BT 2000 Annual Report Download - page 19

Business review
18 Annual report and Form 20-F
services in the UK. The Secretary of State is responsible for
issuing licences after consulting the Director General.
The BT Licence
BT operates in the UK under a number of licences, the
most important of which is its licence to operate its ¢xed-
linked public telecommunications network (the Licence).
The Licence operates until July 2009. The Licence can be
revoked at any time on various grounds, including non-
compliance with its terms.
The Licence contains terms and conditions designed
principally to ensure the provision of widespread
telecommunication services in the UK, to protect the
interests of consumers and to encourage the development
of e¡ective competition in telecommunication services and
equipment within the UK.
Under the Licence, BT has to provide voice telephony,
low speed data and fax transmission and reasonable access
to public call boxes throughout nearly all the UK,
including rural areas (the Universal Service Obligation).
Under the Licence, the company must allow other
licensed operators to interconnect their telecommunications
systems on non-discriminatory terms.
The company must comply with a variety of fair
trading obligations, such as:
&a prohibition on showing undue discrimination or
unfairly favouring any part of its own business as
against competitors on the basis of price or quality
of service; and
&a prohibition on the unfair cross-subsidy of certain
activities of the company.
BT must publish audited ¢nancial statements for the
regulated ``businesses'' and ``activities'', in order to support
the linkage of costs with interconnect prices and with a
view to providing demonstrable evidence that BT is neither
behaving in a discriminatory fashion nor unfairly
subsidising its activities. If it appears to the Director
General that an unfair cross-subsidy exists between
speci¢ed parts of its own business, BT must take such
steps as the Director General may direct to remedy the
situation. The regulatory businesses for which separated
accounts are currently produced are access, apparatus
supply, network, retail systems, supplemental services and
residual services. In addition, BT will be producing for the
¢rst time separated ¢nancial statements for its mobile
business for the 2000 ¢nancial year.
The Licence also contains provisions enabling the
Director General to monitor the company's activities,
including requirements for BT to supply him with
information he requests.
The Licence contains price control formulae, the
overall e¡ect of which requires the company to reduce, or
restricts the extent to which it can increase, the prices of
many of its telephony services to the bulk of the residential
market. In addition, the Licence contains certain speci¢c
restrictions on the terms on which BT can trade. In
particular, the company is required to publish and adhere
to standard prices and other terms for providing certain
services and, in general, to apply uniformly a published
scale of charges for installing residential exchange lines
on premises to be served by a single line.
The Director General may make modi¢cations to a
licence with the licensee's consent. Alternatively, changes
to the licence may be referred to the Competition
Commission (CC). In either case, the Telecommunications
Act requires public consultation before a licence can
be modi¢ed.
Licences may also be modi¢ed by legislation,
including legislation implementing European Commission
directives into UK law.
Implementation of Licensing Directives
In September 1999, modi¢cations to the Licence came into
force to meet the harmonisation requirements of the
European Commission Licensing Directive. The intention
of the Directive was to prevent excessive or unjusti¢ed
regulation through licensing of telecommunications.
The modi¢cations include the removal of restrictions
that prevent BT from competing in the conveyance and
provision of broadcast visual services to homes.
Competition
Competition Act
In addition to telecommunications industry regulation,
BT is subject to general competition law.
The Competition Act 1998, which came into e¡ect
in March 2000, brings the UK in line with European
Community law by prohibiting anti-competitive agreements
and concerted practices and the abuse of a dominant
market position. It is enforced by the Director General of
Fair Trading. In the case of telecommunications, the
Director General of Telecommunications has concurrent
powers with the Director General of Fair Trading. They
have signi¢cant new investigative powers. Breach of the
prohibitions could lead to ¢nes of up to 10% of UK
turnover and/or result in claims for damages in the civil