BT 2003 Annual Report Download - page 23

Business review
22 BT Annual Report and Form 20-F 2003
products), line transfer and new line installations have
been determined and are subject to a price control
of RPI minus 2% effective from 1 September 2002
for four years. The control applies to the aggregate
of all charges (rental, transfer and installation) as well
as to line transfers separately. BT is also under an
obligation to notify the Director General and service
providers if it intends to amend existing charges;
the notification is 90 days for determined charges
and 28 days for all others.
Non-UK regulation
BT must comply with the regulatory regimes in the
countries in which it operates or wishes to operate.
The obligations placed on BT and its suppliers continue
to be relevant to its business models and have cost
implications for its end user services. These rules are
generally applied by national regulatory authorities
operating under a governmental mandate. The impact
of decisions of these bodies can have a material impact
on our business models from time to time.
European Union
See ‘‘New European Union Directives’’.
Rest of the world
The vast majority of the markets in which BT operates
around the world are regulated, and in the majority of
these it has to obtain licences or other authorisations
and comply with the conditions of these. The degree
to which these markets are liberalised varies widely:
while many are fully open to competition, others place
restrictions on market entrants, such as the extent
to which foreign ownership is permitted, or on the
services which may be provided. The extent to which
the national incumbent operator is effectively regulated
also varies considerably. BT’s ability to compete fully in
some countries is therefore constrained.
Other significant changes and issues
Broadband regulation
There has been considerable dialogue with Oftel and
the Department of Trade and Industry over the past
financial year regarding the introduction of broadband
services and how best to deal with the issues arising
from rapid roll-out. Much of this activity has centred
around the creation of approaches designed to foster
increased demand, to reduce the costs of providing
broadband facilities, and to encourage creative
partnerships with others, both in the public and private
sectors, and to bring the benefits of broadband to
areas that might not be reached on a purely
commercial basis. In addition to the standard licence
and competition law obligations, BT ensures that the
particular obligations for wholesale service provider
products are met. These include the need to treat BT’s
retail businesses and service providers equally and the
provision of various interconnection points to BT’s
broadband network.
Deregulation of inbound services
Inbound services were deregulated in July 2002 as
the market for these services is now fully competitive.
BT no longer has a regulatory obligation to supply
voice inbound services (e.g. 0800, 0845, 0870, 09XX),
to notify and publish prices, or adhere to them.
We can therefore choose to offer different prices
and service levels to different customers. BT must,
of course, still comply with competition law. The
result of deregulation has been that prices have been
reduced in this market.
Local loop unbundling
The Licence requires the provision of unbundled local
loops to other operators to enable them to provide
telecommunications services, including broadband
ADSL services, to end customers. Local loop
unbundling, line sharing and sub-loop unbundling
are also required by an EU Regulation. Local loop
unbundling services have been phased in over the
past few years. In March 2003, BT launched a line
sharing service.
Carrier pre-selection
Carrier pre-selection (CPS), required by a condition
in the Licence, allows customers to opt for certain
classes of call to be carried by an alternative operator,
selected in advance, without having to dial additional
access codes.
Leased lines
Oftel published a Direction in respect of Partial Private
Circuits (PPCs) in December 2002. PPCs are a
wholesale variant of certain private circuits at cost-
based prices, which interconnecting operators can use
to form local tail-parts of end-to-end circuits offered
to their retail customers. The Direction resulted from
an investigation into the cost base of this relatively new
wholesale product group (PPCs were initially launched
in August 2001). The Direction resulted in reductions
averaging 15% to 20% in PPC charges compared with
the initial 2001 PPC charge levels, along with a range
of relatively minor amendments to the product
specifications. A proportion of the price reductions has
been made on a retrospective basis, as the majority
of private circuits leased by other operators had
already switched to PPC prices and conditions following
initial launch. Now that the Oftel investigation has
concluded, BT is looking forward to a period of
stability as the use of the new product portfolio
becomes established.
Universal Service Obligation (USO)
The Communications Bill will implement the Universal
Service Directive, one element of the new European
Union Directives package (see ‘‘New European Union
Directives’’). Oftel consulted in March 2003 on
conditions to apply to BT. Some additional obligations
are proposed, such as guidelines that refer to a
minimum data rate of 28.8 kbit/s which will have
adverse cost implications for BT if implemented. Oftel
continues to take the view that the USO is not an
unfair burden on BT. Oftel is expected to carry out
a formal review of the USO next year, looking at
the scope and funding of the USO, and is currently