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2 Standard Contract Forum 24 June 2006 14.00 Customer Suite, BT Centre, London

3 Standard Contract Forum Thursday 8 June 2006 AGENDA 1 Introduction and Notes of Previous Meeting 2 Pathfinder Contracting 3 O & M Manuals 4 AIT Update 5 Consult 21 6 Review of New and Amended Schedules 7 Any Other Business Withdrawal of School Internet

4 Standard Contract Forum 8 June 2006 Keith Mitchinson 8 June 06

5 Standard Contract Forum 8 June 2006 21CN SIA CONTRACTING – current view New Schedule 131 (Virtual Interconnect Circuits product) for future “Virtual DLE interconnection” VIC Supplemental (inc Schedule 131) for DLE- interconnected CPs System Alterations Side-letter for DLE-interconnected CPs for Pathfinder; further Side – letters for DLE-NGS Tranches 2/3; Supplemental for DLE-NGS System Alterations for Tranche 4 onwards

6 Standard Contract Forum 8 June 2006 21CN SIA CONTRACTING – current view (cont) Contract Notice to cover off minor documentation changes for BT call termination, indirect access etc (with offer of Supplemental to update documentation of existing contract if requested) Special contract treatment for those few CPs taking FRIACO or CPS/SAD

7 Standard Contract Forum 8 June 2006 SIA – O&M MANUAL Update to O&M Manual proposed Proposed process: Highlighted draft onto SCF website Interconnection notice issued inviting comments Comments analysed – incorporated or response Report back to next SCF Updated O&M Manual on SIA web-site Commence in next one-two weeks

8 Standard Contract Forum 2006 AIT (Artificial Inflation of Traffic) Update on Contract Review of Annex E SIA Erica Cumming Commercial Lawyer (BTW Core Network Services)

9 AIT (Artificial Inflation of Traffic) Current Definition: “a situation where the flow of Calls to any particular Revenue Share Service [RSS] is as a result of any activity on or behalf of the party operating that RSS disproportionate to the flow of Calls which would be expected from good faith commercial practice and usage of the network” [Annex D] New Definition: Need to ensure it covers: - personal numbering services; - reverse charge calling - short duration calls; - virtual mobile calls; - future services?

10 Standard Contract Forum 2006: AIT Current A1 Retention Notice: ONO can withhold £ to BT if suspect AIT and BT must hold off paying TNO until TNO can show that traffic is valid BT is Transit Operator in 70% of cases: ONO Originating Network Operator TNO Terminating Network Operator calling party Service Provider Info Provider Service Provider Info Provider Info Provider TO (BT) Transit Operator £ ££ £ ££ £ £ SIA ONO & BT SIA BT & TNO Diagram showing: -flow of money; and -2 separate SIAs where BT is TO

11 Standard Contract Forum 2006: AIT Problems for Industry and BT: 1.AIT definition in Annex D is very narrow - existing/future forms of fraud? 2.Indicators of AIT in Annex E - refer to “Revenue Share Service” 3.ONOs may misuse AIT process to withhold legitimate revenue, or withhold £ - but give no justification and force BT to act as policeman 4.Delay in revenue payments to legitimate TNOs – may stifle innovation or new services 5.Revised proposal was for only ONO to raise AIT notice to withhold £ – but have found that BT may be first party aware of a potential fraud occurring 6.BT is usually ‘piggy in the middle’ of ONO/TNO dispute (ie., 70% AIT cases involve BT as Transit Operator) – timely/costly for BT to resolve

12 Standard Contract Forum 2006: AIT Contract review is needs to deal with: 1.More appropriate/relevant definition of AIT 2.Balance new AIT definition with revised AIT indicators - so that ONOs don’t abuse AIT as cash flow mechanism 3.Provide for BT to raise AIT notices and withhold £ to TNO when BT notices unusual activity in transit traffic – BT will alert ONO of problem 4.Increase onus on ONOs to provide supporting information of AIT: - “good suspicion” necessary to initially halt payment - “strong and convincing reasons” to hold on to payment 5.Resolution process needs improvement - ideally so BT can drop out where it only provides transit and leave ONO and TNO to resolve themselves

13 Standard Contract Forum 2006: AIT Industry AIT Discussions Recommenced in May 2006: Met with Industry (12 May 2006) Industry (broadly) agreed that a new AIT scope was required and BT invited proposals regarding AIT definition and indicators BT currently redrafting Annex E (definition, indicators and retention process)

14 Standard Contract Forum 2006: AIT Next Steps: 1.Industry were asked to consider and suggest new AIT definition and add to BT’s proposed new definition which would include “all Calls - with exceptions”, and also consider indicators of AIT in Annex E 2.BT to circulate revised Annex E which shall include: Revised process for issuing AIT and withholding £ (A1 Notice) where BT (or ONO) notices unusually call traffic Revised dispute resolution process (optional 2-way arbitration between ONO and TNO, but retain BT’s discretion to use court proceedings) 3. BT to update and circulate AIT flow charts 4. BT to prepare a draft issues matrix 5. Next Industry Meeting: mid-June

15 Standard Contract Forum 2006: AIT Long Term (by end 2006): Agreement of key industry players with new AIT definition, Annex E indicators, A1 retention notice processes and dispute resolution Formal consultation with wider industry and 160+ operators Possible informal talks with OFCOM (and ICSTIS?) Update Reference Offer and make Supplemental Offer to all CPs (BUT – proviso in both that not applicable until universal) Refer to OFCOM those who don’t sign-up

16 21CN Strategy Refresh – Standard Contract Forum 8th June 2006 Tim Short BT Wholesale

17 Forward Looking Statements – Caution Advised Certain statements in this presentation are forward-looking and are made in reliance on the safe harbour provisions of the US Private Securities Litigation Reform Act of 1995. These statements include, without limitation, those concerning: BT's plans for transformation of its networks; benefits to customers of the 21CN programme; key milestones and expected timetable for delivery of 21CN; and the benefits in relation to, for example interconnect, convergence and broadband. Although BT believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual outcomes may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause differences between actual outcomes and those implied by the forward-looking statements include, but are not limited to: material adverse changes in economic and financial markets conditions in the markets served by BT; supplier arrangements; future regulatory actions and conditions in BT’s operating areas; technological innovations; developments in the convergence of technologies and the anticipated benefits and advantages of new technologies, products and services, including broadband, not being realised.

18 Key elements of the refreshed 21CN proposal Refreshed plan reflects issues raised by industry around timing, products, contracting and testing, as well as other factors such as Undertakings and vendor commitments. BT believes the new proposal addresses these issues and provides benefits for all CPs. Broadband players benefit from accelerated access to next generation broadband services Voice players get de-risked migration process LLU players benefit from accelerated Ethernet backhaul product introductions PC and PPC-based Data Services get continuity of service on 20C in the medium term Timeline Additional time for comprehensive collaborative testing and participation in Pathfinder, leading to a better overall customer experience for all CPs Detailed industry review period after Pathfinder to allow adequate time to share the learning and plan for the beginning of migration of services nationally. Products Effort focused on bringing forward key next generation products to bring advantages of 21CN as early as possible, including next generation broadband and backhaul services Enabling migration to next generation voice with one step migration via NGN SIP-I Interconnect option Other Provides additional time and flexibility to resolve risk mitigation and contracting strategy.

19 Agenda Overview of the revised Strategy and Plan for 21CN Accelerating Next Generation Broadband Pathfinder Phasing and Review Testing Approach Transfer Engineering. Risk Mitigation Implementation & Reporting Consult21 Update Working Group Structure Key Updates incl Common Capabilities Summary

20 Overview of the revised 21CN Plan for 2006 - 2008 200620072008 Voice Migration in Pathfinder with Phase Review points Ph 1 Ph 2 Review Period VIC and NGN SIP-I I/Connect VIC contract end July 06 Migration Completes in Dec 2011 NGN SIP- I Interconnect Dev’t Phase VIC Develop & Test – Readiness to Operate Voice proven at Industrial scale, BB migration under way. Voice and Broadband concurrent migration. Broadband (IPstream, Industrial scale migration) Openreach Ethernet Service products to support new Ethernet & Backhaul Future BB Dev’t WES B 1&2 WES B 3 & 4 Voice and BB Migration, Availability of new Interconnect and Broadband services IPstream Migration Note: NGN SIP-I Interconnect is being developed for launch before the beginning of national service migration. It will not be sufficiently mature to launch within the Pathfinder timescale – migration to NGS via the VIC product will be available within Pathfinder. Ph 3 Private Services/ PPCs Existing Private Services maintained – future options under analysis Growth of New Ethernet Point to Point services Industrial Scale Migration proving

21 Testing Approach BT shares CP’s view of the need for adequate testing to build confidence in both product capabilities and transfer engineering BT will consult with CPs on the scope of our testing and trials to optimise efforts BT will share results of our testing and trialling activities with CPs Two test centres being established: Swansea and Adastral Park where CPs will have an opportunity to do supplementary testing.

22 Transfer Engineering National Migration will begin in January 2008 following the Pathfinder Review Where possible all products identified on the exchange for national migration will transfer ‘on the night’ Consultation on Broadband migration methodology begins on May 16 th at the IMWG We will not close consultation on Transfer Engineering until that process testing is complete. Certain end users jointly identified as requiring critical/complex services will be scheduled via the Migration Control Centre for individual circuit migrations slot (eg Emergency and Public Safety Services)

23 Risk Mitigation Ring fence involvement in Pathfinder and the SAN work in anticipation of National Migration BT will act reasonably regarding appropriate SAN and “other costs” associated with CP’s involvement in Pathfinder CPs and BT will use the Pathfinder experience to get a clearer picture as to the actual costs and agree a way forward with CPs to be contracted for by the start of national migration. BT is developing an initial package of proposals on Risk Mitigation

24 Detailed Implementation Plan Shows those activities which impact on CPs For each activity we have shown ID for the milestone or task Consult-21 working group with the prime interest “RAG” status of achieving the milestone / task

25 Architecture & Framework Network Structure Systems & Processes Network Hooks Products Interconnection & Portfolio Broadband Line Access Point to Point Conformance Testing Implementation & Migration Communications Working Group Status RAGRAG April 2006

26 Summary Refreshed plan reflects CP issues and provides benefits for all. Broadband, Voice and LLU operators benefit specifically Continuity for PCs and PPCs carried on existing platforms in the medium term Additional time available for testing and flexible, three phase approach to Pathfinder Review period after Pathfinder de-risks national migration from January 2008 Key next generation products brought forward One step voice migration via NGN SIP-I Interconnect for National Migration Greater flexibility to help resolve risk mitigation and contracting strategy issues.

27 Questions

28 Standard Contract Forum 8 June 2006 Keith Mitchinson 8 June 06

29 Standard Contract Forum 8 June 2006 SIA REFERENCE OFFER BT is constrained to up-issue its reference offer to reflect current regulatory status and current offerings – in the light of the contract review discussions. Updates to: Main Body Annex A Annex D Schedule 01 – ISI Schedule 02 – CSI BT recognises that some (June 2004) review issues still remain unresolved, but considers that the changes introduced here are not contentious. Obviously BT will be ready to readdress issues as-and-when necessary/appropriate.

30 Standard Contract Forum 8 June 2006 REVISED SCHEDULES: Updated Schedules to be issued in immediate future: Schedule 313 - Operator Premium Rate Service Calls Schedule 314 - Operator Personal Numbering Service (PNS) Calls (including personal assistant service Calls) Schedule 112 - BT Premium Rate Service Calls Schedule 102 - BT Transit Calls via the BT System

31 AOB 8 June 2006

32 Wholesale Product Management 0820 Schools/Public Institutions Internet Caller Julian Wootten CNS - Interconnect Portfolio

33 Background Launched April 1998 in support of the Government’s National Grid for Learning initiative. Provides Schools/Public Institutions with dial up internet access using PSTN or ISDN2e lines. Schedule 368 - 0820 calls originating on BT network to be terminated on an Internet Service Provider connected to a Communication Provider’s network. Schedule 168 - 0820 calls originating on a Communication Provider’s network to be terminated on an Internet Service Provider connected to the BT network. Schedule 169 - 0820 calls originating on a Communication Provider’s network to transit the BT network to be terminated on an Internet Service Provider connected to another Operator's network.

34 Current Position Steady decline in users as product reaching the end of its lifecycle due to higher bandwidth products, in particular Broadband. Department for Education Services aiming to get all schools in the UK upgraded by the end of March 2007. Small proportion of Users remain and potentially a large proportion of such Users may not be utilising the service.

35 Next Steps BTW Commercial Managers will set up meetings with participating Communication Providers to discuss:- Continued support of the service until all Users have considered alternative products and are upgraded to a higher bandwidth product. Withdrawal of new supply. Withdrawal of service following completion of upgrade - aim end of March 2007 Continued support for users where an alternative higher bandwidth solution is not available.

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