INTRODUCTION

1. INTRODUCTION

2. 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

3. 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.

4. 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

5. THE RISK CREDIT LIMIT Months

6. 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

7. 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 £ £ £ £ £ £ £ £ £ £ Σ £ TOTAL “INVOICE” PERIOD 4 FORMULAE ADJUSTABLE CALCULATION ON PRE-SETS P1 P2 P3 P4 EXPECTED INVOICES £#1 £#2 £#3 £#4

8. 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

9. Forecast(s) vs. Credit Limit SECURITY NEEDED Operator B Forecast CREDIT LIMIT Operator A Forecast

10. CREDIT LIMITS Operator B Forecast Security Needed Operator B Forecast Security Needed CREDITLIMIT Operator B Forecast Security Needed Operator A Forecast Operator A Forecast Operator A Forecast MONTHS

11. PROFILE MONITORING Cumulative Daily Usage, PIV vs. Credit Limit Profile Security PIV 5% Tolerance Credit Limit Cum’ve Actual

12. 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

13. PROFILE MONITORING Cumulative Daily Usage, PIV vs. Credit Limit Profile Security PIV 5% Tolerance Credit Limit Cum’ve Actual

14. 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)

15. 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.”

16. Not a Novation • Company A contracts with Company B. Company A changes it’s 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.

17. 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.

18. Novation Example C 100% 100% 100% contract D E A B Merged Asset Transfer Contract Novated (with B’s consent) E

19. 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