Service Level Agreements (SLAs) form part of commercial contracts and set out a supplier’s commitment to provide services to an agreed quality, e.g. within a specified period. The associated Service Level Guarantees (SLGs) specify the level of compensation that the customer would be entitled to should the service not be provided at the quality specified in the SLA, e.g. if delivery of the service was late. Together they are therefore essential elements of any commercial contract as they provide the supplier with an incentive to deliver their service at an appropriate level of performance.
Communications Providers (CPs) consider that Openreach’s (-1-) current SLAs and SLGs for Wholesale Line Rental (WLR), Local Loop Unbundling (LLU) and Ethernet services are ineffective because they do not provide Openreach with appropriate incentives to provision or repair services. They consider that, as a consequence, Openreach’s service performance has not always been satisfactory and that too often Openreach has failed to deliver in the timeframes set out within the SLAs.
CPs have recently been in discussion with Openreach to ensure that SLAs and SLGs are set appropriately to ensure that Openreach has the incentive to provision and repair services promptly. These negotiations were facilitated by an independent third party (the Office of the Telecommunications Adjudicator (OTA2)), but did not result in a mutually satisfactory outcome.
In September 2007, the CPs asked Ofcom to intervene and consider imposing additional regulation on BT. The negotiations facilitated by the OTA2 did, however, move matters forward and helped to crystallise the concerns of CPs in relation to SLAs and SLGs. As such, these discussions provided Ofcom with a sound basis on which to proceed.
Footnote
1.- In September 2005, BT Group plc (‘BT’) gave a set of Enterprise Act Undertakings to Ofcom. The Undertakings included the creation of a new organisation, Openreach, which is separate from the rest of BT and provides wholesale products (such as WLR, LLU and Ethernet) used by other CPs to compete with BT’s retail business. Openreach has been referred to throughout this document, although all legal obligations are placed on BT.
Service level guarantees: incentivising performance (PDF, 378.2 KB)
1.1 Service Level Agreements (SLAs) form part of commercial contracts and set out a supplier’s commitment to provide services to an agreed quality, e.g. within a specified period. The associated Service Level Guarantees (SLGs) specify the level of compensation that the customer would be entitled to should the service not be provided at the quality specified in the SLA, e.g. if delivery of the service was late. Together they are therefore essential elements of any commercial contract as they provide the supplier with an incentive to deliver service to a pre-defined and, potentially, pre-agreed level of performance or compensate their customer accordingly.
1.2 Communications Providers (CPs) consider that Openreach’s current SLAs and SLGs for Wholesale Line Rental (WLR), Local Loop Unbundling (LLU) and Ethernet services are ineffective because they do not provide Openreach with appropriate incentives to provision or repair services. They consider that, as a consequence, Openreach’s service performance has not always been satisfactory and that too often Openreach has failed to deliver in the timeframes set out within the SLAs.
1.3 During 2007, the Office of the Telecoms Adjudicator (OTA2) facilitated discussions between CPs and Openreach with a view to reaching a negotiated commercial settlement acceptable to both parties (CPs are considered to be one party for the purposes of this document). These negotiations failed to resolve the differences between the parties, however, and therefore the matter was referred to Ofcom to intervene and impose a regulatory solution.
1.4 Both parties came up with differing conclusions as to why the negotiations failed. Openreach suggested that the commercial negotiations were unsuccessful because CPs had no incentive to conclude them knowing that they could refer the matter to Ofcom. CPs, on the other hand, suggested that Openreach had little incentive to conclude the negotiations given that the inadequate compensation arrangements would not change until they were satisfactorily concluded. They argued that their bargaining position was not sufficiently strong and not equal to that which would be found in a competitive market.
1.5 Once the matter had been referred to Ofcom, Ofcom made it clear that it would not restrict its review to the elements of the SLG arrangements which had been the focus of the commercial discussions and therefore it would not be bound by those elements that Openreach was willing to concede. On the other hand, it also made it clear that the offer tabled by Openreach would not be the starting point for the review and therefore CPs could not necessarily expect Ofcom to include all of those elements which they considered satisfactory.
Service level guarantees: incentivising performance - Statement Published 20|03|08 (PDF, 765.9 KB)