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Re-prioritising BT’s remaining Undertakings commitments on information systems separation

Statement Published 11|09|09

Summary

Background

1.1 This Statement relates to certain obligations that British Telecommunications plc (BT) has concerning the separation of its information systems between Openreach and other parts of BT. It sets out and explains our decision to agree to a variation to BTs Undertakings under the Enterprise Act 2002 (Enterprise Act) in relation to these obligations following consultation with our stakeholders. Openreach is the BT division responsible for the majority of wholesale products sold to BT and external communications providers (CPs). These changes affect how BT provides certain services to other communications providers, and ultimately how effective competition is in delivering benefits to residential and business customers.

1.2 Our decisions relate to a variation to a set of commitments that BT offered in 2005 (the Undertakings) (-1-) to address competition concerns that we had identified in certain fixed telecommunications markets (-2-). Much has already been achieved since then with the support of the Undertakings, as set out in more detail in our latest review of the implementation of the Telecoms Strategic Review (TSR) (-3-). Specifically:

  • BT has delivered over 80 per cent of its Undertakings obligations, and the level of service that it provides to its competitors (in accordance with the Undertakings) has improved;
  • Consumers have benefited from greater availability and choice of services - including broadband, bundled voice telephony and broadband services, triple-play services (-4-), and business connectivity services based on Ethernet (-5-); and
  • Broadband competition is very strong. There are now over six million broadband lines based on local loop unbundling (LLU). BTs retail share of broadband is now one of the lowest of the incumbent operators market shares in the OECD.

1.3 But some key Undertakings milestones have yet to be achieved. This document relates largely to those remaining milestones that depend on BTs information systems separation programme, or which are affected by the delay and revision in BTs deployment plans of a next generation core network (NGN) (-6-). BTs NGN is called its 21st Century Network (21CN).

1.4 There are different levels to systems separation, but the ultimate intent is for Openreachs data, applications and hardware to be separated from the rest of BT (RoBT). Achieving this is easier in the case where new systems are being deployed. For this reason, Openreachs key transaction system has been designed with separation in mind from the start. However, to satisfy its separation obligations BT also has to ensure that information relating to its legacy retail installed customer base is migrated to systems that are separate from those used by Openreach.

1.5 We consulted in May 2009 (the Consultation Document) on proposals to change BTs systems separation obligations in the Undertakings (-7-). These proposals would enable BT to re-prioritise its systems-related resources so that they could be used in part to deliver a range of new short- and medium-term service developments required by Openreachs customers. The proposals would also permit BT to delay the migration of BTs legacy retail customer records to systems that are separate from Openreach, and result in delayed physical separation of Openreachs systems from RoBT.

The consultation proposals

1.6 There were two key parts to the proposed changes. Firstly, there was a set of new BT commitments to cover the delivery of service developments requested by Openreachs customers. Secondly, changes were proposed to relax a number of BTs remaining Undertakings commitments relating to systems separation.

1.7 The proposed new obligations in respect of new service developments reflected the priorities set by Openreachs customers. They covered both improvements to Openreachs current levels of service and some new product developments, a number of which would specifically benefit those CPs serving business customers.

1.8 Openreach would be required to deliver the additional developments as part of the Undertakings. Whilst the Undertakings would provide flexibility for changes to be made to the original list of commitments, for example as the priorities of Openreachs customers change, such changes would be subject to tight change control criteria.

1.9 In terms of the remaining systems separation commitments in BTs Undertakings, three broad changes were proposed. These concern:

  • the approach and timing for full physical separation of legacy systems: this would proceed according to more pragmatic considerations (-8-), and over a longer period rather than the former fixed timescale (of 30 June 2010);
  • the migration of BTs end users customer records onto systems that are separate from Openreachs: longer timescales were proposed for this, reflecting the extra time that BT will take to migrate its business customers; and
  • the migration of BTs legacy customer base to equivalence of inputs (EOI) products, where this has not been achieved (-9-): As with systems separation, longer timescales were proposed, plus a change in how product EOI is measured (-10-).

1.10 The proposed change in measuring progress towards product EOI would have a further knock-on impact on a number of existing exemptions granted to the Undertakings. In addition, a further amendment to an existing Undertakings exemption (relating to Featurenet) was proposed due to the delay in BTs deployment of its 21CN.

1.11 Figure 1.1 below summarises the key changes on which we consulted.

Our response to consultation comments

1.12 A number of stakeholders recognised the value of the proposal to re-prioritise BTs resources towards delivering activities of higher priority to industry. However, there was also some opposition in principle to relaxing some of BTs Undertakings commitments.

1.13 The main concerns raised, however, focused on two substantive issues:

  • delays in achieving EOI for individual products, and what the consequential competitive impact might be; and
  • perceived weaknesses in the clarity and content of the additional Openreach service commitments, as well as imprecision in the change control process to govern their delivery.

1.14 On delays in achieving EOI, we consider the overall impact of the changes to be limited, for a number of reasons. Firstly, the scope of concerns should be limited to the legacy installed BT customer base, as almost all new supply for BTs downstream divisions is provided on an EOI basis. Secondly, significant migration will still be needed in order for BT to meet its revised separation milestones for the high-volume products (analogue voice, ISDN2 and ISDN30). Thirdly, performance measures for these products suggest that CPs do not suffer a material competitive disadvantage. Indeed, in many instances the EOI product variants perform better and are better specified than the related legacy non-EOI products. Other obligations (e.g., no undue discrimination between customers) also apply to the copper-based products ISDN, WLR, LLU (-11-) due to BTs designated significant market power status.

1.15 For the more niche products (e.g., Wavestream Connect & Regional, CCTV Access, Media & Broadcast) we consider that there are currently limited differences between the EOI and non-EOI variants of these products, and in some respects the EOI product inputs are better specified (for example, by supporting KCIs (-12-) as well as service level agreements and guarantees). Also, in a number of cases these products are legacy products that have declining volumes or are being replaced by new product variants (such as EOI-based Ethernet products) over time. Lastly, any product or process differences are not exploited by BT downstream, as BTs relevant downstream products offer the same service level agreements and service level guarantees regardless of whether these are supported by EOI product inputs or they rely on legacy internal supply.

Figure 1.1 Summary of consultation proposals to change the Undertakings

Issue

Original commitment

Revised commitment as set out in the Consultation Document

Openreach delivery of specific service developments

None

Commitment on Openreach to deliver a set of new service developments and functionality, published in a roadmap

Changes to the above to be subject to an agreed change control process and where specific developments are removed they would need to be replaced with others to ensure that the revised commitments are comparable to the original commitments

Approach and timing of full physical systems separation

Full physical separation by 30/6/2010 except for systems exempted under Annex 6

Except for systems exempted under Annex 6, OSS for Openreach to be run physically separate from RoBT when reasonably practicable and proportionate, unless otherwise agreed by BT and Ofcom

80% of customer service records to be separated by 30/6/2010

90% of customer service records to be separated by 31/12/2012

A further percentage of customer records (to be advised no later than the end of 2011) to be separated by 30/6/2014

Product EOI obligations

IBMC dates:

  • WLR3 analogue - 30/6/2010
  • ISDN2 31/3/2009
  • ISDN30 31/12/2009

All IBMC dates to be removed

Product EOI obligations for various exemptions

IBMC dates:

  • 30/6/2010 Featureline; Featurenet; MegaStream Ethernet; Redcare CCTV; Media & Broadcast; Featurenet SRUs
  • 30/9/2010 - Wavestream Connect & Regional

All IBMC dates to be removed

Messaging and Bill Direct exemption

Permission for specific BT Wholesale staff to access relevant Openreach systems until 30/6/2010

End date of exemption extended until physical separation of relevant OSS completed


1.16 Further, the additional Openreach developments must be treated as a counterbalancing benefit to delays in delivering systems separation and product EOI. We note that a number of business-related developments are included in the additional Openreach developments, which offsets the fact that it is mainly business-focused CPs that are impacted by BTs systems separation delays.

1.17 In recognition of stakeholder concerns on product EOI, BT has agreed to a number of additional measures since we consulted. The first of the following measures is a formal change to the legal wording of the Undertakings, the others are voluntary commitments which we have agreed with BT:

  • BTs Undertakings commitments about providing the June 2014 milestones for customer separation and EOI will now oblige it to demonstrate continued significant progress towards the migration of business customers beyond the December 2012 levels. We would therefore expect this revised milestone to demonstrate material progress towards complete EOI. This requirement should avoid a situation in which there is only minimal progress towards complete product EOI, and notably should encourage BT to deliver more substantial progress towards EOI for the larger volume products affected by the removal of IBMC dates;
  • The EAO will review key performance metrics comparing EOI and non-EOI/legacy supply for high-volume products, as reported to them by Openreach. This will begin by January 2010 at the latest. We consider that this will place a greater pressure on Openreach to deliver a broadly equivalent level of performance to other CPs and to those BT downstream customers depending on non-EOI inputs) This voluntary commitment is set out in a side letter to this Undertakings variation (-13-);
  • BT will report to the EAO on a number of non-binding milestones to track progress in developing its business stack. Details on this have been confirmed since the Consultation Document. The details of these non-binding milestones are also set out in the side letter to this Undertakings variation;
  • BT will report to us on what its progress in building the business stack implies for expected migration of specific product groupings to that new system. This complements plans already agreed with BT for reporting on actual progress in migrating individual products, as part of the regular Undertakings roadmap reviews with us. These measures should give useful extra visibility on progress with the more niche, fibre-based products; and
  • Openreach will consult with its customers about easing the migration to EOI product variants of those customers currently consuming the relevant legacy/non-EOI products. Such a facility could help to mitigate the consequences of delays in achieving EOI for those products.


1.18 On the Openreach commitments, changes have been made since the Consultation Document that we consider largely address the concerns raised. There has also been good progress on key roadmap elements that stakeholders considered as poorly defined when we consulted. A much clearer change control process, supported by a formal Undertakings obligation, has also been documented and agreed, with the involvement of the Office of the Telecommunications Adjudicator (OTA) (-14-). In light of feedback from CPs in response to the Consultation Document and through related discussions with Openreach, some additional requirements have been added to the roadmap using the new change control process. This process was employed for the first time at the 26 August OTA Executive meeting and appears to have worked effectively.

1.19 The latest version of the roadmap (-15-) (together with the changes approved by the 26 August Change Control Board) captures all of the developments that the OTA was expecting to be included at the time that the Consultation Document was published. The OTA and we are satisfied that the final process can provide a robust way to manage the delivery of Openreachs commitments.

1.20 On a number of the proposed exemptions, some CPs opposed the removal of IBMC dates for the products concerned (-16-). Those comments are discussed below, where we conclude that the net impact of the variation is limited. A limited number of more specific comments were also received, which we do not consider change the proposals that we made in the Consultation Document. We have therefore agreed to the variation to the Undertakings, subject to a few non-material changes, and the consequential amendments to the existing exemptions outlined in the Consultation Document.

The impact of the changes

1.21 We consider that the additional formal and voluntary measures agreed with BT since the Consultation Document strengthen our conclusion that there would be a limited impact on competition due to the delays in separation. This is because the systems separation and product EOI obligations for June 2014 have been strengthened, and because there is greater certainty that the additional Openreach developments will be implemented as envisaged. Further, we consider that the EAO monitoring of the relevant EOI products with comparable legacy non-EOI downstream products will provide an additional incentive for BT to improve the performance of EOI products provided by Openreach.

1.22 In terms of the impact on consumers, the steps taken in addition to the proposals in the Consultation Document are beneficial, because there are additional measures to accelerate overall business customer migration. Also, more certainty on the additional Openreach developments (through confirmation of the roadmap contents and a robust change control process) gives higher prospects of realising customer benefits in services and competition.

1.23 We also consider that the additional changes made since the Consultation Document provide a greater guarantee that the Undertakings will continue to be a comprehensive solution to the competition problems identified as a result of the TSR. This is both due to the additional measures affecting consumer and competition impacts, as identified above, and the greater level of scrutiny on progress towards customer records separation. We consider that all these factors suggest that our decisions remain consistent with the outcomes that the TSR set out to achieve.

1.24 We consider that the agreed changes to the legal text of the variation, while providing additional clarification, are not material and we therefore do not consider it necessary to consult again. In light of these changes and of our considerations in relation to the other concerns raised by the respondents to the Consultation Document, we have decided that it is appropriate for us to agree to the modified variation and consequential amendments to the existing exemptions. This Statement sets out our considerations that led us to this decision. The legal agreement between BT and us giving effect to the variation is at Annex 3 and the legal wording for the exemptions is at Annex 5.

Footnotes:

  1.- pursuant to section 154 of the Enterprise Act

  2.- Final statements on the Strategic Review of Telecommunications, and undertakings in lieu of a reference under the Enterprise Act 2002,at http://www.ofcom.org.uk/consult/condocs/statement_tsr/

  3.- Impact of the Strategic Review of Telecoms, at http://www.ofcom.org.uk/telecoms/btundertakings/

  4.- Voice telephony, broadband and television services

  5.- Ethernet is a protocol that controls data transmission over a communications network

  6.- For more on NGNs, see Next Generation Networks: Responding to recent developments to protect consumers, promote effective competition and secure efficient investment, at http://www.ofcom.org.uk/consult/condocs/ngndevelopments/

  7.- Re-prioritising BTs remaining Undertakings commitments on information systems separation, http://www.ofcom.org.uk/consult/condocs/btundertakings/

  8.- such as when old information systems hardware is replaced or rationalised

  9.- EOI means BT providing the same product or service to all CP (including BT) on the same timescales, terms and conditions. See paragraph 2.4 for a fuller definition.

  10.- Product EOI changes from being measured by the percentages of migration for individual products to being measured by the percentage of legal entities that are migrated to using EOI products

  11.- Which can be an input into a Featurenet service

  12.- KCIs (or keeping customers informed) is a facility by which CPs are automatically alerted by Openreachs systems as to the status of orders, fault repairs, etc.

  13.- Also published today, at http://www.ofcom.org.uk/consult/condocs/btundertakings/statement/bt_letter.pdf

  14.-The OTA is independent of Ofcom and works with Openreach and industry to find solutions to the operational problems with the delivery of Openreachs wholesale products.

  15.- For the latest version of the roadmap (dated 9 July 2009), see www.openreach.co.uk/roadmap. It is necessary to register on the Openreach portal to see the roadmap.

  16.- Although no respondents disagreed with the granting of the exemptions for Featurenet SRUs, or Messaging Services and Bill Direct

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