Ofcom Strategic Review

1
Ofcom Strategic Review Clive Ansell, Group
Strategy Director Steve Robertson, Chief
Executive Designate, Access Services Peter
McCarthy-Ward, Director, Equivalence
Industry Analyst Round Table - 12th
July 2005

2
Ofcoms proposed new approach to regulation is
based on

• Enterprise Act Undertakings offered by BT
• Voluntary commitments offered by BT
• A deregulatory agenda from Ofcom

3
Enterprise Act Undertakings - process

• 23 June In principle announcements
• 30 June Draft Undertakings published
• 30 June 12 August Industry consultation
• 8 September Ofcom Final Statement
• September Undertakings signed by BT and Ofcom

On that date, the clock starts ticking on BTs
commitments
4
The competition issues which Ofcom intends the
Undertakings to address
According to Ofcom..

• .competition is being restricted in wholesale
  markets for access
• and backhaul services and in directly related
  retail markets..
• BT has substantial market power in the
  wholesale markets
• concerned
• and is a vertically integrated provider
• with a presence in the directly related retail
  markets
• the combination of these factors give BT the
  ability and the incentive to discriminate against
  its downstream competitors
• who are also its wholesale customers

5
Peter McCarthy-Ward
6
Equivalence means...

• same products and services for BT and others
• same timescales, terms and conditions
• same systems and processes
• operating with the same reliability and
  performance
• same commercial information
• Subject only to
• trivial differences
• differences in credit vetting, payment,
• contract terms on termination, safe working,
  security
• other differences agreed by Ofcom

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Equivalence applies to

• Start Dates
• WLR Analogue June 2007
• WLR ISDN2 Sept 2007
• WLR ISDN 30 Dec 2007
• IPStream Dec 2005
• SMPF June 2006
• MPF June 2006
• WES Sept 2006
• BES Sept 2006

• and.
• Successor products
• migrations
• new network access SMP products

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Equivalence of Input -other commitments

• Compensation payable _at_25p per line per month if
• WLR Analogue not RFS by December 2006
• SMPF/MPF not RFS by June 2006
• Communications Providers to have access to key
  systems as an interim measure
• Address matching Dec 2005
• Engineering Appointments June 2006
• Service Provider Gateway to be used for BT
  Win-backs after December 2006

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Transparency

• ASD will publish KPIs and regulatory accounts
• EAB will publish an annual report
• Within three months of the date the Undertakings
  take effect, we will deliver improved
  transparency around
• Partial Private Circuits
• Carrier Pre-selection
• DataStream

10
Equality of Access Board (EAB)
The EAB will

• monitor, report and advise on compliance with the
  Undertakings
• be established within six months of the
  Undertakings taking effect
• have three independent members, one BT Group plc
  non-executive director and one senior BT manager
• meet six to ten times in its first year and then
  as appropriate
• report regularly to the BT Group plc Board
• send a detailed report to Ofcom annually
• publish a summary report as part of BTs annual
  compliance report

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New BT Reporting Structure
Main BT PLC Board
BT CEO
Management reporting
Compliance oversight
Operating
EAB
Committee
Global
Retail
ASDBoard
Wholesale
Board
Board
Board
Global
Wholesale
Retail
Access Services
Services
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Other organisational undertakings -BT Wholesale

• Two new product units
• BTWS SMP products
• BTS Wholesale Calls, IPStream, Wholesale
  Leased Lines
• Units will be in the management line of a
  Wholesale Board member, who will not be bonused
  on Group results
• BTWS people will be bonused only on BTWS results
• MIS systems used by these units will be secured
  from other BT people

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Other organisational undertakings -Upstream and
Downstream

• BT will maintain organisational separation
  between upstream and downstream businesses
• BT will maintain strong organisational
  separation of upstream and downstream sales
  functions
• Communications providers (including Internet
  Service Providers) will be free to buy from
  upstream divisions if they so choose, and to be
  account managed by upstream or downstream
  divisions at their choice

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Discrimination Boundaries
CPs including BTR/BTW
CPs including BTR
ASD
BTW sales
BTR sales
Channels
BTR
BTWS All non-ASD SMP CPS, DataStream, trunk PPCs
BTS Sensitive non-SMP - IPS, w/s calls, w/s
leased lines
Prod mgt
B
A
C
BTW network/operations Platform
management Network operations/dev Systems
Platform
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Steve RobertsonAccess Services
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Access Services organisation

• Access Services will be created within 4 months
  of the Undertakings coming into force
• It will be responsible for access and backhaul
  services
• run physical not transmission layer
• undertake sales, product and service management
  for defined SMP services
• have sufficient influence over transmission layer
  to meet its customers needs

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Access Services -a high degree of separation

• delegated of authority after agreement of Annual
  Plan (Plan to refer to Undertakings)
• separate disclosure of results
• pay plans not to have a BT group element
• HQ team in separate buildings
• separate Operational Support Systems (logical end
  2007, physical end 2010)
• no information disclosure - except to defined
  functions- other than through processes available
  to all Communications Providers
• separate branding (with secondary reference to
  being part of BT group)

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Access Services initial product set

• Wholesale Analogue Line Rental
• Wholesale ISDN2 Line Rental
• Wholesale ISDN 30 Line Rental
• Local Loop Unbundling (full and shared)
• Partial Private Circuits, excluding those
  containing a trunk segment
• Radio Base Station Backhaul Service, excluding
  those containing a trunk segment
• Wholesale Extension Service
• Backhaul Extension Service
• and facility to co-locate specified equipment
  at exchanges within six months of the
  Undertakings taking effect

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Possible future additions to the Access Services
product set

• If requested by another Communications Provider
• Partial Private Circuit Access Product
• Partial Private Circuit Backhaul Product
• Wholesale Extension Service Access Product
• Wholesale Extension Service Backhaul Product
• Wholesale End-to-End Ethernet Service
• If required by Ofcom and if BT has SMP in the
  relevant market
• A new Network Access product based on
  Multi-Service Access Node (MSAN) access provided
  using BTs NGN

20
Access Services re-branding

• Access Services will use a separate brand name
  which does not include BT or British Telecom
• But it may be used with an endorsement including
  Part of the BT Group and the BT globe symbol
• Stationery and buildings must be rebranded within
  sixteen months of the Undertakings taking effect
• Clothing and vehicles will be rebranded
  progressively as assets are replaced, completing
  within five years of the date Access Services is
  established

21
Clive Ansell
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Next Generation Networks

• Where BT has Significant Market Power (SMP) for
  network access
• Communications Providers to have unbundled access
  to 21CN
• charges to be based on efficient network design
• new wholesale SMP capabilities to be available to
  all before retail launch
• systems and processes to deliver Equivalence of
  Input
• BT to participate in industry group that will
• set reference interconnect architecture
• produce transition and end-user communication
  plans
• oversee the transition
• Dispute adjudication
• LLU operators not disadvantaged by broadband
  dial tone for
• for service migration
• Provision about compensation for Communications
  Providers

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Outside the UndertakingsOfcoms deregulatory
agenda

• Network Charge Control Statement to be published
  in August should confirm deregulation in
  conveyance and transit.
• Consultation in Autumn on WLR fit-for-purpose
  test, with a view to relaxation of the
  residential price cap in early 2006
• Market review of retail narrowband with a view to
  complete removal of residential price cap on
  expiry at end-July 2006
• Consultation on major business pricing
  deregulation in July
• Consultation on leased lines geographic markets
  in July, and a full Market Review in early 2006
• Future Market Reviews including Wholesale
  Broadband Access

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Outside the Undertakingsvoluntary commitments
offered by BT

• Annual rental charge for Full LLU to be cut to
  80
• IPStream and DataStream ADSL end user rental
  charges
• to be frozen until there are 1.5 million LLU
  lines (although we can cut the IPStream
  connection charge by 10)
• not to be reduced by more than 3 on a nationally
  averaged basis between the 1.5 million LLU line
  threshold being reached and the earlier of the
  completion of a Wholesale Broadband Access Market
  Review or 1 April 2007
• WLR margin to be increased through a 50p cut in
  monthly WLR charge this year a 50p increase in
  residential line rental in early 2006 a further
  35p cut in WLR charge in 2006/07

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Implementation of the settlement

• The Undertakings would not come into force until
  September, but the implementation process has
  already started
• Ofcom are setting up a rolling quarterly
  programme of reports on BTs delivery against the
  Undertakings
• Ofcoms statements on Cost of Copper and Cost of
  Capital to be issued on 19th August, must be such
  as to permit our LLU and WLR pricing changes to
  take place

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Thank you