BT 2004 Annual Report Download - page 23

Wholesale access charge control
The charges for wholesale access services are also
subject to price control. The charges for the line rental
(residential and business products), line transfer and
new line installations have been set by Ofcom 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.
We are also under an obligation to notify Ofcom and
service providers if we intend to amend existing
charges. Notice periods range from 28 to 90 days,
depending on the specific service.
On 28 November 2003 Oftel published its
statement on the fixed narrowband wholesale
exchange line market. This statement contained new
obligations on BT to provide business ISDN2 wholesale
line rentals with cost-oriented prices. We must also
provide residential ISDN2 and ISDN30 wholesale line
rentals at retail minus prices. Furthermore, the
wholesale ISDN2 business and ISDN30 products have
to be provided in accordance with a functional
specification defined by Ofcom. Ofcom is conducting
an investigation into the prices of business ISDN2
wholesale line rental.
Non-UK regulation
BT must comply with the regulatory regimes in the
countries in which we operate or wish to operate. The
obligations placed on BT and our suppliers continue to
be relevant to our business models and have cost
implications for our end-user services. These rules are
generally applied by national regulatory authorities
operating under a government mandate. The impact of
the decisions of these bodies can have a material
impact on our business models from time to time.
European Union
The degree to which the European directives have
been implemented varies by country. While 2004
should see a general move towards the new regime, in
some countries the directives may not be fully
implemented until 2005. In most, but not all, member
states the primary legislation that will enable the
introduction of the new regulatory regime is going
through, or has been through, the legislative process.
The processes of identification of operators with SMP
and the subsequent setting of regulatory obligations
on those operators are mostly in progress. The
implementation process in Germany is notably behind
that in other major member states.
BT will not have universal service obligations
outside the UK, although in certain member states we
may be required to contribute towards an industry
fund to pay for the cost of meeting universal service
obligations in those countries. Any findings that BT has
SMP in any non-UK market are not expected to have a
material impact. We are lobbying the European
Commission and other EU bodies with responsibility for
electronic communications for consistent and timely
implementation of the new directives and associated
regulation.
The availability of cost-oriented access products from
regulated incumbents remains an important element of
our strategy around the world and we continue to
press these incumbents, their national regulatory
authorities and at EU level for such access. Their
availability varies by country.
Rest of the world
The vast majority of the markets in which we operate
around the world are regulated, and in the majority of
these we have to obtain licences or other
authorisations and to 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 restrictions 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
Mobile call termination
In early 2003, the Competition Commission ruled that
mobile termination rates were against the public
interest and recommended one-off cuts of 15% in real
terms before 25 July 2003 and RPI minus X cuts for
the following two years (X = 15% for Vodafone and O
2
and X = 14% for T-Mobile and Orange).
(There are two types of mobile termination charge.
&When a BT fixed-line customer makes a call to a
mobile phone, we incur a termination charge
payable to the mobile operator. This charge is
incorporated in the cost of the call.
&
When a customer of any mobile operator makes a
call to another mobile network, this can pass
through BT’s fixed network. In this case, BT passes
the termination charge on behalf of the calling
mobile network to the receiving mobile network.)
Oftel introduced changes to the mobile operators’
licences to implement the one-off 15% cut by 25 July
2003 and Ofcom is currently undertaking a market
review of mobile termination rates to evaluate what, if
any, controls should exist going forward. Ofcom’s
latest proposals seek to implement the Competition
Commission’s original findings.
The financial effect has been to reduce group
revenues by over £200 million during the 2004
financial year. However, payments to mobile operators
have reduced by exactly the same amount, leaving a
neutral effect on profits.
Strategic Review of Telecommunications
During 2004, Ofcom will be carrying out a strategic
review of the UK telecommunications sector and
published its first consultation in April 2004. The
review will be comprehensive, wide ranging and will
assess the options for enhancing value and choice in
the UK telecommunications sector while having regard
to investment and innovation. Ofcom’s proposals will
be set out in a report to be published before the end of
2004.
22 Operating and financial review BT Annual Report and Form 20-F 2004