3.2. Leased lines

Cost-oriented tariffs for leased lines is essential because of their technical and commercial characteristics; however, the difficulty in understanding their costs precisely is a major obstacle to the approval of tariffs for leased lines in 1995. This is why an independent firm carried out an audit of the cost of the lines leased by France Télécom.

In addition to a simple understanding of the structure of costs, it became apparent that the regulator needed to develop regulatory measures specifically for leased lines in order to offer users a clear picture of tariffs in the medium term. This was one of the questions posed to the relevant economic players during the public consultation on the pricing and supply of leased lines (Note: this advisory document can be ordered by fax on: (33-1) 43 19 65 34).

3.2.1. The audit

There were two reasons why the DGPT, with the agreement of France Télécom, requested an audit of the cost of leased lines:

• the texts applying the ONP to leased lines set out two basic rules: the principle of bringing tariffs into line with costs, and the need for telecommunications organisations to use an appropriate, transparent cost accounting system.
• the negotiations held in the autumn of 1993 between the regulator and France Télécom for the approval of tariffs for 1994 proved to be difficult, particularly because of the lack of relatively reliable, accepted data on the cost of the different categories of leased lines as well as on the tariffs charged by the big operators.

In this context, the audit took up three tasks:

• to audit the cost price of leased lines for the years 1991 and 1992, the only ones completed at the date the audit was made, in regard to both the methods used by the cost accounting and the value of data, and to propose recommendations for improving the system for short and medium-term calculations;
• to assess whether this system complied with the ONP rules;
• to make international tariff comparisons for the main services of the big European and American operators.

The audit was carried out by the KPMG firm between January and July 1994. Its basic results show that the system used by France Télécom to allocate costs in the field of leased lines is well designed overall and complies with the general guidelines of the ONP directive.

Following recommendations by the auditor, improvements and modifications to the system were made during the second half of 1994. Others will be undertaken in the future. These improvements concern the management of fixed assets, the integration of an allocation base for costs in terms of distance, and cost accounting (the development of a catalogue list in particular). The DGPT is responsible for following up these modifications.

For the first time, this operation gave the DGPT a reliable, up-to-date reference base for the cost of leased lines. This base is also sufficiently finely tuned to make it possible to judge the appropriateness of tariffs, as costs are broken down by speed and distance.

These observations were taken into account in the process of approving tariffs for 1995 for leased lines:

The main developments in tariffs for leased lines in 1995

• no increase in tariffs;
• reductions in tariffs ranging from 3% to more than 16%, depending on length, speed, and whether the lines are analogue or digital. Tariffs in 1995 fell in 1994 by 7.5% (in constant FFr) for all leased lines, 3.8% for analogue lines, and 10.2% for digital lines. This reduction translates into an overall decline in annual bills for business of FFr 500 million;
• the simplification of tariffs by:

* the elimination of the 500 km ceiling,

• the consolidation of prices for low and medium-speed analogue and digital lines longer than 300 km;

- an expansion of the policy of discounts for long-term 3- and 5-year contracts and for high-volume contracts;

• an expansion of services offered by making 34 Mbit/s lines available in certain regions.

3.2.2. The public consultation on leased lines

Given the economic significance of leased lines for business, the regulator wanted to follow up on the results of the audit and further develop the information available on this market.

Hence, a public consultation on leased line services and tariffs was initiated in September 1994 by the DGPT in collaboration with the DGCCRF, involving the relevant economic players (major accounts, trade associations and user representatives, service providers and operators, telecommunications and IT manufacturers, cable operators, IT service firms, and consultants).

What were the objectives of this consultation?

• to explain the international comparisons made during the course of the audit,
• to raise questions to the sector about competition, particularly the inclusion in the France Télécom catalogue of the 34 Mbit/s service and the conditions for customised service,
• to consult the economic players on methods of tariff regulation, in light of the upcoming 2nd contractual plan between the Government and France Télécom.

The DGPT received 54 contributions, which expressed three main concerns: the high-speed leased line service from France Télécom, the quality of service offered, and the level of tariffs and tariff regulation. A summary of the contributions received will be published during the first half of 1995 (to order, fax (33-1) 43 19 65 34).

The 2nd planing contract between the government and France Télécom:

a reduction in leased line tariffs of about 40% in 4 years

tariffs and tariff regulation

Specific price controls for leased lines were set up using the following measures:

• changes in tariffs for leased lines, including international leased lines, will be on average at least 10% below the increase in consumer prices (excluding tobacco);
• there will be no increase more than 2% above the rise in consumer prices (excluding tobacco) on analogue (2 and 4 wire) and digital ("Transfix" service) leased lines, including those between France and the Overseas Departments.

quality of service

France Télécom generally is required to publish consumer charters by the end of 1995 which set out its concrete commitments on the level of quality of service and specify corresponding penalties in the case of failure to meet these commitments. This should make it possible to readjust relations in favour of the customer.

More specifically in the field of leased lines, France Télécom must:

• set a maximum deadline for supplying leased lines that are less than or equal to 2 Mbit/s of less than 15 working days;
• reach a maximum typical recovery time for disruptions in service of less than 2 hours and 50 minutes;
• reach a level of availability of digital leased lines of 99.8%.

service offerings

34 Mbit/s leased line service should be offered by the end of the contractual plan: 34 Mbit/s leased lines should be available at the same tariffs for the entire national territory.

3.2.3. Tariffs for international leased lines: an average reduction of 7% in 1994

International leased line tariffs were changed on 1 January 1994.

This tariff readjustment was reflected in an average fall in tariffs for international leased lines (analogue lines and digital lines) of about 7%. The reduction in tariffs was greater for digital lines: an average of 17%.

The changes in tariffs resulted in bringing the initial fee for connecting analogue international lines into line with the fee for national leased lines. As for digital leased lines, the initial connection fee fell by about 66% for inter-continental lines.

In addition, for speeds from 128 kbit/s to 2 Mbit/s, the initial connection fee for permanent leased lines in the case of one, three, and five-year contracts is now free.

As for the periodic fee (subscription), the main reductions in tariffs for digital international leased lines were about:

• 25% for a 64 kbit/s line to the United States,
• 3 to 30% for speeds from 128 kbit/s to 512 kbit/s, 30% of which are to the United States,
• and 20% for a 2 Mbit/s line to the United States.

Chapter VII