European ISP Interconnection Models & Revenue Paths

1. SWITCHED ACCESS TO INTERNET : INTERCONNECTION MODELS AS APPLIED IN EUROPE

2. ISPDelivery Point POI Subscriber OLO Domain LLO Domain ISP Domain

3. € Outgoing call Utilizing carrier selection code Of OLO POI Outgoing callis transferred To the OLO network OLO LLO subscriber Revenues path € OLO subscriber € L ’OLO pays for the call initiation service LLO € L ’OLO pays interconnection links

4. € call termination Service offered by LLO to the OLO subscriber Incoming call to the local loop of the LLO (calls under OLO responsibility ) POI OLO LLO Called subscriber Revenues path OLO pays for the call termination service LLO € € OLO pays for the interconnection links

5. Call initiated through the local loop of the LLO Calltermination service offered by the OLO to the LLO POI ISP delivery point LLO OLO ISP subscriber ISP may get a share of the revenue of the call from the OLO Revenues Path OLO € € subscriber LLO responsibility relating to the interconnection links Call €

6. € Outgoing call using a NGN belonging to the OLO Call initiation service offered par the LLO to the OLO ISP delivery point OLO LLO ISP subscriber POI Revenues path The ISP may get a share Of the call revenue of The OLO € € OLO Subscriber Call OLO pays for the initiation service LLO € OLO may pay additional charges specific to the Internet au traffic (IN etc..) € The OLO pays for the interconnection links

7. € user billed by the LLO On behalf of the OLO The ISP may get a share Of the call revenue of The OLO The revenue € € subscriber OLO € is taken By the OLO The OLO pays for the initiation service € OLO may pay additional charges specific to the Internet au traffic (IN etc..) LLO € The OLO pays for the additional charges relating to the billing service € The OLO pays for the interconnection links

8. THE BRITISH CASE

9. BT’s Network R DLE DLE R DLE DLE R DLE DLE Tandem Tandem DLE DLE Tandem Tandem DLE ISP DLE DLE DLE DLE OLO

10. Local exchange Tandem exchange OLO’s exchange ISP DLE DMSU DMSU Internet Network Architecture(before December 1999) DMSU

11. December 1999 - Signs of Change • Grooming of Internet traffic from other traffic as close as possible to the consumer at the local exchange (DLE) • SurfTime - unmetered retail product using DLE grooming • BT refused supply of unmetered wholesale product to the DMSU • MCI/WorldCom complained to Oftel

12. Local exchange Tandem exchange OLO’s exchange ISP DLE Tandem Tandem Internet Network Architecture(after December 1999) Internet traffic groomed off at DLE BT’s IP Network ISP

13. ‘Unmetered Retail in a Metered Wholesale World’ • Revenues from subscriptions were fixed • Costs were sensitive to traffic volumes since they included metered wholesale payments to BT • Large uncertainties in forecasting traffic volumes with unmetered retail products • Operators likely to make losses if actual traffic volumes were higher than forecast • Therefore, operators exposed to significant risk

14. BT’s Response to Complaints BT argued that: 1 it faced the same risks as other operators - like other operators, its retail arm was paying for wholesale minutes on a metered basis. 2 its tandem network would overload/collapse if it carried unmetered Internet traffic

15. Oftel’s view onBT’s first argument • BT Wholesale and BT Retail together would not be exposed to the same forecasting risks as other operators when launching unmetered retail products on the basis of metered wholesale • Oftel believed that other operators could not compete effectively with BT’s SurfTime without an appropriate unmetered wholesale product - important for consumer choice

16. Oftel’s view onBT’s second argument • Appointed Technical Experts to examine BT’s claims about its tandem network being overloaded • In advance of this report, not reasonable to require BT to provide unmetered wholesale product through the Tandem switch • But was reasonable to ensure that the wholesale product provided at the Tandem premises since not reasonable to expect competing operators to interconnect at all local exchanges (DLEs)

17. DLE FRIACO (26 May 2000) • The provision of wholesale unmetered call origination from the customer to dedicated ports at the DLE • Fixed charge per 2Mbit/s port • BT agreed to offer interconnection extension circuits (IECs) from Tandem switch premises to DLEs • Technical Experts report commissioned to examine how Tandem capacity issues could be addressed

18. Public Switched Telephone Network (PSTN) Capacity Forecast Erlangs April 2002 Oct 1999 Source: BT

19. Addressing PSTN capacity issues Oftel’s experts confirmed • BT’s Tandem network capacity is not scalable • Current growth plus unmetered would exhaust capacity by mid 2001 Recommended • Move some existing traffic from tandem to DLE interconnection • Look at building a separate tandem overlay for unmetered traffic • Move to IP interconnection for Internet traffic

20. ST FRIACO: (15 February 2001) Stage 1 - to 31 January 2003 • Limit capacity at individual switches (40x2Mbit/s) • Where insufficient capacity, operators may have to re-arrange non-FRIACO traffic to DLEs Stage 2 - from 1 February 2003 (subject to review) • BT to provide unlimited access • All operators to share costs of any “stranded assets” • No further re-arrangement “Stage 3” - quickly! (need not follow Stage 2) • IP Interconnection • May avoid need for expansion of capacity

21. Stage 1 - to 31 January 2003 Each operator allowed max. of 40x2Mbit/s per tandem exchange DLE Tandem DLE FRIACO ST FRIACO (qualified) Other Operator (If required) re-arrangement of non ST FRIACO traffic

22. Stage 1 - assisting with practicalities • Oftel published a Guidance document... • …setting out the conduct - including rearrangements - that Oftel would consider reasonable in the provision of ST FRIACO... • …and creating a climate of greater certainty in the ST FRIACO ordering process • Oftel is also considering operators’ suggestions for an “overflow” facility, and/or “64kbit/s granularity”

23. Stage 2 - from 1 February 2003 DLE Tandem DLE FRIACO ST FRIACO (unqualified) Other Operator

24. Stage 2 - assisting with practicalities • Oftel has chaired several meetings of the Stage 2 Working Group • Presentations have been given on • the ordering process • charge calculation methodology • strategic incentives • Operators are now being encouraged to negotiate with BT on the detail

25. IP Interconnection - progress • Oftel has chaired several meetings of the IP Interconnection Industry Group • Discussions centred on technical practicalities of IP Interconnection • BT has now offered a product variant • OLOs have submitted SORs • Target - in time to provide operators with a practical alternative to Stage 2

26. FRIACO in practice • At least five operators have signed up for DLE FRIACO • Several flat rate packages on offer from major ISPs using FRIACO - AOL, Freeserve, BT Internet • A contract for ST FRIACO has been made available by BT since 25 April 2001 • At least one operator has put in an Advance Capacity Order for ST FRIACO… • …although it is early days

27. CONCLUSION

28. evolution towards indirect access models • recent Trend : FRIACO Model • (flat- rate indirect access ) • traditional models Perturbation« billing per minute » • Important IP traffic growth • Significant Separation between IP traffic and • voice traffic upstream from the network • Interconnection considered causing problems • at local switches

29. Players motivations for the indirect access model New entrants Financial Conditions The regulator

30. For the new entrants • Model Financial Conditions presented in the RIO • = transparent negotiations • Independence as far as the relation with the client • Flexibility as far as the use of the interconnection links • important Impact on the turnover of the operators

31. FOR THE REGULATOR • Diversification of the offers to the consumer • Opportunity of a specific regulation of the • Internet problematic • Better visibility as far as the interconnect • Financial Conditions

32. FOR THE incumbent operator • Differentiation between Internet traffic • and voice traffic as far as interconnect costs • Roll out of a national IP backbone = • optimization of IP traffic transport.