18 July 2001

Contents

Draft Determination under Condition 28.2(a) of BT’s Licence

Summary

Determination Schedule 1

Determination Schedule 2

Explanatory Memorandum

Consultation

Annex A – Non-Geographic Portability Average Porting Conveyance Cost Methodology

Annex B – Geographic Portability Average Porting Conveyance Cost Methodology

Draft Determination

TELECOMMUNICATIONS ACT 1984

PORTABILITY COSTS AND CHARGES

DETERMINATION UNDER CONDITION 28.2(a) OF BT’s LICENCE

WHEREAS:

NOW, THEREFORE, THE DIRECTOR, PURSUANT TO CONDITION 28.2(a) OF THE LICENCE HEREBY DETERMINES THAT:

DAVID ALBERT EDMONDS

DIRECTOR GENERAL OF TELECOMMUNICATIONS

XX XXXX 2001

Summary

S.1 Oftel’s goal is the best deal for customers of telecommunications services in terms of quality, choice and value for money. Competition is most likely to achieve this goal. Central to competition becoming effective is the ease with which customers can switch suppliers. The easier it is to switch supplier the greater the competitive constraint on prices. It is therefore important for consumers to be able to retain the same telephone number when switching supplier.

S.2 Number Portability is a facility that enables customers to retain their telephone number(s) when switching suppliers. The operator-to-operator interconnection charges for providing Portability (for transaction and conveyance) can have a significant impact on the commercial viability of attracting a customer from another operator. High interconnection charges for Portability benefit the Donor Operator (the operator losing the retail customer) and are to the detriment of the Recipient Operator (the operator gaining the retail customer).

S.3 Operators that import a BT customer onto their networks are charged BT’s fully allocated costs (FAC) in providing Portability, i.e. setting up the port and providing onward conveyance thereafter. Similarly, BT pays other operators their FAC in providing Portability when it imports a customer onto its network. However, Oftel proposes to change the cost base for Portability services from FAC to long-run incremental costs (LRIC), as such costs better reflect the basis on which commercial businesses in competitive markets make investment decisions.

S.4 BT’s FAC in providing geographic Portability services were established in Oftel’s determination entitled Number Portability Costs and Charges, January 1997. BT’s FAC in providing non-geographic Portability services were established in Oftel’s determination entitled Non-Geographic Number Portability Costs and Charges, March 1998. Oftel is now seeking to change the costing and charging basis for the provision of fixed Portability interconnection services (both geographic and non-geographic) to the LRIC in providing them. Oftel stated that it would do so in the Guidelines on the Operation of the Network Charge Controls, October 1997. More recently, Oftel reaffirmed that this remained its intention in A consultative document issued by the Director General of Telecommunications setting out proposals for future retail price and network charge controls, October 2000.

S.5 Condition 28.2(a) of BT’s licence requires it to provide its Portability interconnection services to other operators on the same charging basis as it provides other telecommunications services under Condition 69 of its licence unless, inter alia, the Director General determines otherwise. The charges for interconnection services provided under Condition 69 of BT’s licence are based on their incremental costs.

S.6 Oftel proposes to establish the charges for BT’s geographic (fixed at a specific geographic area) and non-geographic (fixed but not related to a specific geographic area) Portability interconnection services on an incremental cost basis. Oftel has set out its view of BT’s reasonable costs and charges in providing fixed Portability using an incremental cost base in Schedule 1 and Schedule 2 to this determination respectively.

S.7 Oftel also proposes to set a charge control for Portability services to limit increases in these charges for four years with effect from 1 October 2001. Oftel proposes to include all the Non-conveyance Standard Service elements of Portability within a ‘basket’ control with the value of ‘X’ set at 5.

S.8 Oftel is seeking comments on the proposed costs and charges for Portability services set out in Schedule 1 and Schedule 2 to this determination, and on its proposals to charge control these services, by 15 August 2001. Respondents are then given a further two weeks until 29 August 2001 for comments on other respondents’ responses.

Determination Schedule 1

Part A – Proposed costs incurred in providing Non-Geographic Portability

1. Per line set-up costs for single line Portability orders

2. Per line set-up costs for block Portability orders

3. Average porting conveyance costs

(i) Freephone

(ii) Local rate

(iii) National rate

(iv) Premium rate

(v) 0844 Calls

(vi) 0871 Calls

Part B – Proposed costs incurred in providing Geographic Portability

1. Per-line set-up costs

2. Average porting conveyance costs

Determination Schedule 2

Part A – Proposed charges in respect of Non-Geographic Portability

1. Charges with respect to per-line set-up costs

2. Charges with respect to per line set-up costs for block Portability orders

3. Charges with respect to the average porting conveyance

Part B – Proposed charges in respect of Geographic Portability

1. Charges with respect to per-line set-up costs

2. Charges with respect to the average porting conveyance

Explanatory Memorandum

1 Introduction

1.1 When the Network Charge Controls – controls on interconnection services – came into effect on 1 October 1997, the cost base and charges for interconnection services moved from fully allocated costs (FAC) to long-run incremental costs (LRIC). This change to costs and charges for interconnection services was introduced to be more reflective of the cost base on which businesses in competitive markets make investment decisions. The Network Charge Controls therefore introduced charges for interconnection services provided for under (then) Condition 13 of BT’s licence based on the incremental costs in providing them. However, for historical reasons, Portability interconnection services were provided for under (then) Condition 34C. Thus, the cost base for Portability interconnection services remained FAC.

1.2 The Director General determined FAC charges for BT’s geographic Portability services in January 1997, and determined FAC charges for BT’s non-geographic Portability services in March 1998. These charges apply today.

1.3 In the Guidelines on the Operation of the Network Charge Controls, October 1997, Oftel stated that it intended to move the costing and charging basis for the provision of Portability interconnection services to the LRIC incurred in providing the services. More recently, in A consultative document issued by the Director General of Telecommunications setting out proposals for future retail price and network charge controls, March 2000, it confirmed that this remained its intention. The Director General may change the cost base to LRIC under Condition 28.2 of BT’s licence.

1.4 Condition 28.2(a) of BT’s licence requires it to provide Portability services to other operators on the same charging basis as it provides other telecommunications services under Condition 69, unless the Director General has determined otherwise. The charges for BT’s telecommunications (interconnection) services provided under Condition 69 have been based on their incremental costs since the Network Charge Controls were introduced on 1 October 1997.

1.5 Oftel would welcome comments on its proposals for the costs for fixed Portability services set out in Schedule 1 and the charges set out in Schedule 2. The costs and charges set out in Schedules 1 and 2 respectively are based on incremental costs.

2 Requirement to provide retail Number Portability

2.1 Condition 28 requires operators to provide Portability for geographic and non-geographic fixed services – including services with special tariffs such as freephone or premium rate services – at the request of their subscribers. This requirement came into effect from 19 January 2000 under The Telecommunications (Interconnection) (Number Portability, etc) Regulations 1999, S.I. 1999 No. 3449, which modified BT’s licence to insert a new Condition 28 concerning Portability. All operators having an equivalent Portability licence condition to Condition 28 in BT’s licence are therefore obliged to provide Number Portability at their subscribers’ requests.

3 BT’s reasonable costs in providing non-geographic Portability services

3.1 Part A of Schedule 1 of the proposed Determination sets out the Director General’s view of the reasonable costs incurred by BT in the provision of non-geographic Portability services. The second sub-paragraph of Article 12(5) of Directive 97/33/EC (the so-called Interconnection Directive) requires pricing for the provision of Portability services to be reasonable to ensure that charges to consumers are ultimately reasonable. This is reflected in Condition 28.2(a). The Director General believes that BT’s reasonable costs for the provision of non-geographic Portability services are the incremental costs in providing the relevant services because these costs are reflective of those that would be likely to prevail in a competitive market. These costs are:

Per line set-up costs: Costs incurred in the provision of switching and administration with respect to each ported number.

Number block Portability: Costs incurred in the provision of switching and administration with respect to blocks of ported numbers.

Average porting conveyance costs: These are the transit costs incurred by the Donor Operator in conveying calls originating ‘off-net’ to a Recipient Operator. This process is essentially the same as the Donor Operator acting as a transit operator in the conveyance of a non-ported call.

System set-up costs: These costs are not recoverable under Condition 28.2(b).

4 Per-line set-up costs

4.1 These costs relate to the provision of switching and administration of each ported number, which include, for example, the costs of changing the number record on the respective platform, and the administrative processes involved.

4.2 The methods of interfacing with the Donor Operator and whether the number is a number originally allocated to BT, or one which is ‘return porting’ to another operator affect the charge for Portability services. For the purposes of single and number block Portability, it can be assumed that only one type of switch is re-configured to enable porting. Hence, costs will not vary as a result of number records being altered over different switches. The technology used to interface with other operators does, however, have a more significant effect on the overall costs.

4.3 Real time routers, which are used for geographic Portability, are not used in the provision of non-geographic Portability, although a similar functionality is provided by means of implementing orders according to both time and date.

4.4 Electronic Data Interchange (EDI), which is used for geographic Portability to interface with other operators, is not available for processing non-geographic Portability orders.

4.5 The processing and implementation of non-geographic Portability orders are relatively labour intensive. Per line set-up costs are incurred for three basic order types:

• Dated orders: where an operator requests Portability for a number on a specified date;
• Dated and timed orders (normal working hours): where an operator requests Portability for a number on a specified date at a specific time within the normal working hours of the Donor Operator; and
• Dated and timed orders (outside normal working hours): where an operator requests Portability for a number on a specified date at a specific time outside of the normal working hours of the Donor Operator.

4.6 BT does not, at present, charge for return porting.

5 Average porting conveyance costs for non-geographic Portability

5.1 These are the transit costs incurred by the Donor Operator in conveying calls that originate ‘off-net’, i.e. on another operator’s network, and are destined for the Recipient Operator’s network. This process is essentially the same as the Donor Operator acting as a transit operator in the conveyance of a non-ported call. If the originating operator is also the Donor Operator, the call would pass directly to the Recipient Operator and the APCC transit costs would not be incurred.

5.2 At present, BT and other operators are unable to determine on a call-by-call basis whether a call to a ported number originated ‘on’ or ‘off-net’, nor can existing interconnect and billing systems accurately record all the transit elements involved in the routing of the call. As a result, some form of averaging is necessary to ensure that the Donor Operator is able to recover any transit costs incurred in the routing of a ported call.

5.3 A full account of the methodology used to calculate the average porting conveyance costs and charges for non-geographic Portability is given in Annex A.

6 BT’s reasonable costs in providing geographic Portability services

6.1 Part B of Schedule 1 of the proposed Determination contains the Director General’s view on the reasonable costs incurred by BT in the provision of geographic Portability services. The Director General believes that BT’s reasonable costs for the provision of geographic Portability services are the incremental costs in providing the relevant services.

Per line set-up costs: Costs incurred in the provision of switching and administration with respect to each ported number.

Multi-line costs: Costs incurred in the provision of switching and administration with respect to multi-line DDI ports.

Average porting conveyance costs: These are the transit costs incurred by the Donor Operator in conveying calls originating ‘off-net’ to a Recipient Operator. This process is essentially the same as the Donor Operator acting as a transit operator in the conveyance of a non-ported call.

System set-up costs: These costs are not recoverable under Condition 28.2(b).

7 Per-line set-up costs

7.1 Under geographic Portability, BT deploys a facility referred to as ‘Real Time Routers’. This facility enables the customer to be disconnected from the Donor Operator’s network and connected to the Recipient Operator’s network in real time.

7.2 In terms of order processing for geographic Portability, operators can interface with BT by fax or Electronic Data Interchange (EDI). The fax-based option is more labour intensive and, therefore, more expensive. However, a number of EDI orders have to revert to manual processes and this increases the average EDI charge.

8 Average porting conveyance costs for geographic Portability

8.1 BT has not previously recovered its average porting conveyance costs for geographic Portability. It had originally deemed that the relevant costs were insignificant and it chose not to recover its costs in the form of an APCC for ported geographic calls. However, it now proposes to do so. The Director General believes that it is reasonable for BT to recover these costs because these costs are similar to those that BT would incur if acting as a transiting operator for a non-ported call.

9 Standard Portability charges for non-geographic Portability services

9.1 Under Condition 28.2(a), BT’s charges for Portability services need to be based on their incremental costs. The Director General’s view on the reasonable level of the charges is set out in Schedule 2 of the Determination.

9.2 BT’s per line set-up costs calculated on a LRIC basis are fully recoverable from the Recipient Operator.

9.3 In relation to number block Portability, the Director General considers that these costs are similar in nature to those incurred in per line set-up and that the Recipient Operator should bear these costs. The determination allows BT to recover its costs in respect of number block Portability.

9.4 The Director General also considers that it is appropriate for the Donor Operator to recover its transit costs in providing Portability services through the average porting conveyance charge. The Director General considers that a transit charge would be incurred if operators were to use a transit operator to convey non-ported calls – a transit charge may therefore be made for the call whether it is to a ported or a non-ported number. The Director General considers that BT may recover these costs in the normal manner. However, it is necessary to average this charge in order to overcome the limitations in BT’s interconnect and billing system.

10.Standard Portability charges for geographic Portability services

10.1 BT’s per line set-up costs calculated on a LRIC basis are fully recoverable from the Recipient Operator.

10.2 Multi-line costs – and therefore the charges – are higher than the costs involved in per line set-up due to additional switching and administration involved.

10.3 BT has put forward a proposal for the recovery of its average porting conveyance costs for geographic Portability. The proposed methodology for calculating the average porting conveyance charge for geographic Portability is based on the methodology used to calculate the APCC for non-geographic Portability. However, for geographic Portability, BT has stated that for each call that originates ‘off-net’ its lost revenue is equal to Single Transit.

11 Setting the charges for fixed Portability services

11.1 The charges for Portability services to apply from 1 October 2001 are based on estimates of the direct labour input required for the various services derived from a BT time and motion study (although full explanations of the calculation of this and of the other data underlying the charges have not been received by Oftel), combined with standard estimates of hourly labour costs for the appropriate grades of staff. An allowance is then made for indirect labour costs, other operating costs, depreciation and the cost of capital. BT has proposed that these should be based on weighted average rates of mark-up over the direct labour cost derived from BT’s accounting data for five "similar product groups" (inland and international directory enquiries, inland and international operator assistance and emergency calls). The Director General has accepted this general approach. However, the Director General has made a number of adjustments to the mark-up rates proposed by BT which have the effect of reducing the charges relative to those proposed by BT.

11.2 The first adjustment is to remove from the mark-up calculation categories of cost that are not relevant to the provision of wholesale Portability services. BT has accepted that "marketing and sales" and "redundancy" (including capital employed in "deferred redundancy") fall into this category. In addition, "short-term investments", "cash at bank" and "daily averaging of cash" have been excluded from capital employed.

11.3 The second main adjustment reflects Oftel’s view that only the additional costs incurred as a result of providing Portability, that is only the long-run incremental costs (LRIC) of Portability are included in the charges. Unlike other interconnection services covered by BT’s main network charge controls, it is not appropriate to apply a mark-up for recovery of common costs to the LRIC of Portability. This is because, in the LRIC methodology, the equal proportionate mark-up applied to the LRIC of network services is intended to recover common costs between conveyance and access. As for price controls purposes the network is defined as a stand-alone inland network of PSTN and private circuits, any common costs between services not included in the model and the inland network are already included in the costs of the inland network. Services (such as Portability) which are outside the model are therefore treated as "marginal" and would not increase common costs within the inland network.

11.4 However, Oftel accepts that the provision of Portability services will cause BT to incur some indirect costs in addition to direct labour costs and that it is appropriate for these to be recovered through charges for Portability. Oftel has estimated the amount of incremental indirect costs by applying, to the average rates of mark-up over direct costs (after excluding irrelevant cost items), a cost-volume elasticity which measures the percentage increase in costs for a given percentage increase in volumes. A cost-volume elasticity of less than 1 indicates that, when the volume of output of a service is increased, or a new service added, costs increase by proportionately less than the increase in output. Oftel has used a cost-volume elasticity of 0.45 for indirect costs, consistent with the value used in setting ‘X’ for Portability and described in more detail below. This has been applied to all the categories of cost which are calculated as mark-ups proportional to direct labour.

11.5 The final adjustment is as follows. The cost, volume and labour time data provided by BT related to a number of different time periods. In order to set the charges to apply from 1 October 2001, the Director General has placed the starting cost data on a consistent time basis and projected them forward to mid year 2001/2 using the forecasting model described in paragraph 12.2.

12 Portability services and charge controls

12.1 Portability services are ‘bottleneck’ services. The Recipient Operator has no choice over the Donor Operator from whom it imports numbers. The Donor Operator, meanwhile, does not have the competitive incentive to reduce its charges because it would not wish to encourage other operators to import its numbers (and hence customers). In addition, BT controls approximately 80% of the access market. It therefore has less reason than other operators do for keeping its charges for fixed Portability services down. For these reasons, the Director General proposes to place charge controls on the Non-conveyance Standard Service elements of BT’s fixed Portability services.

12.2 The Director General is consulting on the draft costs charges set out in Schedules 1 and 2 to this Determination, as well as his proposals to modify Condition 69. Once this Determination has been made, the Director General will then formally consult on proposed modifications to Condition 69 to incorporate proposed charge controls under the Network Charge Control regime. Portability services will be subject to the same requirements as other non-competitive interconnection services, e.g. the requirement to publish charge changes ninety days before they are to become effective. As with other charge-controlled Standard Services, BT will also be obliged to prepare and publish financial information for Portability services. These data should appear in the Financial Statements for 2001/2.

12.3 The forecasting model used to calculate starting charges and proposed values of ‘X’ for Portability services is linked into the financial model of BT which was used in the review of BT’s network charge control. Assumptions about underlying rates of real unit cost reduction (i.e. before volume effects), input price changes and the cost of capital are therefore consistent with those underlying the main network charge control. However, one of the main sources of reduction in the unit costs of network services is growth in traffic volumes over the network, which is not relevant to Portability. Therefore, the projection of Portability costs is based on a forecast of volumes of ports, which then generates projections of unit porting costs via explicit assumptions about cost- and asset-volume elasticities for porting activity. An asset-volume elasticity of 0.43 has been used (based on assumptions used in the Network Charge Control review after removing the effect of growth in minutes per circuit). A cost-volume elasticity of 1 has been assumed for direct labour, whilst for indirect labour and other operating costs, a cost-volume elasticity of 0.45 has been assumed (the latter again based on assumptions used in the charge control review). The forecasts of port volumes are derived from the projections for access line numbers from the charge control review model. Further detail regarding the modelling assumptions used in the charge control review can be found in Proposals for Network Charge and Retail Price Controls from 2001, February 2001.

12.4 Oftel sets the value of ‘X’ so that the value of BT’s rate of return projected by the financial model for the last year of the charge control is equal to the cost of capital. This approximates to the workings of a competitive market in which excess profits are gradually eroded by competition. In general, the value of ‘X’ will reflect the expected rate of reduction in real unit costs over the period as well as the erosion of any excess profits existing at the start of the charge control period. The proposed value of ‘X’ reflects the expected rate of cost reduction, as the charges for number portability services to apply from 1 October 2001 do not contain any excess profits. The Director General proposes to place the Non-conveyance Standard Service elements of both geographic and non-geographic Portability services into a new charge control basket (‘Fixed Portability Non-Conveyance Basket’). The Director General proposes that the value of ‘X’ for this basket should be 5.

12.5 The proposed charge controls are to apply for four years with effect from 1 October 2001. Within the basket control, BT has flexibility to increase or decrease charges in each charge control year as long as the overall control is met. However, the weight of each service within the basket is set according to the revenues received from each service in the prior year. Therefore frequently purchased services will have higher weightings within the basket. The conveyance element of the charges for Portability services should remain in line with the charges for equivalent conveyance services e.g. single transit.

13 Other operators’ Average Porting Conveyance Charges for non-geographic Portability

13.1 BT has expressed concern about the accountability of other Donor Operators’ average porting conveyance charges. The formula set out at Annex A, which is used for calculating an operator’s APCC, will arrive at different charges for different operators. There are two factors that will vary between operators. The first is the cost of conveyance, either because of cost differences between networks or differences in the amount of the network used for conveyance. Obviously, the higher the cost of conveyance, the higher the APCC (all else being equal). The second is the proportion of traffic originating ‘off-net’. This is likely to show considerable variation. The larger the share of the access market the Donor Operator’s network possesses, the more likely it would be that a call to a number ported away from its network will have originated on its network. So for BT one would expect a low proportion of ‘off-net’ calls, and consequently a low APCC. For a network operator with no access network, it would be expected that a high proportion (100%) of ported calls originated ‘off-net’.

13.2 If an operator, when applying the formula at Annex A, works on the basis that all calls originate ‘off-net’ and its conveyance costs are high the APCC would then be high. Charges set by operators that do not possess market power are not normally subject to control by Oftel, the reason being that without market power operators do not have the market position that would allow them to price above cost or sustain anti-competitive behaviour. However, there are certain circumstances when even a non-SMP operator is able to sustain a price above cost.

13.3 The APCC charge appears to be one of those circumstances. The impact of the APCC is to reduce the revenue available for the Recipient Operator, which pays this charge for both geographic and non-geographic calls. So if an operator sets a high APCC, it does not affect its own business. It gains the additional revenue, while others lose that revenue. In addition, there is no competitive constraint on the level of the APCC because there is no choice but to use the Donor Operator’s network as a transit operator if the call does not originate on the Recipient Operator’s network. The originating operator has no realistic or effective choice but to pass the call to the Donor Operator because routing is based on numbering and the originating operator knows that the number has been allocated to the Donor Operator. The Recipient Operator has no realistic choice but to receive the call from the Donor Operator. So while most transit services could be subject to competitive pressures, transit for ported calls (and so the APCC) is not currently subject to competitive pressures.

13.4 An operator with a high APCC could discourage other operators from attracting its customers. The Recipient Operator’s revenues would be low or, perhaps, non-existent. A high APCC could create a barrier to Portability.

13.5 Condition 28.2(a) of licences having the so-called Standard Schedules (S.I. 1999 No. 2450) – or its equivalent in other licences – states that charges for Portability services are always subject to the requirement of reasonableness. If there is doubt about the reasonableness of any charge, the matter may be brought to the Director General’s attention for determination. If in receipt of a determination request, the Director General would need to consider the reasonableness of the relevant charges, and the possibility that the charges could present a barrier to Portability. In principle, the Director General believes that other operators’ charges for the conveyance elements of Portability should be based on BT’s costs.

14 Other operators’ Average Porting Conveyance Charges for geographic Portability

14.1 The Director General believes that other operators could use the same methodology used to calculate BT’s Average Porting Conveyance Charge for transit costs that they similarly incur for geographic Portability.

15 Charges for other operators’ Portability services and reciprocity

15.1 The Number Portability licence condition (which is Condition 28 for those licences having the so-called Standard Schedules or its equivalent in other licences) requires operators’ charges to be based on their incremental costs if the charges made by BT under Condition 69 are set on an incremental cost basis, unless the Director General should determine otherwise. Charges for services provided under Condition 69 of BT’s licence are based on their incremental costs, and the Director General is proposing to determine that charges for BT’s Portability services should be based on their incremental costs. There is a requirement, therefore, for other operators to base their charges for their Portability services on their incurred incremental cost in providing those services.

15.2 Also, Oftel proposed in the October 2000 price control review consultative document that the Non-conveyance Standard Service elements of Portability should be based on the principle of reciprocity. Respondents’ comments were in favour of Oftel’s proposal.

Consultation

Oftel seeks the views of consumers and industry on its proposals by 15 August 2001. There will then be a 2-week period to 29 August 2001 during which comments on the representations made during the first phase of consultation are invited.

Comments on the proposed costs and charges for fixed Portability services set out in Schedule 1 and Schedule 2 of this determination and other issues set out in the Explanatory Memorandum should be sent to:

Mike Galvin
Regulatory Policy
Oftel
50 Ludgate Hill
London
EC4M 7JJ
Tel: 020 7634 8869
Fax: 020 7634 8924
e-mail: mike.galvin@oftel.gov.uk

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.

Annex A

Non-Geographic Portability Average Porting Conveyance Cost Methodology

A.1 These are the transit costs of conveying calls received from an originating operator that are destined for a ported number on a Recipient Operator’s network. The average porting conveyance charge is applied to non-geographic and geographic ported calls. The charging formula is based on existing transit rates and the proportions of non-geographic and geographic traffic (calls) that originate ‘off-net’. An illustrative example of how the Average Porting Conveyance Charge is calculated is set out below.

Example of Calls to Freephone

Total Z

Average = ((a*v)+(b*w)+(c*x)+(d*y)) / Z = AV

A.2 This average is then applied to the tariff gradient to yield the appropriate day, evening and weekend rates for calls to ported numbers:

A.3 The proportion of non-geographic traffic that originates ‘off-net’ is then multiplied by average conveyance costs, which yields the average porting conveyance charge. For example, the percentage of all calls to BT’s non-geographic freephone numbers that originate ‘off-net’ is 26.1%, this results in the following charge:

Taking a simplified example, given that the average transit cost for NTS freephone traffic is 0.3, and if 10% of an operator’s total NTS traffic originates ‘off-net’, this would yield an average conveyance of 0.03. This is then multiplied by the various tariff gradients to obtain the average porting conveyance charge.

Annex B

Geographic Portability Average Conveyance Cost Methodology

A.1 These are the transit costs of conveying calls received from an originating operator that are destined for a ported number on a Recipient Operator’s network. The average porting conveyance charge is applied to non-geographic and geographic ported calls. The charging formula is based on existing transit rates and the proportions of non-geographic and geographic traffic (calls) that originate ‘off-net’. An illustrative example of how the Average Porting Conveyance Charge is calculated is set out below.

For the recovery of the Average Porting Conveyance Charge for geographic Portability all calls are assumed to be Single Tandem Transit only.

This transit rate is then multiplied by the proportion of geographic traffic that originates ‘off-net’, which yields the inadvertent porting transit conveyance charge. For example, if the percentage of all calls to BT’s geographic numbers that originate ‘off-net’ is 10%, the following charges result:

The proposed charges for BT are based on 30.58% of calls to BT’s geographic numbers being originated ‘off-net’. This results in the following charges: