Contents

Summary

Chapter 1 Introduction
Chapter 2 WLR2 product description
Chapter 3 ISDN products
Chapter 4 WLR2 process issues
Chapter 5 Capacity of BT’s electronic gateway and forecasting
Chapter 6 WLR consumer issues
Chapter 7 Cost recovery
Chapter 8 Assessment criteria
Chapter 9 Implementation phase
Chapter 10 Consultation details

Annex A Select services
Annex B WLR & CPS: Time-line diagrams and order scenarios
Annex C Letters from gaining and losing providers
Annex D Guidance on sales and marketing codes of practice
Annex E WLR1 consumer guide
Annex F List of questions

  Summary

S1 In August 2002 Oftel required BT to provide a Wholesale Line Rental (WLR) product. WLR is intended to stimulate competition by allowing alternative suppliers to provide an integrated service comprising calls and access, renting the exchange line from BT, and sending customers a single bill.

S2 BT introduced a WLR product in September. Oftel believes that this basic product needs to be enhanced in order for it to be an effective mass-market product that is commercially attractive to service providers and to end users.

S3 Oftel is now setting out proposals on the nature of the enhancements required. These proposals reflect extensive discussions and work in industry groups set up by Oftel since June.

S4 WLR service providers should have the same opportunity to compete in the marketplace as BT. This means that BT’s retail activities should not benefit from privileged access to select services and line features supplied by BT at the wholesale level if they are material to competition and BT has market power in these areas. These existing services and features should be made available to WLR providers. This will require developments to BT electronic ‘gateway’ through which orders are placed by the service providers

S5 BT also needs to develop and make available to service providers new features which will allow calls by WLR customers to be routed directly to the providers’ service centres when they dial codes such as 151 and 154 for residential and business support. BT will also need to ensure that WLR providers have access to fault management and reporting facilities that BT provides to itself. To promote innovative tariffing, Oftel believes that WLR providers should also be able to choose to prevent their customers dialling Indirect Access (IA) codes.

S6 The transfer of customers to their new provider should be carried out as efficiently and as seamlessly as possible with the number of rejected orders kept to an absolute minimum. When the WLR calls are to be provided using Carrier Pre-Selection (CPS) routing, this should be activated by BT simultaneously with or in the shortest possible time after the line is transferred. Oftel recognises that for the enhanced product a short delay between the activation of WLR and the activation of CPS may be unavoidable initially to ensure early delivery of the enhanced product but should not exceed one day. Further work by the industry is required to reduce or eliminate this delay.

S7 Oftel has looked at the competitiveness of the ISDN market to assess whether this product should be incorporated into WLR. Oftel’s view is that to address BT’s dominance in the provision of ISDN, BT should be obliged to supply wholesale versions of ISDN on non-discriminatory terms and to provide 90 days’ notice of price changes. Prices for the ISDN product should be at a level which will encourage competition into the retail markets.

S8 Some of the proposals that Oftel is making for the enhanced WLR product will require BT to develop its network and systems. Oftel has to decide how the costs of these developments should be met. Some of the developments required to BT’s electronic gateway have already been reflected in the WLR line rental charge set in August by Oftel. Over £14M of development costs were allowed for in the line rental charge to be paid by the service providers to BT and represent £0.39 of the quarterly rental of £28.00. Oftel believes that, to provide certainty to the service providers and to incentivise BT to minimise the costs of developments, this line rental charge and the approach to allocation of gateway development costs, as set by Oftel in August, should remain in place.

S9 Other developments such as the introduction of optional barring of IA calls and routing calls to customer support require changes to BT’s switches. These are required on competition grounds and to provide service providers with equivalence with BT. Oftel is therefore proposing that the set-up costs for these services should be recovered from both BT and WLR providers.

S10 The introduction of enhanced WLR is expected to increase competition between providers and change the way services are marketed. Experiences in other sectors, such as the energy market, and with other telecoms products indicate that there is a need to protect customers from misselling and from unauthorised transfers and to provide independent information. All WLR providers will be required to have a code of practice on sales and marketing, which Oftel will approve. Oftel will issue guidance on the key elements of that code. Oftel is also proposing that there should be a period of ten working days between the placing of a new order by the provider and the transfer of service by BT. During the ten days the losing and gaining providers will send letters to the customer advising them of the change to their service. In addition, Oftel is developing a Consumer Guide to the new product.

S11 Oftel will relax the controls on BT’s retail prices once Oftel is satisfied that the enhanced WLR product has been introduced in a form that is fit-for-purpose and is being used actively by alternative providers. This relaxtion will reflect the increase in competition WLR is bringing and provide BT with an incentive to introduce the enhanced WLR product swiftly and fully.

S12 To test whether the relaxation is appropriate Oftel will assess the enhanced product and processes. Oftel will consider whether the product allows a service provider to offer a similar range and quality of services to that offered by BT Retail. The processes should provide a means to ensure that customers can transfer service seamlessly and that WLR can be implemented in an efficient manner that minimises transaction costs. Oftel will also consider evidence about the impact of the product on the market.

S13 Oftel intends to publish a Statement in January 2003 with its conclusions from this consultation. BT and service providers will then be in a position to finalise their implementation project plans and report on them to industry groups.

Chapter 1

Introduction

1.1 Background

1.1.1 Oftel’s 2001-2 review of the fixed telephony market concluded that BT has market power in the provision of access and calls. BT continues to have a large share of both the lines and calls markets, and makes very high returns on calls, well in excess of the level necessary to maintain a sustainable business. In August 2002 Oftel modified BT’s licence to require it to provide a new ‘Wholesale Line Rental’ (WLR) product. The purpose of this product is to stimulate competition by enabling alternative suppliers to provide a single bill that covers both line rental and telephone calls.

1.1.2 In order to provide BT with an incentive to introduce WLR as quickly and fully as possible, Oftel indicated that it would relax the controls on BT’s prices (from RPI-RPI to RPI-0%) when it is satisfied that a ‘fit-for-purpose’ WLR product has been made available by BT and is being actively used by competitors. A relaxation of price controls is appropriate if the market for these services becomes more competitive, as competition should itself put downward pressure on prices,

1.1.3 BT introduced a basic WLR product (WLR1) at the beginning of September 2002. BT branded this product as ‘Wholesale Access’. It adopted similar functionality to the existing Calls and Access product though with cost-based prices set by Oftel. To operate as a mass-market and ‘fit-for-purpose’ product, Oftel recognised that the basic WLR will need to be developed further by BT.

1.1.4 Oftel identified in June some essential features of an enhanced WLR product (WLR2). These included a highly automated ordering process capable of handling significant volumes and seamless interworking with Carrier Pre-Selection (CPS) from a customer’s perspective with minimal delay in transfer times.

1.1.5 Since June Oftel has been working intensively with the industry and consumer representatives to develop a detailed set of requirements for WLR2. This process has been carried out in working groups: Steering, Operations and Consumer Issues groups chaired by Oftel and a Process Group chaired by the industry.

1.2 Consultation document

1.2.1 This document sets out – in chapters 2 and 4 – proposals, based on the work of these groups, for a description of the WLR2 product and processes that Oftel would expect BT to implement. In addition, in chapter 3 Oftel sets out an analysis to explain why Oftel believes it is appropriate for ISDN to be included in the product specification for WLR2.

1.2.2 To assist BT to meet all reasonable demand for WLR in a timely manner, Oftel proposes to specify what order volume the BT’s systems should be designed to handle. The results of Oftel’s commissioned analysis of the potential WLR market, which indicates up to 2.8 million lines after two years, are set out in chapter 5. Chapter 5 also sets out proposals for how the system might be rationed between different SPs on those occasions when the system capacity is exceeded.

1.2.3 There will be costs associated with the developments BT has to make to its system to introduce WLR2. Chapter 7 sets out the options and recommendations for how those costs should be recovered.

1.2.4 The establishment of a fit-for-purpose WLR product will encourage competition and is likely to bring significant changes in the way services are marketed and delivered to consumers. Oftel believes that appropriate safeguards should be provided to protect consumers as well as the reputation of the industry itself. In chapter 6 Oftel sets out proposals for guidelines on sales and marketing codes of practices and a Consumer Guide. Oftel also makes proposals for a minimum time period between the WLR provider placing the order with BT and the implementation of the new service. This period is to allow the losing and gaining providers to write to the customer which will help prevent customers being switched without their knowledge or consent. Oftel also makes proposals for the content of those letters.

1.2.5 In chapter 8 Oftel invites comments on the form the assessment of whether BT has introduced a ‘fit-for-purpose’ product should take. Finally, in chapter 9 Oftel identifies key implementation milestones.

1.3 Consultation details

1.3.1 Responses to this consultation are invited by 13 December. Oftel will consider all submissions and set out its conclusions in January 2003.

Chapter 2

WLR2 product description

2.1 Introduction

2.1.1 BT Retail offers its customers a wide variety of different types of access line. In order to be able to compete effectively in the same market, an independent service provider (SP) must be able to offer the same range and quality of services.

2.1.2 This does not mean that WLR2 should simply provide SPs with the wholesale equivalent of the same set of products offered by BT Retail to its customers. What it does mean is that the wholesale inputs available to SPs under WLR must create an equivalent opportunity, not just to duplicate the services offered by BT Retail, but to bundle those inputs in different ways in order to create new products.

2.1.3 These wholesale inputs can be divided into two parts. Firstly, the set of basic line types to be provided under WLR2; secondly, the set of supplementary services that can be applied to each line type, in order to provide different retail services.

2.1.4 This chapter reviews the range of line types and supplementary services used by BT Retail, and then discusses which of these should be included in the WLR2 product. The principles adopted by Oftel in deciding whether a particular wholesale input should be provided are set out in general terms in the Access Guidelines ("Imposing access obligations under the new EU Directives", Oftel, September 2002). In deciding whether a particular wholesale input should be included within the WLR2 product specification, Oftel proposes to apply the following more specific tests. These tests will be applied both to the existing sets of line types and line features, and to any new line types or features introduced by BT:

• Is the wholesale input necessary to allow an SP to compete fairly with BT Retail in the residential and business retail markets for telephone calls and access services?
• Does the wholesale input represent a basic capability of BT’s access network, so that BT is effectively the dominant? Or is this an add-on, which SPs can reasonably be expected to obtain elsewhere?
• Is BT likely to incur significant cost in making available this wholesale input, and if so, does the level of demand from SPs justify this cost?

Oftel invites comments on the tests to be used for assessing whether features and line types should be included in the WLR2 product and subsequently for new products

2.2 Line types

2.2.1 The access line types supported by BT’s network can be grouped into three categories: analogue lines, basic rate ISDN, and primary rate ISDN. In what follows Oftel summarises in more detail the different line types within each of these categories, and then discusses which of these should be included within WLR2.

Analogue lines

2.2.2 BT currently provides three different types of analogue line:

• Single analogue PSTN line. This is the most common type of exchange line, installed in most residential and many small business premises.
• Multiple single analogue PSTN lines. These are multiple individual lines installed on the same site at the same time. The lines are not linked together in any other way, and each line has its own directory number. The lines terminate either on a PBX or on an individual telephone.
• Multiple main plus auxiliary analogue PSTN lines. These are also multiple individual lines serving the same site, but in this case the auxiliary lines are configured so that they share the same directory number as the main line. This allows a business PBX with multiple access lines to be accessed via a single number.

Digital lines

2.2.3 Basic rate ISDN provides a means to deploy digital PSTN services over a standard exchange line. A single basic rate ISDN line supports two 64kbit/s B channels, plus a 16 kbit/s D channel for signalling. BT has deployed a number of variants of this technology:

• BT Highway. This is the entry-level form of ISDN offered by BT, providing analogue PSTN and basic rate ISDN services to the end-user over the same network connection. Two analogue PSTN lines are provided, each with their own number. Basic rate ISDN is also provided, also with its own number. There are two variants of this service, known as Home Highway and Business Highway. These differ primarily in the range of select services that is available. More details can be found in BT’s Suppliers Information Note 275.
• ISDN 2/2e. This is the standard form of basic rate ISDN offered by BT. Two variants have been deployed, commonly referred to as ISDN 2 and ISDN 2e. ISDN 2 uses the limited ETSI call control platform, implemented prior to the completion of the ETSI ISDN standards, whilst ISDN 2e uses the full ETSI call control platform. More details can be found in BT’s Suppliers Information Notes 171, 261 and 312.
• BT ISDNconnect. This is a low-speed data service providing a virtual permanent connection over the D-Channel to a host Value Added Service Supplier. The service allows bursts of data throughput up to a maximum rate of 2.4kbit/s (typically X25 or TCP/IP). It is intended for applications such as credit card validation. BT currently only offers ISDNconnect over the D channel of an ISDN2e or a Business Highway line. More details can be found in BT’s Suppliers Information Note 225.

2.2.4 Primary rate ISDN provides a means to deploy digital PSTN services over a 2Mbit/s line. A single primary rate ISDN line supports thirty 64kbit/s B channels for voice and data calls, plus a 64 kbit/s D channel for signalling (30B+D). BT has deployed three variants of primary ISDN, supporting different signalling standards. These variants are ISDN 30 (DASS 2), ISDN 30 (I 421) and ISDN 30e (I 421). More details can be found in BT’s Suppliers Information Notes 222, 232, 261 and 312.

2.2.5 Oftel believes that the inclusion of ISDN products within WLR is likely to be essential to achieving effective competition in the retail market. This issue is discussed further in Chapter 3.

Special line types

2.2.6 In addition to the basic line types discussed above, BT Retail offer a variety of special line types targeted at specific market segments. These are summarised below.

2.2.7 Private payphone lines, as specified in section 1.3 of the BT Retail price list, are included in the WLR1 product, and are charged at the standard tariff. Payphone lines provided to managed payphones and public call offices are excluded from WLR1. Oftel proposes that the approach adopted for WLR1 should remain for WLR2

2.2.8 NHS lines are a retail service provided to end-users in the health service, supporting a high level of fault management, equivalent to BT Total Care. SPs will have access to the same range of SLAs as BT Retail, including Total Care, and this will allow them to offer an equivalent service to NHS line.

2.2.9 Site or temporary lines are access lines provided on a temporary basis. A higher than normal line rental is charged, in order to ensure that BT recovers its costs associated with providing the line. Demand for these lines has been reduced by the arrival of mobile phones. They are currently excluded from the WLR1 product. Oftel proposes that this position should remain under WLR2. SPs wishing to include them would need to demonstrate that significant demand exists.

2.2.10 Out of area lines provide a means for a business moving premises, from one exchange coverage area to another, to keep their number. This essentially involves the provision of a leased line to the new premises, and so the line rental for out of area lines is much higher than for a standard line. Out of area lines are currently excluded from the WLR1 product. Oftel proposes that this position should remain under WLR2. SPs wishing to include them would need to demonstrate that significant demand exists.

2.2.11 Low loss exchange lines are exchange lines which provide the customer with a higher signal strength. This is achieved by providing amplifiers at the serving exchange. Low loss exchange lines are currently excluded from the WLR1 product. Oftel proposes that this position should remain under WLR2. SPs wishing to include them would need to demonstrate that significant demand exists.

2.2.12 Non-served premises are sites which do not have specific postal addresses and/or are not for normal business or dwelling purposes. They tend to be sited in a street or footway or at a roadside and are normally unmanned. Examples include OLOs’ payphone sites, roadside locations, and traffic control system sites. Lines to non-served premises are currently excluded from the WLR1 product. Oftel proposes that this position should remain under WLR2. SPs wishing to include them would need to demonstrate that significant demand exists.

2.2.13 Ships-in-dock is a service that provides exchange lines to ships in dock, charged at standard levels, but on temporary terms and conditions. The ships-in-dock service is currently excluded from the WLR1 product. Oftel proposes that this position should remain under WLR2. SPs wishing to include it would need to demonstrate that significant demand exists.

2.2.14 FeatureNet is a family of Virtual Private Network (VPN) services offered by BT Retail. The service is based on standard access lines. The value added VPN services are provided by a dedicated set of switches, known as Advanced Services Units (based on Nortel DMS100 switches). It should be possible for an OLO to provide a similar service to FeatureNet, using standard access lines to link customers to their own VPN platform. Oftel does not therefore propose to include FeatureNet within the WLR2 product.

2.2.15 FeatureLine is a Centrex service, providing similar functionality to that offered by FeatureNet, but directly from BT's local exchanges. This means that only BT is in a position to provide FeatureLine services. There is therefore a stronger case for including FeatureLine within WLR than for including FeatureNet. An SP wishing to include FeatureLine within WLR1 would need to demonstrate that significant demand exists. Oftel proposes that this position should remain under WLR2.

Oftel invites comments on the proposals on Special Line Types.

2.3 Select and other services

Introduction

• The service might be included within WLR2, and covered by the basic line rental. No additional charge from BT to the WLR service provider would be made for this service.
• The service might be included within WLR2, but not covered by the basic line rental. BT would make an additional charge to the WLR service provider for this service, either on a per-line basis or on a per-user basis.
• The service might be excluded from WLR2, but be compatible with it. An SP would be able to use WLR2 to take over the line, without affecting the status of the supplementary service. In this situation the customer might continue to pay another party for the service.
• The service might be incompatible with WLR2, but with WLR2 taking priority. In such cases the other service would be stripped off a WLR line before the line is taken over by an SP.
• The service might be incompatible with WLR2, and take priority over it. A WLR2 order for a line providing such a service would be rejected.

Select services and digital select services

2.3.2 A particularly well-known group of services are the Select Services, provided to allow end-users to manage their calls. Capabilities provided to the end-user include the ability to identify who is making a particular call, prevent unwanted calls, and ensure that calls that are wanted get through.

2.3.3 The standard set of Select Services applies to analogue lines. There is a distinct set of Digital Select Services that apply to ISDN lines, providing an enhanced set of capabilities.

2.3.4 The Select Services and Digital Select Services have high profiles in both the residential and business markets. They form the basis of much of BT Retail’s product differentiation, especially between residential and business variants of the same line type (eg between Home Highway and Business Highway). Oftel is therefore of the view that an SP attempting to compete with BT Retail must have available the full range of Select Services and Digital Select Services.

2.3.5 Most of the Select Services and Digital Select Services can only be provided by BT, due to the degree of dependence on BT’s access network. Oftel proposes these services should therefore be included within the WLR2 product.

2.3.6 The only Select Services and Digital Select Services that it might be reasonable to exclude from WLR2 are those that can be provided by an SP independently of BT as a call termination service. For example, although Oftel is of the view that a core set of voice messaging services should be included within WLR2, this does not necessarily have to include the full range of voice messaging services provided by BT Retail. This is because an SP can use the Call Mapping service provided by BT (see paras 2.3.22) in conjunction with their own voice messaging platform in order to provide their own range of voice messaging services.

2.3.7 The Select Services and Digital Select Services provided by BT are listed at Annex A in Tables A1 and A2. In each case, the tables show whether Oftel expects the service to be included within WLR, and whether the service is expected to be chargeable.

Oftel invites comments on the proposals on Select Services set out in the table contained in Annex A

Other end-user services

2.3.8 In addition to the core set of Select Services and Digital Select Services described above, BT offers a number of related services over PSTN lines. The status of those services of which Oftel is aware is summarised below.

2.3.9 There are a number of PSTN lines on which BT Retail provides rented Customer Premises Equipment (CPE). This can range from single line telephones to PBXs rented to business customers. They may include some legacy hard-wired apparatus including magneto bell telephones. Under the existing Calls and Access product, the presence of rented CPE on a line would result in an order for Calls and Access being rejected. BT has proposed that such lines could be transferred to an SP, and that BT Retail will continue to rent the CPE to the end-user, but via a separate retail contract. Oftel is of the view that this is an appropriate solution for WLR2 where the CPE has significant value, as in the case of a rented PBX. However, where the CPE is a residential telephone, Oftel proposes that BT should bill the SP for the rental of the handset, so that the end-user does not have a continued billing relationship with BT Retail.

2.3.10 Direct Dialling In (DDI) is a service which allows individual extensions on a PBX to be directly contacted via their own number. DDI can be supported by multiple analogue lines, as well as by basic and primary rate ISDN. Oftel is of the view that the DDI service is essential in order to allow SPs to compete in the business market, and proposes that it should be included within the WLR2 product.

2.3.11 Number Portability allows an end-user transferring between SPs, whether using BT’s network or not, to retain their number. The provision of number portability is a regulatory requirement and so remains part of WLR2.

2.3.12 SPs have requested that BT Retail might be able to use a ‘golden numbers’ service as a means to attract new customers, by allowing end-users to select a favoured number from a list of available numbers. Oftel proposes that, if BT Retail provides this service to its customers, SPs should in principle be able to do the same to ensure that they are not at a competitive disadvantage.

2.3.13 BT Direct Connect allows for the immediate automatic routing of calls to a pre-programmed telephone number as soon as the handset is lifted. This service is currently excluded from the WLR1 product. Oftel proposes that this position should remain under WLR2. SPs wishing to include it would need to demonstrate that significant demand exists

2.3.14 Network Call Performance provides detailed information on all calls made on analogue and digital lines, including the volume of calls receiving the engaged tone, the number of calls going unanswered and the time taken to answer successful calls. Oftel has been informed that the data for this service is not collected by BTs local exchanges, but by the CPE on a business site. Oftel therefore does not expect this service to be included within WLR2.

2.3.15 BT provides a charge advice service, under which customers are contacted on completion of each call, and provided with a voice annoucement indication of the call cost. It would clearly be inappropriate for BT to advise end-users on the call charges being made by a WLR SP, and Oftel does not expect this service to be included within WLR2.

2.3.16 BT offers a temporary transfer and call interception service. This is used to for example handle malicious calls. Oftel proposes that this does not need to be included within the WLR product, since an SP wishing to provide a similar service should be in a position to use the standard call diversion facility, with their own call interception service.

2.3.17 Night-busying provides an end-user with the ability to set chosen exchange lines so that incoming calls receive a ‘busy’ tone. This service is currently excluded from the WLR1 product. Oftel proposes that this position should remain under WLR2. SPs wishing to include it would need to demonstrate that significant demand exists

2.3.18 BT Retail offers end-users a bypass number facility. This will be included within WLR, bundled where appropriate with other select services.

Oftel invites comments on the proposals for end-user services set out in paras 2.3.8-2.3.18.

2.3.19 The BT Retail price list includes several legacy services (eg Remote Call Forwarding, Call Transfer). It is believed that the functions provided by these are now provided by more modern Select Services such as Smart Divert, and Oftel does not currently expect that these should be included within WLR2.

Comments are invited on whether there are any legacy services for which significant demand does exists, and which should therefore be included within WLR2.

Network services

2.3.21 Oftel proposes that BT Wholesale should offer a variety of services as part of the WLR2 product in order to allow SPs to manage their network, and their customer base. These are summarised below. Oftel’s proposals for the recovery of the costs of these facilities are set out in section 7.3

2.3.22 BT call mapping enables third party service providers to offer a Voice Messaging service to BT fixed single line end-users with network features equivalent to those of the BT Call Minder service. This includes a special Proceed Indication, and control of ringing duration prior to diversion. For more detail, see BT Suppliers Information Note 287.

2.3.23 Outgoing call barring is a service that prevents outgoing calls from a specified line. This prevents end-users who have not paid their bills increasing their level of debt, but is not as extreme as disconnecting them.

2.3.24 Indirect Access (IA) call barring is a service that will allow SPs to prevent end-users making IA calls (including the use of the 1280 CPS over-ride code). Oftel believes that the requirement to provide indirect access services should be applied only to operators that have Significant Market Power in the relevant market. In the national markets for access and calls, this is BT. Oftel’s view is therefore that service providers using the WLR service should not be obliged to allow their retail customers to choose to route their calls via an alternative IA operator.

2.3.25 Oftel views optional IA Call Barring as an essential element of the additional competitive offering that WLR2 should provide. Oftel is aware that some service providers would prefer not to allow their customers to have a choice to route calls via alternative operators. They argue that they need to guarantee that they will receive the customer’s call income if they are going to be able to offer innovative tariffs, such as lower fixed elements being subsidised by higher price variable elements.

2.3.26 Nevertheless Oftel believes it is important that customers who will not to have the ability to make IA calls should be made aware of this when they choose a new SP. Oftel is proposing that when a WLR SP sends a welcome letter to the customer during the switchover period the SP must make clear if IA is not to be provided. In addition, Oftel’s Consumer Guide to WLR2 will make clear that the availability of IA is an issue that a prospective WLR customer should consider. These proposals are discussed further in chapter 6.

2.3.27 The calls affected will be all calls that are made to "Type B" IA codes on a list maintained by Oftel. Calls made to any number on this list will result in a generic recorded announcement provided by BT. IA Call-barring will be optional: SPs will be able to determine on a per-line basis whether this capability is enabled. There will also need to be an option for SPs to add IA call-barring to, or remove it from, a line that is already subject to WLR.

2.3.28 ‘Route 15X to service provider’ is a service which diverts customer service calls to the relevant department of the SP. BT Retail has well-recognised numbers for residential customer service (150), business customer service (152), residential fault reporting (151) and business fault reporting (154). Under WLR, BT will translate these numbers to an appropriate number provided by the SP, and route calls accordingly. Oftel believes this is an important customer service facility given the potential impact on WLR SPs’ ability to offer a customer experience that is competitive with BT. Oftel therefore believes that this service should be made available to SPs by BT.

2.3.29 ‘Route to credit control’ is a service which allows SPs to manage end-users who have not paid their bills. A line on which this service is activated will continue to receive incoming calls. It would also be possible to continue making calls to an allowed set of numbers (112, 999, 1471, 0800, 0500, 0808, 15x). However, calls to all other number (including CPS calls) would be routed to the credit control department of the SP. Oftel believes this is an important customer service and debt management facility which BT should provide in order to provide equivalence with the facility provided to BT Retail.

2.3.30 The implementation of Optional IA Barring, route 15x calls to SP and route to credit control will require alterations to BT’s network. BT’s initial estimates suggest these will cost around £3M in total to set up. Chapter 7 considers how these set-up costs should be recovered.

Oftel invites comments on the range of services listed in paras 2.3.21 to 2.3.30

Service incompatibilities

2.3.31 There are a number of services which Oftel does not expect to be provided as part of WLR2, but which are provided over the same line. In such cases it is necessary to understand whether these services are compatible with the WLR product, and if not, how this incompatibility is handled.

2.3.32 One important category of services are those which are provided over the same copper loop used by analogue PSTN telephony, but in a different frequency band. Obvious examples are BT’s Wholesale DSL service, and the Redcare alarm monitoring service. Oftel proposes that analogue WLR2 should be able to co-exist with these services. Oftel is aware that ISDN2 is incompatible with DSL as implemented by BT

2.3.33 ISDNconnect is in a somewhat similar position, in that it utilises spare capacity in the signalling channel of a basic rate ISDN line. Oftel proposes that if ISDNconnect is not included within the WLR2 product, then BT must ensure that the two services are compatible.

2.3.34 There will be some BT lines which have been taken over by an OLO under the terms of Local Loop Unbundling. Such lines clearly cannot be made available under WLR. Oftel notes however that trials of line-sharing are currently underway, and this is intended to allow an OLO to take over only the high frequency portion of a copper loop. If these trials result in a line-sharing variant of the LLU product being made available, then Oftel proposes it should be compatible with WLR2.

2.3.35 BT Chargecard allows end-users to make direct-dialled calls from any BT phone, using an account number and PIN number. The call is then charged to the users’s own directory number. Use of BT Chargecard is likely to be incompatible with WLR, and Oftel believes this service should be automatically stripped off any line transferred to WLR.

2.3.36 BT Ring Me Free allows end-users to pay for selected incoming calls, End-users are allocated a 12-digit code, which they can provide to their friends and relatives. The person placing a call dials a 5 digit access code, followed by the personal code, and the call is then routed to the correct destination. Use of BT Ring Me Free is likely to be incompatible with WLR, and Oftel believes this service should be automatically stripped off any line transferred to WLR2.

2.3.37 BT Retail provides a variety of other retail bundles which combine an access line with appropriate call handling services. Examples include the Surftime internet access product, and the NetChat VOIP service. End-users transferring to a WLR SP cannot continue to receive these retail services, and Oftel proposes that they will automatically be stripped off any line transferred to WLR2.

Oftel invites comments on the proposals on service incompatibilities set out in paras 2.2.31 to 2.2.37

2.3.38 BT Retail does provide some retail packages which are designed to meet social objectives in relation to vulnerable parts of the community. Examples include the Low User Scheme, In Contact, the Chronically Sick and Disabled Scheme, and the Schools for Internet service. Because of the nature of the end-users for these services, Oftel believes it may be inappropriate for these lines to be transferred from BT to a WLR SP without a positive confirmation from the end-user that they wish cease to the social telephony product. One method of ensuring this would be to specify that a WLR order submitted by the SP for a line on which these services are provided be rejected, but with a reject code which specifies precisely what service is causing the rejection. The WLR SP would then be able to go back to the end-user, and ask them to cease the service with BT, in order to allow the transfer to go ahead. Oftel’s view is that this approach should be adopted initially but be subject to review in the light of experience

Oftel invites views on whether customers using BT social telephony products should have an increased form of protection during transfer and, if so, on the form that protection should take.

2.3.39 The meter pulse facility uses auxiliary equipment in the BT exchange to transmit a series of pulses at a rate related to the pence per minute retail charge rate. The pulses can be detected by suitable CPE. It is possible that the charge could be misleading if a WLR SP used this service, since the pulse rate relates to the BT Retail tariff.

Oftel invites comments on whether there is a need for WLR2 to include the meter pulse facility.

2.4 WLR and directory enquiries

Liberalisation of the directory enquiries market

2.4.1 In September 2001, Oftel published a Statement (Access codes for directory enquiry services) setting out Oftel’s decision to introduce competition into the market for directory enquiries calls, by allocating a new range of short access codes starting with 118 to DQ service providers. In this Statement, Oftel concluded that a model of service-based competition, with all operators and service providers on an equal footing would provide the best deal for consumers in terms of price, quality and choice of service.

2.4.2 In this statement, Oftel also made it clear that it expected "the industry to come to equitable arrangements that will allow access to all DQ services on all networks" (emphasis added). Oftel also made it clear that this expectation applied to both fixed and mobile networks.

2.4.3 Consumers will be able to dial these new numbers from December 2002. There will be a parallel running period between the new 118 numbers and the existing DQ numbers such as 192 and 153 until August 2003, after which time the existing numbers will no longer connect to the legacy DQ services.

Carrier pre-selection and directory enquiries

2.4.4 In October 2002, Oftel published a Statement (Directory Enquiries and Carrier Pre-selection) in which Oftel concluded that the new 118 DQ numbers should be part of the CPS ‘all calls’ option. (The existing DQ numbers such as 192 are not included in the CPS ‘all calls’ option, as Oftel considered that the remaining lifetime of these numbers was too short to make any change worthwhile.)

2.4.5 However, concerns were expressed by DQ service providers during the consultation process that CPS operators might restrict the range of 118 DQ services available to CPS ‘all calls’ customers, and hence limit the benefits of 118 DQ service competition. On the other hand, CPS operators stated in their joint response to Oftel’s consultation that they believed that there were strong commercial incentives on CPS operators to carry a range of DQ 118 services.

2.4.6 Oftel recognised the concerns of DQ service providers, and undertook to review its decision to include 118 DQ calls in the CPS ‘all calls’ option 12 months after it is implemented. In this review, Oftel would assess whether there had been any significant negative impacts on 118 DQ competition (for example because CPS operators do not offer access to a range of DQ services other than their own, or impose excessive retail prices for doing so) and take remedial action at that stage if necessary.

2.4.7 In its October 2001 Statement on DQ and CPS, Oftel explained that it did not plan to require all 118XXX codes onto CPS networks at this time. Oftel also noted the existence of the ‘1280’ over-ride code (by means of which a customer can over-ride CPS routing and force any given call onto the BT network) as a possible means by which consumers could access specific 118 numbers not available on their CPS network if they had a particular need to do so.

WLR and 118 DQ services

2.4.8 As explained in paragraph 2.3.24 one of the facilities in the WLR product may be the barring of indirect access calls for WLR customers, which would include barring of the ‘1280’ CPS over-ride code.

2.4.9 This will mean that (when the existing codes for directory enquiries such as 192 and 153 are withdrawn) a WLR customer will only be able to use those 118 DQ services to which its WLR supplier has chosen to provide access.

2.4.10 WLR service providers, as providers of electronic communications services, will be obliged under the terms of the draft General Conditions of Entitlement, to make (at least) one DQ service available.

2.4.11 The question arises as to whether WLR service providers should be expected to provide access to the full range of DQ 118 numbers (which in practice would mean those 118 numbers where the DQ SP wishes to have access to the WLR SP's customers). Oftel believes that this should not be onerous to WLR SPs due to the ability to transit calls to 118 DQ numbers via a transit operator (ie direct interconnection with the terminating operator is not required) and the fact that WLR SPs will have retail pricing freedom (within reason) for these services. Oftel notes that WLR service providers may choose to use CPS from alternative operators for call conveyance. If WLR SPs are expected to provide access to the full range of DQ 118 numbers, consideration needs to be given to whether this would restrict WLR SP’s choice of CPS operators to only those that themselves provided access to the full range of DQ 118 numbers.

2.4.12 An alternative approach would be similar to that adopted for CPS. WLR service providers would be expected to provide access to a range of 118 DQ services other than their own (or their wholesale carrier’s), but would not be expected to offer access to the entire range of 118 DQ services. In this scenario, the possible impact on competition in the DQ market would need to be considered, as customers of WLR service providers would not necessarily be able to benefit from a full choice of DQ services (if for example the WLR SP restricted the choice of DQ services available, or charged unreasonably high retail prices for access to these services).

Views are invited on the two options set out above for the treatment of 118 DQ calls in the WLR product, namely:

a) should WLR service providers be expected to provide access to the full range of DQ 118 numbers; or

b) should WLR service providers be expected only to provide access to a range of DQ 118 numbers other than their own (or their wholesale carrier’s)?

Chapter 3

ISDN products

3.1 Introduction

3.1.1 This chapter considers whether the specification of WLR2 should include wholesale versions of BT’s ISDN products. The objective of WLR2 is to achieve effective competition in the retail markets for business and residential end-users. As discussed in chapters 2 and 4, in order to achieve this goal, WLR2 needs to allow alternative SPs an opportunity to compete fairly with BT Retail. BT’s retail activities should not be able to benefit from privileged access to key services, processes or features supplied by BT at the wholesale level, if BT has market power in supplying these inputs and they are material to retail competition.

3.1.2 The first key questions in relation to ISDN products are therefore:

• Are these products significant in the retail markets for business and residential end-users?
• Is BT dominant in the supply of these products, and is that dominance likely to be enduring?

If the answer to both these questions is ‘yes’ then it is reasonable to conclude that wholesale versions of these products need to be available from BT in order to achieve the goals of WLR 2. Consistent with the approach taken by Oftel in Chapter 2, these wholesale versions would need to be functionally equivalent in all material respects with the products that are supplied to BT Retail.

3.1.3 The first two parts of this chapter consider these two questions in turn. The third part considers the options for the basis on which wholesale ISDN products might be supplied to SPs by BT.

3.2 The significance of ISDN products

3.2.1 ISDN lines are a means of delivering a variety of telecommunication services through a common means of access to a digital switched network. ISDN lines provide an end-to-end digital link, thus making accessible a fully digital, switched wideband network and the ability to offer voice, data, image and text services over the same network connection. Chapter 2 includes a discussion of the variety of individual products based on ISDN. These are divided into two broad groups: one based on ISDN 2 lines, and one based on ISDN 30.

3.2.2 ISDN products tend to be used by individuals and businesses with larger and more complex communications needs. ISDN 2 has historically been aimed at both residential and small business end-users. ISDN 2 offers important additional functionality compared to a pair of analogue lines, notably:

• Higher data speeds for dial-up Internet (up to 128kbit/s in place of up to 56kbit/s) and faster connection.
• Multiple subscriber numbering.
• Direct dialling into PBXs.

3.2.3 Some of these functions are also available in principle over multiple analogue lines. However, the technological superiority of ISDN is reflected in a wider availability of customer premises equipment suited to ISDN, which constrains customers’ ability to substitute analogue lines for ISDN. From its discussions with market participants, Oftel understands that ISDN 2 is sometimes supplied in bundles comprising up to 6 or 8 channels in total. This allows ISDN 2 to be the basis for meeting the voice and data needs for a wide variety of small businesses. In the residential market, the higher data speed is a key advantage of ISDN 2. This is particularly relevant in areas not currently served by DSL technology.

3.2.4 ISDN 30 products have historically been aimed solely at the business market, with larger and more complex telecommunications needs than can typically be met with ISDN 2. At one extreme, ISDN 30 products are available with as few as 8 channels, at the other they can be sold in multiples of 30 channels to meet the needs of a single, very large site. The point at which ISDN 30 starts to make commercial sense depends on the type of business (whether it is more or less telecommunication-intensive) but might typically be a site with 20 or so employees in finance or business services, or 100 employees in manufacturing. ISDN 30 is therefore predominantly relevant to larger business sites. These might be occupied by individual SMEs or by large businesses, or might comprise a site such as a business park, where there is a concentration of smaller businesses and the landlord has a co-ordinating role in installing capacity.

3.2.5 ISDN 30 offers similar functionality to ISDN 2 but on a more extended scale, and always in combination with PBX CPE. Direct dialing-in is a common feature as is multiple subscriber numbering, and the use of a variety of applications in addition to voice, including fax and data.

3.2.6 In Oftel’s view, the importance and variety of the functions that can be supported by ISDN products strongly suggest that these are significant products in the retail market for business customers. Indeed, our analysis suggests that these are standard products for meeting the telecommunications needs of large numbers of SMEs and larger customers. ISDN2 products also play an important role in parts of the residential market, particularly for consumers with more complex needs and as a means of gaining faster access to the Internet where DSL is not available. The ability of SPs to compete within the business and residential markets will therefore be adversely affected unless suitable wholesale versions of these products are available.

3.2.7 This conclusion is supported by the evidence available on ISDN 2 and ISDN 30 as a share of the total access market. Oftel collects data on the number of access lines supplied by operators in each of the two ISDN groups, and on the number of analogue access lines. The latest available data are set out in the table below for the business and residential markets. The data in the table have been adjusted to allow for underreporting of ISDN30 provision by some operators (for details of the adjustment see paragraph 3.4.3 below).

3.2.8 ISDN 2 channels therefore account for around 14% of all access lines serving businesses, and ISDN 30 for around 30%. Within the residential market, ISDN 2 plays a small but significant role, while ISDN 30 is not relevant. Oftel considers that these shares again imply that ISDN products are certainly significant within the business market, and also likely to be significant within the residential market.

3.2.9 Oftel does not distinguish, in the data it collects, between calls made over ISDN lines and calls made over analogue lines. If the volume of calls over ISDN lines were significantly less than over analogue lines, this might imply that the products actually played a much lesser role within these markets than the access line data. However, Oftel does not consider that this is a likely scenario or probable conclusion. The evidence that exists in relation to the typical characteristics of ISDN 2 and ISDN 30 customers suggest that these will tend to be higher users of telecommunications at the aggregate level, with high call volumes.

3.2.10 Oftel’s view is that ISDN 2 products and ISDN 30 products are both significant products in the retail business market. Oftel believes that the same is also true of ISDN 2 products in the residential market. This means that if SPs are not able to supply these products to end-users then they will be at a material competitive disadvantage, and this will have an adverse effect on competition in these retail markets.

Oftel invites comments on its conclusions on the significance of ISDN products and the implications for competition.

3.3 Competition analysis

3.3.1 The next question that needs to be addressed is whether BT is dominant in supplying these products. If BT is not dominant, and sufficient alternative sources of supply exist to provide effective competition with BT, there is unlikely to be any justification for requiring BT to supply wholesale versions of these products. The analysis of dominance also needs to consider whether any existing dominance is enduring, or whether it is likely to be eroded quickly.

3.3.2 Dominance can only be assessed on the basis of a market definition. The obligation on BT to supply WLR 1, and the proposals for WLR 2, flow from the last review BT’s retail price control. The results of this review were reported in Competition in the Provision of Fixed Telephony Services (July 2001), and subsequently updated with new information in "Protecting consumers by promoting competition – Consultation on Oftels’ review of the fixed telephony market" (January 2002) and "Protecting consumers by promoting competition: Oftel’s conclusions" (June 2002).

3.3.3 The Price Control Review defined separate markets for business and residential access and calls. ISDN access was included in almost all of the data alongside other types of access. Oftel concluded in this review that BT was dominant in all markets except for certain business international calls markets.

3.3.4 The conclusions of the Price Control Review imply that there is no need to consider further the question of whether BT is dominant in the supply of ISDN: BT is dominant, and the dominance has recently been confirmed. However, for the purposes of this document, Oftel considers that it would be appropriate to apply a more stringent test before deciding whether BT should have to supply a wholesale version of ISDN. This more stringent test assumes that ISDN access markets constitute separate access markets from analogue lines, and considers whether BT has dominance in the ISDN access markets alone.

3.3.5 Under the new EU regulations, Significant Market Power (SMP) is identified with the competition law concept of dominance. In principle this includes both the concepts of single firm and joint dominance. The former is the relevant concept in this case.

3.3.6 The main criteria that Oftel will consider when assessing dominance in market reviews are listed below. For a fuller discussion see Oftel's market review guidelines: criteria for the assessment of significant market power (August 2002). A dominant position can derive from any combination of the criteria, which taken separately may not be sufficient to determine whether or not there is dominance.

3.3.7 The single dominance criteria listed in the European Commission Guidelines and in Oftel’s Market Review Guidelines are:

Market shares
Overall size of the undertaking
Control of infrastructure not easily duplicated
Technological advantages or superiority
Absence of or low countervailing buyer power
Easy or privileged access to capital markets/financial resources
Product/services diversification (e.g. bundled products or services)
Economies of scale
Economies of scope
Vertical integration
A highly developed distribution and sales network
Absence of potential competition
Barriers to expansion
Ease of market entry

3.3.8 Oftel has also set out in its Market Review Guidelines a number of other criteria for use in assessing dominance, in addition to those in the European Commission’s Guidelines:

Excess pricing and profitability
Active competition on non-price factors
Barriers to switching
Customers’ ability to access & use information
Benchmarking of the deal received by UK consumers against that received by consumers in similar economies;
Consumer satisfaction with their service;
Evidence of previous anti-competitive behaviour or collusion.

3.3.9 In the sections that follow, ISDN markets are reviewed against the most relevant of these criteria.

3.4 Market shares

3.4.1 According to case law a market share over 50% would lead to a presumption of dominance. However, there may still be concerns about dominance where an undertaking has less than 40%, according to the size of that undertaking’s market share relative to its competitors. The persistence of a high market share over time is also an important factor. Where a firm has a higher share by value than by volume it may indicate that it can price above rivals due to market power.

3.4.2 Oftel collects data on analogue and ISDN access lines by operator. However, as already discussed, a problem with the data collected for Market Information is that some operators do not distinguish between analogue and ISDN lines. It is also possible that leased lines being used for ISDN30 may go unreported.

3.4.3 This means that in the Market Information figures BT's market share of ISDN30 will be overstated and its share of PSTN understated. Estimates from C&W suggest that about 78% of the lines it reports as PSTN lines are in fact ISDN30 lines. Oftel believes that approximately all other operators' lines are likely to be ISDN30 lines. Given this, BT's share of ISDN30 falls to around 60%, still well above the threshold for dominance. Even making the extreme assumption that all C&W and other operator's PSTN lines were ISDN30 channels would give BT about a 58% share of the latter. Oftel therefore believes that BT has a dominant share of both the ISDN2 and ISDN30 markets.

3.4.4 The adjusted data are shown in the table below:

Business Lines 000s

3.4.4 Oftel is seeking further data on the breakdown between other operators' analogue and ISDN lines over a reasonable time period for this review.

3.4.5 Oftel does not publish separate data on shares of call minutes from ISDN lines. Indeed, Oftel believes that these calls should be regarded as part of the same market as the equivalent call from an analogue line. BT's standard prices are the same, the network components used (beyond the concentrator) are the same and IA operators can offer calls over ISDN as well as analogue lines. Data on BT's share of calls (analogue and ISDN) were published in Oftel's June 2002 price control review statement. The following table is an updated version of table 2.3 of that document. In addition to the new data for 2001/02Q4, there are some differences in the earlier data. This is due to revisions to the cable operators' figures as a result of more accurate data becoming available since the publication of the statement.

Market shares (calls)

Source: Oftel Market Information. Market shares have been adjusted to allow for the fact that some operators do not provide separate data for business and residential customers. In addition, Worldcom’s submitted national minutes and revenues have been apportioned among local calls, national calls and calls to mobile. BT market shares include Concert market shares for these purposes.

3.5 Countervailing power

3.5.1 The existence of customers with a strong negotiating position, which is exercised to produce a significant impact on competition, will tend to restrict the ability of providers to act independently of their customers.

3.5.2 Such countervailing power is more likely where a customer accounts for a large proportion of the producer’s total output, is well-informed about alternative sources of supply, is able to switch to other suppliers readily at little cost to itself, and where it may even be able to begin producing the relevant product itself. This is perhaps most likely to be the case for large businesses whereas small and medium-sized businesses and residential customers are less likely to be able to exercise countervailing power.

3.5.3 The extent of countervailing power in ISDN markets therefore reflects the nature of the customer base for ISDN. As discussed above, this is likely to differ between ISDN2 and ISDN30. ISDN 2 products have historically been aimed at both the residential and small business markets. ISDN 30 is aimed at the business market – and predominantly at larger sites.

3.5.4 ISDN 30 is not, however, exclusively a large (ie 250+ employee), as opposed to small (up to 50 employees) and medium (50-249 employee) business product. Indeed, at least in terms of customer numbers, SMEs are likely to be the main market for ISDN. This means that the extent of countervailing power is likely to be limited, though it is likely to be more significant in the ISDN30 market than the ISDN2 market.

Oftel invites comments on and evidence of firms' ability to exercise countervailing power in ISDN markets.

3.6 Entry barriers

3.6.1 The threat of potential entry may prevent incumbent firms from raising prices above competitive levels. However, if there are significant barriers to entry, this threat may be weak or absent. Incumbent operators may then be able to raise prices and make persistent excess profits without attracting additional competition that would reduce them again.

3.6.2 Sunk costs can be an important barrier to entry. These are costs which are needed to enter an industry but which cannot be recovered on exit – for example investment to set up a production plant or to build a network. A potential entrant will only incur the sunk costs of investment in an industry if it expects to cover these sunk costs as well as the avoidable costs of production from revenues earned. The incumbent on the other hand, has already made its sunk investments and so will stay in the market as long as it can cover its avoidable costs. The incumbent may then be able to exploit this asymmetry by signalling to the entrant that, if it were to enter the market, prices would be too low to cover sunk costs. Entry would then be deterred.

3.6.3 Sunk costs are particularly relevant to telecommunications because a very large investment is needed to create an efficient telecommunications network and it is likely that little of this could be recovered if the entrant later decided to leave the market. This is likely to be exacerbated by the significant economies of scale and density which characterise telecommunications access networks including ISDN. These mean that a large access network is likely to have lower costs than a smaller one, with the result that an entrant would need to take a large share of the market if it was to be able to compete. But in order to gain such a large market share, it is likely to have to price well below the incumbent, which would make it more difficult to recover sunk costs. Therefore barriers to entry by competing ISDN network operators are likely to be high. They are likely to be easier to overcome in the larger business segment and therefore less significant in the ISDN30 market than in the ISDN2 market.

3.6.4 In addition, it may be possible to enter the ISDN30 market by using a partial private circuit (PPC). Oftel believes that PPCs may be a viable alternative means of delivering ISDN 30 where a number of conditions are met, including:

• operators other than BT have significant network infrastructure, so that distances between the nearest point of connection to the network and the customer are not too great;
• the alternative operators can spread recovery of PPC connection costs over multiple years;
• customers offer at least a moderate level of demand; the minimum level of demand will depend on distance to customer, but is unlikely to be less than 10 or 15 channels.

3.6.5 These conditions suggest that, over time, PPCs may become a viable means of delivering ISDN 30 for some alternative providers serving some parts of the business customer base. It is not, however, clear that PPCs will provide a basis for achieving effective competition at the retail level across all relevant parts of the market. A PPC will also not be a viable option for service providers without their own networks. An ISDN WLR product would enable such service providers to enter at the retail level without having to incur large sunk costs and so should encourage entry. But it is important that the terms of availability of any WLR ISDN product should not undermine the use of PPCs to compete.

3.7 Excess pricing and profitability

3.7.1 The ability to price at a level that keeps profits persistently and significantly above the competitive level is an important indicator of market power. In a competitive market, individual firms should not be able persistently to raise prices above costs and sustain excess profits. However, it should be borne in mind that, in the short term, high profit rates can be explained by factors such as innovation and unexpected changes in demand. Conversely, low profits may be more an indicator of the inefficiency of the firm than of effective competition.

3.7.2 ISDN is a product that has historically been regarded as innovative, and this is a major reason why it has been subject to very little regulation. The product has been in existence for around 15 years. It may now be appropriate to consider whether BT’s dominance in ISDN markets is enduring and, if so, to consider whether additional regulation should be imposed.

3.7.3 As part of the review, Oftel has asked BT for data on BT's costs of providing ISDN lines and a comparison with BT's prices. Competing operators have alleged that prices are well above costs.

3.7.4 BT has provided Oftel with data on the profitability of its ISDN access line business. The data suggest that the profitability of ISDN access has been increasing and that the average ROCE on ISDN access was of the order of 50% (The full methods of attribution, accounting and valuation for this data have not been disclosed to Oftel.)in 2000/01, well above BT's cost of capital

3.7.5 Oftel also does not have recent data on the profitability of ISDN calls on an end-to-end basis, that is including the profits earned in BT Network as well as BT Retail. However, as noted above, ISDN calls were included in some of the profitability figures published in the price control review documents which relate to calls made from analogue and ISDN lines combined. The end-to-end profitability (on a fully-allocated cost basis) of ISDN calls is likely to have been comparable to that of calls made from analogue lines since standard prices are the same and the same network components are used. The profitability of ISDN calls on an AS basis (that is, including only the profits of BT Retail) on which Oftel has data is comparable to that of analogue calls on the same basis. As pointed out in Oftel's June 2002 price control review statement, BT's rates of profits on calls remain extremely high.

3.7.6 The profitability data are consistent with the view that BT has market power in ISDN access and calls markets.

3.8 Barriers to switching

3.8.1 Competition may be impeded if it is difficult for customers to change operators in response to price differences. A market is less likely to be effectively competitive, therefore, if there are significant barriers to customer switching.

3.8.2 It is possible to identify ISDN users amongst the businesses included in Oftel's regular surveys. However, the replies do not relate to switching of ISDN supplier per se. Oftel is gathering survey data on switching of ISDN supplier and will publish the results in the December statement concluding the ISDN market review.

3.8.3 Oftel's latest survey of business users found that 19 per cent of business ISDN users had switched supplier in the last year. This was significantly higher than the 6.8% of analogue line users. Similarly, some 22% of ISDN users had switched more than one year ago compared to 12% of analogue line users. A greater proportion of ISDN users also reported it was "very easy" to switch supplier (72.5% compared to 52.8%). Generally speaking the reasons for not switching given by ISDN users were very similar to those given by analogue line users. The most important were satisfaction with current supplier or hassle/inertia. Interestingly, 2.7% said that the reason they had not switched was because they had ISDN lines, suggesting that some operators perceive competition to be more limited for ISDN than for analogue line provision.

3.9 Customer Awareness

3.9.1 Customers must know of alternatives to their main supplier of telecommunications if competition is to be effective. Respondents to the Oftel surveys are asked to indicate their awareness of alternative telecommunications providers, particularly IA operators. Again it is possible to identify ISDN users from the survey replies but the questions do not relate specifically to awareness or use of alternative ISDN providers. Oftel is carrying out a further survey to address this and the results will be published in the December statement on the ISDN review.

3.9.2 Amongst ISDN users, 96.1% of respondents were aware of indirect access operators, significantly higher than the 86.7% for analogue line users. Usage of IA was also slightly higher at 35.4% compared to 31.0%.

3.9.3 Of those who were aware of but not using IA, the main reason for this was happiness with current supplier for both ISDN and analogue line users. Interestingly, 7.9% of ISDN users referred to complicated billing or the need to pay two bills as the reason for not using IA compared to only 2.5% for analogue users. Poor quality of service was also much more important for ISDN users, 18.8% giving this as the reason compared to only 5.4% for analogue users, as was poor reputation (quoted by 14.1% of ISDN users as against 6.9% of analogue users). All these are issues which could be addressed by WLR bringing firms with established brands into the market. One respondent believed that IA was not feasible for ISDN lines and gave this as the reason for not switching.

3.10 Benchmarking

3.10.1 One source of evidence on whether prices in the UK are as low as they would be in competitive markets is by comparing them to prices for the equivalent services in overseas markets. If UK fixed telephony markets are competitive, one would expect UK consumers to be getting a deal which is as good as or better than that available to customers in similar economies overseas. For this reason, Oftel has un