Caring, Sharing

1
INTRODUCTION
2
Agenda

• Introduction Keith Mitchinson
• History Keith Mitchinson
• BT Objectives Mohit Jain
• Timetable Mohit Jain
• Plan Storyboard Charles Walker
• Dispute Resolution Keith Mitchinson
• Novations Charles Walker
• Any Other Business -

3
History

• Review Notice
• Industry Discussions
• Offer to industry May 02
• Direction February 03
• Revised offer to industry group May 03
• Industry discussions June-August
• New Directions November 03
• Storyboard revised offer to industry group March
  04

4
Objectives of Credit Vetting

• BT is willing to accept a degree of commercial
  risk
• BT acknowledges competition is here to stay and
  does not seek to stifle it via credit vetting
• Risk mitigation is essential for corporate
  governance and compliance with Turnbull Report
• OFTEL acknowledged the right for BT to be able to
  carry out credit vets.

5
Objectives .2

• Historically Bad Debt on Interconnect has been
  low
• Since 2000 levels of Bad Debt have increased
  this year alone they amount to tens of million
  pounds
• Ultimately bad debt costs the whole industry
• Credit Vetting does NOT change the basic payment
  terms of 30 days

6
THE RISK
CREDIT LIMIT
Months
7
ESTIMATED FINANCIAL COMMITMENT(New Operators)
Will be built into ACO Form New Call Type
Categories Erlangs Converted into minutes Minutes
Priced at Average quarterly outturns Turned into
Estimated Invoice Values for months 1-4 Process
is transparent
8
ACO SCHEMATIC
CALL TYPES (BOTH WAYS)
ERLANGS PER CALL TYPE
X X X X X X X X X X
FORMULA-VISIBLE
ERLANGS CONVERTED INTO GROSS MINUTES
G G G G G G G G G G
GROSS MINUTES CONVERTED INTO NET MINUTES
FORMULAE ADJUSTABLE
N N N N N N N N N N
PRICING TABLE (ACTUALS)
NET MINUTES PRICED

S
TOTAL INVOICE PERIOD 4
FORMULAE ADJUSTABLE
CALCULATION ON PRE-SETS
P1 P2 P3 P4
EXPECTED INVOICES
1 2 3 4
9
ACO SCHEMATIC (Example)
CALL TYPES (BOTH WAYS)
ERLANGS PER CALL TYPE
15 5
E X 24 (hours) X 30 (days)
ERLANGS CONVERTED INTO GROSS MINUTES
10,800 3,600
GROSS MINUTES CONVERTED INTO NET MINUTES
35 25
35 X 10800 3780 25 X 3600 900
2 ppm 15ppm
NET MINUTES PRICED
75.60 135.00
210.60
TOTAL INVOICE PERIOD 4
FORMULAE ADJUSTABLE
CALCULATION ON PRE-SETS
P1 P2 P3 P4
EXPECTED INVOICES
26 55.00 110.00 210.60
10
Forecast(s) vs. Credit Limit
SECURITY NEEDED
Operator B Forecast
CREDIT LIMIT
Operator A Forecast
11
CREDIT LIMITS
Operator B Forecast Security Needed
Operator B Forecast Security Needed
CREDIT LIMIT
Operator B Forecast Security Needed
Operator A Forecast
Operator A Forecast
Operator A Forecast
MONTHS
12
PROFILE MONITORING
Cumulative Daily Usage, PIV vs. Credit Limit
Profile Security
PIV
5 Tolerance
Credit Limit
Cumve Actual
13
Existing Operators Credit Vetting

• 2 Payment Period Notices (or 1 PPN 1
  Security Notice) - Profile Monitoring Starts
• 2 Security Notices Credit Vetting carried out
  Profile Monitoring Starts
• If Adverse, Credit Limit Set and possible
  Security
• If not Adverse, No security required

14
PROFILE MONITORING
Cumulative Daily Usage, PIV vs. Credit Limit
Profile Security
PIV
5 Tolerance
Credit Limit
Cumve Actual
15
Industry discussion Topics

• Disputes Resolution
• Requirement for 3rd Party appeal for Notices?
• Possibility of Mediation/Conciliation for
  Type of Security
• Adjudication proposed by BT (with input
  from some of industry)

16
Novation

• Working Definition
• The transfer of the rights and obligations from
  one party to an Agreement to a third party with
  the consent of the other (second) party to the
  original agreement.

17
Not a Novation

• Company A contracts with Company B. Company A
  changes its name via Companies House to Z.
  This is NOT novation.
• Company C takes over the equity of A, but A
  retains its legal identity. This is NOT
  novation.

18
Novation

• Company A contracts with Company B. Company C
  wants to take over the contract from Company A.
  There is no legal, or shareholding link between A
  and C. This is a novation.
• Company C takes over the equity of A, and
  thereafter subsumes the business of A and places
  A into Liquidation. This contract would have to
  be novated as the contract stays with the
  original legal entity (the contract could be
  terminated due to the insolvency of the original
  party!) This is a novation.
• Company A contracts with Company B. Company A
  is a wholly owned subsidiary of C, who also owns
  D and E. Following a restructuring, D and E are
  merged under the identity of E and takes over the
  business and assets of A. A continues to trade.
  E wants the contract with B. A novation is
  required.

19
Novation Example
C
100
100
100
contract
D
E
A
B
Merged
Asset Transfer
Contract Novated (with Bs consent)
E
20
Timetable

• 4th March Story Board Circulated
• 9th March Industry Presentation
• 23rd March Comments back from Industry
• 26th March Briefing at Standard Contract Forum
• 7th April BT Response with Draft Policy and
  Contract Text
• 16th April Further Meeting with Industry Group
• 23rd April Circulate Final Policy and Contract
  Text
• 3rd May Publish Policy