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Complainant: Ofcom own-intitiative investigation
Investigation against: BT
Case opened: 20 June 2005
Case closed: 15 December 2005
Issue: Whether BT's Partial Private Circuit (PPC) trunk charges are consistent with regulatory obligations
Relevant instrument: SMP Services Condition H3 (Basis of charges) as set out in Schedule 1 of the Notification, pursuant to sections 48 and 79 of the Communications Act 2003, which is in Annex D of the 'Market Review of the retail leased lines, symmetric broadband origination and wholesale trunk segments markets', published on 24 June 2004

Ofcom has decided to close this own initiative investigation into BT’s prices for its wholesale trunk segments because the concerns raised in the investigation transcend two markets and would be better dealt with on a forward looking basis within the next Leased Lines Market Review (LLMR) which encompasses both markets.

During the course of the investigation Ofcom identified a number of concerns relating to the accounting treatment of PPC trunk segments. These concerns primarily relate to the way that core transmission costs are split between PPC wholesale trunk segments (which fall into the Wholesale Trunk Segments Market and are regulated through basis of charges Condition H3), and PPC terminating segments (which fall into the Traditional Interface Symmetric Broadband Origination (TISBO) Markets, and are regulated through the PPC terminating segments charge control for low and high bandwidths). Additionally the derivation of reported revenues for PPC wholesale trunk segments may not be consistent with the methodology used by BT for third party billing.

Any adjustment to PPC wholesale segments costs could lead to an adjustment of costs reported in the low and high bandwidth TISBO markets and may therefore have an impact on the assumptions used in determining the PPC terminating segments charge control.

Ofcom has obtained a clear commitment from BT and agreed a project plan and timetable to prepare the data needed to quantify and correct the accounting problems identified. This analysis may lead to restated costs and revenues for PPC trunk services and a revised methodology for recovery of core transmission costs between trunk and terminating segments on a forward looking basis.

BT’s Outline Project Plan

Objectives

To establish accurate proportions of network components used in PPC Wholesale TISBO and Trunk markets.

To develop methodology to incorporate results in BT’s Regulatory Accounts (ASPIRE).

Outline Timetable

Target Date	Task
December 2005	Design study: Identify key statistical variables Identify sample size Identify methodology Run preliminary sampling exercise (e.g. 10 circuits)
12 Dec – 20 Dec	Working meetings with Ofcom to agree appropriate methodology
End Dec / Early Jan 2006	Recruit contractor(s)
January 2006	Commence full sampling exercise: Select random sample Manual inspection of individual circuit routings Input to database
January 2006	Working meetings with Ofcom to review progress
February 2006	Finish project Report back to Ofcom
March 2006	Incorporate new methodologies into Regulatory reporting

Text published when the case was opened

Own-initiative investigation against BT Wholesale about PPC trunk charges

Complainant: Ofcom own-intitiative investigation
Investigation against: BT
Case opened: 20 June 2005
Issue: Whether BT's Partial Private Circuit (PPC) trunk charges are consistent with regulatory obligations
Relevant instrument: SMP Services Condition H3 (Basis of charges) as set out in Schedule 1 of the Notification, pursuant to sections 48 and 79 of the Communications Act 2003, which is in Annex D of the 'Market Review of the retail leased lines, symmetric broadband origination and wholesale trunk segments markets', published on 24 June 2004

On 24 June 2004, Ofcom published its findings in the review of the retail leased lines, symmetric broadband origination and wholesale trunk segments markets. Ofcom concluded that BT has significant market power ("SMP") in a number of markets including the market for the provision of wholesale trunk segments at all bandwidths within the United Kingdom. Ofcom's Final Statement and Notification is available at: http://www.ofcom.org.uk/consult/condocs/llmr/statement/state_note.pdf

As a result of this SMP finding, Ofcom imposed certain SMP services conditions upon BT. These include a requirement that each and every charge offered, payable or proposed for Network Access in the market for the provision of wholesale trunk segments be reaonably derived from the costs of provision based on a forward looking long run incremental costs (LRIC) approach and allowing an appropriate mark up for the recovery of common costs and an appropriate return on capital employed. This requirement applies to the provision of PPC wholesale trunk segments by BT.

Ofcom has decided to undertake an own-initiative investigation into the prices charged by BT for its PPC wholesale trunk segments at all bandwidths. The investigation will consider whether BT is contravening or has contravened SMP Services Condition H3 (Basis of charges). More specifically:

• whether BT's charges for its PPC wholesale trunk segments are reasonably derived from the costs of provision based on a LRIC approach, allowing an appropriate mark up for the recovery of common costs and an appropriate return on capital employed.

Case Leader: Katherine Dinsdale (020 7783 5358 e-mail: Katherine.Dinsdale@ofcom.org.uk )
Case Reference: CW/00841/05/05

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