July 2000

Contents

Background

Consultation

Annex: Proposed modifications to Concert’s Licence

Background

Concert

In January 2000, Concert, a joint venture between BT and AT&T, took over all of BT’s international gateway-to-gateway network facilities, assets and operations including correspondent contracts, submarine cable capacity, cable landing stations and international switching and transmission centres. The joint venture also began handling all of BT’s carrier services’ accounts for international traffic and interconnection at international switches. These services had been subject to charge controls when BT provided them. Oftel believed that the change of ownership of these assets should not affect the regulation of the services that had been provided by BT. Oftel therefore published a consultative document in June 1999, BT/AT&T proposed joint venture, within which it proposed to transfer a number of the special controls that were applied to BT to the joint venture. Responses to the consultation were generally supportive of Oftel’s view.

Oftel wrote to Concert proposing modifications to its Licence, which would ensure that the regulatory regime remained unchanged for purchasers of BT’s international interconnection services despite the commercial change within the BT Group. Concert consented to the proposed modifications, which then became effective from 1 January 2000.

Modifications to Concert’s Licence included the introduction charge controls on certain international services, and requirements to notify of changes to charges for the relevant services. These, and other requirements, are contained in a bespoke condition (Condition 66) applied to Concert.

Rollover of BT’s existing retail price and network charge controls

In May 1999, Oftel published the consultative document Rollover of BT’s existing retail price and network charge controls. This consultative document sought comments on Oftel’s proposal to insert a new condition within BT’s licence, which would allow the Director General to determine that the present controls should continue for a pre-stated period should BT not accept proposals for future price controls.

The premise behind this proposal was that Oftel intended to put its proposals for future price controls to BT in December 2000, just some eight months before any new (retail) controls would be due to enter into force. The short time period between Oftel’s proposals for price controls, BT’s response and the date on which the controls were due to enter into force left little time for a reference to the Competition Commission if this turned out to be necessary. The Competition Commission could be expected to take upwards of eight months to complete its investigation. This could have resulted in a gap between the expiry of the old controls and the entry into force of the new controls. This would not be desirable. Oftel stated that the addition of the rollover provisions would ensure that the relevant services would continue to be controlled while the Competition Commission carried out its investigation.

Oftel explained that it would only invoke such rollover provisions as were required if it referred the matter to the Competition Commission. The new controls would then – subject to the Competition Commission’s report to the Director – enter into force with effect from

1 April 2002. (For further information on the principles behind rollover, and the reasons behind the necessary modifications, please see the consultative document referred to above and the December 1999 statement Rollover of BT’s retail price and network charge controls.)

In the December 1999 statement, Rollover of BT’s retail price and network charge controls, Oftel confirmed that it would be seeking BT’s consent to the proposed modifications to its Licence. BT’s consent was duly sought, and forthcoming, and the new condition was incorporated within BT’s Licence with effect from 19 April 2000.

Rollover of Concert’s network charge controls

Oftel now proposes to add a similar condition to Concert’s Licence. The proposed new condition would ensure that the controls applicable to Concert could rollover for six months should it reject any proposals for future controls of its international interconnection services. The condition that Oftel proposes to add to Concert’s Licence is based upon the BT condition. The only difference between the conditions is because Concert is not subject to any retail controls.

Oftel is now seeking comments on:

• its proposals to add rollover provisions to Concert’s Licence; and

• the proposed modifications, which are published in the Annex to this statement, in accordance with Section 12 of the Telecommunications Act 1984.

Additional amendment to Concert’s licence

Oftel has noted an error in ‘Part 1: Definitions and interpretations relating to the conditions in Schedule 1’ of Concert’s Licence, as amended with effect from 1 January 2000. The definition of Relevant Year presently reads, ‘"Relevant Year" means, for the purposes of Condition 66, any of the four periods of 12 months beginning on 1 October starting with 1 October 1999 and ending on 30 September 2001’. Oftel proposes to amend this text from ‘any of the four periods of 12 months’ to read ‘either of the two periods of 12 months’, as there are only two such periods of 12 months between the dates referred to. Oftel is additionally consulting on this proposed change.

Consultation

Oftel would welcome comments on its proposal to add rollover provisions to Concert’s Licence and also on the modifications that it has proposed.

Oftel seeks the views of consumers and industry on its proposals to add rollover provisions to Concert’s Licence and on the proposed licence modifications by 22 August 2000. There will then be a 2-week period to 5 September 2000 during which comments on the representations made during the first phase of consultation are invited.

Comments on the proposed licence modifications should be made in writing and sent to:

Mike Galvin

Regulatory Policy Directorate

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.

Appointments to view written comments in Oftel’s Research and Intelligence Unit must be made in advance (tel: 020 7634 8761, fax: 020 7634 8946).

Annex

Proposed licence modifications

DRAFT CONDITION 66A

ROLLOVER OF NETWORK CHARGE CONTROLS

66A.1 If by 31^st March 2001:

the Director may determine that, in order to extend the period of control provided for in that Condition, any or all of the following provisions shall take effect from 1 October 2001 for the purposes of Conditions 66:

66A.2 In Schedule 1, Part 1 of this Licence, the definition of "Relevant Year" shall be amended to read:

"Relevant Year" means, for the purposes of Condition 66, either of the two periods of 12 months beginning on 1 October 1999 and ending on 30 September 2001; and the period from 1 October 2001 to 31 March 2002;

66A.3 In Condition 66.44, "1 April" shall be replaced by "1 January".

66A.4 In Condition 66.45, the definition:

66A.5 In Condition 66.46 the definition:

66A.6 In Condition 66.47:

66A.7 The following text shall be added to Condition 66.50 after the words "reduced by 8":

66A.8 The following text shall be added to Condition 66.55(d) after the words "the total amount of revenue accrued in respect of the relevant aggregate Charges during the Relevant Financial Year which relates to that Relevant Year);"

"the difference between the forecast amount referred to in sub-paragraph (a) and the amount of actual accrued revenue (the difference to be expressed as a percentage of the total amount of revenue accrued in respect of relevant aggregate Charges during the Relevant Financial Year which relates to that Relevant Year) shall in the Relevant Year ending 31 March 2002 be multiplied by 2;"