Contents

DIRECTION UNDER THE PROVISIONS OF REGULATION 6(6) OF THE TELECOMMUNICATIONS (INTERCONNECTION) REGULATIONS 1997 OF A DISPUTE BETWEEN BRITISH TELECOMMUNICATIONS PLC ("BT") AND THE OPERATORS LISTED IN THE SCHEDULE OVER BT’S PROPOSAL TO INCREASE ITS NTS DISCOUNTS WITH EFFECT FROM 1 SEPTEMBER 2000

WHEREAS:

THEREFORE:

Pursuant to Regulation 6(6) of the Regulations, and having considered the views of the parties and those matters set out in Regulation 6(8) of the Regulations, the Director makes the following direction to resolve the dispute between BT and the operators listed in the Schedule:

KEITH LONG
DIRECTOR OF COMPLIANCE

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

3 September 2001

Explanatory Memorandum

Chapter 1

Summary

1.1 The Director General of Telecommunications ("the Director") has issued a direction in accordance with the provisions of Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 for the resolution of a dispute between BT and each of the operators listed in the Schedule attached to the direction under the terms of their Interconnect Agreements. The direction sets out the level of discounts to be applied to each operator’s interconnect charges for Number Translation Services (NTS) with effect from 1 September 2000.

The facts

1.2 BT issued an Operator Charge Change Notice (OCCN) to other operators on 7 July 2000, proposing an increase in NTS discounts from 11.75% to 16.8% to take effect from 1 September 2000. The proposal was rejected by the operators listed in the Schedule to the direction and BT referred the dispute to Oftel on 1 November 2000. Oftel has consulted on its draft decision and has considered the responses received in making this final direction.

The considerations

1.3 In reaching his decision in this dispute, the Director has considered all of the arguments put forward by BT and the operators. The main arguments of the operators may be summarised as follows:

1.4 The details of the Director’s considerations of this dispute are set out in Section 5 of this document. In summary, the Director considers that the fact that BT has introduced new discount packages, inclusive call allowances (ICA) and has updated existing packages, is sufficient to support the proposition that the rates of discount applicable to NTS calls should be recalculated. However, the methodology currently used to calculate NTS discounts reflects assumptions which, though appropriate at the time when the old NTS system was introduced, are no longer sustainable. In particular, there is no longer, under the new NTS scheme, any close linkage between the published prices for geographic and non-geographic calls. In addition, there are now sufficient differences between local and national NTS calls to warrant the calculation of separate discount rates for each (see paragraph 5.18).

The decision

1.5 Having considered all of the matters discussed in Sections 4 and 5 of this document, the Director’s decision is that, with effect from 1 September 2000, the discounts applied to local NTS calls (0345/0645/0845) made by BT customers should be 14.8% and to national NTS calls (0541/0870/0990) should be 2.4%. The Director has made no direction in relation to the ‘new NTS’ number ranges, 0844 and 0871. Consequently, discounts applied to calls to 0844 and 0871 numbers should continue at 11.75%, being the rate in effect before BT’s review, pending any further direction by Oftel of the actual discounts to be applied to these calls.

1.6 Any over or under payments resulting from these changes will be subject to interest at the ‘Oftel Interest Rate’ as set out in Clause 13.13 of the BT Network Charge Control Standard Interconnect Agreement (SIA).

Chapter 2

Background

Description of the NTS regime before 1 January 2000

2.1 The term Number Translation Services ("NTS") describes a range of specially tariffed services, primarily used for telemarketing, which operate within the number ranges 080X/0500 (Freefone), 0345/0645/0845 (local call fee access or LCFA), 0541/0870/0990 (national call fee access or NCFA) and 08xx/09xx (Premium Rate Services or PRS). These services are offered at specific price points in order that customers calling from any fixed network will be able to associate the number range with a particular pricing arrangement. For example, 080X/0500 calls are free to the caller.

2.2 In January 1996, following a detailed consultation, Oftel published the determination of Interim Charges for BT’s Initial Standard Services for the year ending 31 March 1996. This determination established a formula for the financial arrangements which should apply to Number Translation Services where the call originated on one operator’s network and terminated on another. This formula prescribed that:

where:

P was the actual retail price charged by the originating operator to the customer;

C was the pence per minute charge for conveyance over a single tandem segment of BT's network (as determined in the 1996 determination) multiplied by the number of minutes of the call, plus an uplift to allow for retail costs incurred by the originating operator in handling these calls;

D was the Deemed Retail Price for the call and was:

NB: Please note that this direction relates only to local and national NTS calls. Any references to Freefone and PRS are for illustration only.

2.3 The principle underpinning the NTS formula was that originating operators should be able to cover their costs if they set prices at the deemed level. The effect is that terminating operators receive what is left from the retail price after the originating operator’s costs have been deducted. (In the case of Freefone calls the retail price is zero, so that there is a net payment from the terminating operator to the originating operator. The balance of the terminating operator’s revenue derives from the charges made to its own customers (ie the service providers to whom calls are passed) for terminating calls.

Changes to the NTS regime from 1 January 2000

2.4 In December 1999, Oftel published its "Statement on the Relationship between Interconnection Charges and Retail Prices for Number Translation Services". This followed a lengthy discussion and consultation exercise in response to a general industry view that the NTS formula constrained the ability of terminating operators to exercise sufficient control over their NTS revenues. The new regime was intended to allow terminating operators to establish the price at which they would be remunerated for NTS calls. This price would then be added to BT’s regulated call origination charge plus any transit charges to establish the retail price for their service. However, although operators select a retail price for calls to their services, their outpayments are subject to BT’s NTS discounts.

2.5 This new regime applies to all NTS calls including those where the retail prices are the same as BT’s local and national retail call prices. Services priced at up to five pence per minute use numbers in the 0844 range and services priced at up to ten pence per minute use 0871 numbers. Traditional services on 0345/0645/0845 and 0541/0870/0990 are still priced at local and national rates respectively. These traditional services will be referred to simply as 0845 (or LCFA) and 0870 (or NCFA) in the remainder of this document.

OCCN Process

2.6 Clause 13 of BT’s SIA describes the process used by operators, including BT, for offering and amending charges in payment for access to another operator’s services, including NTS. Where BT (as an originating operator) proposes to change either its retail price or its interconnect charge for call origination (in a way which results in a change to the price paid to the terminating operator for terminating calls) it issues an Operator Charge Change Notice (OCCN).

2.7 Similarly where a terminating operator proposes a change to its terminating payment it issues an OCCN to BT seeking the new payment.

2.8 The operator receiving the OCCN has 14 days to decide whether to accept or reject the new charge and to notify the originator of the OCCN. Failure to notify within 14 days signals a rejection of the proposal. Where the proposal is rejected, both operators have a further 14 days to settle the resultant dispute. If after this second period the dispute remains unsettled, either operator may refer the dispute to Oftel. On referral of a dispute, the Director is under an obligation to carry out a full investigation and take steps to determine the outcome within six months.

Chapter 3

History of the Dispute

Prior history

3.1 On 30 January 1996 Oftel published the determination of Interim Charges for BT’s Initial Standard Services for the year ending 31 March 1996. This determination described the original NTS formula at Annex 6 and is discussed at paragraph 2.2 above.

3.2 Addendum 8 to the determination prescribed that, for NTS, the Deemed Retail Price should be: in the case of Lo-call services (0345) and Nationalcall (0990) services, the retail price charged by the ONO for local or national calls (exclusive of VAT), as the case may be, minus the ONO's average discounts for such calls based on the ONO's average revenue figures (or, if the ONO's discounted price was greater than BT’s adjusted retail price for that call minus 6.5%, then BT’s adjusted retail price minus 6.5%).

3.3 On 12 November 1996, Oftel published the determination of Interim Charges for BT’s Standard Services for the year ending 31 March 1997 in which, at Addendum 6, the determined discount for local and national rate NTS calls was increased to 7.5%.

3.4 Although the determinations applied to access to BT’s services, the principles set out were adopted by other operators for their charges to BT for access to their NTS services.

3.5 On 13 November 1998 and 3 February 1999 BT issued OCCNs proposing changes in payments to terminating operators for local and national NTS calls resulting from a re-calculation of the contemporaneous average NTS discounts of 11.45% with effect from 9 January 1999 and 11.75% with effect from 1 April 1999 respectively. A number of operators rejected BT’s proposals and both disputes were referred to Oftel for determination. Oftel concluded, in determinations issued on 13 September 1999, that BT’s NTS discounts should be increased by the amounts and on the dates proposed by BT.

The present dispute

3.8 On 7 July 2000, BT issued an OCCN to operators proposing a further increase to its NTS Discount from 11.75% to 16.8%, with effect from 1 September 2000. (This was the first increase in the discount since the introduction of the ’new NTS’ arrangements earlier that year.) This increase was to take account of discounts applied during the third quarter of the financial year 1999/2000.

3.9 In common with its earlier OCCNs, BT had simply presented operators with a revised discount figure without any supporting calculations. The reason given by BT for not providing such supporting data is that it uses information from its billing database. BT regards such information from its billing database as commercially sensitive and does not wish to make it available to its competitors.

3.10 Given the significant level of the increase and the negative effect it has on NTS terminating payments, operators were reluctant to accept BT’s figures without assurance of their accuracy and relevance. Furthermore, operators argued that BT’s ability to change the level of discounts from time to time undermined one of the main objectives of the new arrangements, namely, to give terminating operators greater control over their NTS revenues.

3.11 Accordingly, a number of operators either rejected, or did not respond to, BT’s OCCN. The resulting dispute was referred to Oftel by BT on 1 November 2000. Oftel notified the relevant operators of the reference and sought any comments. Those that were received have been considered in making this direction.

Chapter 4

Responses received to the draft direction

A number of responses were made to the Director. These are broadly summarised below.

BT

4.1 BT generally accepted Oftel’s proposals to use NTS only discounts.

4.2 BT believes that Schools Internet Caller (SIC) charges are based on NTS principles and that if this service is to be excluded from NTS discount calculations then BT may have to consider revising its termination rates to reflect the non-NTS nature of these calls. Furthermore this exclusion and its impact upon discounts must be accounted for in BT’s overall cost recovery and should be considered in the context of the separate NTS Retail Uplift consultation.

4.3 Gross revenues used to calculate discounts must also exclude SIC otherwise the discount will be understated by 0.2%.

Transparency

4.4 BT does not believe that it would be appropriate to use the Financial Statements to provide transparency, since the information underlying the calculations is likely to be commercially sensitive. BT proposes including an explanatory letter of the principles used, with future revisions and will show Oftel its proposals shortly.

Revising present arrangements

4.5 BT argues that it has not been able to amend discounts more regularly because of the time taken by Oftel to resolve previous disputes. BT proposes submitting discounts information to Oftel regularly, say twice a year, for ratification through a formula that does not need regulatory intervention. OCCNs can then be issued to normal timescales. The mechanics and timing of this needs to be addressed.

OLO Opt-out

4.6 BT believes that this would cause additional consumer confusion and add to costs in administering twice as many charge bands which will need to be recovered from operators.

Kingston

4.7 Kingston recommends a separate consultation on how future changes should be implemented and suggests BT’s discounts are time-tabled in advance and the proposals reviewed and agreed by Oftel prior to OCCNs being issued.

4.8 Kingston supports OLO opt-out as current arrangements undermine the aims of ‘new NTS’ by removing control of revenues from operators. Operators’ ability to change charge bands to compensate for increasing discounts is unrealistic owing to the operational difficulties in doing so. This would also increase consumer confusion as prices fluctuate.

4.9 Kingston argues that BT’s discount schemes are overly complex, restrictive and act against the interests of consumers. In addition they already allow for the exclusion of some services from its discounts. Kingston submitted that BT’s billing system is able to identify NTS ranges and individual geographic numbers to which discounts are excluded. Its recent moves to exclude geographic ISP numbers from its Talk Together and Talk and Surf offerings are an example.

Thus

4.10 Thus echoes many of Kingston’s comments adding that operator 0844 and 0871 services should be discount optional. However, Thus says that it would be difficult to apply this to traditional 0845 and 0870 based services.

Cable & Wireless

4.11 C&W said that Oftel’s attempt to re-evaluate the methodology for calculating the average discount figure does not go far enough. Oftel needs to determine a discount rate for all price points which is consistent with its December 1999 statement on the ‘new’ regime for NTS. In this, where BT is originator, Oftel should ensure that no more than the value of C is retained. Overestimates of the applicable discount for any price point allow BT to retain an amount in excess of the applicable C. C&W believes that there is a significant risk of overestimating the applicable discounts in Oftel’s methodology.

4.12 C&W asks that Oftel states which discount schemes were in force and the level of discounts available at that time. (NB: This has now been provided and can be found at Annex A).

4.13 C&W welcomes the split between LCFA and NCFA discounts given that NCFA calls are excluded from many discount schemes but says that the linking of 0844 calls with the LCFA discount and of 0871 calls with the NCFA discount is not justifiable. In particular, C&W says that 0844 calls are excluded from many of the discount schemes which apply to LCFA calls.

4.14 C&W asked Oftel to investigate why certain price points opened by BT for BT’s own services have been excluded from discount schemes (eg g2, g5, g8 and i3) yet BT has chosen not to do the same for competitors’ services.

4.15 C&W argued that Oftel needs to provide transparency and further justification for how BT’s ICA within the residential line tariff and BT Together is incorporated into the discount figure. C&W believes that the ICA provides BT with an opportunity to retain money from originating NTS calls which is not justified. As such, the ICA should not contribute to the calculation of the applicable discount figure.

4.16 C&W welcomes Oftel’s assessment that greater transparency of BT’s calculations in setting its discount figure is needed in the future to avoid what are inevitable Oftel referrals in the future. However, Oftel must recognise that it has a key role to play in providing this transparency. This direction should establish an appropriate methodology for calculating discounts for different price points moving forward. Furthermore, Oftel should set out clear principles on how ICAs should be dealt with in the discount methodology.

4.17 C&W suggests that future changes to applicable NTS discounts should follow this forward-looking methodology. BT should not be able to increase discounts applicable to NTS calls or change the rules on which discounts apply to any NTS price point without consulting the industry.

4.18 C&W welcomes Oftel’s comments on the need for operators to be able to opt-out of BT’s discount schemes where they so choose so that terminators can truly control the retail price for access to their services. There is no justification for BT to block requests to opt-out and Oftel should take immediate action to address this.

4.19 C&W observes that if a BT customer were to obtain a copy of the BT Price List it may struggle to identify which NTS number ranges are eligible for which discount schemes.

4.20 C&W is also concerned by BT’s discount rate for calls to NTS Premium Rate Services number ranges. This issue is not relevant to this direction but may need addressing later.

Energis

4.21 Energis is heavily critical of the time to resolve this dispute and argued further that the current processes for proposing changes to BT’s discounts are inadequate and always lead to disputes. These are then resolved retrospectively leaving operators unable to construct firm contracts with their Service Providers. Energis suggests this could be addressed by:

4.22 Energis is concerned about how the ICA is taken account of. Operators have no idea to what extent BT’s customers use their ICA and whether the whole amount should therefore be included in the discount calculation. It was suggested that calls to BT’s own services should count first and those to operators’ services afterwards in order to minimise the effect on LCFA calls. Energis is also concerned about the competitive effects of BT’s increasing use of the ICA as a bundled tariff.

4.23 Energis supports Oftel’s opt-out proposals and believes this should be allowed at single number level despite portability etc issues which Energis believes are not insurmountable.

Your Communications (formerly Norweb)

4.24 Your Communications gave a brief response echoing concerns about the OCCN process which inevitably leads to disputes and suggesting that a more mechanical and regular method be applied. It was also concerned at the lack of transparency in BT’s calculations.

Easynet

4.25 Easynet echoed other operators’ comments regarding timing of future reviews, transparency and opt-outs except to request that any pre-determined review intervals should not be too frequent.

Redstone

4.26 Redstone supports the split of LCFA and NCFA discounts. It is concerned at the undermining of operators’ control of their revenues through varying discount levels and welcomes a separate consultation on operators’ ability to opt-out of BT’s discounts. Redstone also suggests that future discount proposals should be reviewed by Oftel before being issued as OCCNs.

4.27 Redstone further believes that BT’s discounts to its customers are provided at operators expense through reduced outpayments. The use of the new NTS principles to vary retail prices is impractical and operators should be allowed to opt-out.

Chapter 5

The Director General’s decision and reasons

5.1 Oftel has approached this decision on the basis of the ‘new NTS’ scheme as it is currently constituted. Although one of the objectives of the scheme is to give terminating operators greater control of their revenues, it is not open to Oftel to prevent BT from periodically reviewing its discounts solely on the grounds that such a review impacts adversely on the revenues of terminating operators.

5.2 The Director has been asked to make a direction in respect of the dispute that has been referred to him by BT, which in this case is to decide whether the discounts proposed are reasonable. Nevertheless, this case does suggest that there may be some aspects of the NTS scheme where further improvements may be possible: Consideration of these are outside the remit of this direction but two such proposals are discussed in Section 7 below.

How Discounts were calculated by BT

5.3 The method used by BT to calculate the level of discounts for any telephony package entails measuring the total retail revenue, net of discounts, collected by BT for all local and national (geographic and NTS) calls made in the period concerned. This is compared with the gross revenue that would be associated with the ‘headline’ retail price of the calls. This direction takes account of discounts applied during the period 1 October 1999 to 31 December 1999. The data to support BT’s proposal was the most up-to-date information available to BT at the time.

5.4 For NTS discounts, BT identifies gross revenues, gross discounts and option fees, on an accruals basis, in order to pass on the appropriate revenue to NTS terminating operators after deduction of its conveyance and retail costs. This is consistent with NTS principles which require that the originating operator (in this case BT) must recover its costs associated with originating NTS calls, from call revenues. Once these have been deducted the remaining revenue is passed to the terminating operator as an outpayment.

5.5 BT has provided Oftel with gross revenue, gross discount and option fee data for the period from 1 October 1999 to 31 December 1999 in support of its 16.8% discount proposal. Oftel has reviewed and discussed this data with BT and proposes to consult on how greater transparency can be achieved in the future as discussed in Section 7. The data provided indicates that substantial increases in discounts have largely resulted from the introduction of an ICA in both its BT Together discount package and the standard Residential Line tariff.

5.6 Discounts have the effect of reducing the outpayment a terminating operator receives from BT for calls at a specific retail price. It is therefore important that only discounts relevant to NTS calls are included in the calculations. BT’s own calculations included the effect of discounts associated with packages such as Option 15, Friends & Family and Premierline and the equivalent business discount packages. They also included discounts associated with the Residential Line Tariff and BT Together package (both launched on 1 October 1999) and the SIC. However, BT excluded the ICA associated with its Business and Home Highway ISDN schemes on the grounds that their effects are insignificant. Oftel has examined the effect of each of these and its conclusions are given below.

Inclusive Call Allowance

5.7 In order to calculate the net % discount on NTS calls, split between LCFA and NCFA, BT calculates the gross call turnover, gross discount and option fees data for these revenue streams. The ICA is reflected as follows: -

5.8 The effect of the ICA at 1 October 1999 was that customers received free calls to the value of 60 pence per month but with a rental increase of 33 pence (both inc VAT). Since then the ICA has increased to £1.80 per month and the rental has increased by £1.07 per month over the September 1999 figure. The ICA applies to both local and national geographic calls but only to local rate NTS calls. Other NTS and Premium Rate calls are expressly excluded.

5.9 In their responses to the draft direction Energis and C&W suggested that BT’s ICA may be anti-competitive. Oftel is continuing to investigate whether this is the case particularly in the context of Carrier Pre-Selection. However, at the level it was originally offered in 1999, which is the period from which the discounts concerned in this direction are calculated, and given the market conditions that existed at the time, the Director has concluded it was not anti-competitive. The Director therefore concludes that the ICA can be treated as a valid discount for the purposes of this direction, however, this conclusion does not fetter any future consideration of the competitiveness of the ICA.

Business and Home Highway

5.10 The Business and Home Highway schemes provide ISDN services with an unbundled and bundled rental option. The bundled option offers a substantial ICA for a smaller increase in the rental price. BT has not provided figures relating to the Business and Home Highway products for this review of its NTS discounts on the grounds that they had no significant effect. However, if the discount information for Business and Home Highway were significant, the Director would have included them with the effect of increasing the level of BT’s discounts.

Schools Internet Caller

5.11 BT had included the ‘discounts’ associated with the SIC service in its calculations. In 1999, this service offered flat rate access to the Internet during school terms and only at normal attendance times. Calls made outside of these times are charged at local rate and the outpayments to terminating operators calculated using NTS principles. Oftel has considered BT’s comments on the proposal to exclude the SIC from NTS discount calculations and has concluded that SIC is a niche product designed to address a specific social need and is offered at a rate less than the rate charged to other customers. As such it is not like other NTS products and should be excluded from the local and national rate NTS discount calculations. Accordingly Oftel has removed SIC figures from its calculations.

Transparency

5.12 Oftel believes that BT’s proposal to include a letter explaining the general principles used in deriving the discounts with future OCCNs is a step in the right direction. However Oftel is of the view that, on its own, this letter would be unlikely to give adequate disclosure of the discount methodologies and that the accounting for and attribution of discounts should form an integral part of the regulatory accounting regime.

5.13 Oftel does not consider a detailed letter of explanation of the attribution methodologies, as BT has proposed, an acceptable substitute for a full write up in the Detailed Attribution Methods (DAM). This is because audit work is undertaken by BT’s regulatory auditors to ensure that figures appearing in the Current Cost Accounting (CCA) Financial Statements are prepared in accordance with the methodologies spelt out in the DAM. Whilst the figures supplied for NTS directions, to date, are not audited Oftel has requested that, in future, BT reconcile them to the turnover figures appearing in the CCA Financial Statements. This measure would give some comfort that the same methodologies are applied to the NTS direction figures as are applied to the turnover figures appearing in the CCA Financial Statements. Oftel notes that at the moment there are no attribution methodologies for discounts within the DAM.

5.14 It is clear that for operators to have confidence in the accuracy of BT’s future proposals further assurance needs to be given either by BT or Oftel. This will be discussed further in Section 7.

Treatment of traditional and ‘new’ NTS services

5.15 The discount rates have been derived from data relating to a period prior to the introduction of the ‘new NTS’ regime ie from 1 October 1999 to 31 December 1999. The principles applied to the calculation of NTS discounts are consistent between the old and new regimes. However, Oftel has concluded from the data provided by BT that applying a single average discount to all NTS calls is no longer appropriate.

5.16 Under the old (pre January 2000) system, NTS calls (other than ‘free to caller’) were charged at local and national call rates. Consumers expected to pay the price of a normal geographic call. Consequently the appropriate revenue to be passed on to terminating operators was that related to the net prices of geographic local and national calls (less BT’s conveyance costs), and the appropriate discount rate reflected discounts on all local and national calls.

5.17 The introduction of the new NTS charging regime has led to a change in emphasis. The ability of operators to select price points for their NTS services has broken the link between published geographic and NTS prices. Consequently the appropriate revenue to be passed on to terminating operators should take into account the price of their NTS calls less any discounts which apply specifically to NTS calls (and less BT’s conveyance costs).

5.18 Oftel has noted that, in particular, national rate NTS calls attract a significantly lower level of discount than their geographic equivalent, largely as a result of these calls being specifically excluded by BT from most discount schemes. As a consequence, there is a significant difference in the level of discounts attracted by ‘local’ and ‘national’ NTS calls. Oftel believes a separate discount figure is, therefore, appropriate for each type of call. This new approach has been adopted by Oftel in calculating the discounts in this direction.

5.19 It must be recalled that the discounts set by this direction are calculated using call data for the period 1 October 1999 to 31 December 1999. At that time the only NTS number ranges in use were 0800, 0845 and 0870 (plus the associated number ranges used by some operators). The direction does not apply to either SIC or PRS and 0800 calls are free and therefore do not attract discounts. However, the determined discounts take effect from 1 September 2000 by which date the new 0844 and 0871 ranges were in operation.

5.20 Oftel’s draft direction had proposed to apply the same local rate discount to both 0844 and 0845 and the national rate discount to both 0870 and 0871 ranges. Comments received to the draft proposals indicated that BT wholly or partially excludes calls to 0844 ranges from the ICA and/or discounts. It is not, therefore, reasonable to use the same level of discount for both the 0844 and 0845 number ranges and it is likely that that a lower discount figure should apply to 0844. This distinction may not apply, to the same extent, to calls to 0871 numbers which appear to attract a similar level of discounts as 0870 calls.

5.21 Given that no actual data has been provided to Oftel for 0844 and 0871 calls, in the information supplied by BT, the Director has concluded that it is not appropriate to set discounts for these services and they shall, therefore, be excluded from this direction. Furthermore, to delay this direction until the necessary information can be provided by BT and a further consultation exercise conducted would be unacceptable. Accordingly the revised discounts will apply to services at LCFA and NCFA retail prices only (see paragraph 5.24).

5.22 The Director intends to will make a second direction in relation to 0844 and 0871 when it has obtained the necessary supporting data from BT and consulted on its proposals. Until this is published calls to these ‘new NTS’ services shall continue to attract the average discount that applied prior to BT’s review. While the Director can not fetter his discretion as to future directions, in making a direction in relation to 0844 and 0871 number ranges, the Director currently intends to consider whether it is appropriate to backdate any subsequent change in the level of discounts for these number ranges.

The determined Discounts

5.23 Since publishing its draft direction Oftel has sought and received further data from BT which has enabled the effect of excluding SIC to be assessed more accurately through the elimination of any ‘rounding’ effects. This has had the effect of increasing the local rate discount by 0.2% over the figure proposed in the draft direction.

5.24 Accordingly the Director directs that, from 1 September 2000, the discounts that apply to the following NTS number ranges are as follows:

LCFA - 0345/0645/0845: 14.8%

NCFA - 0541/0870/0990: 2.4%

5.25 The Director’s decision has been based on legal advice, an analysis of the facts and the balance of the interests of the parties. It has also been based on consideration of the criteria set out in Article 9(5) of the Interconnection Directive 97/33/EC (as implemented in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997), in particular the relevant market position of the parties and the promotion of competition. In the view of the Director this direction represents a fair balance between the interests of the parties.

Chapter 6

Interest Charge

6.1 In accordance with Clause 13.13 of BT’s Standard Contract, this direction provides that the operators who, since 1 September 2000, have been receiving payments based on BT’s preceding average discounts of 11.75%, will repay to BT the amount of the difference plus interest from that date. Similarly the operators which, since 1 September 2000, have been receiving payments based on BT’s proposed average discounts of 16.8%, will receive refunds from BT of the amount of the difference plus interest from that date. The applicable annual rate set out in Clause 13.13 as the ‘Oftel Interest Rate’ is the London Inter-Bank Offered Rate (LIBOR) plus 3/8 per cent

Chapter 7

Related Issues

Transparency

7.1 As already stated, a number of operators remain concerned that the methodology used to calculate discounts relies on information which BT claims cannot be published because of its commercial sensitivity. This means that operators are in no position to assess for themselves whether BT’s proposals are reasonable. The almost inevitable result is that a dispute arises each time BT reviews its discount figures, since operators must necessarily rely on Oftel to carry out this assessment for them.

7.2 BT confirmed its concerns about publicly exposing commercially sensitive data in its response to the draft direction. It did, however, offer to include a letter explaining how its proposed discounts were calculated with the OCCNs that propose future revisions. As already commented in paragraph 5.12 Oftel believes it is unlikely that the letter will include sufficient detail to satisfy operators that the calculations correctly reflect only the relevant discounts that apply to any particular service. Nevertheless, it does represent a positive move by BT which should form the basis of a detailed description in the DAM.

7.3 Oftel notes BT’s comments about the unsuitability of the CCA Financial Statements as a vehicle for presenting non-confidential data which operators could use to verify their NTS discounts. Nevertheless, Oftel will continue to work with BT to explore ways in which some additional means of clarification can be achieved. Again, and as stated in the draft direction, the Director commented in his Statement published with the 1999/2000 CCA Financial Statements that his preliminary view was that the information contained in the Financial Statements and supporting documentation may be deficient in a number of respects including the calculation and attribution of price discounts. It is intended that the issue of transparency will be addressed in a forthcoming consultation on future regulatory financial information.

7.4 Oftel also notes the suggestions put forward by operators in the consultation relating to setting specific predetermined dates for future discount reviews (although there was some disagreement over the frequency of such reviews) and that Oftel should itself review any proposed new discounts before BT issues its OCCNs. Oftel believes that these suggestions should be explored further and proposes to conduct a separate consultation exercise following publication of this direction.

7.5 To conduct such a consultation within the scope of this direction would create an unacceptable delay to this decision. In any event, the matter is outside the scope of the reference made by BT which was simply for Oftel to determine whether the discount proposed by BT was reasonable.

Opting out of BT’s Discounts

7.6 It is clear that the level of discounts can have a significant impact on the payments received by terminating operators. Additionally BT’s ability to periodically review discounts means that operators’ control over their future NTS revenues is limited. Moving services to higher retail price points to compensate for increased discounts is not seen as a reasonable option for operators. This can result in a considerable amount of both disruption to services and confusion to consumers not least because the access numbers have to change to accommodate the new price point.

7.7 Oftel will give consideration to whether operators could be enabled to choose whether their services should attract BT’s discounts. Without prejudice to the Director’s ultimate decision in the matter, Oftel generally supports this proposal and believes it is likely to cause less confusion to consumers than having the retail price for access to services changed periodically. It will also give terminating operators and service providers a greater degree of control over their revenues which supports the objectives of Oftel’s December 1999 NTS Statement.

7.8 In paragraph 5.20 above we described how BT had wholly or partially excluded calls to ‘new NTS’ number ranges from its discounts including the ICA. In doing so Oftel submits it has demonstrated the ability of its systems to account for these differing discount levels.

7.9 Oftel and BT have already had informal exchanges on this matter during which BT has expressed its concerns. The proposed consultation will enable all interested parties to put their views in relation to this issue which arose in the consideration of the dispute referred to the Director.

Schedule

Names of Operators who have not accepted the Proposed Change

1. 4D telecom Limited July 20, 1998

2. ABS Telecom PLC November 27, 1997

3. AUCS Communications Services (UK) Ltd November25, 1999

4. Barnsley Cable Communications Ltd October 24, 1997

5. Birmingham Cable Ltd October 22, 1997

6. Cable & Wireless Comms Ltd May 1, 1998

7. Cable Camden Ltd October 20, 1997

8. Cable Enfield Ltd October 20, 1997

9. Cable Hackney & lslington Ltd October 20, 1997

10. Cable Haringay Ltd October 20, 1997

11. CableTel Cardiff Ltd December 22, 1997

12. CableTel Central Herts Ltd December 22 1997

13. CableTel Hertfordshire Ltd December 22 1997

14. Cablelel Herts &Beds Ltd December 22, 1997

15. CableTel Newport December 22, 1997

16. CableTel North Bedfordshire Ltd December 22, 1997

17. CableTel Surrey & Hampshire Ltd December 22, 1997

18. CableTel West Glamorgan Ltd December 22, 1997

19. Call Sciences Ltd October 22, 1997

20. Carrier I Holdings Ltd August 17, 1998

21. COLT Telecommunications Ltd October 24,1997

22. Concert Communications Company January 5, 2000

23. Core Telecomms Ltd February 11, 1998

24. Destia Network Services Limited December 12, 1997

25. Doncaster Cable Comms Ltd : October 24, 19971

26. Easynet Group PLC : December18, 1997

27. EESCAPE Ltd August 16, 1999

28. Eircom NI Limited July 12, 1999

29. Eircom UK Limited March 21, 2000

30. Energis Comms Ltd December 10, 2000

31. First Telecom PLC April 22, 1998

32. Freephone Telecommunications Ltd October 5,1998

33. Frontel Communications Ltd October 29, 1997

34. Global One Communications Holding Ltd October 22, 1997

35. Halifax Cable Cornms Ltd October 24, 1997

36. lmminusLtd January 8, 1998

37. Interoute Telecommunications (Uk)Ltd October 6, 1997

38. LDI Comms Ltd November 6, 1997

39. Mannesmann Ipulsys UK Ltd February 19, 1999

40. MCI WorldCom Ltd November 14, 1997

41. Middlesex Cable Limited October 24, 1997

42. National Transcomms Ltd December 22. 1997

43. NetKonect Communications Ltd March 8, 1999

44. Nevada TeleCom Ltd January 24, 2000

45. North ArnericanGateway Ltd March 29, 1996

46. Norweb PLC October 24, 1997

47. ntl Glasgow Ltd December 22, 1997

48. ntl Glasgow Ltd December 22, 1997

49. nfl Glasgow Ltd December 22, 1997

50. ntl Glasgow Ltd December 22, 1997

51. ntl Glasgow Ltd December 22, 1997

52. Intl Kirklees December 11, 1997

53. Intl Midlands December 22, 1997

54. INtl Telecom Services November 13, 1997

55. One 2 One Personal Communications Limited January 28, 1998

56. Opal Telecommunications PLC October 22, 1997

57. Orange Personal Communications Services Ltd May 7, 1998

58. Pacific Gateway Exchange (UK) Ltd June 30, 1998

59. Powernet Telecom Limited June 2, 1999

60. Primus Telecomms Ltd November 12 1997

61. Racal Telecomms Ltd June 20, 1997

62. Rateflame Limited June 25, 1999

63. Redstone Network Services Ltd October 30, 1997

64. RSL Com Europe Ltd February 29, 1996

65. Sheffield Cable Comms Ltd October 24, 1997

66. Stentor Communications Ltd February 24, 1998

67. Syntec UK Ltd February 5, 1999

68. T3 Telecommunications Limited June 25, 1999

69. Tele 2 Communications Services Limited March 30, 1999

70. Felecom one Ltd May 12, 1998

71. Teleglobe International (UK) Ltd February 24, 1998

72. Telewest Comms (Central Lancs) Ltd October 20, 1997

73. Telewest Comms PLC January 15, 1998

74. Telewest Comms (Cotswold) Ltd October 20,1997

75. Telewest Comms (Cumbernauld) Ltd October 20, 1997

76. Telewest Comms (Dumbarton) Ltd October 20, 1997

77. Telewest Comms (Dundee & Perth) Ltd October 20, 1997

78. Telewest Comms (Dundee & Perth) Ltd October 20, 1997

79. Telewest Comms (Scotland) Ltd October 20, 1997

80. Telewest Comms (Falkirk) Ltd October 20, 1997

81. Telewest Comms (Glenrothes) Ltd October 20, 1997

82. TelewestComms (Liverpool) Ltd October 20,1997

83. Telewest Comms (Liverpool) Ltd October 20, 1997

84. Telewest Comms (London South) Ltd October 20, 1997

85. Telewest Comms (London South) Ltd October 20, 1997

86. Telewest Comms (London South) Ltd October 20, 1997

87. Telewest Comms (Midlands) Ltd October 20, 1997

88. Telewest Comms (Motherwell) Ltd October 20, 1997

89. Telewest Comms (North East) Ltd October 20, 1997

90. Telewest Comms (South East) Ltd October 20, 1997

91. Telewest Comms (South Thames Estuary) Ltd October 20, 1997

92. Telewest Comms (South West) Ltd October 20, 1997

93. Telewest Comms (St Helens & Knowsley) Ltd October 20, 1997

94. Telewest Comms (Telford) Ltd October 20, 1997

95. Telewest Comms (Wigan) Ltd October 20, 1997

96. Telinco UK Ltd October 17, 1997

97. Telstra (UK) Ltd October 28, 1997

98. Thus plc November 27, 1997

99. Torc Europe Ltd October 8, 1997

100. Value Telecom December 4, 1997

101. VBCnet (GB) Ltd August 15, 1999

102. Via-Fon Ltd April 23,1999

103. Viatel Global Comms Ltd April 21, 1998

104. Vodafone Ltd February 24, 1998

105. Wakefield Cable Comms Ltd October 24, 1997

106. Windsor Television Ltd October 24, 1997

107. World Access Telecommunications Ltd October 7, 1997

108. Worldxchange Communications Ltd Group November 7,1997

109. Yorkshire October 24, 1997

Annex A

BT’s Business and Residential Discounts in operation over the period 1 October to 31 December 1999

Note: the application of individual discounts to different call types may be quite complex and it therefore may be necessary to refer to BT's Price List to pinpoint an individual discount scheme’s applicability to a particular call type or number range.

BT Residential Discounts 1 October 1999 – 31 December 1999

Option 15

Fee: £2.72 pq
Benefits: 11% discount on all direct dialled & chargecard inland and international calls; 5% discount on all calls to mobile & premium rate numbers.

Friends & Family

Fee: zero
Benefits: 20% off one number nominated as Best Friend (premium rate, mobile & international numbers excluded); 10% off a further nine nominated numbers (premium rate numbers excluded, one number may be mobile & another international).

Friends & Family Overseas

Fee: £0.85 pq
Benefits: 5% off 10 nominated international numbers (premium rate numbers excluded).

PremierLine

Fee: £20.42 pa
Benefits: 15% discount on all direct dialled local, national & international calls and self-dialled Chargecard calls; 5% discount on all calls to mobile or premium rate numbers.

Light User Scheme

Fee: zero
Benefits: for every 1p that the call bill falls below the threshold of £12.00, the customer receives a rebate of 1.209p.

Friends & Family Value Plan

Fee: £2.51-£5.27 pq (depends on number of select services chosen)
Benefits: Call allowance of £2.13 pq; select services.

Country Calling Tariff

Fee: £0.85 pm
Benefits: 25% discount on direct dialled calls to up to five countries from a specified list.

Daytime Caller

Fee: £0.42 pm
Benefits: 10% discount on all national and regional daytime calls.

Call and Save

Fee: zero (requires customer to register)
Benefits: 10% discount on all calls above a threshold of £21.27.

BT Together

Fee: £30.61 (PSTN), £102.10 (Home Highway)
Benefits: includes: line rental; lower call rates; free Friends & Family Overseas; reduced connection charge; call allowance of £6.19 pq (PSTN), £33.19 pq (HH).

BT Business Discounts: 1 October 1999 – 31 December 1999

All prices are quoted exclusive of VAT and are, to the best of our knowledge, correct for the specified time period.

Business Choices:

Discount on calls for a quarterly site fee.

• for three years calls will be charged at standard IDD prices but for each complete minute of the call, the next five seconds of that call will be free; or
• first three minutes of a call charged at standard IDD rates, but after that a 10% discount is applied.

BT Community Discount:

Available to customers with Business Choices or Corporate Choices. Provides a discount on DD calls on payment of a scheme charge and site fee.

BT Bill Direct

Fee: £1,000 one-off subscription, plus £5 for each initial & subsequent CLI configuration
Benefits: allows homeworkers & teleworkers to make dialled business voice and data calls and have them billed directly to their employer’s BT business account by entering a prefix code.

Calling Packages:

These packages suppress charges for calls to destination charged at local and/or regional & national rates chargeable to a particular directory number within a defined time period.

Education On-Line Tariff
Fee: £175 pq per site
Benefits: available to certain educational establishments for calls made to approved 0345 numbers terminating on the BT network.