APPENDIX 11
Memorandum submitted by WorldCom
BACKGROUND ON
WORLDCOM
Brief corporate information about WorldCom is
provided in Annex A.
PURPOSE OF
THIS PAPER
This paper is intended to assist the Select
Committee in understanding WorldCom's position on ULL including
its observations that:
— OFTEL appears disproportionately
focused on unbundling the physical assets of BT and is not equally
and sufficiently focused on the importance of unbundling BT's
concomitant information and billing systems (as well as the physical
assets);
— BT's main strategic advantage in
the context of ULL is not only its physical assets (ie local exchanges
and copper loops), but also its customer and strategic network
design and traffic information as well as its customer billing
systems;
— the importance of "electronic
bonding" between BT's network and other ULL operator networks,
including real time and open access to BT's OSS and billing systems,
is not fully understood or appreciated by OFTEL;
— there is strong evidence in other
countries which have obliged incumbent PTT's to offer billing
services to third party operators that demonstrates the likely
positive competitive consequences of obligating BT to offer equal
access to OSS and third party billing;
— the present UK regulatory objective
and the Government's vision on ULL will likely be defeated unless
special attention is paid to these last mentioned issues and,
if necessary, additional regulatory safeguards provided to effectively
deal with them.
Accordingly, WorldCom considers the challenge
to OFTEL in effective unbundling of local loops and opening up
local access to effective competition therefore lies in ensuring
that, so far as possible, the significant advantages of incumbency
and power derived from BT's information and billing endowments
are neutralised.
EXISTING ULL REGULATION
AND IMPLEMENTATION
FOCUSES DISPROPORTIONATELY
UPON PHYSICAL
ASSETS AND
PRICING
ULL lies at the heart of the Government's aspiration
to ensure that the UK has one of the most vibrant electronic economies
in the world. The delivery of the Government's vision depends
upon vigorous and effective competition, which is the most powerful
means of securing long-term benefits to consumers.
We do not share OFTEL's view that existing ULL
regulations and arrangements are sufficiently comprehensive and
cannot be improved. The UK has fallen behind the US and other
countries in ULL implementation. In order to catch up, ULL regulation
in the UK must ensure effective and speedy delivery of BT of not
only the physical assets to facilitate provisioning and delivery
of loops, but also the associated intellectual or information
assets, including BT's Operational Support Systems (OSS) and billing
systems. Otherwise the Government's vision on ULL will likely
be defeated.
Historically, existing regulatory arrangements
have not been successful in preventing determined leveraging by
BT. The best recent examples of this are Flat Rate Internet Access
and DSL: both strategically important markets in which BT has
successfully secured first mover advantages despite the protestations
of OFTEL and competitors. [14]
The ability of competitors to rapidly enter
the local access market and other "new economy" markets
and to innovate is being seriously compromised by regulatory gaps.
The cost of this in terms of product innovation and consumer welfare
is rising daily. ULL presents an historic opportunity to reformulate
and improve the regulatory framework and accelerate competition.
We cannot overemphasise that BT's main strategic
advantage in the context of new market entry is not its physical
assets (eg local exchanges and copper loops), but its customer
and strategic network design and traffic information as well as
its customer billing systems. The challenge to OFTEL therefore
lies in ensuring that, so far as possible, the advantages of incumbency
and power derived from BT's information and billing endowments
are neutralised.
BT'S BILLING
AND DATA
ASSETS
BT has long understood and sought to exploit
the competitive advantages that it derives from the information
it holds and its billing systems which represent an essential
facility for new entrant operators. WorldCom considers that equal
access to information and billing capability is not adequately
understood by OFTEL or fully addressed in current ULL regulations
or arrangements.
IMPROVING ULL CUSTOMER
SERVICE THROUGH
OPEN ACCESS
TO BT'S
NETWORK DATABASES
AND BILLING
SYSTEMS
Open access to network databases is frequently
referred to as "electronic bonding". The OSS interface
is an essential element of the seamless integration of networks.
In order to realise the full potential of the benefits offered
by advanced intelligent networks, there must be open access to
customer information and billing systems within BT's network,
so that:
— the competing operator on behalf
of the customer can access all information and data which the
customer has stored in a particular database from whichever network
which the competing operator or customer chooses to log into throughout
the day; and
— in circumstances where a customer
chooses a competing operator to manage all of his or her telecommunications
services, that operator can obtain all relevant information about
the customer's services acquired from BT's networks—and
this requires the operator to be able to access the customer databases
of BT (relating to pre-ordering, ordering, provisioning, billing
and fault management) in exactly the same manner as BT.
Electronic bonding, including access to billing
systems, not only enhances the openness and connectivity of networks—it
has also become a primary competitive differentiator in telecommunications,
improving business processes and making them less costly to operate.
An absence of electronic bonding raises costs, impacts detrimentally
on customer service and impedes the ability of any operator—except
BT as the incumbent operating a ubiquitous network—to provide
a one-stop shop for its customers.
It is for this very reason that incumbents such
as BT have been, and remain, the strongest opponents of electronic
bonding. Electronic bonding results in consumers becoming less
dependant on the ubiquitous services of the incumbent—since
it enables consumers to acquire all of their services from a particular
operator on a competitive basis, even if some of their services
are delivered over the incumbent's network:
— For example, in situations where
a component of the consumer's services comprises services delivered
over the incumbent's network (such as the resale of local calls,
or services offered over the unbundled local loop), the quality
of service that new entrants are able to deliver to their customers
depends greatly on the interfaces to the incumbent carrier's databases.
— New entrants cannot afford to be
mere order-takers, they must provide added value in the form of
customer service, customer care and customer billing. They also
need to be able to provide real-time support for multiple services.
— All of this requires simple and instant
access to the customer databases of the incumbent (relating to
pre-ordering, ordering, provisioning, billing and fault management)
in the same manner as the incumbent in order to be able to deliver
the full range of services to customers on a competitive basis.
While regulation enables new entrants to resell
local calls and provide xDSL services over the incumbent's unbundled
local loop network, incumbents such as BT will generally avoid
providing real-time access to the associated customer databases
and billing systems unless they are forced to do so by virtue
of regulation or the threat of regulation. As the current ULL
unbundling regulations are loosely drafted in relation to OSS
and billing operations, BT is and will continue to seek to limit
the scope of services to more basic electronic interfacing, without
offering solutions based on the real-time interworking of databases
and open billing systems.
In these circumstances, the ubiquity of the
incumbent impedes development across the industry and limits the
competitiveness of the services that are available to consumers.
The current lack of industry progress in this area raises scepticism
that OFTEL and the industry can move fast enough via co-regulation,
or for that matter agree on where it should be moving.
APPROACHES IN
OTHER COUNTRIES
In the United States this issue was in part
dealt with by the FCC through regulatory requirements for OSS
interconnection. Regulations require the regional Bell operating
companies (RBOCs) to provide competitors with access to their
customer databases and various OSS functions such as pre-ordering,
ordering, provisioning and fault management.
As a result, new generations of OSSs are now
being developed in the US to address enterprise data information
management.
We are also aware that in Germany, France and
Finland the incumbent PTTs in each country are obliged to provide
billing services for competing operators.
In Germany, Deutsche Telekom (DT) is obliged
to provide billing services for competing carriers. The denial
of DT to provide such services would be regarded as an abuse of
its dominant position within the telecoms market pursuant to Chapter
33 of the Telecommunications Act (the "TKG"). Further,
invoicing and collection are viewed in Germany as essential services
under the provision of Chapter 33.
In Finland, interconnection rules mandate that
the SMP operator in charge of local access has an obligation to
provide billing services to third parties, ie other telecom operators.
The legislation on the billing arrangement is in the Communications
Ministry's decision on interconnection (22.12.1997/1393) 17.
In France, recent changes to the interconnect
regulations will require FT to offer a single customer billing
service on behalf of competing operators by September 2001.
Attached for information are two WorldCom charts
which illustrate the importance of third party billing to effective
competition. The headline points from the charts are:
— The UK took 14 years to achieve approximately
30 per cent erosion of the incumbent's market share in national
long distance calls. Germany took 1r years.
— The UK took 11 years to achieve approximately
40 per cent erosion of the incumbent's market share in international
calls. Germany took 1r years.
Whilst other regulatory and competitive dynamics
were in play, we believe mandated third party billing provided
by DT was a fundamental catalyst to the accelerated competition
in Germany. ULL presents a unique opportunity for the UK to learn
from experience in other countries and drive accelerated rollout
of DSL services through billing and OSS obligations on BT, similar
to those imposed elsewhere.
We have seen less than effective competition
including the UK in those jurisdictions, where the regulators
have adopted a hands-off approach to electronic bonding. For example,
there does not currently appear to be any willingness on the part
of BT to incorporate this level of interworking and open access
to its billing systems into the ULL arrangements. This is despite
the fact that electronic bonding actually has the potential to
produce a win/win solution for both BT and competing operators
as well as customers. It eliminates manual processes and resource-intensive
data matching efforts, and has a significant and positive impact
on the quality of services provided to customers.
CONCLUSIONS
WorldCom remains keener than ever on ULL and
believes that it represents a huge opportunity for the company
and our customers. We will continue to be amongst the most active
in continuing to drive forward the ULL debate and its implementation.
At the same time, WorldCom considers that OFTEL
is presently disproportionately focused on unbundling the physical
assets of BT and on pricing issues. OFTEL needs to be equally
and fully focused on the importance of unbundling BT's concomitant
information and billing systems (as well as the physical assets)
so as to give confidence to the market that the UK will have effective
competition in local access.
We consider that the Director General of OFTEL
should demonstrate:
— that he is aware of the evidence
in other countries that demonstrates the likely positive competitive
consequences of obligating BT to offer equal access to OSS and
third party billing; and
— that he appreciates and fully understands
the competitive importance of "electronic bonding" including
open access to BT's OSS and billing systems and that OFTEL is
developing appropriate regulation for opening up BT's intellectual
and information assets (including mandating third party billing
provision) to competitors.
9 November 2000
Annex A
ABOUT WORLDCOM
WorldCom offers a complete set of fully integrated
voice, data and Internet communications services over its own
metropolitan, national and international facilities to customers
throughout the world. The company has established itself as a
local, network facilities-based competitor in over 21 countries
throughout Europe, North and South America, and the Asia-Pacific
region. Telecommunications services in these countries accounts
for three-quarters of the $800 billion global market. WorldCom:
— Maintains offices in 65 countries.
— Operates extensive global network
covering over 70,000 (112,651 km) route miles and high-capacity
connections to more than 50,000 buildings.
— Global network operations centers
based in Cary, North Carolina, Amsterdam and Hong Kong provide
around-the-clock customer service and network management support.
WORLDCOM
IN EUROPE
WorldCom was one of the first companies to complete
a pan-European high capacity communications network combining
both local and long distance elements. WorldCom has built and
operates metropolitan area networks in major cities across Europe
including those in London, Paris, Frankfurt, Hamburg, Dusseldorf,
Amsterdam, Rotterdam, Brussels, Dublin and Milan and operates
national networks in the UK, France, Germany, the Netherlands,
Switzerland, Sweden, Denmark and Belgium.
WorldCom has more than tripled the original
size of its all-fibre, high-capacity pan-European network to nearly
7,000 miles (11,265 km) through nationwide networks completed
in Great Britain, France and Germany. The company holds 50 per
cent ownership in two high capacity trans-Atlantic undersea cables
enabling it to seamlessly connect over 45,000 buildings in the
US and Europe.
RECENT WORLDCOM
DECISION ON
ULL
WorldCom's strategy has always been to provide
its customers with leading edge services provided over an advanced
low cost infrastructure. To achieve this objective, WorldCom has
been instrumental in the shaping of the UK competitive environment
and in particular the Unbundled Local Loop discussions through
the various industry working parties.
Our experience gained through active participation
in the US and European ULL programme has helped to shape the framework
under which all UK operators will operate. Throughout the ULL
process, WorldCom has continued to evaluate whether the active
participation in the development of the infrastructure would maximise
the flexibility and value of the services developed for our customers.
However WorldCom has decided, in line with current
commitments in Germany and the US, not to deploy our own infrastructure
in the ULL arena. The reasons for his approach include:
— Our new customer focused line of
business structure requires WorldCom to become more customer focused.
— WorldCom has decided to focus its
resources in the development of new leading edge services instead
of the deployment of technology.
— Traditionally partnerships have proved
more successful in providing the required facilities on which
current and future services can be deployed.
— There are likely to be a large number
of infrastructure providers offering competitive supply of these
ULL services.
— Through working with a selected number
of potential providers, WorldCom will be in a position to maximise
the national availability of WorldCom services over xDSL technologies.
14 BT launched its own Flat Rate product, "Surftime",
in early July 2000. The first contract for an equivalent "wholesale"
input, FRIACO, was concluded in late August and no competing operator
has yet launched a FRIACO-based flat rate product to compete with
Surftime. BT launched its own mass market ADSL services in August
2000. Unbundled local loops will be available to competitors in
limited numbers in early 2001. Back
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