attached at Annex A to this Consultative Document.

What risk does the condition address?

5.7 This condition is intended to allow Oftel to investigate allegations of unfair subsidy or cross-subsidy between an operator’s International Business and its other business. In particular, if Oftel were to suspect that an operator was leveraging market power in an overseas market by, for example, cross-subsiding its UK international operations (thus distorting competition in the UK), the condition would allow Oftel to collect the accounting information it would need in order to investigate.

Is this risk still present?

5.8 There is still the potential for overseas operators to subsidise their UK business. However, it is arguable that this is not anti-competitive unless the operator enjoys market power. If so, such cross-subsidy could amount to an ‘abuse of a dominant position’ contrary to the Chapter II prohibition of the UK Competition Act 1998 or Article 82 of the EC Treaty (although for these prohibitions to apply the dominant position must be held in the UK or ‘within the common market’ respectively).

Can the condition be effectively implemented and enforced?

5.9 Some operators have commented that the scope of some of the terms used in the condition is unclear. In particular, the definition of ‘International Business’ is thought to be ambiguous, with one operator commenting that it is unclear whether ‘transit services’ (ie the provision of services between Country A and Country B, transiting through the UK without breakout onto the UK’s public switched network) would be considered ‘International Business’ for these purposes. Other terms which raise some doubt as to their scope include ‘accounting records’, ‘annual accounts’ and ‘material’. Largely because of the ambiguity of many of the terms in condition 62, it is also arguable that information required to be kept by this condition is not entirely reliable.

5.10 Operators also commented that they were unclear whether the condition required them to split individual calls between their national and international business.

Is the condition proportionate?

5.11 The benefit of the condition is that (to the extent it is effective – see above) it enables Oftel to collect information showing the extent to which operators subsidise their UK international business. However, this must be considered in light of the compliance costs to which it gives rise, and of whether this objective could be achieved in less burdensome ways.

Compliance costs

5.12 Clearly, accounting separation obligations impose some compliance costs on operators, and some operators have suggested that this burden is disproportionate to the potential harm which the condition addresses. It has also been suggested that this is a particular burden for smaller companies which tend to integrate their national and international businesses.

Can the same benefit be achieved in a less burdensome way?

5.13 Some operators have stated that if the condition is aimed at preventing cross subsidy, it is unnecessary to impose it on operators who lack dominance or market influence. If it is not thought necessary to require non-dominant operators to maintain accounting separation it may be possible to rely on the less onerous provisions of condition 33 to obtain information about their international business (if required).

5.14 Alternatively, the condition could be amended to require records to be kept of a more limited (and useful) set of financial information which could be obtained at route level (eg revenues, direct costs and gross margins).

Options for action

Option 1: Retain the condition and/or amend it to be less ambiguous/require more useful information

5.15 If the potential harm to which cross-subsidy by overseas operators may give rise is thought to be substantial compared to the compliance costs which condition 62 entails, and to arise whether or not the operator concerned is dominant, then the best option may be to leave condition 62 in place or to amend it such that it is less ambiguous and requires more useful information to be collected.

Option 2: Qualify the condition with a market influence/dominance test

5.16 If the potential harm which condition 62 addresses is thought to be substantial compared to the compliance costs, but to arise only where the operator concerned is dominant or has market influence, then the best option may be to qualify condition 62 with some kind of test of market power. It may also be necessary to amend it such that it is less ambiguous and requires more useful information to be collected.

Option 3: Remove the condition

5.17 If, on the other hand, it is thought that the potential harm which condition 62 addresses is not substantial, condition 62 could be removed entirely (relying on condition 33 to obtain information when necessary).

Views are invited on whether the risk which condition 62 addresses, as described, is thought to be significant, and accordingly on whether condition 62 should be:

• retained (with or without amendment);

• qualified by a market influence or dominance test; or

• removed entirely.

Chapter 6

Condition 63 – Maintenance of effective competition

The main provisions of the condition

6.1 Condition 63 applies where the Licensee or any Associated Person "is the operator of any telecommunication system or provides telecommunication services in a country or territory outside the UK". It provides that the Director General may make a determination where it appears to him that "as a result of any act or omission of the Licensee either by itself or with or through any Associated Person competition in the provision of any telecommunication service … in the UK is being or is likely to be restricted, distorted or prevented".

6.2 ‘Associated Person’ is defined as any member of the Licensee’s group, or a person with a Participating Interest in a member of the Licensee’s Group, or in whom a member of the Licensee’s group has a Participating Interest. ‘Participating Interest’ is defined by reference to section 260 of the Companies Act 1985, but will generally include a shareholding of 20% or more.

6.3 Where the Director General makes a determination under this condition, the Licensee must take such steps as directed to remedy the situation (including, for example, complying with any other condition, such as the conditions requiring publication of charges, terms and conditions or undue discrimination and undue preference).

6.4 The condition also requires the Licensee to keep records of agreements with Associated Persons and of any services, money or other things transferred or supplied by or to any Associated Person.

6.5 The condition applies to all PTOs offering international services over international facilities. The full text of condition 63 is attached at Annex A to this Consultative Document.

What risk does the condition address?

6.6 This condition enables the Director General to put an end to any activity which he considers is anti-competitive. The condition formerly supplemented condition 31 of the PTO Licence, ‘the Fair Trading condition’ (the FTC). However, following the coming into force of the Competition Act 1998 on 1 March 2000, the FTC ceases to apply to agreements and conduct that would otherwise be in breach of both the FTC and the Competition Act. Accordingly, this chapter considers only the principal differences between condition 63 and the relevant provisions of the Competition Act.

Removal of the FTC

6.7 Any changes to the PTO licences which might emerge from this informal consultation, will be made following a statutory public consultation under the procedure set out in section 12 of the Telecommunications Act 1984. In that event Oftel would intend to take the opportunity also to put to statutory consultation a proposed removal of the FTC from the PTO licences.

Persons subject to the provision

6.8 Condition 63 applies where it appears to the Director General that competition in the UK is or is likely to be restricted, distorted or prevented as a result of any act or omission of the Licensee by itself or with or through any Associated Person. Thus, although it is acts or omissions of the Licensee which trigger the condition, it appears that the Licensee may be held liable for Associated Persons.

6.9 The Competition Act applies, broadly, to anti-competitive agreements between undertakings and conduct which amounts to an abuse of a dominant position by an undertaking. For these purposes undertakings which form a single economic unit (eg parent and subsidiary) are considered a single undertaking. Accordingly, an undertaking may be liable under the Competition Act for the acts of an ‘Associated Person’.

Anti-competitive agreements

6.10 Condition 63.2 would appear to apply to potential anti-competitive agreements:

(a) between the Licensee/Associated Person and a third party; and

(b) between the Licensee and an Associated Person.

6.11 Section 2 of the Competition Act (known as ‘the Chapter I prohibition’) prohibits anti-competitive agreements between undertakings. This would clearly cover agreements between the Licensee or an Associated Person and a third party but would not cover agreements between the Licensee and an Associated Person (as members of the same corporate group would be considered a single undertaking for these purposes).

Anti-competitive conduct

6.12 Condition 63 may apply to any act or omission of the Licensee with the requisite effect on competition (whether or not the Licensee is dominant).

6.13 If there is no agreement between undertakings (or decision by an association of undertakings or concerted practice), on the other hand, then the Competition Act will only apply if the conduct amounts to an abuse of a dominant position within the UK or a substantial part of it. Amongst other things, the undertaking concerned would therefore have to be dominant.

Appreciable effect

6.14 Condition 63 does not require that the effect on competition be appreciable. On the other hand, an appreciable effect on competition is required by the Chapter I prohibition of the Competition Act. The Director General of Fair Trading has taken the view that an agreement will not generally have an appreciable effect on competition for the purposes of the Chapter I prohibition if the parties’ combined share of the relevant market does not exceed 25 percent (DGFT’s Guidelines "The Chapter I prohibition", para 2.19).

Exemption criteria

6.15 There are no formal exemption criteria under condition 63 (although the Director General’s power to make a determination is discretionary).

6.16 The Competition Act provides exemptions for, broadly, agreements which contribute to improving the provision of any goods or services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit (Competition Act, s9). The Competition Act also provides various exclusions (eg, for agreements which are the subject of a direction under section 21(a) of the Restrictive Trade Practices Act 1976 and mergers qualifying for investigation under the Fair Trading Act 1973).

Consistency with EC competition law

6.17 The provisions of the Competition Act must be applied consistently with EC competition law (Competition Act, s60). Condition 63 does not provide that its application must be consistent with UK or EC competition law.

Extraterritorial application

6.18 Condition 63 applies to acts or omissions as a result of which competition in the UK is being or is likely to be restricted, distorted or prevented.

6.19 The Competition Act applies to:

• "agreements between undertakings … which may affect trade within the UK and have as their object or effect the prevention, restriction or distortion of competition within the UK" (Competition Act, s2(1)); and which are or are intended to be "implemented in the UK" (s2(3)); and

• conduct which amounts to the abuse of a dominant position within the UK and which may affect trade within the UK (s18(1) and (3))

6.20 Thus, condition 63 is wider in terms of jurisdiction. Unlike the Competition Act, condition 63 does not require that the agreement must be implemented in the UK or that the company’s dominant position must be in the UK, it simply requires an effect on competition to be felt in the UK.

Remedies

6.21 If the Licensee breaches condition 63 the Director General may make a determination requiring the Licensee to "take such steps as the Director may direct for the purpose of remedying the situation".

6.22 If the prohibitions in the Competition Act are breached the Director General may:

• give directions to bring the infringement to an end;
• give interim measures directions during an investigation; and
• impose fines on infringing undertakings of up to 10 percent of UK turnover.

6.23 Third parties who consider that they have suffered loss as a result any unlawful agreement or conduct may also have a claim for damages in the courts.

Is this risk still present?

6.24 The risk of anti-competitive agreements or conduct cannot be eliminated, even on markets which are effectively competitive. However, it is necessary to consider whether this risk can be adequately dealt with by the provisions of the Competition Act.

Can the condition be effectively implemented and enforced?

6.25 There would not appear to be any particular problems associated with enforcement of condition 63.

Is the condition proportionate?

6.26 The main differences between condition 63 and the provisions of the Competition Act are set out above. Condition 63 would only appear to be proportionate if it allows legitimate regulation of activities which would not be covered by the Competition Act.

6.27 The situations which might be covered by condition 63, but are not covered by the Competition Act appear to be:

(a) anti-competitive agreements between members of the same group where there is no dominance;

(b) anti-competitive conduct where there is no dominance;

(c) anti-competitive agreements which restrict, distort or prevent competition in the UK but are not implemented or intended to be implemented in the UK; and

(d) abuse of a dominant position where the dominant position is held outside the UK, but the effect is felt within the UK.

6.28 It is Oftel’s view that, where the party concerned is not dominant, agreements between different members of its group (covered by (a) above), or unilateral conduct by that party (covered by (b) above) cannot generally present a threat to competition. As far as (c) and (d) above are concerned, these situations do represent a theoretical threat to UK competition. However, Oftel considers that the jurisdiction conferred on the Director General by the Competition Act will usually be sufficient to deal with agreements or practices by overseas operators which have an effect in the UK:

• First, as a matter of practice, Oftel considers it unlikely that it would take enforcement action in respect of agreements which are not implemented in the UK. To do so would be inconsistent with the approach to extra-territorial jurisdiction in Competition law matters which was adopted in the Chapter I prohibition of the Competition Act.

• Secondly, where an overseas operator abuses a dominant position held in its home market, with an effect on trade in the UK, it is likely that the Director General will still have jurisdiction to deal with this under the Competition Act. This is because the operator is likely also to be dominant in the UK market for services to (and from) that country. The operator would therefore satisfy the test of having a dominant position in the United Kingdom (although clearly this will depend upon the relevant market definition in each case).

Options for action

Option 1: Retain the condition

6.29 If it is thought that condition 63 guards against genuine threats to competition which do not fall within the Director General’s jurisdiction under the Competition Act, then Oftel would suggest leaving the condition in place in its current form.

Option 2: Remove the condition

6.30 However, if it is thought that all significant threats to competition in the UK can be dealt with using the mechanisms provided for by the Competition Act 1998 then Oftel would suggest removing condition 63 entirely. It is Oftel’s view that the Competition Act provides the Director General with sufficient powers to deal with anti-competitive agreements and practices which have an effect on competition in the UK. This is therefore Oftel’s preferred option.

Views are invited on whether condition 63 provides protection against significant threats to competition which do not fall within the jurisdiction of the Director General under the Competition Act.

Chapter 7

Conclusions

7.1 This Consultative Document sets out the issues which Oftel is considering in deciding whether it is appropriate to amend, relax or remove the international conditions in Part H of PTO licences. In particular, it has examined:

(a) the risk which each condition addresses;

(b) the current extent of such risk;

(c) the efficacy and proportionality of each condition; and

(d) options for action.

7.2 Views are invited on all of the issues discussed in relation to each of the conditions. In light of responses, Oftel will set out its views, in the context of its strategy of achieving the best deal for consumers through effective competition. If Oftel considers that licence modifications are required, and they are deregulatory, then it will seek to make such modifications using the statutory procedure provided for in section 12 of the Telecommunications Act, following proposed amendments to be made by the Electronic Communications Bill currently progressing through its Parliamentary stages.

Consultation

Oftel seeks the views of operators, service providers and consumers on the proposals contained in this Consultative Document by 28 June 2000. There will then be a further 2 week period during which comments on the representations made during the first period of the consultation are invited. This will end on 12 July 2000. Comments are invited in particular on questions highlighted in the text of the document.

Comments should be submitted to:

Beverley Blakeney

Oftel

50 Ludgate Hill

London EC4M 7JJ

Tel: 020 7634 8828

Fax: 020 7634 8949

or e-mail

Written comments will be made publicly available in Oftel’s Research and Intelligence Unit, except where respondents indicate that their response, or part of it, is confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly marked 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, which must be made in advance, can be arranged by ringing: 020 7634 8761.

This document is also available at Oftel’s Internet website at http://www.oftel.gov.uk.

Oftel would like to set up a link between this Consultative Document and any responses placed on respondents’ own Internet pages. Please contact Jo Hamilton at Oftel on 020 7634 8755 or by e-mail to arrange this. Confidential responses should not be sent via the Internet.

Oftel has a free e-mail based mailing list to help people stay informed about the work that Oftel is doing. Each time an Oftel document is published and placed on Oftel’s website (http://www.oftel.gov.uk) subscribers to the list receive an e-mail informing them about the document. If you would like to join please use the electronic form on the website to add yourself to the list. There is a link to the form from the What’s New section of the site.

Alternative Formats

Copies of the full Consultative Document are available on disk.

The Summary is available in large print, Braille, and tape formats.

Please contact the Oftel Research and Intelligence Unit on 020 7634 8761, or by e-mail , or call textphone 020 7634 8769 for more information.

ANNEX A

Part H of the PTO Licence

PART H: REQUIREMENTS RELATING TO OPERATORS WITH AN INTERNATIONAL BUSINESS

Condition
59

PROPORTIONATE RETURN IN RESPECT OF THE PROVISION OF INTERNATIONAL SIMPLE VOICE RESALE SERVICES

59.1 This Condition applies where the Licensee acquires or has acquired an International Simple Resale Bearer Circuit from another person holding a Licence and provides International Simple Voice Resale Services by means of it and, for the purposes of this Condition, the Licensee shall not be treated as acquiring or having acquired an International Simple Resale Bearer Circuit only as a consequence of having acquired a Private Leased Circuit between the Applicable Systems and a telecommunication system run by another person who has acquired an International Simple Resale Bearer Circuit.

59.2 This Condition shall apply only:

(b) if the Director has:

59.3 Any notice given under sub-paragraph 59.2(b)(i) or 59.2(b)(ii), shall appear in a list kept by the Director and made available by him for inspection by the general public.

59.4 In respect of each country or territory specified in a notice given under sub-paragraph 59.2(b)(i) as varied by a notice (if any) given under sub-paragraph 59.2(b)(ii), the Licensee shall ensure that in each such period specified the ratio between:

shall not be greater than the reference ratio for that country or territory specified in the notice.

Condition
60

PROPORTIONATE RETURN IN RESPECT OF INTERNATIONAL CONVEYANCE SERVICES

60.1 This Condition shall apply in respect of International Conveyance Services provided to any country and territory in the world outside the European Economic Area and other than as specified from time to time by the Director or the Secretary of State.

60.2 Except insofar as the Director may otherwise consent in writing, the Licensee shall ensure (using the most up-to-date information available) that over each quarterly period for each Accounting Rate Service the First Ratio shall be no greater than the Second Ratio.

60.3 Where it appears to the Director that in respect of any country or territory the obligation imposed by paragraph 60.2 is being breached, he may make a determination to that effect and the Licensee shall take such steps as the Director may direct for the purpose of remedying the situation. In particular, and without prejudice to the generality of the foregoing, any such direction may require the Licensee to cease to convey any Messages to that country or territory.

60.4 In this Condition:

Condition
61

INFORMATION TO THE DIRECTOR ABOUT INTERNATIONAL ACCOUNTING RATES ETC

61.1 The Licensee shall not enter into or vary any agreement or arrangement (nor remain a party to any such agreement or arrangement, or agreement or arrangement so varied) with a person running a telecommunication system authorised in any country or territory in the world outside the European Economic Area and other than as specified from time to time by the Director or the Secretary of State for or with a view to the provision of International Conveyance Services being an agreement or arrangement establishing or relating to international accounting methods, rates and divisions unless it