TELECOMMUNICATION CIRCUITS: RESALE OF CAPACITY (Hansard, 6 March 1984)

§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)

This statement sets out the Government's policy on this matter. The telecommunications networks are an important resource. It is in the wider public interest that such resources should be used to the maximum extent. But it is important, too, to ensure that the resulting economic benefit is equitably shared. The demand for telecommunication services is expanding rapidly. This expansion will be fostered to the general benefit by a more open operating framework, and by the more efficient use of resources.

Private leased circuits are fixed links between two points which are provided by British Telecom at rental charges which do not take account of the number of messages or telephone calls made over them. The circuits are not, except in limited circumstances, connected to the public switched telephone or telex networks and are normally provided for the exclusive 261WA use of the customer renting the circuit. Since there is no per call charge on private leased circuits and since the rentals of leased circuits are not aligned fully with telephone or telex call charges, a customer who uses his private leased circuit frequently can obtain long distance telephone calls at an average price which is lower than he would pay if he made the same number of calls over the public switched networks.

The Government believe that it would be for the convenience of telecommunication users and would foster the more efficient use of the national telecommunication infrastructure if the restrictions on those who may use private leased circuits, and on their interconnection to the public switched networks, were modified. These restrictions have already been lifted in some cases to permit third parties in addition to the customer leasing the circuit to use the circuits to send and receive telecommunication messages.

Such third party use of leased circuits is often referred to as "resale" although this is an imprecise expression covering many different circumstances. "Resale" could, for example be used to describe circumstances where a circuit connecting two firms is leased to one of them but it is also used by the other in return for a payment.

"Resale" can also describe arrangements where a network of circuits is leased by one firm and these are interconnected to the public switched networks at both ends of each circuit so as to provide a service to third parties which would be virtually indistinguishable from the public switched telecommunication services provided by BT and Mercury. There are various intermediate forms of resale.

The Government set out their policy on the various forms of "resale" in the statement made by my right honourable friend the Minister of State for Industry and Information Technology on 17th November during the consideration of this Bill in Standing Committee A in another place (Hansard, cols. 682 to 687).

The main problem to which "resale" could give rise, unless properly regulated, is that some forms of "resale" combined with interconnection with the public switched networks could develop the characteristics of an additional network. Because of the present structure of BT's charges, such "resale" could permit those who rent leased circuits to offer a cut price long distance telephone service, which would divert traffic from BT's public switched networks, thereby causing BT's other customers to pay higher charges as a result. The Government's general policy on this aspect of "resale" needs to be consistent with the policy not at this stage to license anyone other than BT and Mercury to run national public telecommunication networks. It does not appear to be right therefore to permit "resale" except in some limited forms in the period before July 1989. During this period BT will be able to adjust the balance of its tariffs so that leased circuit charges cease to undercut unit charges for trunk calls.

The Government will also stand by their obligations under current international agreements about the 262WA "resale" of international circuits. These agreements in effect prevent most third party use of international leased circuits.

The Government are, as my right honourable friend announced, exploring the scope for reducing some of the restrictions currently imposed on the use of circuits leased from BT and Mercury and are discussing the possibility of allowing group use of inland leased circuits and some easing of the restrictions on the interconnection of leased circuits and the public switched networks.

Group of leased circuits would involve permitting different firms to link their private branch telephone exchanges together by means of private leased circuits so that telephone calls from any member of the group could be conveyed over the leased circuits to any other member of the group. This arrangement is already permitted for some users such as the Stock Exchange; and BT currently permits up to three firms to connect their private branch exchanges together by means of private circuits. The Government are exploring with BT the commercial implications of relaxing the limit on the number of firms which may be connected by means of private leased circuits and of the technical obstacles to increasing the number of private circuits that can be connected in tandem to see if it is technically possible for a call to pass over two or more private leased circuits without suffering serious attenuation or an unacceptable signal to noise ratio.

Wider interconnection of leased circuits and the public switched networks would involve a reduction in the present "barring rules" which prevent customers gaining access to private leased circuits by dialling in over the public switched networks or using a private leased circuit to gain access to a public switched network at a remote location. These rules prevent the equivalent of long distance calls being made for the price of local calls plus a proportionate share of the rental for the private leased circuits. It is important therefore that any change in the rules in this area should be phased in a way which would limit the impact on public switched networks in the period before leased circuit rentals are realigned to bring them into line with long distance call charges.

We are also considering the possibility of BT and Mercury bringing into public use in their networks spare capacity on privately-owned circuits. Public use of space capacity on privately-owned circuits would involve BT or Mercury entering into arrangements with those who have built and run independent private networks, to make use of any of their telecommunication facilities which are under-used to provide services to the public.

Discussions with British Telecom on these detailed issues are continuing. These discussions are directed to implementing the general policy in the area described by my right honourable friend last November. The developments we have in mind stand four square within the provisions of the Bill as it stands and no amendment is needed. The complexity of the issues means that the Government, British Telecom and Mercury must consider with care what is to be done. Inevitably this takes time.