Executive Summary
Background
1.1 Relevant, reliable and timely regulatory financial information informs many of our decisions. We require this information in order to monitor and enforce various obligations that are placed on providers in markets where they are found to have significant market power ("SMP").
1.2 In this statement we set out various changes to enhance the presentation and improve the quality of BT's regulatory financial statements ("RFS") reflecting developments in the regulatory, technological and competitive environment, our ongoing analysis and use of the RFS, comments from users of the RFS and discussions with BT.
1.3 We set out our proposals in our consultation published on 12th February 2010 (the "February Consultation"). We formally consulted on five changes, which were concerned with:
- Improving the presentation of the statements including, for example, more transparent and relevant disclosure of Alternative Interface Symmetric Broadband Origination ("AISBO") services; and
- Implementing decisions from the Fixed Narrowband Retail Services and Fixed Narrowband Wholesale Services market reviews.
1.4 We also set out a range of other changes which enhance the statements. These did not require formal consultation but we believed it was helpful to inform users in advance of publication of the 2009/10 RFS. We have taken into account respondents' comments on these changes and update stakeholders on their implementation.
1.5 One of these changes concerns the requirement on BT to report against new markets for some leased line markets and, in particular, how BT will exclude the central and east London area ("CELA") from such markets as a consequence of the Business Connectivity Market Review ("BCMR").
1.6 The current regulatory financial reporting regime is also applicable to KCOM. This statement addresses relatively minor changes to KCOM's reporting requirements as a consequence of changes to market definitions in the Fixed Narrowband Retail Services and Fixed Narrowband Wholesale Services market reviews.
Scope of this document and Final Decisions
1.7 This statement sets out our final decisions in respect of the proposals in the February Consultation and provides updates on issues not formally consulted on.
1.8 The tables below summarise the objectives we address in this statement and our final decisions taking full account of the responses to the February Consultation.
| A) ITEMS SUBJECT TO FORMAL CONSULTATION (Section 3 & 4) | |
|---|---|
| Proposal | Decision: BT to |
1) Improved disclosure of AISBO Services We proposed a list of AISBO services that BT should report which are consistent with our guidance on materiality thresholds and BTs obligation to demonstrate compliance with its cost orientation and no undue discrimination obligations. | Report the AISBO services that we detailed in our February Consultation which includes Wholesale Extension (WES) 2, Ethernet Backhaul Direct (EBD) and Ethernet Access Direct (EAD) services. Some services may have revenue less that 10m in the year. We reiterate our guidance from our 2005 Consultation that 10m should be used as a guidance threshold. There may be occasions when products with revenue of less than this 10m should be disclosed particularly when the product is of importance to the market (eg where it is new and growing in revenue). |
2) Removal of requirement to produce information analysing BT Outpayments to other operators (this information is produced for Ofcom only) We identified one statement analysing BTs outpayments that now has significantly less relevance following the deregulation of retail markets. | No longer provide additional information analysing BTs outpayments to other operators. |
3) Changes to the presentation of the RFS We proposed a number of changes to the form and content of the RFS. | Make the presentational changes to Return on Turnover and Internal Sales but not to Depreciation. |
4) Implementation of Market Reviews i) Fixed Narrowband Retail Market ii) Fixed Narrowband Wholesale Market | i) No longer report any specific retail markets and no longer prepare and maintaining a retail catalogue. ii) Combine residential and business exchange line markets. 09/10 will also be the last reporting year for the local-tandem conveyance and transit market. |
| Proposal | Decision: KCOM to... |
4) Implementation of Market Reviews Fixed Narrowband Wholesale Market We proposed that KCOM prepare market information in line with the new market definitions included in the market review. | Combine residential and business exchange line markets. 09/10 will also be the last reporting year for the local-tandem conveyance and transit market. |
| B) OTHER REPORTING CHANGES (FOR INFORMATION) (Section 5) | |
| Objective/Issue | Changes to be applied in 2009/10 |
1) Improvements to Leased Line Reporting We identified areas for improved transparency in various leased line and trunk markets. | BT to incorporate the reporting improvements by separately identifying and reporting revenues and/or costs for the four following areas: Support services, Sub 2Mbit trunk reporting in the TISBO market, Enhanced Maintenance reporting in the Trunk market, and Points of Handover. |
2) Full implementation of BCMR Two reporting issues were outstanding from the BCMR published in December 2008: i) New Geographic Market Definitions ii) Netstream reporting We set out our improvements to the reporting of netstream services. | i) BT has informed us that due to limitations to its reporting systems and processes it is unable to report in line with our proposed methodology. BT has therefore proposed an alternative methodology. We accept BTs proposals for 09/10 and have agreed with them to carry out further analysis to ensure the alternative methodology is consistent with our market definitions. The results of this work will be taken into account for the methodology to be used in 2010/11 RFS. ii) BT will report separately seven main netstream services in the relevant business connectivity market. |
3) Improvements to Openreach Reporting Our work on the New pricing framework for Openreach Statement (the Openreach Statement) identified potential improvements to cost attribution methods. The Equality of Access Board (EAB) has completed a review into BTs compliance with section 5.31 of the Undertakings. Section 5.31 sets out the obligations on BT to prepare regulatory financial statements for Openreach. | BT will incorporate three specific changes to the Openreach cost attribution. These changes address the matters identified in the Openreach statement. All changes will be described in BTs secondary accounting documentation. The EABs review is now complete and has found BT was not in breach of section 5.31. We will consider this decision in light of the comments made by respondents. |
4) Other Items These relate to the attribution of BTs 21CN network costs and updating the cost of capital percentage used in the RFS | BT will use an updated methodology to allocate 21CN network costs in light of BTs 21CN implementation plan. These changes will be fully described in BTs secondary accounting documentation. The current cost of capital % used in the RFS will be updated to be consistent with our latest decisions as set out in the Openreach Statement. |
Significant Review
1.9 All respondents to our February Consultation noted that although the proposed changes do improve the overall quality of the RFS there remain shortcomings to the current RFS. All respondents underlined the need for a significant review to drive improvements in the quality of regulatory accounting.
1.10 During 2010/11 we plan to begin our work on a significant review of this reporting framework and gather stakeholder views on changes that are needed to ensure its ongoing effectiveness.