1. BT’s Undertakings to Ofcom: An overview
David Gribble
Chief Counsel, 21CN
BT Global Services
September 2007

2. Introductory
Functional Separation: restructuring of incumbent operator to support equality of access to network, without breaking up the company
September 2005 – Functional separation of BT, as part of package of undertakings to Ofcom, the UK regulator
Openreach – new functionally separated entity
Next Generation Network (NGN) – a converged network, allowing multiple services on a single IP platform

3. Agenda Ofcom’s Telecoms Strategic Review
BT’s Undertakings & Implementation
BT’s NGN - 21st Century network (21CN)

4. Ofcom’s Telecommunications Strategic Review (TSR)
Ofcom commenced TSR in Jan 2004
Phase 1 Assessment and prospects
Phase 2: Options
Phase 3: Strategic review framework
TSR concluded by agreement of BT’s Undertakings to Ofcom 22 Sept 2005
In lieu of Enterprise Act reference
contain a series of commitments made voluntarily by BT
legally binding
in addition to existing regulation/competition law

5. TSR - the issues, as seen by Ofcom
Competition is restricted in wholesale markets for access and backhaul services
BT has substantial wholesale market power and is a vertically integrated provider with a presence in the directly related retail markets
Ofcom believed this combination gave BT the ability and the incentive to discriminate against its downstream competitors who are also wholesale customers

6. Key elements of BT’s Undertakings
Establishment of Openreach
Focused on key access bottlenecks
Provision on an equivalence of inputs (EoI) basis
Operational separation, transparency and systems separation (Chinese walls)
Independent oversight
Enforcement
NGN provisions
Complementing, not replacing existing regulation
Not just functional separation

7. Openreach - assets PSTN Service openreach PSTN & ADSL Service CP Core
Customer premises
Core Node.
Local Telephone Exchange
Distribution
Main
Primary
Point (DP)
Distribution CP
Core
Node
Connection Point
Secondary
LLUO
Space
Frame
(Cabinet)
Connection Point
Line
Card
BTW
Core
Node
Backplate of
Copper Cables
BT has created a new unit, Openreach, & two new product management units within BT Wholesale; BTWS & BTS.
Openreach - management & provision to other Communication Providers of local loop & backhaul services - i.e. services over the local access network & up to trunk exchanges, in markets where Ofcom has found that BT has Significant Market Power (SMP)
Responsible for access & backhaul services:
runs physical but not transmission layer
undertakes sales, & product & service management for defined SMP services
has sufficient influence over transmission layer to enable it to provide its services
Openreach will control & operate duct, fibre, copper, & other non-electronic assets in BT’s access & backhaul networks
The engineering field force will be at the heart of Openreach
Backhaul products
NTE
openreach
openreach is also responsible for all duct, access fibre and copper & fibre backhaul
Demarcation Points

8. Openreach products Equivalence of Inputs
Same products & services for BT & other CPs
Same time-scales, terms & conditions, incl. price
Same systems & processes
Same reliability & performance
Same commercial information
Subject only to:-
Trivial differences, or
Other differences agreed by Ofcom

9. Sanctions and oversight
Breaches can lead to:
Directions from Ofcom &/or court enforcement
Reference to the Competition Commission
Third party actions for damages
Openreach is supervised by an Equality of Access Board, which will:
Monitor, report and advise on compliance with the Undertakings;
Have three independent members, one BT Group plc non-executive director and one senior BT manager;
Supported by its own office
Report regularly to the BT Group plc Board;
Send a detailed report to Ofcom annually; and
Publish a summary report as part of BT’s annual compliance report.

10. Openreach in BT structure
Main BT PLC Board
BT CEO
Management reporting
Compliance oversight
EAB
Operating
Committee
Openreach Board
Wholesale
Retail
Global
Board
Board
Board
Openreach
Wholesale
Retail
Global
Services

11. Openreach vision
‘We are the proud guardians of the nation's local access network - the copper wires connecting homes and businesses to telephone exchanges.’
‘Our remit is to ensure that the UK telecommunications industry, including other parts of BT, has fair and equal access to our local access and backhaul networks.’

12. BT’s Undertakings: 2 Years On
Strong record of delivery on commitments by BT
Formation of Openreach
Greater transparency and independent oversight
Systems transformation bringing benefits to industry and to downstream BT
Rate of change in UK market, itself driven by the Undertakings, has presented challenges
Openreach allows greater focus and speed to fix
Rest of BT focus on new services and revenue streams
Has helped create confidence to allow downstream deregulation
We are delivering on a commercially valuable objective not simply complying with a regulatory mandate

13. Driving Growth in UK Telecoms
11.2m broadband connections in the UK
2.4m local loop unbundling (LLU) lines (over 2m since creation of Openreach)
Openreach handles 55k LLU external orders per week
More than 20 LLU operators
Unbundled services provided from nearly 1,700 local exchanges
Vibrant, competitive market in BB

14. OTA2 at http://www.offta.org.uk/charts.htm

15. Openreach Performance
Full Year to
March
2006
2007 £M
318
685
4,824
4,492
5,142
5,177
3,156
3,289
1,983
1,884
800
707
1,183
1,177
1,038
1,108
External Revenue
Internal revenue
Total revenue
Operating Costs
EBITDA
Amortisation and Depreciation
Operating Profit
Capital Expenditure

16. BT Share Performance
BT share price remained stable over course of negotiations and has improved since Openreach launch
Openreach did not frighten investment community

17. New era of regulation Increased clarity
Regulation focused on bottlenecks
Reduced retail regulation
Incentive to invest in next generation networks and innovate
Infrastructure-based competition
Benefits the consumer and UK economy
BT can compete fairly
Creating confidence for infrastructure competition, investment and innovation

18. BT’s 21CN : A Business Transformation
BTs 21CN Objectives….
BT is addressing the tough telecoms challenges of today with our 21CN NGN Programme; this is not just a network replacement, it is a total business transformation
21CN is made up of a number of inter-linked & inter-dependant initiatives:
Remaking our Portfolio
Transforming Systems
Core Network Convergence
21C Customer Experience
A total business program to optimise NGN benefits
Empower the customer with control, choice and flexibility like never before
including communications from anywhere to any device
Offer exciting new services for customers faster than before
Reduce costs and grow cash cost savings
Not just UK – global project
The vision is for a ‘zero-touch’ network where services are software defined, automated & initiated by customers

19. BT’s NGN Reducing complexity Eliminating 100,000 network components
A single platform that is multi-service and future proof on IP
Optimised for reliability and performance
Undertakings: BT to ensure
not to foreclose network design
future SMP products on 21CN are on an EOI basis
Consultation with and fair treatment for CPs

20. 21CN – Transparency throughout the process
Engagement with the regulator was key.
Entire section of Undertakings dedicated to NGN
Close working with Ofcom and with EAB
BT wholesale customers were invited to understand, question and input into our 21CN plans
It’s the largest voluntary consultation of its kind ever undertaken in our industry with around 650 people from across industry actively involved
Launched Summer 2004, with the public announcement of 21CN
Director recruited from industry
Each Work Group has BT and Industry Co-Chairs
Industry Steering Board (Ofcom monitors)
All proceedings published on the Internet
Consult21

21. Conclusion
Functional separation addresses long-term issues in the UK telecoms market
Functional separation a means to a wider goal – equality of access
Undertakings have helped transform relations with regulator, industry
We believe benefit to BT, the UK telecoms market, and consumers
Have helped create regulatory certainty and confidence to enable innovation

22. Thank you