Value Added and Data Services (Hansard, 11 March 1986)

§ Mr. Pattie

As its next major step in its programme for the liberalisation of telecommunication services in the United Kingdom, the Government have decided further to open up competition in value added and data network services.

The Government's proposals, set out in a consultative document issued in December 1985, follow extensive earlier consultation, and have been generally welcomed by the public telecommunication operators, the industry and users. A copy of the consultative document has already been placed in the Library of the House. The Government now intend to use these proposals as the basis for a single class licence of 12 years duration to be issued by my right hon. Friend under the Telecommunications Act 1984.

The single class licence will be applicable to all but public telecommunication operators, members of their groups and associates. The licence will authorise the provision of all value added network services and all basic conveyance services except basic conveyance voice and telex services. Basic conveyance voice services will, however, be permitted as part of a directory information service. They will also be permitted when in necessary support of a value added service or as an integral part of a single more comprehensive service such as video conferencing; though in these latter cases the provision of voice services will be subject to a tariff condition.

Authorised services will, as at present, have to be conveyed between premises by means of fixed links provided by the PTOs. Simple resale as defined in the PTOs' own licences will also continue to be prohibited.

The Government believe that the provisions in the new licence applicable to small value added network service providers should be kept as simple as possible. Such providers, those below a certain financial threshold, will be authorised to operate their services subject only to a privacy and safety condition and to standard conditions for the running and maintenance of telecommunication systems to be set out in the licence.

For those value added service providers considered capable of distorting competition in the value added services market and for all basic conveyance service providers, additional licence conditions will apply to ensure that fair trading obligations and the provision of services to open system interconnection standards can be 399W met. After considering the comments received in the consultation process the Government intend that these obligations should apply to those value added network service providers whose annual telecommunications business turnover exceeds £1 million or who belong to a group with a total annual turnover in excess of £50 million. The Director General of Telecommunications will, however, be given the power to vary this figure in the light of experience. Basic conveyance service providers too will be subject to these conditions though the possibility of allowing certain market entry exemptions is under consideration.

The specific licence conditions to apply to the value added and basic conveyance service providers identified above will include

(i) an obligation to provide separate accounts for and not to cross-subsidise unfairly their basic conveyance service activities; their value added service activities; and other activities;
(ii) an obligation to operate under standard fair competition conditions of a kind already included in the PTO licences, that is publication of tariffs; prohibition on undue preference and undue discrimination; prohibition of linked sales; prohibition on exclusive dealing arrangements; and code of practice on the confidentiality of customer information;
(iii) an obligation, in time, to provide OSI facilities;
(iv) an obligation in the context of the provision of OSI or parallel proprietary facilities to give the Director General of Telecommunications and the public advance notice of material changes to their systems and services; and
(v) an obligation to register with the Office of Telecommunications to ensure the effective monitoring of their licence obligations;

though the precise obligations will not be finalised until the outcome of negotiations between the Director General of Telecommunications and the PTOs to amend the main PTO licences in an appropriate manner are known.

The Government have been persuaded from consultation with industry and users that in the light of the above safeguards the creation of a separate licensed category of monopoly apparatus or software supplier would not contribute further to fair competition but would add significantly to the complexity of the regulatory environment. The Government therefore do not intend to introduce these further categories of licence holder.

The Government are committed to promote the adoption of open system interconnection standards. The licence will permit the continued use of proprietary standards; but in order to widen the choice of equipment and service available to users and to increase opportunities for equipment manufacturers, the licence will impose a requirement to provide for access and use of both new and existing services by means of OSI standards. In-house systems will be exempt as will services for which the Director General is satisfied that there is no existing or potential user demand for OSI access. The licence will provide for a 12-month notification period to service providers of the obligation to provide access to individual OSI standards. The Director General will have the power to extend the notification period in exceptional circumstances. Licensees will need to be able to demonstrate how their services conform to OSI standards and, where access by proprietary standards is provided in addition to OSI, that the OSI access provides a broadly comparable service in terms of performance and price.

The provision of value added network services can often be associated with the need to transmit occasional 400W basic conveyance messages allied to the value added service. The Government therefore intend to permit those small value added network service operators to whom the fair trading and OSI obligations would not otherwise apply to provide a small percentage of basic conveyance services, associated with value added services, without this provision of basic conveyance services triggering the requirement to meet those fair trading and open system interconnection conditions contained in the licence.

The licence will also extend the already permitted uses of international private leased circuits, for the provision of the services being opened to competition, to the extent consistent with the Government's international obligations.

The Government have considered certain representations that access for overseas service providers should be made available only on the basis of reciprocity. The Government will continue to press for the widest possible multilateral liberalisation of international telecommunications, but do not believe that it would be right to deprive telecommunications users of the benefits of a wide choice of services simply because of different conditions applied by other Administrations in overseas markets.

BT and Mercury have already agreed in principle to the modification, by the Director General of Telecommunications, of their existing licences, so as to prohibit their unfair cross-subsidy by appropriate separate accounting as well as to require the provision of OSI facilities; so that in the areas newly opened up to competition they will be offering their services on an equitable competitive basis with other service providers in this market. The Director General of Telecommunications will be pursuing this further with them in the months ahead. In the same period my Department will be circulating for comment a full draft of the proposed licence to ensure that in technical and legal terms it fulfils the aims set out in this statement. The aim is to have the full licence in place before 6 August 1986, the date when the validity of the existing 1982 VANS general licence under the transitional provisions of the Telecommunications Act 1984 comes to an end.

The Government believe that these new proposals taken together will provide a regulatory environment in which users can benefit from the latest technology through the provision on a competitive basis of significant facilities which are not yet normally available from PTOs without having as their main effect the diversion of PTO traffic revenues. All services which are legitimately permitted under the existing 1982 VANS general licence will of course remain liberalised. The further liberalisation which the new licence will initiate should allow British Telecom, Mercury and the other companies in this rapidly expanding industry the opportunity, while competing fairly to satisfy the increasing demands for new services, both to the service providers' benefit and to the benefit of users of telecommunications services.