Statement on Mercury’s Well Established Operator status in the markets for international retail services and for international services to other operators

Summary

Summary

The Director General has made a Determination which revises Cable and Wireless Communications’ (CWC) status as a Well Established Operator (WEO).

The Determination follows an extensive review of CWC’s position across all international routes in the market for international retail services and the market for international services to other operators. It lifts CWC’s WEO status in both markets on 157 routes and in the international retail market only on 8 routes. (The Determination contained a duplication in that one route, Guatemala, was included in two places: in the list of routes on which CWC’s WEO status is lifted on both routes and, incorrectly, in the list of routes on which CWC’s WEO status is lifted in the market for international retail services only. CWC has been advised of the error.)

The Determination also lists the 63 countries in respect of which CWC remains Well Established in both markets.

The Determination impacts upon CWC’s obligations in its licence to publish prices and its licence condition prohibiting undue preference and undue discrimination.

1.1 Oftel published a Consultative Document in October 1998 on the Review of Cable and Wireless Communications’ status as a Well Established Operator.

1.2 The Consultative Document considered CWC’s position across all international routes in two discrete markets: the market for international retail services and the market for international services to other operators. Oftel believes it appropriate to ensure that changes in these markets arising through increased competition and growing liberalisation are reflected in the regulatory regime. In recognition of such changes, it was proposed in the Consultative Document that CWC should be freed of their WEO obligations in both markets on 157 routes and in the market for international retail services alone on 9 routes. (This last figure should have been 8; a duplication occurred in that the name of one country, Guatemala, was included in two separate places in the Document.)

1.3 The Consultative Document set out the stages involved in making a WEO determination and the factors taken into consideration.

1.4 There was a limited response to the consultation exercise with only 3 initial responses; these were from CWC, BT and Net.Net. Only 2 further responses were received in the period for comments on comments; these were from CWC and Racal. Out of all of these, only BT and CWC made any substantive points and both were generally supportive of Oftel’s proposals. The responses are summarised in Chapter 2.

1.5 The Director General took into consideration all the responses received before making the Determination.

2.1 CWC welcomed the Consultative Document. Its view was that since the initial liberalisation of international services, competition has rapidly developed, the result being significantly reduced prices for both retail and wholesale services and wider choice for both consumers and international operators.

2.2 CWC referred to the numerous delivery options now available, such as ISVR, and to the "plethora of routing options" and expressed the view that CWC is not able to act independently in the market for international services to other operators.

2.3 CWC also asked that the remaining WEO restrictions on it be lifted "as soon as justified by further market developments."

2.5 BT welcomed the proposal to remove CWC’s WEO status on international routes where it no longer has market power.

2.6 BT suggested, however, that the status of all operators on "the most important international routes" should be reviewed at regular intervals; it may therefore be appropriate for Oftel to collect separate information for retail business, retail residential and wholesale services.

2.7 Whilst BT agreed that market power needs to be measured carefully, its view was that the definition of a WEO lacks certainty and objectivity in that the relevant markets are broadly defined and there is no obligation to apply the market share threshold. BT also requested clarification of the relationship between the concepts of WEO and dominance.

2.8 With specific reference to international retail services, BT felt that on many IDD routes from the UK no operator currently has market power; BT signalled its intention to submit its own case for regulatory reform in this respect in the near future.

2.9 BT’s response supported Oftel’s proposals re international services to other operators. However, BT’s view was that the powers provided by the Competition Act and in the interim by the Fair Trading Condition should be sufficient to address any concern that CWC could leverage market power from a market for international services to other operators where it is a WEO into the corresponding retail market.

2.11 Net.Net, a company that does not provide any telecommunications services at present but is interested in telex, asked whether the proposed determination would apply to telex services.

2.13 CWC wrote again on 3 December to comment on the comments received. It made no specific comment on the BT response and, with reference to the query from Net.Net, responded that telex services do not fall within either of the markets under consideration.

2.14 Racal also responded in the period for comments on comments to confirm its agreement with the proposed determination, provided that CWC’s lack of market power on certain routes has been correctly determined.

2.15 Oftel confirms that the determination has been made following an analysis of all the available information.

2.16 Having considered the above responses together with the analysis applied by Oftel, the Director General proceeded to make the Determination in the terms set out in the Consultative Document.

3.1 The Director General has determined that CWC is Well Established in both markets on 63 routes; these are listed in Annex I to the Determination.

3.2 CWC continues to be Well Established in the international market for services to other operators but not in the market for international retail services on a total of 8 routes: Greece, Portugal, the Bahamas, Bermuda, Malta, Syrian Arab Republic, Taiwan and Yugoslavia (Serbia). These are listed in Annex II to the Determination (Guatemala was erroneously included in Annex II: as a non-direct route, it should only have appeared in Annex III – see below).

3.3 The Director General has determined that, on 157 routes, CWC is not Well Established in either the market for international retail services or the market for international services to other operators. These routes are listed in Annex III to the Determination.

3.4 For CWC, a WEO determination triggers licence obligations to publish prices (subject to any relevant consents) and a licence condition prohibiting undue preference and undue discrimination in relation to the specified markets.

3.5 The Director General has consented to non-publication of retail prices in respect of all the countries where CWC is not Well Established in the market for international retail services, ie the 157 countries where CWC is Well Established in neither market and the 8 countries where it is Well Established in the market for international services to other operators only.

3.6 On those 8 routes where CWC is Well Established in the market for international services to other operators but not in the international retail services market, the consent to non-publication of ‘wholesale’ prices, ie those prices which could have been provided under Condition 12 of its licence, is lifted.

3.7 On those routes where CWC is Well Established in both markets, there is a consent to non-publication of ‘wholesale’ prices, ie those prices described in 3.6 above.

CWC – Cable and Wireless Communications. Whilst Mercury Communications Ltd (MCL) acts as the operator of the licence, MCL is now a wholly-owned subsidiary of CWC and therefore the explanatory document refers to CWC rather than to MCL.

ISVR – International Simple Voice Resale – an international service provided by an operator to customers using the international facilities owned by other operators. In the case of an outgoing call, the operator collects traffic from the public telecommunications network, transfers it to a line leased from a facilities operator, and then hands it over to a public telecommunications operator in an overseas country who will deliver the call to its destination. It therefore involves breakout onto the public telecommunications network at both ends, but with the international leg of the call being carried on leased circuits. ISVR traffic bypasses the traffic accounting rate system.

Retail IDD – Retail International Direct Dialled Calls – calls made by end-users dialling direct to subscribers on other countries.

WEO – Well Established Operator – an operator with market power (the ability to raise prices above the competitive level for a non-transitory period without losing sales to such a degree as to make this unprofitable).

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