Guernsey Office of Utility Regulation - Annual Report 2004

Office of Utility Regulation, Bailiwick of Guernsey

Annual Report and Accounts 2004

Year Ending 31st December 2004

S U I T E S  B 1  &  B 2 ,  H I R Z E L  C O U R T ,  S T  P E T E R  P O R T ,  G U E R N S E Y ,  G Y 1  2 N H T E L :  + 4 4  1 4 8 1  7 1 1 1 2 0   F A X :  + 4 4  1 4 8 1  7 1 1 1 4 0  W E B :  W W W . R E G U T I L . G G

Annual Report: 2004

Deputy Stuart Falla

Minister for Commerce and Employment Raymond Falla House

Longue Rue

St Martins

Guernsey

GY4 6AF

10th August, 2005 Dear Deputy Falla ,

I am pleased to submit this report on the activities of the Office of Utility Regulation for the period 1st January 2004 to 31st December 2004.

In accordance with section 8 of the Regulation  of Utilities (Bailiwick of Guernsey) Law, 2001, I would be grateful if you would present this report to the States of Guernsey as soon as practicable.

Yours sincerely,

John Curran

Director General of Utility Regulation

Suites B1 & B2, Hirzel Court, St Peter Port, Guernsey GY1 2NH Tel: +44 1481 711120 Fax: +44 1481 711140 Web: www.regutil.gg

Annual Report: 2004

Contents

Director General's Report  5

The Year in Brief   9

The Guernsey Regulatory Environment   11 The Office of Utility Regulation  13 Telecommunications: Overview   19 Telecommunications: Activity Report   21 Post: Overview  25

Post: Activity Report   26

Electricity: Activity Report 31

Alderney and Sark   33

Consumer Issues  35

Financial Report and Accounts  37

Annex A: States Directions  47

Annex B: Documents Published by OUR in 2004 53

Annual Report: 2004

"One major challenge that we all face in small jurisdictions is to ensure that our econo-

mies have in place the key essential infra- structure that is essential to underpin success-

ful economic activity. At the same time we need to make sure that the needs of our peo-

ple for high quality, value for money, innova- tive services are met now and into the future."

Speech given by Laurie Morgan, Guernsey's Chief Minister at OUR conference

Director General's Report

The provision of first rate, high quality,  competitively  priced  utility  services  is  very important in a small economy such  as the Bailiwick's. The OUR recognises

provided to meet customers' needs has that electricity, telecommunications and

increased with the liberalisation of the postal  services  underpin  much  of  the

telecoms market. It is satisfying that in economic  and  social  life  of  the

2004 Guernsey became the first Channel Bailiwick and ensures Guernsey can be

Island with an operating 3G service and competitive  on  the  international  stage.

a choice of mobile operators. Line rental The  OUR's  core  focus  in  2004

charges,  while  increasing  as  C&W continued  to  be  ensuring  that  these

Guernsey  rebalances  its  prices,  still services  are  provided  at  a  quality

remain  competitive  in  comparison  to customers demand and at a price that is

other  jurisdictions  whilst  competition value for money for the customer. The

has  driven  down  international  call sustainability  of  the  utility  services  is

charges.

also crucial.

The quality of the electricity network is Each  sector  has  an  increasingly

also worthy of note. Ensuring continuity important  role  to play  in  ensuring  the

in the supply of electricity is crucially economic  prosperity  of  the  Bailiwick.

important  in  maintaining  existing The Bailiwick competes on the global

business  and  attracting  further  inward stage for inward investment, the finance

investment.  Guernsey  Electricity  has industry being a case in point. Guernsey

been  successful  in  contributing  to  the needs to be able to demonstrate to the

promotion  of  Guernsey's  image  as  a business community at large that it can

secure and reliable place to do business. provide an environment where reliable,

competitively priced utility services are  Guernsey  Post  has  made  significant available  that  meet  or  better  those  on  improvements in its quality of service. offer  from  our  competitors.   The  While  much  work  still  remains  to  be regulatory regime has a vital role to play  done,  Guernsey  Post  is  positioned  to in ensuring that the utility companies  assist in increasing the diversity of the contribute  towards  the  Bailiwick's  Bailiwick's  economy  and  to  further economic growth.  support the existing bulk mail industry.

Ensuring that its services are provided The record of the utility companies in

efficiently and cost-effectively remains a meeting this goal is commendable. The

key area of focus.

range  of  telecoms  services  being

However, while much has been achieved much more needs to be done. Guernsey's competitors for inward investment are not standing still and we need to make sure that we are positioned to respond.

We also should not lose sight of the needs of local, home-grown businesses and ordinary residential consumers. The utility providers need to respond to, and help support these customers also. Telecoms services need to be provided at more competitive prices and the range of services on offer needs to increase even further. Postal services need to be competitively priced and quality must be kept consistently high. Reliable electricity supplies at prices that are competitive must be the main focus of Guernsey Electricity. The cost to consumers of all these utility services needs to be controlled so that consumers benefit.

At the time of writing, the review of commercialisation and regulation initiated by the Departments of Commerce & Employment and Treasury &  Resources in 2004 is ongoing. However, even without this review, as with any organisation, the OUR undertakes a continuous assessment of how its activities are carried out, to ensure that our objectives are met efficiently and effectively and that regulation is targeted to achieve the aims set for it by the States.

Linked to this is the need to control costs. The OUR is very conscious that

we are funded by licence fees on the three industries and that keeping our costs to a minimum is important. It was therefore disappointing that in 2004 licence fees to all sectors had to increase to cover the costs that arose directly from C&W Guernsey's appeal which has heard by the Utility Appeal Tribunal in 2003. The scale of the costs associated with that appeal which have amounted to over 20% of the OUR's total costs in 2003 and 2004 has been commented upon previously by the OUR. Our concerns with the appeal process were raised early in 2004 with the Department of Commerce & Employment. I am encouraged by the response to those concerns and hope that this issue will be resolved shortly.

Outside of the appeal costs, we continue to ensure that all projects that involve external advice are awarded following competitive tender and professionally managed to ensure they come in within budget. I believe that, benchmarked against other sector specific regulators in the UK, the OUR compares very favourably with those agencies. The OUR is determined to ensure that the cost of regulation is controlled on industry while at the same time representing good value for money for the consumer. It is important that the users of utility services are the primary focus. It is reassuring that past effort on certain areas are now beginning to bear fruit for the consumer.

Looking forward, a key task for 2005 will  be  strengthening  contact  with business and residential consumers of utility  services.  By  improving communications with consumers, the OUR can continue to focus efforts on areas that are of priority to consumers and to gain valuable feedback on the impact  that  specific  regulatory measures are having. It will help the OUR target its work more effectively which should ensure that the impact to utility  companies  remains  only  the minimum  required  to  protect consumers and promote competition.

The accountability of the OUR, given that the Office is supported by licence fees paid by the utility companies, is an area where further effort is being made. While the OUR complies with the requirements currently on it under the  Regulation  Law,  it  is  important that  confidence  in  the  way  that funding  is  managed  is  maintained. The  OUR  intends  to  strengthen  the internal  audit  role  prior  to  the commencement of the 2006 financial year. It is also intended to publish the OUR's  code  for  financial management.

At  the  end  of  2004,  the  former Director General of the OUR, Regina Finn,  announced  that  she  would  be leaving to return to Ireland to take up a  senior  post  in  the  energy  sector there.  Since  2000,  Regina  has  been instrumental in shaping the regulatory landscape  in  Guernsey  and  it  is largely due to her sterling efforts that

so much has been achieved. We wish her well in her new role.

The OUR is and will remain a small core team of experienced staff. Since its  inception  the  Office  has  worked with a maximum of five staff. It is due to the professionalism of the staff that so  much  has  been  achieved  in  a relatively short time.

It  must  be  remembered  that  the regulation of the three sectors is still in its initial phase. The work to-date has  been  concentrated  on  getting  a solid platform in place upon which to build  future  benefits  for  consumers. Much of the work to-date is only now beginning  to  have  an  impact.  As  a consequence, I would anticipate that the  costs  both  of  the  Office  and  of compliance should continue to reduce going forward.

While  much  has  already  been achieved,  I  am  conscious  that  a significant amount of work remains to be done. 2005 in particular will be an important year for this Office with the culmination of price control projects in each of the three sectors. However, we look forward to the challenge and to working with industry, consumers and  the  States  in  ensuring  that  the Bailiwick of Guernsey continues to be competitive.

John Curran

Director General of Utility Regulation

Balancing Interests

• Consumers not a single homogenous entity;

• Within each group there are both different priorities and both short term and long term interests;

• Regulation takes long term view and balances interest of consumers and operators within framework of States' policy; and

• Operators need to ensure that market delivers.

WEA Economic Viewpoints of  Guernsey, 2nd February 2004

The Year in Brief

January 2004  June 2004 September 2004

Regulation in Guernsey: Re- Revised licence fees set for  OUR hosts presentation by vised  Consultation  Proce- telecoms,  postal  and  elec- Ofcom on Broadband Fixed dures; Utility Appeals Tribu- tricity sectors; OUR begins  Wireless Access in Guern- nal delivers its first decision  large  project  to  set  new  sey and invites expressions on an appeal taken by C&W  price  control  for  C&W  of interest in licences; OUR Guernsey.  Guernsey; OUR consults on  consults  on  amending

review  of  market  domi- Guernsey Post's licence to

nance, review of the scope  cover  services  outside  the February 2004 of the price control and re- Reserved Sector; Timetable

lated issues; A seminar on  for  Guernsey  Post  tariff OUR  participates  in  the  Postal  Misdeliveries  with  proposals review published

WEA Seminar Programme.  presentations  from  Guern- for consultation.

sey Post, Postwatch UK and

the OUR.

March 2004

OUR publishes decision on  October 2004 Guernsey  Post's  Proposed  Information note on devel-

Tariff Increases - sets maxi- opments in ENUM – a new mum prices for postal ser- means of accessing multiple vices;  Vulnerable  Users  customer  services  through Workshop with Social Pol- July 2004 telephone  numbers;  Guern- icy Working Group; C&W  sey  Post  licence  amended

Guernsey launch Telephone  Launch  of  Wave  Telecom  following  consultation; Assistance Scheme for vul- mobile  service  –  competi- Timetable  for  Guernsey nerable users.  tion introduced to whole of  Post tariff application final-

telecoms  market;  The  con- ised.

clusion  of  the  OUR's  re-

view  of  C&W  Guernsey's

April 2004 Regulatory  Accounts  pub- November 2004 OUR  consults  on  C&W  lished; OUR publishes find-

Guernsey's proposed Refer- ings  of  investigation  into  OUR hosts international ence Offer for Interconnec- C&W Guernsey charges for  conference for Regulators tion  and  Access;  New  li- Exchange  Line  Rentals  from other small island juris- censing  scheme  for  ISPs  which  results  in  a  signifi- dictions; OUR begins first introduced - lessens regula- cant  number  of  consumers  ever audit of emissions from tory  requirement  on  ISPs;  receiving refunds.  radio masts licensed by the

OUR; Appeal to the Utility Consultation  on  introduc-

Appeals Tribunal launched tion of Carrier Pre-Selection

by Guernsey Post into modi- (CPS) and Number Portabil-

fication of its licence.

ity (NP) undertaken.

August 2004

May 2004 Revised  guidelines  pub-

Wave Telecom fails to  lished for C&W Guernsey's  December 2004 launch mobile service as  regulatory  accounts;  OUR  Regulatory  Accounting

required under licence and  publishes advice to Internet  Guidelines for C&W Guern- OUR sets new deadline;  Users  on  Rogue  Diallers  sey updated: Wave Telecom Number of disputes relating  and Modem Hi-Jacking. launches mobile services in

to mobile issues investi- Alderney and Sark.

gated and resolved.

"The Director General shall exercise his functions and powers with fairness, impartiality and independence and in a manner that is timely, transparent, objective and consistent with the States' Directions and the provisions of this Law and any relevant sector Law"

- the Regulation of Utilities

(Bailiwick of Guernsey Law) 2001

The Guernsey Regulatory Environment

The States of Guernsey set up the regulatory framework for telecommunications, post and electricity in various Laws and Orders that were made in 2001 and 2002.  The States has also issued a number of Directions to the Director General of Utility Regulation  that  develop  States  policy  in  more  detail. The  OUR  which  was established in 2001, is charged with implementing that policy and regulating in the best interests of the Bailiwick.

Legislation

The principal piece of regulatory legislation is the Regulation of Utilities (Bailiwick of Guernsey) Law, 2001 which establishes the Office of Utility Regulation (OUR), sets out the governing principles of the Office, and allows the States to assign further functions to the Office over time. Three other key laws are:

The Telecommunications (Bailiwick of Guernsey) Law, 2001; The Post Office (Bailiwick of Guernsey) Law, 2001; and

The Electricity (Guernsey) Law, 2001.

Each law sets out in more detail the powers and functions of the Director General in the relevant sector. Secondary legislation has been enacted by the States on a number  of  issues  including  commencement  ordinances  for  each  of  the  laws, exclusion of liability ordinance and the Utility Appeals Tribunal Ordinance which sets up an appeals mechanism for decisions of the OUR.

Where empowered to do so the Director General has also introduced regulations and orders and these, along with directions, decisions and the large body of published documentation on the OUR website, record the implementation of the legislative and policy framework for regulation of utilities in Guernsey.

Texts  of  all  relevant  legislation  are  available  from  the  OUR  website  at www.regutil.gg  

States Directions

The  Regulation  Law  provides  that  the  States  of  Guernsey  may  give  States Directions to the Director General on certain specific issues in each of the sectors.  These include directions on:

The identity of the first licensee in each sector to be granted a licence with a

universal service obligation;

The scope of a  universal  service  or minimum level of service that all

The Guernsey Regulatory Environment

customers in the Bailiwick must receive;

Any special or exclusive rights that should be granted to any licensee in any

of the sectors; and

Any requirements on licensees that might be needed for Guernsey to comply

with any of its international obligations.

The States debated and agreed policy directions in relation to all three sectors in 2001. The full text of the directions that were in place in 2004 is included in Annex A to this report in accordance with section 8 of the Regulation Law.

The OUR was set up in October 2001 to regulate the three sectors of electricity, post and  telecommunications  independently  from  government  and  the  players  in  the market, and in line with States policy and the provisions in the Laws. The Regulatory Laws require the Director General to be independent, fair and impartial in carrying out his functions and to do so in a manner that is timely, transparent and objective and consistent with States policy directions.

OUR Team

OUR is located in its own separate offices in Hirzel Court in St Peter Port and, although small, continues to be independently run and staffed with its own computer network, telephone system and services.

During 2004 the Office had four core staff in addition to the Director General and continued its use of external specialist technical expertise to complement in-house resources and to handle specific projects.

John was appointed by the States of Guernsey as Director General  John Curran of Utility Regulation in February 2005, having previously been

Director of Regulation from 2003. John worked with OUR when it  was initially set up in 2001 and returned in April 2003 after spend- ing eight months as regulatory adviser with the Australian telecoms  incumbent, Telstra.  

John has a strong background in regulation. Before joining OUR  John worked for six years in communications regulation in Ireland,  four in telecommunications and two dealing with broadcasting and  cable TV. He started his career in the Irish Civil Service having  studied Electronic Engineering at Galway Institute of Technology.

Jon  joined  the  OUR  in  October  2001  shortly  after  it  was Jon Buckland  established. Jon has lead responsibility for the regulatory work

programme in the postal sector, developing quality of service standards and setting postal price controls. He also supports OUR's projects in the telecoms and electricity sectors.

Prior  to  joining  OUR,  Jon  was  a  Strategy  and  Economics Manager at the Independent Television Commission (ITC) and previously he worked for a number of consultancies specialising

in  environmental  economics  primarily  in  the  water  sector advising  water  companies,  Ofwat,  Environment  Agency, European Commission, EBRD and the World Bank. Jon has a BSc in Economics and Politics from the University of Bath and

an MBA from the University of Warwick.

Michael joined the OUR in June 2005 as Director of Regulation  Michael Byrne and is working initially on putting in place a price control for the

electricity sector as well as supporting the OUR's work in the

telecoms and postal sectors. Prior to joining the OUR, Michael  was Head of Retail Competition at the Office for Gas and Elec- tricity Markets (OFGEM) in the UK, leading case investigations  and reviews within the domestic and non-domestic energy sec- tors.  

He has previously worked in the area of commercial television  regulation and as a consultant, specialising in the dairy manufac- turing industry. Michael has a BSc Honours degree in Mathe-

matics Statistics and Economics from the University of Natal. He also has a post- graduate diploma in Competition Policy and an MBA from the University of War- wick.

Michael Begg  Michael joined the OUR in May 2005 as Director of Economics and is working on a number of projects across the three sectors,

including work on C&W Guernsey's price control, market definition

issues in the postal sector and issues in the mobile market.

Prior to joining the OUR, Michael was an Economic Advisor in the UK communications regulator OFCOM from its launch in 2003 and had previously worked at the Independent Television Commission, for economic consultants NERA (specialising in transport and tele- coms) and as a lecturer in economics at the University of Edinburgh. Michael has an MA in Economics and Accountancy and is currently

completing a PhD in Economics

Nicola became part of the OUR team in May 2002 and since then

has managed the Office and provided support to all the team assist- Nicola Whittaker ing with projects across all sectors.  

Nicola also manages all communications with the media, and as Customer  Care  Manager,  is  responsible  for  responding  to  and investigating complaints against OUR Licensees.

Before joining the OUR Nicola worked as an Environmental Con- sultant and holds a degree in Environmental Management and Tech- nology.  

It is OUR policy to operate with a small core team of experienced professional staff and utilizes expert consultants as needed on specific projects. This ensures that the Office works efficiently and effectively and keeps its skills and expertise up to date with knowledge transfer from experts in their fields.

During 2004, the following consultants and external specialists  worked with the OUR on a range of specific projects, as well as in providing general support for the OUR work programme:

• Brockley Consulting Ltd provided assistance in the review of Guernsey Post Ltd's application for tariff increases.

• Cellular Design Services  undertook an audit of all licensed telecommunications antennae in the Bailiwick to assess operators' compliance with their licence obligations.

• Design & Implement Ltd  continued to support the OUR work in the electricity sector during the year.

• Europe Economics Ltd provided specialist support on both the review of C&W Guernsey's Regulatory Accounts and on C&W Guernsey's interconnection and access charges.

• Frontier Economics Ltd  assisted the OUR in its work on reviewing C&W Guernsey's price control and on a number of related matters.

• GOS Consulting Ltd  advised on a wide range of telecommunication projects including interconnections, Reference Offer review, regulatory accounts and others.

• Mott MacDonald  were engaged by the Department of Commerce & Employment and OUR to assist in the strategic review of Guernsey's electricity sector.

• OUR's legal advice during 2004 was provided by  Babbe Le Pelley Tostevin, Ogier & Le Masurier and Landwell Solicitors.

OUR Communication

OUR operates in a transparent and open way, and seeks to consult with as wide a range of stakeholders as possible on all key decisions. The OUR website (www.regutil.gg) is heavily used as a means of communicating with the operators within the regulated industries and with interested members of the public on a fair and open basis. All consultation documents are published on the site as well as being made available in hard copy on request, and responses, where not confidential, are also made available. OUR publishes all decisions with reasons and a commentary on

the views received.

The website has continued to be invaluable and an efficient method of conducting public consultations and disseminating information with  25 papers  published in 2004. A full list of all the documents published in 2004 is at Annex B.  

The Director General and OUR staff also held public meetings and presentations during the year on a range of issues as well as speaking to various interest groups among which were a presentation to the WEA as part of its programme of seminars on economic issues. The OUR also was involved, with Postwatch Guernsey  and Guernsey Post in a seminar on postal mis-deliveries.

The OUR continues to maintain strong contacts with the UK regulators such as Ofcom  (who have a major role in matters relating to telephone numbers and frequency spectrum) and Postcomm (given its role in regulating Royal Mail and its work on matters of a common interest to the OUR). The OUR also looks to maintain contact with regulators from jurisdictions of a similar size to the Bailiwick and which may face similar issues. The OUR's conference in November was extremely useful in this regard.

OUR Work Programme

The OUR publishes its indicative work programme on its website and updates this regularly. However the Office also has to be able to react to specific issues that may arise particularly where consumers are impacted unfairly. The work programme is therefore flexible and can be adjusted as necessary.

In particular, an area outside of the control of the OUR but which has the potential to impact significantly on both the resources of the office and its cost are appeals. In 2004 two separate appeals (both relating to the postal sector) were initiated. One was dismissed by the Utility Appeals Tribunal at an early stage. The second - an appeal by Guernsey Post against a modification of its licence – is currently before the Tribunal. Inevitably, with a small core team, the re-assignment of resources to litigation will have an impact upon other key work areas.

Utility Appeals Tribunal

Following the launch of an appeal against a decision of the Director General in July 2002, the Utility Appeals Tribunal (UAT) deliver its decision in January 2004. The resulting costs required the Director General to amend the licence fees that the utility companies are required to pay. Instead of the projected decrease in licence fees, as a direct result of the Tribunal's ruling licence fees to the telecoms sector were

increased in 2004 (OUR 04/08).

The OUR has expressed on a number of occasions, both prior to the final UAT decision and subsequent to it, its concerns with the costs that have arisen from the current  appeals  process.  In  2004,  a  further  charge  has  been  made  to  the  OUR accounts of over £50,000 to cover costs from the C&W Guernsey appeal. This Office is hopeful that the concerns expressed to-date will result in modifications to the appeals process in the near future.

OUR Consultation Process

To further increase the transparency of the consultation process, the OUR amended its  consultation  process in January  2004 to  provide  for the  full  publication  of responses  to  consultations  received  from  respondents.  The  OUR  believes  that increased transparency in the manner in which key decisions are made will help further with confidence in the regulatory process.

OUR Conference

In November, the OUR hosted an International Conference in Guernsey which was attended by Regulators and policy makers from 12 other small island economies. The event provided an excellent opportunity for the OUR to gain from the work that other regulators have done. In was particularly useful that these regulators were from other smaller jurisdictions – many of them with the financial sector as a key feature of their economies – so that topics were considered against a common background.

The event, which was self-funding, took place over three days at the St Pierre Park Hotel. We  were  delighted  to  welcome  delegates  from  near  and  far,  with representative from Mauritius, Bermuda, Jamaica, The Bahamas, Gibraltar, Jersey and Greenland.

Guernsey's Chief Minister and Regina Finn meet Derek Redman of ECTEL, St Lucia.

Source: Guernsey Press

The conference opened with a welcome address from the Chief Minister, Deputy Laurie Morgan. Speakers at the conference included members of the OUR team as well as industry experts and covered a wide range of topics ranging from the principles of good regulation to the more technical aspects of regulation such as price control, regulatory accounts and return on investment.

Many of the issues and challenges facing the regulatory regime in Guernsey are not unique and by bringing together regulators from other small islands this event proved to be an excellent opportunity to share each others' experiences and gain valuable contacts within this very specialised industry.

Telecommunications: Overview

The Guernsey Telecoms Market

2004  was  an  important  year  in  the  telecoms  market  with competition finally reaching the mobile market with the launch

by Wave Telecom in July 2004 of both its 2G and 3G mobile networks on Guernsey. By the end of the year it had rolled-out

its network to Alderney and Sark. It is hoped that with two

strong competitors in the mobile market customers will see the benefits through

lower tariffs, an increased range of services and more innovation.

2004 saw a significant amount of investment by all the main telecoms companies in Guernsey. Newtel Solutions  connected its fibre-optic link between Guernsey and Jersey across the Channel Island Electricity Grid link to Jersey. This was followed later  in the  year  by  Cable  &  Wireless  Guernsey  announcing  that  it had  also increased its capacity off-island. Continuing investment by both mobile operators saw  new  services  being  launched  throughout  the  year,  with  2.5G  and  Wave Telecom's 3G services being available.

A significant amount of the work on the telecoms market in 2004 was dedicated to a number  of  large  projects.  A  detailed  review  of  Cable  &  Wireless  Guernsey's published Regulatory Accounts was carried out and a number of recommendations made to further improve the usefulness. Cable & Wireless Guernsey's first set of Interconnection and Access tariffs based on those accounts had been produced at the end of 2003. However a number of issues were identified with the proposed tariffs and  a  detailed  review  of  the  manner  in  which  they  had  been  calaculated  was undertaken. 2004 also saw the start of a review of the price control on Cable & Wireless Guernsey to replace the existing control which was due to end in March 2005 (but was subsequently extended to September 2005).  

Following on from an earlier consultation in 2003, additional work was carried out on  investigating  in  more  detail  how  Carrier  Pre-Select  (CPS)  and  Number Portability (NP) might be offered in Guernsey. In November 2004, the first detailed Audit of Emissions  from licensed telecoms networks was under taken across the Bailiwick, with the results being published in early 2005. All masts were well within the most stringent international standards.

In March 2004, Cable & Wireless Guernsey introduced new price changes for fixed services and, following discussions with the OUR, announced the creation of a scheme to assist vulnerable users, the  Telephone  Assistance  Scheme, which is targeted at users who are in receipt of assistance from the Department of Social Services.  The  OUR  also  undertook  an  investigation  into  Cable  &  Wireless

Telecommunications: Overview

Guernsey's charges for exchange line reconnections which resulted in a significant number of customers receiving refunds from Cable & Wireless Guernsey.

The year also saw the conclusions to the first appeal against a decision of the OUR. In January 2004 the Utility Appeals Tribunal delivered its decision on an appeal taken  by  Cable  &  Wireless  Guernsey.  While  the  OUR  was  satisfied  with  the outcome of this appeal, it was and remains concerned about the level of costs that was incurred during the course of this appeal and believes that as a consequence confidence in the regulatory process may have been weakened. The OUR raised this matter  a  number  of  times  during  2004  with  the  Department  of  Commerce  & Employment and is hopeful that these concerns will be addressed in the near future.

Telecommunications: Activity Report

Introduction

Competition finally reached all sectors of the telecoms market in 2004 with the successful launch by Wave Telecom of its 2G and 3G networks across the Bailiwick. Further competition in the fixed market continued to increase with carrier select services from Wave Telecom being enhanced. Increased investment by all telecoms companies saw an increase in the range of services being made available to both business and residential customers. Ensuring an environment  which encourages on-going investment is a central pillar of the OUR's approach to regulation.

The OUR's work on the core areas such as the development of the interconnection and access regimes, the development of the regulatory accounts system, the ongoing monitoring  of  Cable  &  Wireless  Guernsey's  compliance  with  its  price  control requirements and facilitating access issues on the mobile telephony sector were key work areas in 2004.

The OUR continues to work closely with Ofcom (the UK communications regulator) on  a  range  of  issues  including  spectrum  and  numbering  issues.  The  OUR  is extremely grateful to Ofcom for its continued assistance and for the professional and supportive manner in which assists the OUR. Without this relationship the OUR's work and role would be a more challenging task.

Fixed Telecoms Market

Having largely put in place the framework for the fixed telecoms market in 2003, the OUR's work in 2004 was focused on further strengthening that framework and on examining  further  measures  to  help  promote  competition  and  to  facilitate innovation by new and existing licensees and the promotion of new technologies.

A consultation was carried out into examining further the interest in the introduction of Carrier PreSelection and Number Portability (OUR 04/05). The consultation outlined a number of possible options for the introduction of these services and sought to establish the interest in and the ability of local operators to offer these services to consumers in the Bailiwick. This work is still ongoing with industry working  groups  currently  examining  the  technical  issues  associated  with  theses services.

The OUR also looked to promote the availability of licences for Broadband Fixed Wireless  Access. The OUR organized a presentation from Ofcom (the licensing authority for spectrum in the Bailiwick) for interested operators in September 2004. A  number  of  licences  were  made  available  to  the  Bailiwick  and  following discussions between the OUR and Ofcom, the fees were set at levels which were aimed at encouraging the take up of that service. A further information note was

published in October 2004 on ENUM (Electronic Numbering) – a new numbering scheme being considered and trialled that can allow an individual to be contacted using only one set of contact details, but using any of several different communications devices (OUR 04/21).

The OUR also concluded its review of the licensing arrangements for ISPs with the publication in April 2004 of its decision (OUR 04/04). The aim of this review was to ensure that the licence obligations on ISPs were proportionate and would be sufficient to ensure that  consumers were protected  while allowing ISPs to concentrate on developing their businesses.

Mobile Telecommunications Licensing

The Office's work on mobile issues was dominated by the launch in 2004 of Wave Telecom's 2G & 3G networks across the Bailiwick. Wave Telecom had been required under the terms of its licence to launch its service by 30th April 2004. It failed to achieve this requirement and was directed to launch its service by 1st July 2004 (OUR 04/07).  In the intervening period a number of formal disputes  were lodged by Wave Telecom relating to what it considered were breaches by Cable & Wireless Guernsey of its licence. These related mainly to issues of site sharing and interconnection and/or access issues. Following the OUR's intervention these issues were resolved and on 1st July 2004 competition finally reached the mobile market in Guernsey. By the end of 2004, Wave Telecom had rolled out its network to Alderney and Sark.

In November 2004, the OUR undertook a full audit of emissions from radio masts in the Bailiwick. The audit, undertaken on the OUR's behalf by Cellular Design Services, reviewed both the processes and procedures that each operator has in place to ensure on-going compliance with the  International Commission for Non- Ionising Radiation Protection's (ICNIRP) standards for the maximum level of emissions from radio antennae. The audit also involved detailed measurements at 48 separate sites through the Bailiwick. The results which were published in February 2005, showed all masts were operating well within the guidelines.

Price Control

Significant preparatory work was undertaken in 2004 on forming a new price control for Cable & Wireless Guernsey to replace the current control which was implemented in 2002. The price control, which had been introduced in 2002, sets price controls on Cable & Wireless Guernsey across four main baskets of products in

Telecommunications: Activity Report  

the fixed telecoms market in which the company has a dominant position. In summer 2004 a range of linked consultations were held on the scope and structure of the new price control (OUR 04/09, 04/10 and 04/11).

Further work on ensuring Cable & Wireless Guernsey is in compliance with its price control obligations continued in 2004. Since the introduction of regulation and the licensing of new operators in competition with Cable & Wireless Guernsey, charges for most services in Guernsey have fallen significantly. The table below shows the decreases in the price paid by consumers for a three minute call to a number of popular destinations. This is reflective both of the price control work that the OUR has undertaken and of the impact that introduction of competition is starting to have for telecoms users in the Bailiwick.

Cost of 3 minute call from Guernsey as of April each year

£1.60 £1.40 £1.20 £1.00 £0.80

£0.60 £0.40 £0.20 £0.00

2001 2003 2005

Jersey UK Portugal Cayman Islands Australia

Separate to the price control the OUR has also monitored on an on-going basis changes in prices applied by the company to certain services. In 2004, following complaints from the public, the OUR carried out an investigation into the charges being applied by Cable & Wireless Guernsey for re-connection of exchange lines in certain circumstances. Following the conclusion of that investigation (OUR 04/13) Cable & Wireless Guernsey refunded a significant number of customers who had been charged incorrectly for reconnections of their telephone line.

Interconnection and Access

Following the submission in November 2003 by Cable & Wireless Guernsey of its proposed charges for services included in its  Reference Offer (RO) for interconnection and access the OUR commenced a detailed review of those charges and the manner in which they had been determined. The OUR initially consulted upon a number of proposed structural changes Cable & Wireless Guernsey had proposed (OUR 04/03).

In tandem with this, and work on the company's Regulatory Accounts, significant effort was put into ensuring that in future the charges to be paid by other licensed operators to Cable & Wireless Guernsey for access to and interconnection with its network were more closely aligned with the costs to Cable & Wireless Guernsey of providing these services.

Regulatory Accounts

Following the publication in late 2003 of the first sets of Cable & Wireless Guernsey's Regulatory Accounts, there was a need to assess the degree to which the accounts were fit for purpose. This task, which commenced in late 2003, resulted in a direction to Cable & Wireless Guernsey (OUR 04/12) requiring the company to take a number of further measures to improve the transparency and manner in which the accounts are prepared.

Regulatory Accounts are a very important element of the regulatory regime and an important tool for regulators. These accounts provide clear signals to other operators of the costs of key services and they assist the OUR in a wider number of areas. They also inform the regulated company more accurately of the actual costs associated with its services and it is therefore imperative that they are accurate and fit for purpose.

Much comment has been made on the degree to which the requirements of the OUR in this area are more than is necessary for a market such as Guernsey. The OUR believes that for consumers in Guernsey to reap the benefits from the promotion of competition, getting this key element right is essential. While the OUR would have preferred that the development of the regulatory accounts could have occurred in a more proportionate manner, this is not an area that is solely within the control of the OUR.

The OUR does acknowledge that there has been a change in emphasis on this issue within Cable & Wireless Guernsey which has resulted in a significant amount of progress. The Director General is appreciative of the efforts now being made by Cable & Wireless Guernsey in this area.

Post: Overview

Guernsey Postal Market

The key development in the Guernsey postal market in 2004

was the conclusion in February 2004 of the OUR's review of

Guernsey Post's application for revised postal charges. This

resulted in increased postal prices for Guernsey's consumers. There were a number of factors which led to the increases but the primary cause has been a change in the commercial relationship between Royal Mail and Guernsey Post.

Historically  Royal  Mail  and  Guernsey  Post  had  delivered  each others  mail  and assumed the same amount of mail flows in each direction and that the costs balanced out. However, following a review by Royal Mail of its commercial relationship with Guernsey Post, it was identified that there was in fact significantly more mail going from  Guernsey  to  the  UK  than  vice  versa.  As  a  consequence,  the  commercial contract between the parties was renegotiated so that each postal operator paid for the other's services. The new commercial arrangements therefore resulted in a significant increase in Guernsey Post's cost base and consequently the company sought to introduced increased tariffs during the year.

This change in the commercial arrangements between Royal Mail and Guernsey Post will continue to increase the commercial pressure on Guernsey Post. It is important that every effort is made by the company to minimise its costs in other areas to offset as much as possible these increases. However, it is a reality that further increases are likely to arise for postal users in the Bailiwick over the coming years.

The knock-on impact of this is that charges for services such as local mail may also increase. This arises because while in the past Guernsey Post chose to provide these services below costs (as Guernsey Post was in a position to fund the shortfall for revenues from other services, such as revenue from mail to the UK) this is no longer the case.

During  2004  Guernsey  Post  proposed  the  closure  of  L'Islet  post  office  and commenced a public consultation on the proposal. The OUR was among a number of respondents to this consultation. The company decided to defer a decision on the proposed closure pending clarification from the States on the scope of the Universal Service Obligation (USO).

Overview

In 2004 the OUR concluded its review of Guernsey Post's tariff application and the first full year of quality of service standards applying to Guernsey Post's services.  Whilst Guernsey Post's tariffs were increased primarily due to the changed commercial arrangements between Royal Mail and the company, postal users in the Bailiwick continue to have a very competitively priced postal service. In addition Guernsey, in contrast to Jersey, has quality of service standards for the delivery of a range of postal services and Guernsey Post's  performance is independently measured and published.

The DG also consulted on and then modified GPL's licence in the autumn in order to allow the OUR to price control GPL's services outside the reserved area under its licence. This subsequent decision has been appealed by GPL and is due to be heard by the Utilities Appeal Tribunal early 2005.

New Postal Tariffs

In March (OUR 04/02) the Director General concluded a review of Guernsey Post's tariff submission following a public consultation initiated in November 2003. The OUR received 31 replies to the consultation with some respondents providing a considerable amount of commercially confidential material to OUR to assist in the review process. There was, understandably, a general dissatisfaction with any increase in prices, while many respondents acknowledged that some increases were unavoidable.

The Director General, while mindful of the need to ensure that services should remain competitively priced, also recognized that the  underlying commercial reality for Guernsey Post has changed from that which existed when it was a States Trading Board. In coming to a carefully balanced decision the OUR's assessment of the company's financial position has had to take account of the step change in the company's cost base due primarily to significant new charges introduced by Royal Mail. This applies to the charges for the delivery of Guernsey mail in the UK and elsewhere.

In addition Guernsey Post faced  increases in local costs  such as labour and transport. Following a detailed review of the proposed tariff changes, the OUR approved tariff changes that the Director General believed was more appropriate and reflective of market needs.

Post: Activity Report

As a result of the decision local stamp price were capped at 26p for items up to 100g and UK stamp prices were capped at 32p for items up to 60g. Guernsey Post were also required to introduce a new bulk mail sea tariff based on a "straight line price" mechanism reflecting the quality of service these customers received by sending their mail by sea. The new prices were capped until 31 March 2006 with Guernsey Post likely to request further changes from 1 April 2006.

Cost of Sending 60g letter to UK

£1.20 £1.00 £0.80 £0.60 £0.40 £0.20 £0.00

sey sey an urg and alta ark nds uern Jer f M mbo Irel M enm erla

G Isle o uxe D eth

L N

As the table above indicates, Guernsey still has very competitive postal charges when compared with other countries and the OUR's focus will be on maintaining that competitive advantage whilst ensuring that the Bailiwick retains a sustainable postal service.

Process and Timetable for 2006 Price Review

In September the OUR published consultation paper (OUR 04/19) explaining the process and timetable the Director General intended to follow in carrying out a  review of Guernsey Post's pricing proposals for 1st April 2006. A key concern in the tariff decision in 2004 was that insufficient time was available for an appropriate level of consultation on the changes being proposed. By setting out the intended process and timetable for the review in advance, OUR hoped to make it easier for interested parties to identify how and when they could participate in the review and provide their responses to the OUR.

The OUR concluded its consultation in October and published a report (OUR 04/23) setting out the timetable for a number of work streams, such as the submission of Guernsey Post's tariff submission, the subsequent public consultation with the Director General's decision by 1st December 2005. Any new tariffs being proposed would come into effect from 1st April 2006.

Quality of Service

Guernsey Post published its first annual quality of service report on its website which covered the period 1 October 2003 to 30 September 2004 in accordance with the Director General's Quality of Service Directions. The report demonstrated that Guernsey Post's quality of service improved over the year and the company exceeded 16 of the 23 targets set by the OUR for 2003/04. In contrast Royal Mail met just four of its 15 annual service standards during 2004/05 (it failed all of its targets in the previous year).

The Director General believes that it is appropriate that the steps taken by Guernsey Post to improve its quality of service since commercialization be recognised. It has managed to put the issues it faced with its quality of service in early 2003 behind it. There is no doubt that the level of service customers are receiving now is vastly improved. This is not to say that there does not remain  scope for further improvement, nor that certain customers, the bulk mail sector in particular, have on- going issues. However, the OUR is hopeful that the lessons learnt from the earlier mistakes are now being acted upon.

In June the Director General held at Seminar on Postal Misdeliveries (OUR 04/14) which included presentations from the OUR, Postwatch UK and Guernsey Post Limited. The principal objective of the seminar was to improve Guernsey Post's Quality of Service and to provide the company with the opportunity to set out the steps it was taking to reduce misdeliveries. The seminar was extremely useful as it provided an opportunity for Postwatch UK to share information on its "Stamp Out Misdeliveries" Campaign in the UK. The Director General must also express his appreciation for the efforts that  Postwatch Guernsey  has made during 2004 to contribute to the development of the regulatory regime.

Licence Modification

The Director General published in September a Statutory Invitation to Comment (OUR 04/18) on a proposed amendment to Guernsey Post's Licence which was intended to bring the company's licence in line with the primary legislation. The modification would allow the Director General to regulate Guernsey Post Ltd's

Post: Activity Report

prices where it was found to be dominant in relation to a relevant market outside the monopoly reserved area. Following consideration of the comments received, the Director General decided to modified Guernsey Post's licence (OUR 04/22).

In November Guernsey Post appealed this decision alleging the Director General acted ultra vires and committed a material irregularity. The case is due to be heard  in 2005 by the Utility Appeals Tribunal. The Director General is defending the position taken by the Office in this case. The Director General is very clear on what powers are available to the Office. Where the correct application of those powers is questioned, he has no choice but to vigorously defend such action.

However the Director General is firmly of the view that litigation of this nature may not best serve the interests of Guernsey consumers. It distracts both the OUR and the company taking any appeal from the important day-to-day issues that rightly should be the focus of our work. It adds costs to both parties, costs which the consumer may ultimately be asked to bear. The Director General is hopeful therefore that this issue may be resolved without further involvement of the Utility Appeals Tribunal.

Annual Report: 2004

"Our increasing dependence on imports for our energy supplies and the all too slow opening up of the European markets to competition will also bring fresh complexity and challenges – for companies, regulators and policy-makers."

Sir John Mogg, Chairman of Ofgem

Electricity: Activity Report

Guernsey Electricity Market

The ongoing increases in world energy prices impacts

upon  Guernsey's  electricity  market.  The  costs,  in

particular  of  electricity  in  France,  due  to  the

increasing levels of imported electricity through the

Channel  Island  Electricity  Grid  (CIEG), (jointly run by Guernsey Electricity and Jersey Electricity) means that we remain exposed to the general market fluctuations in those markets.

In keeping with the trend since the CIEG link became available, Guernsey continues to import substantially more power than it generates. This is reflective of the both the cost of fuel prices for generating on-island and the favourable contract that the GIEG has agreed with its supplier in France for the period up to November 2005. However since that contract was agreed, energy prices worldwide have been increasing and realistically the costs of importing will increase from their current levels from the end of 2005 onwards.

The bulk of the OUR's work in 2004 on the electricity sector was spent assisting the Department of Commerce & Employment and its advisors, Mott MacDonald, on assessing the Island's future generation options and assessing the relative trade- offs between those options. This work commenced in 2003 following Guernsey Electricity's submission of its proposals for tariff increases at that time and the need to consider further States policy on future generation.

Guernsey has a number of generation options available to it, but in general terms it is a choice between further on-island generation (in a number of forms) or further importation (again there are a number of options on how this may work). With each of these options there are trade-offs  to  be  made. These include assessing each option  against  the  key  issues  of  security  of  supply,  environmental  impact  and independence. The report, which has looked at the longer term total costs of each option provides very useful information to enable the States consider how best to meet the Island's future electricity needs.

The report from Motts was submitted to the Commerce & Employment Department in December 2004 and its review and the States assessment of this will allow the OUR to set a new price control on Guernsey Electricity in 2005.

Electricity: Activity Report

The issue of renewable energy, and tidal energy  in particular, made headlines in Guernsey's media on a number of occasions in 2004. There is no doubt that the waters  around  Guernsey  have  potential  for  generating  a  significant  amount  of energy. There are however substantial costs associated with developing the systems necessary to exploit this source of power and currently there are no commercially developed systems in place. Further, all evidence to-date points to the costs of such tidal power is, for the medium term, likely to be significantly higher than that for other sources of power, including other renewable technologies. Guernsey needs to very  carefully  assess  the  degree  to  which  it  is  prepared  to  pay  for  such environmentally  friendly  sources  of  power  and  balance  it  against  the  actual environmental rewards for doing so.

The other core area where work has progressed with Guernsey Electricity is on its quality of service targets. For the year ending 31st March 2004 the company met all but one of the targets set by the OUR. From the 1st April 2004 Guernsey Electricity began reporting its performance against the 12 new Guaranteed Service Standards (for which customers are eligible for compensation) and seven Overall Standard targets following the OUR's review of the company's quality of service.

Comparison of 2003/04 Average Customer Minutes Lost GEL & UK Operators

140 120 100 80 60 40 20 0

est ydro EDL SPN on thern ales eb UU GEL

CN W SSE - H CN East CE - N EDF - SP Distributi EDF - EPNSSE - Sou WPD S. W CE - YEDL SP Manw WPD S. West EDF - LPN

Alderney and Sark

Inclusion and Equity

The  Bailiwick  of  Guernsey  comprises  a  number  of  islands including  Guernsey, Alderney, Sark, Herm, Jethou, Brecqhou and Lihou. Both Alderney and Sark have their own independent parliaments separate from the States of Guernsey.

Alderney and Sark come within the regulatory regime for telecommunications and postal services and the Law explicitly recognises the inclusion of these islands. Both islands operate separate electricity arrangements from those in Guernsey.

The developments in the telecoms and postal sectors during 2004 applied equally to Alderney and Sark. The OUR remains conscious of the fundamental importance of communications services for both Islands. The OUR recognises that the regulatory regime must ensure that the specific needs of both Islands are met.

Telecommunications

In late 2004 both Alderney and Sark benefited from the roll-out of competition in the mobile sector. Wave Telecom, who launched its mobile service in Guernsey in July 2004, extended its network to cover Alderney and Sark by the end of the year. The scheme introduced by C&W Guernsey for vulnerable users is also available in the two islands. The OUR's work on monitoring emissions from radio masts also assessed all licensed masts on both islands, and the results of that audit are available on the OUR's website. Further, because of the OUR's work across the regulatory regime and States policy on universal services, the inhabitants of Alderney and Sark were affected by exactly the same price changes as Guernsey in 2004.

Postal Services

The  key  issue  for  both  Islands,  given  their  need  for  efficient  communications services is the quality and price of those services. The OUR's quality of service targets, which Guernsey Post must meet, include a specific target for intra-Bailiwick mail. This helps ensure that the quality of the postal service throughout the islands is uniform.

Annual Report: 2004

"The approach to any problem must recognise and reflect the interests of all elements of the community, individually and collectively, rather than the narrow interests of a reform proponent. Why should anyone support, or even acquiesce in, a reform measure that involves no apparent benefits and perhaps a few risks? Ideally everyone is a winner. Or, more realistically, there are substantially more winners than losers. And even the losers can be shown to have been treated fairly and equitably."

Graham Samuel, Chairman, ACCC

Consumer Issues

Customer Complaints  

In  2004  the  OUR  continued  in  its  relationship with Trading  Standards  Service  of  the  Department  of  Commerce  &  Employment,  and  their  ongoing involvement in the customer  complaints process with the regulated  utility companies. The OUR is very  appreciative of the assistance which we get from Trading Standards and for their on- going support.

Customers  who  are  unable  to  resolve  a  complaint  they  have  with  their  utility provider directly with the company, can contact Trading Standards Service who will act impartially and attempt to find a fair outcome for all the parties involved.

Customer Advice

Throughout 2004, the OUR continued to respond to customer queries and provide advice and information when requested. In response to a number of queries from the public, sections were introduced to the OUR website (www.regutil.gg)  to assist consumers to deal with the problems with premium rate services and also how to stop unsolicited sales and marketing communications via telephone, fax, mail and email.

Internet Scam

In August, the OUR published an information note warning internet users of a scam that can cause customers who dial up to use the internet to unknowingly run up large phone bills. The document (04/16) provided some tips to help customer recognise whether their computer had been affected by the scam, known as "Rogue Dialling" or "Modem Hi-jacking", and also suggested some preventative measures.