Re-monopolisation through the Secret Club

By Simon Woodhead

What follows is a matter of opinion based on personal experience and belief, shared for the betterment of a fair and transparent marketplace. Readers should form their own opinions and do their own research, but do please share your conclusions with those of influence. 

Those as old as I will remember the excitement of the state-owned tax-payer funded UK incumbent being privatised in 1984. This generated huge inflows for the Treasury and was the start of the Everyman profiting from share ownership.

The Act that enabled privatisation also removed BT’s exclusivity to operate telecommunications systems, and established a framework to safeguard competition. This lead to the birth of Oftel which was replaced in 2003 by Ofcom. Ofcom subsequently removed the need for licensing with its General Conditions of Entitlement, and the industry was open to upstarts such as us.

Ofcom required that operators be able to interconnect with BT under a Regulated “Standard Interconnect Agreement” (“SIA”). This provides operators such as us some protection and assurance of fairness since the terms are consistent and not open to negotiation. This next point is absolutely fundamental though: The SIA only relates to one interconnect transport and that is SS7. To connect to BT, as a market-counterparty under the protections of the SIA, you can only do so over SS7.

But what about VoIP? Ofcom do not exercise price-controls or Regulation (beyond GC compliance) for VoIP services, and in the 2014 Narrowband Review agreed with the view that VoIP is niche and only represents 2% of calls. They declined, therefore, to include it in that review. That is good news for us and our customers directly, but bad news in other ways since the incumbent offers a number of VoIP products that, at varying levels, compete with all of us. Consumers of those products, are BT customers or resellers, as by definition they are consuming a Managed Service outside of regulatory price control and specifically not covered by the Standard Interconnect Agreement.

Now, there is a widely held view amongst people that the hip kids have an ‘IP Interconnect’ to BT and this is the new way of doing things.

We repeatedly come up against this around porting, where it usually goes hand-in-glove with a flat out refusal to export numbers outside the BT platform. Where misrepresentation ends and stupidity begins we will never know, but these people certainly appear to believe they are top of the tree in infrastructure terms and that SS7 is simply the old-fashioned way of doing things. We have had BT customers flat out refuse to enter into a porting agreement because we refuse to become a reseller of BT like them, even though BT gives them the technical means to do so and our porting team are quite adept at educating them on it! The breach of General Condition 18 this represents and Ofcom’s effectiveness/willingness to deal with it is a whole sorry subject of its own.

Ok, so someone chooses a BT reseller over you, or to be a BT reseller over us, that is simple markets in operation and is fair enough. You could further argue that someone wanting an SIA-based SS7 interconnect, and believing they have something equivalent to that, but over IP, is simply miscommunication or ignorance. You could also put more cynical interpretations on both but I’ll refrain.

Of far more concern is what this means strategically. For many years, I’ve been aware of what I’ve come to call the “secret club”. I’ve sat in rooms with senior execs from major UK operators and been told how they’re progressing with implementing an IP interconnect to BT. On explanation of the above, they’re confused – that is what they have and they wouldn’t consider themselves BT resellers!

On following up with our BT account managers over the years, I’ve been repeatedly advised there is no such thing as an SIA over IP; if you want IP become an IPX customer / reseller, if you want SIA it is over SS7. There was one call however where a chink of light crept through the ajar door: I was advised that whilst there was no such thing as an SIA over IP, since there were no price controls on the IP managed service, the commercial terms could be varied. Thus, on admittance to the secret club, one could preserve terms from the SIA or even share the obvious commercial spoils from moving to an IP interconnect.

It, therefore, became clear what could be occurring. If it was desirable to BT, one could be offered terms for IP very different to the published ratecard and, indeed, different to the SIA. If it wasn’t desirable, the only other option would be to become a customer / reseller of BT on dramatically different terms, outside of price controls. Naturally, I put my foot in that slightly open door and there began the process of admittance to the secret club. Secret clubs and I don’t usually mix so this was quite novel and exciting!

Technical testing was a breeze (once we got over such things as RFCs!) and the main time was spent in commercial discussions. Initially, it sounded amazing – abundant capacity and improved call rates as we were both sharing the benefit of this lower cost transport. That was in 2016 and, of course, was subject to sign-off by ‘finance’. After a year of expecting fair-play, it transpires that BT will only vary terms for us where it makes more profit, and not simply through reduced costs – it appears to require the triple gain of reduced cost, increased revenue, and more volume won from other operators. We were offered terms that saw us paying to receive their traffic (currently their cost under the SIA) as well as paying to send them our traffic (our cost fairly under the SIA) and needless to say these terms were a non-starter.

Currently, 82% of the traffic across our SIA interconnects with BT is deemed to be BT’s in the cost share, i.e. their end-users calling yours behind our numbering. It would be an affront to competition and the tenets of deregulation for us to pay them to deliver their traffic to us, whilst also paying them to deliver our traffic to them, especially considering we do not have the option to not interconnect with them and remain functional. A sensible person might reason that reducing the cost of their 82% was enough but, alas, it doesn’t seem to be.

Our woes are not a matter of public concern but the strategic trajectory and end-game very much are. We have a regulator who apparently won’t touch a “niche”. We have a former monopoly apparently cherry-picking its peers and shifting volume away from the SS7 infrastructure onto bespoke terms, whilst new participants are avoiding that infrastructure altogether and educating end-users that this is the new way.  That means those in the middle, such as us, who are neither desirable as peers, and who won’t sell out to be customers, remain on the SS7 infrastructure regulated by the SIA.

Whilst we’re far more comfortable there from a reliability perspective and welcome the cover of the SIA, we can’t help but expect at some point in the near future, for the SS7 infrastructure costs to be considered and the SIA terms reviewed. We can imagine the argument already about the exorbitant cost of operating it when none of the large operators are using it anymore. Meanwhile, BT seems to be building a microcosm of itself around IP with a completely independent porting team from that of Openreach, and a replica of the various technical billing sheets for IP and SS7. One could make the argument they were positioning to throw away the old entirely.

So when the majority of the industry is again a customer of BT, and those who enjoy the protections of regulation today face a choice between extortion or extinction, that is surely re-monopolisation isn’t it? It is a shame some of our much larger fellows don’t have the joined-up thinking to see this coming or long-termism to care if they do. In my opinion, with the continued absence of effective regulation in this space, they have signed their own death warrant.

We don’t have Ofcom’s £120m a year budget to do anything about this, but we passionately believe in a fair and transparent marketplace and cannot sit by while this happens. So do please share this and your own informed opinion with your MP.

Meanwhile, we have some innovating to do as I’m damn sure we will be here in another 20 years time, but cannot rely on market power to make it so. How ironic that Ofcom have claimed several times we have Significant Market Power over poor little BT.