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| 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 TO THIS DIRECTION OVER BT’S APRIL
2000 REVIEW SUPPLEMENTAL AGREEMENT
1 October 2001 Explanatory
Memorandum Names of the operators who have not signed and returned the Supplemental Agreement 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 TO THIS DIRECTION OVER BT’S APRIL 2000 REVIEW SUPPLEMENTAL AGREEMENT WHEREAS: A. The Secretary of State granted to British Telecommunications on 22 June 1984 a licence (the "BT licence") under section 7 of the Telecommunications Act 1984 ("the Act") for the running of telecommunications systems specified in that licence; B. By virtue of section 109 of, and paragraph 20 of Schedule 5 to, the Act the BT licence has effect as if granted to British Telecommunications plc ("BT"); C. The Secretary of State has granted to each of the operators listed in the Schedule, a licence under section 7 of the Act for the running of telecommunications systems specified in that licence; D. The operators listed in the Schedule have entered into BT’s Standard Interconnect Agreement (SIA) with BT on the dates shown in the Schedule; E. In accordance with Clause 19.4 of the SIA, BT issued an April 2000 contractual review notice on 29 June 2000 which proposed changes to the SIA with each of the operators listed in the Schedule. A number of other operators also issued review notices under the SIA. These review notices were negotiated in accordance with the terms of the SIA; F. On 16 February 2001 BT issued the April 2000 Review Supplemental Agreement ("the Supplemental Agreement") to operators which included the proposed changes to BT’s SIA. The operators listed in the Schedule have not accepted the Supplemental Agreement and are in dispute with BT; G. Pursuant to Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 ("the Regulations"), where there is a dispute concerning interconnection between organisations, the Director General of Telecommunications ("the Director") shall, at the request of either party, take steps to resolve the dispute within six months of the date of the request. The direction which the Director makes to resolve the dispute must represent a fair balance between the legitimate interests of the parties, and must be notified to the parties in accordance with Regulation 8(3). The parties are entitled to a full statement of the reasons on which the direction is based; H. By way of a letter dated 28 March 2001, in accordance with the provisions of Regulation 6(6) of the Regulations, BT has referred a dispute, namely the inability of BT and the operators listed in the Schedule to agree the Supplemental Agreement, to the Director for resolution; I. The Director has considered, inter alia, the information provided by the parties and the matters set out in Regulation 6(8) of the Regulations. The principal points are summarised in the explanatory memorandum which accompanies, and is published with, this direction; J. The Director issued a draft direction and the explanatory memorandum which contains the Director’s reasons on 17 August 2001 and responses were invited by 14 September 2001; K. Comments were received from a number of operators as summarised in sections 3 and 4 of the explanatory memorandum published with this direction. These comments have been taken into consideration by the Director in making this direction. 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 to this direction:
Keith Long DIRECTOR OF COMPLIANCE A person authorised under Paragraph 8 of Schedule 1 to the Telecommunications Act 1984 28 September 2001
Explanatory MemorandumChapter 1 – Summary1.1 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 the operators listed in the Schedule. This direction sets out the Director’s decision on proposals to amend the terms of BT’s Standard Interconnection Agreement (SIA) following the April 2000 general contract review issued by BT in accordance with paragraph 19.4 of the SIA. 1.2 BT referred a dispute to the Director by way of a letter dated 28 March 2001. On 29 June 2000, BT issued a contractual review notice to all operators which had signed interconnection agreements with BT, under the terms of the SIA. Following the contractual review notice, BT sent out Supplemental Agreements to the SIA to 205 operators but said that, by 28 March 2001, only 77 operators had signed and returned them. In accordance with the timetable set out in the SIA, BT referred the inability to reach agreement with the other 128 operators to the Director for resolution of the dispute. During the course of the resolution procedure, Oftel was informed, either by the operators or by BT, that a further 74 operators had signed, leaving 54 which had not. These 54 operators are those in dispute with BT and are listed in the Schedule to the direction. 1.3 The Director sought the views of BT and the operators which had not signed the Supplemental Agreement, and has taken account of all their submissions made both in writing and orally (in meetings and telephone calls) with Oftel. He has also taken into account submissions made to Oftel following the draft direction. 1.4 The details of the Director’s consideration of the submissions made by BT and other operators, and his direction, are set out in Chapter 4. In summary, the Director makes the following direction. 1.5 The parties shall amend their interconnect agreements in accordance with the Supplemental Agreement, incorporating the following amendments. 1.6 Paragraph 7.1 of the main body of the SIA shall be amended to reflect the wording shown in Annex A to this document. 1.7 Paragraph 28.1 of the main body of the SIA shall be amended to add the use of recorded delivery as a fourth method of serving a notice. 1.8 Paragraphs 9.2, 10.2 and 11.2 of Annex E to the SIA shall be amended to reflect the wording shown in Annex B to this document. 1.9 The Director has consulted on his draft decision and has considered the responses received in making this final direction. Having considered the facts specific to this dispute and the matters set out in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997, in the opinion of the Director his decision represents a fair balance between the interests of the parties in each of these cases.
The SIA review process 2.1 Paragraph 19 of BT’s SIA sets out the review process by which an operator may seek to amend the SIA. Paragraph 19.4 states: A Party may invite a general review of this Agreement by serving a review notice during the period of three months commencing on 1 April 2000 and 1 April every 2 years thereafter and on 1 October 2001. 2.2 Paragraph 20 of BT’s SIA sets out the determination process in the event of a failure to reach agreement. Paragraph 20.1 defines the timetable for commencement of this process. 2.3 BT, in accordance with paragraph 19 of the SIA, issued a contractual review notice on 29 June 2000 to all operators with which it interconnected, seeking a general review of the SIA. The Appendix to the review notice set out the amendments which BT wished to make to the SIA. BT also said that, in accordance with paragraph 19.5 of the SIA, it discussed the proposals with a representative team of operators nominated by the industry Operator Group, also taking into account the issues raised in a number of other review notices received in parallel from operators. BT explained that the two negotiating teams kept the industry informed of progress throughout the negotiations, via emails and briefings at the regular Standard Contract Forum to which all operators were invited, and which reported back to all operators. 2.4 BT said that, during the early part of 2001, general agreement was reached on the form of the new SIA, and it issued a full industry briefing to all operators on 6 February 2001. The briefing explained the review process, and stated that BT intended to issue a Supplemental Agreement to all operators in mid-February 2001 as a result of the review notices. It also stated that BT would be happy to deal with any questions from operators, and added that if any operators did not feel able to agree the text within about four weeks, BT would propose registering a contract dispute and referring the matter to Oftel. 2.5 On 14 February 2001, Thus plc briefed the industry by email. The document stated that the operator representatives had had their final contract review meeting with BT the day before. In summary, the document stated that many operator issues had been agreed to by BT, and that BT had agreed to continue discussions with operators on issues which had not been concluded. It added that the operators had rejected several issues raised by BT, but that BT had indicated that it would not be pursuing those issues in the immediate future. 2.6 On 16 February 2001, BT sent a copy of its final briefing to all operators. The document summarised the review process, and offered the April 2000 Review Supplemental Agreement (‘the Supplemental Agreement’), which was attached, to amend the SIA. The document added that both BT and the Operator Group generally commended the package as mutually advantageous. 2.7 By 28 March 2001, out of a total of 205 operators which had interconnection agreements with BT, 77 had signed and accepted the Supplemental Agreement, while the remaining 128 had not.
Chapter 3 – The reference to the DirectorBT’s submissions
3.1 In a letter of 28 March 2001, BT referred for determination, under Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997, the inability to reach agreement with a number of operators on the Supplemental Agreement. 3.2 BT made submissions in its referral letter. It also made other submissions to Oftel in writing and orally. Submissions of the parties 3.3 Oftel sent a letter, dated 2 April 2001, to companies representing all the operators set out in the Schedule (as well as to those originally referred by BT as being in dispute but which have subsequently signed the Supplemental Agreement), advising them of BT’s request for determination and enclosing BT’s letter of referral of 28 March 2001. In that letter, Oftel asked them to clarify, by 23 April 2001, whether they had rejected the proposed contract changes or whether their failure to respond was an oversight. 3.4 A number of operators responded to the letter, most to say that they had signed the Supplemental Agreement or were considering the matter. Oftel sent a further letter, by recorded delivery, on 18 May 2001, to over 40 operators which had failed to respond to the letter of 2 April 2001, and which Oftel had not otherwise been able to contact. The letter asked each operator to advise Oftel whether it had responded to BT, either by signing and returning the agreement or by stating that it had objections. In these cases, operators were asked to send Oftel copies of any submissions they had made to BT. Enclosed with this letter was a copy of Oftel’s letter to operators of 2 April 2001, and a further copy of BT’s letter of referral of 28 March 2001. The letter stated that if Oftel had not received a response by 1 June 2001, and the operator had not signed and returned the agreement to BT, Oftel would assume that the operator remained in dispute with BT and did not wish to make any submissions to Oftel. 3.5 During the course of the resolution process, Oftel received various responses from the operators. Of the 128 operators referred by BT as being in dispute, Oftel had received confirmation, by the date of issue of the draft direction, that 74 had signed (in addition to the 77 which had signed prior to the referral of the dispute). A small number of these had signed the Supplemental Agreement and returned it to BT by 28 March 2001, but had not been listed as having done so, perhaps because they did so in the few days immediately preceding the referral for determination. The remaining 54 operators are shown in the Schedule. Of these, one indicated to Oftel that it intended to sign the Supplemental Agreement but did not, according to BT, do so; two said that although they had considered interconnecting with BT they had not gone ahead (although BT confirmed that they had signed an agreement); the letters to five were returned by the Post Office marked ‘addressee has gone away’ (BT informed Oftel of a sixth in this category); and several responded to Oftel stating that they were considering whether to sign the Supplemental Agreement or, for example, that they were involved in a restructuring process and were not at that time in a position to sign it. 3.6 One operator wrote stating that it had an issue with certain elements of the new contract which required it to carry out a substantial amount of work, but did not follow up this letter or respond to telephone calls from Oftel. For some 20 operators, no response at all was received nor were the letters returned by the Post Office to Oftel. 3.7 The views of nine operators, as well as those of BT, which made submissions to Oftel on one or more aspects of the Supplemental Agreement by the date of issue of the draft direction are summarised and reproduced in this document. One operator requested that its identity and submissions remain confidential, so these are not reproduced in this document. Two operators were content for their submissions to be summarised and reproduced in this document, but asked Oftel to treat their identities as confidential, and these are referred to as ‘Operator 1’ and ‘Operator 2’. The operators whose submissions are summarised and reproduced below are:
Torch Communications Ltd, which at the time of the general contract review was a subsidiary of Kingston, has now become an operating division of Kingston, but it still has its own interconnect agreement with BT. Three operators made submissions to Oftel in response to the draft direction, and their views are summarised and reproduced below. They are: - BT;
Chapter 4 – The views of the parties and the Director’s considerations 4.1 Operators made submissions on a number of amendments to the SIA, or on sections where amendments had been made. Each paragraph, section or topic of the Supplemental Agreement which is the subject of this dispute is taken separately below. For each, there is a summary of the purpose of the paragraph or relevant part of the Supplemental Agreement followed by: a summary of the operator submissions made prior to the draft direction; BT’s responses (including any further correspondence or discussion which took place); submissions made following the draft direction; and the Director’s considerations. 4.2 BT’s SIA can be found on its website at www.btinterconnect.com/wwwrsia.htm. The Supplemental Agreement, amending that SIA, can be found at www.btinterconnect.com and at www1.btwebworld.com/interconnect/. In this section, all references to the SIA, unless otherwise indicated, refer to the SIA as amended by the Supplemental Agreement. SIA Main body – paragraph 7 (Attachment 1 to the Supplemental Agreement) Summary 4.3 Paragraph 7 describes the handling of Transfer Charge calls. Paragraph 7.1 states that where a Transfer Charge call is handed over by the BT system to the Operator system for geographic numbers (and others by agreement) the Operator to which the call is transferred shall be liable for payment for such calls. Operator submissions 4.4 Vodafone stated that paragraph 7.1 did not apply in respect of itself or other mobile operators and should be deleted. BT’s response 4.5 BT suggested alternative wording (see Annex A to this document) which it considered would address Vodafone’s concerns in respect of paragraph 7.1, while leaving the substance of the paragraph unchanged. The Director’s considerations 4.6 Oftel put to Vodafone the amended wording proposed by BT for paragraph 7.1, and Vodafone confirmed that it was content with the revisions. Oftel accepts BT’s view that the substance of the paragraph is not changed. Accordingly, the Director is of the view that other operators would not be affected by BT’s proposed amendment. The Director directs, therefore, that BT shall amend paragraph 7.1 of the main body of the SIA to reflect the wording shown in Annex A to this document. SIA Main body – paragraph 12.2.1 (Attachment 1 to the Supplemental Agreement) Summary 4.7 Paragraph 12.2 specifies the notice period for varying BT charges in the Carrier Price List. Paragraph 12.2.1 has been amended such that for Competitive Standard Services the notice period has been reduced from 28 days to not less than seven days for an increase in BT charges, and not less than one day for a decrease. Operator submissions 4.8 Intelnet argued that it was unreasonable for BT to reduce the lead time for price increases from 28 days to seven days, and that increases should take place not less than 28 days after notification. It argued that Other Licensed Operators (OLOs) should be allowed time to evaluate whether such increases would be viable for their businesses or whether alternative sources should be sought. BT’s response 4.9 BT said that the amendment reflected a change in circumstances in the rules for the notification to Oftel of price changes for Competitive Standard Services (see Condition 69.4(a) of BT’s licence as modified on 11 May 2000), for which the regulatory notice period is one day. During the review, BT had initially changed the contractual notice period to one day but, after discussion with the industry group, agreed to a notice period of not less than seven days for price increases. The Director’s considerations 4.10 The Director notes the reduction of the time period required by regulation for notification of price changes for Competitive Standard Services, and the fact that, at a contractual level, BT agreed to a period of notification for price increases exceeding that required by regulation. Only one operator objected to this amendment and, in the Director’s view, BT should not be required, for these services, to provide 28 days’ notification for price increases. The Director does not propose that BT should be required to amend the current wording of paragraph 12.2.1 of the main body of the SIA. SIA Main body – paragraphs 27.2 and 27.3 (Attachment 1 to the Supplemental Agreement) Summary 4.11 Paragraph 27.2.1 reduces the time period within which a material breach of the SIA (other than one arising from an invoice dispute under paragraph 5.2.2 of Annex B to the SIA) is required to be remedied, from 30 to 14 days after the serving of a breach notice in the event of a failure to pay a sum due under the Agreement. 4.12 Paragraph 27.3 states that, where the Party in breach fails to remedy the breach pursuant to paragraph 27.2 within ‘such period’, the party not in breach may suspend performance of such of its obligations as is reasonable in the circumstances. Operator submissions 4.13 Operator 1 considered that paragraph 27.2 was unduly onerous and argued that, despite the best intentions, this did not allow for internal business practices or human error. The strict internal financial and accounting procedures demanded by current market conditions meant that monetary requests were not dealt with as rapidly as the parties might ideally like. Combined with the fact that the clock for payment started running from the ‘due date’, Operator 1 said that this introduced potential for delays which were outside the control of the receiving party. Operator 1 also considered that the remedy may be disproportionate, arguing that suspension of services by BT would damage the operator concerned and, while the amendments would have mutual effect, OLOs would suffer far greater losses than BT. Operator 1 also stated that it was not clear what ‘reasonable’ meant in the context of the suspension of a party’s obligations in paragraph 27.3, and considered that determining this matter could lead to court action. Operator 1 requested that the provision at paragraph 27.2.1 be amended to allow 28 days to rectify the breach once it had been notified. 4.14 Intelnet saw no justification in paragraph 27.2 for the reduction of the period for remedying a breach from 30 days to 14 days. 4.15 Vodafone considered that there was an inconsistency between 27.2 and 27.3, and suggested that paragraph 27.3 be amended to refer to the period referred to as "the applicable period as determined by paragraph 27.2…" BT’s response 4.16 On paragraph 27.2.1, BT explained that it had recently had difficulty with operators not paying, and apparently with little intention of doing so. While BT had sought to reduce the previous period of 30 days, following the issue of a breach notice, before a remedy could be required, to seven days, it said it had reluctantly agreed to a period of 14 days. It also clarified that sums which were properly in dispute were excluded. BT argued that it could not be unreasonable for the wronged party to seek to take action after 14 days. It stressed that suspension under paragraph 27.2 provided that the suffering party may take proportionate action after the deadline specified in the breach notice, and that any temporary suspension of that party’s obligations must be reasonable in the circumstances. BT added that any service could be terminated only under paragraph 27.4, which stipulated a written notice period of three months from the failure to remedy a breach as set out in paragraph 27.3. 4.17 BT said that paragraph 27.3 had been amended in the contractual review as a result of Vodafone’s concerns that the paragraph had not been sufficiently clear. BT explained that the previous wording had referred to a ‘reasonable period’. BT said that it was agreed with the industry group that the word ‘reasonable’ be deleted as a qualification of ‘period’, with the effect that the period which is referred to in paragraph 27.3 is that which is specified in paragraph 27.2. Submissions following the draft direction 4.18 COLT disagreed with Oftel’s conclusion that BT should be entitled to a shorter remedy period simply as a compromise between the seven days BT had initially asked for, and the existing period of 30 days. COLT argued that 14 days to remedy a breach was not commercial standard practice. It understood that 30 days was standard in other utility industries, and would expect a similar standard to apply in telecommunications. Accordingly, COLT requested that this amendment be removed. The Director’s considerations 4.19 Early in this determination process, Vodafone wrote to BT setting out its objections, later copying that letter to Oftel. BT responded to Vodafone by letter, sending a copy to Oftel. The letter from BT to Vodafone responded, inter alia, to Vodafone’s objections on paragraphs 27.2 and 27.3, maintaining that BT considered the present wording to be satisfactory. Vodafone has now confirmed to Oftel that it has no overriding objection to paragraphs 27.2 and 27.3 as currently worded. 4.20 The Director has considered the operators’ submissions, BT’s explanation, and the fact that BT agreed to a time period longer than it had originally requested. He considers that it is reasonable for BT to reduce the time period for remedying a breach from 30 to 14 days. In respect of COLT’s response to the draft direction, the Director reiterates his view that, in view of BT’s comments about the impetus behind the amendment, 14 days is a reasonable period. He also notes that this applies only in the event of a failure to pay a sum due under the SIA, and that for other breaches the period for remedying a breach remains at 30 days. The Director does not propose that BT should be required to amend the current wording of either paragraph 27.2 or 27.3 of the main body of the SIA. SIA Main body – paragraph 28.1 (Attachment 1 to the Supplemental Agreement) Summary 4.21 This paragraph refers to the serving of notices, stating three methods by which a notice shall be duly served. The first two are by hand and by facsimile. The third category has been amended by the Supplemental Agreement from recorded delivery to first class post, with the notice deemed to have been served on the fourth calendar day after the day of posting. Operator submissions 4.22 London Digital commented that the normal post was too unreliable in London, where there were frequent postal problems, and was unsuitable for serious or time-sensitive material. It asked that the paragraph be amended or removed. 4.23 Operator 2 stated that its position was that all notices from BT should be sent by recorded delivery post to ensure that they could be received and processed in a timely manner. It said that it had previously experienced problems in receiving notification correspondence from BT, and believed that recorded delivery ensured better accountability by all parties for the receipt and processing of notification documentation. Operator 2 asked that the paragraph be amended to state that all notices received from BT will be forwarded by recorded delivery post. BT’s response 4.24 BT explained that, in practice, it used first class post to send out notices, and not recorded delivery, and believed that most operators also did not use recorded delivery. The amendment, it argued, therefore brought the SIA into line with BT’s current practice. Submissions following the draft direction 4.25 Operator 2 assured Oftel that it made every reasonable endeavour to utilise both a dependable and timely method to serve notice to BT, and currently utilised two or all three modes of delivery: email, facsimile and registered post. 4.26 Operator 2 maintained that, where a notice was served, both operators should be accountable for the delivery where the contents were commercially or time-sensitive. As such, it believed that documentation proving the delivery of notices must be obtained and maintained by all parties to forestall problems. Its experience with BT indicated that BT did not engage in the same level of assurance in serving notice, and Operator 2 said there was at least one situation in which BT had alleged that notification had been served on the Company, when in fact notice had not been served. 4.27 Based on its own experience, Operator 2 considered that first class post was an inappropriate means of notification if the notice was commercially or time-sensitive, and asked that paragraph 28.1.3, on the use of first class post, be qualified with a statement that this would be acceptable only when the contents were not commercially or time-sensitive. The Director’s considerations 4.28 The current paragraph 28.1 provides, as did the previous version, for three possible methods of serving a notice. Oftel notes that the paragraph does not include ‘or’ or ‘and’, and assumes that hand delivery, facsimile and first class post are alternatives. While Oftel notes that the amendment may have brought the SIA into line with BT’s practice, paragraph 28.1 also governs the service of notices by OLOs on BT. No evidence has been presented to Oftel on whether the serving of notices by first class post is the practice of OLOs: one operator indicated that it used facsimile. 4.29 Although Operator 2 asked for the paragraph to be amended to require that all notices from BT will be sent by recorded delivery, Oftel considers that the Director is being asked to determine a dispute over the terms of the contract rather than a dispute as to the performance of the contract, and that to require BT to send notices by recorded delivery would fall into the latter category. While the serving of a notice by post (whether first class or recorded delivery) is only one of a number of means of doing so, it remains a commonly used method. 4.30 Two operators objected to the revision of the SIA to insert the reference to first class post instead of recorded delivery. First class post is recognised as a means of service by section 7 of the Interpretation Act 1978. This provision deems service to be effected unless the contrary can be proved. 4.31 The service of notices under the PTO licence follows the rule in section 7 of the Interpretation Act 1978. Paragraph 4 of the PTO licence incorporates the Interpretation Act 1978, and paragraph 8 of the PTO licence provides that: Any notification which is required to be given under this Licence by the Secretary of State or the Director shall be satisfied by serving the document by post on the Licensee at the Licensee’s registered office. (emphasis added) 4.32 Paragraph 1.2 of BT’s SIA also states that "The Interpretation Act shall apply for the purpose of interpreting this Agreement as if this Agreement were an Act of Parliament". Paragraph 28.1.3, however, is more specific than the Interpretation Act 1978, in that it requires first class post and deems notice to have been served on the fourth day after the day of posting. 4.33 There are therefore clear precedents for the use of post as an accepted method for the service of documents. However, in view of the objections received, and the fact that, arguably, the SIA as amended could lead to the conclusion that recorded delivery is not an accepted method for service, the Director considers that it is reasonable for the SIA to specify that first class post may be used as an additional means of service. 4.34 Responding to the draft direction, Operator 2 considered that first class post was inappropriate for commercially or time-sensitive material, and argued that delivery documentation should be obtained. The Director considers that it would be impracticable within the SIA to require that first class post should not be used for commercially or time-sensitive material, since this might be a matter for individual interpretation, and the appropriate means of delivery should be left to the judgement of the party serving a notice. 4.35 Rather than as a substitute for recorded delivery, the Director directs, therefore, that the use of recorded delivery shall be retained, in addition to first class post, and that BT shall amend paragraph 28.1 of the main body of the SIA to add the use of recorded delivery as a fourth method of serving a notice. SIA Annex B – paragraphs 5.2.1 and 5.2.2 (Attachment 1 to the Supplemental Agreement) Summary 4.36 These paragraphs set criteria for the payment of disputed invoice sums, specifying whether amounts may be withheld, or paid in part or in full, depending on whether they are above, or below, £250,000 or 5% of the total invoice. Operator submissions 4.37 Intelnet argued that the £250,000 threshold denied leverage to small operators. It interpreted the paragraphs as requiring small operators to pay sums in dispute if they were less than £250,000, whereas they had previously not had to do so. BT’s response 4.38 BT said that the effects of the amendment meant that, in no case, were the requirements more onerous, where it was invoicing OLOs, than had previously been the case. It accepted that the wording of the paragraphs might be difficult to understand, but considered that they were accurate and effective. The Director’s considerations 4.39 In Oftel’s analysis of these paragraphs, for those situations where the disputed sum is less than 5% of the total sum but greater than £250,000, the operator may now withhold the disputed sum whereas, previously, it had to pay the total sum. There are no other changes, and on this basis, where BT is invoicing OLOs, the new requirement is less onerous on OLOs than the previous version. The Director does not propose that BT should be required to amend the current wording of either paragraph 5.2.1 or 5.2.2 in Annex B to the SIA. SIA Annex C Schedule 141 – paragraphs 2.5 and 2.6 (Attachment 1 to the Supplemental Agreement) Summary 4.40 Paragraph 2.5 obliges BT to convey Indirect Access (IA) calls from Exchange Lines directly connected to, and switched by, certain (listed) types of BT Local Exchange. Paragraph 2.5.1 excepts BT from this obligation in respect of BT Social Telephony (ST) customers. 4.41 Paragraph 2.6 is a new paragraph, which places an obligation on operators to use reasonable endeavours to inform prospective IA customers which use a BT ST Service that they would need to cease the ST service before taking up the IA service. The paragraph further requires that operators shall use reasonable endeavours not to permit the encouragement of IA customers to apply for a BT ST Service. Operator submissions 4.42 Intelnet argued that paragraph 2.5 limited customer choice in two respects. Firstly, it said that for BT to be obliged to convey IA calls only on certain (listed) exchanges limited the potential market for the sale of IA services, and that, until Carrier Pre-Selection (CPS) was fully implemented, IA calls should be available from all exchanges and lines. Intelnet also argued that paragraph 2.5.1 limited customer choice, and saw no reason why ST users should not also be able to use IA services, on the basis that this encouraged competition. 4.43 Operator 1 objected to paragraph 2.6, stating that it would require OLOs to do BT’s policing of IA customers applying for BT’s ST Service. Operator 1 said that it provided services to corporate customers and did not operate in the residential market, so the requirement to use ‘reasonable endeavours’ to inform prospective customers of the need to cease BT Social telephony was not necessary. Operator 1’s customers might sell on services to parties which did take ST, but it said that it would be onerous to expect it to use reasonable endeavours for IA customers where it did not have a direct contractual relationship with them. Operator 1 pointed out that BT, by contrast, did have a direct relationship with its customers using ST, and was therefore able to impose contractual requirements directly on those customers and enforce the provisions where necessary. Operator 1 asked that the requirements regarding ST be removed from the SIA. 4.44 Operator 2 explained that its customers were not required to submit a formal application to use its IA service. It said that it distributed direct mail marketing literature to UK consumers via the Royal Mail. Operator 2 explained that a consumer, on deciding to use its IA service, would place a call using the access code prior to each direct dialled number. On the first occasion the telephone call would be intercepted for the collection of billing details, but the operator said that no formal application was required. Although Operator 2 did have a website which includes an application form, it said that this accounted for only a small proportion of its customers. 4.45 Operator 2 said that as it did not have access to BT’s ST records, it could not commit to informing its customers of the need to cease BT ST Service. Operator 2 argued that, as it had no contact with potential customers prior to their using its IA service, it would be unable to enquire whether any customer used BT ST. It said that if, during a conversation with one of its customer representatives, a potential customer offered information regarding their use of BT ST, the representative would explain to the caller that he/she would be unable to use the IA service. BT’s response 4.46 BT said that the exchanges listed in paragraph 2.5, on which BT was required to convey IA calls, represented most, if not all, of BT’s network. 4.47 It explained that IA calls were not available from BT public call boxes, other than those which could be accessed via 0800 numbers, and that it was its policy to bar calls to IA numbers for its ST customers. It said that this applied to numbers commencing 1xx, 1xxx and 1xxxx, to those 0800 numbers which had been declared to BT as being used for IA, and to any other 0800 numbers where it became clear to BT that they were being used for IA. 4.48 An ST user attempting to make an IA call would be referred to a recorded announcement offering a helpline to those who wanted information about being removed from ST status. At best, however, BT considered this solution to be an unsatisfactory compromise which may lead to confused and disappointed customers discovering that they had incompatible services, and this would benefit no-one. BT maintained that it was more sensible, where appropriate, for potential IA consumers to be given a ‘health warning’, and to ensure that IA operators and any service providers had processes to ensure that they did not mis-sell such services. 4.49 BT explained that the aim of paragraph 2.6 was to require IA operators to ask prospective customers whether they used BT ST and, if so, to advise them that they should not also use an IA service. Submissions following the draft direction 4.50 Operator 2 maintained its previous position on this matter, and additionally asserted that the burden of notification to prospective IA customers lay with BT. Operator 2 believed that the onus of the notification obligation was misplaced if IA operators were required to notify prospective customers of the terms and conditions of BT’s ST service, which IA operators did not provide and from which they received no benefit. Moreover, Operator 2 argued that it should not be the role of IA operators to explain details of a competitor’s service offerings, and said that it would be counterproductive to establish a precedent whereby carriers were required to educate consumers about such products. Even if written notification was indeed required, Operator 2 believed that the wording used would not be to BT’s satisfaction. Thus, collateral disagreements between companies might be a consequence of such a requirement. 4.51 Notification via Operator 2’s marketing literature may suffice, but its inclusion on the marketing literature would make its solicitations more cumbersome and complex to the reader. The result would be that the proposed notice would be less likely to be read by the average consumer, so defeating its purpose. 4.52 Responding to Oftel’s suggestion that Operator 2 could inform prospective customers about BT ST when they first attempted to utilise the Company’s IA services, Operator 2 said that the first call attempt was not necessarily the call which was intercepted for billing and data collection purposes. Operator 2 said that it had implemented internal policies and procedures (eg for fraud-related reasons) for the purpose of determining which calls would be intercepted, and when. In any case, Operator 2 said that the purpose of intercepting the call of a customer or a prospective customer was merely to enable the confirmation of billing name and address details, and that to impose an obligation that Operator 2 intercept every first call attempt by a prospective customer would be financially burdensome. Operator 2 submitted that this burden outweighed the potential policy value of imposing such an obligation. It considered that it would be equally possible for BT to initiate a customer communication programme at its own cost in which it advised customers using ST that they would be precluded from being able to use IA. 4.53 Operator 2 asserted that, more importantly, initial call interception would actually be ineffective because BT was currently blocking all IA calls from BT ST customers. It had been Operator 2’s experience and understanding that BT ST customers were in any case barred by BT from using Operator 2’s access code, and that callers would instead hear a recorded announcement advising them of this. In this case Operator 2 would not be able to intercept calls in the first place. 4.54 COLT regarded the requirement in paragraph 2.6 to use reasonable endeavours to advise prospective IA customers that if they already used BT ST they would be unable to take IA, as an unnecessary and onerous obligation which did not achieve its objective and imposed additional costs on operators. 4.55 COLT said that while it did not itself provide services in the residential market, it provided services to large corporate customers. Since its prospective customers would not be entitled to use BT ST, advising them that they could not take IA services and ST together did not achieve the objective and was pointless. Furthermore, COLT said, it was unclear what ‘reasonable endeavours’ would require in this context. In order to advise all prospective IA customers, COLT considered that it would need to review and amend its internal processes, and might also need to amend its contracts with its own customers, the total cost of which could rise to £15,000. Even so, COLT argued, the requirement would not achieve its objective, which it said was inefficient and could not be justified. 4.56 COLT also argued that the proposed amendment requiring it to use reasonable endeavours not to permit the encouragement of IA customers to apply to BT for an ST service was, for the reasons set out above, unnecessary for its direct customers. COLT, however, also acted as a wholesaler of services and it said that there were circumstances in which its customers might resell an IA service. It also regarded it as unclear what ‘reasonable endeavours’ required in this context. The only way, COLT said, in which it could restrain its customers from encouraging IA customers to apply for BT ST was by including it in its contract. COLT reiterated that amending this contract and enforcing the obligation would entail a significant cost, and would have to be done via the courts. Despite including it in its contract it considered that its customers were unlikely to comply, and it would therefore have incurred significant cost without achieving the objective of the amendment. 4.57 Oftel sought BT’s views on the submissions of COLT and Operator 2. In its response, BT said that paragraph 2.6 related essentially to measures designed to protect the consumer, and was a simple and straightforward extension of the well-considered measures adopted for CPS and Interim ICPS. 4.58 BT believed that it was unacceptable for customers to be permitted to purchase services which would not work. While it barred all IA 1xx/x/x calls to ST customers, it said that the barring of 0800 IA calls could not be automatic, but that it would bar such IA calls when an IA number was declared or discovered. BT maintained that if an ST customer were sold IA, then calls would either fail immediately or, in the case of 0800 calls, might work for a period before failing. Either way, BT said that both it and the IA operator would be left with a frustrated and confused customer, which would result in impaired customer care and loss of goodwill. Such conflicts of service, BT argued, should be avoided. 4.59 BT considered that the strength of the ‘reasonable endeavours’ obligation was its flexibility, and believed that it would be unhelpful and counterproductive to attempt to define this too precisely. In respect of COLT’s objections, BT said that it would have little difficulty in interpreting what ‘reasonable endeavours’ in paragraph 2.6 might mean in respect of corporate customers, who by definition could not be ST customers. On COLT’s comments about the difficulties of controlling IA sales by its customers, BT regarded this as strengthening the case for paragraph 2.6. 4.60 Commenting on Operator 2’s objections, BT said that the object of paragraph 2.6 was clearly not to notify prospective customers of the terms and conditions of BT’s ST service, but to make customers aware that IA via BT’s network was incompatible with ST. BT said that it derived no quantifiable benefit from this, other than that customers would be better-informed, and any confusion or frustration reduced. This would in turn benefit OLOs. 4.61 BT said that the requirement of the provisions in paragraph 2.6 had a precedent in CPS and ICPS, and considered that there ought to be no difficulty in finding appropriate action. BT would not need to approve appropriate wording, and the operator would be the immediate judge of its own reasonable endeavours. The Director’s considerations 4.62 The increasing use of IA has exacerbated potential difficulties which can arise in the case of BT’s ST customers. BT has taken a number of steps to prevent such difficulties, such as by barring IA calls for its ST customers. It also takes steps to make it clear, for example in its marketing literature, that IA service users are not eligible to use ST. Despite BT’s barring of calls commencing with certain codes, there are potentially other IA codes of which BT is unaware and where ST customers could also use IA services. The Director accepts BT’s explanation, however, that in spite of the technical facilities available to bar calls, this is still not an ideal solution. 4.63 In respect of Operator 2’s objections, the Director considers that the operator is in a position whereby it could inform its potential IA customers of the need to cease ST. This could be explained in the first instance in the direct marketing literature which Operator 2 distributes to UK consumers (or on its website for those customers completing the application form on-line), and secondly when a consumer tries to use the IA service. While Operator 2 said that it did not have access to BT’s records, it may not be necessary for the operator’s representatives either to solicit information from customers regarding their use of ST or to wait for the customer to volunteer such information. The representatives could inform customers that if they used ST they would need to cease their use of it if they wished to use the IA service. If an ST customer still decided to proceed with the IA service without ceasing use of ST, they would probably find that they would be barred from using the IA service. 4.64 While Operator 2 argued that it might not intercept calls on its IA service (for billing details) the first time a customer used it, the Director does not regard this as a serious impediment, since if the caller has got through, there is by definition not an immediate conflict between using ST and IA. However, bearing in mind that many IA users, on reducing their call levels with BT, may be offered ST by BT, the Director considers that it would be more effective for these users to be informed in advance of the basic rules governing its use. 4.65 The Director recognises that there are difficulties associated with the use of IA, where ST is concerned. Without taking a view on whether customers should be able to use IA alongside ST, the Director recognises that if an ST customer started using an IA service without having been made aware that his line was barred, he might be displeased to discover this only when he tried to use the service for the first time. In other cases, customers might start using an IA service via an 0800 number which was not initially barred by BT, and might be annoyed if BT later barred that access code. One operator suggested to us that paragraph 2.6 might be amended so that IA operators were required to inform prospective customers that ST customers might be barred from using IA services (although paragraph 2.6, as currently worded, does not preclude operators from informing prospective customers of this situation). 4.66 The Director considers that it is important from the perspective of the consumer interest, and IA operators, to ensure that prospective IA users are, as far as possible, made aware that this is incompatible with ST. There are limitations to the extent to which BT can be expected to inform its customers of this situation (indeed BT might find it difficult to target any approach since it would be unlikely to know in any level of detail which customers are prospective IA users), and it would appear that the operators offering IA are best-placed to inform customers. 4.67 The Director is not persuaded, as suggested by Operator 2, that the inclusion of appropriate wording on any marketing literature would render it less likely to be read by prospective customers, but considers that even if this were the case it would be outweighed by the benefits of informing consumers. The operators would also not, as had been suggested by Operator 2, be required to explain the terms and conditions of ST, nor would they be required to seek BT’s satisfaction on the wording of any notification to customers. In the light of COLT’s arguments that its customers were unlikely to comply with any requirement requiring them from offering IA to ST customers, the Director believes that this lends support to the provisions as set out in paragraph 2.6. 4.68 Paragraph 2.5, insofar as it relates to types of exchange on which BT is required to convey IA calls, has not been amended by the Supplemental Agreement and the Director is therefore not requested to consider it in this direction. However, in view of BT’s explanation that the exchanges listed represented most, if not all, of BT’s network, Oftel currently considers that any such restriction appears to be insignificant and does not, as Intelnet has suggested, limit customer choice. 4.69 In respect of Intelnet’s submission on paragraph 2.5.1, Oftel notes that this paragraph has been changed only insofar as the term ‘Low User Scheme’ has been replaced by the term ‘BT Social Telephony Customer service’. The Director notes that the substance of the paragraph has not changed. 4.70 The Director does not propose that BT should be required to amend the current wording of either paragraph 2.5 or 2.6 of Schedule 141 of Annex C to the SIA. SIA Annex E (Attachment 5 to the Supplemental Agreement) Summary 4.71 Annex E is a new Annex, bringing together and revising the existing provisions on fraud, and introducing new provisions under the general heading of Artificial Inflation of Traffic (AIT). General comments about the new provisions are set out below in BT’s response (see paragraphs 4.85 to 4.89 below). Operator submissions 4.72 Kingston said that the new AIT provisions had been presented as a relatively straightforward transposition of the existing ‘Prevention of Fraud’ conditions into a free-standing Annex and associated Operations Manual with a more general application. While Kingston accepted that there was a need for a more transparent and consistent fraud prevention scheme, it had concerns about the breadth of its application, and BT’s consequent ability to act in a way which may have significant commercial implications for operators of legitimate services. Kingston was concerned that the current provisions were insufficiently detailed and unambiguous, and could lead to significant levels of disputed payments. 4.73 Kingston conceded that there were a number of problems associated with the abuse or misuse of Number Translation Shared Revenue Services, which had extended beyond the traditionally vulnerable Premium Rate Service sector. While Kingston accepted that it was legitimate to seek to extend revenue protection measures to include other Number Translation Services, it said it was vital to protect the equally legitimate commercial interests of all parties. Kingston was concerned, however, that this might not be the case. 4.74 Primarily, Kingston was concerned about the ability which the new provisions would give to BT to ‘police’ Shared Revenue Services by the unilateral imposition of revenue retention measures. Kingston viewed the definition of AIT as being so broad that such revenue retention, whether deliberate or not, could adversely affect legitimate business schemes. While the indicators of AIT did provide some guidance as to when revenue protection measures could be triggered, Kingston argued that they covered activities which could have legitimate causes. This could lead to protracted disputes over retentions, with consequent commercial implications for smaller service providers. 4.75 On the drafting, Kingston believed that the meaning of ‘reasonable endeavours’ in paragraph 2.1 of Annex E needed to be agreed. While Kingston noted that paragraph 4 of the Operations Manual attempted to identify examples, it said that this had no direct contractual bearing, and led to the likelihood of a divergence of views on what constituted reasonable behaviour. Indeed, Kingston argued that the types of behaviour outlined by BT in the Operations Manual as representing ‘reasonable endeavours’ might require significant investment in systems and processes by operators, and this might arguably deter market participation. 4.76 Kingston also said that what constituted ‘reasonable steps’ in paragraph 9.2 of Annex E was undefined. This, it said, could give rise to circumstances where outpayments had been made by the Terminating Network Operator (TNO) in good faith, but payments were withheld by the Originating Network Operator (ONO), and the ONOs’ ‘reasonable steps’ to recover call origination charges were unsuccessful. 4.77 Syntec fully endorsed any attempt to control fraud, and believed that the proposed obligation to report suspected AIT would have a noticeable impact if implemented. However, it also had significant concerns about the drafting of certain sections in Annex E, which it considered would lead to unintended consequences, both unwelcome and potentially serious. 4.78 Syntec believed that the provisions would lead to litigation between operators in disputes about the location of liability for AIT-related losses, and between operators and their customers even where no fraud had been committed. It believed that the provisions unjustifiably transferred liability for negligence or incompetence from ONOs which failed to tariff correctly, to TNOs. Syntec argued that, under certain circumstances, bad debt liability would be transferred from an ONO to a TNO where the ONO did not receive payment, due to default on the part of an agent of that ONO. 4.79 Syntec proposed a number of drafting points for paragraph 9 of Annex E, which it said should apply equally to paragraphs 10 and 11. In discussions with Oftel, Syntec said that there were two amendments in particular, which together would constitute a very substantial improvement to the provisions. First, Syntec considered that paragraph 9.1 should be amended to apply a further condition, as paragraph 9.1.3, stating that an ONO must also "confirm that its tariffs were correctly set and that its databuild accurately reflected those tariffs in respect of the identified Calls". Second, Syntec said that a clause should be added to paragraph 9.2, which relates to an ONO passing on payments to a TNO. Whereas paragraph 9.2, as currently formulated, required an ONO to pass to an ONO any payments which it had received, Syntec asked that the paragraph be redrafted with a clause stating that if the party originating the identified Calls had made a bona fide payment to an agent or a sub-agent of the ONO, this would be construed as the ONO having received the payment. 4.80 Syntec was also concerned that, where an ONO had set incorrect tariffs too low but had received payments in respect of those calls, it should be required to pass on payment to the TNO as if the calls had been charged at the correct rate. 4.81 Vodafone was concerned that paragraphs 9.2, 10.2 and 11.2, as currently drafted, should be amended to indicate that, in the event that an ONO or a Transit Operator receives payment from its customer or a third party ONO, any payments passed to a TNO or a Transit Operator should be limited to the amounts actually owed. 4.82 Intelnet argued that indicators (of AIT) 1 and 2 in Appendix E.1 provided BT with grounds to withhold payment even if large increases in traffic were legitimate. Intelnet maintained that, in theory, these could be used by BT to cap an operator’s natural growth within such a service. Intelnet said that some revenue share services were marketed by resellers and service providers, making it difficult for an operator to ascertain accurately what growth rate to expect month by month. It contended that uncommon growth should be left to liaison between BT and the operator, rather than to BT’s discretion. 4.83 Talk Telecom and Telecom One stated that they were content with the AIT provisions as far as UK traffic was concerned because the call origination information passed by BT provided a clear audit trail. They argued, however, that for international traffic which BT passed on, there was no call origination information other than a flag to indicate that the call was originated internationally. They believed that BT should pass on all information relating to individual calls, including, where available, the originating full or partial Caller Line Identifier (CLI) and originating and Transit Operator information. Talk Telecom and Telecom One said that it was generally understood that international traffic flows between carriers were rarely, if ever, fully reconciled and that many carriers provided inaccurate call traffic statistics. 4.84 Talk Telecom and Telecom One suggested tighter drafting of the definitions of ONO to indicate that this was the party directly receiving the call from the Caller rather than from a third party Transit Operator. They also suggested a redrafting of paragraph 11.1, on withholding of payments, to make it clear that the Transit Operator could withhold payment and declare suspected AIT only at the direct request of the ONO rather than at its own discretion. BT’s response (i) General comments 4.85 BT explained that one of the most significant changes to the SIA had been in relation to AIT. While the SIA previously included certain provisions on fraud, BT said that the drive for the new provisions had been based on an industry desire to stop service providers gaining from fraudulent practices. It said that the new provisions established practices, for every step of the payment chain, to assess whether traffic has been artificially inflated, and for appropriate actions. BT was clear that there was an onus on all parties to identify fraud, and said that any operator which suspected fraud must send a formal notice declaring non-payment. For example the ONO must inform the TNO within defined timescales, otherwise the operators would become liable for any charges. BT said that the provisions had also brought Transit Operators, which included BT (network operators had previously been excluded from fraud risks), within the framework. 4.86 BT said that there had been a marked increase in the scale of fraud, and that the new provisions were needed to combat it. It said that there were many means by which individuals or organisations were exploiting telecommunications services to defraud others, and BT explained to Oftel some of the more commonly used practices. BT described the underlying principle of AIT as being that a service provider might open a contractual relationship with a TNO for a revenue-sharing service (typically a Premium Rate Service, but more increasingly a Personal Numbering Service), and could fraudulently exploit the billing cycle by making multiple calls to that service from an ONO. After receiving payment from the TNO it would then default on the payment of the call charges to the ONO. BT said that in such instances service providers could exploit the system if TNOs offered rapid payment terms, and some TNOs had competed for service provider business on such a basis, thus exacerbating the problem. This was, however, just one example, and BT explained to Oftel that a wide range of other practices also fell under the general heading of fraud. 4.87 BT described the broad principle behind the new provisions as one whereby all operators had a duty to identify and report fraud. ONOs or Transit Operators must, having identified possible fraud, report it to the Transit Operators or TNOs. The former would then be able to withhold onward payments until the suspected fraud has been investigated. If no such suspicion was notified within a certain specified period, then the Transit Operator or TNO, if it had already made such payments, would be guaranteed payments due to it from other operators. If, however, a TNO made a payment to a service provider in respect of calls (which were later suspected to have been fraudulent) before the end of the notification period, then it ran the risk that it would not receive payments for those calls from an ONO if the suspicions proved to be true. 4.88 BT accepted that, in cases where payments had been withheld (for example on suspicion of fraud which later proved unfounded), payment could take a long time and could lead to cash flow problems for small operators. 4.89 BT maintained, however, that the new provisions were a significant improvement on the previous situation, although it accepted that there was room for some tuning. It said that, if there were any outstanding concerns about the operation of the new AIT process, these could be addressed in another general contract review, which under the terms of the SIA could be initiated by any party during the three months commencing on 1 October 2001. BT added, however, that if the AIT process proved by that time to be working well, there would seem to be little reason for a review. (ii) Responses to specific objections 4.90 Responding to Vodafone’s objections on paragraphs 9.2, 10.2 and 11.2, BT said that the text for these paragraphs was that which had been developed with operators’ representatives during the review. Whereas BT took the view that those paragraphs, as currently worded, did address Vodafone’s particular concerns, it recognised that the wording could be improved. Whereas BT could not see any operator passing on any more call revenue than was owed, it proposed additions to the wording of paragraphs 9.2, 10.2 and 11.2 to indicate that, if an operator received payment at any time in respect of identified Calls, it should pass on only an appropriate element of that payment. BT proposed that it approach the industry group for agreement on the wording. 4.91 Intelnet had suggested that the first two of the AIT indicators could be used by BT to cap an operator’s natural growth. BT explained that where there was a possible cause for concern under Appendix E.1 of Annex E, the first activity was informal contact between the fraud specialists of the two parties concerned (the ‘operational liaison’ as set out under paragraphs 3, 4, 5 and 6 of Annex E) and the operators may also check with their wider industry contacts. BT said that the parties would discuss what had been identified as possible AIT, and that where, for example, it was in relation to a new service and there were particular reasons for the growth in traffic, there would not be a cause for concern. BT pointed out that payment could be withheld under paragraphs 9 to 11 of Annex E only if there had been initial informal contact, as appropriate, under paragraphs 9.1.1, 10.1.1 or 11.1.1, and if there were "reasonable grounds to suspect AIT in the case of identified Calls" as set out in paragraphs 9.1.2, 10.1.2 and 11.1.2. 4.92 Commenting on the submissions of Talk Telecom and Telecom One, BT said that where, for international calls, the CLI was passed to it, it would invariably pass it on. BT said that its own network was transparent to the CLI, and would pass on what it received, but it said that in many cases it did not receive a full CLI. It understood, however, that Concert was working to increase the availability of CLI into the UK. 4.93 On the point raised by Talk Telecom and Telecom One about a Transit Operator being able to withhold payment and declare AIT only at the direct request of the ONO, BT said that the effect of this would be to dilute industry anti-fraud co-operative action. BT stressed that its actions were aimed at working with the industry to minimise AIT. Its view was that, generally, the initial identification ought to come from the ONO or TNO, but it said that action was often dependent on action by the Transit Operator. BT said that there might also be cases where an ONO had failed to detect AIT, or where additional traffic was being placed through a number of ONOs and it might not be detected by individual ONOs. In such cases, it would be inappropriate to prevent a Transit Operator from taking action on AIT where it had reasonable grounds to suspect its presence and had followed the agreed process. Submissions following the draft direction 4.94 Responding to Kingston’s comment (see paragraph 4.76 above) BT said that the drive of the industry AIT process was to help TNOs not to make premature outpayments to their Service Providers where there was a genuine doubt, although the TNO might choose to take the risk. 4.95 While BT generally welcomed Oftel’s comments on Syntec’s submission (see paragraphs 4.77 to 4.80 above), it was concerned about the Director’s proposed new paragraphs 9.2.1, 10.2.1 and 11.2.1, in relation to payments made to agents or sub-agents of ONOs. BT noted that Syntec’s submission was made very late in the process, and that Oftel had had little or no opportunity to discuss the issues with BT or other operators. BT said that the amendment was significant and, for the reasons set out below, should not be made in the form proposed. BT believed that any amendments in this area should be made only after full discussion with the industry. 4.96 Underlying BT’s concerns were a number of points:
4.97 BT, however, did appreciate that a TNO might be reluctant to assume the risk of normal run-of-business bad debt between the ONO and its agent or sub-agent, and suggested that the proposed paragraph 9.2.1 (as well as paragraphs 10.2.1 and 11.2.1) be amended to reflect this, as follows: 9.2.1 If an agent or sub-agent of the ONO has received bona fide payment for the origination of Calls affected by such withheld payment, for the purposes of this paragraph 9, the ONO shall be deemed to have received appropriate payment for those Calls unless an AIT situation exists concerning such Calls. 4.98 Commenting on Syntec’s suggestion regarding ONOs setting incorrect tariffs (see paragraph 4.80 above), BT said that if, in making calls which took advantage of inappropriate tariffing, the calling party was colluding with the TNO’s Service Provider, and using a service which was not legitimate (say, PRS), then an AIT and fraud situation would be possible. 4.99 In summary, BT noted that the new AIT provisions had been in place for only a short period, and even then only for operators that had signed the Supplemental Agreement. Although there had been an improvement in detection, and there were new scenarios that were clearly captured by the new provisions, BT said that it was still too early to judge their overall effectiveness. It remained convinced, however, that the new provisions were, initially at least, the appropriate way forward. BT considered that it was important that the provisions be given time for their efficacy to be tested, and it would monitor the impact to determine whether further enhancements were appropriate. The Director’s considerations 4.100 The evidence presented to Oftel during the determination process demonstrated an increasing opportunity for, and level of, fraud. The new arrangements appear to have been introduced as a result of a significant impetus from the industry for stronger regulations governing the control of fraud, mainly as a result of operator concerns, and provide extra controls, including co-operation between operators, and relief for ONOs which could demonstrate that they had been defrauded. 4.101 Oftel has seen copies of the minutes of the fraud sub-group which was convened under the aegis of the contractual review, to examine and redraft, where appropriate, contractual provisions relating to the detection and prevention of fraud. There appears to have been general recognition that the existing provisions had been inadequate and that revision of the SIA was appropriate. Indeed, among the operators which made submissions to Oftel on this matter, there was wide agreement on the need to take action to eliminate fraud. 4.102 There were some views that the new provisions might be too wide or too flexible; that some terms were insufficiently defined and could be ambiguous; that there could be unintentional consequences; or that they transferred risk and liability from ONOs to TNOs. 4.103 The new SIA has been in place for only a few months, and Oftel considers that it is difficult, with any degree of certainty, to draw any firm conclusions on whether the new AIT provisions are achieving their intended purpose. The new SIA applies only to those operators which have signed the Supplemental Agreement (or which have signed a new SIA since the Supplemental Agreement was issued), and Oftel has not, in this process, sought the views of those operators. BT provided Oftel with general information relating to the number of AIT retentions, and while it regarded this information as demonstrating the success of the new provisions, it accepted that there may be other reasons for the improved situation. It also provided some specific examples of the success of the new provisions, which it said would probably not have occurred without them. 4.104 There are a number of issues where it has been possible for Oftel to separate the potential effects of any changes to the new provisions from wider implications, and these relate in particular to specific drafting changes which the operators concerned had proposed or requested. These are addressed in paragraphs 4.105 to 4.114. For objections raised by other operators, it has proved more difficult to identify any specific changes which might with any degree of precision address the concerns raised, and these are discussed in paragraphs 4.115 to 4.117. 4.105 BT wrote to Vodafone suggesting alternative wording for paragraphs 9.2, 10.2 and 11.2 (see paragraph 4.81 above) regarding clarification that any amounts paid out by an ONO or a Transit Operator should be limited to that owed. Vodafone has confirmed to Oftel that it is content with the revised wording. The Director considers that these suggested amendments add clarification. His initial view is that the changes are unlikely to have any wider effects and should, therefore, be made. 4.106 Syntec’s submission was received late in the determination process, and Oftel was unable to seek BT’s views prior to the draft direction. In respect of Syntec’s view that paragraph 9.1.3 should be amended to require ONOs to check that tariffs and databuilds have been correctly set, the Director comments as follows. Paragraph 9.1.1 already requires an ONO to exchange information with a TNO in accordance with paragraph 3 and/or 5 of Annex E. Paragraph 5.1 specifies that where AIT is suspected, and an ONO must pass information to the TNO, including (paragraph 5.1.5) "such other information reasonably requested by the Terminating Network Operator". The Director considers that this would encompass such information as has been proposed by Syntec in its suggested additional paragraph 9.1.3, and takes the view that to amend the paragraph in this way might be unnecessarily prescriptive. The Director does not propose that BT should be required to amend paragraph 9.1 of Annex E to the SIA in respect of Syntec’s submission. 4.107 Syntec’s other key proposal was that any payment made to an agent or sub-agent of an ONO should be construed as a payment to the ONO. Oftel considered, in the draft direction, that where any such payment has been made, it would be likely to indicate that no fraud had been committed, and that there would be no justification for withholding payment from a Transit Operator or a TNO. Given that a number of operators had expressed concerns about a possible lack of clarity in the AIT provisions, and in consideration of Syntec’s submissions, the Director proposed in the draft direction that a new paragraph 9.2.1 be added, making a provision that any payment by a party originating calls, which had been paid to an agent or sub-agent of the ONO, would be construed as the ONO having received payment for the calls. This provision was also reflected in new paragraphs 10.2.1 and 11.2.1. 4.108 In its response to the draft direction, BT expressed concerns about this provision, and set out a number of points why it believed the provision should not be made in the manner proposed, in particular that it could not necessarily be concluded that a payment to an agent or sub-agent was indicative of the absence of fraud. BT proposed alternative wording which, while adhering to the principle that payment to an agent or sub-agent of the ONO would be construed as payment to the ONO, made an exception where an AIT situation existed. BT’s proposal also reflected its recognition of possible reluctance by TNOs to assume bad debt risks between ONOs and their agents or sub-agents. The Director recognises that difficulties could potentially arise from the wording as proposed in the draft direction, and accepts BT’s revised wording. 4.109 Oftel was not able to consider in any detail Syntec’s concern about ONOs setting incorrect tariffs (see paragraph 4.79 above), and its proposal that they should be required to pay TNOs on the basis of the correct tariff. No other submissions were made on this matter, or whether the existing provisions could be amended to specify more accurately the basis on which payments will be made. If this does raise concerns among operators, Oftel takes the view that it is a matter which they could address in a future review. 4.110 In respect of his consideration of the submissions of BT and other operators, the Director directs that BT shall amend paragraphs 9.2, 10.2 and 11.2 of Annex E to the SIA to reflect the wording shown in Annex B to this document. 4.111 On Talk Telecom and Telecom One’s concerns about caller information passed to it by international operators, the Director accepts BT’s statement that this matter is beyond BT’s control. The Director does not propose, therefore, to make any direction in this respect. 4.112 Talk Telecom and Telecom One made two other points, firstly that ‘ONO’ should be more tightly defined in paragraph 1, and secondly that paragraph 11.1 should be redrafted to state that a Transit Operator could withhold payment and declare suspected AIT only at the direct request of the ONO. 4.113 For the first, the definition of ONO given in Annex E to the SIA is ‘the Party from whose system the Call to a Revenue Share Service is handed over to the system of the other Party who acts as Terminating Network Operator or as Transit Operator’. No other operator submitted evidence that it was unhappy with the definition as provided, and the Director considers that any attempt to redefine a fundamental term such as ONO may be likely to have wider effects, and possibly compromise other elements of the AIT provisions. The Director does not propose that BT should be required to amend the definition of "Originating Network Operator" in paragraph 1 of Annex E to the SIA. 4.114 On the second matter, the Director accepts BT’s view that there might be circumstances in which a Transit Operator detects possible AIT while an ONO does not. In such cases, to prevent Transit Operators from declaring suspected AIT would be likely to reduce the effectiveness of the AIT provisions. As with many aspects of the new AIT provisions, the Director envisages that it will take time to see how well the provisions are working, and he invites views from operators on whether Transit operators should be permitted to declare AIT only at the request of an ONO. The Director does not propose that BT should be required to amend the current wording of paragraph 11.1 of Annex E to the SIA in respect of the submissions of Talk Telecom and Telecom One. 4.115 Kingston was concerned generally about the breadth of the application of the new provisions, and also raised some specific points in relation to the meaning of certain terms. Intelnet questioned whether certain indicators of AIT might be too prescriptive and allow BT too much leeway in declaring AIT. As noted above (see paragraph 4.103 above), Oftel recognises the difficulties inherent in attempting to define criteria for the detection and prevention of fraud which will be both comprehensive and effective: excessively narrow definitions may constrain action or limit the scope of the provisions, while wide definitions could lead to operators declaring AIT on a fail-safe basis where none is present. Annex E does contain provisions for the exchange of information between operators, notably in paragraphs 3 to 6, and there must be an expectation that operators would follow these where AIT is suspected. 4.116 Oftel has seen a copy of the AIT Operations Manual (which is referred to in both the main body and Annex E of the SIA), and understands that this has not yet been formally agreed by operators. In respect of Kingston’s comment about the need to agree the meaning of ‘reasonable endeavours’, examples of this are given in paragraph 4.2 of the Operations Manual. The Director considers that at least some of the issues raised by Kingston could be addressed by first agreeing on the content and definitions in the Operations Manual, and that BT and the operators have some scope to proceed without the need for him to make a direction. 4.117 Oftel accepts BT’s view, in relation to Intelnet’s submission that, where possible, operators must make informal contact before taking any specific action. It is clear that the fraud sub-group and its members spent some time drafting the provisions, and no evidence has been submitted to Oftel to allow it to conclude that the provisions will be ineffective or lead to undesirable effects. The Director considers that, in the absence of any evidence to the contrary, for example that the current provisions are ineffective in some way, or could be reworded to better achieve their aims, it would not be appropriate to recommend any changes. On the basis of the evidence presented, the Director’s view is that, in response to Kingston’s and Intelnet’s submissions, BT shall not be required to make any further amendments to Annex E of the SIA (other than as set out in Annex B to this document). SIA Main body - paragraphs 14A.3 and 14A.4 (Attachment 1 to the Supplemental Agreement) Summary 4.118 Paragraph 14A is a new paragraph relating to AIT. Paragraph 14A.3 refers to the Parties maintaining ‘appropriate procedures’ to identify and prevent AIT. Paragraph 14A.4 refers to the "agreed safeguards" in respect of AIT, stating that if they were not adequate either Party may apply for a review of under paragraph 19.1.3 of the SIA. Operator submissions 4.119 Vodafone considered that these definitions were inconsistent and that the intention behind the two paragraphs was therefore not clear. BT’s response 4.120 BT commented that the wording had been agreed with the industry group and would be reluctant to amend it. BT considered that there was no material conflict between the two clauses. Vodafone maintained that although the current wording would not be a bar to Vodafone signing the Supplemental Agreement, it would nonetheless prefer clearer wording. The Director’s considerations 4.121 Oftel’s view is that, given Vodafone’s view that it could accept the para | |||||||
