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Review of the retail leased lines, symmetric broadband origination and wholesale trunk segments markets

Final Statement and Notification

Summary

A new regulatory regime

S.1 A new regulatory framework for electronic communications networks and services entered into force in the UK on 25 July 2003. The basis for the new framework is five new EU Communications Directives that are designed to create harmonised regulation across Europe. Four of these Directives have been implemented in the UK via the new Communications Act 2003 ("the Act"). The fifth was implemented on 31 October 2003.

S.2 The Act provides for functions, powers and duties to be carried out by Ofcom which include, inter alia, functions, powers and duties flowing from the four EC Communications Directives referred to above. Certain existing functions are also transferred to Ofcom.

S.3 The new Directives require National Regulatory Authorities ("NRAs"), inter alia, to carry out reviews of competition in communications markets to ensure that regulation remains appropriate in the light of changing market conditions. For a limited period, while those reviews are conducted and until the new SMP conditions are imposed, some of the regulatory regime which existed before 25 July 2003 continues in force by virtue of Continuation Notices which have been made by Ofcom's predecessor, the Office of Telecommunications ("Oftel"). These continuation notices can be found on Ofcom's website at http://www.ofcom.org.uk/static/archive/oftel/publications/eu_directives/cont_notices/index.htm.

Previous consultations

S.4 On 11 April 2003, Oftel published a national consultation document entitled "Review of the retail leased lines, symmetric broadband origination and wholesale trunk segments markets". That document invited comments on its proposals for defining markets, on its conclusions about the state of competition in those markets, and on the remedies which might be applied. The period of consultation closed on 20 June 2003.

S.5 On 18 December 2003, having considered responses to the April 2003 consultation document, Oftel published a Notification under section 48(2) of the Act setting out its draft decisions in relation to those markets. As required by Article 7 of Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services ("the Framework Directive") (as implemented by sections 50 and 81 of the Act), the draft decisions were also sent to the European Commission and to other NRAs as, in Oftel's opinion, the proposals may affect trade between member states. The Commission and stakeholders were given until 6 February 2004 to make representations on the draft decisions.

The present document

S.6 Having considered responses to the notifications, Ofcom is setting out in the present document the conditions that should apply in the relevant markets; the Notification under section 48(1) of the Act recording its decisions is at Annex D. As required by Article 7 of Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services ("the Framework Directive") (as implemented by sections 50 and 81 of the Act), the final decisions are also being sent to the European Commission.

Summary of proposals

Identification of markets

S.7 The products and services under consideration in this document fall within the general categories of retail leased lines, wholesale symmetric broadband origination and wholesale trunk segments. Within these categories Ofcom has identified the following economic markets in accordance with competition law principles, for the purpose of ensuring that regulatory obligations are proportionate and objectively justifiable.

S.8 In the UK excluding Kingston upon Hull (except the market for wholesale trunk segments, which includes Kingston upon Hull):

retail low bandwidth traditional interface leased lines (up to and including 8Mbit/s);
wholesale low bandwidth traditional interface symmetric broadband origination (up to and including 8Mbit/s);
wholesale high bandwidth traditional interface symmetric broadband origination (above 8Mbit/s up to and including 155Mbit/s);
wholesale very high bandwidth traditional interface symmetric broadband origination (above 155Mbit/s);
wholesale alternative interface symmetric broadband origination at all bandwidths; and wholesale trunk segments at all bandwidths (including Kingston upon Hull).

S.9 In the Kingston upon Hull area:

retail low bandwidth traditional interface leased lines (up to and including 8Mbit/s);
wholesale low bandwidth traditional interface symmetric broadband origination (up to and including 8Mbit/s);
wholesale high bandwidth traditional interface symmetric broadband origination (above 8Mbit/s up to and including 155Mbit/s); and
wholesale alternative interface symmetric broadband origination at all bandwidths.

S.10 The technical areas considered are:

interconnection services, being In Span Handover ("ISH") and Customer Sited Handover ("CSH");
ISH extension circuits; and
Synchronous Transfer Mode ("STM") - ISH and CSH handover.
These are discussed in more detail in Chapter 6.

S.11 Chapter 2 and Annex A contain detailed definitions of all markets, and the approach taken by Ofcom when identifying these markets, and they explain the differences between the market definitions identified by Ofcom and those included in the European Commission's Recommendation on relevant markets ("Recommendation").

Assessment of market power

S.12 Having analysed the operation of these markets, and taken due account of the Commission's "Guidelines on market analysis and the assessment of SMP" ("SMP Guidelines"), Ofcom has concluded that Significant Market Power ("SMP") is held in the following markets:

S.13 By British Telecommunications plc ("BT") in the following markets in the UK excluding the Hull Area:

retail low bandwidth traditional interface leased lines (up to and including 8Mbit/s);
wholesale low bandwidth traditional interface symmetric broadband origination (up to and including 8Mbit/s);
wholesale high bandwidth traditional interface symmetric broadband origination (above 8Mbit/s up to and including 155Mbit/s);
wholesale alternative interface symmetric broadband origination at all bandwidths; and
wholesale trunk segments at all bandwidths (including Kingston upon Hull).

S.14 By Kingston Communications plc ("Kingston") in the following markets in the Hull Area:

retail low bandwidth traditional interface leased lines (up to and including 8Mbit/s);
wholesale low bandwidth traditional interface symmetric broadband origination (up to and including 8Mbit/s);
wholesale high bandwidth traditional interface symmetric broadband origination (above 8Mbit/s up to and including 155Mbit/s); and
wholesale alternative interface symmetric broadband origination at all bandwidths.

S.15 Full details of Ofcom's decision and reasoning are contained in Chapter 3 and Annex B of this document.

Regulatory remedies

S.16 Given the positions of dominance enjoyed by BT, i.e. its ability to behave to an appreciable extent independently of competitors, customers and ultimately consumers in the markets listed below, Ofcom is imposing the following obligations on BT.

Low bandwidth retail leased lines (retail leased lines of bandwidths up to 8Mbit/s, including the minimum set of leased lines identified by the Commission) - discussed in Chapter 5

S.17 Conditions

obligation to supply on reasonable request the minimum set of retail leased lines and to continue to supply existing 8Mbit/s retail traditional interface leased lines being provided on the date the conditions enter into force;
requirement not to unduly discriminate;
in respect of analogue and 8Mbit/s retail traditional interface leased lines, cost orientation and a cost accounting system to take effect only if BT breaches its voluntary undertaking not to raise the combined prices of a basket of these services by more than RPI before June 2006 or the implementation of the next market review, whichever is the earlier;
for all leased lines in this market, a requirement to publish a reference offer (obligation to publish current prices, terms and conditions; and same day price notification); and
requirement to publish information concerning delivery and repair times.

S.18 Ofcom will not apply any regulation to the retail high (above 8Mbit/s up to and including 155Mbit/s) bandwidth or very high (above 155Mbit/s) bandwidth traditional interface markets or the retail alternative interface market (where new products are only available at 10Mbit/s or above).

Low and high bandwidth traditional interface wholesale symmetric broadband origination services (up to and including 8Mbit/s, and above 8Mbit/s up to and including 155Mbit/s, respectively) - discussed in Chapter 6 and

Wholesale trunk segments (note that this market extends to the whole of the UK including Kingston upon Hull, for the reasons set out in Chapter 2) - discussed in Chapter 8 and

The technical areas identified above - discussed in Chapters 6 and 8

S.19 Conditions

a general obligation to provide access on reasonable request;
requirement not to unduly discriminate;
basis of charges obligations (cost orientation and a cost accounting system);
price control (not for trunk market);
accounting separation obligations;
requirement to publish a reference offer;
an obligation to give 90 days' notice of changes to prices, terms and conditions for existing traditional interface symmetric broadband origination services;
an obligation to give 28 days' notice of the introduction of prices, terms and conditions for new traditional interface symmetric broadband origination services;
same day notification of changes to prices, terms and conditions for wholesale trunk segment products;
requirement to provide quality of service information;
requirement to notify technical information with 90 days' notice; and
obligations relating to requests for new network access.

S.20 Directions

a Direction under the general access condition to provide Partial Private Circuits (PPCs) at a range of bandwidths, Radio Base Station (RBS) backhaul link products, and Local Loop Unbundling (LLU) backhaul products, subject to specific terms and conditions;
a Direction under the cost orientation condition covering pricing matters relating to PPCs and LLU backhaul; and
a Direction under the quality of service condition to require specific information in respect of PPCs.

S.21 Ofcom is not imposing any regulation for the very high bandwidth traditional interface symmetric broadband origination market as it is of the view that BT does not have SMP in this market.

Wholesale alternative interface symmetric broadband origination services - discussed in Chapter 7

S.22 Conditions

a general obligation to provide access on reasonable request;
requirement not to unduly discriminate;
basis of charges obligations (cost orientation and a cost accounting system);
accounting separation obligations;
requirement to publish a reference offer;
an obligation to give 90 days' notice of changes to prices, terms and conditions for existing alternative interface symmetric broadband origination services;
an obligation to give 28 days' notice of the introduction of prices, terms and conditions for new alternative interface symmetric broadband origination services;
requirement to provide quality of service information;
requirement to notify technical information with 90 days' notice; and
obligations relating to requests for new network access.

S.23 Directions

a Direction under the general access condition to provide Ethernet-based LLU backhaul products, subject to specific terms and conditions; and
a Direction under the cost orientation condition covering pricing matters relating to Ethernet-based LLU backhaul.

S.24 These conclusions remain the same as those proposed in the 18 December notification document. Minor amendments have been made to some of the specific terms within the Conditions and Directions, and these are explained in the relevant chapters below.

S.25 Given the positions of dominance enjoyed by Kingston, i.e. its ability to behave to an appreciable extent independently of competitors, customers and ultimately consumers, Ofcom is imposing the following obligations.

Low bandwidth retail leased lines (retail leased lines of bandwidths up to 2Mbit/s, including the minimum set identified by the Commission - there are no 8Mbit/s retail leased lines in the Hull area) - discussed in Chapter 9

S.26 Conditions

obligation to supply on reasonable request the minimum set of retail leased lines;
requirement not to unduly discriminate;
basis of charges obligations (cost orientation and cost accounting); and
requirement to publish a reference offer (obligation to publish current prices, terms and conditions); and
requirement to publish information concerning delivery and repair times.

S.27 Ofcom is not imposing any regulation to the retail high (above 8Mbit/s up to and including 155Mbit/s) bandwidth or very high (above 155Mbit/s) bandwidth traditional interface markets or the retail alternative interface market.

Low and high bandwidth wholesale traditional interface symmetric broadband origination services (up to and including 8Mbit/s, and above 8Mbit/s up to and including 155Mbit/s, respectively) - discussed in Chapter 9

S.28 Conditions

a general obligation to provide access on reasonable request;
requirement not to unduly discriminate;
basis of charges obligations (cost orientation);
requirement to publish a reference offer; and
requirement to notify technical information.

Wholesale alternative interface symmetric broadband origination services - discussed in Chapter 9

S.29 Conditions

a general obligation to provide access on reasonable request;
requirement not to unduly discriminate;
basis of charges obligations (cost orientation);
requirement to publish a reference offer; and
requirement to notify technical information.

S.30 These conclusions remain the same as those proposed in the 18 December notification document. Minor amendments have been made to some of the specific terms within the Conditions and Directions, and these are explained in the relevant chapters below.

S.31 Ofcom considers that, taken as a whole, the conclusions in this notification represent a proportionate response to the market analysis carried out. The regulation follows from the finding that BT and Kingston have dominance in these markets. The retail regulatory measures will protect consumers in the absence of effective competition. The wholesale regulatory measures will promote competition in the retail markets, by allowing competitors to purchase the necessary inputs. This will bring benefits to consumers in terms of lower prices and greater choice in the retail markets which depend on those inputs.

S.32 In the Hull Area, Kingston has a similar position of dominance to BT in the markets considered. Ofcom has therefore concluded that it be subject to a similar regulatory regime, but that this should reflect matters of proportionality, recognising the smaller size of the potential market.

S.33 Full details of these new remedies, including their effect and the reasons for setting these conditions, are contained in the chapters outlined above.

S.34 Given the imposition of these new remedies, Ofcom considers that it is now appropriate to discontinue the regulation contained in continuation notices referred to at paragraph S.3 above. Copies of the discontinuation effecting this can be found in Annex F below.

The text of the full document is available in PDF format via the link on this page.

Final Statement and Notification
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